<PAGE>
EV MARATHON OREGON
MUNICIPALS FUND
SUPPLEMENT
TO PROSPECTUS DATED
JANUARY 1, 1996
David C. Reilly is the portfolio manager of the Oregon Portfolio. See page
14 of the Prospectus for information concerning Mr. Reilly.
January 1, 1996
M-TFC1/1PS
<PAGE>
EV MARATHON
MUNICIPAL FUNDS
- --------------------------------------------------------------------------------
EV MARATHON ALABAMA MUNICIPALS FUND EV MARATHON MISSOURI MUNICIPALS FUND
EV MARATHON ARKANSAS MUNICIPALS FUND EV MARATHON NORTH CAROLINA MUNICIPALS FUND
EV MARATHON GEORGIA MUNICIPALS FUND EV MARATHON OREGON MUNICIPALS FUND
EV MARATHON KENTUCKY MUNICIPALS FUND EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
EV MARATHON LOUISIANA MUNICIPALS FUND EV MARATHON TENNESSEE MUNICIPALS FUND
EV MARATHON MARYLAND MUNICIPALS FUND EV MARATHON VIRGINIA MUNICIPALS FUND
THE EV MARATHON MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THEIR
RESPECTIVE STATE TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES" IN
THIS PROSPECTUS. EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED
OPEN-END INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE
AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO
OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A
SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
combined Statement of Additional Information dated January 1, 1996 for the
Funds, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses .......................... 2 How to Redeem Fund Shares .......................... 22
The Funds' Financial Highlights ........................ 5 Reports to Shareholders ............................ 23
The Funds' Investment Objectives ....................... 11 The Lifetime Investing Account/Distribution
How the Funds and the Portfolios Invest their Assets ... 12 Options .......................................... 23
Organization of the Funds and the Portfolios ........... 15 The Eaton Vance Exchange Privilege ................. 24
Management of the Funds and the Portfolios ............. 17 Eaton Vance Shareholder Services ................... 25
Distribution Plans ..................................... 19 Distributions and Taxes ............................ 26
Valuing Fund Shares .................................... 20 Performance Information ............................ 27
How to Buy Fund Shares ................................. 21 Appendix -- State Specific Information ............. 27
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED JANUARY 1, 1996
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on Redemption during
the First Seven Years (as a percentage of redemption proceeds exclusive of all
reinvestments and capital appreciation in the account) 5.00%-0%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- --------------------------------------------------------------------------------------------------------------------
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.40% 0.37% 0.41% 0.42%
Rule 12b-1 Distribution (and Service) Fees 0.89 0.89 0.89 0.89
Other Expenses 0.22 0.24 0.19 0.21
---- ---- ---- ----
Total Operating Expenses 1.51% 1.50% 1.49% 1.52%
==== ==== ==== ====
EXAMPLE
- --------------------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment, assuming
(a) 5% annual return and (b) redemption at the end of each period:
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
1 Year $ 65 $ 65 $ 65 $ 65
3 Years 88 87 87 88
5 Years 102 102 101 103
10 Years 180 179 178 181
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 $ 15
3 Years 48 47 47 48
5 Years 82 82 81 83
10 Years 180 179 178 181
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- --------------------------------------------------------------------------------------------------------------------
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
Investment Adviser Fee (after any applicable fee
reduction) 0.12% 0.40% 0.38% 0.44%
Rule 12b-1 Distribution (and Service) Fees 0.87 0.89 0.90 0.90
Other Expenses 0.32 0.21 0.25 0.17
---- ---- ---- ----
Total Operating Expenses 1.31% 1.50% 1.53% 1.51%
==== ==== ==== ====
<PAGE>
EXAMPLE
- --------------------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment, assuming
(a) 5% annual return and (b) redemption at the end of each period:
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
1 Year $ 63 $ 65 $ 66 $ 65
3 Years 82 87 88 88
5 Years 92 102 103 102
10 Years 158 179 182 180
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b)
no redemptions:
1 Year $ 13 $ 15 $ 16 $ 15
3 Years 42 47 48 48
5 Years 72 82 83 82
10 Years 158 179 182 180
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- --------------------------------------------------------------------------------------------------------------------
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
Investment Adviser Fee 0.42% 0.33% 0.31% 0.44%
Rule 12b-1 Distribution (and Service) Fees 0.89 0.88 0.87 0.89
Other Expenses 0.22 0.28 0.29 0.17
---- ---- ---- ----
Total Operating Expenses 1.53% 1.49% 1.47% 1.50%
==== ==== ==== ====
EXAMPLE
- --------------------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment, assuming
(a) 5% annual return and (b) redemption at the end of each period:
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
1 Year $ 66 $ 65 $ 65 $ 65
3 Years 88 87 86 87
5 Years 103 101 100 102
10 Years 182 178 176 179
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b)
no redemptions:
1 Year $ 16 $ 15 $ 15 $ 15
3 Years 48 47 46 47
5 Years 83 81 80 82
10 Years 182 178 176 179
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds and the Portfolios and are designed to help
investors understand the costs and expenses they will bear, directly or indirectly, by investing in a Fund.
Information for each Fund is based on its expenses for the most recent fiscal year. Absent a fee reduction, the
Investment Adviser Fee and Total Operating Expenses for the Louisiana Fund would have been 0.23% and 1.42%,
respectively, of the Louisiana Fund's average daily net assets.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees believe the aggregate per share expenses
of a Fund and its corresponding Portfolio should approximate, and over time may be less than, the per share expenses
the Fund would incur if the Fund were instead to retain the services of an investment adviser and its assets were
invested directly in the type of securities being held by its corresponding Portfolio.
The Examples should not be considered a representation of past or future expenses and actual expenses may be greater
or less than those shown. Federal regulations require the Examples to assume a 5% annual return, but actual return
will vary. For further information regarding the expenses of the Funds and the Portfolios see "The Funds" Financial
Highlights", "Organization of the Funds and the Portfolios", "Management of the Funds and the Portfolios" and "How
to Redeem Fund Shares". A long-term shareholder in a Fund may pay more than the economic equivalent of the maximum
front-end sales charge permitted by a rule of the National Association of Securities Dealers, Inc. See "Distribution
Plans."
No contingent deferred sales charge is imposed on (a) shares purchased more than six years prior to redemption, (b)
shares acquired through the reinvestment of distributions or (c) any appreciation in value of other shares in the
account (see "How to Redeem Fund Shares"), and no such charge is imposed on exchanges of Fund shares for shares of
one or more other funds listed under "The Eaton Vance Exchange Privilege."
Each Portfolio's monthly advisory fee has two components, a fee based on daily net assets and a fee based on daily
gross income, as set forth in the fee schedule on page 17.
Other investment companies with different distribution arrangements and fees are investing in the Portfolios and
others may do so in the future. See "Organization of the Funds and the Portfolios".
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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.
- ---------------------------------------------------------------------------------------------------------------------
ALABAMA FUND ARKANSAS FUND
----------------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------------------------- -----------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
-------------------- ------------------ ------------------ -------------
1995 1994** 1993 1992++ 1995 1994** 1993++
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.210 $11.060 $10.340 $10.000 $10.140 $10.910 $10.000
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.479 $ 0.425 $ 0.475 $ 0.208 $ 0.460 $ 0.431 $ 0.471
Net realized and unrealized
gain (loss) on investments 0.244 (0.769) 0.837 0.385+++ 0.132 (0.703) 1.025
------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.723 $(0.344) $ 1.312 $ 0.593 $ 0.592 $(0.272) $ 1.496
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.479) $(0.425) $(0.475) $(0.208) $(0.460) $(0.431) $(0.471)
In excess of net investment income (0.014) (0.081) (0.117) (0.045) (0.022) (0.067) (0.115)
------- ------- ------- ------- ------- ------- -------
Total distributions $(0.493) $(0.506) $(0.592) $(0.253) $(0.482) $(0.498) $(0.586)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.440 $10.210 $11.060 $10.340 $10.250 $10.140 $10.910
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 7.38% (3.18)% 13.09% 5.71% 6.15% (2.53)% 15.00%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $108,642 $105,553 $84,621 $21,105 $80,823 $82,436 $59,205
Ratio of net expenses to
average daily net assets(2) 1.51% 1.43%+ 1.37% 1.01%+ 1.50% 1.17%+ 0.88%+
Ratio of net investment income
to average daily net assets 4.74% 4.35%+ 4.30% 4.49%+ 4.67% 4.47%+ 4.27%+
PORTFOLIO TURNOVER(3) -- -- 15% 13% -- 5% 13%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses
to the Investment Adviser and/or the Administrator. Had such actions not been taken, net investment income per share
and the ratios would have been:
NET INVESTMENT INCOME PER SHARE $ 0.462 $ 0.185 $ 0.409 $ 0.411
======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.49% 1.50%+ 1.40%+ 1.42%+
Net investment income 4.18% 4.00%+ 4.24%+ 3.73%+
(See footnotes on page 10.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------------------
GEORGIA FUND KENTUCKY FUND
--------------------------------------- ----------------------------------------
YEAR ENDED YEAR ENDED
---------------------------------------- ----------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
------------------- ------------------ ------------------ ------------------
1995 1994** 1993 1992++ 1995 1994** 1993 1992++
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.800 $10.750 $10.120 $10.000 $ 9.850 $10.780 $10.090 10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.450 $ 0.413 $ 0.459 $ 0.380 $ 0.458 $ 0.415 $ 0.462 $ 0.363
Net realized and unrealized
gain (loss) on investments 0.007++ (0.841) 0.776 0.215 0.163 (0.811) 0.820 0.192
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.457 $(0.428) $ 1.235 $ 0.595 $ 0.621 $(0.396) $ 1.282 $ 0.555
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.450) $(0.413) $(0.459) $(0.380) $ (0.458) $(0.415) $(0.462) $(0.363)
In excess of net investment income (0.017) (0.065) (0.129) (0.095) (0.023) (0.075) (0.125) (0.102)
From net realized gain on
investments -- -- (0.017) -- -- -- (0.005) --
In excess of net realized
gain on investments -- (0.044) -- -- -- (0.044) -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.467) $(0.522) $(0.605) $(0.475) $(0.481) $(0.534) $(0.592) $(0.465)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.790 $ 9.800 $10.750 $10.120 $ 9.990 $ 9.850 $10.780 $10.090
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 4.90% (4.08)% 12.60% 5.85% 6.61% (3.78)% 13.05% 5.45%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $120,143 $134,481 $120,043 $42,156 $143,106 $141,994 $20,073 $46,835
Ratio of net expenses to
average daily net assets(2) 1.49% 1.41%+ 1.52% 1.13%+ 1.52% 1.44%+ 1.50% 1.44%+
Ratio of net investment
income to average daily
net assets 4.72% 4.39%+ 4.27% 4.72%+ 4.74% 4.39%+ 4.29% 4.56%+
PORTFOLIO TURNOVER(3) -- -- 20% 33% -- -- 21% 64%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses
to the Investment Adviser and/or Administrator. Had such actions not been taken, net investment income per share and
the ratios would have been:
NET INVESTMENT INCOME PER SHARE $ 0.341 $ 0.357
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.61%+ 1.52%+
Net investment income 4.24%+ 4.48%+
(See footnotes on page 10.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------------------------
LOUISIANA FUND MARYLAND FUND
--------------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED
--------------------------------- ---------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
------------------ ------------- ------------------ -----------------
1995 1994** 1993++ 1995 1994** 1993 1992++
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of $10.010 $11.130 $10.000 $10.070 $11.070 $10.290 $10.000
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.487 $ 0.447 $ 0.478 $ 0.476 $ 0.428 $ 0.466 $ 0.303
Net realized and unrealized
gain (loss) on investments (0.006)+++ (0.937) 1.234 0.169 (0.922) 0.890 0.375+++
------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.481 $(0.490) $ 1.712 $ 0.645 $(0.494) $ 1.356 $ 0.678
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.487) $(0.447) $(0.478) $(0.476) $(0.428) $(0.466) $(0.303)
In excess of net investment income (0.024) (0.074) (0.104) (0.009) (0.070) (0.110) (0.085)
In excess of net realized
gain on investments -- (0.109) -- -- (0.008) -- --
------- ------- ------- ------- ------- ------- -------
Total distributions $(0.511) $(0.630) $(0.582) $(0.485) $(0.506) $(0.576) $(0.388)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.980 $10.010 $11.130 $10.230 $10.070 $11.070 $10.290
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 5.08% (4.56)% 17.26% 6.71% (4.56)% 13.61% 6.65%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $31,836 $29,020 $17,935 $113,826 $116,721 $95,226 $29,180
Ratio of net expenses to
average daily net assets(2) 1.31% 1.08%+ 1.07%+ 1.50% 1.43%+ 1.43%+ 1.30%+
Ratio of net investment
income to average daily
net assets 4.97% 4.62%+ 4.27%+ 4.82% 4.44%+ 4.28%+ 4.25%+
PORTFOLIO TURNOVER(3) -- 14% 86% -- -- 12% 3%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses
to the Investment Adviser and/or the Administrator. Had such actions not been taken, net investment income per share
and the ratios would have been:
NET INVESTMENT INCOME PER SHARE $ 0.476 $ 0.412 $ 0.401 $ 0.461 $ 0.280
======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.42% 1.44%+ 1.76%+ 1.48% 1.62%+
Net investment income 4.86% 4.26%+ 3.58%+ 4.23% 3.93%+
(See footnotes on page 10.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------------------
MISSOURI FUND NORTH CAROLINA FUND
---------------------------------------- ------------------------------------------
YEAR ENDED YEAR ENDED
---------------------------------------- ------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
----------------- ------------------ ----------------- -------------------
1995 1994** 1993 1992++ 1995 1994** 1993 1992++
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year $10.240 $11.250 $10.400 $10.000 $ 9.970 $10.940 $10.300 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income
$ 0.477 $ 0.423 $ 0.470 $ 0.200 $ 0.466 $ 0.423 $ 0.468 $ 0.456
Net realized and unrealized
gain (loss) on investments 0.289 (0.904) 1.005 0.455 0.011+++ (0.895) 0.794 0.423+++
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.766 $(0.481) $ 1.475 $ 0.655 $ 0.477 $(0.472) $ 1.262 $ 0.879
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income
$(0.477) $(0.423) $(0.470) $(0.200) $(0.466) $(0.423) $(0.468) $(0.456)
In excess of net investment
income (0.019) (0.084) (0.128) (0.055) (0.021) (0.075) (0.120) (0.123)
In excess of net realized
gain on investments -- (0.022) (0.027) -- -- -- (0.034) --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.496) (0.529) $(0.625) (0.255) (0.487) (0.498) $(0.622) $(0.579)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.510 $10.240 $11.250 $10.400 $ 9.960 $ 9.970 $10.940 $10.300
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 7.82% (4.33)% 14.66% 6.33% 5.03% (4.40)% 12.69% 8.75%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $89,811 $91,227 $76,653 $25,225 $188,450 $192,667 $173,828 $71,733
Ratio of net expenses to
average daily net assets(2) 1.53% 1.49%+ 1.52% 1.32%+ 1.51% 1.42%+ 1.52% 1.35%+
Ratio of net investment
income to average daily
net assets 4.72% 4.30%+ 4.23% 4.31%+ 4.78% 4.43%+ 4.34% 4.54%+
PORTFOLIO TURNOVER(3) -- -- 14% 21% -- -- 16% 52%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses
to the Investment Adviser and/or Administrator. Had such actions not been taken, net investment income per share and
the ratios would have been:
NET INVESTMENT INCOME PER
SHARE $ 0.467 $ 0.192 $ 0.434
======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.55% 1.49%+ 1.57%+
Net investment income 4.20% 4.14%+ 4.32%+
</TABLE>
(See footnotes on page 10.)
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------
OREGON FUND SOUTH CAROLINA
------------------------------------------ --------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------ --------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
-------------------- ------------------ ------------------ -------------
1995 1994** 1993 1992++ 1995 1994** 1993++
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year $10.090 $11.130 $10.270 $10.000 $ 9.940 $10.890 $10.000
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.455 $ 0.415 $ 0.459 $ 0.351 $ 0.460 $ 0.408 $ 0.461
Net realized and unrealized
gain (loss) on investments 0.241 (0.869) 0.983 0.368 0.071 (0.870) 0.986
------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.696 $(0.454) $ 1.442 $ 0.719 $ 0.531 (0.462) $ 1.447
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.455) $(0.415) $(0.459) $(0.351) $(0.461) $(0.408) $(0.461)
In excess of net investment
income (0.021) (0.078) (0.117) (0.098) (0.011) (0.080) (0.096)
From net realized gain on
investments -- (0.093) (0.006) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total distributions $(0.476) $(0.586) $(0.582) $(0.449) $(0.471) $(0.488) $(0.557)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.310 $10.090 $11.130 $10.270 $10.000 $ 9.940 $10.890
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 7.22% (4.21)% 14.47% 7.10% 5.64% (4.33)% 14.50%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) $145,056 $151,127 $128,229 $41,703 $59,955 $59,878 $43,169
Ratio of net expenses to
average daily net assets(2) 1.53% 1.43%+ 1.55% 1.47%+ 1.49% 1.36%+ 1.07%+
Ratio of net investment
income to average daily
net assets 4.59% 4.28%+ 4.22% 4.27%+ 4.77% 4.27%+ 4.22%+
PORTFOLIO TURNOVER(3) -- -- 23% 44% -- 3% 13%
*For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses
to the Investment Adviser and/or Adminstrator. Has such actions not been taken, net investment income per share and
the ratios would have been:
NET INVESTMENT INCOME PER
SHARE $ 0.338 $ 0.421
======= =======
RATIOS (As a percentage
of average daily net assets):
Expenses(2) 1.63%+ 1.44%+
Net investment income 4.11%+ 3.85%+
(See footnotes on page 10.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
TENNESSEE FUND VIRGINIA FUND
---------------------------------------- ---------------------------------------------------
YEAR ENDED YEAR ENDED
---------------------------------------- ---------------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
----------------- -------------------- ------------------ ------------------------------
1995 1994** 1993 1992++ 1995 1994** 1993 1992 1991++
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.020 $11.070 $10.010 $10.000 $10.120 $11.060 $10.460 $10.200 $10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.468 $ 0.426 $ 0.466 $ 0.040 $ 0.479 $ 0.438 $ 0.483 $ 0.526 $ 0.087
Net realized and unrealized gain
(loss) on investments 0.115 (0.848) 1.158 0.027+++ 0.161 (0.864) 0.762 0.385 0.220+++
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.583 $(0.422) $ 1.624 $ 0.067 $ 0.640 $ (0.426) $ 1.245 $ 0.911 $ 0.307
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.468) $(0.426) $(0.466) $(0.040) $(0.479) $(0.438) $(0.483) $(0.526) $(0.087)
In excess of net investment income (0.025) (0.071) (0.098) (0.017) (0.021) (0.076) (0.130) (0.120) (0.020)
From net realized gain on
investments -- (0.094) -- -- -- -- (0.022) (0.005) --
In excess of net realized gain on
investments -- (0.037) -- -- -- -- (0.010) -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.493) $(0.628) $(0.564) $(0.057) $(0.500) $(0.514) $(0.645) $(0.651) $(0.107)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.110 $10.020 $11.070 $10.010 $10.260 $10.120 $11.060 $10.460 $10.200
======= ======= ======= ======= ======== ======== ======== ======= =======
TOTAL RETURN(1) 6.12% (3.93)% 16.97% 0.01% 6.62% (3.95)% 12.33% 9.16% 2.82%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000
omitted) $57,484 $55,379 $39,648 $43,475 $189,535 $193,420 $175,426 $72,629 $11,081
Ratio of net expenses to average
daily net assets(2) 1.47% 1.37%+ 1.30% 1.00%+ 1.50% 1.44%+ 1.52% 1.36% 1.27%+
Ratio of net investment income to
average daily net assets 4.77% 4.44%+ 4.24% 2.91%+ 4.81% 4.51%+ 4.42% 4.86% 4.47%+
PORTFOLIO TURNOVER(3) -- -- 28% 0% -- -- 27% 85% 10%
* For the periods indicated, the operating expenses of each Fund reflect a reduction of expenses by the Investment Adviser and/or
the Administrator. Had such actions not been taken, net investment income per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.432 $ 0.025 $ 0.501 $ 0.079
======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.61% 2.10%+ 1.59% 1.68%+
Net investment income 3.93% 1.81%+ 4.63% 4.06%+
<FN>
Footnotes:
** For the eleven months ended August 31, 1994.
+ Annualized.
++ For the period from the start of business July 26, 1991 to September 30, 1991 for the Virginia Fund, for the period from the
start of business December 23, 1991, December 23, 1991, February 3, 1992, May 1, 1992, October 23, 1991, December 24, 1991 and
August 25, 1992 to September 30, 1992 for the Georgia, Kentucky, Maryland, Missouri, North Carolina, Oregon, and Tennessee
Funds, respectively, and for the period from the start of business May 1, 1992 to September 30, 1993 for the Alabama Fund and
for the period from the start of business, October 2, 1992 to September 30, 1993 for the Arkansas, Louisiana and South
Carolina Funds, respectively.
+++ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time.
(1) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. 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) Since February 1, 1993, includes the Fund's share of its corresponding Portfolio's allocated expenses.
(3) Portfolio Turnover represents the rate of portfolio activity for the period while a Fund was making investments directly in
securities. The portfolio turnover rate for the period since a Fund transferred substantially all of its investable assets to
a Portfolio is shown in the Portfolio's financial statements which are included in the Funds' annual report.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- ------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) which are
rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment
Adviser. Each Portfolio has the same investment objective as its corresponding
Fund.
EV MARATHON ALABAMA MUNICIPALS FUND (the "Alabama Fund") seeks to provide
current income exempt from regular federal income tax and Alabama State
personal income taxes. The Alabama Fund seeks to meet its objective by
investing its assets in the Alabama Municipals Portfolio (the "Alabama
Portfolio").
EV MARATHON ARKANSAS MUNICIPALS FUND (the "Arkansas Fund") seeks to provide
current income exempt from regular federal income tax and Arkansas State
personal income taxes. The Arkansas Fund seeks to meet its objective by
investing its assets in the Arkansas Municipals Portfolio (the "Arkansas
Portfolio").
EV MARATHON GEORGIA MUNICIPALS FUND (the "Georgia Fund") seeks to provide
current income exempt from regular federal income tax and Georgia State
personal income taxes. The Georgia Fund seeks to meet its objective by
investing its assets in the Georgia Municipals Portfolio (the "Georgia
Portfolio").
EV MARATHON KENTUCKY MUNICIPALS FUND (the "Kentucky Fund") seeks to provide
current income exempt from regular federal income tax and Kentucky state
personal income taxes in the form of an investment exempt from the Kentucky
intangibles tax. The Kentucky Fund seeks to meet its objective by investing
its assets in the Kentucky Municipals Portfolio (the "Kentucky Portfolio").
EV MARATHON LOUISIANA MUNICIPALS FUND (the "Louisiana Fund") seeks to provide
current income exempt from regular federal income tax and Louisiana State
individual and corporate income taxes. The Louisiana Fund seeks to meet its
objective by investing its assets in the Louisiana Municipals Portfolio (the
"Louisiana Portfolio").
EV MARATHON MARYLAND MUNICIPALS FUND (the "Maryland Fund") seeks to provide
current income exempt from regular federal income tax and Maryland State and
local income taxes. The Maryland Fund seeks to meet its objective by investing
its assets in the Maryland Municipals Porfolio (the "Maryland Portfolio").
EV MARATHON MISSOURI MUNICIPALS FUND (the "Missouri Fund") seeks to provide
current income exempt from regular federal income tax and Missouri State
personal income taxes. The Missouri Fund seeks to meet its objective by
investing in the Missouri Municipals Portfolio (the "Missouri Portfolio").
EV MARATHON NORTH CAROLINA MUNICIPALS FUND (the "North Carolina Fund") seeks
to provide current income exempt from regular federal income tax and North
Carolina State personal income taxes. The North Carolina Fund seeks to meet
its objective by investing its assets in the North Carolina Municipals
Portfolio (the "North Carolina Portfolio").
EV MARATHON OREGON MUNICIPALS FUND (the "Oregon Fund") seeks to provide
current income exempt from regular federal income tax and Oregon State
personal income taxes. The Oregon Fund seeks to meet its objective by
investing its assets in the Oregon Municipals Portfolio (the "Oregon
Portfolio").
EV MARATHON SOUTH CAROLINA MUNICIPALS FUND (the "South Carolina Fund") seeks
to provide current income exempt from regular federal income tax and South
Carolina State personal income taxes. The South Carolina Fund seeks to meet
its objective by investing its assets in the South Carolina Municipals
Portfolio (the "South Carolina Portfolio").
EV MARATHON TENNESSEE MUNICIPALS FUND (the "Tennessee Fund") seeks to provide
current income exempt from regular federal income tax and Tennessee State
personal income taxes. The Tennessee Fund seeks to meet its objective by
investing its assets in the Tennessee Municipals Portfolio (the "Tennessee
Portfolio").
EV MARATHON VIRGINIA MUNICIPALS FUND (the "Virginia Fund") seeks to provide
current income exempt from regular federal income tax and Virginia state
personal income taxes. The Virginia Fund seeks to meet its objective by
investing its assets in the Virginia Municipals Portfolio (the "Virginia
Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER
DIRECTLY OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY
PRIMARILY (I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL
MARKET CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT
FROM REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE
WITH ITS INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy
is a fundamental policy of each Fund and its corresponding Portfolio, which
may not be changed unless authorized by a vote of the Fund's shareholders or
that Portfolio's investors, as the case may be.
At least 75% of the net assets of the Alabama Portfolio, Arkansas Portfolio,
Georgia Portfolio, Louisiana Portfolio, Maryland Portfolio, Missouri Portfolio,
North Carolina Portfolio, South Carolina Portfolio, Tennessee Portfolio and
Virginia Portfolio and at least 70% of the net assets of the Kentucky Portfolio
and Oregon Portfolio will normally be invested in obligations rated at least
investment grade at the time of investment (which are those rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by either
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch")) or, if unrated, determined by the Investment Adviser to be of at
least investment grade quality. The balance of each Portfolio's net assets may
be invested in municipal obligations rated below investment grade (but not lower
than B by Moody's, S&P or Fitch) and unrated municipal obligations considered to
be of comparable quality by the Investment Adviser. Municipal obligations rated
Baa or BBB may have speculative characteristics. Also, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than in the case of higher rated
obligations. Securities rated below BBB or Baa are commonly known as "junk
bonds". A Portfolio may retain an obligation whose rating drops below B after
its acquisition if such retention is considered desirable by the Investment
Adviser. See "Additional Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public
and private purposes, the interest on which is, in the opinion of bond
counsel, exempt from regular federal income tax. Public purpose municipal
bonds include general obligation and revenue bonds. General obligation bonds
are backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility. Municipal notes include bond
anticipation, tax anticipation and revenue anticipation notes. Bond, tax and
revenue anticipation notes are short-term obligations that will be retired
with the proceeds of an anticipated bond issue, tax revenue or facility
revenue, respectively. Under normal market conditions, a Portfolio will invest
at least 65% of its total assets in obligations issued by its respective State
or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax (the "AMT") for individual investors. As
at August 31, 1995, the Portfolios had invested in such obligations as follows
(as a percentage of net assets): Alabama Portfolio (8.2%); Arkansas Portfolio
(17.0%); Georgia Portfolio (14.3%); Kentucky Portfolio (16.4%); Louisiana
Portfolio (19.5%); Maryland Portfolio (14.1%); Missouri Portfolio (9.8%);
North Carolina Portfolio (7.3%); Oregon Portfolio (15.4%); South Carolina
Portfolio (18.5%); Tennessee Portfolio (14.2%); and Virginia Portfolio
(15.9%). At August 31, 1995, the Portfolios limited their investment in
obligations subject to the 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 effected by economic developments and by legislation
and other governmental activities in that State. To the extent that a
Portfolio's assets are concentrated in municipal obligations of issuers of a
single State, that Portfolio may be subject to an increased risk of loss. Each
Portfolio may also invest in obligations issued by the governments of Puerto
Rico, the U.S. Virgin Islands and Guam. See the Appendix to this Prospectus
for a description of 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. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its 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. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the
Municipal Bond Index traded on the Chicago Board of Trade) and other financial
instruments and indices. Such transactions involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices, which
may exceed a Portfolio's initial investment in these contracts. A Portfolio
may not purchase or sell futures contracts or related options, except for
closing purchase or sale transactions, if immediately thereafter the sum of
the amount of margin deposits and premiums paid on the Portfolio's outstanding
positions would exceed 5% of the market value of the Portfolio's net assets.
These transactions involve transaction costs. There can be no assurance that
the Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce a Fund's current yield.
Insurance generally will be obtained from insurers with a claims-paying
ability rated Aaa by Moody's or AAA by S&P or Fitch. The insurance does not
guarantee the market value of the insured obligations or the net asset value
of a Fund's shares.
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 and because the Trust
can offer separate series (such as the Funds) it is known as a "series
company." Each share represents an equal proportionate beneficial interest in
a Fund. When issued and outstanding, each Fund's shares are fully paid and
nonassessable by the Trust and redeemable as described under "How to Redeem
Fund Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares have no preemptive or
conversion rights and are freely transferable. In the event of the liquidation
of a Fund, shareholders of that Fund are entitled to share pro rata in the net
assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that
Portfolio (e.g., other U.S. and foreign investment companies, and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
exists and the Portfolio itself is unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Funds nor
their shareholders will be adversely affected by reason of the Funds investing
in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
a Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in its
corresponding Portfolio, which is a separate investment company with an
identical investment objective (although the Fund may temporarily hold a de
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. The public shareholders of each Fund have previously approved the
policy of investing such Fund's assets in an interest in its corresponding
Portfolio.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. The investment objective and
the nonfundamental investment policies of each Fund and Portfolio may be
changed by the Trustees of the Trust and the Portfolio without obtaining the
approval of the shareholders of that Fund or the investors in that Portfolio,
as the case may be. Any such change of an investment objective will be
preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of a Fund, those shares may be subject to a contingent deferred sales charge,
as described in "How to Redeem Fund Shares". In the event a Fund withdraws all
of its assets from its corresponding Portfolio, or the Board of Trustees of
the Trust determines that the investment objective of such Portfolio is no
longer consistent with the investment objective of the Fund, such Trustees
would consider what action might be taken, including investing the assets of
such Fund in another pooled investment entity or retaining an investment
adviser to manage the Fund's assets in accordance with its investment
objective. A Fund's investment performance may be affected by a withdrawal of
all its assets from its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors investing in a Portfolio may be adversely
affected by the actions of a larger investor investing in the Portfolio. For
example, if a large investor withdraws from a Portfolio, the remaining
investors may experience higher pro rata operating expenses, thereby producing
lower returns. Additionally, a Portfolio may become less diverse, resulting in
increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured mutual
funds which have large or institutional investors.
Until 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 and furnishes
for the use of each Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
Portfolios. Under its investment advisory agreement with a Portfolio, BMR
receives a monthly advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
------------------------------------------------------------------------------
1 up to $20 million ....................... 0.100% 1.00%
2 $20 million but less than $40 million ... 0.200% 2.00%
3 $40 million but less than $500 million .. 0.300% 3.00%
4 $500 million but less than $1 billion ... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ... 0.225% 2.25%
7 $2 billion but less than $3 billion ..... 0.200% 2.00%
8 $3 billion and over ..................... 0.175% 1.75%
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory
fees for the fiscal year ended August 31, 1995 equivalent to the annualized
percentage of average daily net assets stated below.
NET ASSETS AS OF
PORTFOLIO AUGUST 31, 1995 ADVISORY FEE
------------------------------------------------------------------------------
Alabama ................................ $118,486,053 0.40%
Arkansas ............................... 81,535,002 0.37%
Georgia ................................ 122,948,667 0.41%
Kentucky ............................... 145,268,626 0.42%
Louisiana .............................. 34,308,679 0.23%(1)
Maryland ............................... 115,004,176 0.40%
Missouri ............................... 93,162,103 0.38%
North Carolina ......................... 195,178,724 0.44%
Oregon ................................. 146,390,921 0.42%
South Carolina ......................... 61,411,668 0.33%
Tennessee .............................. 58,673,303 0.31%
Virginia ............................... 191,747,922 0.44%
(1) To enhance the net income of the Louisiana Portfolio, BMR made a reduction
of its advisory fee in the amount of $36,188.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real
estate investment, consulting and management, and development of precious
metals properties.
Timothy T. Browse has acted as the portfolio manager of the Alabama, Arkansas
and Maryland Portfolios since they commenced operations. He has been a Vice
President of Eaton Vance and of BMR since 1993 and an employee of Eaton Vance
since 1992. Prior to joining Eaton Vance, he was a municipal bond trader at
Fidelity Management & Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Missouri, Oregon
and Tennessee Portfolios since they commenced operations and the Georgia
Portfolio since January 1, 1996. Ms. Clemson has been a Vice President of
Eaton Vance and BMR since 1993 and an employee of Eaton Vance since 1985.
Thomas J. Fetter has acted as the portfolio manager of the South Carolina
Portfolio since January 1, 1996. Mr. Fetter has been a Vice President of Eaton
Vance since 1987 and of BMR since 1992.
Robert B. MacIntosh has acted as the portfolio manager of the North Carolina
and Louisiana Portfolios since January 1, 1996. Mr. MacIntosh has been a Vice
President of Eaton Vance since 1991 and of BMR since 1992. Prior to joining
Eaton Vance, he was a portfolio manager at Fidelity Management & Research
Company (1986-1991).
David C. Reilly has acted as the portfolio manager of the Virginia Portfolio
since it commenced operations and the Kentucky Portfolio since January 1,
1996. He has been a Vice President of Eaton Vance since 1991 and of BMR since
1992. Prior to joining Eaton Vance, he was a Vice President and a municipal
bond analyst at Scudder, Stevens & Clark (1984-1991).
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject
to the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLANS
- ------------------------------------------------------------------------------
EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. Rule 12b-1 permits a
mutual fund, such as a Fund, to finance distribution activities and bear
expenses associated with the distribution of its shares provided that any
payments made by the fund are made pursuant to a written plan adopted in
accordance with the Rule. Each Plan is subject to, and complies with, the
sales charge rule of the National Association of Securities Dealers, Inc. (the
"NASD Rule"). Each Fund's Plan is described further in the Statement of
Additional Information, and the following is a description of the salient
features of the Plans. Each Fund's Plan provides that the Fund, subject to the
NASD Rule, will pay sales commissions and distribution fees to the Principal
Underwriter only after and as a result of the sale of shares of the Fund. On
each sale of Fund shares (excluding reinvestment of distributions) a Fund will
pay the Principal Underwriter amounts representing (i) sales commissions equal
to 5% of the amount received by a Fund for each share sold and (ii)
distribution fees calculated by applying the rate of 1% over the prime rate
then reported in The Wall Street Journal to the outstanding balance of
Uncovered Distribution Charges (as described below) of the Principal
Underwriter. The Principal Underwriter currently expects to pay sales
commissions (except on exchange transactions and reinvestments) to a financial
services firm (an "Authorized Firm") at the time of sale equal to 4% of the
purchase price of the shares sold by such Firm. The Principal Underwriter will
use its own funds (which may be borrowed from banks) to pay such commissions.
Because the payment of the sales commissions and distribution fees to the
Principal Underwriter is subject to the NASD Rule described below, it will
take the Principal Underwriter a number of years to recoup the sales
commissions paid by it to Authorized Firms from the payments received by it
from a Fund pursuant to a Plan.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE
FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, a Fund
accrues daily an amount at the rate of 1/365 of .75% of the Fund's net
assets, and pays such accrued amounts monthly to the Principal Underwriter.
Each Plan requires such accruals to be automatically discontinued during any
period in which there are no outstanding Uncovered Distribution Charges under
the Plan. Uncovered Distribution Charges are calculated daily and, briefly,
are equivalent to all unpaid sales commissions and distribution fees to which
the Principal Underwriter is entitled under a Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The
Eaton Vance organization may be considered to have realized a profit under a
Fund's Plan if at any point in time the aggregate amounts of all payments
received by the Principal Underwriter from the Fund pursuant to the Plan,
including any contingent deferred sales charges, have exceeded the total
expenses theretofore incurred by such organization in distributing shares of
the Fund. Total expenses for this purpose will include an allocable portion of
the overhead costs of such organization and its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of a Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under each Fund's Plan over an extended period would
result in the incurrence and payment of increased distribution fees under the
Plan.
During the fiscal year ended August 31, 1995, each Fund paid sales commissions
under its Plan equivalent to .75% (annualized) of such Fund's average daily
net assets. As at August 31, 1995, the outstanding Uncovered Distribution
Charges of the Principal Underwriter on such day calculated under each Fund's
Plan amounted to approximately $4,287,000 (equivalent to 3.9% of net assets on
such day) in the case of the Alabama Fund, $3,364,000 (equivalent to 4.2% of
net assets on such day) in the case of the Arkansas Fund, $4,634,000
(equivalent to 3.9% of net assets on such day) in the case of the Georgia
Fund, $5,401,000 (equivalent to 3.8% of net assets on such day) in the case of
the Kentucky Fund, $1,388,000 (equivalent to 4.4% of net assets on such day)
in the case of the Louisiana Fund, $4,520,000 (equivalent to 4.0% of net
assets on such day) in the case of the Maryland Fund, $3,461,000 (equivalent
to 3.9% of net assets on such day) in the case of the Missouri Fund,
$7,188,000 (equivalent to 3.8% of net assets on such day) in the case of the
North Carolina Fund, $5,529,000 (equivalent to 3.8% of net assets on such day)
in the case of the Oregon Fund, $2,527,000 (equivalent to 4.2% of net assets
on such day) in the case of the South Carolina Fund, $2,357,000 (equivalent to
4.1% of net assets on such day) in the case of the Tennessee Fund and
$7,026,000 (equivalent to 3.7% of net assets on such day) in the case of the
Virginia Fund.
EACH PLAN ALSO AUTHORIZES 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 quarterly payments of service fees to the
Principal Underwriter and Authorized Firms in amounts not expected to exceed
.20% of the Fund's average daily net assets for each fiscal year based on the
value of Fund shares sold by such persons and remaining outstanding for at
least twelve months. However, each Fund's Plan authorizes the Trustees of the
Trust on behalf of the Fund to increase payments to the Principal Underwriter,
Authorized Firms and other persons from time to time without further action by
shareholders of the Fund, provided that the aggregate amount of payments made
to such persons under the Plan in any fiscal year of the Fund does not exceed
.25% of the Fund's average daily net assets. As permitted by the NASD Rule,
such payments are made for personal services and/or the maintenance of
shareholder accounts. Service fees are separate and distinct from the sales
commissions and distribution fees payable by a Fund to the Principal
Underwriter, and as such are not subject to automatic discontinuance when
there are no outstanding Uncovered Distribution Charges of the Principal
Underwriter. For the fiscal year ended August 31, 1995, each Fund made service
fee payments (as an annualized percentage of average daily net assets) as
follows: Alabama Fund (0.14%); Arkansas Fund (0.14%); Georgia Fund (0.14%);
Kentucky Fund (0.14%); Louisiana Fund (0.12%); Maryland Fund (0.14%); Missouri
Fund (0.15%); North Carolina Fund (0.15%); Oregon Fund (0.14%); South Carolina
Fund (0.13%); Tennessee Fund (0.12%); and Virginia Fund (0.14%).
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell a Fund's shares and/or shares of other funds
distributed by the Principal Underwriter. In some instances, such additional
incentives may be offered only to certain Authorized Firms whose
representatives sell or are expected to sell significant amounts of shares. In
addition, the Principal Underwriter may from time to time increase or decrease
the sales commissions payable to Authorized Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant
factors, including without limitation the size of a Fund, the investment
climate and market conditions, the volume of sales and redemptions of Fund
shares, and the amount of Uncovered Distribution Charges of the Principal
Underwriter. Each Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of Fund shares; however, no Fund is contractually obligated to
continue its Plan for any particular period of time. Suspension of the
offering of Fund shares would not, of course, affect a shareholder's ability
to redeem shares.
VALUING FUND SHARES
- ------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio,
the Fund's net asset value will reflect the value of its interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares. Shares of each Fund are offered
for sale only in States where such shares may be legally sold. An Authorized
Firm may charge its customers a fee in connection with transactions executed
by that Firm.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: 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 Marathon [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult
his or her tax adviser with respect to the particular federal, State and local
tax consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- ------------------------------------------------------------------------------
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 charges (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 $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the
low account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years
of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales
charge. This contingent deferred sales charge is imposed on any redemption the
amount of which exceeds the aggregate value at the time of redemption of (a)
all shares in the account purchased more than six years prior to the
redemption, (b) all shares in the account acquired through reinvestment of
monthly distributions and capital gains distributions, and (c) the increase,
if any, in the value of all other shares in the account (namely those
purchased within the six years preceding the redemption) over the purchase
price of such shares. Redemptions are processed in a manner to maximize the
amount of redemption proceeds which will not be subject to a contingent
deferred sales charge. 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. Any contingent deferred sales
charge which is required to be imposed on share redemptions will be made in
accordance with the following schedule:
YEAR OF REDEMPTION CONTINGENT
AFTER PURCHASE DEFERRED
SALES CHARGE
---------------------------------------------------------------------
First or Second ....................................... 5%
Third ................................................. 4%
Fourth ................................................ 3%
Fifth ................................................. 2%
Sixth ................................................. 1%
Seventh and following ................................. 0%
In calculating the contingent deferred sales charge upon the redemption of
shares acquired in an exchange of shares of a fund currently listed under "The
Eaton Vance Exchange Privilege," the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase
of shares acquired in the exchange is deemed to have occurred at the time of
the original purchase of the exchanged shares.
No contingent deferred sales charge will be imposed on shares of a Fund which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge applicable to
shares will be waived for shares redeemed (1) pursuant to a Withdrawal Plan
(see "Eaton Vance Shareholder Services"), (2) as part of a required
distribution from a tax-sheltered retirement plan or (3) following the death
of all beneficial owners of such shares, provided the redemption is requested
within one year of death (a death certificate and other applicable documents
may be required). The contingent deferred sales charge will be paid to the
Principal Underwriter or the Fund. When paid to the Principal Underwriter it
will reduce the amount of Uncovered Distribution Charges calculated under the
Fund's Distribution Plan. See "Distribution Plans."
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT DEFERRED
SALES CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF A FUND'S SHARES
AND THAT 16 MONTHS LATER THE VALUE OF THE ACCOUNT HAS GROWN THROUGH
INVESTMENT PERFORMANCE AND REINVESTMENT OF DIVIDENDS TO $12,000. THE
INVESTOR THEN MAY REDEEM UP TO $2,000 OF SHARES WITHOUT INCURRING A
CONTINGENT DEFERRED SALES CHARGE. IF THE INVESTOR SHOULD REDEEM $3,000 OF
SHARES, A CHARGE WOULD BE IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE
WOULD BE 5% BECAUSE IT WAS IN THE SECOND YEAR AFTER THE PURCHASE WAS MADE
AND THE CHARGE WOULD BE $50.
REPORTS TO SHAREHOLDERS
- ------------------------------------------------------------------------------
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.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------------
Shares of each Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (except Eaton Vance Prime
Rate Reserves) or Eaton Vance Money Market Fund, which are distributed with a
contingent deferred sales charge, on the basis of the net asset value per
share of each fund at the time of the exchange, provided that such exchange
offers are available only in States where shares of the fund being acquired
may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
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 the redemption of shares
acquired in an exchange, the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase
of shares acquired in one or more exchanges is deemed to have occurred at the
time of the original purchase of the exchanged shares. For the contingent
deferred sales charge schedule applicable to the Eaton Vance Marathon Group of
Funds (except EV Marathon Strategic Income Fund and Class I shares of any EV
Marathon Limited Maturity Fund), see "How to Redeem Fund Shares." The
contingent deferred sales charge schedule applicable to EV Marathon Strategic
Income Fund and Class I shares of any EV Marathon Limited Maturity Fund is 3%,
2.5%, 2% or 1% in the event of a redemption occurring in the first, second,
third or fourth year, respectively, after the original share purchase.
Shares of other funds in the Eaton Vance Marathon Group of Funds and shares of
Eaton Vance Money Market Fund may be exchanged for Fund shares on the basis of
the net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by 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: 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 fifteenth day of each month
or the next business day thereafter. Each Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, will constitute tax-exempt income to
shareholders, except for the proportionate part of the distribution that may
be considered taxable income if the Fund has taxable income during the
calendar year. Shareholders reinvesting the monthly distribution should treat
the amount of the entire distribution as the tax cost basis of the additional
shares acquired by reason of such reinvestment. Daily distribution crediting
will commence on the day that collected funds for the purchase of Fund shares
are available at the Transfer Agent. Shareholders of a Fund will receive
timely Federal income tax information as to the tax-exempt or taxable status
of all distributions made by the Fund during the calendar year. A Fund's net
realized capital gains, if any, consist of the net realized capital gains
allocated to the Fund by its corresponding Portfolio for tax purposes, after
taking into account any available capital loss carryovers; a Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code (the "Code") and to satisfy all requirements necessary
to be relieved of federal taxes on income and gains it distributes to
shareholders. In satisfying these requirements, each Fund will treat itself as
owning its proportionate share of each of its corresponding Portfolio's assets
and as entitled to the income of the Portfolio properly attributable to such
share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS
PARTNERSHIPS UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR
EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. Distributions are
taxed in the manner described above whether paid in cash or reinvested in
additional shares of a Fund. Tax-exempt distributions received from a Fund are
includable in the tax base for determining the taxability of social security
and railroad retirement benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE THE YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. Each Fund's current yield is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share (net asset value) of the Fund on the last day
of the period and annualizing the resulting figure. A taxable-equivalent yield
is computed by using the tax-exempt yield figure and dividing by 1 minus the
tax rate. Each Fund's average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price (net asset value) for specified periods ending
with the most recent calendar quarter, assuming reinvestment of all
distributions. The average annual total return calculation assumes a complete
redemption of the investment and the deduction of any applicable contingent
deferred sales charge at the end of the period. Each Fund may publish annual
and cumulative total return figures from time to time.
Each Fund may also publish its distribution rate and/or effective distribution
rate. Each Fund's distribution rate is computed by dividing the most recent
monthly distribution per share annualized by the current maximum offering
price per share (net asset value). Each Fund's effective distribution rate is
computed by dividing the distribution rate by the ratio used to annualize the
most recent monthly distribution and reinvesting the resulting amount for a
full year on the basis of such ratio. The effective distribution rate will be
higher than the distribution rate because of the compounding effect of the
assumed reinvestment. Investors should note that a Fund's yield is calculated
using a standardized formula the income component of which is computed from
the yields to maturity of all debt obligations held by the Portfolio based on
prescribed methods (with all purchases and sales of securities during such
period included in the income calculation on a settlement date basis), whereas
the distribution rate is based on a Fund's last monthly distribution which
tends to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month.
Each Fund may also publish total return figures which do not take into account
any contingent deferred sales charge which may be imposed upon redemptions at
the end of the specified period. Any performance figure which does not take
into account the contingent deferred sales charge would be reduced to the
extent such charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Fund's current yield, total return
distribution rate or effective distribution rate for any prior period should
not be considered a representation of what an investment may earn or what the
Fund's yield, total return distribution rate or effective distribution rate
may be in any future period. If the expenses of a Fund or its corresponding
Portfolio are paid by Eaton Vance, the Fund's performance will be higher.
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in
the obligations of issues in its corresponding State, it is susceptible to
factors affecting that State. Each Portfolio may also invest up to 5% of its
net assets in obligations issued by the governments of Guam and the U.S.
Virgin Islands and up to 35% of its assets in obligations issued by the
government of Puerto Rico. Set forth below is certain economic and tax
information concerning the States in which the Portfolios invest and Puerto
Rico. The bond ratings provided below are current as of the date of this
Prospectus and are based on economic conditions which may not continue;
moreover, there can be no assurance that particular bond issues may not be
adversely affected by changes in economic, political or other conditions.
Unless stated otherwise, the ratings indicated are for obligations of the
State. A State's political subdivisions may have different ratings which are
unrelated to the ratings assigned to State obligations.
ALABAMA. Since the early 1980's, modernization of existing facilities and an
increase in direct foreign investments in the State have made the State's
manufacturing sector more competitive in domestic and international markets.
Although it remains the largest employment sector, the State economy has
become less dependent on manufacturing (pulp and paper, mining and chemicals).
Strong growth in the service and wholesale/retail trade sectors combined with
recent weakness in the manufacturing sector has enabled the economy to become
more diverse. However, its reliance on the manufacturing sector remains
significantly greater than the national average. In the past several years,
the loss of manufacturing jobs has been primarily as a result of weakness in
the durable goods sector. Overall, non-agricultural employment has steadily
grown during the past five years.
Alabama general obligations are currently rated AA, Aa and AA, by S&P, Moody's
and Fitch, respectively.
ALABAMA TAXES. In the opinion of Bradley, Arant, Rose & White, special Alabama
tax counsel to the Alabama Fund, under existing Alabama law, as long as the
Alabama Fund qualifies as a separate "regulated investment company" under the
Code, and provided the Alabama Fund is invested in the Alabama Portfolio, and
provided that the Alabama Portfolio is invested in obligations the interest on
which would be exempt from Alabama personal income taxes if held directly by
an individual shareholder (such as obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions
of the United States), and further provided that the Alabama Portfolio is
characterized as a partnership for Federal income tax purposes, dividends
received by shareholders from the Alabama Fund that represent interest
received by the Alabama Portfolio on such obligations will be exempt from
Alabama personal income taxes. To the extent that distributions by the Alabama
Fund are derived from long-term or short-term capital gains on such
obligations, or from dividends or capital gains on other types of obligations,
such distributions will not be exempt from Alabama personal income tax.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Alabama Fund by an Alabama resident will be taken into account for
Alabama personal income tax purposes.
ARKANSAS. During the past two decades, the economy of Arkansas has shifted
from an agricultural to a light manufacturing base. The State is now moving
toward a heavier manufacturing base involving more sophisticated processes and
products such as electrical machinery, transportation equipment, fabricated
metals and electronics. The health services, wholesale/retail trade and
service sectors have also grown in recent years. The diversification of
economic interests has lessened the State's cyclical sensitivity to the impact
of any single sector. Agriculture, however, continues to be an important
component of the State's economy. In addition, the State has significant
natural gas and oil producing interests, as well as mining activities. The
seasonally adjusted unemployment rate for August, 1995, was 5.1%, compared to
a national rate of 5.6%. State law prohibits deficit spending. In 1994, the
General Fund had an ending balance of $772 million, with revenues over
expenditures of $161 million. The State has adopted the 1995-1997 biennial
budget.
Arkansas general obligation bonds are rated Aa and AA by Moody's and S&P.
Fitch does not currently rate Arkansas general obligations.
ARKANSAS TAXES. In the opinion of Friday, Eldredge & Clark, special Arkansas
tax counsel to the Arkansas Fund, under existing Arkansas law as long as the
Arkansas Fund qualifies as a separate "regulated investment company" under the
Code, and provided the Arkansas Fund is invested in obligations the interest
on which would be exempt from Arkansas personal income taxes if held directly
by an individual shareholder (such as obligations of Arkansas or its political
subdivisions, of the United States or of certain territories or possessions of
the United States), dividends received from the Arkansas Fund that represent
interest received by the Arkansas Fund on such obligations will be exempt from
Arkansas personal income taxes. To the extent that distributions by the
Arkansas Fund are derived from long-term or short-term capital gains on such
obligations, or from dividends or capital gains on other types of obligations,
such distributions will not be exempt from Arkansas personal income tax. The
opinion addresses the tax consequences when the Arkansas Fund invests directly
in these obligations. The application of these consequences to the Arkansas
Fund when investing in interests of another registered investment company was
the subject of a favorable opinion from Revenue Counsel for the Arkansas
Department of Finance and Administration.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Arkansas Fund by an Arkansas resident will be taken into account for
Arkansas personal income tax purposes.
GEORGIA. Georgia has a generally sound, well-diversified economy, which has
performed relatively well during recent years. According to the Department of
Labor for the State of Georgia, the unemployment rate of the civilian labor
force in the State as of July 1995 was 5.6% compared to 5.9% for the nation.
Actual revenues of the State for fiscal year 1994 increased 13.8% over revenue
collections for the previous fiscal year. Estimated revenue collections for
the fiscal year ending June 30, 1995 increased 6.3% over actual revenue
collections for fiscal 1994. Total projected revenues for fiscal year 1996 are
approximately $10.7 million, a 7.2% increase over the total projected revenues
for fiscal year 1995. This improvement is expected to continue for most
economic sectors as the 1996 Summer Olympics draw near. The fiscal 1996 budget
includes approximately $76,663,963 to help Georgians recover from the 1994
summer flooding and tropical storm disasters which is not likely to affect the
market value of Georgia obligations or the ability of the State or its
instrumentalities to pay interest and repay principal on Georgia obligations
in a timely manner.
Georgia general obligations are rated "AA+," "Aaa" and "AA" by S&P, Moody's
and Fitch, respectively. Fitch views the rating as stable and S&P has a
positive outlook.
GEORGIA TAXES. In the opinion of Powell, Goldstein, Frazer & Murphy, special
tax counsel to the Georgia Fund, under existing law, shareholders who are
otherwise subject to the Georgia personal or corporate income tax will not be
subject to Georgia income tax on distributions with respect to shares of the
Georgia Fund to the extent such distributions represent "exempt-interest
dividends" for Federal income tax purposes that are attributable to interest
on obligations issued by or on behalf of the State of Georgia or its political
subdivisions, and by the governments of Puerto Rico, the U.S. Virgin Islands
and Guam to the extent that such obligations are exempt from State income tax
pursuant to Federal law. Distributions, if any, derived from capital gain or
other sources generally will be taxable to shareholders of the Georgia Fund
for Georgia income tax purposes. Shareholders who are subject to the Georgia
corporate net worth tax, a franchise tax that is based on net worth, will be
subject to such tax with respect to ownership of shares of the Georgia Fund
and distributions with respect thereto.
The application of the Georgia intangible personal property tax to the
ownership of shares of the Georgia Fund is not clear. Although obligations or
evidences of debt of the United States and of the State of Georgia, its
political subdivisions and public institutions are exempt from the Georgia
intangible personal property tax, the Georgia Department of Revenue has taken
the position that shares in a municipal bond fund are deemed to be taxable
intangible property separate from an ownership interest in the underlying
obligations. Under such an analysis, shareholders of the Georgia Fund who are
otherwise subject to the Georgia intangible personal property tax would be
subject to such tax with respect to ownership of shares of the Georgia Fund
(without any exemption for the underlying United States or Georgia
obligations), but at the rate of 10 cents per $1,000 applicable to "other
intangible property" rather than at the higher rate of $1 per $1,000 imposed
on "stocks." All shareholders should consult their tax advisors regarding the
possible intangible personal property tax consequences of ownership of shares
in the Georgia Fund.
KENTUCKY. Kentucky's economy, once dominated by coal, horses, bourbon, and
tobacco, has attained substantial diversification during the past decade into
the manufacturing and service sectors, including particularly air
transportation, health care and business services, and retail trade. Kentucky
still ranks first among the states in total tonnage of coal produced and
second in the total cash value of tobacco raised. The state's leading
manufactured products now include automobiles and automotive parts, industrial
machinery, consumer appliances, and apparel. Kentucky's horse breeding and
racing industry, showcased by the Kentucky Derby, as well as an extensive
system of state parks, have contributed to a growing tourism industry within
the State. As of August 1995, Kentucky's unemployment rate was 4.7% compared
to the national average of 5.6%.
The Commonwealth of Kentucky's financial condition has steadily improved
during the last three years. State General Fund revenue grew by 10.9% in the
fiscal year 1995 to a total of $5.15 billion. To avoid the need for state
budget cuts in the event revenues do not meet expectations, a Budget Reserve
Trust Fund was established with a $90 milion deposit in fiscal year 1994. An
additional $10 million was deposited into the Budget Reserve Trust Fund in
fiscal year 1995, bringing the balance to the targeted level of $100 million.
Because the Kentucky Constitution requires a vote of a majority of the
electorate to approve the issuance of State general obligation indebtedness,
none of the outstanding indebtedness of the Commonwealth of Kentucky is
general obligation indebtedness but instead is either debt payable only from
revenues produced by the particular project or lease revenue indebtedness
subject to legislative appropriation for the payment of debt service during
each fiscal biennium of the Commonwealth. In September 1994 S&P upgraded the
rating of the State's appropriation-backed debt from A to A+. Moody's and
Fitch rate the State's appropriation-backed debt as A and A+, respectively.
KENTUCKY TAXES. In the opinion of Wyatt, Tarrant & Combs, special Kentucky tax
counsel to the Kentucky Fund, shareholders of the Kentucky Fund who otherwise
are subject to individual or corporate income taxes of the Commonwealth of
Kentucky will not be subject to such taxes on distributions with respect to
their shares in the Kentucky Fund to the extent that such distributions are
attributable to interest on obligations of the Commonwealth of Kentucky or its
political subdivisions or on obligations of the United States, the governments
of Puerto Rico, the U.S. Virgin Islands or Guam. To the extent that
distributions from the Kentucky Fund are included in a corporate shareholder's
surplus, they will be subject to the Kentucky license (franchise) tax that is
based on net worth. To the extent that the Portfolio's holdings consist of
obligations of the Commonwealth of Kentucky or its political subdivisions and
the balance are obligations of the United States, shares in the Kentucky Fund
will be exempt from the Kentucky Intangibles Tax. Shareholders will be
required to include the entire amount of capital gain dividends in income to
the same extent for state income tax purposes as for Federal income tax
purposes.
Many local governments in Kentucky, including Louisville, Jefferson County,
Lexington-Fayette County, Bowling Green and Covington, impose taxes on the net
profits of businesses operating (in any form, including sole proprietorships)
within the local jurisdiction. Such taxes should not be imposed on income
derived from an investment in the Kentucky Fund. However, because of
differences in the language of these laws, it is not possible to address their
specific impact.
LOUISIANA. The State has experienced operating budget deficits in three of the
last seven fiscal years. Since 1988, the gap between General Fund expenditures
and recurring revenues has widened for a variety of reasons: new expenditures
have been phased in; new tax exemptions have been implemented; the federal
government has issued costly mandates, most significantly in the Medicaid
program; and revenues once available to the General Fund have in recent years
been dedicated for specific purposes. Furthermore, the State's tax base (which
is comprised in part of mineral revenues and volume-based taxes, such as those
on tobacco, beer, and liquor) is inherently inelastic, i.e., its nominal
growth rate does not match or exceed the growth rate of the economy.
The State ended the Fiscal Period 1992-93 with a positive undesignated fund
balance in its General Fund of $101 million. During 1994, $30.6 million of the
surplus funds were utilized to cover known shortfalls in current year program
operations. The State ended the Fiscal Period 1993-94 with an operating
surplus of $129 million. This amount together with the prior year fund balance
of $101 million and reserve changes leaves an unreserved-undesignated General
Fund fund balance of $212.9 million. For fiscal 1996, the State will receive a
significantly smaller amount of federal funding for its health care programs.
The State faces a large gap for the 1996 budget. It is uncertain how this
fiscal imbalance will be resolved or how it will impact the creditworthiness
of the State and its outstanding and related debt.
As of the date of this Prospectus, general obligations of Louisiana are rated
A- (with a negative outlook) and Baa1 by S&P and Moody's, respectively.
LOUISIANA TAXES. In the opinion of Jones, Walker, Waechter, Poitevent, Carrere
& Denegre, L.L.P., special Louisiana tax counsel to the Louisiana Fund, under
existing Louisiana law as long as: (i) the Louisiana Fund qualifies as a
separate "regulated investment company" under the Code; (ii) the Louisiana
Portfolio will be treated as a partnership for Federal and state tax purposes;
and (iii) the Louisiana Fund receives income from obligations, the interest on
which would be exempt from Louisiana individual and corporate income taxes if
held directly by an individual shareholder (such as obligations of Louisiana
or its political subdivisions, of the United States or of certain territories
or possessions of the United States), the dividends received from the
Louisiana Fund that represent interest received by the Louisiana Fund on such
obligations will be exempt from Louisiana individual and corporate income
taxes. To the extent that distributions by the Louisiana Fund are derived from
long-term or short-term capital gains on such obligations, or from dividends
or capital gains on other types of obligations, such distributions will not be
exempt from Louisiana individual and corporate income taxes.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Louisiana Fund by a Louisiana resident will be taken into account for
Louisiana individual and corporate income tax purposes. Distributions from and
investments in the Louisiana Fund by corporate shareholders who are otherwise
subject to the Louisiana corporate franchise tax will be included in the
capital of such corporations for Louisiana franchise tax purposes.
MARYLAND. Maryland has a diverse economy with government, services and mining,
and manufacturing and trade each accounting for approximately 20%, 31% and 32%
of employment, respectively. In recent years financial operations of the State
have concluded in ending surpluses, although in the early 1990s various cost
containment and tax revenue measures were required. State revenues are largely
dependent on income and sales and use taxes and, relatedly, on general levels
of employment, personal income growth and consumer spending. The national
slowdown, beginning in 1990, impacted the State with total employment
declining slightly in the early 1990s but recovering commencing in 1992.
Unemployment in Maryland for July 1995 was 5.0% versus the national rate of
5.9%.
Generally, Maryland has been among the most heavily indebted of the states. In
recent years increases in State general obligation debt have been controlled.
Since 1991, State tax-supported debt service and debt outstanding have been
less than 3.07% of personal income and 6.74% of State revenues, respectively.
Including local government debt, debt service as a percentage of total
revenues has risen from 8.88% in 1991 to 9.67% in 1994. It should be noted
that the creditworthiness of obligations issued by local Maryland issuers and
State revenue obligations may vary considerably from the creditworthiness of
general obligations bonds issued by the State, and that there is no obligation
on the part of the State to make payment on such local obligations in the
event of default.
The State of Maryland's general obligation bonds are rated AAA, Aaa and AAA,
by S&P, Moody's and Fitch, respectively. Both S&P and Fitch have a stable
outlook for the State.
MARYLAND TAXES. In the opinion of Piper & Marbury, L.L.P., special Maryland
tax counsel to the Maryland Fund, so long as the Maryland Fund qualifies to be
taxed as a regulated investment company in the manner set forth in Section 852
(b) of the Code holders of the Maryland Fund who are individuals, estates or
trusts and who are otherwise subject to Maryland State and local individual
income taxes will not be subject to such taxes on Maryland Fund dividends to
the extent that (a) such dividends qualify as exempt-interest dividends of a
regulated investment company under Section 852(b)(5) of the Code, which are
attributable to interest on tax-exempt obligations of the State of Maryland or
its political subdivisions or authorities, or obligations issued by the
government of Puerto Rico, U.S. Virgin Islands or Guam or their authorities
("Maryland tax-exempt obligations"), (b) such dividends are attributable to
interest on obligations of the U.S. Government or obligations issued or
guaranteed by the U.S. Government and its agencies, instrumentalities and
authorities ("U.S. obligations") or (c) such dividends are attributable to
gain realized by the Maryland Fund as a result of the sale or exchange by the
Maryland Portfolio of a bond issued by the State of Maryland or a political
subdivision thereof.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland State and local individual
income taxes.
Maryland presently includes in Maryland taxable income a portion of certain
items of tax preferences as defined in the Code. Interest paid on certain
private activity bonds constitutes such a tax preference. Accordingly, up to
50% of any distributions of the Maryland Fund attributable to such private
activity bonds may not be exempt from Maryland State and local individual
income taxes. The Maryland Portfolio has no present intention of investing in
such securities.
Shareholders of the Maryland Fund that are corporations otherwise subject to
Maryland corporate income tax will not be subject to such tax on Maryland Fund
dividends to the extent that (a) such dividends qualify as exempt-interest
dividends under Section 852(b)(5) of the Code which are attributable to
Maryland tax-exempt obligations or (b) such dividends are attributable to
interest on U.S. obligations.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland corporate income tax.
Shareholders of the Maryland Fund that are financial institutions otherwise
subject to Maryland financial institution franchise taxes will probably be
subject to such taxes on all distributions received from the Maryland Fund
(including exempt-interest dividends).
Interest on indebtedness incurred or continued (directly or indirectly) by a
shareholder of the Maryland Fund to purchase or carry shares of the Maryland
Fund will not be deductible for Maryland State and local individual income tax
purposes or corporate income tax purposes to the extent such interest is
allocable to exempt-interest dividends.
Shares of the Maryland Fund will not be subject to the Maryland personal
property tax.
MISSOURI. The State has a well balanced economy that approximates the national
economy. As a result, the State unemployment rate has typically remained close
to the national average. The civilian unemployment rate for August 1995 was
5.0% as compared to the September 1994 level of 3.9%. In the early 1990s, the
State had operating deficits resulting from lower collections than budgeted
due to the recession. The State's financial operations have been pressured by
the cost associated with the settlement of the desegregation lawsuit involving
the Kansas City and St. Louis school districts. For fiscal 1995, the cost of
the settlement was $315 million, approximately 7% of the General Fund budget.
A recent Supreme Court decision favorable to the State may decrease the level
of State funding required in the future, but the impact of this decision is
uncertain. Economic reversals in either of the Kansas City or St. Louis
metropolitan areas, whose Missouri portions together contain approximately
half of the State's population, would have a major impact on the State's
overall economic condition.
An amendment to the State Constitution limits the amount of state taxes which
may be imposed by the General Assembly, as well as the amount of local taxes,
licenses and fees which can be imposed by local governments in any fiscal
year. The details of the amendment are complex and clarification by subsequent
legislation or judicial decision may be necessary.
As of the date of this Prospectus, Missouri's general obligation of debt is
rated AAA, Aaa and AAA, by S&P, Moody's and Fitch, respectively.
MISSOURI TAXES. In the opinion of Bryan Cave, LLP, special Missouri tax
counsel to the Missouri Fund, so long as the Missouri Fund qualifies for
Federal income taxation as a regulated investment company and the Missouri
Portfolio is treated as a partnership for Federal tax purposes, dividends
distributed to individual shareholders of the Missouri Fund will be exempt
from the Missouri personal income tax imposed by Chapter 143 of the Missouri
Revised Statutes to the extent that such dividends qualify as exempt interest
dividends of a regulated investment company under Section 852(b)(5) of the
Code and are derived form interest on obligations of the United States, its
authorities, commissions, instrumentalities, possessions or territories to the
extent exempt from Missouri income taxes under the laws of the United States
(including Puerto Rico, Guam and the U.S. Virgin Islands), or of the State of
Missouri or its political subdivisions. Capital gain dividends, as defined in
Section 852(b)(3) of the Code, distributable by the Missouri Fund to
individual resident shareholders of the Missouri Fund, to the extent
includable in Federal adjusted gross income, will be subject to Missouri
income taxation. Shares in the Missouri Fund are not subject to Missouri
personal property taxes.
The Missouri Fund will notify its shareholders within 60 days after the close
of the year as to the amount of interest dividend from Missouri obligations
which is exempt from Missouri personal income taxation.
NORTH CAROLINA. North Carolina has an economy largely dependent on textile and
furniture manufacturing, and agriculture, although finance, services and trade
are becoming increasingly important. Manufacturing, which continues to be far
more important in North Carolina than in the nation, has been adversely
affected by international competition. Tobacco farming continues to be
affected by Federal legislation and regulatory measures and by international
competition. State personal wealth levels remain well below those of the
nation.
The North Carolina State Constitution requires that the total expenditures of
the State for a fiscal period shall not exceed the total of receipts during
the fiscal period and the surplus remaining in the State Treasury at the
beginning of the period. Apparently due to both increased tax and fee revenue
and the previously enacted spending reductions, the State had a budget surplus
of approximately $887 million at the end of fiscal 1993-94. After review of
the 1994-95 continuation budget adopted in 1993, the General Assembly approved
spending expansion funds, in part to restore certain employee salaries to
budgeted levels, which amounts had been deferred to balance the budgets in
1989-1993, and to authorize funding for new initiatives for economic
development, education, human services and environmental programs.
General obligations of the State of North Carolina are rated Aaa, AAA and AAA
by Moody's, S&P and Fitch, respectively. In July, 1992, S&P revised its
outlook for the State's general obligations from "Negative" to "Stable". Fitch
views the State's credit trend as "Stable".
NORTH CAROLINA TAXES. In the opinion of Hunton & Williams, special North
Carolina tax counsel to the North Carolina Fund, distributions from the North
Carolina Fund will not be subject to North Carolina individual, trust, or
estate income taxation to the extent that such distributions are either (i)
excluded from Federal gross income and represent interest the North Carolina
Fund, either directly or through the North Carolina Portfolio, receives on
obligations of North Carolina or its political subdivisions, nonprofit
educational institutions organized or chartered under the laws of North
Carolina, or Puerto Rico, U.S. Virgin Islands, or Guam or (ii) represent
interest the North Carolina Fund, either directly or through the North
Carolina Portfolio, receives on direct obligations of the United States. These
North Carolina income tax exemptions will be available only if the North
Carolina Fund complies with the requirement of the Code that at least 50% of
the value of its assets at the close of each quarter of its taxable years is
invested, either directly or through the North Carolina Portfolio, in state,
municipal, or other obligations described in (S)103(a) of the Code. The North
Carolina Fund intends to comply with that requirement.
Any capital gains distributed by the North Carolina Fund (except for capital
gain attributable to the sale by the North Carolina Fund or the North Carolina
Portfolio of an obligation the profit from which is exempt by North Carolina
statute) or gains realized by the shareholder from a redemption or sale of
shares of the North Carolina Fund will be subject to North Carolina
individual, trust, or estate income taxation.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the North Carolina Fund to purchase or carry shares of the North Carolina Fund
generally will not be deductible for North Carolina income tax purposes.
The opinion of Hunton & Williams is based on a ruling of the North Carolina
Department of Revenue obtained by Hunton & Williams on behalf of the North
Carolina Fund. That ruling is subject to change.
OREGON. According to the May 1995 Oregon Economic and Revenue Forecast
prepared by the State Department of Administrative Services, Oregon's recent
strong growth is expected to slow over the next year, primarily due to a
softening of the State's housing markets, reductions in timber output and
employment, and weaker national demand for Oregon's manufactured products.
These downward pressures are expected to be offset to a degree by continued
expansion of the high technology manufacturing sector, a strong international
export sector, further nonresidential construction activity and a steady
stream of immigration. This combination of forces is likely to generate
growth, although increases in personal income and employment are expected to
be less than they were in 1994. Oregon's seasonally adjusted unemployment rate
for August 1995, as compiled by the State Department of Employment, was 4.8%,
compared to a national rate of 5.6%.
Oregon's general obligation debt is rated AA-, Aa and AA, by S&P, Moody's and
Fitch, respectively. S&P revised the outlook of Oregon's debt from stable to
negative after Oregon voters approved a constitutional property tax limitation
(Ballot Measure 5) in 1990.
OREGON TAXES. In the opinion of Stoel Rives, special Oregon tax counsel to the
Oregon Fund, so long as the Oregon Fund qualifies to be taxed as a separate
"regulated investment company" under the Code and the Oregon Portfolio is
treated as a partnership (but not a "publicly traded partnership") under the
Code, and so long as the Oregon Fund is deemed under the regulated investment
company provisions of the Code to own its proportionate share of the assets of
the Oregon Portfolio and to be entitled to the income of the Oregon Portfolio
attributable to that share, under existing Oregon law holders of the Oregon
Fund who are individuals, estates or trusts will not be subject to Oregon
personal income tax on Oregon Fund dividends to the extent that such dividends
(i) qualify as "exempt-interest dividends" of a regulated investment company
under the Code and (ii) are attributable to interest on tax-exempt obligations
of the State of Oregon or its political subdivisions or authorities, or
obligations issued by the Governments of Puerto Rico, U.S. Virgin Islands or
Guam or their authorities ("Oregon tax-exempt obligations").
To the extent that distributions of the Oregon Fund are attributable to
certain sources other than interest on Oregon tax-exempt obligations,
including all short-term and long-term capital gain and interest on tax-exempt
obligations of states other than Oregon and their political subdivisions and
authorities, such distributions will not be exempt from Oregon personal income
tax for individuals, estates or trusts otherwise subject to Oregon personal
income tax. Capital gains or losses realized from a redemption, sale or
exchange of shares of the Oregon Fund will be taken into account for Oregon
personal income tax purposes.
No portion of distributions from the Oregon Fund will be exempt from the
Oregon corporation excise tax, which generally applies to financial
corporations "located within" Oregon and other business corporations "doing or
authorized to do business within" Oregon. Oregon imposes a corporate income
tax on corporations not subject to the Oregon corporation excise tax.
Corporations subject to the Oregon corporation income tax should consult their
tax advisors regarding distributions from the Oregon Fund.
Shares of the Oregon Fund will not be subject to Oregon property tax.
SOUTH CAROLINA. The effect of the prolonged national recession on the State's
fiscal position has been significant, though in the past few years the State
has rebuilt its General Reserve Fund. Since the start of the 1993 fiscal year,
South Carolina has been forced to deal with revenue shortfalls. In July 1992,
original revenue estimates were revised downward by $195 million to $3.6
billion for fiscal year 1993. The State responded by cutting appropriations
including recurring and non-recurring spending and ended the fiscal year with
a $151 million surplus. Actual budgetary General Fund revenues and
expenditures for fiscal year 1994 were $4.021 billion and $3.776 billion,
respectively. There was a $248 million surplus of which $43.3 million was
deposited into the General Reserve Fund bringing its total to $110 million.
Fiscal 1995 had actual budgeted General Fund revenues and expenditures of
$4.233 billion and $3.984 billion, respectively. Fiscal 1995 ended with a
General Fund surplus of $248 million of which $10.5 million was deposited into
the General Reserve Fund fully funding it to $120.7 million. No new taxes were
introduced. $4.133 billion has been budgeted for fiscal 1996. Once again no
new taxes are in the budget.
Although dominated by the textile industry, South Carolina's economic base has
diversified in recent years as the trade and service sectors developed. With
increased added development in the durable goods manufacturing industries,
South Carolina's economy now resembles more closely that of the United States.
For August, 1995, unemployment in South Carolina was 4.9% compared with the
national rate of 5.6%.
South Carolina general obligations are rated Aaa, AA+ (positive), AAA
(stable), by Moody's, S&P and Fitch, respectively.
SOUTH CAROLINA TAXES. In the opinion of Nelson, Mullins, Riley & Scarborough,
L.L.P., special South Carolina tax counsel to the South Carolina Fund, under
existing South Carolina law as long as the South Carolina Fund qualifies as a
separate "regulated investment company" under the Code, shareholders of the
South Carolina Fund will not be required to include in their South Carolina
gross income distributions from the South Carolina Fund to the extent such
distributions qualify as "exempt-interest dividends" as defined in the Code,
which are directly attributable to interest received by the South Carolina
Fund on tax-exempt obligations issued by the State of South Carolina or its
political subdivisions or the United States. In the event the South Carolina
Fund fails to qualify as a separate "regulated investment company," the
foregoing exemption may be unavailable or substantially limited. The opinion
addresses the tax consequences when the South Carolina Fund invests directly
in these obligations. The application of these consequences to the South
Carolina Fund when investing in interests of another registered investment
company was ruled upon favorably by the South Carolina Tax Commission.
Capital gains distributed by the South Carolina Fund, or gains realized by a
shareholder from a redemption or sale of shares of the South Carolina Fund,
will be subject to South Carolina income taxes.
As intangible personal property, the shares of the South Carolina Fund are
exempt from any and all ad valorem taxation in South Carolina.
TENNESSEE. Historically, the Tennessee economy has been characterized by a
greater concentration in manufacturing employment than the U.S. as a whole.
The economy is, however, undergoing a structural change through the increase
in service sector and trade sector employment. The service and trade sectors
account for approximately 25% and 23%, respectively, of employment, while
manufacturing accounts for about 25% of employment. The December, 1994
unemployment rate was 4.0%. The employment gains of 1994 are expected to
moderate in 1995.
Tennessee's financial operations are considerably different than most other
states because there is no state payroll income tax. This factor, together
with the State's reliance on the sales tax for a large percentage of General
Fund receipts, exposes total State tax collections to considerably more
volatility than would otherwise be the case and, in the event of an economic
downswing, could effect the State's ability to pay principal and interest in a
timely manner. Under the State constitution, no debt may be authorized for the
current operation of any State service or program unless repaid within the
fiscal year of issuance. For the fiscal year 1993, a 0.5% increase in the
sales tax rate was enacted and dedicated towards the implementation of certain
educational reforms enacted by the legislature. The State's General Fund
balance was reduced by $66 million in 1994.
Tennessee's general obligation debt is rated AA+, Aaa and AAA, by S&P,
Moody's and Fitch, respectively. S&P has a positive outlook for the State.
TENNESSEE TAXES. In the opinion of Hunton & Williams, special Tennessee tax
counsel to the Tennessee Fund, individual shareholders of the Tennessee Fund
will not be subject to Tennessee individual income tax on distributions
received from the Tennessee Fund to the extent such distributions are
attributable to interest the Tennessee Fund, either directly or through the
Tennessee Portfolio, receives on (i) bonds or securities of the U.S.
Government or any agency or instrumentality thereof, (ii) bonds of the State
of Tennessee or any county, municipality or political subdivision thereof,
including any agency, board, authority or commission, or (iii) bonds of Puerto
Rico, U.S. Virgin Islands or Guam.
The opinion of Hunton & Williams is based on a ruling of the Tennessee
Department of Revenue obtained by Hunton & Williams on behalf of the Tennessee
Fund. That ruling is subject to change. The Tennessee Fund will report
annually to its shareholders the percentage and source, on a state-by-state
basis, of interest income received by the Tennessee Fund on municipal bonds
during the preceding year.
On March 16, 1994, the Tennessee Fund received a letter ruling from the
Department of Revenue of the State of Tennessee to the effect that
distributions of capital gains from the Tennessee Fund attributable to tax-
exempt securities are exempt from Tennessee income tax. Tennessee Fund
management believes that Eaton Vance is the only mutual fund sponsor that has
obtained such a ruling. The ruling is subject to change under certain
conditions.
VIRGINIA. The Constitution of Virginia requires a balanced budget and limits
the ability of the Commonwealth to create debt. General obligation debt may be
incurred to meet certain short-term needs, to finance capital projects and,
under less stringent restrictions, to finance revenue-producing capital
projects. Also, "special fund" revenue bonds, to which the constitutional debt
restrictions do not apply and which are not supported by the full faith and
credit of the Commonwealth, may be issued to finance qualifying Commonwealth
revenue projects.
General obligations of cities, towns and counties are payable from the general
revenues of the entity, including ad valorem tax revenues on property within
the jurisdiction. Revenue obligations issued by other entities are customarily
payable only from revenues from the particular project or projects involved.
The economy of Virginia is based primarily on manufacturing, the government
sector, agriculture, mining and tourism, and unemployment rates are typically
below the national average. June 1995 unemployment was 4.4% versus a national
rate of 5.6%. The Commonwealth has a long history of fiscal stability, due in
large part to a conservative financial philosophy, broad-based employment
opportunities and diverse sources of revenue. In the past decade, however, the
Commonwealth has experienced cycles of financial stringency. No significant
new taxes or increases were enacted by the General Assembly at the 1995
session.
As a result of litigation involving proceedings before the United States
Supreme Court, the Commonwealth may be obligated to refund tax payments made
by federal pensioners of up to $707.5 million. Legislation has been enacted to
effect a settlement of the litigation, but the claimants have not accepted its
terms.
General obligations of Virginia are rated Aaa, AAA, and AAA by Moody's, S&P
and Fitch, respectively.
VIRGINIA TAXES. In the opinion of Hunton & Williams, special Virginia tax
counsel to the Virginia Fund, under existing Virginia law, distributions from
the Virginia Fund will not be subject to Virginia individual, trust, estate,
or corporate income taxation to the extent that such distributions are either
(i) excluded from federal gross income and attributable to interest the
Virginia Fund, either directly or through the Virginia Portfolio, receives on
obligations of Virginia, its political subdivisions, or its instrumentalities,
or Puerto Rico, U.S. Virgin Islands, or Guam or (ii) attributable to interest
the Virginia Fund, either directly or through the Virginia Portfolio, receives
on direct obligations of the United States. These Virginia income tax
exemptions will be available only if the Virginia Fund complies with the
requirement of the Code that at least 50% of the value of its assets at the
close of each quarter of its taxable year is invested, either directly or
through the Virginia Portfolio, in state, municipal, or other obligations
described in (S) 103 (1) of the Code. The Virginia Fund intends to comply with
that requirement.
Other distributions from the Virginia Fund, including capital gains, generally
will not be exempt from Virginia income taxation.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry shares of the Virginia Fund generally will not be deductible
for Virginia income tax purposes.
Neither the Trust nor the Virginia Fund will be subject to any Virginia
intangible property tax on any obligations in the Virginia Portfolio. In
addition, shares of the Virginia Fund held for investment purposes will not be
subject to any Virginia intangible personal property tax.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly
from fiscal 1984 through fiscal 1990, the rate of this expansion slowed during
fiscal years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several
factors, including the state of the U.S. economy and the relative stability in
the price of oil, the exchange rate of the U.S. dollar and the cost of
borrowing. Although the Puerto Rico unemployment rate has declined
substantially since 1985, the seasonally adjusted unemployment rate for June,
1995 was approximately 13.9%. The North American Free Trade Agreement (NAFTA),
which became effective January 1, 1994, could lead to the loss of Puerto
Rico's lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. Reliance
on nonrecurring revenues and economic weakness led S&P to change its outlook
from stable to negative.
<PAGE>
EV MARATHON MUNICIPAL FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
JANUARY 1, 1996
EV MARATHON ALABAMA MUNICIPALS FUND
EV MARATHON ARKANSAS MUNICIPALS FUND
EV MARATHON GEORGIA MUNICIPALS FUND
EV MARATHON KENTUCKY MUNICIPALS FUND
EV MARATHON LOUISIANA MUNICIPALS FUND
EV MARATHON MARYLAND MUNICIPALS FUND
EV MARATHON MISSOURI MUNICIPALS FUND
EV MARATHON NORTH CAROLINA MUNICIPALS FUND
EV MARATHON OREGON MUNICIPALS FUND
EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
EV MARATHON TENNESSEE MUNICIPALS FUND
EV MARATHON VIRGINIA MUNICIPALS FUND
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street,
Boston, MA 02110 (617) 482-8260
CUSTODIAN
Investors Bank & Trust Company, 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 M-TFC1/1P
<PAGE>
EV TRADITIONAL ALABAMA MUNICIPALS FUND
EV TRADITIONAL ARKANSAS MUNICIPALS FUND
EV TRADITIONAL GEORGIA MUNICIPALS FUND
EV TRADITIONAL KENTUCKY MUNICIPALS FUND
EV TRADITIONAL LOUISIANA MUNICIPALS FUND
EV TRADITIONAL MARYLAND MUNICIPALS FUND
EV TRADITIONAL MISSOURI MUNICIPALS FUND
EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL OREGON MUNICIPALS FUND
EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL TENNESSEE MUNICIPALS FUND
EV TRADITIONAL VIRGINIA MUNICIPALS FUND
(each is currently an "EV Classic [State] Municipals Fund")
SUPPLEMENT TO PROSPECTUS DATED JANUARY 1, 1996
THE ATTACHED PROSPECTUS REFLECTS A SALES CHARGE AND FEE STRUCTURE WHICH WILL BE
IN EFFECT FOR SHARES PURCHASED ON OR AFTER FEBRUARY 1, 1996. The following
information applies to Fund shares purchased prior to February 1, 1996:
1. THE FOLLOWING REPLACES THE "SHAREHOLDER AND FUND EXPENSE TABLE":
SHAREHOLDER AND FUND EXPENSES
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charges Imposed on Redemptions During the
First Year
(as a percentage of redemption proceeds exclusive of all
reinvestments and capital
appreciation in the account) 1.00%
<TABLE>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.40% 0.37% 0.41% 0.42%
Rule 12b-1 Distribution Fee (and Service) Fees 0.22 0.22 0.22 0.22
Other Expenses (after expense reduction) 0.33 0.10 0.19 0.09
---- ---- ---- ----
Total Operating Expenses 0.95% 0.69% 0.82% 0.73%
==== ==== ==== ====
EXAMPLE
- ------------------------------------------------------------------------------------------------------------------------------------
An investor would pay the following expenses (including a contingent deferred sales charge in the case of redemption during the
first year after purchase) on a $1,000 investment, assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1 Year $ 20 $17 $ 18 $17
3 Years 30 22 26 23
5 Years 53 38 46 41
10 Years 117 86 101 91
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no redemptions:
1 Year $ 10 $ 7 $ 8 $7
3 Years 30 22 26 23
5 Years 53 38 46 41
10 Years 117 86 101 91
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Adviser Fee (after any applicable expense 0.12% 0.40% 0.38% 0.44%
reduction)
Rule 12b-1 Distribution Fee (and Service) Fees 0.22 0.22 0.22 0.22
Other Expenses (after expense reduction) 0.34 0.15 0.28 0.16
---- ---- ---- ----
Total Operating Expenses 0.68% 0.77% 0.88% 0.82%
==== ==== ==== ====
EXAMPLE
- ------------------------------------------------------------------------------------------------------------------------------------
An investor would pay the following expenses (including a contingent deferred sales charge in the case of redemption during the
first year after purchase) on a $1,000 investment, assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1 Year $17 $18 $ 19 $ 18
3 Years 22 25 28 26
5 Years 38 43 49 46
10 Years 85 95 108 101
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no redemptions:
1 Year $ 7 $ 8 $ 9 $ 8
3 Years 22 25 28 26
5 Years 38 43 49 46
10 Years 85 95 108 101
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Adviser Fee 0.42% 0.33% 0.31% 0.44%
Rule 12b-1 Distribution Fee (and Service) Fees 0.22 0.22 0.22 0.22
Other Expenses (after expense reduction) 0.14 0.33 0.19 0.03
---- ---- ---- ----
Total Operating Expenses 0.78% 0.88% 0.72% 0.69%
==== ==== ==== ====
EXAMPLE
- ------------------------------------------------------------------------------------------------------------------------------------
An investor would pay the following expenses (including a contingent deferred sales charge in the case of redemption during the
first year after purchase) on a $1,000 investment, assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1 Year $18 $ 19 $17 $17
3 Years 25 28 23 22
5 Years 43 49 40 38
10 Years 97 108 89 86
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no redemptions:
1 Year $ 8 $ 9 $ 7 $ 7
3 Years 25 28 23 22
5 Years 43 49 40 38
10 Years 97 108 89 86
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year, except that
Service Plan Fees are estimated for the fiscal year ending August 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: Alabama Fund
Other Expenses would have been 0.45% and Total Operating Expenses would have
been 1.07%; Arkansas Fund Other Expenses would have been 2.77% and Total
Operating Expenses would have been 3.36%; Georgia Fund Other Expenses would have
been 0.85% and Total Operating Expenses would have been 1.48%; Kentucky Fund
Other Expenses would have been 1.45% and Total Operating Expenses would have
been 2.09%; Louisiana Fund Investment Adviser Fee and Other Expenses would have
been 0.23% and 0.80%, respectively, and Total Operating Expenses would have been
1.25%; Maryland Fund Other Expenses would have been 2.21% and Total Operating
Expenses would have been 2.83%; Missouri Fund Other Expenses would have been
0.90% and Total Operating Expenses would have been 1.50%; North Carolina Fund
Other Expenses would have been 0.43% and Total Operating Expenses would have
been 1.09%; Oregon Fund Other Expenses would have been 1.79% and Total Operating
Expenses would have been 2.43%; South Carolina Fund Other Expenses would have
been 1.30% and Total Operating Expenses would have been 1.85%; Tennessee Fund
Other Expenses would have been 1.66% and Total Operating Expenses would have
been 2.19%; and Virginia Fund Other Expenses would have been 1.44% and Total
Operating Expenses would have been 2.10%.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than, the per share
expenses the Fund would incur if the Fund were instead to retain the services of
an investment adviser and its assets were invested directly in the type of
securities being held by its corresponding Portfolio.
The Examples should not be considered a representation of past or future
expenses, and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual return
will vary. For further information regarding the expenses of the Funds and the
Portfolios see "The Funds" Financial Highlights", "Organization of the Funds and
the Portfolios", "Management of the Funds and the Portfolios" and "How to Redeem
Fund Shares". A long-term shareholder in a Fund may pay more than the economic
equivalent of the maximum front-end sales charge permitted by a rule of the
National Association of Securities Dealers, Inc. See "Distribution Plans."
No contingent deferred sales charge is imposed on (a) shares purchased more than
one year prior to redemption, (b) shares acquired through the reinvestment of
dividends and distributions or (c) any appreciation in value of other shares in
the account (see "How to Redeem Fund Shares"), and no such charge is imposed on
exchanges of Fund shares for shares of one or more other funds listed under "The
Eaton Vance Exchange Privilege."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 13.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolio and others may do so in the future. See
"Organization of the Funds and the Portfolios".
2. THE FOLLOWING REPLACES THE "SERVICE PLANS" SECTION:
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940. Rule
12b-1 permits a mutual fund, such as a Fund, to finance distribution activities
and bear expenses associated with the distribution of its shares provided that
any payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. Each Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). Each Fund's Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plans. Each Fund's Plan provides that the Fund, subject to the NASD Rule, will
pay sales commissions and distribution fees to the Principal Underwriter only
after and as a result of the sale of shares of the Fund. On each sale of Fund
shares (excluding reinvestment of distributions) a Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 6.25% of the
amount received by a Fund for each share sold and (ii) distribution fees
calculated by applying the rate of 1% over the prime rate then reported in The
Wall Street Journal to the outstanding balance of Uncovered Distribution Charges
(as described below) of the Principal Underwriter. On sales of shares made prior
to January 30, 1995, the Principal Underwriter currently pays monthly sales
commissions to a financial service firm (an "Authorized Firm") in amounts
anticipated to be equivalent to .75%, annualized, of the assets maintained in a
Fund by the customers of such Firm. On sales of shares made on January 30, 1995
and thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .80% of the purchase price of the
shares sold by such Firm, and (b) monthly sales commissions approximately
equivalent to 1/12 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
theretofore paid to the Principal Underwriter. The Eaton Vance organization may
be considered to have realized a profit under a Fund's Plan if at any point in
time the aggregate amounts of all payments made to the Principal Underwriter
pursuant to a Fund's Plan, including any contingent deferred sales charges, have
exceeded the total expenses theretofore incurred by such organization in
distributing shares of the Fund. Total expenses for this purpose will include an
allocable portion of the overhead costs of such organization and its branch
offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of a Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under each Fund's Plan over an extended period would result
in the incurrence and payment of increased distribution fees under the Plan.
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.
3. THE FOLLOWING REPLACES THE FIRST SEVEN PARAGRAPHS UNDER "HOW TO BUY FUND
SHARES":
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may refuse
an order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold. An Authorized Firm may
charge its customers a fee in connection with transactions executed by that
Firm.
4. THE FOLLOWING INFORMATION REPLACES THE FINAL TWO PARAGRAPHS UNDER "HOW TO
REDEEM FUND SHARES":
CONTINGENT DEFERRED SALES CHARGE. Shares purchased on or after January 30, 1995
and redeemed within the first year of their purchase (except shares acquired
through the reinvestment of distributions) generally will be subject to a
contingent deferred sales charge equal to 1% of the net asset value of redeemed
shares. This contingent deferred sales charge is imposed on any redemption the
amount of which exceeds the aggregate value at the time of redemption of (a) all
shares in the account purchased more than one year prior to the redemption, (b)
all shares in the account acquired through reinvestment of distributions, and
(c) the increase, if any, of value in the other shares in the account (namely
those purchased within the year preceding the redemption) over the purchase
price of such shares. Redemptions are processed in a manner to maximize the
amount of redemption proceeds which will not be subject to a contingent deferred
sales charge. That is, each redemption will be assumed to have been made first
from the exempt amounts referred to in clauses (a), (b) and (c) above, and
second through liquidation of those shares in the account referred to in clause
(c) on a first-in-first-out basis. In calculating the contingent deferred sales
charge upon the redemption of Fund shares acquired in an exchange for shares of
a fund currently listed under "The Eaton Vance Exchange Privilege," the purchase
of Fund shares acquired in the exchange is deemed to have occurred at the time
of the original purchase of exchanged shares.
No contingent deferred sales charge will be imposed on shares of a Fund which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will 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, or (3) as part
of a minimum required distribution from other tax-sheltered retirement plans.
The contingent deferred sales charge will be paid to the Principal Underwriter
or the Fund. When paid to the Principal Underwriter it will reduce the amount of
Uncovered Distribution Charges calculated under the Fund's Distribution Plan.
5. THE FOLLOWING REPLACES THE FIRST PARAGRAPH UNDER THE "THE EATON VANCE
EXCHANGE PRIVILEGE" SECTION:
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.
6. UNDER "EATON VANCE SHAREHOLDER SERVICES" DELETE THE SUBSECTIONS ENTITLED
"STATEMENT OF INTENTION" AND "RIGHT OF ACCUMULATION". THE SUBSECTIONS
"WITHDRAWAL PLAN" AND REINVESTMENT PRIVILEGE" ARE REPLACED WITH THE
FOLLOWING:
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.
7. THE SECTION "STATEMENT OF INTENTION AND ESCROW AGREEMENT" DOES NOT APPLY.
January 1, 1996 T-TFC1/1PS
<PAGE>
EV TRADITIONAL
OREGON MUNICIPALS FUND
SUPPLEMENT TO PROSPECTUS DATED
JANUARY 1, 1996
David C. Reilly is the portfolio manager of the Oregon Portfolio. See page
14 of the Prospectus for information concerning Mr. Reilly.
January 1, 1996
T-TFC1/1PS2
<PAGE>
<TABLE>
<CAPTION>
EV TRADITIONAL
MUNICIPAL FUNDS
- ---------------------------------------------------------------------------------------------
<S> <C>
EV TRADITIONAL ALABAMA MUNICIPALS FUND EV TRADITIONAL MISSOURI MUNICIPALS FUND
EV TRADITIONAL ARKANSAS MUNICIPALS FUND EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL GEORGIA MUNICIPALS FUND EV TRADITIONAL OREGON MUNICIPALS FUND
EV TRADITIONAL KENTUCKY MUNICIPALS FUND EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL LOUISIANA MUNICIPALS FUND EV TRADITIONAL TENNESSEE MUNICIPALS FUND
EV TRADITIONAL MARYLAND MUNICIPALS FUND EV TRADITIONAL VIRGINIA MUNICIPALS FUND
</TABLE>
THE EV TRADITIONAL MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THEIR
RESPECTIVE STATE TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES" IN
THIS PROSPECTUS. EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-
DIVERSIFIED OPEN-END INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL
FUNDS. EACH FUND IS A SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
combined Statement of Additional Information dated January 1, 1996 for the
Funds, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses ........................... 2 How to Redeem Fund Shares ............................. 17
The Funds' Financial Highlights ......................... 4 Reports to Shareholders ............................... 18
The Fund's Investment Objectives ........................ 7 The Lifetime Investing Account/Distribution Options ... 18
How the Funds and the Portfolios Invest their Assets .... 8 The Eaton Vance Exchange Privilege .................... 19
Organization of the Funds and the Portfolios ............ 11 Eaton Vance Shareholder Services ...................... 20
Management of the Funds and the Portfolios .............. 13 Distributions and Taxes ............................... 21
Service Plans ........................................... 15 Performance Information ............................... 22
Valuing Fund Shares ..................................... 15 Statement of Intention and Escrow Agreement ........... 23
How to Buy Fund Shares .................................. 16 Appendix - State Specific Information ................. 24
</TABLE>
PROSPECTUS DATED JANUARY 1, 1996
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES
-------------------------------------------------------------------------------------------------------
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
Contingent Deferred Sales Charges (on purchases of $1 million or more) Imposed on
Redemptions During the First Twelve Months (as a percentage of redemption
proceeds exclusive of all reinvestments and capital appreciation in the
account) 0.50%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-------------------------------------------------------------------------------------------------------
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.40% 0.37% 0.41% 0.42%
Rule 12b-1 Service Fees (Service Plan) 0.15 0.15 0.15 0.15
Other Expenses (after expense reduction) 0.33 0.10 0.19 0.09
---- ---- ---- ----
Total Operating Expenses 0.88% 0.62% 0.75% 0.66%
==== ==== ==== ====
<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:
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 46 $ 44 $ 45 $ 44
3 Years 65 57 61 58
5 Years 84 71 78 73
10 Years 142 112 127 117
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
----------------------------------------------------------------------------------------------------------
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any
applicable expense reduction) 0.12% 0.40% 0.38% 0.44%
Rule 12b-1 Service Fees (Service Plan) 0.15 0.15 0.15 0.15
Other Expenses (after expense reduction) 0.34 0.15 0.28 0.16
---- ---- ---- ----
Total Operating Expenses 0.61% 0.70% 0.81% 0.75%
==== ==== ==== ====
<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:
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 44 $ 44 $ 45 $ 45
3 Years 56 59 62 61
5 Years 70 75 81 78
10 Years 111 121 134 127
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
----------------------------------------------------------------------------------------------------------
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee 0.42% 0.33% 0.31% 0.44%
Rule 12b-1 Service Fees (Service Plan) 0.15 0.15 0.15 0.15
Other Expenses (after expense reduction) 0.14 0.33 0.19 0.03
---- ---- ---- ----
Total Operating Expenses 0.71% 0.81% 0.65% 0.62%
==== ==== ==== ====
<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:
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 44 $ 45 $ 44 $ 44
3 Years 59 62 58 57
5 Years 76 81 72 71
10 Years 122 134 116 112
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds
and the Portfolios and are designed to help investors understand the
costs and expenses they will bear, directly or indirectly, by investing
in a Fund. Information for each Fund is based on its expenses for the
most recent fiscal year, except that Service Plan Fees are estimated for
the fiscal year ending August 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: Alabama Fund Other
Expenses would have been 0.45% and Total Operating Expenses would have
been 1.00%; Arkansas Fund Other Expenses would have been 2.77% and Total
Operating Expenses would have been 3.29%; Georgia Fund Other Expenses
would have been 0.85% and Total Operating Expenses would have been
1.41%; Kentucky Fund Other Expenses would have been 1.45% and Total
Operating Expenses would have been 2.02%; Louisiana Fund Investment
Adviser Fee and Other Expenses would have been 0.23% and 0.80%,
respectively, and Total Operating Expenses would have been 1.13%;
Maryland Fund Other Expenses would have been 2.21% and Total Operating
Expenses would have been 2.76%; Missouri Fund Other Expenses would have
been 0.90% and Total Operating Expenses would have been 1.43%; North
Carolina Fund Other Expenses would have been 0.43% and Total Operating
Expenses would have been 1.02%; Oregon Fund Other Expenses would have
been 1.79% and Total Operating Expenses would have been 2.36%; South
Carolina Fund Other Expenses would have been 1.30% and Total Operating
Expenses would have been 1.78%; Tennessee Fund Other Expenses would have
been 1.66% and Total Operating Expenses would have been 2.12%; and
Virginia Fund Other Expenses would have been 1.44% and Total Operating
Expenses would have been 2.03%.
Each Fund invests exclusively in its corresponding Portfolio. The
Trustees believe the aggregate per share expenses of a Fund and its
corresponding Portfolio should approximate, and over time may be less
than, the per share expenses the Fund would incur if the Fund were
instead to retain the services of an investment adviser and its assets
were invested directly in the type of securities being held by its
corresponding Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
Federal regulations require the Examples to assume a 5% annual return,
but actual return will vary. For further information regarding the
expenses of the Funds and the Portfolios see "The Funds" Financial
Highlights", "Organization of the Funds and the Portfolios", "Management
of the Funds and the Portfolios", "Service Plans" and "How to Redeem
Fund Shares".
If shares of a Fund are 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
contingent deferred sales charge of 0.50% will be imposed on such
redemption. 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 14.
Other investment companies with different distribution
arrangements and fees are investing in the Portfolios and
others may do so in the future. See "Organization of the Funds
and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Funds' annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of a Fund is contained in its annual report to
shareholders which may be obtained without charge by contacting the Principal
Underwriter, Eaton Vance Distributors, Inc.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------------------------------------
ALABAMA FUND ARKANSAS FUND GEORGIA FUND KENTUCKY FUND
------------------------ ---------------------- ------------------------ -------------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year $ 9.320 $10.000 $ 9.530 $10.000 $ 9.220 $10.000 $ 9.210 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.418 $ 0.296 $ 0.424 $ 0.214 $ 0.412 $ 0.294 $ 0.423 $ 0.285
Net realized and
unrealized gain (loss)
on investments 0.207 (0.628) 0.075 (0.430) (0.011) (0.726) 0.128++ (0.730)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.625 $(0.332) $ 0.499 $(0.216) $ 0.401 $(0.432) $ 0.551 $(0.445)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.418) $(0.296) $(0.424) $(0.214) $(0.412) $(0.294) $(0.423) $(0.285)
In excess of net
investment income (0.017) (0.052) (0.015) (0.040) (0.019) (0.054) (0.018) (0.060)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.435) $(0.348) $(0.439) $(0.254) $(0.431) $(0.348) $(0.441) $(0.345)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.510 $ 9.320 $ 9.590 $ 9.530 $ 9.190 $ 9.220 $ 9.320 $ 9.210
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN\1/ 6.90% (3.44)% 5.52% (2.25)% 4.60% (4.56)% 6.29% (4.60)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 9,427 $11,732 $ 533 $ 627 $ 2,487 $ 2,989 $ 1,823 $ 3,065
Ratio of net expenses to
average daily net
assets\2/ 1.68% 1.49%+ 1.42% 1.59%+ 1.55% 1.64%+ 1.46% 1.69%+
Ratio of net investment
income to average daily
net assets 4.59% 4.23%+ 4.56% 3.97%+ 4.62% 4.09%+ 4.81% 4.12%+
** For the periods indicated, operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income (loss) per share and the
ratios would have been:
NET INVESTMENT INCOME (LOSS)
PER SHARE $ 0.408 $ 0.280 $ 0.175 $(0.005) $ 0.353 $ 0.253 $ 0.303 $ 0.253
======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of
average daily net assets):
Expenses\2/ 1.80% 1.71%+ 4.09% 5.66%+ 2.21% 2.20%+ 2.82% 2.26%+
Net investment income
(loss) 4.47% 4.01%+ 1.89% (0.10)%+ 3.96% 3.53%+ 3.45% 3.56%+
(See footnotes on page 6.)
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------------------------------------
LOUISIANA FUND MARYLAND FUND MISSOURI FUND NORTH CAROLINA FUND
------------------------ ---------------------- ------------------------ -------------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year $ 9.470 $10.000 $ 9.210 $10.000 $ 9.290 $10.000 $ 9.280 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.449 $ 0.223 $ 0.421 $ 0.277 $ 0.419 $ 0.289 $ 0.427 $ 0.295
Net realized and
unrealized gain (loss)
on investments (0.011) (0.486) 0.187 (0.731) 0.208 (0.651) 0.016 (0.666)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.438 $(0.263) $ 0.608 $(0.454) $ 0.627 $(0.362) $ 0.443 $(0.371)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.449) $(0.223) $(0.421) $(0.277) $(0.419) $(0.289) $(0.427) $(0.295)
In excess of net
investment income (0.019) (0.044) (0.017) (0.059) (0.018) (0.059) (0.016) (0.054)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.468) $(0.267) $(0.438) $(0.336) $(0.437) $(0.348) $(0.443) $(0.349)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.440 $ 9.470 $ 9.380 $ 9.210 $ 9.480 $ 9.290 $ 9.280 $ 9.280
======= ======= ======= ======= ======= ======= ======= -------
TOTAL RETURN\1/ 4.88% (2.72)% 6.91% (4.68)% 7.08% (3.76)% 5.02% (3.85)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 2,384 $ 3,141 $ 939 $ 1,188 $ 3,163 $ 3,859 $ 6,115 $ 7,411
Ratio of net expenses to
average daily net
assets\2/ 1.41% 1.57%+ 1.50% 1.64%+ 1.61% 1.61%+ 1.55% 1.56%+
Ratio of net investment
income to average daily
net assets 4.90% 4.16%+ 4.71% 4.07%+ 4.62% 4.20%+ 4.72% 4.19%+
** For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income per share and the ratios
would have been:
NET INVESTMENT INCOME (LOSS)
PER SHARE $ 0.401 $ 0.169 $ 0.238 $ 0.046 $ 0.363 $ 0.255 $ 0.403 $ 0.263
======= ======= ======= ======= ======= ======= ======= -------
RATIOS (As a percentage of
average daily net assets):
Expenses\2/ 1.93% 2.77%+ 3.56% 5.07%+ 2.23% 2.19%+ 1.82% 2.01%+
Net investment income 4.38% 2.96%+ 2.65% 0.64%+ 4.00% 3.62%+ 4.45% 3.74%+
(See footnotes on page 6.)
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------------------------
OREGON FUND SOUTH CAROLINA FUND TENNESSEE FUND VIRGINIA FUND
----------------------- -------------------- ---------------------- ---------------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year $ 9.240 $10.000 $ 9.370 $10.000 $ 9.220 $10.000 $ 9.210 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.406 $ 0.263 $ 0.413 $ 0.205 $ 0.425 $ 0.285 $ 0.434 $ 0.296
Net realized and
unrealized gain (loss)
on investments 0.221++ (0.703) 0.067++ (0.587) 0.131 (0.724) 0.138 (0.732)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.627 $(0.440) $ 0.480 $(0.382) $ 0.556 $(0.439) $ 0.572 $(0.436)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.406) $(0.263) $(0.413) $(0.205) $(0.425) $(0.285) $(0.434) $(0.296)
In excess of net
investment income (0.021) (0.057) (0.017) (0.043) (0.021) (0.056) (0.018) (0.058)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.427) $(0.320) $(0.430) $(0.248) $(0.446) $(0.341) $(0.452) $(0.354)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.440 $ 9.240 $ 9.420 $ 9.370 $ 9.330 $ 9.220 $ 9.330 $ 9.210
======= ======= ======= ======= ======= ======= ======= -------
TOTAL RETURN\1/ 7.11% (4.54)% 5.38% (3.92)% 6.32% (4.54)% 6.51% (4.51)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $ 998 $ 1,878 $ 1,245 $ 2,309 $ 1,084 $ 1,132 $ 1,488 $ 1,315
Ratio of net expenses to
average daily net
assets\2/ 1.51% 1.65%+ 1.61% 1.76%+ 1.45% 1.59%+ 1.42% 1.54%+
Ratio of net investment
income to average daily
net assets 4.61% 3.99%+ 4.61% 4.06%+ 4.71% 4.15%+ 4.79% 4.31%+
** For periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Administrator and/or Investment Adviser. Had such actions not been taken, net investment income per share and the ratios
would have been:
NET INVESTMENT INCOME (LOSS)
PER SHARE $ 0.261 $ 0.153 $ 0.326 $ 0.161 $ 0.292 $ 0.158 $ 0.306 $ 0.190
======= ======= ======= ======= ======= ======= ======= -------
RATIOS (As a percentage of
average daily net assets):
Expenses\2/ 3.16% 3.33%+ 2.58% 2.62%+ 2.92% 3.50%+ 2.83% 3.08%+
Net investment income 2.96% 2.31%+ 3.64% 3.19%+ 3.24% 2.24%+ 3.38% 2.77%+
<FN>
- ----------------
Footnotes:
* For the Alabama, Arkansas, Georgia, Kentucky, Louisiana, Maryland, Missouri, North Carolina, Oregon, South Carolina,
Tennessee and Virginia Funds, the Financial Highlights are for the period from the start of business, December 7, 1993,
February 9, 1994, December 7, 1993, December 7, 1993, February 14, 1993, December 10, 1993, December 7, 1993, December 7,
1993, December 28, 1993, February 14, 1994, December 9, 1993 and December 17, 1993, respectively, to August 31, 1994.
+ Annualized.
++ The per share amount is not in accord with the net realized gain (loss) for the period because of the timing of sales of
Fund shares and the amount of per share realized and unrealized gains and losses at such time.
\1/ Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value
on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Total Return is computed on a non-annualized basis.
\2/ Includes the Fund's share of its corresponding Portfolio's allocated expenses.
\3/ Prior to February 1, 1996, each Fund made distribution fee payments pursuant to a Distribution Plan. See "Service Plans."
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- ------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) which are rated
at least investment grade by a major rating agency or, if unrated, determined to
be of at least investment grade quality by the Investment Adviser. Each
Portfolio has the same investment objective as its corresponding Fund.
EV TRADITIONAL ALABAMA MUNICIPALS FUND (the "Alabama Fund") seeks to provide
current income exempt from regular federal income tax and Alabama State personal
income taxes. The Alabama Fund seeks to meet its objective by investing its
assets in the Alabama Municipals Portfolio (the "Alabama Portfolio").
EV TRADITIONAL ARKANSAS MUNICIPALS FUND (the "Arkansas Fund") seeks to provide
current income exempt from regular federal income tax and Arkansas State
personal income taxes. The Arkansas Fund seeks to meet its objective by
investing its assets in the Arkansas Municipals Portfolio (the "Arkansas
Portfolio").
EV TRADITIONAL GEORGIA MUNICIPALS FUND (the "Georgia Fund") seeks to provide
current income exempt from regular federal income tax and Georgia State personal
income taxes. The Georgia Fund seeks to meet its objective by investing its
assets in the Georgia Municipals Portfolio (the "Georgia Portfolio").
EV TRADITIONAL KENTUCKY MUNICIPALS FUND (the "Kentucky Fund") seeks to provide
current income exempt from regular federal income tax and Kentucky state
personal income taxes in the form of an investment exempt from the Kentucky
intangibles tax. The Kentucky Fund seeks to meet its objective by investing its
assets in the Kentucky Municipals Portfolio (the "Kentucky Portfolio").
EV TRADITIONAL LOUISIANA MUNICIPALS FUND (the "Louisiana Fund") seeks to provide
current income exempt from regular federal income tax and Louisiana State
individual and corporate income taxes. The Louisiana Fund seeks to meet its
objective by investing its assets in the Louisiana Municipals Portfolio (the
"Louisiana Portfolio").
EV TRADITIONAL MARYLAND MUNICIPALS FUND (the "Maryland Fund") seeks to provide
current income exempt from regular federal income tax and Maryland State and
local income taxes. The Maryland Fund seeks to meet its objective by investing
its assets in the Maryland Municipals Porfolio (the "Maryland Portfolio").
EV TRADITIONAL MISSOURI MUNICIPALS FUND (the "Missouri Fund") seeks to provide
current income exempt from regular federal income tax and Missouri State
personal income taxes. The Missouri Fund seeks to meet its objective by
investing in the Missouri Municipals Portfolio (the "Missouri Portfolio").
EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND (the "North Carolina Fund") seeks
to provide current income exempt from regular federal income tax and North
Carolina State personal income taxes. The North Carolina Fund seeks to meet its
objective by investing its assets in the North Carolina Municipals Portfolio
(the "North Carolina Portfolio").
EV TRADITIONAL OREGON MUNICIPALS FUND (the "Oregon Fund") seeks to provide
current income exempt from regular federal income tax and Oregon State personal
income taxes. The Oregon Fund seeks to meet its objective by investing its
assets in the Oregon Municipals Portfolio (the "Oregon Portfolio").
EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND (the "South Carolina Fund") seeks
to provide current income exempt from regular federal income tax and South
Carolina State personal income taxes. The South Carolina Fund seeks to meet its
objective by investing its assets in the South Carolina Municipals Portfolio
(the "South Carolina Portfolio").
EV TRADITIONAL TENNESSEE MUNICIPALS FUND (the "Tennessee Fund") seeks to provide
current income exempt from regular federal income tax and Tennessee State
personal income taxes. The Tennessee Fund seeks to meet its objective by
investing its assets in the Tennessee Municipals Portfolio (the "Tennessee
Portfolio").
EV TRADITIONAL VIRGINIA MUNICIPALS FUND (the "Virginia Fund") seeks to provide
current income exempt from regular federal income tax and Virginia state
personal income taxes. The Virginia Fund seeks to meet its objective by
investing its assets in the Virginia Municipals Portfolio (the "Virginia
Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE WITH
ITS INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy is a
fundamental policy of each Fund and its corresponding Portfolio, which may not
be changed unless authorized by a vote of the Fund's shareholders or that
Portfolio's investors, as the case may be.
At least 75% of the net assets of the Alabama Portfolio, Arkansas Portfolio,
Georgia Portfolio, Louisiana Portfolio, Maryland Portfolio, Missouri Portfolio,
North Carolina Portfolio, South Carolina Portfolio, Tennessee Portfolio and
Virginia Portfolio and at least 70% of the net assets of the Kentucky Portfolio
and Oregon Portfolio will normally be invested in obligations rated at least
investment grade at the time of investment (which are those rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by either
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch")) or, if unrated, determined by the Investment Adviser to be of at
least investment grade quality. The balance of each Portfolio's net assets may
be invested in municipal obligations rated below investment grade (but not lower
than B by Moody's, S&P or Fitch) and unrated municipal obligations considered to
be of comparable quality by the Investment Adviser. Municipal obligations rated
Baa or BBB may have speculative characteristics. Also, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than in the case of higher rated
obligations. Securities rated below BBB or Baa are commonly known as "junk
bonds". A Portfolio may retain an obligation whose rating drops below B after
its acquisition if such retention is considered desirable by the Investment
Adviser. See "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
August 31, 1995, the Portfolios had invested in such obligations as follows (as
a percentage of net assets): Alabama Portfolio (8.2%); Arkansas Portfolio
(17.0%); Georgia Portfolio (14.3%); Kentucky Portfolio (16.4%); Louisiana
Portfolio (19.5%); Maryland Portfolio (14.1%); Missouri Portfolio (9.8%); North
Carolina Portfolio (7.3%); Oregon Portfolio (15.4%); South Carolina Portfolio
(18.5%); Tennessee Portfolio (14.2%); and Virginia Portfolio (15.9%). At August
31, 1995, the Portfolios limited their investment in obligations subject to the
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 effected by economic developments and by legislation and
other governmental activities in that State. To the extent that a Portfolio's
assets are concentrated in municipal obligations of issuers of a single State,
that Portfolio may be subject to an increased risk of loss. Each Portfolio may
also invest in obligations issued by the governments of Puerto Rico, the U.S.
Virgin Islands and Guam. See the Appendix to this Prospectus for a description
of 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. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its 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. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the Municipal
Bond Index traded on the Chicago Board of Trade) and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not purchase
or sell futures contracts or related options, except for closing purchase or
sale transactions, if immediately thereafter the sum of the amount of margin
deposits and premiums paid on the Portfolio's outstanding positions would exceed
5% of the market value of the Portfolio's net assets. These transactions involve
transaction costs. There can be no assurance that the Investment Adviser's use
of futures will be advantageous to a Portfolio. Distributions by a Fund of any
gains realized on its corresponding Portfolio's transactions in futures and
options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of a Fund's shares.
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 and because the Trust can offer separate series
(such as the Funds) it is known as a "series company." Each share represents an
equal proportionate beneficial interest in a Fund. When issued and outstanding,
each Fund's shares are fully paid and nonassessable by the Trust and redeemable
as described under "How to Redeem Fund Shares." Shareholders are entitled to one
vote for each full share held. Fractional shares may be voted proportionately.
Shares have no preemptive or conversion rights and are freely transferable. In
the event of the liquidation of a Fund, shareholders of that Fund are entitled
to share pro rata in the net assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that Portfolio
(e.g., other U.S. and foreign investment companies, and common and commingled
trust funds) will each be liable for all obligations of the Portfolio. However,
the risk of a Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in a
Fund should be aware that the Fund, unlike mutual funds which directly acquire
and manage their own portfolios of securities, seeks to achieve its investment
objective by investing its assets in an interest in its corresponding Portfolio,
which is a separate investment company with an identical investment objective
(although the Fund may temporarily hold a de 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 become less diverse, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured mutual funds which have large or institutional
investors.
Until 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 and furnishes for the use
of each Portfolio office space and all necessary office facilities, equipment
and personnel for servicing the investments of the Portfolios. Under its
investment advisory agreement with a Portfolio, BMR receives a monthly advisory
fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $20 million .......................................... 0.100% 1.00%
2 $20 million but less than $40 million ...................... 0.200% 2.00%
3 $40 million but less than $500 million ..................... 0.300% 3.00%
4 $500 million but less than $1 billion ...................... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ...................... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ...................... 0.225% 2.25%
7 $2 billion but less than $3 billion ........................ 0.200% 2.00%
8 $3 billion and over ........................................ 0.175% 1.75%
</TABLE>
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory fees
for the fiscal year ended August 31, 1995 equivalent to the annualized
percentage of average daily net assets stated below.
<TABLE>
<CAPTION>
NET ASSETS AS OF
PORTFOLIO AUGUST 31, 1995 ADVISORY FEE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alabama ........................................................ $118,486,053 0.40%
Arkansas ....................................................... 81,535,002 0.37%
Georgia ........................................................ 122,948,667 0.41%
Kentucky ....................................................... 145,268,626 0.42%
Louisiana ...................................................... 34,308,679 0.23%\1/
Maryland ....................................................... 115,004,176 0.40%
Missouri ....................................................... 93,162,103 0.38%
North Carolina ................................................. 195,178,724 0.44%
Oregon ......................................................... 146,390,921 0.42%
South Carolina ................................................. 61,411,668 0.33%
Tennessee ...................................................... 58,673,303 0.31%
Virginia ....................................................... 191,747,922 0.44%
<FN>
\1/ To enhance the net income of the Louisiana Portfolio, BMR made a reduction
of its advisory fee in the amount of $36,188.
</TABLE>
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $16 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
Timothy T. Browse has acted as the portfolio manager of the Alabama, Arkansas
and Maryland Portfolios since they commenced operations. He has been a Vice
President of Eaton Vance and of BMR since 1993 and an employee of Eaton Vance
since 1992. Prior to joining Eaton Vance, he was a municipal bond trader at
Fidelity Management & Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Missouri, Oregon
and Tennessee Portfolios since they commenced operations and the Georgia
Portfolio since January 1, 1996. Ms. Clemson has been a Vice President of Eaton
Vance and BMR since 1993 and an employee of Eaton Vance since 1985.
Thomas J. Fetter has acted as the portfolio manager of the South Carolina
Portfolio since January 1, 1996. Mr. Fetter has been a Vice President of Eaton
Vance since 1987 and of BMR since 1992.
Robert B. MacIntosh has acted as the portfolio manager of the North Carolina and
Louisiana Portfolios since January 1, 1996. Mr. MacIntosh has been a Vice
President of Eaton Vance since 1991 and of BMR since 1992. Prior to joining
Eaton Vance, he was a portfolio manager at Fidelity Management & Research
Company (1986-1991).
David C. Reilly has acted as the portfolio manager of the Virginia Portfolio
since it commenced operations and the Kentucky Portfolio since January 1, 1996.
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. The Plan is described further in the
Statement of Additional Information.
Prior to February 1, 1996, the Funds made sales commission and distribution fee
payments pursuant to a Distribution Plan. During the fiscal year ended August
31, 1995, each Fund paid or accrued sales commissions under that Distribution
Plan equivalent to .75% (annualized) of such Fund's average daily net assets.
Each Fund also paid or accrued service fees under that Distribution Plan
equivalent to 0.20% (annualized) of such Fund's average daily net assets for
such period.
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.
</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, and (4) to an investor making an investment through
an investment adviser, financial planner, broker or other intermediary that
charges a fee for its services and has entered into an agreement with a Fund or
its Principal Underwriter.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at the applicable public offering price 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 to IBT. Eaton Vance
reserves the right to reject any securities. Exchanging securities for Fund
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, State and local tax
consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- ------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO 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 $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the low
account balance was a reduction in the net asset value of Fund shares.
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. In addition, certain shares 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 contingent
deferred sales charge 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
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 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.
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
- ------------------------------------------------------------------------------
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.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
- ------------------------------------------------------------------------------
Shares of a Fund currently may be exchanged for shares of any of the following
funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of Boston,
Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any fund
in the Eaton Vance Traditional Group of Funds on the basis of the net asset
value per share of each fund at the time of the exchange (plus, in the case of
an exchange made within six months of the date of purchase, an amount equal to
the difference, if any, between the sales charge previously paid on the shares
being exchanged and the sales charge payable on the shares being acquired). Such
exchange offers are available only in States where shares of the fund being
acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The 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 (including shares purchased prior
to February 1, 1996) 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
the other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain other funds for which Eaton Vance acts as investment adviser
or administrator may be exchanged for Fund shares on the basis of the net asset
value per share of each fund at the time of the exchange, but subject to any
restrictions or qualifications set forth in the current prospectus of any such
fund.
Telephone exchanges are accepted by 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.
STATEMENT OF INTENTION: Purchases of $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "Statement of Intention and
Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges when the
current market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Shares of the Eaton Vance funds listed under
"The Eaton Vance Exchange Privilege" may be combined under the Statement of
Intention and Right of Accumulation.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A minimum
deposit of $5,000 in shares is required. The maintenance of a withdrawal plan
concurrently with purchases of additional shares would be disadvantageous
because of the sales charge included in such purchases.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST AT NET ASSET VALUE ANY PORTION OR ALL OF THE REPURCHASE OR REDEMPTION
PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO ROUND OFF
THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, or, provided that
the shares repurchased or redeemed have been held for at least 60 days, in
shares of any of the other funds offered by the Principal Underwriter subject to
an initial sales charge, provided that the reinvestment is effected within 60
days after such repurchase or redemption, and the privilege has not been used
more than once in the prior 12 months. Shares are sold to a reinvesting
shareholder at the next determined net asset value following timely receipt of a
written purchase order by the Principal Underwriter or by the fund the shares of
which are being purchased (or by such fund's transfer agent). The privilege is
also available to shareholders of the funds listed under "The Eaton Vance
Exchange Privilege" who wish to reinvest such redemption or repurchase proceeds
in shares of a Fund. If a shareholder reinvests redemption proceeds within the
60-day period, the shareholder's account will be credited with the amount of any
CDSC paid on such redeemed shares. To the extent that any shares of the Fund are
sold at a loss and the proceeds are reinvested in shares of the Fund (or other
shares of the Fund are acquired within the period beginning 30 days before and
ending 30 days after the date of the redemption) some or all of the loss
generally will not be allowed as a tax deduction. Shareholders should consult
their tax advisers concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the last day of each month or the
next business day thereafter. Each Fund anticipates that for tax purposes the
entire distribution, whether paid in cash or reinvested in additional shares of
the Fund, will constitute tax-exempt income to shareholders, except for the
proportionate part of the distribution that may be considered taxable income if
the Fund has taxable income during the calendar year. Shareholders reinvesting
the monthly distribution should treat the amount of the entire distribution as
the tax cost basis of the additional shares acquired by reason of such
reinvestment. Daily distribution crediting will commence on the day that
collected funds for the purchase of Fund shares are available at the Transfer
Agent. Shareholders of a Fund will receive timely federal income tax information
as to the tax-exempt or taxable status of all distributions made by the Fund
during the calendar year. A Fund's net realized capital gains, if any, consist
of the net realized capital gains allocated to the Fund by its corresponding
Portfolio for tax purposes, after taking into account any available capital loss
carryovers; a Fund's net realized capital gains, if any, will be distributed at
least once a year, usually in December.
Sales charges paid on Fund shares purchased on and after February 1, 1996 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.
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 ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share of the Fund on the last day of the period and annualizing the
resulting figure. A taxable-equivalent yield is computed by using the tax-exempt
yield figure and dividing by 1 minus the tax rate. Each Fund's average annual
total return is determined by multiplying a hypothetical initial purchase order
of $1,000 by the average annual compounded rate of return (including capital
appreciation/depreciation, and dividends and distributions paid and reinvested)
for the stated period and annualizing the result. The average annual total
return calculation assumes that the maximum sales charge is deducted from the
initial $1,000 purchase order and that all dividends are reinvested at the net
asset value on the reinvestment dates during the period. The Funds may publish
annual and cumulative total return figures from time to time. Each Fund may also
quote total return for the period prior to commencement of operations which
would reflect the Portfolio's total return (or that of its predecessor) adjusted
to reflect any applicable Fund sales charge.
Each Fund may publish its distribution rate and/or effective distribution rate.
Each Fund's distribution rate is computed by dividing the most recent monthly
distribution per share annualized by the current maximum offering price per
share. Each Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
Investors should note that a Fund's yield is calculated using a standardized
formula the income component of which is computed from the yields to maturity of
all debt obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on a Fund's last monthly distribution which tends to be relatively stable and
may be more or less than the amount of net investment income and short-term
capital gain actually earned by the Fund during the month.
Each Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which is
based on a Fund's net asset value per share would be reduced if a sales charge
were taken into account. The Fund's performance may be compared in publications
to the performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information prepared
by recognized mutual fund statistical services.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of the Fund's current yield, total return,
distribution rate or effective distribution rate for any prior period should not
be considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period. If the expenses of a Fund or its corresponding Portfolio are
paid by Eaton Vance, the Fund's performance will be higher.
STATEMENT OF INTENTION AND ESCROW AGREEMENT
- ------------------------------------------------------------------------------
TERMS OF ESCROW. If the investor, on an application, makes a Statement of
Intention to invest a specified amount over a thirteen month period, then out of
the initial purchase (or subsequent purchases if necessary) 5% of the dollar
amount specified on the application shall be held in escrow by the escrow agent
in the form of shares (computed to the nearest full share at the public offering
price applicable to the initial purchase hereunder) registered in the investor's
name. All income dividends and capital gains distributions on escrowed shares
will be paid to the investor or to the investor's order.
When the minimum investment so specified is completed, the escrowed shares will
be delivered to the investor. If the investor has an accumulation account the
shares will remain on deposit under the investor's account.
If total purchases under this Statement of Intention are less than the amount
specified, the investor will promptly remit to EVD any difference between the
sales charge on the amount specified and on the amount actually purchased. If
the investor does not within 20 days after written request by EVD or the
Authorized Firm pay such difference in sales charge, the escrow agent will
redeem an appropriate number of the escrowed shares in order to realize such
difference. Full shares remaining after any such redemption together with any
excess cash proceeds of the shares so redeemed will be delivered to the investor
or to the investor's order by the escrow agent.
In signing the application, the investor irrevocably constitutes and appoints
the escrow agent the investor's attorney to surrender for redemption any or all
escrowed shares with full power of substitution in the premises.
PROVISION FOR RETROACTIVE PRICE ADJUSTMENT. If total purchases made under this
Statement are large enough to qualify for a lower sales charge than that
applicable to the amount specified, all transactions will be computed at the
expiration date of this Statement to give effect to the lower charge. Any
difference in sales charge will be refunded to the investor in cash, or applied
to the purchase of additional shares at the lower charge if specified by the
investor. This refund will be made by the Authorized Firm and by EVD. If at the
time of the recomputation a firm other than the original firm is placing the
orders, the adjustment will be made only on those shares purchased through the
firm then handling the investor's account.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there can
be no assurance that particular bond issues may not be adversely affected by
changes in economic, political or other conditions. Unless stated otherwise, the
ratings indicated are for obligations of the State. A State's political
subdivisions may have different ratings which are unrelated to the ratings
assigned to State obligations.
ALABAMA. Since the early 1980's, modernization of existing facilities and an
increase in direct foreign investments in the State have made the State's
manufacturing sector more competitive in domestic and international markets.
Although it remains the largest employment sector, the State economy has become
less dependent on manufacturing (pulp and paper, mining and chemicals). Strong
growth in the service and wholesale/retail trade sectors combined with recent
weakness in the manufacturing sector has enabled the economy to become more
diverse. However, its reliance on the manufacturing sector remains significantly
greater than the national average. In the past several years, the loss of
manufacturing jobs has been primarily as a result of weakness in the durable
goods sector. Overall, non-agricultural employment has steadily grown during the
past five years.
Alabama general obligations are currently rated AA, Aa and AA, by S&P, Moody's
and Fitch, respectively.
ALABAMA TAXES. In the opinion of Bradley, Arant, Rose & White, special Alabama
tax counsel to the Alabama Fund, under existing Alabama law, as long as the
Alabama Fund qualifies as a separate "regulated investment company" under the
Code, and provided the Alabama Fund is invested in the Alabama Portfolio, and
provided that the Alabama Portfolio is invested in obligations the interest on
which would be exempt from Alabama personal income taxes if held directly by an
individual shareholder (such as obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions of
the United States), and further provided that the Alabama Portfolio is
characterized as a partnership for Federal income tax purposes, dividends
received by shareholders from the Alabama Fund that represent interest received
by the Alabama Portfolio on such obligations will be exempt from Alabama
personal income taxes. To the extent that distributions by the Alabama Fund are
derived from long-term or short-term capital gains on such obligations, or from
dividends or capital gains on other types of obligations, such distributions
will not be exempt from Alabama personal income tax. Capital gains or losses
realized from a redemption, sale or exchange of shares of the Alabama Fund by an
Alabama resident will be taken into account for Alabama personal income tax
purposes.
ARKANSAS. During the past two decades, the economy of Arkansas has shifted from
an agricultural to a light manufacturing base. The State is now moving toward a
heavier manufacturing base involving more sophisticated processes and products
such as electrical machinery, transportation equipment, fabricated metals and
electronics. The health services, wholesale/retail trade and service sectors
have also grown in recent years. The diversification of economic interests has
lessened the State's cyclical sensitivity to the impact of any single sector.
Agriculture, however, continues to be an important component of the State's
economy. In addition, the State has significant natural gas and oil producing
interests, as well as mining activities. The seasonally adjusted unemployment
rate for August, 1995 was 5.1%, compared to a national rate of 5.6%. State law
prohibits deficit spending. In 1994, the General Fund had an ending balance of
$772 million, with an operating surplus of $161 million. The State has adopted
1995-1997 biennial budget.
Arkansas general obligation bonds are rated Aa and AA by Moody's and S&P. Fitch
does not currently rate Arkansas general obligations.
ARKANSAS TAXES. In the opinion of special Arkansas tax counsel to the Arkansas
Fund, under existing Arkansas law, as long as the Arkansas Fund qualifies as a
separate "regulated investment company" under the Code, and provided the Fund is
invested in obligations the interest on which would be exempt from Arkansas
personal income taxes if held directly by an individual shareholder (such as
obligations of Arkansas or its political subdivisions, of the United States or
of certain territories or possessions of the United States), dividends received
from the Arkansas Fund that represent interest received by the Arkansas Fund on
such obligations will be exempt from Arkansas personal income taxes. To the
extent that distributions by the Arkansas Fund are derived from long-term or
short-term capital gains on such obligations, or from dividends or capital gains
on other types of obligations, such distributions will not be exempt from
Arkansas personal income tax. The opinion addresses the tax consequences when
the Arkansas Fund invests directly in these obligations. The application of
these consequences to the Arkansas Fund when investing in interests of another
registered investment company was the subject of a favorable opinion from
Revenue Counsel for the Arkansas Department of Finance and Administration for a
similar Eaton Vance fund.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Arkansas Fund by an Arkansas resident will be taken into account for
Arkansas personal income tax purposes.
GEORGIA. Georgia has a generally sound, well-diversified economy, which has
performed relatively well during recent years. According to the Department of
Labor for the State of Georgia, the unemployment rate of the civilian labor
force in the State as of July 1995 was 5.6% compared to 5.9% for the nation.
Actual revenues of the State for fiscal year 1994 increased 13.8% over revenue
collections for the previous fiscal year. Estimated revenue collections for the
fiscal year ending June 30, 1995 increased 6.3% over actual revenue collections
for fiscal 1994. Total projected revenues for fiscal year 1996 are approximately
$10.7 million, a 7.2% increase over the total projected revenues for fiscal year
1995. This improvement is expected to continue for most economic sectors as the
1996 Summer Olympics draw near. The fiscal 1996 budget includes approximately
$76,663,963 to help Georgians recover from the 1994 summer flooding and tropical
storm disasters which is not likely to affect the market value of Georgia
obligations or the ability of the State or its instrumentalities to pay interest
and repay principal on Georgia obligations in a timely manner.
Georgia general obligations are rated "AA+," "Aaa" and "AA" by S&P, Moody's and
Fitch, respectively. Fitch views the rating as stable and S&P has a positive
outlook.
GEORGIA TAXES. In the opinion of Powell, Goldstein, Frazer & Murphy, special tax
counsel to the Georgia Fund, under existing law, shareholders who are otherwise
subject to the Georgia personal or corporate income tax will not be subject to
Georgia income tax on distributions with respect to shares of the Georgia Fund
to the extent such distributions represent "exempt-interest dividends" for
Federal income tax purposes that are attributable to interest on obligations
issued by or on behalf of the State of Georgia or its political subdivisions,
and by the governments of Puerto Rico, the U.S. Virgin Islands and Guam to the
extent that such obligations are exempt from State income tax pursuant to
Federal law. Distributions, if any, derived from capital gain or other sources
generally will be taxable to such shareholders of the Georgia Fund for Georgia
income tax purposes. Shareholders who are subject to the Georgia corporate net
worth a franchise tax that is based on net worth, will be subject to such tax
with respect to ownership of shares of the Georgia Fund and distributions with
respect thereto.
The application of the Georgia intangible personal property tax to the ownership
of shares of the Georgia Fund is not clear. Although obligations or evidences of
debt of the United States and of the State of Georgia, its political
subdivisions and public institutions are exempt from the Georgia intangible
personal property tax, the Georgia Department of Revenues has taken the position
that shares in a municipal bond fund are deemed to be taxable intangible
property separate from an ownership interest in the underlying obligations.
Under such an analysis, shareholders of the Georgia Fund who are otherwise
subject to the Georgia intangible personal property tax would be subject to such
tax with respect to ownership of shares of the Georgia Fund (without any
exemption for the underlying United States or Georgia obligations), but at the
rate of 10 cents per $1,000 applicable to "other intangible property" rather
than at the higher rate of $1 per $1,000 imposed on "stocks." All shareholders
should consult their tax advisors regarding the possible intangible personal
property tax consequences of ownership of shares in the Georgia Fund.
KENTUCKY. Kentucky's economy, once dominated by coal, horses, bourbon, and
tobacco, has attained substantial diversification during the past decade into
the manufacturing and service sectors, including particularly air
transportation, health care and business services, and retail trade. Kentucky
still ranks first among the states in total tonnage of coal produced and second
in the total cash value of tobacco raised. The state's leading manufactured
products now include automobiles and automotive parts, industrial machinery,
consumer appliances, and apparel. Kentucky's horse breeding and racing industry,
showcased by the Kentucky Derby, as well as an extensive system of state parks,
have contributed to a growing tourism industry within the State. As of August
1995, Kentucky's unemployment rate was 4.7% compared to the national average of
5.6%.
The Commonwealth of Kentucky's financial condition has steadily improved during
the last three years. State General Fund revenue grew by 10.9% in the fiscal
year 1995 to a total of $5.15 billion. To avoid the need for state budget cuts
in the event revenues do not meet expectations, a Budget Reserve Trust Fund was
established with a $90 milion deposit in fiscal year 1994. An additional $10
million was deposited into the Budget Reserve Trust Fund in fiscal year 1995,
bringing the balance to the targeted level of $100 million.
Because the Kentucky Constitution requires a vote of a majority of the
electorate to approve the issuance of State general obligation indebtedness,
none of the outstanding indebtedness of the Commonwealth of Kentucky is general
obligation indebtedness but instead is either debt payable only from revenues
produced by the particular project or lease revenue indebtedness subject to
legislative appropriation for the payment of debt service during each fiscal
biennium of the Commonwealth. In September 1994 S&P upgraded the rating of the
State's appropriation-backed debt from A to A+. Moody's and Fitch rate the
State's appropriation-backed debt as A and A+, respectively.
KENTUCKY TAXES. In the opinion of Wyatt, Tarrant & Combs, special Kentucky tax
counsel to the Kentucky Fund, shareholders of the Kentucky Fund who otherwise
are subject to individual or corporate income taxes of the Commonwealth of
Kentucky will not be subject to such taxes on distributions with respect to
their shares in the Kentucky Fund to the extent that such distributions are
attributable to interest on obligations of the Commonwealth of Kentucky or its
political subdivisions or on obligations of the United States, the governments
of Puerto Rico, the U.S. Virgin Islands or Guam. To the extent that
distributions from the Kentucky Fund are included in a corporate shareholder's
surplus, they will be subject to the Kentucky license (franchise) tax that is
based on capital employed. To the extent that the Kentucky Portfolio's holdings
consist of obligations of the Commonwealth of Kentucky or its political
subdivisions or instrumentalities and the balance are obligations of the United
States, shares in the Kentucky Fund will be exempt from the Kentucky Intangibles
Tax. Shareholders will be required to include the entire amount of capital gain
dividends in income to the same extent for state income tax purposes as for
Federal income tax purposes.
Many local governments in Kentucky, including Louisville, Jefferson County,
Lexington-Fayette County, Bowling Green and Covington, impose taxes on the net
profits of businesses operating (in any form, including sole proprietorships)
within the local jurisdiction. Such taxes should not be imposed on income
derived from an investment in the Kentucky Fund. However, because of differences
in the language of these laws, it is not possible to address their specific
impact.
LOUISIANA. The State has experienced operating budget deficits in three of the
last seven fiscal years. Since 1988, the gap between General Fund expenditures
and recurring revenues has widened for a variety of reasons: new expenditures
have been phased in; new tax exemptions have been implemented; the federal
government has issued costly mandates, most significantly in the Medicaid
program; and revenues once available to the General Fund have in recent years
been dedicated for specific purposes. Furthermore, the State's tax base (which
is comprised in part of mineral revenues and volume-based taxes, such as those
on tobacco, beer, and liquor) is inherently inelastic, i.e., its nominal growth
rate does not match or exceed the growth rate of the economy.
The State ended the Fiscal Period 1992-93 with a positive undesignated fund
balance in its General Fund of $101 million. During 1994, $30.6 million of the
surplus funds were utilized to cover known shortfalls in current year program
operations. The State ended the Fiscal Period 1993-94 with an operating surplus
of $129 million. This amount together with the prior year fund balance of $101
million and reserve changes leaves an unreserved-undesignated General Fund fund
balance of $212.9 million. For fiscal 1996, the State will receive a
significantly smaller amount of federal funding for its health care programs.
The State faces a large gap for the 1996 budget. It is uncertain how this fiscal
imbalance will be resolved or how it will impact the creditworthiness of the
State and its outstanding and related debt.
As of the date of this Prospectus, general obligations of Louisiana are rated A-
(with a negative outlook) and Baa1 by S&P and Moody's, respectively.
LOUISIANA TAXES. In the opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P., special Louisiana tax counsel to the Louisiana Fund, under
existing Louisiana law as long as: (i) the Louisiana Fund qualifies as a
separate "regulated investment company" under the Code; (ii) the Louisiana
Portfolio will be treated as a partnership for Federal and state tax purposes;
and (iii) the Louisiana Fund receives income from obligations, the interest on
which would be exempt from Louisiana individual and corporate income taxes if
held directly by an individual shareholder (such as obligations of Louisiana or
its political subdivisions, of the United States or of certain territories or
possessions of the United States), the dividends received from the Louisiana
Fund that represent interest received by the Louisiana Fund on such obligations
will be exempt from Louisiana individual and corporate income taxes. To the
extent that distributions by the Louisiana Fund are derived from long-term or
short-term capital gains on such obligations, or from dividends or capital gains
on other types of obligations, such distributions will not be exempt from
Louisiana individual and corporate income taxes.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Louisiana Fund by a Louisiana resident will be taken into account for
Louisiana individual and corporate income tax purposes. Distributions from and
investments in the Louisiana Fund by corporate shareholders who are otherwise
subject to the Louisiana corporate franchise tax will be included in the capital
of such corporations for Louisiana franchise tax purposes.
MARYLAND. Maryland has a diverse economy with government, services and mining,
and manufacturing and trade each accounting for approximately 20%, 31% and 32%
of employment, respectively. In recent years financial operations of the State
have concluded in ending surpluses, although in the early 1990s various cost
containment and tax revenue measures were required. State revenues are largely
dependent on income and sales and use taxes and, relatedly, on general levels of
employment, personal income growth and consumer spending. The national slowdown,
beginning in 1990, impacted the State with total employment declining slightly
in the early 1990s but recovering commencing in 1992. Unemployment in Maryland
for July 1995 was 5.0% versus the national rate of 5.9%.
Generally, Maryland has been among the most heavily indebted of the states. In
recent years increases in State general obligation debt have been controlled.
Since 1991, State tax-supported debt service and debt outstanding have been less
than 3.07% of personal income and 6.74% of State revenues, respectively.
Including local government debt, debt service as a percentage of total revenues
has risen from 8.88% in 1991 to 9.67% in 1994. It should be noted that the
creditworthiness of obligations issued by local Maryland issuers and State
revenue obligations may vary considerably from the creditworthiness of general
obligation bonds issued by the State, and that there is no obligation on the
part of the State to make payment on such local obligations in the event of
default.
The State of Maryland's general obligation bonds are rated AAA, Aaa and AAA, by
S&P, Moody's and Fitch, respectively. Both S&P and Fitch have a stable outlook
for the State.
MARYLAND TAXES. In the opinion of Piper & Marbury, L.L.P., special Maryland tax
counsel to the Maryland Fund, so long as the Maryland Fund qualifies to be taxed
as a regulated investment company in the manner set forth in Section 852 (b) of
the Code holders of the Maryland Fund who are individuals, estates or trusts and
who are otherwise subject to Maryland State and local individual income taxes
will not be subject to such taxes on Maryland Fund dividends to the extent that
(a) such dividends qualify as exempt-interest dividends of a regulated
investment company under Section 852(b)(5) of the Code, which are attributable
to interest on tax-exempt obligations of the State of Maryland or its political
subdivisions or authorities, or obligations issued by the government of Puerto
Rico, U.S. Virgin Islands or Guam or their authorities ("Maryland tax-exempt
obligations"), (b) such dividends are attributable to interest on obligations of
the U.S. Government or obligations issued or guaranteed by the U.S. Government
and its agencies, instrumentalities and authorities ("U.S. obligations") or (c)
such dividends are attributable to gain realized by the Maryland Fund as a
result of the sale or exchange by the Maryland Portfolio of a bond issued by the
State of Maryland or a political subdivision thereof.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland State and local individual income
taxes.
Maryland presently includes in Maryland taxable income a portion of certain
items of tax preferences as defined in the Code. Interest paid on certain
private activity bonds constitutes such a tax preference. Accordingly, up to 50%
of any distributions of the Maryland Fund attributable to such private activity
bonds may not be exempt from Maryland State and local individual income taxes.
The Maryland Portfolio has no present intention of investing in such securities.
Shareholders of the Maryland Fund that are corporations otherwise subject to
Maryland corporate income tax will not be subject to such tax on Maryland Fund
dividends to the extent that (a) such dividends qualify as exempt-interest
dividends under Section 852(b)(5) of the Code which are attributable to Maryland
tax-exempt obligations or (b) such dividends are attributable to interest on
U.S. obligations.
To the extent that distributions of the Maryland Fund are attributable to
sources other than those described in the preceding paragraph such as short or
long-term capital gain or interest on tax-exempt obligations of states other
than Maryland and their political subdivisions and authorities, such
distributions will not be exempt from Maryland corporate income tax.
Shareholders of the Maryland Fund that are financial institutions otherwise
subject to Maryland financial institution franchise taxes will probably be
subject to such taxes on all distributions received from the Maryland Fund
(including exempt-interest dividends).
Interest on indebtedness incurred or continued (directly or indirectly) by a
shareholder of the Maryland Fund to purchase or carry shares of the Maryland
Fund will not be deductible for Maryland State and local individual income tax
purposes or corporate income tax purposes to the extent such interest is
allocable to exempt-interest dividends.
Shares of the Maryland Fund will not be subject to the Maryland personal
property tax.
MISSOURI. The State has a well balanced economy that approximates the national
economy. As a result, the State unemployment rate has typically remained close
to the national average. The civilian unemployment rate for August, 1995 was
5.0% as compared to the September 1994 level of 3.9%. During the past several
years, the local defense and automotive industries have experienced weakness
partially contributing to the loss of 64,000 manufacturing jobs.
In the early 1990s, the State had operating deficits resulting from lower
collections than budgeted due to the recession. The State's financial operations
have been pressured by the cost associated with the settlement of the
desegregation lawsuit involving the Kansas City and St. Louis school districts.
For fiscal 1995, the cost of the settlement was $315 million, approximately 7%
of the General Fund budget. A recent Supreme Court decision favorable to the
State may decrease the level of State funding required in the future, but the
impact of this decision is uncertain. Economic reversals in either of the Kansas
City or St. Louis metropolitan areas, whose Missouri portions together contain
approximately half of the State's population, would have a major impact on the
State's overall economic condition.
An amendment to the State Constitution limits the amount of state taxes which
may be imposed by the General Assembly, as well as the amount of local taxes,
licenses and fees which can be imposed by local governments in any fiscal year.
The details of the amendment are complex and clarification by subsequent
legislation or judicial decision may be necessary.
As of the date of this Prospectus, Missouri's general obligation of debt is
rated AAA, Aaa and AAA, by S&P, Moody's and Fitch, respectively.
MISSOURI TAXES. In the opinion of Bryan Cave, LLP, special Missouri tax counsel
to the Missouri Fund, so long as the Missouri Fund qualifies for Federal income
taxation as a regulated investment company and the Missouri Portfolio is treated
as a partnership for Federal tax purposes, dividends distributed to individual
shareholders of the Missouri Fund will be exempt from the Missouri personal
income tax imposed by Chapter 143 of the Missouri Revised Statutes to the extent
that such dividends qualify as exempt interest dividends of a regulated
investment company under Section 852(b)(5) of the Code and are derived form
interest on obligations of the United States, its authorities, commissions,
instrumentalities, possessions or territories to the extent exempt from Missouri
income taxes under the laws of the United States (including Puerto Rico, Guam
and the U.S. Virgin Islands), or of the State of Missouri or its political
subdivisions. Capital gain dividends, as defined in Section 852(b)(3) of the
Code, distributable by the Missouri Fund to individual resident shareholders of
the Missouri Fund, to the extent includable in Federal adjusted gross income,
will be subject to Missouri income taxation. Shares in the Missouri Fund are not
subject to Missouri personal property taxes.
The Missouri Fund will notify its shareholders within 60 days after the close of
the year as to the amount of interest dividend from Missouri obligations which
is exempt from Missouri personal income taxation.
NORTH CAROLINA. North Carolina has an economy largely dependent on textile and
furniture manufacturing, and agriculture, although finance, services and trade
are becoming increasingly important. Manufacturing, which continues to be far
more important in North Carolina than in the nation, has been adversely affected
by international competition. Tobacco farming continues to be affected by
Federal legislation and regulatory measures and by international competition.
State personal wealth levels remain well below those of the nation.
The North Carolina State Constitution requires that the total expenditures of
the State for a fiscal period shall not exceed the total of receipts during the
fiscal period and the surplus remaining in the State Treasury at the beginning
of the period. Apparently due to both increased tax and fee revenue and the
previously enacted spending reductions, the State had a budget surplus of
approximately $887 million at the end of fiscal 1993-94. After review of the
1994-95 continuation budget adopted in 1993, the General Assembly approved
spending expansion funds, in part to restore certain employee salaries to
budgeted levels, which amounts had been deferred to balance the budgets in
1989-1993, and to authorize funding for new initiatives for economic
development, education, human services and environmental programs.
General obligations of the State of North Carolina are rated Aaa, AAA and AAA by
Moody's, S&P and Fitch, respectively. In July, 1992, S&P revised its outlook for
the State's general obligations from "Negative" to "Stable". Fitch views the
State's credit trend as "Stable".
NORTH CAROLINA TAXES. In the opinion of Hunton & Williams, special North
Carolina tax counsel to the North Carolina Fund, distributions from the North
Carolina Fund will not be subject to North Carolina individual, trust, or estate
income taxation to the extent that such distributions are either (i) excluded
from Federal gross income and represent interest the North Carolina Fund, either
directly or through the North Carolina Portfolio, receives on obligations of
North Carolina or its political subdivisions, nonprofit educational institutions
organized or chartered under the laws of North Carolina, or Puerto Rico, U.S.
Virgin Islands, or Guam or (ii) represent interest the North Carolina Fund,
either directly or through the Portfolio, receives on direct obligations of the
United States. These North Carolina income tax exemptions will be available only
if the North Carolina Fund complies with the requirement of the Code that at
least 50% of the value of its assets at the close of each quarter of its taxable
years is invested, either directly or through the North Carolina Portfolio, in
state, municipal, or other obligations described in (S)103(a) of the Code. The
North Carolina Fund intends to comply with that requirement.
Any capital gains distributed by the North Carolina Fund (except for capital
gain attributable to the sale by the North Carolina Fund or the North Carolina
Portfolio of an obligation the profit from which is exempt by North Carolina
statute) or gains realized by the shareholder from a redemption or sale of
shares of the North Carolina Fund will be subject to North Carolina individual,
trust, or estate income taxation.
Interest on indebtedness incurred (directly or indirectly) by a shareholder of
the North Carolina Fund to purchase or carry shares of the North Carolina Fund
generally will not be deductible for North Carolina income tax purposes.
The opinion of Hunton & Williams is based on a ruling of the North Carolina
Department of Revenue obtained by Hunton & Williams on behalf of a fund
basically identical to the North Carolina Fund. That ruling is subject to
change.
OREGON. According to the May 1995 Oregon Economic and Revenue Forecast prepared
by the State Department of Administrative Services, Oregon's recent strong
growth is expected to slow over the next year, primarily due to a softening of
the State's housing markets, reductions in timber output and employment, and
weaker national demand for Oregon's manufactured products. These downward
pressures are expected to be offset to a degree by continued expansion of the
high technology manufacturing sector, a strong international export sector,
further nonresidential construction activity and a steady stream of immigration.
This combination of forces is likely to generate growth, although increases in
personal income and employment are expected to be less than they were in 1994.
Oregon's seasonally adjusted unemployment rate for August 1995, as compiled by
the State Department of Employment, was 4.8%, compared to a national rate of
5.6%.
Oregon's general obligation debt is rated AA-, Aa and AA, by S&P, Moody's and
Fitch, respectively. S&P revised the outlook of Oregon's debt from stable to
negative after Oregon voters approved a constitutional property tax limitation
(Ballot Measure 5) in 1990.
OREGON TAXES. In the opinion of Stoel Rives, special Oregon tax counsel to the
Oregon Fund, so long as the Oregon Fund qualifies to be taxed as a separate
"regulated investment company" under the Code and the Oregon Portfolio is
treated as a partnership (but not a "publicly traded partnership") under the
Code, and so long as the Oregon Fund is deemed under the regulated investment
company provisions of the Code to own its proportionate share of the assets of
the Oregon Portfolio and to be entitled to the income of the Oregon Portfolio
attributable to that share, under existing Oregon law holders of the Oregon Fund
who are individuals, estates or trusts will not be subject to Oregon personal
income tax on Oregon Fund dividends to the extent that such dividends (i)
qualify as "exempt-interest dividends" of a regulated investment company under
the Code and (ii) are attributable to interest on tax-exempt obligations of the
State of Oregon or its political subdivisions or authorities, or obligations
issued by the Governments of Puerto Rico, U.S. Virgin Islands or Guam or their
authorities ("Oregon tax-exempt obligations").
To the extent that distributions of the Oregon Fund are attributable to certain
sources other than interest on Oregon tax-exempt obligations, including all
short-term and long-term capital gain and interest on tax-exempt obligations of
states other than Oregon and their political subdivisions and authorities, such
distributions will not be exempt from Oregon personal income tax for
individuals, estates or trusts otherwise subject to Oregon personal income tax.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Oregon Fund will be taken into account for Oregon personal income tax
purposes.
No portion of distributions from the Oregon Fund will be exempt from the Oregon
corporation excise tax, which generally applies to financial corporations
"located within" Oregon and other business corporations "doing or authorized to
do business within" Oregon. Oregon imposes a corporate income tax on
corporations not subject to the Oregon corporation excise tax. Corporations
subject to the Oregon corporation income tax should consult their tax advisors
regarding distributions from the Oregon Fund.
Shares of the Oregon Fund will not be subject to Oregon property tax.
SOUTH CAROLINA. The effect of the prolonged national recession on the State's
fiscal position has been significant, though in the past few years the State has
rebuilt its General Reserve Fund. Since the start of the 1993 fiscal year, South
Carolina has been forced to deal with revenue shortfalls. In July 1992, original
revenue estimates were revised downward by $195 million to $3.6 billion for
fiscal year 1993. The State responded by cutting appropriations including
recurring and non-recurring spending and ended the fiscal year with a $151
million surplus. Actual budgetary General Fund revenues and expenditures for
fiscal year 1994 were $4.021 billion and $3.776 billion, respectively. There was
a $248 million surplus of which $43.3 million was deposited into the General
Reserve Fund bringing its total to $110 million. Fiscal 1995 had actual budgeted
General Fund revenues and expenditures of $4.233 billion and $3.984 billion,
respectively. Fiscal 1995 ended with a General Fund surplus of $248 million of
which $10.5 million was deposited into the General Reserve Fund fully funding it
to $120.7 million. No new taxes were introduced. $4.133 billion has been
budgeted for fiscal 1996. Once again no new taxes are in the budget.
Although dominated by the textile industry, South Carolina's economic base has
diversified in recent years as the trade and service sectors developed. With
increased added development in the durable goods manufacturing industries, South
Carolina's economy now resembles more closely that of the United States. For
August, 1995, unemployment in South Carolina was 4.9% compared with the national
rate of 5.6%.
South Carolina general obligations are rated Aaa, AA+ (positive), AAA (stable),
by Moody's, S&P and Fitch, respectively.
SOUTH CAROLINA TAXES. Nelson Mullins Riley & Scarborough, L.L.P., special South
Carolina tax counsel to the South Carolina Fund, has obtained the issuance of a
private letter ruling from the South Carolina Department of Revenue and Taxation
(the "S.C. Tax Ruling"). The S.C. Tax Ruling provides that, under existing South
Carolina law, as long as the South Carolina Fund qualifies as a separate
"regulated investment company", shareholders of the South Carolina Fund will not
be required to include in their South Carolina gross income distributions from
the South Carolina Fund to the extent such distributions qualify as
"exempt-interest dividends" as defined in the Code, which are directly
attributable to interest received by the South Carolina Fund on tax-exempt
obligations issued by the State of South Carolina or its political subdivisions
or the United States. In the event the South Carolina Fund fails to qualify as a
separate "regulated investment company," the foregoing exemption may be
unavailable or substantially limited. The S.C. Tax Ruling addresses the South
Carolina tax consequences when the South Carolina Fund invests directly in these
obligations. In addition, the S.C. Tax Ruling favorably addresses consequences
to the South Carolina Fund, under existing South Carolina law, to the extent the
South Carolina Fund invests in interests of another registered investment
company.
Capital gains distributed by the South Carolina Fund, or gains realized by a
shareholder from a redemption or sale of shares of the South Carolina Fund, will
be subject to South Carolina income taxes.
As intangible personal property, the shares of the South Carolina Fund are
exempt from any and all ad valorem taxation in South Carolina.
TENNESSEE. Historically, the Tennessee economy has been characterized by a
greater concentration in manufacturing employment than the U.S. as a whole. The
economy is, however, undergoing a structural change through the increase in
service sector and trade sector employment. The service and trade sectors
account for approximately 25% and 23%, respectively, of employment, while
manufacturing accounts for about 25% of employment. The December, 1994
seasonally adjusted unemployment rate was 4.0%. The employment gains of 1994 are
expected to moderate in 1995.
Tennessee's financial operations are considerably different than most other
states because there is no state payroll income tax. This factor, together with
the State's reliance on the sales tax for a large percentage of General Fund
receipts, exposes total State tax collections to considerably more volatility
than would otherwise be the case and, in the event of an economic downswing,
could effect the State's ability to pay principal and interest in a timely
manner. Under the State constitution, no debt may be authorized for the current
operation of any State service or program unless repaid within the fiscal year
of issuance. For the fiscal year 1993, a 0.5% increase in the sales tax rate was
enacted and dedicated towards the implementation of certain educational reforms
enacted by the legislature. The General Fund was reduced by $66 million in 1994.
Tennessee's general obligation debt is rated AA+, Aaa and AAA, by S&P, Moody's
and Fitch, respectively. S&P has a positive outlook for the State.
TENNESSEE TAXES. In the opinion of Hunton & Williams, special Tennessee tax
counsel to the Tennessee Fund, individual shareholders of the Tennessee Fund
will not be subject to Tennessee individual income tax on distributions received
from the Tennessee Fund to the extent such distributions are attributable to
interest the Tennessee Fund, either directly or through the Tennessee Portfolio,
receives on (i) bonds or securities of the U.S. Government or any agency or
instrumentality thereof, (ii) bonds of the State of Tennessee or any county,
municipality or political subdivision thereof, including any agency, board,
authority or commission, or (iii) bonds of Puerto Rico, U.S. Virgin Islands or
Guam.
The opinion of Hunton & Williams is based on a ruling of the Tennessee
Department of Revenue obtained by Hunton & Williams on behalf of a fund
basically identical to the Tennessee Fund. That ruling is subject to change. The
Tennessee Fund will report annually to its shareholders the percentage and
source, on a state-by-state basis, of interest income received by the Tennessee
Fund on municipal bonds during the preceding year.
On March 16, 1994, the Tennessee Fund received a letter ruling from the
Department of Revenue of the State of Tennessee to the effect that distributions
of capital gains from the Tennessee Fund attributable to tax-exempt securities
are exempt from Tennessee income tax. Tennessee Fund management believes that
Eaton Vance is the only mutual fund sponsor that has obtained such a ruling. The
ruling is subject to change under certain conditions.
VIRGINIA. The Constitution of Virginia requires a balanced budget and limits the
ability of the Commonwealth to create debt. General obligation debt may be
incurred to meet short-term needs, to finance capital projects and, under less
stringent restrictions, to finance revenue-producing capital projects. Also,
"special fund" revenue bonds, to which the constitutional debt restrictions do
not apply and which are not supported by the full faith and credit of the
Commonwealth, may be issued to finance qualifying Commonwealth revenue projects.
General obligations of cities, towns and counties are payable from the general
revenues of the entity, including ad valorem tax revenues on property within the
jurisdiction. Revenue obligations issued by other entities are customarily
payable only from revenues from the particular project or projects involved.
The economy of Virginia is based primarily on manufacturing, the government
sectors, agriculture, mining and tourism, and unemployment rates are typically
below the national average. June 1995 unemployment was 4.4% versus a national
rate of 5.6%. The Commonwealth has a long history of fiscal stability, due in
large part to a conservative financial philosophy, broad-based employment
opportunities and diverse source of revenue. In the past decade, however, the
Commonwealth has experienced cycles of financial stringency. No significant new
taxes or increases were enacted by the General Assembly at the 1995 session.
As a result of litigation involving proceedings before the United States Supreme
Court, the Commonwealth may be obligated to refund tax payments made by federal
pensioners of up to $707.5 million. Legislation has been enacted to effect a
settlement of the litigation, but the claimants have not accepted its terms.
General obligations of Virginia are rated Aaa, AAA and AAA by Moody's, S&P and
Fitch, respectively.
VIRGINIA TAXES. In the opinion of Hunton & Williams, special Virginia tax
counsel to the Virginia Fund, under existing Virginia law, distributions from
the Virginia Fund will not be subject to Virginia individual, trust, estate, or
corporate income taxation to the extent that such distributions are either (i)
excluded from federal gross income and attributable to interest the Virginia
Fund, either directly or through the Virginia Portfolio, receives on obligations
of Virginia, its political subdivisions, or its instrumentalities, or Puerto
Rico, U.S. Virgin Islands, or Guam or (ii) attributable to interest the Virginia
Fund, either directly or through the Portfolio, receives on direct obligations
of the United States. These Virginia income tax exemptions will be available
only if the Virginia Fund complies with the requirement of the Code that at
least 50% of the value of its assets at the close of each quarter of its taxable
year is invested, either directly or through the Portfolio, in state, municipal,
or other obligations described in (S) 103(1) of the Code. The Virginia Fund
intends to comply with that requirement.
Other distributions from the Virginia Fund, including capital gains, generally
will not be exempt from Virginia income taxation.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry shares of the Virginia Fund generally will not be deductible
for Virginia income tax purposes.
Neither the Trust nor the Virginia Fund will be subject to any Virginia
intangible property tax on any obligations in the Virginia Portfolio. In
addition, shares of the Virginia Fund held for investment purposes will not be
subject to any Virginia intangible personal property tax.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for June, 1995 was approximately 13.9%.
The North American Free Trade Agreement (NAFTA), which became effective January
1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. Reliance on
nonrecurring revenues and economic weakness led S&P to change its outlook from
stable to negative.
<PAGE>
[LOGO]
EV TRADITIONAL
MUNICIPAL FUNDS
- ---------------
PROSPECTUS
JANUARY 1, 1996
EV TRADITIONAL ALABAMA MUNICIPALS FUND
EV TRADITIONAL ARKANSAS MUNICIPALS FUND
EV TRADITIONAL GEORGIA MUNICIPALS FUND
EV TRADITIONAL KENTUCKY MUNICIPALS FUND
EV TRADITIONAL LOUISIANA MUNICIPALS FUND
EV TRADITIONAL MARYLAND MUNICIPALS FUND
EV TRADITIONAL MISSOURI MUNICIPALS FUND
EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL OREGON MUNICIPALS FUND
EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL TENNESSEE MUNICIPALS FUND
EV TRADITIONAL VIRGINIA MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -----------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte &Touche LLP, 125 Summer Street, Boston, MA 02110
T-TFC1/1P
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
January 1, 1996
EV MARATHON MUNICIPALS FUNDS
EV MARATHON ALABAMA MUNICIPALS FUND EV MARATHON MISSOURI MUNICIPALS FUND
EV MARATHON ARKANSAS MUNICIPALS FUND EV MARATHON NORTH CAROLINA MUNICIPALS FUND
EV MARATHON GEORGIA MUNICIPALS FUND EV MARATHON OREGON MUNICIPALS FUND
EV MARATHON KENTUCKY MUNICIPALS FUND EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
EV MARATHON LOUISIANA MUNICIPALS FUND EV MARATHON TENNESSEE MUNICIPALS FUND
EV MARATHON MARYLAND MUNICIPALS FUND EV MARATHON VIRGINIA MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Part II provides information solely about a Fund and
its corresponding Portfolio. Where appropriate Part I includes cross-references
to the relevant sections of Part II.
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ....................... 1
Investment Restrictions ................................................ 8
Trustees and Officers .................................................. 9
Investment Adviser and Administrator ................................... 11
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 ............................... 22
Financial Statements ................................................... 23
Appendix ............................................................... 24
PART II
EV Marathon Alabama Municipals Fund .................................... a-1
EV Marathon Arkansas Municipals Fund ................................... b-1
EV Marathon Georgia Municipals Fund .................................... c-1
EV Marathon Kentucky Municipals Fund ................................... d-1
EV Marathon Louisiana Municipals Fund .................................. e-1
EV Marathon Maryland Municipals Fund ................................... f-1
EV Marathon Missouri Municipals Fund ................................... g-1
EV Marathon North Carolina Municipals Fund ............................. h-1
EV Marathon Oregon Municipals Fund ..................................... i-1
EV Marathon South Carolina Municipals Fund ............................. j-1
EV Marathon Tennessee Municipals Fund .................................. k-1
EV Marathon Virginia Municipals Fund ................................... l-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information. This 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 JANUARY 1, 1996, AS SUPPLEMENTED FROM
TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ
IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT
CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this 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 also exempt from federal income taxes and is not a tax preference item
for purposes of the federal alternative minimum tax: (i) certain "public
purpose" obligations (whenever issued), which include obligations issued
directly by state and local governments or their agencies to fulfill essential
governmental functions; (ii) certain obligations issued before August 8, 1986
for the benefit of non-governmental persons or entities; and (iii) certain
"private activity bonds" issued after August 7, 1986 which include "qualified
Section 501(c)(3) bonds" or refundings of certain obligations included in the
second category. In assessing the federal income tax treatment of interest on
any municipal obligation, the Portfolio will generally rely on an opinion of the
issuer's counsel (when available) and will not undertake any independent
verification of the basis for the opinion. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does have original issue discount or (ii) in
the case of an obligation that does have original issue discount, the sum of the
issue price and any original issue discount that accrued before the obligation
was purchased, subject to a de minimus amount.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds are in most cases revenue
bonds and are generally not secured by the taxing power of the municipality, but
are usually secured by the revenues derived by the authority from payments of
the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of 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 of this SAI.
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.
Pollution control and other industrial development bonds are issued by state
or local agencies to finance various projects, including those of domestic steel
producers, and may be backed solely by agreements with such companies. Domestic
steel companies are expected to suffer the consequences of such adverse trends
as high labor costs, high foreign imports encouraged by foreign productivity
increases and a strong U.S. dollar, and other cost pressures such as those
imposed by anti-pollution legislation. Domestic steel capacity is being reduced
currently by large-scale plant closings and this period of rationalization may
not end until further legislative protection is provided through tariff price
supports or mandatory import quotas, such as those recently enacted for certain
specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state industrial development
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject to
a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt service
payments. Moreover, since a portion of housing, medical care and other services
may be financed by an initial deposit, it is important that the facility
maintain adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost pressures is
an important factor in this process. The facilities may also be affected
adversely by regulatory cost restrictions applied to health care delivery in
general, particularly state regulations or changes in Medicare and Medicaid
payments or qualifications, or restrictions imposed by medical insurance
companies. They may also face competition from alternative health care or
conventional housing facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
Accordingly, the Portfolio may be adversely affected by local political and
economic conditions and developments within Puerto Rico affecting the issuers
of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. Manufacturing is the largest sector in terms of gross domestic
product and is more diversified than during earlier phases of Puerto Rico's
industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and manufacturing
(16.4%). These three sectors represent 39%, 11% and 39%, respectively, of the
gross domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
This decline was broad based among all manufacturing industries. The North
American Free Trade Agreement ("NAFTA"), which became effective January 1, 1994,
could lead to the loss of Puerto Rico's lower salaried or labor intensive jobs
to Mexico. The February, 1995 unemployment rate was 12.5%, down from 16% for
1994.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the Federal government. Most Federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Internal Revenue Code was amended and provided for two
alternative limitations to the Section 936 credit. The first option will limit
the credit against such income to 40% of the credit allowable under current law,
with a five year phase-in period starting at 60% of the allowable credit. The
second option is a wage and depreciation based credit. The reduction of the tax
benefits to those U.S. companies with operations in Puerto Rico may lead to
slower growth in the future. There can be no assurance that these modifications
will not lead to a weakened economy, a lower rating on Puerto Rico's debt or
lower prices for Puerto Rican bonds that may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. The measure was defeated, with 48.5% voting
to remain a Commonwealth, 46% voting for statehood and 4% voting for
independence. Retaining Commonwealth status will leave intact the current
relationship with the Federal government. There can be no assurance that the
statehood issue will not be brought to a vote in the future. A successful
statehood vote in Puerto Rico would then require the U.S. Congress to ratify the
election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. Population, after reaching a peak of 110,800 in 1985, declined to 101,809
in 1990. The economy is heavily reliant on the tourism industry, with roughly
43% of non-agricultural employment in tourist-related trade and services. As of
April, 1993, unemployment stood at 2.7%. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe. 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 assurance that the market for USVI bonds will
not be affected. Hurricanes 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 budget deficits in fiscal
years 1989 and 1990: in 1989 due to wage settlements with the unionized
government employees, and in 1990 as a result of Hurricane Hugo. The USVI
recorded a small surplus in fiscal year 1991. At the end of fiscal 1992, the
last year for which results are available, the USVI had an unreserved General
Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. Population, 133,000 in 1990, up 26% from the 1980 census level. The U.S.
military is a key component of Guam's economy. The Federal government directly
comprises more than 10% of the employment base, with a substantial component of
the service sector to support these personnel. Guam is expected to benefit from
the closure of the Subic Bay Naval Base and the Clark Air Force Base in the
Philippines. The Naval Air Station, one of several U.S. military facilities on
the island, has been slated for closure by the Defense Base Closure and
Realignment Committee; however, the administration plans to use these facilities
to expand the Island's commercial airport. Guam is also heavily reliant on
tourists, particularly the Japanese. Unemployment was 3.2% in 1991. For 1994,
the financial position of Guam has weakened further as it incurred an unaudited
General Fund operating deficit. The administration has taken steps to improve
its financial position; however, there are no guarantees that an improvement
will be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt). State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value. In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell securities in anticipation of a market decline (a
rise in interest rates) or purchase and later sell securities in anticipation of
a market rise (a decline in interest rates). In addition, a security may be sold
and another purchased at approximately the same time to take advantage of what
the Portfolio believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for reasons
not directly related to the investment quality of particular issues or the
general movement of interest rates, such as changes in the overall demand for or
supply of various types of municipal obligations or changes in the investment
objectives of investors. Such trading may be expected to increase the portfolio
turnover rate, which may increase capital gains and the expenses incurred in
connection with such trading. The Portfolio anticipates that its annual
portfolio turnover rate will generally not exceed 100% (excluding turnover of
securities having a maturity of one year or less). 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 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. Because this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the 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, (ii) futures
contracts on securities indices and (iii) futures contracts on other financial
instruments and indices. All futures contracts entered into by the Portfolio are
traded on exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States 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 SEC 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 purposes
of deferring realization of gain or loss for federal income tax purposes); (c)
invest more than 15% of net assets in investments which are not readily
marketable, including restricted securities and repurchase agreements maturing
in more than seven days. Restricted securities for the purposes of this
limitation do not include securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 and commercial paper issued pursuant to Section
4(2) of said Act that the Board of Trustees of the Trust or the Portfolio, or
its delegate, determines to be liquid; (d) purchase or retain in its portfolio
any securities issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Trustee of the Trust or the Portfolio or is a
member, officer, director or trustee of any investment adviser of the Trust or
the Portfolio, if after the purchase of the securities of such issuer by the
Fund or the Portfolio one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities of both (all taken at market value) of
such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value); or (e) purchase oil, gas or other mineral
leases or purchase interests in oil, gas or other mineral exploration or
development programs.
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), a wholly-owned subsidiary of
Eaton Vance Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance
Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those Trustees who
are "interested persons" of the Trust, the Portfolio, BMR, Eaton Vance, EVC or
EV, as defined in the 1940 Act, by virtue of their affiliation with any one or
more of the Trust, the Portfolio, BMR, Eaton Vance, EVC or EV, are indicated by
an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (60), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, 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 (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (52), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and the
Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust on March
22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodubury was elected Assistant
Secretary on June 19, 1995.
For 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.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of approximately $16 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 is
responsible for the day-to-day management of over 3,500 issues in 46 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The following persons manage one or more of the Eaton Vance
tax-free portfolios. For the identity of the Portfolio's portfolio manager, see
the Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and 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 and engage in other
business activities and may permit other fund clients and other corporations and
organizations to use the words "Eaton Vance" or "Boston Management and Research"
in their names. The Agreement also provides that BMR shall not be liable for any
loss incurred in connection with the performance of its duties, or action taken
or omitted under that Agreement, in the absence of willful misfeasance, bad
faith, gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties thereunder, or for any losses
sustained in the acquisition, holding or disposition of any security or other
investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator.
See "Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of October
31, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders,
are officers of the Trust and/or the Portfolio and are also members of the
BMR, Eaton Vance and EV organizations. BMR will receive the fees paid under
the Investment Advisory Agreement.
EVC owns all of the stock of Energex Energy Corporation, which engages in
oil and gas operations. In addition, Eaton Vance owns all the stock of Northeast
Properties, Inc., which is engaged in real estate investment, consulting and
management. EVC owns all the stock of Fulcrum Management, Inc., and MinVen Inc.,
which are engaged in the development of precious metal properties. EVC also owns
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
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts, acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT charges
fees which are competitive within the industry. A portion of the fee relates to
custody, bookkeeping and valuation services and is based upon a percentage of
Fund and Portfolio net assets and a portion of the fee relates to activity
charges, primarily the number of portfolio transactions. These fees are then
reduced by a credit for cash balances of the particular investment company at
the custodian equal to 75% of the 91-day, U.S. Treasury Bill auction rate
applied to the particular investment company's average daily collected balances
for the week. Landon T. Clay, a Director of EVC and an officer, Trustee or
Director of other entities in the Eaton Vance organization, owns approximately
13% of the voting stock of Investors Financial Services Corp., the holding
company parent of IBT. Management believes that such ownership does not create
an affiliated person relationship between the Fund or the Portfolio and IBT
under the Investment Company Act of 1940. For the custody fees that the
Portfolio and the Fund paid to IBT, see "Fees and Expenses" in the Fund's Part
II.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal accounts will be credited at net asset value as of
the record date for each distribution. Continued withdrawals in excess of
current income will eventually use up principal, particularly in a period of
declining market prices.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value) will have to be deposited with the
Transfer Agent. A shareholder may not have a withdrawal plan in effect at the
same time he or she has authorized Bank Automated Investing or is otherwise
making regular purchases of Fund shares. The shareholder, the Transfer Agent or
the Principal Underwriter will be able to terminate the withdrawal plan at any
time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current prospectus. The net asset value of the Portfolio
is also computed by IBT (as agent and custodian for the Portfolio) by
subtracting the liabilities of the Portfolio from the value of its total assets.
Inasmuch as the market for municipal obligations is a dealer market with no
central trading location or continuous quotation system, it is not feasible to
obtain last transation prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchaed on a when-issued
basis, will normally be valued on the basis of valuations furnished by a pricing
service. The pricing services uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities, various relationships between securities, and yield to maturity in
determining value. Taxable obligations for which price quotations are readily
available normally will be valued at the mean between the latest available bid
and asked prices. Open futures positions on debt securities are valued at the
most recent settlement prices, unless such price does not reflect the fair value
of the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by the Trustees of the Portfolio.
The Fund and the Portfolio will be closed for business and will not price their
respective shares or interests on the following business holidays: New Year's
Day, Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. The investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the result. The
calculation assumes that all distributions are reinvested at net asset value on
the reinvestment dates during the period, a complete redemption of the
investment and the deduction of the contingent deferred sales charge at the end
of the period. For information concerning the total return of the Fund, see
"Performance Information" in the Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing its net
investment income per share earned during a recent thirty-day period by the
maximum offering price (net asset value) per share on the last day of the period
and annualizing the resulting figure. Net investment income per share is
calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for the
period with the resulting number being divided by the average daily number of
Fund shares outstanding and entitled to receive dividends during the period.
This yield figure does not reflect the deduction of any contingent deferred
sales charge which are imposed upon certain redemptions at the rates set forth
under "How to Redeem Fund Shares" in the Fund's current Prospectus. A
taxable-equivalent yield is computed by using the tax-exempt yield figure and
dividing by 1 minus a stated rate. For the yield and taxable equivalent yield of
the Fund, see "Performance Information" in the Fund's Part II.
The Fund may also publish the distribution rate and/or the effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio (the days in a year divided by the accrual days
of the monthly period) used to annualize the most recent monthly distribution
and reinvesting the resulting amount for a full year on the basis of such ratio.
The effective distribution rate will be higher than the distribution rate
because of the compounding effect of the assumed reinvestment. Investor's should
note that the Fund's yield is calculated using a standardized formula, the
income component of which is computed from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on the Fund's last monthly distribution which tends to be relatively stable and
may be more or less than the amount of net investment income and short-term
capital gain actually earned by the Fund during the month. See "Distributions
and Taxes" in the Fund's current Prospectus. For the Fund's distribution rate
and effective distribution rate, see "Performance Information" in the Fund's
Part II.
The Fund's total return may be compared to relevant indices, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
other investment companies.
The Fund may provide investors with information on municipal bond investing,
which may include comparative performance information, evaluations of Fund
performance, charts and/or illustrations prepared by independent sources (such
as Lipper Analytical Services, CDA/Wiesenberger and Morningstar, Inc.). The Fund
may also refer in investor publications to Tax Freedom Day, as computed by the
Tax Foundation, Washington, DC 20005, to help illustrate the value of tax free
investing, as well as other tax-related information.
Information, charts and illustrations 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 Internal Revenue Code
of 1986, as amended (the "Code"). Accordingly, the Fund intends to satisfy
certain requirements relating to sources of its income and diversification of
its assets and to distribute its net investment income (including tax-exempt
income) and net realized capital gains in accordance with the timing
requirements imposed by the Code, so as to avoid any Federal income or excise
tax on the Fund. The Fund so qualified for its fiscal year ended August 31, 1995
(see the Notes to the Financial Statements incorporated by reference in this
Statement of Additional Information). Because the Fund invests its assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements in order for the Fund to satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, each investor's distributive share of the Portfolio's net taxable (if any)
and tax-exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid Federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
Federal income tax. Under current law, provided that the Fund qualifies as a RIC
for Federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and Federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular Federal income tax. For purposes of
applying this 50% requirement, the Fund will be deemed to own its proportionate
share of each of the assets of the Portfolio, and the Portfolio currently
intends to invest its assets in a manner such that the Fund can meet this 50%
requirement. Interest on certain municipal obligations is treated as a tax
preference item for purposes of the Federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
Federal income tax returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under Federal tax legislation
enacted in 1986, the Federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) would be taxable to
shareholders of the Fund. However, it is expected that such amounts, if any,
would normally be insubstantial in relation to the tax exempt interest earned by
the Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will be
taxed to shareholders as if received on December 31 of the year in which they
are declared.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax purposes for 6 months or less (or such shorter period as may be
prescribed by Treasury regulations) will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares. In
addition, a loss realized on a redemption of Fund shares will be disallowed to
the extent the shareholder acquired other Fund shares within the period
beginning 30 days before the redemption of the loss shares and ending 30 days
after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. Federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under federal and state securities laws
is borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of its Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Fund's Distribution Plan or the Distribution
Agreement), may be terminated on sixty days' notice either by such Trustees or
by vote of a majority of the outstanding voting securities of the Fund or on six
months' notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Fund has authorized the Principal Underwriter to act as its
agent in repurchasing shares at the rate of $2.50 for each repurchase
transaction handled by the Principal Underwriter. The Principal Underwriter
estimates that the expenses incurred by it in acting as repurchase agent for the
Fund will exceed the amounts paid therefor by the Fund. For the amount paid by
the Fund to the Principal Underwriter for acting as repurchase agent, see "Fees
and Expenses" in the Fund's Part II.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments made by its corresponding
Portfolio, the expenses of the Fund and of its corresponding Portfolio accrued
and allocated to the Fund on such day, income on portfolio investments of its
corresponding Portfolio accrued and allocated to the Fund on such day, and any
dividends and distributions declared on Fund shares. The Fund does not accrue
possible future payments as a liability of the Fund or reduce the Fund's current
net assets in respect of unknown amounts which may become payable under the Plan
in the future because the standards for accrual of such a liability under
accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and contingent deferred
sales charges theretofore paid or payable to the Principal Underwriter will be
subtracted from such distribution charges; if the result of such subtraction is
positive, a distribution fee (computed at 1% over the prime rate then reported
in The Wall Street Journal) will be computed on such amount and added thereto,
with the resulting sum constituting the amount of outstanding Uncovered
Distribution Charges with respect to such day. The amount of outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated on any
day does not constitute a liability recorded on the financial statements of the
Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Marathon Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan.
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal Underwriter
and service fees to the Principal Underwriter and Authorized Firms which may be
equivalent, on an aggregate basis during any fiscal year of the Fund, to .95% of
the Fund's average daily net assets for such year. For the sales commission and
service fee payments made by the Fund and the outstanding Uncovered Distribution
Charges of the Principal Underwriter, see "Fees and Expenses -- Distribution
Plan" in the Fund's Part II of this SAI. The Fund believes that the combined
rate of all these payments may be higher than the rate of payments made under
distribution plans adopted by other investment companies pursuant to Rule 12b-1.
Although the Principal Underwriter will use its own funds (which may be borrowed
from banks) to pay sales commissions at the time of sale, it is anticipated that
the Eaton Vance organization will profit by reason of the operation of the Plan
through an increase in the Fund's assets (thereby increasing the advisory fee
payable to BMR by the Portfolio) resulting from sale of Fund shares and through
amounts paid to the Principal Underwriter, including contingent deferred sales
charges pursuant to the Plan. The Eaton Vance organization may be considered to
have realized a profit under the Plan if at any point in time the aggregate
amounts theretofore received by the Principal Underwriter pursuant to the Plan
and from contingent deferred sales charges have exceeded the total expenses
theretofore incurred by such organization in distributing shares of the Fund.
Total expenses for this purpose will include an allocable portion of the
overhead costs of such organization and its branch offices, which costs will
include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and supplies,
literature and sales aids, interest expense, data processing fees, consulting
and temporary help costs, insurance, taxes other than income taxes, legal and
auditing expense and other miscellaneous overhead items. Overhead is calculated
and allocated for such purpose by the Eaton Vance organization in a manner
deemed equitable to the Fund.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the Trustees of the Trust who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of
the Trustees then in office, and the Distribution Agreement contains a similar
provision. The Plan and Distribution Agreement may be terminated at any time by
a vote of a majority of the Rule 12b-1 Trustees or by a vote of a majority of
the outstanding voting securities of the Fund. The provisions of the Plan
relating to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Under the Plan the President
or a Vice President of the Trust shall provide to the Trustees for their review,
and the Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund, and all material
amendments of the Plan must also be approved by the Trustees as required by Rule
12b-1. So long as the Plan is in effect, the selection and nomination of the
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which will benefit the Fund and its shareholders. Payments for sales
commissions and distribution fees made to the Principal Underwriter under the
Plan will compensate the Principal Underwriter for its services and expenses in
distributing shares of the Fund. Service fee payments made to the Principal
Underwriter and Authorized Firms under the Plan provide incentives to provide
continuing personal services to investors and the maintenance of shareholder
accounts. By providing incentives to the Principal Underwriter and Authorized
Firms, the Plan is expected to result in the maintenance of, and possible future
growth in, the assets of the Fund. Based on the foregoing and other relevant
factors, the Trustees have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a detrimental
effect on the price or amount of the securities available to the Portfolio from
time to time, it is the opinion of the Trustees of the Trust and the Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the brokerage
commissions paid by the Portfolio on portfolio transactions, see "Fees and
Expenses" in the Fund's Part II of this SAI.
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 Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual Report
accompanies this SAI.
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- -----------------------
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
365 days.
Issuers (or supporting institutions) rated Prime-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2
Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3
Issuers (or supporting institutions) rated Prime-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considered short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON ALABAMA MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Alabama State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Alabama Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Alabama considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Alabama issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Alabama issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Alabama's business cycle is closely related to the national economy, due to
its manufacturing based economy. The State's economy has changed little in the
past few years. Growth in machinery, aerospace and electronic manufacturing have
become increasingly important to the State. The present movement toward
diversification of the State's manufacturing base and a similar trend toward
enlargement and diversification of the service industries are expected to lead
to increased stability. With its strong natural gas and oil deposits, Alabama is
well positioned in energy markets. An important factor affecting the economy is
the State owned Port of Mobile which primarily handles coal exports and serves
as a major Gulf Coast port. The Port of Mobile is one of the nation's busiest
ports in tons of cargo handled.
Although manufacturing remains the largest employment sector, the State
economy has become less dependent on manufacturing. Strong growth in the service
and wholesale/retail trade sectors combined with a weakening manufacturing
sector has enabled the economy to become more diverse. However, its reliance on
the manufacturing sector remains significantly greater than the national
average. In the past several years, the loss of manufacturing jobs has been
primarily as a result of weakness in the durable good sector. Overall,
non-agricultural employment has steadily grown during the past five years.
For March 1994, according to the Bureau of Labor Statistics, the seasonally
adjusted unemployment rate for the State was 6.5% of the labor force, as
compared with an unemployment rate of 6.5% for the United States. As of 1991,
the State's wealth levels were among the lowest in the nation with its per
capita 80.9% of the national average.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $118,486,053. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$466,320 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $373,047 (equivalent to 0.38% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $123,740 (equivalent to 0.31%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, Eaton Vance would have earned, absent a fee reduction, advisory fees of
$18,696 (equivalent to 0.20% (annualized) of the Fund's average daily net assets
for such period). To enhance the net income of the Fund, Eaton Vance made a
reduction of the full amount of its advisory fee.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $335,469 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$788,932, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $328,036
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $4,287,434 (which amount was
equivalent to 3.9% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $138,675, of which $138,285 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $977.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $5,850 and the
Portfolio paid IBT $16,491.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992 to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), and
for the period from the start of business, May 1, 1992, to the fiscal year ended
September 30, 1992, the Fund paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 ......... $583 $1,563(2) $135,000(4)
Samuel L. Hayes, III ..... 561 1,608(3) 150,000(5)
Norton H. Reamer ......... 550 1,631 135,000
John L. Thorndike ........ 558 1,718 140,000
Jack L. Treynor .......... 602 1,647 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $393 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) is a Vice President of the Portfolio. Mr.
Browse has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Browse has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1992. Mr. Browse is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from May 1, 1992 through August 31, 1995 and for the one year period ended
August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE BEFORE DE- VALUE AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 5/1/92* $1,000 $1,242.75 $1,212,75 24.28% 6.72% 21.28% 5.95
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,073.81 $1,023.81 7.38% 7.38% 2.38% 2.38%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on May 1, 1992.
** No contingent deferred sales charge 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 August 31, 1995, the yield of the Fund was
4.53%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.53% would be 6.91%, assuming a
combined federal and State tax rate of 34.45%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995 was 4.65% and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.75%.
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 15, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 34.63% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Alabama Tax Free Fund to EV Marathon Alabama Tax Free Fund
on February 1, 1994. The Fund changed its name from EV Marathon Alabama Tax Free
Fund to EV Marathon Alabama Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Alabama State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND ALABAMA STATE
TAX-EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- AL STATE ------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ Is equivalent to a fully taxable yield of:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 23,351- 56,550 $ 39,001- 94,250 31.60% 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 56,551- 117,950 $ 94,251- 143,600 34.45% 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$117,951- 256,500 $143,601- 256,500 39.20% 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $256,500 Over $256,500 42.62% 6.97 7.84 8.71 9.59 10.46 11.33 12.20
- ----------------------------------------------------------------------------------------------------------
*Net amount subject to federal and Alabama personal income tax after deductions and exemptions.
+The first tax bracket is calculated using the highest Alabama tax rate within the bracket. Taxpayers with
taxable income within this bracket may have a lower combined bracket and taxable equivalent yield than
indicated above. The combined tax rates assume that Alabama taxes are itemized deductions for federal
income tax purposes. Investors who do not itemize deductions on their federal income tax return will have
a higher combined bracket and higher taxable equivalent yield than those indicated above. The applicable
federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the same
ranges of income. The assumed Alabama State income tax rate is 5%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Alabama State income taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phase out of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Marathon Alabama
Municipals Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Alabama personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for Alabama personal income taxes. It
should also be noted that the interest earned on certain "private activity"
bonds issued after August 7, 1986, while exempt from the regular federal income
tax, is treated as a tax preference item which could subject the recipient to
the federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON ARKANSAS MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Arkansas State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Arkansas Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Arkansas considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Arkansas issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Arkansas issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The Constitution of the State does not limit the amount of general
obligation bonds which may be issued by the State; however, no such bonds may be
issued unless approved by the voters of the State at a general election or a
special election held for that purpose. There is no constitutional limitation on
the aggregate principal amount of revenue bonds that may be issued by the State
and its agencies. All revenue bonds and notes are secured only by specific
revenue streams and neither the general revenues of the State nor its full faith
and credit are pledged to repayment.
Pursuant to the Revenue Stabilization Law, the General Assembly must enact
legislation to provide for an allotment process of funding appropriations in
order to comply with State law prohibiting deficit spending whereby spending is
limited to actual revenues received by the State. The Governor may restrict
spending to a level below the level of appropriations. Pursuant to the
Stabilization Act, the General Assembly establishes five levels of priority for
general revenue spending, levels "A," "B," "B-1," "C" and "C-1". Successive
levels of appropriations are funded only in the event sufficient revenues have
been generated to fully fund any prior level. Accordingly, appropriations made
to programs and agencies are only maximum authorizations to spend. Actual
expenditures are limited to the lesser of (i) moneys flowing into a program or
agency's fund maintained by the Treasurer or (ii) the maximum appropriation by
the General Assembly. Since State revenues are not collected throughout the year
in a pattern consistent with program and agency expenditures, a budget revolving
fund, which receives interest earnings from State fund investments, has been
established and is utilized to assure proper cash flow during any period.
One-half of all moneys deposited into the budget revolving fund ultimately are
utilized to supplement the State's capital construction program and the balance
is distributed to programs and agencies funded from general revenues.
The State operates under a biennial budgeting system with July 1, 1995
beginning the current biennium. The State ended fiscal 1994 in balance as
required by the Revenue Stabilization Act. Net available general revenue growth
for fiscal 1994 was 9%.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $81,535,002. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$296,231 (equivalent to 0.37% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, February 1,
1994, to the fiscal year ended August 31, 1994, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $172,691 (equivalent to 0.38%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of its advisory
fee in the amount of $88,417. The Portfolio's Investment Advisory Agreement with
BMR is dated February 1, 1994 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1994 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1993 to February
1, 1994, absent a fee reduction, the Fund would have paid Eaton Vance advisory
fees of $71,529 (equivalent to 0.21% (annualized) of the Fund's average daily
net assets for such period). To enhance the net income of the Fund, Eaton Vance
made a reduction of the full amount of its advisory fee. For the period from the
start of business, October 2, 1992 to the fiscal year ended September 30, 1993,
Eaton Vance would have earned, absent a fee reduction, advisory fees of $57,831
(equivalent to 0.22% (annualized) of the Fund's average daily net assets for
such period). To enhance the net income of the Fund, Eaton Vance made a
reduction of the full amount of its advisory fee and Eaton Vance was allocated a
portion of the expenses related to the operation of the Fund in the amount of
$81,380.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $239,454 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$602,799, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $312,000
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $3,364,000 (which amount was
equivalent to 4.2% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $98,771, of which $97,696 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $800 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $6,162 and the
Portfolio paid IBT $23,999.
BROKERAGE
For the fiscal year ended August 31, 1995, and for the period from the start
of business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions. For the
period from October 1, 1993 to February 1, 1994 (when the Fund transferred its
assets to the Portfolio), and for the period from the start of business, October
2, 1992 to the fiscal year ended September 30, 1993, the Fund paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfoio who are members of the
Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 ....... $333 $1,164(2) $135,000(4)
Samuel L. Hayes, III ... 322 1,222(3) 150,000(5)
Norton H. Reamer ....... 314 1,254 135,000
John L. Thorndike ...... 318 1,336 140,000
Jack L. Treynor ........ 343 1,235 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $436 of deferred compensation.
(3) Includes $559 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) is a Vice President of the Portfolio. Mr.
Browse has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Browse has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1992. Mr. Browse is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from October 2, 1992 through August 31, 1995 and for the one year period ended
August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE BEFORE DE- VALUE AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 10/2/92* $1,000 $1,189.89 $1,149.89 18.99% 6.13% 14.99% 4.90%
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,061.54 $1,011.54 6.15% 6.15% 1.15% 1.15%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on October 2, 1992.
** No contingent deferred sales charge 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 August 31, 1995, the yield of the Fund was
4.51%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.51% would be 7.03%, assuming a
combined federal and State tax rate of 35.83%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.68%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.79%.
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 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 12.3% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Arkansas Tax Free Fund to EV Marathon Arkansas Tax Free
Fund on February 1, 1994 and to EV Marathon Arkansas Municipals Fund on January
1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Arkansas State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND ARKANSAS STATE
TAX-EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- AR STATE ------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ Is equivalent to a fully taxable yield of:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351- 56,550 $ 39,001- 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551- 117,950 $ 94,251- 143,600 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$117,951- 256,500 $143,601- 256,500 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over $256,500 Over $256,500 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
- ----------------------------------------------------------------------------------------------------------
*Net amount subject to federal and Arkansas personal income tax after deductions and exemptions.
+The first tax bracket is calculated using the highest Arkansas tax rate within the bracket. Taxpayers with
taxable income within this bracket may have a lower combined bracket and taxable equivalent yield than
indicated above. The combined tax rates assume that Arkansas taxes are itemized deductions for federal
income tax purposes. Investors who do not itemize deductions on their federal income tax return will have
a higher combined bracket and higher taxable equivalent yield than those indicated above. The applicable
federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the same
ranges of income. The assumed Arkansas State income tax rate is 7%.
Note: The federal income tax portion of above-indicated combined income tax brackets does not take into
account the effect of a reduction in the deductibility of itemized deductions (including Arkansas State
income taxes) for taxpayers with adjusted gross income in excess of $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 EV Marathon Arkansas Municipals Fund will achieve any specific tax exempt
yield. While it is expected that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Arkansas personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for Arkansas personal income taxes. It
should also be noted that the interest earned on certain "private activity bonds" issued after August 7,
1986, while exempt from the regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this Statement of Additional Information. Subsequent
tax law changes could result in prospective or retroactive changes in the tax brackets, tax rates, and tax
equivalent yields set forth above. Investors should consult their tax adviser for additional information.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON GEORGIA MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Georgia State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Georgia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Georgia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Georgia issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Georgia issuers. Neither
the Trust nor the Portfolio has independently verified this information.
The Georgia Constitution provides that the State may incur public debt of
two types for public purposes: (1) general obligation debt and (2) guaranteed
revenue debt. General obligation debt may be incurred to acquire, construct,
develop, extend, enlarge or improve land, waters, property, highways, buildings,
structures, equipment or facilities of the State, its agencies, departments,
institutions and certain State authorities, to provide educational facilities
for county and independent school systems, to provide public library facilities
for county and independent school systems, counties, municipalities, and boards
of trustees of public libraries or boards of trustees of public library systems,
to make loans to counties, municipal corporations, political subdivisions, local
authorities and other local government entities for water or sewerage facilities
or systems, and to make loans to local government entities for regional or
multijurisdictional solid waste recycling or solid waste facilities or systems.
No general obligation debt may be incurred, however, when the highest aggregate
annual debt service requirements for the then current year or any subsequent
year for outstanding general obligation debt and guaranteed revenue debt,
including any proposed debt, and the highest aggregate annual payments for the
then current year or any subsequent fiscal year of the State under certain State
contracts, exceed ten percent of the total revenue receipts, less refunds, of
the State Treasury in the fiscal year immediately preceding the year in which
the debt is to be incurred. In addition, no general obligation debt may be
incurred with a term in excess of twenty-five years.
Guaranteed revenue debt may be incurred by guaranteeing the payment of
certain revenue obligations issued by an instrumentality of the State. No
guaranteed revenue debt may be incurred to finance water or sewage treatment
facilities or systems when the highest aggregate annual debt service
requirements for the then current year or any subsequent fiscal year of the
State for outstanding or proposed guaranteed revenue debt for water or sewerage
facilities or systems exceed one percent of the total revenue receipts, less
refunds, of the State Treasury in the fiscal year immediately preceding the year
in which any debt is to be incurred. In addition, the aggregate amounts of
guaranteed revenue debt incurred to make loans for educational purposes may not
exceed $18 million, and the aggregate guaranteed revenue debt incurred to
purchase, or to lend or deposit against the security of, loans for educational
purposes that may be outstanding may not exceed $72 million.
As of July 31, 1995, the State's outstanding general obligation debt was
$4,279,170,000. The State had outstanding at July 31, 1995, $185,135,000 of
guaranteed revenue debt.
In addition to the State's general obligation debt and guaranteed revenue
debt, the State had outstanding at June 30, 1995, $1,030,000 in revenue bonds
and notes issued by various State agencies, authorities and institutions of
higher education.
In the 1995 Legislative Session, the General Assembly authorized the
issuance of $530,500,000 in aggregate principal amount of general obligation
bonds for fiscal year 1996, the proceeds of which are to be used for various
planned capital projects of the State, its departments and agencies.
The Georgia Constitution also permits the State to incur public debt to
supply a temporary deficit in the State Treasury in any fiscal year created by a
delay in collecting the taxes of that year. Such debt must not exceed, in the
aggregate, 5% of the total revenue receipts, less refunds, of the State Treasury
in the fiscal year immediately preceding the year in which such debt is
incurred. The debt incurred must be repaid on or before the last day of the
fiscal year in which it is to be incurred out of the taxes levied for that
fiscal year. No such debt may be incurred in any fiscal year if there is then
outstanding unpaid debt from any previous fiscal year which was incurred to
supply a temporary deficit in the State Treasury. No such debt has been incurred
under this provision since its inception.
Virtually all of the issues of long-term debt obligations issued by or on
behalf of the State of Georgia and counties, municipalities and other political
subdivisions and public authorities thereof are required by law to be validated
and confirmed in a judicial proceeding prior to issuance. The legal effect of a
validation in Georgia is to tender incontestable the validity of the pertinent
bond issue and the security therefor.
Tax collections of the State for fiscal year 1994 were 7.8% over tax
collections for fiscal year 1993. Corporate and individual income tax receipts
and general sales tax receipts of the State for fiscal year 1994 comprised an
estimated 49.0% and 40.2%, respectively, of the total State tax revenues.
Revenues from sales and income taxes increased 9.2% and 6.7%, respectively,
during fiscal year 1994, and 8.3% and 9.1%, respectively, during fiscal year
1995.
On December 6, 1994, the United States Supreme Court reversed the Georgia
Supreme Court's decision in Reich v. Collins which had determined that the
plaintiff federal retiree was not entitled to a refund of taxes paid on federal
retirement pension benefits for tax years before 1989. The plaintiff had sought
refunds under the United States Supreme Court's decision in Davis v. Michigan
Department of Treasury. On February 1, 1995, the Governor signed H.B. 90 into
law, which provides for the payment of refunds to federal retirees who timely
filed claims for any of the tax years 1985 through 1988, inclusive. The total
amount payable is estimated at approximately $110 million, to be paid in four
roughly equal annual installments beginning on or before October 15, 1995. Based
on this legislation, Reich has been dismissed.
Three suits have been filed against the State of Georgia seeking refunds
of liquor taxes in light of Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)
under Georgia's pre-Bacchus statute. In James B. Beam Distilling Co. v.
State, 501 U.S. 529 (1991), the Supreme Court indicated that Bacchus was
retroactive, but only within the bounds of State statutes of limitations and
procedural bars, and left State courts to determine any remedy in light of
reliance interests, equitable considerations, and other defenses. Georgia's
statute of limitations has run on all pre-Bacchus claims for refund except
five pending claims seeking $31.7 million in tax plus interest. On remand,
the Fulton County Superior Court ruled that procedural bars and other defenses
bar any recovery by taxpayers on Beam's claims for refund. The Georgia
Supreme Court affirmed, and Beam's petition to the United States Supreme Court
for a writ of certiorari was denied. Thus, the Beam case is now concluded.
The State has filed a motion for summary judgment, based upon Beam, in the
remaining two suits for refund, i.e., Joseph E. Seagram & Sons, Inc. v. State
and Heublein, Inc. v. State, in DeKalb County Superior Court.
Three suits (two for refund and one for declaratory and injunctive relief)
have been filed with the State of Georgia by foreign producers of alcoholic
beverages. The first suit seeks $96 million in refunds of alcohol import taxes
imposed under Georgia's post-Bacchus statute. These claims constitute 99% of all
such taxes paid during the three years preceding these claims. In addition, the
claimants have filed a second suit for refund of an additional $23 million for
apparently later time periods. These two cases encompass all known or
anticipated claims for refund of such type within the apparent statute of
limitations. The two refund cases are still pending in the trial court. The
declaration/injunctive relief case was dismissed by the District Court and was
affirmed by the Eleventh Circuit Court of Appeals. The claimants have filed a
petition for rehearing which is pending.
A suit has also been filed based on a local school board's claim that the
State finance the major portion of the costs of its desegregation program. The
Savannah Board originally requested restitution in the amount of $30 million,
but the Federal District Court set forth a formula which would require a State
payment in the amount of approximately $8,900,000. The plaintiffs, dissatisfied
with the apportionment of desegregation costs between State and county, and an
adverse ruling on the State funding formula for transportation costs, have
appealed to the Eleventh Circuit Court of Appeals. The State has filed a
responsive cross-appeal on the ground that there is no basis for any liability.
Subsequently, the parties agreed to a settlement, which has been submitted to
the Court for approval. The proposed settlement calls for the State to pay the
amount awarded to the plaintiffs and to offer an option regarding future funding
methodology for pupil transportation. Because interest was accruing in the
settlement, in March 1995, the State paid to the plaintiffs $8,925,000 in
partial satisfaction of the settlement agreement.
A similar complaint has been filed by DeKalb County and seeking
approximately $67,500,000 in restitution. The federal District Court ruled that
the State's funding formula for pupil transportation (which the District Court
in the Savannah case upheld) was contrary to State law. This ruling would
require a State payment of a State law funding entitlement in the amount of
approximately $34,000,000 computed through June 30, 1994. Motions to reconsider
and amend the Court's judgment were filed by both parties. The State's motion
was granted, in part, which reduced the required State payment to approximately
$28,000,000. Notices of appeal to the Eleventh Circuit Court of Appeals have
been filed. There are approximately five other school districts which might file
similar claims.
Another suit has been filed in federal district and State superior courts
challenging the constitutionality of Georgia's transfer fee (often referred to
as "impact fee") by asserting that the fee violates the commerce clause, due
process, equal protection and privilege and immunities provisions of the
constitution. The plaintiff seeks to prohibit the State from further collections
and to require the State to return to her and those similarly situated all fees
previously collected. A similar lawsuit previously filed in another State
superior court has been voluntarily dismissed and will likely be joined with
this action. From May of 1992 to June 1995, the State has collected $24,168,203.
All amounts collected after June 7, 1995 are being paid into an escrow account.
The State continues to collect approximately $500,000 to $600,000 per month.
On September 1, 1994, a civil action was filed in the Fulton County Superior
Court on behalf of all certain employees of the State of Georgia who were
subjected to a freeze in pay between 1992 and 1995. The State believes that it
has good and adequate defenses to the claims made, but, should the plaintiffs
prevail in every aspect of their claims, the liability of the State in this
matter could be as much as $295,000,000, based on best estimates currently
available.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $122,948,667. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$521,159 (equivalent to 0.41% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $496,637 (equivalent to 0.40% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to September 30, 1993, the Portfolio paid
BMR advisory fees of $228,627 (equivalent to 0.37% (annualized) of the
Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and remains in
effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this Statement of
Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, the Fund paid Eaton Vance advisory fees of $50,274 (equivalent to 0.29%
(annualized) of the Fund's average daily net assets for such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $263,171 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$931,910, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $827,185
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $4,634,000 (which amount was
equivalent to 3.9% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $170,140, of which $169,986 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $1,887.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $500 and the
Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992 to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), and
for the period from the start of business, December 23, 1991, to the fiscal year
ended September 30, 1992, the Fund paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 .......... $666 $1,563(2) $135,000(4)
Samuel L. Hayes, III ...... 643 1,608(3) 150,000(5)
Norton H. Reamer .......... 628 1,631 135,000
John L. Thorndike ......... 637 1,718 140,000
Jack L. Treynor ........... 686 1,647 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $393 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since January 1, 1996.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and
and employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from December 23, 1991 through August 31, 1995 and for the one year period ended
August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE BEFORE DE- VALUE AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 12/23/91* $1,000 $1,199.33 $1,169.96 19.93% 5.05% 17.00% 4.35%
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,049.02 $ 999.07 4.90% 4.90% -0.09% -0.09%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on December 23, 1991.
** No contingent deferred sales charge 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 August 31, 1995, the yield of the Fund was
4.74%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.74% would be 7.31%, assuming a
combined federal and State tax rate of 35.14%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.65%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.75%.
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 15, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 21.43% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Georgia Tax Free Fund to EV Marathon Georgia Tax Free Fund
on February 1, 1994. The Fund changed its name from EV Marathon Georgia Tax Free
Fund to EV Marathon Georgia Municipals Fund on January 1, 1996.
<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
Georgia State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND GEORGIA STATE
TAX-EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- GA STATE ------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ Is equivalent to a fully taxable yield of:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351- 56,550 $ 39,001- 94,250 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551- 117,950 $ 94,251- 143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951- 256,500 $143,601- 256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
- ----------------------------------------------------------------------------------------------------------
*Net amount subject to federal and Georgia personal income tax after deductions and exemptions.
+The first tax bracket is calculated using the highest Georgia tax rate within the bracket. Taxpayers
with taxable income within this bracket may have a lower combined bracket and taxable equivalent yield
than indicated above. The combined tax rates assume that Georgia taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their federal income tax return
will have a higher combined bracket and higher taxable equivalent yield than those indicated above. The
applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over
the same ranges of income.
Note: The federal income tax portion of above-indicated combined income tax brackets does not take into
account the effect of a reduction in the deductibility of itemized deductions (including Georgia State
income taxes) for taxpayers with Adjusted Gross Income in excess of $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 EV Marathon Georgia Municipals Fund will achieve any specific tax exempt
yield. While it is expected that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Georgia personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for Georgia personal income taxes. It
should also be noted that the interest earned on certain "private activity bonds" issued after August 7,
1986, while exempt from the regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this Statement of Additional Information. Subsequent
tax law changes could result in prospective or retroactive changes in the tax brackets, tax rates, and
tax equivalent yields set forth above. Investors should consult their tax adviser for additional
information.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON KENTUCKY MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Kentucky State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Kentucky Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Kentucky considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Kentucky issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Kentucky issuers. Neither the Trust nor the Portfolio has independently verified
this information.
Because the Kentucky Constitution requires the vote of a majority of the
state's electorate to approve the issuance of state general obligation
indebtedness and requires the vote of two-thirds of a municipality's electorate
to approve the issuance of general obligation indebtedness by any city, county,
or other municipality within the state, most Kentucky state and local government
indebtedness is issued not as general obligation indebtedness but as either debt
payable only from revenues produced by the particular project or as indebtedness
subject to biennial, in the case of the state, or annual, in the case of a local
government, legislative appropriation for the payment of debt service. Such
appropriation-backed indebtedness is customarily issued in the form of lease
revenue bonds by a public authority or public holding company which uses the
proceeds of the bonds to finance the particular public project and leases the
project to the state or local government pursuant to a lease renewable each
fiscal biennium (in the case of the state) or each fiscal year (in the case of a
local government). Failure of the lessee government to renew the lease would
terminate the lessee's obligation to make further rental payments and would
leave the bondholders with recourse only against the property which was subject
to the lease and any other security pledged for the payment of the bonds. An
amendment to the state constitution approved by the electorate at the November
1994 general election authorizes the Kentucky General Assembly to enact
legislation permitting local governments to issue general obligation
indebtedness without voter approval but subject to prescribed limitations on the
maximum amount of indebtedness that may be incurred based on the assessed value
of the taxable property within the municipality and such additional limitations
and conditions as may be prescribed by statute. The Kentucky General Assembly
has not yet enacted any such enabling legislation and, therefore,
appropriation-backed indebtedness continues to be the prevailing form of
financing for local governments in Kentucky.
The Commonwealth of Kentucky recently retired the last of its outstanding
general obligation debt. In September 1994 S&P upgraded the rating of the
State's appropriation-back debt from A to A. Moody's and Fitch rate the State's
appropriation-backed debt as A and A, respectively.
Kentucky is an "average" state in terms of size and in terms of its
proportion of the national economy. Kentucky has 1.5% of total U.S. population,
1.2% of total U.S. personal income, and 1.3% of total U.S. nonagricultural
employment. However, during the latter part of the 1980's and throughout the
1990's, Kentucky's economy has outperformed the national average. During 1994
the unemployment rate in Kentucky averaged 5.4% as compared to the national
average of 6.1%; nonagricultural employment in Kentucky grew 3.3% as compared to
a national growth rate of 2.6%; and personal income in Kentucky grew 6.0%
compared to a natonal growth rate of 5.3%.
The Commonwealth of Kentucky's financial condition has steadily improved
during the last three years. State General Fund revenue grew by 10.9% in fiscal
year 1995 to a total of $5.15 billion. To avoid the need for state budget cuts
in the event revenues do not meet expectations, a Budget Reserve Trust Fund was
established with a $90 million deposit in fiscal year 1994. An additional $10
million was deposited into the Budget Reserve Trust Fund on in fiscal year 1995,
bringing the balance to the targeted level of $100 million.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $145,268,626. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$595,483 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $510,287 (equivalent to 0.41% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $224,010 (equivalent to 0.37%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, Eaton Vance earned advisory fees of $55,896 (equivalent to 0.30%
(annualized) of the Fund's average daily net assets for such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $408,380 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$1,048,842, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $466,267
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $5,401,123 (which amount was
equivalent to 3.8% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $189,318, of which $189,160 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $1,207.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $10,430 and the
Portfolio paid IBT $35,132.
BROKERAGE
For fiscal year ended August 31, 1995, the eleven months ended August 31,
1994, and for the period from the start of business, February 1, 1993, to the
fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992, to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), and
for the period from the start of business, December 23, 1991, to the fiscal year
ended September 30, 1992, the Fund paid no brokerage commissions on portfolio
transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 ......... $660 $1,563(2) $135,000(4)
Samuel L. Hayes, III ..... 643 1,608(3) 150,000(5)
Norton H. Reamer ......... 628 1,631 135,000
John L. Thorndike ........ 637 1,718 140,000
Jack L. Treynor .......... 686 1,647 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $393 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
David C. Reilly (38) is a Vice President of the Portfolio. Mr. Reilly has served
as a Vice President of the Portfolio since January 1, 1996. 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 Sudder, 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 covering the life of the Fund
from December 23, 1991 through August 31, 1995 and for the one year period ended
August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE BEFORE DE- VALUE AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 12/23/91* $1,000 $1,222.96 $1,192.99 22.30% 5.61% 19.30% 4.90%
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,066.13 $1,016.13 6.61% 6.61% 1.61% 1.61%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on December 23, 1991.
** No contingent deferred sales charge 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 August 31, 1995, the yield of the Fund was
4.58%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.58% would be 7.06%, assuming a
combined federal and State tax rate of 35.14%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.70%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.81%.
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 15, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 15.90% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Kentucky Tax Free Fund to EV Marathon Kentucky Tax Free
Fund on February 1, 1994. The Fund changed its name from EV Marathon Kentucky
Tax Free Fund to EV Marathon Kentucky Municipals Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below give the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Kentucky State income tax laws, and intangibles tax laws and tax rates
applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND KENTUCKY STATE
TAX-EXEMPT YIELD OF:
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- KY STATE ------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ Is equivalent to a fully taxable yield of:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351- 56,550 $ 39,001- 94,250 32.32% 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551- 117,950 $ 94,251- 143,600 35.14% 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951- 256,500 $143,601- 256,500 39.84% 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22% 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<CAPTION>
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- ---------------------------------------------------------------------
(TAXABLE INCOME)* taxable equivalent yield reflecting exemption from intangibles tax**:
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.36% 5.99% 6.61% 7.23% 7.86% 8.48% 9.11%
$ 23,351- 56,550 $ 39,001- 94,250 32.32% 6.33 7.07 7.80 8.54 9.28 10.01 10.75
$ 56,551- 117,950 $ 94,251- 143,600 35.14% 6.61 7.37 8.14 8.91 9.68 10.45 11.22
$117,951- 256,500 $143,601- 256,500 39.84% 7.12 7.95 8.78 9.61 10.44 11.27 12.10
Over $256,500 Over $256,500 43.22% 7.55 8.42 9.30 10.18 11.06 11.94 12.82
<FN>
*Net amount subject to federal and Kentucky personal income tax after deductions and exemptions.
+The first tax bracket is calculated using the highest Kentucky tax rate within the bracket. Taxpayers with taxable income within
this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax rates assume
that Kentucky taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated above.
The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the same ranges of
income. The Kentucky State income tax is 6%, and the intangibles tax as a percentage of income is 5.0%.
Note: The federal income tax portion of above-indicated combined income tax brackets does not take into account the effect of a
reduction in the deductibility of itemized deductions (including Kentucky state income taxes) for taxpayers with Adjusted Gross
Income in excess of $114,700. The tax brackets also do not show the effects of phaseout of personal exemptions for single filers
with Adjusted Gross Income in excess of $114,700 and joint filers with Adjusted Gross Income in excess of $172,050. The
effective tax brackets and equivalent taxable yields of such taxpayers will be higher than those indicated above.
**The Kentucky intangibles tax on stocks, bonds, notes and other evidences of debt is 25 cents on every $100 of the value
thereof. An example of the effect of the Kentucky intangibles tax on the combined tax brackets of taxpayers is as follows: A
$10,000 investment subject to the tax would require payment of $25 annually in intangibles taxes. If the investment yielded
5.5% annually or $550, the intangibles tax as a percentage of income would be $25/$550 or 4.55%. If a taxpayer owning such an
investment were in the 6% state income tax bracket, he or she would be paying combined state taxes as a percentage of income of
6% plus 4.55% or 10.55%. Assuming the deductibility of these taxes as itemized deductions and that such taxpayer were in the
36% federal income tax bracket, the taxpayer would then be in a 42.75% [36% + (1 - .36) X 10.55%] combined tax bracket with
respect to such investment. This is higher than the 39.84% combined tax bracket without taking into account the intangibles
tax.
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield. No assurance can be given
that EV Marathon Kentucky Municipals Fund will achieve any specific tax exempt yield. While it is expected that the Portfolio
will invest principally in obligations, the interest from which is exempt from the regular federal income tax and Kentucky
personal income taxes, other income received by the Portfolio and allocated to the Fund may be taxable. The table does not take
into account state or local taxes, if any, payable on Fund distributions except for Kentucky personal income taxes. It should
also be noted that the interest earned on certain "private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax is not applicable and do not take into account any
tax credits that may be available.
The information set forth above is as of the date of this Statement of Additional Information. Subsequent tax law changes could
result in prospective or retroactive changes in the tax brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
The Part II provides information about EV MARATHON LOUISIANA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Louisiana State individual and corporate
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Louisiana Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Louisiana considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Louisiana issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Louisiana issuers. Neither the Trust nor the Portfolio has independently
verified this information.
In 1991, the Louisiana Legislature enacted the Louisiana Riverboat Economic
Development and Gaming Control Act ("Act 753") to assist the growth of tourism
by the development of a riverboat industry in the State authorized to operate
regulated gaming activities. Act 753 designates certain rivers and waterways in
the State upon which riverboat gaming may be conducted and provides for the
creation of a gaming commission known as the Riverboat Gaming Commission (the
"Riverboat Commission"), and for the creation of the Riverboat Gaming
Enforcement Division (the "Enforcement Division"). The Enforcement Division is
responsible for investigation of license and permit applications. The Riverboat
Commission has the responsibility of licensing, regulating and inspecting
riverboat gaming facilities and enforcing Act 753 and regulations promulgated
thereunder. Act 753 allows the issuance of up to fifteen licenses to conduct
gaming activities on riverboats of new construction (built after January 1,
1992); provided that no more than six licenses may be granted for the operation
of riverboat gaming in any one parish. As of January 1, 1995 there were 10
riverboats in operation in Louisiana, including two riverboats in Orleans
Parish, two riverboats in other parts of the New Orleans metropolitan area, two
in Baton Rouge, one in Lake Charles, and three in Shreveport/Bossier City. Act
753 imposes annual license fees for gaming employee, manufacture, supplies and
other permits. In addition, there is a license fee equal to 3.5% of net gaming
proceeds and a franchise fee equal to 15% of net gaming proceeds. Of the 3.5%
fee, up to 0.5% can be used to meet the expenses of the Riverboat Gaming
Commission; the remainder of the 3.5% shall be used by the Enforcement Division
to meet its regular, administrative, investigative and enforcement expenses. The
15% franchise fees are to be deposited to the credit of the State General Fund.
The official forecast for riverboat gaming revenues is $30 million for fiscal
year 1994-95 and $200 million for fiscal year 1995-96.
For fiscal 1996, the State failed to receive a Section 1115 waiver from the
U.S. Department of Health and Human Services resulting in a significant
reduction of federal funding for its health care programs. As a result, the
State faces a large operating gap for its fiscal 1996 budget. At this time, it
is uncertain as to how the State plans to close the fiscal gap and how it will
affect the creditworthiness of State obligations and related debt.
In 1991, the Louisiana Legislature enacted the Video Draw Poker Devices
Control Law (the "Act 1062") for the purpose of regulating and licensing the use
and operation of video draw poker devices through the video gaming division (the
"Video Division") of the gaming enforcement section of the office of the State
police. Act 1062 imposes annual license fees and a franchise payment equal to
22.5% of the net device revenue derived from the operation of each device. The
forecast of Video Draw Poker gaming revenue is $38 million for fiscal year
1994-1995 and $150 million for fiscal year 1995- 1996.
In 1992, Act 384 of the Louisiana Legislature created the Louisiana Economic
Development and Gaming Corporation (the "LEDGC") for the purpose of contracting
with a casino operator to provide for or furnish an official gaming
establishment and to conduct casino gaming operations at the official gaming
establishment (the "Permanent Casino"). Act 384 directs that the Permanent
Casino be located on the site of the Rivergate Convention Center in New Orleans.
The LEDGC has entered into a contract ("Contract") with Harrah's Jazz Company
("Company"), a general partnership owned equally by Harrah's New Orleans
Investment Company, New Orleans/Louisiana Development Corporation and Grand
Palais Casino Inc. Pursuant to the Contract, the Company is currently operating
a Temporary Casino until the expected opening of the Permanent Casino in April
of 1996. Pursuant to the Contract, the Company is required to pay an amount
equal to 25% of its gross gaming revenue to the LEDGC during operation of the
Temporary Casino. To date, the Temporary Casino has failed to match revenue
projections. Upon the opening of the Permanent Casino, the Company will be
required to make a payment to the LEDGC in an amount equal to the greater of
$100 million and an amount that is 18.5% of the gross gaming revenues of the
Company. Each quarter, the LEDGC must transfer to the State Treasury for deposit
in the Casino Gaming Proceeds Fund net revenues which are surplus to its needs.
Such revenues will be first credited to the Bond Security and Redemption Fund
before being credited to the Casino Gaming Proceeds Fund. Monies in the Casino
Gaming Proceeds Fund may be allocated or expended only pursuant to legislative
appropriation.
On January 23, 1995, the Legislative Auditor, as the result of his financial
and compliance audit of the State's general purpose financial statements as of
and for the fiscal year 1993-94, issued a qualified audit opinion on those
statements.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $34,308,679. For the
fiscal year ended August 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $73,471 (equivalent to 0.23% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $36,188.
For the period from the Portfolio's start of business, February 1, 1994, to the
fiscal year ended August 31, 1994, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $34,790 (equivalent to 0.21% (annualized) of the
Portfolio's average daily net assets for such period). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$31,760. The Portfolio's Investment Advisory Agreement with BMR is dated
February 1, 1994 and remains in effect until February 28, 1996. The Agreement
may be continued as described under "Investment Adviser and Administrator" in
Part I of this Statement of Additional Information.
Prior to February 1, 1994 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1993 to February
1, 1994, absent a fee reduction, the Fund would have paid Eaton Vance advisory
fees of $11,096 (equivalent to 0.15% (annualized) of the Fund's average daily
net assets for such period). To enhance the net income of the Fund, Eaton Vance
made a reduction of the full amount of its advisory fee and $40,252 of expenses
related to the operation of the Fund were allocated to Eaton Vance. For the
period from the start of business, October 2, 1992, to September 30, 1993, Eaton
Vance would have earned, absent a fee reduction, advisory fees of $10,805
(equivalent to 0.15% (annualized) of the Fund's average daily net assets for
such period). To enhance the net income of the Fund, Eaton Vance made a
reduction of the full amount of its advisory fee and $38,076 of expenses related
to the operation of the Fund were allocated to Eaton Vance.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $180,626 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$224,688, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $78,000 were
imposed on early redeeming shareholders and paid to the Principal Underwriter to
reduce Uncovered Distribution Charges. As at August 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $1,388,000 (which amount was equivalent to 4.4%
of the Fund's net assets on such date). During the fiscal year ended August 31,
1995, the Fund paid service fee payments under the Plan aggregating $32,418, of
which $32,287 was paid to Authorized Firms and the balance of which was retained
by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $290.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $1,016 and the
Portfolio paid IBT $975.
BROKERAGE
For the fiscal year ended August 31, 1995 and for the period from the start
of business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions. For the
period from October 1, 1993, to February 1, 1994 (when the Fund transferred its
assets to the Portfolio), and for the period from the start of business October
2, 1992, to September 30, 1993, the Fund paid no brokerage commissions on
portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 $333(2) $135,000(4)
Samuel L. Hayes, III ..... 32 323(3) 150,000(5)
Norton H. Reamer ......... 31 314 135,000
John L. Thorndike ........ 32 318 140,000
Jack L. Treynor .......... 34 343 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $83 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from October 2, 1992 through August 31, 1995 and for the one-year period ended
August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE BEFORE DE- VALUE AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 10/2/91* $1,000 $1,175.86 $1,135.94 17.59% 5.70% 13.59% 4.46%
1 Year
Ended
8/31/95*** 8/31/94 $1,000 $1,050.78 $1,000.93 5.08% 5.08% 0.09% 0.09%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
* Investment operations began on October 2, 1992.
** No contingent deferred sales charge 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 August 31, 1995, the yield of the Fund was
5.11%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 5.11% would be 7.88%, assuming a
combined federal and State tax rate of 35.14%. If a portion of the Portfolio's
expenses had not been allocated to the Investment Adviser, the Fund would have
had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.98%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.10%. If a portion of the Portfolio's expenses had
not been allocated to the Investment Adviser, the Fund would have had a lower
distribution rate and effective distribution rate.
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 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 38.1% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Louisiana Tax Free Fund to EV Marathon Louisiana Tax Free
Fund on February 1, 1994 and to EV Marathon Louisiana Municipals Fund on January
1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Louisiana State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND LOUISIANA STATE
TAX-EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- LA STATE ------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ Is equivalent to a fully taxable yield of:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
$ 23,351- 56,550 $ 39,001- 94,250 32.32% 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551- 117,950 $ 94,251- 143,600 35.14% 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951- 256,500 $143,601- 256,500 39.84% 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22% 7.05 7.93 8.81 9.69 10.57 11.45 12.33
*Net amount subject to federal and Louisiana personal income tax after deductions and exemptions.
+Tax brackets are calculated using the highest Louisiana tax rate within the brackets. Taxpayers with
taxable income within these brackets may have a lower combined bracket and taxable equivalent yield
than indicated above. The combined tax rates assume that Louisiana taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their federal income tax return
will have a higher combined bracket and higher taxable equivalent yield than those indicated above. The
applicable federal tax rates within each of these combined brackets are 15%, 28%, 31% and 39.6%.
Note: The federal income tax portion of above-indicated combined income tax brackets does not take into
account the effect of a reduction in the deductibility of itemized deductions (including Louisiana State
income taxes) for taxpayers with adjusted gross income in excess of $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 EV Marathon Louisiana Municipals Fund will achieve any specific tax
exempt yield. While it is expected that the Portfolio will invest principally in obligations, the
interest from which is exempt from the regular federal income tax and Louisiana personal income taxes,
other income received by the Portfolio and allocated to the Fund may be taxable. The table does not take
into account state or local taxes, if any, payable on Fund distributions except for Louisiana personal
income taxes. It should also be noted that the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not applicable and do not take into
account any tax credits that may be available.
The information set forth above is as of the date of this Statement of Additional Information.
Subsequent tax law changes could result in prospective or retroactive changes in the tax brackets, tax
rates, and tax equivalent yields set forth above. 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 MARATHON MARYLAND MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Maryland State and local income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Maryland Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Maryland considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Maryland issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Maryland issuers. Neither the Trust nor the Portfolio has independently verified
this information.
Generally Maryland has been among the most heavily indebted of the states,
although its position is more moderate with the inclusion of local debt,
reflecting in part the State assumption several years ago of a substantial
portion of local school construction costs. The State became concerned over its
debt levels and, following recommendations of a debt affordability committee,
has practiced restraint in borrowing. Resources have also expanded and debt
ratios have fallen. Capital borrowing plans are reasonable and designed not to
increase debt levels. Recently, major infrastructure projects undertaken,
including a light rail line, a stadium, and airport and convention center
improvements, have been financed primarily by revenue-backed or other
non-general obligation financings.
The public indebtedness of Maryland and its instrumentalities is divided
into three basic types. The State, as well as the various counties and
municipalities of the State, issues general obligation bonds payable from ad
valorem taxes for capital improvements. The Department of Transportation of
Maryland issues limited, special obligation bonds for transportation purposes
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities, as well as several local
governments, issue obligations payable solely from identified taxes or revenue
streams, including loan obligations from nonprofits, companies or other private
entities, and for which the State or local government has no liability and has
given no moral obligation assurance. The State, its agencies and departments and
the various localities also enter into municipal leases or installment purchase
obligations. Such a lease is not a general obligation of the municipality for
which the municipality's taxing power is pledged but is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payments due
under the lease. Such municipal leases generally contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
payments in future years unless money is appropriated for such purpose on a
yearly basis.
During fiscal year 1991 through 1993, the State experienced budgetary
problems caused by a national recession. To address revenue shortfalls and
expanded expenditure requirements the State increased tax and other revenues,
curtailed various programs and transferred funds from various reserve accounts.
The State ended its fiscal year 1994 with a General Fund suplus on a budgetary
basis of approximately $60.0 million, and ended its fiscal year 1995 with a
General Fund surplus on a budgetary basis of approximately $26.5 million
(excluding $106 million to be applied to the fiscal year 1996 budget) and $286.1
million in the Revenue Stabilization Account of the State Reserve Fund. When the
fiscal year 1996 budget was enacted, it was anticipated that the year-end
General Fund surplus on a budgetary basis would be approximately $7.8 million
and that there would be $370.9 million in the State's Revenue Stabilization
Account. The State currently projects the year-end General Fund surplus on a
budgetary basis to be approximately $34.3 million and the balance in the Revenue
Stabilization Account to be approximately $51.8 million. Fiscal year 1995
revenues for the General Fund were $7.09 billion; fiscal 1996 revenues for the
General Fund are anticipated to be $7.43 billion.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $115,004,176. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$459,907 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $390,773 (equivalent to 0.39% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, absent a fee reduction, the Portfolio would have paid BMR advisory fees of
$153,778 (equivalent to 0.34% (annualized) of the Portfolio's average daily net
assets for such period). To enhance the net income of the Portfolio, BMR made a
reduction of its advisory fee in the amount of $11,256. The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and remains in
effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this Statement of
Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, Eaton Vance would have earned, absent a fee reduction, advisory fees of
$28,837 (equivalent to 0.23% (annualized) of the Fund's average daily net assets
for such period). To enhance the net income of the Fund, Eaton Vance made a
reduction of the full amount of its advisory fee.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $387,594 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$845,760, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $511,000
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $4,520,000 (which amount was
equivalent to 4.0% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $143,033, of which $142,762 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $1,125 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $10,410 and the
Portfolio paid IBT $16,357.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992, to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 .......... $666 $1,563\2/ $135,000\4/
Samuel L. Hayes, III ...... 643 1,608\3/ 150,000\5/
Norton H. Reamer .......... 628 1,630 135,000
John L. Thorndike ......... 637 1,718 140,000
Jack L. Treynor ........... 686 1,647 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
\2/ Includes $393 of deferred compensation.
\3/ Includes $517 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) is a Vice President of the Portfolio. Mr.
Browse has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Browse has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1992. Mr. Browse is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from February 3, 1992 through August 31, 1995 and for the one year period ended
August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE BEFORE DE- VALUE AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 2/3/92* $1,000 $1,234.00** $1,204.00** 23.40% 6.05% 20.40% 5.32%
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,067.09 $1,017.09 6.71% 6.71% 1.71% 1.71%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on February 3, 1992.
** No contingent deferred sales charge is imposed on certain redemptions. See
the Fund's current Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.62%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.62% would be 7.28%, assuming a
combined federal and State tax rate of 36.52%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.75%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.86%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
TAXES
The Fund will not be subject to Maryland corporate income tax, provided
that, if there exists sufficient nexus between the State of Maryland and the
Fund to enable Maryland to tax the Fund, then the Fund will not be subject to
the corporate income tax for a taxable year if the Fund distributes to
shareholders all of its net investment income for such year.
The Fund will not be subject to Maryland financial institution franchise
taxes.
Obligations held by the Fund will not be subject to Maryland personal
property tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 16.5% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Maryland Tax Free Fund to EV Marathon Maryland Tax Free
Fund on February 1, 1994 and to EV Marathon Maryland Municipals Fund on January
1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Maryland State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND MARYLAND STATE
COMBINED TAX-EXEMPT YIELD OF:
FEDERAL AND ------------------------------------------------------
SINGLE RETURN JOINT RETURN MD STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- AND LOCAL ------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ Is equivalent to a fully taxable yield of:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 21.80% 5.12% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95%
$ 23,351- 56,550 $ 39,001- 94,250 33.76 6.04 6.79 7.55 8.30 9.06 9.81 10.57
$ 56,551- 117,950 $ 94,251- 143,600 36.52 6.30 7.09 7.88 8.66 9.45 10.24 11.03
$117,951- 256,500 $143,601- 256,500 41.12 6.79 7.64 8.49 9.34 10.19 11.04 11.89
Over $256,500 Over $256,500 44.43 7.20 8.10 9.00 9.90 10.80 11.70 12.60
</TABLE>
* Net amount subject to federal and Maryland State and local personal income
taxes after deductions and exemptions.
+ Tax brackets are calculated using the highest Maryland State and local tax
rate within the brackets. Taxpayers with taxable income within these brackets
may have a lower combined bracket and taxable equivalent yield than indicated
above. The illustration assumes the taxpayer is subject to a local income tax
which is 60% of the State rate. The combined tax rates assume that Maryland
taxes are itemized deductions for federal income tax purposes. Investors who
do not itemize deductions on their federal income tax return will have a
higher combined bracket and higher taxable equivalent yield than those
indicated above. The applicable federal tax rates within the brackets set
forth above are 15%, 28%, 31%, 36% and 39.6% over the same ranges of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Maryland State and local income
taxes) for taxpayers with adjusted gross income in excess of $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 EV Marathon Maryland
Municipals Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Maryland State personal
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. The table does not take into account state or local taxes, if
any, payable on Fund distributions except for Maryland State personal income
taxes. It should also be noted that the interest earned on certain "private
activity bonds" issued after August 7, 1986, while exempt from the regular
federal income tax, is treated as a tax preference item which could subject the
recipient to the federal alternative minimum tax. The illustrations assume that
the federal alternative minimum tax is not applicable and do not take into
account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MISSOURI MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Missouri State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Missouri Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Missouri considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Missouri issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Missouri issuers. Neither the Trust nor the Portfolio has independently verified
this information.
While Missouri has a diverse economy with a distribution of earnings and
employment among manufacturing, trade and service sectors closely approximating
the average national distribution, the national economic recession of the early
1980's had a disproportionately adverse impact on the economy of Missouri.
However, since the 1980 to 1983 recession periods, Missouri unemployment levels
generally approximated or slightly exceeded the national average. The St. Louis
and Kansas City metropolitan areas are important contributors to the Missouri
economy. Economic reversals in either of these two areas would have a major
impact on the overall economic condition of the State of Missouri. Additionally,
the State of Missouri has a significant agricultural sector which is
experiencing farm-related problems comparable to those which are occurring in
other states. To the extent that these problems were to intensify, there could
possibly be an adverse impact on the overall economic condition of the State.
Defense related business plays an important role in Missouri's economy. In
addition to the large number of civilians employed at the various military
installations and training bases in the State, aircraft and related businesses
in Missouri are the recipients of substantial annual dollar volumes of defense
contract awards. McDonnell Douglas Corporation, the State's largest employer,
received the second largest dollar amount of defense contracts in the United
States in 1994. There can be no assurances there will not be further changes in
the levels of military appropriations, and, to the extent that further changes
in military appropriations are enacted by the United States Congress, Missouri
could be disproportionately affected.
Desegregation lawsuits in St. Louis and Kansas City continue to require
significant levels of state funding and are sources of uncertainty: litigation
continues on many issues, court orders are unpredictable, and school district
spending patterns have proven difficult to predict. A recent Supreme Court
decision favorable to the State may decrease the level of State funding required
in the future, but the impact of this decision is uncertain. The State paid $282
million for desegregation costs in fiscal 1994 and the budget for fiscal 1995
provided $315 million. This expense accounts for close to 7% of total state
General Revenue Fund spending.
Article X, Sections 16-24 of the Constitution of Missouri (the "Hancock
Amendment") imposes limitations on the amount of State taxes which may be
imposed by the General Assembly of Missouri (the "General Assembly") as well as
on the amount of local taxes, licenses and fees (including taxes, licenses and
fees used to meet debt service commitments on debt obligations) which may be
imposed by local governmental units (such as cities, counties, school districts,
fire protection districts and other similar bodies) in the State of Missouri in
any fiscal year.
The limit on taxes is tied to total State revenues determined in accordance
with the formula set forth in the amendment, which adjusts the limit based on
increases in the average personal income of Missouri for certain designated
periods. The details of the amendment are complex and clarification from
subsequent legislation and further judicial decisions may be necessary.
Generally, if the total State revenues exceed the State revenue limit imposed by
Section 18 of Article X by more than 1%, the State is required to refund the
excess. The State revenue limitation imposed by the Hancock Amendment does not
apply to taxes imposed for the payment of principal and interest on bonds,
approved by the voters and authorized by the Missouri Constitution. The revenue
limit can also be exceeded by a constitutional amendment authorizing new or
increased taxes or revenues adopted by the voters of the State of Missouri. The
Hancock Amendment also limits new taxes, licenses and fees and increases in
taxes, licenses and fees by local governmental units in Missouri. It prohibits
counties and other political subdivisions (essentially all local governmental
units) from levying new taxes, licenses and fees or increasing the current levy
of an existing tax, license or fee "without the approval of the required
majority of the qualified voters of that county or other political subdivision
voting thereon."
When a local governmental unit's tax base with respect to certain fees or
taxes is broadened, the Hancock Amendment requires the tax levy or fees to be
reduced "to yield the same estimated gross revenue as on the prior base." It
also effectively limits any percentage increase in property tax revenues to the
percentage increase in the general price level (plus the value of new
construction and improvements), even if the assessed valuation of property in
the local governmental unit, excluding the value of new construction and
improvements, increases at a rate exceeding the increase in the general price
level.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $93,162,103. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$353,176 (equivalent to 0.38% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $296,556 (equivalent to 0.37% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $112,605 (equivalent to 0.30%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, Eaton Vance would have earned, absent a fee reduction, advisory fees of
$21,976 (equivalent to 0.21% (annualized) of the Fund's average daily net assets
for such period). To enhance the net income of the Fund, Eaton Vance made a
reduction of its fee in the amount of $15,183.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $220,357 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$667,042, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $279,000
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $3,461,000 (which amount was
equivalent to 3.9% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $129,925, of which $129,622 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $812.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $9,929 and the
Portfolio paid IBT $35,917.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992, to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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/: COMPENSATION
COMPENSATION TOTAL COMPENSATION
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight .......... $333 $1,164\2/ $135,000\4/
Samuel L. Hayes, III ...... 322 1,222\3/ 150,000\5/
Norton H. Reamer .......... 314 1,254 135,000
John L. Thorndike ......... 318 1,336 140,000
Jack L. Treynor ........... 343 1,235 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
\2/ Includes $294 of deferred compensation.
\3/ Includes $393 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from May 1, 1992 through August 31, 1995 and for the one year period ended
August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE BEFORE DE- VALUE AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 5/1/92* $1,000 $1,257.58 $1,227.58 25.76% 7.10% 22.76% 6.33%
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,078.18 $1,028.18 7.82% 7.82% 2.82% 2.82%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on May 1, 1992.
** No contingent deferred sales charge is imposed on certain redemptions. See
the Fund's current Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.54%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.54% would be 6.71%, assuming a
combined federal and State tax rate of 35.14%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.58%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.67%.
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 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 7.6% of the outstanding shares, which were
held on behalf of its customers who are the beneficial owners of such shares,
and as to which it had voting power under certain limited circumstances. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Missouri Tax Free Fund to EV Marathon Missouri Tax Free
Fund on February 1, 1994 and to EV Marathon Missouri Municipals Fund on January
1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Missouri State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND MISSOURI STATE
TAX-EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- MO STATE ------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ Is equivalent to a fully taxable yield of:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351- 56,550 $ 39,001- 94,250 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551- 117,950 $ 94,251- 143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951- 256,500 $143,601- 256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
</TABLE>
* Net amount subject to federal and Missouri personal income tax after
deductions and exemptions.
+ The first tax bracket is calculated using the highest Missouri tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax rates assume that Missouri taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The assumed Missouri State income tax rate is
6%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Missouri State income taxes) for
taxpayers with adjusted gross income in excess of $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 EV Marathon Missouri
Municipals Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Missouri personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for Missouri personal income taxes. It
should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal income
tax, is treated as a tax preference item which could subject the recipient to
the federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NORTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and North Carolina State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the North Carolina Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain North Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in North Carolina issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of North Carolina issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The economic profile of the State consists of a combination of industry,
agriculture and tourism. The State's seasonally adjusted unemployment rate in
June 1995 was 4.4% of the labor force, as compared with an unemployment rate of
5.6% nationwide. The labor force has undergone significant change during recent
years. The State has moved from an agricultural to a service and "goods
producing" economy. Those persons displaced by farm mechanization and farm
consolidations have, in large measure, sought and found employment in other
pursuits.
During fiscal 1991 and 1992, the State was forced to employ various
non-recurring items and budget reductions in order to balance the State's
budget. Among other things, the State deferred Basic Education Program
improvements. In addition, the State also implemented approximately $640 million
in tax increases, including raising the State sales tax from 3% to 4%. This 4%
tax is the State's portion of the total 6% sales tax with the rest dedicated to
local governments. A 4% corporate income tax surcharge was also implemented and
is scheduled to terminate on January 1, 1995. The State's fiscal position has
improved considerably since 1992, with the general fund balance increasing from
a deficit position to a surplus equal to 11% of 1994 expenditures.
The State is a defendant in pending court actions involving the taxing of
benefits paid to federal retirees and related matters. Although specific claims
for damages have not been precisely calculated, the amount could exceed $400
million over a period of years. The State is also a defendant in several other
litigations which, in the opinion of the Department of the Treasurer, could have
a material adverse affect on the State's ability to meet its obligations. In the
Leandro action, the plaintiffs claim that the State has failed to provide
adequate or substantially equal educational opportunities to children. In the
Francisco action, the plaintiffs claim that the State has failed to fund
programs to educate non-English speaking students. In a series of cases
involving State retirement benefits, disabled retirees are challenging, on
various grounds, changes in the formula for paying retirement benefits. Damages
could exceed $100 million. In the Fulton case, the imposition of the State's
intangible personal property tax on shares of stock has been challenged.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $195,178,724. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$851,448 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $744,143 (equivalent to 0.42% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $373,030 (equivalent to 0.40%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, the Fund paid Eaton Vance advisory fees of $108,407 (equivalent to
0.37% (annualized) of the Fund's average daily net assets for such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $434,383 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$1,405,043, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $615,000
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $7,188,000 (which amount was
equivalent to 3.8% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $267,517, of which $266,540 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $1,577.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $500 and the
Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992, to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 capacites
as Trustees of the funds in the Eaton Vance fund complex\1/:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- --------------
Donald R. Dwight ..... $666 $2,096\2/ $135,000\4/
Samuel L. Hayes, III . 643 2,123\3/ 150,000\5/
Norton H. Reamer ..... 628 2,133 135,000
John L. Thorndike .... 637 2,227 140,000
Jack L. Treynor ...... 686 2,196 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
\2/ Includes $525 of deferred compensation.
\3/ Includes $682 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from October 23, 1991 through August 31, 1995 and for the one-year period ended
August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE BEFORE DE- VALUE AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 10/23/91* $1,000 $1,230.52 $1,200.64 23.05% 5.52% 20.06% 4.85%
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,050.26 $1,000.31 5.03% 5.03% 0.03% 0.03%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on October 23, 1991.
** No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus.
***If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.55%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.55% would be 7.15%, assuming a
combined federal and State tax rate of 36.35%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.77%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.88%.
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 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 12.9% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance North Carolina Tax Free Fund to EV Marathon North Carolina
Tax Free Fund on February 1, 1994 and to EV Marathon North Carolina Municipals
Fund on January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and the
North Carolina State income tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND NORTH CAROLINA STATE
TAX-EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- NC STATE ------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ Is equivalent to a fully taxable yield of:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351- 56,550 $ 39,001- 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551- 117,950 $ 94,251- 143,600 36.35 6.28 7.07 7.86 8.64 9.43 10.21 11.00
$117,951- 256,500 $143,601- 256,500 40.96 6.78 7.62 8.47 9.32 10.16 11.01 11.86
Over $256,500 Over $256,500 44.28 7.18 8.08 8.97 9.87 10.77 11.67 12.56
</TABLE>
* Net amount subject to the federal and North Carolina personal income tax after
deductions and exemptions.
+ Tax brackets are calculated using the highest North Carolina tax rate within
each bracket. Accordingly, taxpayers with taxable income within this bracket
may have a lower combined bracket and taxable equivalent yield than indicated
above. The combined tax rates assume that North Carolina taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above. The
applicable federal tax rates within each of these combined brackets are 15%,
28%, 31% and 39.6%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including North Carolina State income
taxes) for taxpayers with adjusted gross income in excess of $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 EV Marathon North
Carolina Municipals Fund will achieve any specific tax exempt yield. While it is
expected that the Fund will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and North Carolina personal
income taxes, other income received by the Portfolio and alloated to the Fund
may be taxable. The table does not take into account state or local taxes, if
any, payable on Fund distributions except for North Carolina personal income
taxes. It should also be noted that the interest earned on certain "private
activity bonds" issued after August 7, 1986, while exempt from the regular
federal income tax, is treated as a tax preference item which could subject the
recipient to the federal alternative minimum tax. The illustrations assume that
the federal alternative minimum tax is not applicable and do not take into
account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult with their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON OREGON MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Oregon State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Oregon Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Oregon considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Oregon issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Oregon issuers. Neither
the Trust nor the Portfolio has independently verified this information.
As of September 1, 1995, $3.99 billion in general obligation bonds issued by
the State of Oregon and its agencies and instrumentalities were outstanding,
including $83.9 million in general obligation bonds supported by the budget for
the State's general fund and $3.91 billion of self-supporting general obligation
bonds. The State's self-supporting general obligation bonds include $3.12
billion of State veteran's bonds, which, in the event of poor economic
conditions resulting in an increased number of mortgage defaults, could cease to
be self-supporting. All of the existing and outstanding general obligation bonds
of the State have been issued under specific State constitutional provisions
that authorize the issuance of such bonds and provide authority for ad valorem
taxation to pay the principal of and interest on such bonds. With the exception
of the veteran's bonds, for which no more than two mills on each dollar
valuation may be levied to pay principal and interest, the authority of the
State to tax property for the payment of its general obligation bonds is
unlimited. Since at least 1950, the State has not imposed ad valorem tax for the
payment of any of its obligations because other revenues, including those
generated by the self-supporting bonds, have been sufficient.
In addition to general obligation bonds, various state statutes authorize
the issuance of State revenue bonds and certificates of participation. These
limited obligations of the State or its agencies or instrumentalities may be
payable from a specific project or source, including lease rentals. The State is
not authorized to impose ad valorem taxes on property for the payment of
principal and interest on these bonds, so they are more sensitive to changes in
the economy. There can be no assurance that future economic problems will not
adversely affect the market value of Oregon obligations held by the Portfolio or
the ability of the respective obligors (both private and governmental) to make
required payments on such obligations.
Oregon does not have a sales tax. As a result, State tax revenues are
particularly sensitive to economic recessions. The principal source of State tax
revenues are personal income and corporate income taxes. For the 1993-95
biennium, approximately 96.7% of the State's revenues are projected to come from
combined income taxes, insurance taxes, gift and inheritance taxes, and
cigarette and tobacco taxes.
Over the past several years, a number of species of Oregon wildlife have
been added to the Endangered Species list, including the northern spotted owl
and certain populations of salmon. The spotted owl listing has already had a
substantial economic impact on the State's economy, primarily through a
reduction in timber harvests from federal lands. The salmon listings also have
had a substantial economic impact, primarily through increased electricity rates
and related impacts on rate-sensitive industries such as the aluminum industry.
Efforts to protect the spotted owl and salmon and steelhead populations may
eventually affect a wide variety of agricultural, industrial, recreational and
land use activities, with corresponding impacts on long-term economic growth.
The magnitude and extent of any futuure environmental action is difficult to
predict.
Ballot Measure 5. Article XI, section 11b of the Oregon Constitution,
adopted by Oregon's voters in November 1990 ("Ballot Measure 5"), imposes an
aggregate limit on the rate of property taxes, including ad valorem taxes, that
may be levied against any real or personal property. The limit is subject to
certain exceptions and is being phased in over a five-year period. Beginning
with the tax year that starts on July 1, 1996, the final year of the phase-in
period, not more than $15 per $1,000 of real market value can be levied against
any piece of property. Of this amount, $5 may be used for public education, and
the remaining $10 may be used for general governmental purposes.
The limitations of Ballot Measure 5 do not apply to taxes imposed to pay the
principal of and interest on bonded indebtedness authorized by a specific
provision of the State Constitution or which has received voter approval.
Therefore, since the State has traditionally issued only general obligation
indebtedness that is authorized by specific provisions of the State Constitution
and units of local government have generally adopted policies of seeking
specific approval for all general obligation indebtedness, the ability of the
State and units of local government to levy taxes to service their general
obligation indebtedness has generally avoided the limit. In addition, because
the State currently receives its revenues from sources other than property
taxes, Ballot Measure 5 has not directly affected State revenues.
Ballot Measure 5 does affect the financial condition of the State, however,
since it (i) requires the State to replace losses to school funds caused by its
restriction on the levy of ad valorem taxes for education through fiscal year
1995-96, and (ii) restricts the ability of Oregon local governments to raise
revenues through the imposition of property tax increases. The State's
Legislative Revenue Office estimates that the State will make payments in excess
of its obligations to replace school revenues during the 1993-95 biennium and
the 1995-96 fiscal year. The State's obligation to replace school revenues
terminates after fiscal year 1995-96.
The effect that Ballot Measure 5 will ultimately have on local government
revenues is difficult to predict. Since passage of Ballot Measure 5, property
values have been adjusted to more closely approximate real market values. If the
trend of increased property values in Oregon continues, the real market value
base of property against which the limited tax rate may be imposed maybe more
than enough to support the needs of Oregon governments.
The tax limitations of Ballot Measure 5 do not apply to user fees, licenses,
excise or income taxes and incurred charges for local improvements. Therefore,
since 1990 local governments have begun to rely more heavily on such fees and
taxes to finance certain services and improvements.
Ballot Measure 11. In November 1994, voters approved three measures
affecting the State's penal system. The most significant in terms of financial
impact for the State is Ballot Measure 11, which established mandatory minimum
prison sentences for certain felons. It is anticipated that this initiative will
require construction of a substantial number of additional prison beds.
Currently, the State expects to fund construction from sources other than the
State general fund.
Several litigation matters are pending involving the State. These matters
include (i) an action filed by several out-of-state insurers challenging
Oregon's gross premium tax on out-of-state insurers and seeking refunds of taxes
previously paid, which could result in the State being liable for approximately
$50 million in refunds and (ii) several cases in which federal retires have
challenged the validity of a State Public Employees Retirement System benefit
increase to offset the taxation of such benefits or have sought refunds of State
taxes paid on federal retirement benefits. In addition, the Oregon Supreme Court
has ruled against the State in an action brought to require the State to return
$81 million that was transferred in 1983 from the State's Industrial Accident
Fund ("SAIF") to the State's general fund. The amount required to be returned to
SAIF, including interest, has been estimated to be approximately $280 million.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $146,390,921. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$609,837 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $534,681 (equivalent to 0.41% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $243,569 (equivalent to 0.37%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, the Fund paid Eaton Vance advisory fees of $51,593 (equivalent to 0.22%
(annualized) of the Fund's average daily net assets for such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $326,530 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$1,083,821, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $666,000
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $5,529,000 (which amount was
equivalent to 3.8% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $190,003, of which $188,917 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $1,902.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $13,668 and the
Portfolio paid IBT $56,584.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992, to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 .......... $666 $1,563\2/ $135,000\4/
Samuel L. Hayes, III ...... 643 1,608\3/ 150,000\5/
Norton H. Reamer .......... 628 1,631 135,000
John L. Thorndike ......... 637 1,718 140,000
Jack L. Treynor ........... 686 1,647 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
\2/ Includes $393 of deferred compensation.
\3/ Includes $517 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
David C. Reilly (38) is a Vice President of the Portfolio. Mr. Reilly has served
as a Vice President of the Portfolio since January 1, 1996. 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 covering the life of the Fund
from December 24, 1991 through August 31, 1995 and for the one year period ended
August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE BEFORE DE- VALUE AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE CON- DUCTING THE CON- THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 12/24/91* $1,000 $1,259.12 $1,229.12 25.91% 6.44% 22.91% 5.75%
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,072.20 $1,022.20 7.22% 7.22% 2.22% 2.22%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
</TABLE>
- ----------
* Investment operations began on December 24, 1991.
** No contingent deferred sales charge is imposed on certain redemptions. See
the Fund's current Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.46%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.46% would be 7.10%, assuming a
combined federal and State tax rate of 37.21%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.48%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.57%.
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 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 12.4% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned or record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Oregon Tax Free Fund to EV Marathon Oregon Tax Free Fund
on February 1, 1994 and to EV Marathon Oregon Municipals Fund on January 1,
1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Oregon State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND OREGON STATE
TAX-EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------- OR STATE ------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ Is equivalent to a fully taxable yield of:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 22.65% 5.17% 5.82% 6.46% 7.11% 7.76% 8.40% 9.05%
$ 23,351- 56,550 $ 39,001- 94,250 34.48 6.11 6.87 7.63 8.39 9.16 9.92 10.68
$ 56,551- 117,950 $ 94,251- 143,600 37.21 6.37 7.17 7.96 8.76 9.56 10.35 11.15
$117,951- 256,500 $143,601- 256,500 41.76 6.87 7.73 8.59 9.44 10.30 11.16 12.02
Over $256,500 Over $256,500 45.04 7.28 8.19 9.10 10.01 10.92 11.83 12.74
</TABLE>
* Net amount subject to federal and Oregon personal income tax after deductions
and exemptions.
+ The first tax bracket is calculated using the highest Oregon tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax rates assume that Oregon taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The assumed Oregon State income tax rate is
9%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Oregon State income taxes) for
taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above. The tax brackets and taxable equivalent yields do not take into account
the limited deductibility of federal income tax withholding in arriving at state
taxable income, which may decrease the taxable equivalent yield of the Fund to
certain investors.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Marathon Oregon
Municipals Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Oregon personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for Oregon personal income taxes. It should
also be noted that the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular federal income tax,
is treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not appliable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON SOUTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and South Carolina State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the South Carolina Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain South Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in South Carolina issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of South Carolina issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The South Carolina Constitution requires the General Assembly to provide a
balanced budget and requires that if there is a deficit, such deficit shall be
provided for in the succeeding fiscal year. The State Constitution also provides
that (i) the State Budget and Control Board may, if a deficit appears likely,
effect such reductions in appropriations as may be necessary to prevent a
deficit, (ii) annual increases in State appropriations may not exceed the
average growth rate of the economy of the State, (iii) that the annual increase
in the number of State employees may not exceed the average growth of the
population of the State, and (iv) a General Reserve Fund be maintained in an
amount equal to 3% of General Fund revenue for the latest fiscal year. The State
also maintains a Capital Reserve Fund equal to 2% of the General Reserve Fund.
Despite several spending reductions in fiscal 1992, the State recorded a
budgetary basis operating deficit of $54 million due to lower than anticipated
sales and corporate-income tax revenues. The State ended fiscal 1992 with only
$7.6 million in its budgetary general fund. In June 1993, the presidential
base-closing commission voted to close the Charleston Naval Base. South Carolina
has estimated lost revenues of $100 million over the three-year period from July
1, 1993 to June 30, 1996 due to the closing. There can be no guarantee that the
actual cost will not be more or less than the State's estimate. Budgetary
General Fund revenues and expenditures for fiscal 1993 were $3.673 billion and
$3.521 billion, respectively. There was a $151 million surplus of which $33.7
million was deposited into the General Reserve Fund ("Rainy Day Fund") bringing
its total to $100 million. Fiscal 1994 had budgeted revenues and expenditures of
$3.828 billion and $3.795 billion, respectively. No new taxes were implemented.
Fiscal 1994 ended with a General Fund surplus of $248 million. The General
Reserve Fund is now at its fully funded level of $110.2 million. Fiscal 1995 has
budgeted $3.93 billion for expenditures with no new taxes expected.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $61,411,668. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$198,498 (equivalent to 0.33% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, February 1,
1994, to the fiscal year ended August 31, 1994, the Portfolio paid BMR advisory
fees of $106,785 (equivalent to 0.31% (annualized) of the Portfolio's average
daily net assets for such period). The Portfolio's Investment Advisory Agreement
with BMR is dated October 13, 1992 and remains in effect until February 28,
1996. The Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to February 1, 1994 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1993 to February
1, 1994 (when the Fund transferred its assets to the Portfolio) the Fund paid
Eaton Vance advisory fees of $45,467. For the period from the start of business,
October 2, 1992 to the fiscal year ended September 30, 1993, Eaton Vance would
have earned, absent a fee reduction, advisory fees of $35,393 (equivalent to
0.19% (annualized) of the Fund's average daily net assets for such period). To
enhance the net income of the Fund, Eaton Vance made a reduction of the full
amount of its advisory fee and $32,659 of expenses related to the operation of
the Fund were allocated to Eaton Vance.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plans" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $264,379 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$442,983, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $359,095
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $2,527,000 (which amount was
equivalent to 4.2% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $70,336, of which $69,735 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $712.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $6,749 and the
Portfolio paid IBT $16,809
BROKERAGE
For the fiscal year ended August 31, 1995, the period from the start of
business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions. For the
period from the start of business, October 2, 1992 to the fiscal year ended
September 30, 1993, and for the period from October 1, 1993 to January 31, 1994
(when the Fund transferred its assets into the Portfolio), the Fund paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- ------------ ------------ ------------------
Donald R. Dwight .......... $333 $1,164(2) $135,000(4)
Samuel L. Hayes, III ...... 322 1,222(3) 150,000(5)
Norton H. Reamer .......... 314 1,254 135,000
John L. Thorndike ......... 318 1,336 140,000
Jack L. Treynor ........... 343 1,235 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $294 of deferred compensation.
(3) Includes $393 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from October 2, 1992 through August 31, 1995 and for the one year period ended
August 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMEMT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------- ------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ----------- ---------- ------------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F3> 10/2/92<F1> $1,000 $1,157.21 $1,117.21 15.72% 5.13% 11.72% 3.87%
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,056.38 $1,006.38 5.64% 5.64% 0.64% 0.64%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> Investment operations began on October 2, 1992.
<F2> No contingent deferred sales charge is imposed on certain redemptions. See
the Fund's current Prospectus.
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.63%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.63% would be 7.22%, assuming a
combined federal and State tax rate of 35.83%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.67%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.77%.
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 15, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 18.26% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance South Carolina Tax Free Fund to EV Marathon South Carolina
Tax Free Fund on February 1, 1994. The Fund changed its name from EV Marathon
South Carolina Tax Free Fund to EV Marathon South Carolina Municipals Fund on
January 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
South Carolina State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND SOUTH CAROLINA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- SC STATE ---------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------- --------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.85%
$ 23,351 - $ 56,500 $ 39,001 - $ 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551 - $117,950 $ 94,251 - $143,600 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$117,951 - $256,500 $143,601 - $256,500 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over $256,500 Over $256,500 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
<FN>
<F1> Net amount subject to federal and South Carolina personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest South Carolina tax rate within the bracket. Taxpayers with taxable
income within this bracket may have a lower combined tax bracket and taxable equivalent yield than indicated above. The
combined tax rates assume that South Carolina taxes are itemized deductions for federal income tax purposes. Investors who
do not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable
equivalent yield than those indicated above. The applicable federal tax rates within the brackets set forth above are 15%,
28%, 31%, 36% and 39.6% over the same ranges of income.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including South Carolina State income tax)
for taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Marathon South
Carolina Municipals Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations, the interest
from which is exempt from the regular federal income tax and South Carolina
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for South Carolina personal
income taxes. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The illustrations
assume that the federal alternative minimum tax is not applicable and do not
take into account any tax credit that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON TENNESSEE MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Tennessee State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Tennessee Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Tennessee considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Tennessee issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Tennessee issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Tennessee's State Constitution requires that (1) the total expenditures of
the State for any fiscal year shall not exceed the State's revenues and
reserves, including the proceeds of debt obligations issued to finance capital
expenditures and (2) in no year shall the rate of growth of appropriations from
State tax revenues exceed the estimated rate of growth of the State's economy.
In the past, the Governor and the General Assembly have had to restrict
expenditures to comply with the State Constitution.
The Tennessee economy generally tends to rise and fall in a roughly parallel
manner with the U.S. economy. Like the U.S. economy, the Tennessee economy
entered recession in the last half of 1990 which continued throughout 1991 and
into 1992 as the Tennessee index of leading economic indicators trended downward
throughout the period. The Tennessee economy gained strength during the latter
part of 1992 and this renewed vitality steadily continued through 1993 and 1994.
Current indicators are for the State to enjoy a year of moderate economic gains
in 1995.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $58,673,303. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$177,788 (equivalent to 0.31% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $125,060 (equivalent to 0.28% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, BMR would have earned, absent a fee reduction, advisory fees of $32,069
(equivalent to 0.19% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee and BMR was allocated a portion
of expenses related to the operation of the Portfolio in the amount of $4,724.
The Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, Eaton Vance would have earned, absent a fee reduction, advisory fees of
$3,593 (equivalent to 0.14% (annualized) of the Fund's average daily net assets
for such period). To enhance the net income of the Fund, Eaton Vance made a
reduction of the full amount of its advisory fee and Eaton Vance was allocated a
portion of the expenses related to the operation of the Fund in the amount of
$17,655.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $225,544 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$414,636, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $235,000
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $2,357,000 (which amount was
equivalent to 4.1% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $63,089, of which $62,858 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $547.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $6,467 and the
Portfolio paid IBT $13,033.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992 to
February 1, 1993 (when the Fund transferred its assets to the Portfolio), the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 ............ $333 $1,164(2) $135,000(4)
Samuel L. Hayes, III ........ 322 1,222(3) 150,000(5)
Norton H. Reamer ............ 314 1,254 135,000
John L. Thorndike ........... 318 1,336 140,000
Jack L. Treynor ............. 343 1,235 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $231 of deferred compensation.
(3) Includes $424 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from August 25, 1992 through August 31, 1995 and for the one year period ended
August 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMEMT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------- ------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ----------- ---------- ------------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F3> 8/25/92<F1> $1,000 $1,193.63 $1,163.63 19.36% 6.04% 16.36% 5.15%
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,061.20 $1,011.20 6.12% 6.12% 1.12% 1.12%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ------
<F1> Investment operations began on August 25, 1992.
<F2> No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus.
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.71%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.71% would be 7.26%, assuming a
combined federal and State tax rate of 35.14%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.75%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.85%.
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 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 11.3% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Tennessee Tax Free Fund to EV Marathon Tennessee Tax Free
Fund on February 1, 1994 and to EV Marathon Tennessee Municipals Fund on January
1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Tennessee State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND TENNESSEE STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- TN STATE ---------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------- --------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<F1> Net amount subject to federal and Tennessee personal income tax after deductions and exemptions.
<F2> The combined tax rates assume that Tennessee taxes are itemized deductions for federal income tax purposes. Investors who
do not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable
equivalent yield than those indicated above. The applicable federal tax rates within the brackets set forth above are 15%,
28%, 31%, 36% and 39.6% over the same ranges of income. The assumed Tennessee State income tax rate is 6%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Tennessee State income taxes)
for taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Marathon Tennessee
Municipals Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Tennessee personal
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. The table does not take into account state or local taxes, if
any, payable on Fund distributions except for Tennessee personal income taxes.
It should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal income
tax, is treated as a tax preference item which could subject the recipient to
the federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON VIRGINIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Virginia State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Virginia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Virginia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Virginia issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Virginia issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The Commonwealth of Virginia has had a tradition of low debt, and a large
proportion of its general obligation bonds has been supported by particular
revenue-producing projects. However, a trend towards more use of non-general
obligation debt, which is not subject to constitutional limits on borrowing, is
now changing the Commonwealth's debt profile. In recent years, the Commonwealth
has expanded its limited obligation borrowings through various financing
vehicles such as the Virginia Public Building Authority and the Virginia College
Building Authority, and has embarked upon a substantial transportation bonding
program to which certain increases in retail sales and motor vehicle-related
taxes enacted in 1986 are dedicated. The General Fund is the Commonwealth's
major operating fund and accounts for about half of Commonwealth expenditures.
It covers all functions except highways and Federal grant disbursements, for
which there are special revenue funds.
While the Commonwealth has had a long history of sound financial operations,
variations of a cyclical nature have occurred during the past several years.
During fiscal year 1992, financial operations were somewhat more favorable than
expected. Revenues of $5.6 billion exceeded expenditures by approximately $150
million with $44 million in increased revenues and the balance in decreased
expenditures ordered by the Governor in December of 1991. The closing balance at
June 30, 1992 was $195.1 million, of which $142.3 million will be
reappropriated, leaving $52.8 million as an unreserved, undesignated balance,
the first such balance in four years. The fiscal 1993 ending balance for the
General Fund was $331.8 million of which $59.7 is unreserved, undesignated.
Revenues for the 1993 fiscal year were 8.9% higher than fiscal year 1992, a $103
million increase. At the close of the biennium ending June 30, 1994, the Fund
balance amounted to $518.7 million of which $81 million was reserved, including
$79.9 million for the Revenue Stabilization Fund. Preliminary results for fiscal
1995 indicate a general fund surplus of $65 million.
Virginia's economy is generally affected by economic trends throughout the
country and in the Mid-Atlantic region, and it is particularly influenced by
Federal civilian and military installations and the growth of suburban
communities around Washington, D.C. Also significant to the economy of Virginia
are manufacturing (such as electronic equipment, shipbuilding and chemical
products), minerals (chiefly coal), service sector occupations (including
banking and insurance), agriculture and tourism. Unemployment rates are
typically below the national average, but because of a large military and
civilian government employment component, and the related civilian employment, a
substantial decrease in defense or other governmental spending could have a
material adverse effect on both the unemployment rate and the economy of the
Commonwealth in general.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $191,747,922. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$834,074 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $744,841 (equivalent to 0.43% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $378,975 (equivalent to 0.41%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
Prior to February 1, 1993 (when the Fund transferred its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund retained Eaton
Vance as its investment adviser. For the period from October 1, 1992 to February
1, 1993, the Fund paid Eaton Vance advisory fees of $107,723 (equivalent to
0.37% (annualized) of the Fund's average daily net assets for such period).
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust as required by Rule 12b-1. During the fiscal year ended August 31,
1995, the Principal Underwriter paid sales commissions of $543,565 to Authorized
Firms on sales of Fund shares. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$1,415,731, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $825,000
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at August 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $7,026,000 (which amount was
equivalent to 3.7% of the Fund's net assets on such date). For the fiscal year
ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $260,460, of which $259,518 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $2,202.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $500 and the
Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from October 1, 1992 to
February 1, 1993 (when the Fund transferred its assets to the Portfolio) the
Fund paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 ............ $666 $2,096(2) $135,000(4)
Samuel L. Hayes, III ........ 643 2,123(3) 150,000(5)
Norton H. Reamer ............ 628 2,133 135,000
John L. Thorndike ........... 637 2,227 140,000
Jack L. Treynor 686 2,196 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $525 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional Information,
David C. Reilly (38) has served as a Vice President of the Portfolio since June
19, 1995. Mr. Reilly has been a Vice President of BMR since 1992 and Eaton Vance
since 1991, and is an officer of various investment companies managed by Eaton
Vance or BMR. Prior to joining Eaton Vance, Mr. Reilly was a Vice President and
a municipal bond analyst at Scudder, Stevens & Clark (1984-1991).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from July 26, 1991 through August 31, 1995 and for the one-year period ended
August 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMEMT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> ------------------------- ------------------------
PERIOD DATE INVESTMENT ON 8/31/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ----------- ---------- ------------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F3> 7/26/91<F1> $1,000 $1,291.10 $1,271.10 29.11% 6.43% 27.11% 6.03%
1 Year
Ended
8/31/95 8/31/94 $1,000 $1,066.20 $1,016.20 6.62% 6.62% 1.62% 1.62%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
<FN>
- ----------
<F1> Investment operations began on July 26, 1991.
<F2> No contingent deferred sales charge is imposed on certain redemptions. See
the Fund's current Prospectus.
<F3> If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.63%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.63% would be 7.12%, assuming a
combined federal and State tax rate of 34.97%.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 15, 1995) was 4.74%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.84%.
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
13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 15.4% of the outstanding
shares, which were held on behalf of its customers who are the beneficial owners
of such shares, and as to which it had voting power under certain limited
circumstances. To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from Eaton Vance Virginia Tax Free Fund to EV Marathon Virginia Tax Free
Fund on February 1, 1994 and to EV Marathon Virginia Municipals Fund on January
1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Virginia State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND VIRGINIA STATE TAX EXEMPT YIELD OF:
- ------------------- ------------------- VA STATE -------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------------------------- --------------- -------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 19.89% 4.99% 5.62% 6.24% 6.87% 7.49% 8.11% 8.74%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.14 5.89 6.63 7.37 8.10 8.84 9.58 10.32
$ 56,551 - $117,950 $ 94,251 - $143,600 34.97 6.15 6.92 7.69 8.46 9.23 10.00 10.76
$117,951 - $256,500 $143,601 - $256,500 39.68 6.63 7.46 8.29 9.12 9.95 10.78 11.60
Over $256,500 Over $256,500 43.07 7.03 7.90 8.78 9.66 10.54 11.42 12.30
<FN>
<F1> Net amount subject to federal and Virginia personal income tax after deductions and exemptions.
<F2> The combined federal and Virginia tax brackets are calculated using the highest Virginia tax rate within each bracket.
Taxpayers with taxable income within such brackets may have lower combined tax brackets and taxable equivalent yields
than indicated above. The combined tax rates assume that Virginia taxes are itemized deductions for federal income tax
purposes. Investors who do not itemize deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above. The applicable federal tax rates within each of
these combined brackets are 15%, 28%, 31% and 39.6%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Virginia State income taxes) for
taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Marathon Virginia
Municipals Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Virginia personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for regular Virginia personal income taxes.
It should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal income
tax, and regular Virginia personal income tax, is treated as a tax preference
item which could subject the recipient to the federal and Virginia alternative
minimum taxes. The illustrations assume that the federal and Virginia
alternative minimum taxes are not applicable and do not take into account any
tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult with their tax adviser for additional
information.
<PAGE>
[LOGO]
EATON VANCE
MUTUAL FUNDS
EV MARATHON MUNICIPAL FUNDS
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 1996
EV MARATHON ALABAMA MUNICIPALS FUND
EV MARATHON ARKANSAS MUNICIPALS FUND
EV MARATHON GEORGIA MUNICIPALS FUND
EV MARATHON KENTUCKY MUNICIPALS FUND
EV MARATHON LOUISIANA MUNICIPALS FUND
EV MARATHON MARYLAND MUNICIPALS FUND
EV MARATHON MISSOURI MUNICIPALS FUND
EV MARATHON NORTH CAROLINA MUNICIPALS FUND
EV MARATHON OREGON MUNICIPALS FUND
EV MARATHON SOUTH CAROLINA MUNICIPALS FUND
EV MARATHON TENNESSEE MUNICIPALS FUND
EV MARATHON VIRGINIA MUNICIPALS FUND
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(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
M-TFC12/1SAI
<PAGE>
EATON VANCE MUNICIPALS TRUST
FOR THE FUNDS:
- EV Marathon Alabama Tax Free Fund
- EV Marathon Arkansas Tax Free Fund
- EV Marathon Georgia Tax Free Fund
- EV Marathon Kentucky Tax Free Fund
- EV Marathon Louisiana Tax Free Fund
- EV Marathon Maryland Tax Free Fund
- EV Marathon Missouri Tax Free Fund
- EV Marathon North Carolina Tax Free Fund
- EV Marathon Oregon Tax Free Fund
- EV Marathon South Carolina Tax Free Fund
- EV Marathon Tennessee Tax Free Fund
- EV Marathon Virginia Tax Free Fund
================================================================================
[EATON VANCE LOGO]
================================================================================
ANNUAL SHAREHOLDER REPORT
AUGUST 31, 1995
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
President's letter to shareholders ...................................... 3
Year-end results, listed by state ....................................... 4
Management Reports:
EV Marathon Alabama Tax Free Fund ............................... 5
EV Marathon Arkansas Tax Free Fund .............................. 6
EV Marathon Georgia Tax Free Fund ............................... 7
EV Marathon Kentucky Tax Free Fund .............................. 8
EV Marathon Louisiana Tax Free Fund ............................. 9
EV Marathon Maryland Tax Free Fund .............................. 10
EV Marathon Missouri Tax Free Fund .............................. 11
EV Marathon North Carolina Tax Free Fund ........................ 12
EV Marathon Oregon Tax Free Fund ................................ 13
EV Marathon South Carolina Tax Free Fund ........................ 14
EV Marathon Tennessee Tax Free Fund ............................. 15
EV Marathon Virginia Tax Free Fund .............................. 16
Financial Results ............................................... 17
</TABLE>
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, as Gross Domestic Product should
grow only modestly during 1995 at 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 by
realizing strong capital appreciation 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 probably be
underperformers relative to taxable bonds because the current tax-advantaged
status of municipal bonds likely would be eliminated.
However, we at Eaton Vance believe there is little chance of major tax reform
legislation being enacted. Many factors 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 (because of
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.
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 OF THOMAS J. FETTER]
Sincerely,
/s/ Thomas J. Fetter
- --------------------
Thomas J. Fetter
President
October 3, 1995
+ A portion of the Portfolios' income could be subject to Federal alternative
minimum tax.
3
<PAGE>
INFORMATION ABOUT YOUR MUTUAL FUND INVESTMENT
<TABLE>
<CAPTION>
RESULTS FOR THE YEAR ENDED AUGUST 31, 1995
-----------------------------------------------------------------------------------------------------
FINANCIAL DATA: TAX DATA:
------------------------------------ ----------------------------------------------
DIVIDENDS FUND'S NAV FUND'S IF YOUR THE AFTER-TAX
PAID BY PER SHARE DISTRIBUTION COMBINED EQUIVALENT FEDERAL
FUND DURING AT RATE AT FEDERAL & STATE YIELD YOU WOULD INCOME TAX
PERIOD 8/31/95 8/31/95 TAX RATE IS NEED IS INFORMATION*
----------- ---------- ------------ --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
EV Marathon ALABAMA [GRAPHIC OF
Tax Free Fund $0.495 $10.44 4.65% ALABAMA] 39.20% 7.62% 99.38
EV Marathon AKANSAS [GRAPHIC OF
Tax Free Fund $0.488 $10.25 4.68% ARKANSAS] 40.48% 7.85% 99.43
EV Marathon GEORGIA [GRAPHIC OF
Tax Free Fund $0.469 $ 9.79 4.65% GEORGIA] 39.84% 7.71% 99.59
EV Marathon KENTUCKY [GRAPHIC OF
Tax Free Fund $0.484 $ 9.99 4.65% KENTUCKY] 39.40% 7.67% 99.61
EV Marathon LOUISIANA [GRAPHIC OF
Tax Free Fund $0.514 $ 9.98 4.93% LOUISIANA] 39.84% 8.18% 99.60
EV Marathon MARYLAND [GRAPHIC OF
Tax Free Fund $0.487 $10.23 4.76% MARYLAND] 41.12% 8.05% 99.09
EV Marathon MISSOURI [GRAPHIC OF
Tax Free Fund $0.498 $10.51 4.58% MISSOURI] 39.84% 7.58% 99.17
EV Marathon NORTH CAROLINA [GRAPHIC OF
Tax Free Fund $0.490 $ 9.96 4.72% NORTH CAROLINA] 40.96% 7.95% 98.73
EV Marathon OREGON [GRAPHIC OF
Tax Free Fund $0.479 $10.31 4.48% OREGON] 41.76% 7.68% 99.61
EV Marathon SOUTH CAROLINA [GRAPHIC OF
Tax Free Fund $0.477 $10.00 4.67% SOUTH CAROLINA] 40.48% 7.82% 99.19
EV Marathon TENNESSEE [GRAPHIC OF
Tax Free Fund $0.495 $10.11 4.75% TENNESSEE] 39.84% 7.88% 99.51
EV Marathon VIRGINIA [GRAPHIC OF
Tax Free Fund $0.503 $10.26 4.69% VIRGINIA] 39.68% 7.74% 99.08
</TABLE>
*Percentages represent the amounts of the total dividends paid by the Funds from
net investment income during the year ended August 31, 1995, that have been
designated as exempt-interest dividends. Tax legislation eliminated the
exception to market discount rules applicable to tax-exempt obligations. As a
result, certain tax-exempt obligations acquired by the Portfolio subsequent to
April 30, 1993, at market discounts may generate a small amount of ordinary
taxable income.
- --------------------------------------------------------------------------------
Included on 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 comprised 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 MARATHON ALABAMA TAX FREE FUND
YOUR INVESTMENT AT WORK
City of Scottsboro
Water, Sewer and Gas Bonds
These bonds were used to allow the City of Scottsboro to extend and improve its
natural gas distribution system and to improve its sanitary sewer system.
The improvements included collection and transmission mains that allow the sewer
system to serve additional customers. Similarly, improvements to the natural gas
distribution system give it the capacity to accommodate new customers. The bond
issue also provided funds to purchase related equipment and to expand the office
operated by the city's Waterworks, Sewer and Gas Board.
The bonds, totaling $6 million, were issued in 1994.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF ALABAMA]
<TABLE>
<S> <C>
Number of issues ............................................. 73
Average quality .............................................. AA
Investment grade ............................................. 97.7
Effective maturity ........................................... 16.79 yrs.
Largest sectors:
Insured water and sewer ................................... 17.2%*
Industrial development/pollution
control revenue ...................................... 12.7
Insured education ......................................... 8.5*
General obligations ....................................... 6.5
Insured hospitals ......................................... 6.4*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Alabama
Alabama's state government has put a great deal of effort into diversifying the
state's economy in recent years. Those efforts have met with some success, led
by the development of the high technology sector, primarily in the Huntsville
area. In terms of employment, manufacturing continues to be the largest sector,
with the service sector experiencing some growth in urban areas.
Since adoption of the state's economic development plan in 1993, more than 50
companies have invested a total of more than $2.2 billion in Alabama. The
largest project to date is the Mercedes Benz manufacturing facility that will
build the company's sport utility vehicle. The assembly plant is located in
Vance, in Tuscaloosa County, and is expected to open in 1997.
Employment levels, which traditionally were higher than the national average,
have been approximately equal to the national average during the last three
years.
The economic forecast for Alabama is for only moderate growth. The state's
conservative economic policies have kept its budgets in balance.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON ALABAMA TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From May 31, 1992, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 2.4% 6.0% $12,017
Without CDSC 7.4% 6.7% $12,317
</TABLE>
<TABLE>
<CAPTION>
DATE M. ALABAMA LEHMAN BROS.
- ---- ---------- ------------
<S> <C> <C>
5/92+ 10000 10000
6/92 10225 10168
7/92 10685 10473
8/92 10438 10371
9/92 10476 10438
10/92 10231 10336
11/92 10571 10521
12/92 10702 10628
1/93 10806 10752
2/93 11255 11141
3/93 11094 11023
4/93 11229 11134
5/93 11294 11197
6/93 11469 11384
7/93 11466 11399
8/93 11722 11636
9/93 11847 11769
10/93 11875 11791
11/93 11733 11687
12/93 12032 11934
1/94 12152 12070
2/94 11807 11758
3/94 11150 11279
4/94 11223 11375
5/94 11330 11473
6/94 11212 11406
7/94 11474 11612
8/94 11470 11652
9/94 11263 11481
10/94 10977 11278
11/94 10709 11073
12/94 11061 11317
1/95 11476 11641
2/95 11854 11979
3/95 11954 12117
4/95 11945 12131
5/95 12301 12518
6/95 12092 12409
7/95 12176 12526
8/95 12317 12685
</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 5/1/92. +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:
[PHOTO OF TIMOTHY T. BROWSE]
"The bond market has had a nice upward run during late 1994 and through the
middle of 1995. As a result, we're shifting our emphasis from capital
appreciation to more of a balanced approach because we believe the good total
return will come from a mixture of coupon income and price appreciation.
"We believe that over the long term, the outlook for municipal bonds is
positive. While concerns over dramatic tax reform have depressed the market, it
is hard to imagine an approved reform package that will be as extreme as the
plans now being discussed.
"As part of our efforts to provide a diverse selection of bonds in the Alabama
Portfolio, we have diversified away from a large representation in the hospital
sector."
- Timothy T. Browse
5
<PAGE>
EV MARATHON ARKANSAS TAX FREE FUND
YOUR INVESTMENT AT WORK
Baxter County
Aeroquip Corp. Project [Graphic]
This $7.2 million bond issue was used to finance the costs of building and
equipping a rubber mixing facility, an expansion of the Aeroquip Corp.'s
business in Arkansas.
The plant is located in the community of Mountain Home. Aeroquip Corp.
manufactures and sells engineered component systems for industrial, aerospace
and defense and automotive markets. It is a wholly-owned subsidiary of Trinova
Corporation, which has backed payment of the bonds.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF ARKANSAS]
<TABLE>
<S> <C>
Number of issues .................................................. 66
Average quality ................................................... A+
Investment grade .................................................. 94.6%
Effective maturity ................................................ 16.96 yrs.
Largest sectors:
Hospitals ...................................................... 14.8%
Industrial development/pollution control revenue ............... 13.2
Housing ........................................................ 11.7
Electric utilities ............................................. 9.2
General obligations ............................................ 8.2
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Arkansas
The Arkansas economy is relatively diverse and is led by the manufacturing,
service and trade sectors. Manufacturing is the largest of the three, employing
25% of the state's workforce. Unemployment, however, has remained above the
national average.
The state's food processing industry has given a boost to the state's economic
performance. Four of the nation's biggest poultry processors are located in
Arkansas, including Tyson Foods, Inc., which has more than 18,000 employees in
the state and is expanding a poultry processing center.
The state's main revenue sources -- sales and use, individual income, and
corporate income taxes, all have been raised in recent years. Another factor in
the state's fiscal stability has been its revenue stabilization law. This law,
enacted in 1973, prohibits expenditures from exceeding revenues during any
fiscal year. Arkansas also is considered to have a very low public debt burden.
In the near future, the construction industry, stimulated by population growth,
is likely to provide additional job growth and strength to the state's economy.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON ARKANSAS
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From October 31, 1992, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 1.2% 4.9% $11,779
Without CDSC 6.2% 6.1% $12,179
</TABLE>
<TABLE>
<CAPTION>
DATE M. ARKANSAS LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
10/92+ 10000 10000
11/92 10331 10179
12/92 10482 10283
1/93 10648 10403
2/93 11130 10779
3/93 11008 10665
4/93 11124 10773
5/93 11199 10833
6/93 11387 11014
7/93 11396 11028
8/93 11633 11258
9/93 11770 11386
10/93 11766 11408
11/93 11645 11308
12/93 11925 11546
1/94 12078 11678
2/94 11730 11376
3/94 11035 10913
4/94 11162 11005
5/94 11291 11100
6/94 11181 11036
7/94 11433 11235
8/94 11472 11274
9/94 11262 11108
10/94 10950 10911
11/94 10610 10714
12/94 10930 10950
1/95 11324 11263
2/95 11716 11590
3/95 11816 11723
4/95 11806 11737
5/95 12141 12112
6/95 11942 12006
7/95 12038 12119
8/95 12179 12273
</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 10/2/92. +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:
[PHOTO OF TIMOTHY T. BROWSE]
"The supply of Arkansas bonds is limited. We take advantage of the ebbs and
flows of supply and demand by buying larger blocks of bonds in the new issue
market, when they are relatively attractive and more readily available and, over
time, reselling them in smaller pieces as the supply dries up.
"We remain optimistic about the future of the municipal bond market. While
worries about the possibility of dramatic tax reform have depressed the market,
it is difficult to conceive of an approved tax reform package that will be as
extreme as the plans now being discussed. The lessening of these fears, coupled
with the ever-decreasing supply of bonds, should produce a positive picture for
municipals bonds in the future."
- Timothy T. Browse
6
<PAGE>
EV MARATHON GEORGIA TAX FREE FUND
YOUR INVESTMENT AT WORK
Savannah Resource Recovery
Development Authority [Graphic]
These bonds were issued in 1992 to refund a 1984 bond issue that financed a
steam-generating waste-to-energy plant in Savannah.
The facility is set up to convert solid waste to steam for commercial sale.
Since it began operation, the plant has produced amounts of steam exceeding the
required minimum for commercial sale.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF GEORGIA]
<TABLE>
<S> <C>
Number of issues ........................................... 76
Average quality ............................................ Aa
Investment grade ........................................... 96.4%
Effective maturity ......................................... 14.92 yrs.
Largest sectors:
Utilities ............................................... 15.5%
General obligations ..................................... 15.0
Housing ................................................. 13.9
Insured hospitals ....................................... 13.2*
Hospitals ............................................... 10.5
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Georgia
Georgia recovered quickly from the recession of the early 1990s and is
demonstrating strong economic growth as the decade continues.
As a regional center, Atlanta has led the state's growth. According to the Selig
Center for Economic Growth at the University of Georgia, Atlanta accounts for
half the state's employment base, but creates seven out of ten of the state's
new jobs. The Atlanta area is also benefiting from the current construction boom
in preparation for the 1996 Summer Olympic Games, as well as economic activity
generated by the Games themselves.
State population is growing at about twice the national average. Employment
trends also have been positive and the state's unemployment rate stands
significantly below the national rate. The Selig Center estimates that
employment will rise 3.5% in 1995 and 3.2% in 1996. Many of the jobs will be in
the service, wholesale and retail sectors. No sector is expected to lose jobs.
The Georgia state budget for the 1995 fiscal year is balanced. Although state
debt has grown in recent years, the state's debt position is considered good.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON GEORGIA TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1991, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC -0.1% 4.4% $11,699
Without CDSC 4.9% 5.1% $11,993
</TABLE>
<TABLE>
<CAPTION>
DATE M. GEORGIA LEHMAN BROS.
- ---- ---------- ------------
<S> <C> <C>
12/91+ 10000 10000
1/92 9880 10023
2/92 9908 10026
3/92 9886 10030
4/92 9968 10119
5/92 10154 10238
6/92 10374 10410
7/92 10799 10722
8/92 10587 10617
9/92 10585 10687
10/92 10281 10582
11/92 10622 10771
12/92 10751 10881
1/93 10859 11008
2/93 11366 11406
3/93 11155 11286
4/93 11306 11399
5/93 11361 11463
6/93 11553 11655
7/93 11505 11670
8/93 11780 11913
9/93 11919 12049
10/93 11913 12072
11/93 11786 11965
12/93 12054 12218
1/94 12187 12358
2/94 11837 12038
3/94 11198 11547
4/94 11259 11645
5/94 11309 11746
6/94 11194 11678
7/94 11417 11889
8/94 11433 11930
9/94 11237 11755
10/94 10937 11546
11/94 10608 11337
12/94 10901 11587
1/95 11269 11918
2/95 11612 12264
3/95 11726 12405
4/95 11703 12420
5/95 11998 12816
6/95 11802 12704
7/95 11838 12825
8/95 11993 12987
</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 12/23/91. +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:
[PHOTO OF DAVID D. REILLY]
"The Olympics will help the economic base of the Atlanta area, which should, in
turn, support the credit quality of local borrowers.
"We continue to watch the hospital sector as the health care industry continues
to consolidate. Our goal is to avoid bonds issued by hospitals that are left out
of the consolidation and affiliation process.
"We continue to believe that over the long term, the outlook for municipal bonds
is favorable. Tax reform of the type that would impair or eliminate the
franchise of municipal bonds is unlikely."
- David C.Reilly
7
<PAGE>
EV MARATHON KENTUCKY TAX FREE FUND
YOUR INVESTMENT AT WORK
Fulton County
H.I.S. Kentucky, Inc.
The proceeds of these industrial development bonds were used to allow H.I.S.
Kentucky, Inc., to build a plant in Fulton County. The facility was designed to
stone-wash blue jeans and other clothing manufactured by the company.
H.I.S. Kentucky, Inc. is the holding company for Henry I. Siegel Company, a
designer and manufacturer of moderately priced blue jeans and similar products
under the Chic and H.I.S. labels. The company is a major seller of women's jeans
in Europe.
A total of $9.5 million of the bonds were issued in 1995.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF KENTUCKY]
<TABLE>
<S> <C>
Number of issues .................................................. 89
Average quality ................................................... AA-
Investment grade .................................................. 98.8%
Effective maturity ................................................ 15.91 yrs.
Largest sectors:
Lease revenue bonds ............................................ 21.4%
Insured hospital ............................................... 14.8*
Industrial development/pollution control revenue ............... 11.4
Insured water and sewer ........................................ 9.5*
Electric utilities ............................................. 6.8
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Kentucky
Kentucky has aggressively pursued economic growth during the 1990s. As a result,
the commonwealth has become more attractive as a location for businesses because
of legislation passed in 1990 that expanded the commonwealth's General Fund to
finance education reform. This tends to give employers confidence that they will
have access to a well-trained workforce in the future.
Kentucky has seen a fairly rapid rate of growth in its service sector in recent
years, with both the service and trade sectors contributing larger shares to its
economy than manufacturing or coal mining.
Among the major recent projects are the Delta Airlines Inc. expansion of its
facilities at the Cincinnati Airport. Delta has spent $300 million to establish
a hub at the airport.
Another area of strength has been the automotive industry. Toyota Motor Corp.
added 1,500 jobs through an expansion of its manufacturing facility near
Georgetown. Ford Motor Co. has committed to a $650 million expansion of its
truck plant in Louisville.
It is expected that growth in the state's economy will slow somewhat during the
remainder of the decade. Still, that growth should continue at a rate higher
than the national average.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON KENTUCKY
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1991, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 1.6% 4.9% $11,929
Without CDSC 6.6% 5.6% $12,229
</TABLE>
<TABLE>
<CAPTION>
DATE M. KENTUCKY LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
12/91+ 10000 10000
1/92 9840 10023
2/92 9919 10026
3/92 9863 10030
4/92 9976 10119
5/92 10160 10238
6/92 10359 10410
7/92 10761 10722
8/92 10527 10617
9/92 10545 10687
10/92 10261 10582
11/92 10611 10771
12/92 10726 10881
1/93 10843 11008
2/93 11328 11406
3/93 11150 11286
4/93 11300 11399
5/93 11377 11463
6/93 11589 11655
7/93 11563 11670
8/93 11782 11913
9/93 11921 12049
10/93 11938 12072
11/93 11802 11965
12/93 12080 12218
1/94 12203 12358
2/94 11832 12038
3/94 11172 11547
4/94 11246 11645
5/94 11343 11746
6/94 11207 11678
7/94 11454 11889
8/94 11471 11930
9/94 11231 11755
10/94 10921 11546
11/94 10641 11337
12/94 10958 11587
1/95 11387 11918
2/95 11755 12264
3/95 11858 12405
4/95 11849 12420
5/95 12218 12816
6/95 11999 12704
7/95 12073 12825
8/95 12229 12987
</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 12/23/91. +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:
[PHOTO OF TIMOTHY T. BROWSE]
"In managing the Portfolio, we are shifting our emphasis more toward adding
yield throughout all sectors because we believe the total return will come from
a balance of coupon income and price appreciation.
"Although quality spreads are tight for higher-grade bonds, we feel there are
opportunities in the nonrated and private placement sectors. These are extremely
research-intensive investments and are a way that we look to add value to the
Portfolio."
"This value-added research plus what we feel is an undervalued municipal bond
market because of tax reform concerns give us confidence in the Portfolio's
prospects going forward."
- Timothy T. Browse
8
<PAGE>
EV MARATHON LOUISIANA TAX FREE FUND
YOUR INVESTMENT AT WORK
Bastrop City Industrial
Development Board
International Paper Co.
The proceeds from these bonds were used to finance solid waste disposal
facilities, including a landfill cell, for International Paper's Louisiana mill,
located inBastrop.
These are tax-exempt bonds backed by a corporate guarantor, International Paper.
Because they carry the company's guarantee, the bonds are rated A3/A-.
One aspect of this purchase that we particularly liked is that these bonds add
geographic diversity to a single-state Portfolio because International Paper
runs facilities throughout the country.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF LOUISIANA]
<TABLE>
<S> <C>
Number of issues .................................................. 47
Average quality ................................................... AA+
Investment grade .................................................. 97.3%
Effective maturity ................................................ 18.48 yrs.
Largest sectors:
Housing ........................................................ 26.5%
Insured general obligations local .............................. 17.6*
Insured colleges and universities .............................. 10.3*
Health care .................................................... 8.1
Industrial development/pollution control revenue ............... 6.4
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Louisiana
Louisiana has suffered a recent spate of bad news; the good news is that none of
it directly affects the Louisiana Portfolio. This summer, Standard & Poor's
downgraded the state's general obligation rating from A to A-. Given both the
state's checkered past with the rating agencies and the fact that Louisiana has
been on a negative Creditwatch for almost 6 months, the downgrade was
essentially a non-event in the credit market.
The rating agency cited concerns with the state's structural budgetary balance
for the 1996 fiscal year and beyond, pivoting on the potential for significant
cuts in Federal Medicaid funds to the state. Bonds in the Portfolio are largely
insulated from the state's budget problems.
On top of the aforementioned difficulties, the Wall Street Journal recently
published an article questioning the gaming industry's ability to be an economic
savior for so many states. At the time this was written, Louisiana's gaming
industry revenues were running below expectations in 1995. Again, bonds in the
Louisiana Portfolio are not directly dependent on gaming revenues. While credit
concerns swirl around the state, we remain confident of the credit quality of
our Louisiana tax-exempt holdings.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON LOUISIANA
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From October 31, 1992, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 0.1% 4.5% $11,685
Without CDSC 5.1% 5.7% $12,085
</TABLE>
<TABLE>
<CAPTION>
DATE M. LOUISIANA LEHMAN BROS.
- ---- ------------ ------------
<S> <C> <C>
10/92+ 10000 10000
11/92 10439 10179
12/92 10601 10283
1/93 10778 10403
2/93 11303 10779
3/93 11160 10665
4/93 11307 10773
5/93 11382 10833
6/93 11613 11014
7/93 11578 11028
8/93 11881 11258
9/93 12051 11386
10/93 12047 11408
11/93 11905 11308
12/93 12219 11546
1/94 12364 11678
2/94 11912 11376
3/94 11165 10913
4/94 11264 11005
5/94 11409 11100
6/94 11267 11036
7/94 11514 11235
8/94 11501 11274
9/94 11268 11108
10/94 10954 10911
11/94 10647 10714
12/94 10963 10950
1/95 11378 11263
2/95 11767 11590
3/95 11848 11723
4/95 11817 11737
5/95 12065 12112
6/95 11864 12006
7/95 11952 12119
8/95 12085 12273
</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 10/2/92. +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:
[PHOTO OF NICOLE ANDERES]
"The secondary bond market has provided opportunities to diversify the
Portfolio's structure and to add yield through higher coupon housing bonds.
"New issuance in Louisiana continues to be sporadic, and proposals to reform the
country's tax system, especially flat tax proposals, are having a dampening
effect on the municipal market.
"We remain convinced that any tax changes that are enacted will not be as
radical as the plans that are being talked about now. Despite this uncertainty,
1995 has given us an opportunity to recoup losses suffered in 1994."
- Nicole Anderes
9
<PAGE>
EV MARATHON MARYLAND TAX FREE FUND
YOUR INVESTMENT AT WORK
Health & Higher Educational
Facilities Authority
Suburban Hospital
This $63 million bond issue was used to refund in advance the bonds the hospital
issued in 1988 and 1992 to improve its facilities.
Suburban Hospital is a 380-bed acute care facility located in Bethesda, MD.
Among the services it offers are orthopedics, cardiology, oncology and
neurosurgery.
The hospital also runs a 23-bed comprehensive care unit, which provides skilled
nursing services, and a 26-bed Addiction Treatment Center. Among its outpatient
services is the largest ambulatory surgical service in Montgomery County.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF MARYLAND]
<TABLE>
<S> <C>
Number of issues .................................................. 74
Average quality ................................................... AA-
Investment grade .................................................. 97.6%
Effective maturity ................................................ 18.41 yrs.
Largest sectors:
Hospital revenue ............................................... 20.7%
Insured hospital ............................................... 17.9*
Industrial development/pollution control revenue ............... 10.2
Electric utilities ............................................. 7.7
Housing ........................................................ 7.2
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Maryland
In terms of finances, Maryland remains one of the strongest states in the
nation. State officials are proud of its "AAA" rating and have demonstrated
their inclination to do whatever it takes to protect that rating during
difficult times.
During the 1994 fiscal year, the state's general fund revenues exceeded
estimates, a positive factor when compared to the period from 1990-1992, when
there was a revenue shortfall.
Maryland is one of the nation's most affluent states, based on median household
income. The population is concentrated in the metropolitan Washington, D.C. area
and in and around Baltimore.
The state's largest employment sector is services, at more than 30%, followed by
trade and government. Manufacturing employment has declined steadily during the
last few years. Despite an increase in unemployment during the recession of the
early 1990s, Maryland's unemployment has remained below national levels. Its
rate in 1994 was 5.4%, compared to the national rate of 6.1%.
It is estimated that the state's population will continue to grow slightly and
that its economy will grow at a slow, but steady, rate.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON MARYLAND
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From February 29, 1992, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 1.7% 5.3% $12,052
Without CDSC 6.7% 6.1% $12,352
</TABLE>
<TABLE>
<CAPTION>
DATE M. MARYLAND LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
2/92+ 10000 10000
3/92 9999 10004
4/92 10098 10093
5/92 10238 10212
6/92 10432 10383
7/92 10871 10694
8/92 10648 10590
9/92 10675 10659
10/92 10320 10554
11/92 10665 10744
12/92 10830 10853
1/93 11040 10980
2/93 11487 11377
3/93 11405 11256
4/93 11521 11370
5/93 11597 11434
6/93 11721 11625
7/93 11674 11640
8/93 11946 11882
9/93 12128 12018
10/93 12134 12041
11/93 11966 11934
12/93 12258 12186
1/94 12402 12326
2/94 12003 12006
3/94 11252 11517
4/94 11281 11615
5/94 11401 11716
6/94 11279 11648
7/94 11535 11858
8/94 11576 11899
9/94 11328 11724
10/94 11011 11516
11/94 10678 11308
12/94 11049 11557
1/95 11449 11887
2/95 11894 12233
3/95 12007 12373
4/95 11974 12388
5/95 12361 12783
6/95 12087 12671
7/95 12184 12791
8/95 12352 12954
</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 2/3/92. +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 Maryland Portfolio shows a heavy representation of hospital bonds. The
state's strong hospital infrastructure makes us more comfortable with holding a
large portion of the Portfolio in this sector. Over time, our goal of Portfolio
diversification may cause us to trim these hospital holdings.
" We continue to be optimistic about the municipal bond market. The market has
been depressed by worries about possible dramatic tax reform, but it's hard to
imagine an approved tax reform package as extreme as the plans now being
discussed. The lessening of these fears, coupled with the ever-decreasing supply
of bonds, should produce a positive future for municipal bonds."
- Timothy T. Browse
10
<PAGE>
EV MARATHON MISSOURI TAX FREE FUND
YOUR INVESTMENT AT WORK
Environmental and Energy
Resource Authority
Water Pollution Control Bonds
[Graphic]
The Revolving Fund, controlled by the state Department of Natural Resources and
Clean Water Commission, was established in 1987 to finance construction of
wastewater treatment facilities.
The proceeds of these bonds, issued in 1994, are used to finance the improvement
and extension of sewerage systems in a variety of communities around the state.
The participating communities comprise a diverse group, with no one city
dominating. After the offering, Duckett Creek Sewer District was expected to
have nearly 20% of the bonds outstanding. Each city's bonds have been approved
by voters.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF MISSOURI]
<TABLE>
<S> <C>
Number of issues ............................................ 80
Average quality ............................................. Aa
Investment grade ............................................ 98.4%
Effective maturity .......................................... 15.23 yrs.
Largest sectors:
Insured hospitals ........................................ 18.4%*
Insured utilities ........................................ 11.4*
Hospitals ................................................ 10.5
Insured general obligations .............................. 9.3*
Water & sewer ............................................ 9.1*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Missouri
Missouri has a strong and diverse economy, with a greater-than-average
dependence on manufacturing jobs. The largest sectors are transportation
equipment, machinery and chemicals.
The largest creator of jobs and income in the state is currently the service
sector, which is responsible for one quarter of all jobs. Manufacturing accounts
for slightly less than one-fifth.
The state has continued to grow during the past 12 months, buoyed by growth in
the area of transportation equipment.
One segment of Missouri's economy that has grown significantly is tourism, led
by the city of Branson's development as a destination resort for music and
entertainment. While adding one attraction after another, this rural city has
quickly developed into one of the nation's major tourist attractions.
Missouri is expected to demonstrate continued growth in the near future.
However, it is somewhat vulnerable to any defense cutbacks, as McDonnell Douglas
Corp. is the state's largest employer.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON MISSOURI
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From May 31, 1992, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 3.8% 6.3% $12,151
Without CDSC 7.8% 7.1% $12,451
</TABLE>
<TABLE>
<CAPTION>
DATE M. MISSOURI LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
5/92+ 10000 10000
6/92 10245 10168
7/92 10635 10473
8/92 10480 10371
9/92 10528 10438
10/92 10192 10336
11/92 10593 10521
12/92 10722 10628
1/93 10857 10752
2/93 11379 11141
3/93 11259 11023
4/93 11395 11134
5/93 11481 11197
6/93 11679 11384
7/93 11645 11399
8/93 11913 11636
9/93 12071 11769
10/93 12057 11791
11/93 11894 11687
12/93 12175 11934
1/94 12317 12070
2/94 11938 11758
3/94 11236 11279
4/94 11276 11375
5/94 11395 11473
6/94 11310 11406
7/94 11540 11612
8/94 11548 11652
9/94 11307 11481
10/94 10997 11278
11/94 10683 11073
12/94 11037 11317
1/95 11477 11641
2/95 11892 11979
3/95 11981 12117
4/95 11996 12131
5/95 12425 12518
6/95 12226 12409
7/95 12275 12526
8/95 12451 12685
</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 5/1/92. +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:
[PHOTO OF CYNTHIA J. CLEMSON]
"We continue to be selective when looking at hospital bonds because of the
uncertainty of the health care market throughout the U.S. This is one area in
which the contributions of our Research Department are especially important.
However, we do feel that hospital bonds can add value and diversification to the
overall Portfolio.
"The Missouri bond market continued to be characterized by low issuance. This
factor, combined with narrow quality spreads between AA-rated and insured bonds,
caused us to focus on slightly upgrading the Portfolio quality. We also balanced
a large weighting in high-quality bonds with positions in higher yielding issues
to boost the Fund's income."
-Cynthia J. Clemson
11
<PAGE>
EV MARATHON NORTH CAROLINA TAX FREE FUND
YOUR INVESTMENT AT WORK
University of North Carolina [Graphic]
University Hospital, Chapel Hill
These bonds were issued to pay for providing new facilities at the University of
North Carolina Hospital at Chapel Hill.
UNC Hospital provides comprehensive health care services including general acute
care, specialized care, outpatient services, psychiatric and rehabilitative
services. In addition, the hospital supports the university's teaching and
research needs.
The bond issue, totaling nearly $60 million, was issued in 1992.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF NORTH CAROLINA]
<TABLE>
<S> <C>
Number of issues ........................................... 90
Average quality ............................................ Aa
Investment grade ........................................... 98.6%
Effective maturity ......................................... 15.33 yrs.
Largest sectors:
Hospitals ............................................... 18.8%
Utilities ............................................... 12.3
Insured hospital ........................................ 10.6*
Housing ................................................. 9.1
General obligations ..................................... 8.7
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: North Carolina
Having recovered well from the recession of the early 1990s, North Carolina has
continued to see significant growth throughout the decade. The state's economy
continues to be led by the manufacturing sector -- principally machinery,
textiles and furniture. However, high technology and financial services continue
to grow, rapidly with Charlotte and Raleigh developing as regional banking
centers.
In its attempts to attract new business, the state is assisted by its low wages,
the low cost of housing and what is viewed as an attractive quality of life.
North Carolina is not expected to maintain its rapid growth rate, but should
continue to grow at a rate higher than the national average.
North Carolina's conservative style of fiscal management and its low debt levels
provide long-term, fundamental credit support.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON NORTH
CAROLINA TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From October 31, 1991, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 0.0% 4.9% $11,970
Without CDSC 5.0% 5.5% $12,268
</TABLE>
<TABLE>
<CAPTION>
DATE M. N. CAROLINA LEHMAN BROS.
- ---- -------------- ------------
<S> <C> <C>
10/91+ 10000 10000
11/91 9920 10028
12/91 10226 10243
1/92 10208 10266
2/92 10217 10270
3/92 10214 10273
4/92 10307 10365
5/92 10474 10487
6/92 10695 10663
7/92 11111 10983
8/92 10845 10876
9/92 10843 10947
10/92 10525 10839
11/92 10899 11033
12/92 11052 11146
1/93 11171 11276
2/93 11606 11683
3/93 11426 11560
4/93 11567 11676
5/93 11634 11742
6/93 11827 11938
7/93 11790 11954
8/93 12089 12203
9/93 12219 12342
10/93 12192 12366
11/93 12043 12256
12/93 12320 12515
1/94 12468 12658
2/94 12107 12330
3/94 11445 11828
4/94 11497 11929
5/94 11573 12032
6/94 11449 11962
7/94 11651 12178
8/94 11681 12220
9/94 11488 12040
10/94 11188 11827
11/94 10849 11613
12/94 11180 11868
1/95 11577 12208
2/95 11947 12563
3/95 12064 12707
4/95 12042 12722
5/95 12341 13128
6/95 12122 13013
7/95 12160 13136
8/95 12268 13303
</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 10/23/91. +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:
[PHOTO OF DAVID C. REILLY]
"We have kept a close watch on North Carolina utility bonds during the year. We
switched out of Catawba bonds, which are issued by the power authority serving
the western half of the state, and into bonds issued by the North Carolina
Eastern Municipal Power Authority. This strategy has resulted in additional
yield and total return performance for the Portfolio.
"We expect North Carolina bonds to hold their value, largely because new debt
issuance in the state is quite low. In fact, debt issued in the state from
January through June, 1995 is 60% lower than that of the equivalent period in
1994."
- David C. Reilly
12
<PAGE>
EV MARATHON OREGON TAX FREE FUND
YOUR INVESTMENT AT WORK
Oregon Housing, Educational
& Cultural Facilities Authority
Reed College
The greatest portion of the proceeds of these bonds, allowed Reed College to
renovate student housing facilities. The funds also were used to acquire land,
improve the college library, construct campus parking facilities and add a
pedestrian bridge over a lake located on college property. The bonds were issued
in 1991.
Reed College, founded in 1909, is a private school located near downtown
Portland. Its student body numbers about 1,100.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF OREGON]
<TABLE>
<S> <C>
Number of issues ............................................. 80
Average quality .............................................. Aa
Investment grade ............................................. 97.3%
Effective maturity ........................................... 15.35 yrs.
Largest sectors:
General obligations ....................................... 17.7%
Utilities ................................................. 14.3
Insured general obligations ............................... 11.6*
Housing ................................................... 8.8
Special tax revenue ....................................... 6.8
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Oregon
Oregon continues to benefit from strong economic growth. The state's levels of
payroll employment have continued to increase through May.
While most employment gains have been in the service and trade sectors, the
construction sector also has been busy. Continued population growth and
relatively low office vacancy rates have caused significant residential and
commercial building activity.
In the second half of 1995, the economy is expected to be further helped by
Hyundai's plans to build a $1.3 billion computer chip plant near Eugene. When
completed, the facility is expected to employ about 900 workers.
Oregon has aggressively pursued high technology manufacturers. However, the
Yamhill County Commissioners recently rejected a proposal to grant property tax
relief for a new silicon wafer plant. It was the first rejection of such a
proposal under the state's Strategic Investment Program and demonstrates the
state's commitment to achieving balanced growth. The state's income, population
and employment growth all are expected to exceed the national average through
the remainder of the decade, though future job growth will be limited by tight
labor markets.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON OREGON TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1991, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 2.2% 5.8% $12,291
Without CDSC 7.2% 6.4% $12,591
</TABLE>
<TABLE>
<CAPTION>
DATE M. OREGON LEHMAN BROS.
- ---- --------- ------------
<S> <C> <C>
12/91+ 10000 10000
1/92 9990 10023
2/92 10054 10026
3/92 10028 10030
4/92 10148 10119
5/92 10331 10238
6/92 10506 10410
7/92 10866 10722
8/92 10682 10617
9/92 10710 10687
10/92 10404 10582
11/92 10772 10771
12/92 10943 10881
1/93 11102 11008
2/93 11551 11406
3/93 11469 11286
4/93 11586 11399
5/93 11662 11463
6/93 11874 11655
7/93 11903 11670
8/93 12165 11913
9/93 12259 12049
10/93 12254 12072
11/93 12128 11965
12/93 12405 12218
1/94 12562 12358
2/94 12192 12038
3/94 11488 11547
4/94 11539 11645
5/94 11625 11746
6/94 11502 11678
7/94 11714 11889
8/94 11743 11930
9/94 11481 11755
10/94 11171 11546
11/94 10857 11337
12/94 11232 11587
1/95 11660 11918
2/95 12098 12264
3/95 12176 12405
4/95 12166 12420
5/95 12558 12816
6/95 12351 12704
7/95 12412 12825
8/95 12591 12987
</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 12/24/91. +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:
[PHOTO OF CYNTHIA J. CLEMSON]
"The Oregon bond market is characterized by low issuance, with issuance down
over 50% year-to-date, compared to 22% nationally. This larger-than-average
decline in issuance is a result of greater-than-average issuance prior to the
1994 tax initiative ballots.
"We are continually looking for bonds that will allow us to increase the overall
call protection of the Portfolio. In part because of the lack of new issues,
this is a slow process."
- Cynthia J. Clemson
13
<PAGE>
EV MARATHON SOUTH CAROLINA TAX FREE FUND
YOUR INVESTMENT AT WORK
Chester County [Graphic]
Springs Industries, Inc.
These industrial development bonds were issued in 1992 to refund bonds issued in
1968. The 1968 bonds allowed the company to build a new textile manufacturing
facility in Chester County. It was completed in 1969.
Springs Industries, Inc. is a major manufacturer and marketer of home
furnishings, finished fabrics and industrial products. The company's
headquarters are in Fort Mill, S.C.
The company operates 45 manufacturing facilities in 10 states, Belgium and
England. Among its home furnishings are products sold under the Springmaid and
Wamsutta brands.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF SOUTH CAROLINA]
<TABLE>
<S> <C>
Number of issues ................................................. 65
Average quality .................................................. Aa
Investment grade ................................................. 97.1%
Effective maturity ............................................... 15.9 yrs.
Largest sectors:
Industrial development ........................................ 18.0%
Utilities ..................................................... 13.5
Insured utilities ............................................. 12.5*
Housing ....................................................... 9.5
Insured lease/certificate of participation .................... 7.3*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: So. Carolina
South Carolina's strong growth continued during the past year, leading to a more
diverse economy that relies less on agriculture and textiles and more on the
service sector and on higher-skilled manufacturing jobs.
Business views the state as a favorable location because of its tax structure
and low cost of living. A major contributor to the state's economic growth has
been the Bavarian Motor Works manufacturing plant in Spartanburg County, which
is now operational and is expected to be running at full capacity in 1996. It is
estimated that this facility will add 4,000 direct and indirect jobs to the
state.
Future growth is likely to be focused in metropolitan areas -- Charlestown,
Columbia and Greenville. In addition, tourism in South Carolina continues to
grow.
The state still wrestles with alternatives for dealing with local property tax
burdens. One plan would gradually relieve property taxes until all such taxes
are eliminated. Another would allow voters to approve a one-cent sales tax
increase to eliminate the property tax all at once.
South Carolina benefits from conservative fiscal management and relatively low
debt. During the last year, the state has put into effect several changes to
help balance its budget and make budgeting more predictable.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON SOUTH
CAROLINA TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From October 31, 1992, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 0.6% 3.9% $11,420
Without CDSC 5.6% 5.1% $11,820
</TABLE>
<TABLE>
<CAPTION>
DATE M. S. CAROLINA LEHMAN BROS.
- ---- -------------- ------------
<S> <C> <C>
10/92+ 10000 10000
11/92 10286 10179
12/92 10434 10283
1/93 10577 10403
2/93 11065 10779
3/93 10941 10665
4/93 11064 10773
5/93 11115 10833
6/93 11268 11014
7/93 11264 11028
8/93 11540 11258
9/93 11696 11386
10/93 11680 11408
11/93 11536 11308
12/93 11834 11546
1/94 11941 11678
2/94 11571 11376
3/94 10912 10913
4/94 10983 11005
5/94 11055 11100
6/94 10957 11036
7/94 11162 11235
8/94 11189 11274
9/94 11003 11108
10/94 10714 10911
11/94 10409 10714
12/94 10692 10950
1/95 11059 11263
2/95 11402 11590
3/95 11535 11723
4/95 11501 11737
5/95 11810 12112
6/95 11634 12006
7/95 11670 12119
8/95 11820 12273
</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 10/2/92. +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:
[PHOTO OF DAVID C. REILLY]
"We have remained cautious in acquiring utility bonds, a strategy that paid off
when Piedmont Municipal Power Agency was downgraded from A- to BBB in late July.
Because the Portfolio held only one Piedmont bond, we avoided most of the pain
associated with this downgrade.
"New bond issuance in South Carolina has decreased dramatically in the last
year, with the number of new issues from January through June 1995, almost 75%
less than new issuance during the previous period. This is one reason why we are
optimistic about the performance of South Carolina debt."
- David C. Reilly
14
<PAGE>
EV MARATHON TENNESSEE TAX FREE FUND
YOUR INVESTMENT AT WORK
Maury County Industrial
Development Board
Saturn Corp.
[Graphic]
The bonds were issued in 1994 to refund bonds that were originally used to
finance equipment at the Saturn facility in Spring Hill. The Saturn plant was
part of a multi-billion-dollar project created by General Motors, with a goal of
developing a state-of-the-art automobile manufacturing facility.
The proceeds of the original bonds were used to purchase and install air and
water pollution control equipment and solid waste disposal facilities at the
Saturn plant. The bonds are the obligations of the Saturn Corp. and also are
backed by General Motors.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF TENNESEE]
<TABLE>
<S> <C>
Number of issues ............................................. 59
Average quality .............................................. Aa-
Investment grade ............................................. 98.3%
Effective maturity ........................................... 16.87 yrs.
Largest sectors:
Insured hospitals ......................................... 21.9%*
Housing ................................................... 16.2
Industrial development revenue ............................ 16.0
Pooled loans .............................................. 6.7
Insured water & sewer ..................................... 4.8*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Tennessee
Tennessee's economy still relies on manufacturing, but is diversifying as the
services sector grows in size and importance. Growth has been steady during the
past several years.
The state's efforts to develop its economy continue to be rewarded. In 1992 and
1993, for example, economic development projects, including both new projects
and the expansion of existing facilities, totaled more than $2 billion annually.
Within the manufacturing sector, apparel manufacturing is the largest segment,
with automobile equipment only slightly smaller.
The state's TennCare comprehensive health care program, which relies on managed
care to reduce costs, is expected to benefit the state's economic condition in
the long run. However, initial TennCare expenses exceeded estimates and required
some budget-balancing actions during the past year.
State fiscal operations benefit from a conservative management style and
continued relatively low debt levels.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON TENNESEE
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From August 31, 1992, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 1.1% 5.2% $11,489
Without CDSC 6.1% 6.0% $11,889
</TABLE>
<TABLE>
<CAPTION>
DATE M. TENESSEE LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
8/92+ 10000 10000
9/92 9970 10066
10/92 9709 9966
11/92 10110 10145
12/92 10276 10249
1/93 10437 10368
2/93 10865 10743
3/93 10733 10629
4/93 10906 10736
5/93 11008 10797
6/93 11242 10977
7/93 11238 10991
8/93 11520 11220
9/93 11662 11348
10/93 11657 11370
11/93 11505 11270
12/93 11767 11508
1/94 11917 11639
2/94 11551 11338
3/94 10876 10876
4/94 10904 10968
5/94 11021 11063
6/94 10914 10999
7/94 11174 11197
8/94 11203 11236
9/94 10963 11071
10/94 10633 10875
11/94 10309 10678
12/94 10637 10913
1/95 11073 11225
2/95 11485 11551
3/95 11550 11684
4/95 11518 11698
5/95 11862 12071
6/95 11642 11966
7/95 11714 12079
8/95 11889 12232
</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 8/25/92. +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:
[PHOTO OF CYNTHIA J. CLEMSON]
"We like to buy industrial development bonds whenever possible because they
offer an attractive combination of yield and security. Over the past year, we
have added to our positions in industrial development bonds used to finance
facilities for both Saturn and DuPont.
"Quality spreads for medium-grade bonds are very tight. As a result, we have
focused on adding both higher quality bonds and on purchasing higher yielding
bonds of slightly lower quality."
- Cynthia J.Clemson
15
<PAGE>
EV MARATHON VIRGINIA TAX FREE FUND
YOUR INVESTMENT AT WORK
Prince William County
Potomac Hospital
[Graphic]
The proceeds from this issue are being used to pay for construction and
renovation of the Potomac Hospital, located in Prince William County.
Additionally, funds are being used to acquire a medical office building in
Stafford County, refund outstanding bonds and refinance the hospital's 1991
lease of cardiac catheterization equipment.
A total of $22 million of these bonds were issued in 1995 by the Prince William
County Industrial Development Authority.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[GRAPHIC OF VIRGINIA]
<TABLE>
<S> <C>
Number of issues ............................................... 94
Average quality ................................................ Aa-
Investment grade ............................................... 95.8%
Effective maturity ............................................. 16.24 yrs.
Largest sectors:
Hospitals ................................................... 16.7%
Lease/certificates of participation ......................... 11.2
Housing ..................................................... 10.9
Education ................................................... 10.1
Insured hospital ............................................ 7.6*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Virginia
The Virginia economy remains diversified and relatively strong. This vitality is
demonstrated by the fact that economic growth was stronger in the first quarter
of 1995 than in the last quarter of 1994.
Employment figures set new records, and employment gains were seen in all the
state's eight metropolitan areas. Military and civilian defense employment in
the state declined nearly 3% in 1994, though Virginia remained the
second-ranking state in terms of military payrolls. It is expected that the
commonwealth will continue to lose some military and military-related jobs, but
it is expected to add more than enough jobs in other areas to offset the loss.
The service sector is Virginia's largest source of employment and is expected to
be the fastest growing segment of the economy in the next few years. High
technology industries have grown considerably in the northern part of the state
in recent years. The manufacturing, tourism and technology segments are expected
to lead the state's growth in the near future.
Virginia's economic picture is aided by its conservative fiscal management and
low debt burden.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON VIRGINIA
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From July 31, 1991, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life Value of
TOTAL RETURN Year of Fund* Investment at 8/31
- -------------- ---- -------- ------------------
<S> <C> <C> <C>
With CDSC 1.6% 6.0% $12,685
Without CDSC 6.6% 6.4% $12,885
</TABLE>
<TABLE>
<CAPTION>
DATE M. VIRGINIA LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
7/91+ 10000 10000
8/91 10080 10132
9/91 10262 10264
10/91 10374 10356
11/91 10369 10385
12/91 10655 10608
1/92 10607 10632
2/92 10618 10635
3/92 10564 10639
4/92 10681 10734
5/92 10831 10860
6/92 11036 11043
7/92 11440 11374
8/92 11224 11263
9/92 11202 11337
10/92 10892 11225
11/92 11285 11426
12/92 11415 11543
1/93 11539 11677
2/93 11995 12099
3/93 11837 11972
4/93 11972 12092
5/93 12009 12160
6/93 12198 12363
7/93 12186 12379
8/93 12437 12637
9/93 12583 12781
10/93 12579 12806
11/93 12428 12693
12/93 12735 12961
1/94 12875 13109
2/94 12508 12769
3/94 11905 12249
4/94 11949 12353
5/94 11993 12460
6/94 11856 12388
7/94 12041 12611
8/94 12085 12655
9/94 11914 12469
10/94 11611 12248
11/94 11291 12026
12/94 11606 12291
1/95 12011 12642
2/95 12414 13010
3/95 12546 13159
4/95 12525 13175
5/95 12918 13595
6/95 12683 13477
7/95 12723 13604
8/95 12885 13777
</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 7/26/91. +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:
[PHOTO OF DAVID C. REILLY]
"The health care industry continues to go through a consolidation, with
hospitals forming alliances with health maintenance organizations or merging
with other institutions.
"We feel that the hospitals that are left out of this consolidation may face a
shaky future, and as a result we continue to watch the hospital sector closely.
"We believe that the long-term future of municipal, bonds is strong. On a simple
supply-and-demand basis, their value should be enhanced by the fact that fewer
new bonds are being issued now than previously."
- David C. Reilly
16
<PAGE>
- --------------------------------------------------------------------------------
EV Marathon Tax Free Funds
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $105,315,734 $79,522,089 $117,028,843 $141,413,157
Unrealized appreciation 3,673,460 1,499,857 3,451,722 2,064,330
------------ ----------- ------------ ------------
Total investment in Portfolio, at value (Note 1A) $108,989,194 $81,021,946 $120,480,565 $143,477,487
Receivable for Fund shares sold 75,091 20,531 76,722 127,268
Deferred organization expenses (Note 1D) 5,529 5,640 3,797 2,622
------------ ----------- ------------ ------------
Total assets $109,069,814 $81,048,117 $120,561,084 $143,607,377
------------ ----------- ------------ ------------
LIABILITIES:
Dividends payable $ 221,646 $ 165,900 $ 245,375 $ 292,541
Payable for Fund shares redeemed 167,697 31,181 128,610 157,050
Payable to affiliates --
Trustees' fees 549 275 549 549
Custodian fee 941 864 500 1,048
Accrued expenses 36,777 27,047 43,277 50,397
------------ ----------- ------------ ------------
Total liabilities $ 427,610 $ 225,267 $ 418,311 $ 501,585
------------ ----------- ------------ ------------
NET ASSETS $108,642,204 $80,822,850 $120,142,773 $143,105,792
============ =========== ============ ============
SOURCES OF NET ASSETS:
Paid-in capital $109,276,324 $82,119,440 $125,429,464 $144,914,688
Accumulated net realized loss on investment and
financial futures transactions (computed on the
basis of identified cost) (4,462,224) (2,957,469) (8,882,642) (3,829,975)
Accumulated undistributed (distributions in excess
of) net investment income 154,644 161,022 144,229 (43,251)
Unrealized appreciation of investments and financial
futures contracts from Portfolio (computed on the
basis of identified cost) 3,673,460 1,499,857 3,451,722 2,064,330
------------ ----------- ------------ ------------
Total $108,642,204 $80,822,850 $120,142,773 $143,105,792
============ =========== ============ ============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 10,409,805 7,885,726 12,277,627 14,331,031
============ =========== =========== ============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE (NOTE 6) (net assets / shares of beneficial
interest) $10.44 $10.25 $9.79 $9.99
====== ====== ===== =====
</TABLE>
See notes to financial statements
17
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $31,654,417 $112,152,042 $86,735,524 $181,851,233
Unrealized appreciation 233,937 1,937,136 3,297,972 7,221,492
----------- ------------ ----------- ------------
Total investment in Portfolio, at value (Note 1A) $31,888,354 $114,089,178 $90,033,496 $189,072,725
Receivable for Fund shares sold 46,370 107,576 12,603 109,786
Deferred organization expenses (Note 1D) 5,221 3,455 5,002 6,365
----------- ------------ ----------- ------------
Total assets $31,939,945 $114,200,209 $90,051,101 $189,188,876
----------- ------------ ----------- ------------
LIABILITIES:
Dividends payable $ 68,634 $ 238,042 $ 180,553 $ 390,445
Payable for Fund shares redeemed 24,197 94,315 25,238 277,999
Payable to affiliates --
Trustees' fees 549 549 275 549
Custodian fee 130 957 373 500
Accrued expenses 10,597 40,396 33,946 69,451
----------- ------------ ----------- ------------
Total liabilities $ 104,107 $ 374,259 $ 240,385 $ 738,944
----------- ------------ ----------- ------------
NET ASSETS $31,835,838 $113,825,950 $89,810,716 $188,449,932
=========== ============ =========== ============
SOURCES OF NET ASSETS:
Paid-in capital $33,361,530 $115,700,944 $89,890,491 $194,255,650
Accumulated net realized loss on investment and
financial futures transactions (computed on the
basis of identified cost) (1,801,689) (4,148,936) (3,377,651) (13,063,780)
Accumulated undistributed (distributions in excess
of) net investment income 42,060 336,806 (96) 36,570
Unrealized appreciation of investments and
financial futures contracts from Portfolio
(computed on the basis of identified cost) 233,937 1,937,136 3,297,972 7,221,492
----------- ------------ ----------- ------------
Total $31,835,838 $113,825,950 $89,810,716 $188,449,932
=========== ============ =========== ============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,188,692 11,126,977 8,542,216 18,916,880
=========== ============ =========== ============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE (NOTE 6) (net assets / shares of
beneficial interest) $9.98 $10.23 $10.51 $9.96
===== ====== ====== =====
</TABLE>
See notes to financial statements
18
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $142,723,426 $57,845,450 $57,095,210 $182,925,184
Unrealized appreciation 2,694,145 2,343,891 514,102 7,357,491
------------ ----------- ----------- ------------
Total investment in Portfolio, at value (Note 1A) $145,417,571 $60,189,341 $57,609,312 $190,282,675
Receivable for Fund shares sold 42,093 32,230 38,286 85,917
Deferred organization expenses (Note 1D) 3,343 6,171 5,814 4,964
------------ ----------- ----------- ------------
Total assets $145,463,007 $60,227,742 $57,653,412 $190,373,556
------------ ----------- ----------- ------------
LIABILITIES:
Dividends payable $ 285,626 $ 122,894 $ 119,680 $ 390,126
Payable for Fund shares redeemed 68,859 128,149 30,781 379,531
Payable to affiliates --
Trustees' fees 549 275 275 549
Custodian fee 554 747 80 500
Accrued expenses 51,659 20,418 18,824 67,628
------------ ----------- ----------- ------------
Total liabilities $ 407,247 $ 272,483 $ 169,640 $ 838,334
------------ ----------- ----------- ------------
NET ASSETS $145,055,760 $59,955,259 $57,483,772 $189,535,222
============ =========== =========== ============
SOURCES OF NET ASSETS:
Paid-in capital $146,572,702 $62,263,418 $58,887,500 $192,311,843
Accumulated net realized loss on investment and
financial futures transactions (computed on
the basis of identified cost) (4,297,567) (4,796,875) (2,011,853) (10,114,562)
Accumulated undistributed (distributions in
excess of) net investment income 86,480 144,825 94,023 (19,550)
Unrealized appreciation of investments and
financial futures contracts from Portfolio
(computed on the basis of identified cost) 2,694,145 2,343,891 514,102 7,357,491
------------ ----------- ----------- ------------
Total $145,055,760 $59,955,259 $57,483,772 $189,535,222
============ =========== =========== ============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 14,075,191 5,996,252 5,685,300 18,471,568
============ =========== =========== ============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE (NOTE 6) (net assets / shares of
beneficial interest) $10.31 $10.00 $10.11 $10.26
====== ====== ====== ======
</TABLE>
See notes to financial statements
19
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 6,577,272 $ 4,952,476 $ 7,715,705 $ 8,750,352
Expenses allocated from Portfolio (493,634) (369,497) (569,574) (685,011)
----------- ----------- ----------- -----------
Net investment income from Portfolio $ 6,083,638 $ 4,582,979 $ 7,146,131 $ 8,065,341
----------- ----------- ----------- -----------
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 3,116 $ 1,618 $ 10,271 $ 3,236
Distribution costs (Note 5) 936,481 711,366 1,110,715 1,249,884
Custodian fee (Note 4) 5,850 6,162 500 10,430
Transfer and dividend disbursing agent fees 87,575 58,396 89,109 101,348
Printing and postage 35,434 27,199 38,451 42,450
Legal and accounting services 6,700 12,123 14,517 13,355
Registration costs 4,013 3,536 3,832 5,578
Amortization of organization expenses (Note 1D) 3,446 3,610 3,285 2,427
Miscellaneous 10,943 9,464 10,687 13,645
----------- ----------- ----------- -----------
Total expenses $ 1,093,558 $ 833,474 $ 1,281,367 $ 1,442,353
----------- ----------- ----------- -----------
Net investment income $ 4,990,080 $ 3,749,505 $ 5,864,764 $ 6,622,988
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(1,579,920) $(1,441,509) $(4,498,202) $ (822,930)
Financial futures contracts (1,361,194) (1,056,915) (2,644,018) (1,810,204)
----------- ----------- ----------- -----------
Net realized loss on investments $(2,941,114) $(2,498,424) $(7,142,220) $(2,633,134)
Change in unrealized appreciation of investments 5,318,362 3,444,180 6,543,128 4,909,921
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) $ 2,377,248 $ 945,756 $ (599,092) $ 2,276,787
----------- ----------- ----------- -----------
Net increase in net assets from operations $ 7,367,328 $ 4,695,261 $ 5,265,672 $ 8,899,775
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
20
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 1,881,319 $ 7,134,380 $ 5,563,593 $11,765,901
Expenses allocated from Portfolio (65,213) (528,960) (428,103) (897,625)
----------- ----------- ----------- -----------
Net investment income from Portfolio $ 1,816,106 $ 6,605,420 $ 5,135,490 $10,868,276
----------- ----------- ----------- -----------
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 683 $ 3,236 $ 1,332 $ 2,439
Distribution costs (Note 5) 260,552 999,400 798,438 1,690,627
Custodian fee (Note 4) 1,016 10,410 9,929 500
Transfer and dividend disbursing agent fees 25,477 83,594 63,397 128,712
Printing and postage 17,212 38,976 29,093 55,176
Legal and accounting services 10,991 12,982 13,772 13,741
Registration costs 2,328 1,767 5,677 4,780
Amortization of organization expenses (Note 1D) 3,350 2,803 3,143 5,581
Miscellaneous 4,499 12,447 11,769 20,200
----------- ----------- ----------- -----------
Total expenses $ 326,108 $ 1,165,615 $ 936,550 $ 1,921,756
----------- ----------- ----------- -----------
Net investment income $ 1,489,998 $ 5,439,805 $ 4,198,940 $ 8,946,520
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $ (646,056) $(1,820,743) $(2,463,912) $(3,933,351)
Financial futures contracts (891,029) (1,461,816) (457,750) (4,843,373)
----------- ----------- ----------- -----------
Net realized loss on investments $(1,537,085) $(3,282,559) $(2,921,662) $(8,776,724)
Change in unrealized appreciation of investments 1,571,413 4,899,352 5,323,708 8,767,620
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) $ 34,328 $ 1,616,793 $ 2,402,046 $ (9,104)
----------- ----------- ----------- -----------
Net increase in net assets from operations $ 1,524,326 $ 7,056,598 $ 6,600,986 $ 8,937,416
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
21
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 8,843,734 $ 3,698,894 $ 3,448,024 $11,902,247
Expenses allocated from Portfolio (727,156) (258,859) (229,433) (899,910)
----------- ----------- ----------- -----------
Net investment income from Portfolio $ 8,116,578 $ 3,440,035 $ 3,218,591 $11,002,337
----------- ----------- ----------- -----------
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 3,236 $ 1,962 $ 1,711 $ 3,236
Distribution costs (Note 5) 1,283,429 521,649 482,493 1,687,717
Custodian fee (Note 4) 13,668 6,749 6,467 500
Transfer and dividend disbursing agent fees 103,149 42,820 39,488 138,532
Printing and postage 44,682 23,399 24,824 61,809
Legal and accounting services 13,953 15,425 12,481 13,742
Registration costs 3,647 1,173 2,683 7,835
Amortization of organization expenses (Note 1D) 2,946 3,354 3,551 5,548
Miscellaneous 18,264 6,455 7,235 12,860
----------- ----------- ----------- -----------
Total expenses $ 1,486,974 $ 622,986 $ 580,933 $ 1,931,779
----------- ----------- ----------- -----------
Net investment income $ 6,629,604 $ 2,817,049 $ 2,637,658 $ 9,070,558
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(3,279,566) $(2,816,017) $(1,018,995) $(3,853,961)
Financial futures contracts (1,028,767) (1,065,730) (848,958) (3,659,621)
----------- ----------- ----------- -----------
Net realized loss on investments $(4,308,333) $(3,881,747) $(1,867,953) $(7,513,582)
Change in unrealized appreciation of investments 7,327,565 4,197,563 2,570,170 10,162,470
----------- ----------- ----------- -----------
Net realized and unrealized gain $ 3,019,232 $ 315,816 $ 702,217 $ 2,648,888
----------- ----------- ----------- ------------
Net increase in net assets from operations $ 9,648,836 $ 3,132,865 $ 3,339,875 $11,719,446
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
22
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 4,990,080 $ 3,749,505 $ 5,864,764 $ 6,622,988
Net realized loss on investments (2,941,114) (2,498,424) (7,142,220) (2,633,134)
Change in unrealized appreciation of investments 5,318,362 3,444,180 6,543,128 4,909,921
------------ ------------ ------------ ------------
Net increase in net assets from operations $ 7,367,328 $ 4,695,261 $ 5,265,672 $ 8,899,775
------------ ------------ ------------ ------------
Distributions to shareholders (Note 2) --
From net investment income $ (4,990,080) $ (3,749,505) $ (5,864,764) $ (6,622,988)
In excess of net investment income (143,078) (182,195) (216,692) (337,010)
------------ ------------ ------------ ------------
Total distributions to shareholders $ (5,133,158) $ (3,931,700) $ (6,081,456) $ (6,959,998)
------------ ------------ ------------ ------------
Transactions in shares of beneficial interest (Note
3) --
Proceeds from sales of shares $ 12,491,127 $ 6,780,492 $ 10,649,881 $ 12,444,086
Net asset value of shares issued to shareholders
in payment of distributions declared 2,652,717 1,884,209 3,052,159 3,708,544
Cost of shares redeemed (14,288,423) (11,041,868) (27,224,917) (16,980,873)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from Fund
share transactions $ 855,421 $ (2,377,167) $(13,522,877) $ (828,243)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets $ 3,089,591 $ (1,613,606) $(14,338,661) $ 1,111,534
NET ASSETS:
At beginning of year 105,552,613 82,436,456 134,481,434 141,994,258
------------ ------------ ------------ ------------
At end of year $108,642,204 $ 80,822,850 $120,142,773 $143,105,792
============ ============ ============ ============
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF )
NET INVESTMENT INCOME INCLUDED IN NET ASSETS AT
END OF YEAR $ 154,644 $ 161,022 $ 144,229 $ (43,251)
============ ============ ============ ============
</TABLE>
See notes to financial statements
23
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 1,489,998 $ 5,439,805 $ 4,198,940 $ 8,946,520
Net realized loss on investments (1,537,085) (3,282,559) (2,921,662) (8,776,724)
Change in unrealized appreciation of
investments 1,571,413 4,899,352 5,323,708 8,767,620
----------- ------------ ------------ ------------
Net increase in net assets from operations $ 1,524,326 $ 7,056,598 $ 6,600,986 $ 8,937,416
----------- ------------ ------------ ------------
Distributions to shareholders (Note 2) --
From net investment income $(1,489,998) $ (5,439,805) $ (4,198,940) $ (8,946,520)
In excess of net investment income (73,180) (98,476) (166,866) (410,010)
----------- ------------ ------------ ------------
Total distributions to shareholders $(1,563,178) $ (5,538,281) $ (4,365,806) $ (9,356,530)
----------- ------------ ------------ ------------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $ 5,214,512 $ 13,615,276 $ 7,129,437 $ 16,332,648
Net asset value of shares issued to
shareholders in payment of distributions
declared 783,732 2,952,321 2,213,888 4,685,433
Cost of shares redeemed (3,143,269) (20,980,838) (12,994,601) (24,816,348)
----------- ------------ ------------ ------------
Increase (decrease) in net assets from Fund
share transactions $ 2,854,975 $ (4,413,241) $ (3,651,276) $ (3,798,267)
----------- ------------ ------------ ------------
Net increase (decrease) in net assets $ 2,816,123 $ (2,894,924) $ (1,416,096) $ (4,217,381)
NET ASSETS:
At beginning of year 29,019,715 116,720,874 91,226,812 192,667,313
----------- ------------ ------------ ------------
At end of year $31,835,838 $113,825,950 $ 89,810,716 $188,449,932
=========== ============ ============ ============
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS
OF) NET INVESTMENT INCOME INCLUDED IN NET ASSETS
AT END OF YEAR $ 42,060 $ 336,806 $ (96) $ 36,570
=========== ============ ============ ============
</TABLE>
See notes to financial statements
24
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 6,629,604 $ 2,817,049 $ 2,637,658 $ 9,070,558
Net realized loss on investments (4,308,333) (3,881,747) (1,867,953) (7,513,582)
Change in unrealized appreciation of
investments 7,327,565 4,197,563 2,570,170 10,162,470
------------ ------------ ----------- ------------
Net increase in net assets from operations $ 9,648,836 $ 3,132,865 $ 3,339,875 $ 11,719,446
------------ ------------ ----------- ------------
Distributions to shareholders (Note 2) --
From net investment income $ (6,629,604) $ (2,817,049) $(2,637,658) $ (9,070,558)
In excess of net investment income (308,106) (64,469) (138,918) (405,313)
------------ ------------ ----------- ------------
Total distributions to shareholders $ (6,937,710) $ (2,881,518) $(2,776,576) $ (9,475,871)
------------ ------------ ----------- ------------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $ 11,143,966 $ 8,594,993 $ 7,348,950 $ 22,209,690
Net asset value of shares issued to
shareholders in payment of distributions
declared 3,945,866 1,307,677 1,419,234 4,998,528
Cost of shares redeemed (23,872,614) (10,077,180) (7,227,038) (33,336,822)
------------ ------------ ----------- ------------
Increase (decrease) in net assets from Fund
share transactions $ (8,782,782) $ (174,510) $ 1,541,146 $ (6,128,604)
------------ ------------ ----------- ------------
Net increase (decrease) in net assets $ (6,071,656) $ 76,837 $ 2,104,445 $ (3,885,029)
NET ASSETS:
At beginning of year 151,127,416 59,878,422 55,379,327 193,420,251
------------ ------------ ----------- ------------
At end of year $145,055,760 $ 59,955,259 $57,483,772 $189,535,222
============ ============ =========== ============
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS
OF) NET INVESTMENT INCOME INCLUDED IN NET ASSETS
AT END OF YEAR $ 86,480 $ 144,825 $ 94,023 $ (19,550)
============ ============ =========== =============
</TABLE>
See notes to financial statements
25
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 3,973,251 $ 3,031,357 $ 5,319,982 $ 5,457,716
Net realized loss on investments (1,020,794) (217,984) (1,234,345) (41,605)
Change in unrealized depreciation of investments (6,386,129) (4,775,385) (9,833,903) (10,787,706)
------------ ----------- ------------ ------------
Net decrease in net assets from operations $ (3,433,672) $(1,962,012) $ (5,748,266) $ (5,371,595)
------------ ----------- ------------ ------------
Distributions to shareholders (Note 2) --
From net investment income $ (3,973,251) $(3,031,357) $ (5,319,982) $ (5,457,716)
In excess of net investment income (759,137) (470,045) (846,315) (991,899)
In excess of net realized gain on investments -- -- (545,591) (544,782)
------------ ----------- ------------ ------------
Total distributions to shareholders $ (4,732,388) $(3,501,402) $ (6,711,888) $ (6,994,397)
------------ ----------- ------------ ------------
Transactions in shares of beneficial interest (Note
3) --
Proceeds from sales of shares $ 33,981,424 $29,557,948 $ 34,873,536 $ 37,758,866
Net asset value of shares issued to shareholders
in payment of distributions declared 2,464,848 1,687,208 3,491,399 3,795,320
Cost of shares redeemed (7,348,631) (2,550,292) (11,465,895) (7,287,220)
------------ ----------- ------------ ------------
Increase in net assets from Fund share
transactions $ 29,097,641 $28,694,864 $ 26,899,040 $ 34,266,966
------------ ----------- ------------ ------------
Net increase in net assets $ 20,931,581 $23,231,450 $ 14,438,886 $ 21,900,974
NET ASSETS:
At beginning of period 84,621,032 59,205,006 120,042,548 120,093,284
------------ ----------- ------------ ------------
At end of period $105,552,613 $82,436,456 $134,481,434 $141,994,258
============ =========== ============ ============
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (150,055) $ (3,596) $ (186,021) $ (307,810)
============ =========== ============ ===========
</TABLE>
* For the eleven months ended August 31, 1994 (Note 8).
See notes to financial statements
26
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 1,046,088 $ 4,445,120 $3,407,722 $ 7,610,249
Net realized gain (loss) on investments (219,967) (578,345) 8,518 (3,663,129)
Change in unrealized depreciation of
investments (2,018,901) (9,096,319) (7,263,958) (12,446,124)
----------- ------------ ----------- ------------
Net decrease in net assets from operations $(1,192,780) $ (5,229,544) $(3,847,718) $ (8,499,004)
----------- ------------ ----------- ------------
Distributions to shareholders (Note 2) --
From net investment income $(1,046,088) $ (4,445,120) $(3,407,722) $ (7,610,249)
In excess of net investment income (174,001) (722,020) (677,675) (1,353,355)
In excess of net realized gain on investments (209,543) (73,722) (198,267) --
----------- ------------ ----------- ------------
Total distributions to shareholders $(1,429,632) $ (5,240,862) $(4,283,664) $ (8,963,604)
----------- ------------ ----------- ------------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $14,084,991 $ 36,068,289 $24,584,041 $ 41,332,507
Net asset value of shares issued to
shareholders in payment of distributions
declared 796,301 2,887,858 2,256,403 4,448,467
Cost of shares redeemed (1,174,251) (6,991,117) (4,135,345) (9,479,160)
----------- ------------ ----------- ------------
Increase in net assets from Fund share
transactions $13,707,041 $ 31,965,030 $22,705,099 $ 36,301,814
----------- ------------ ----------- ------------
Net increase in net assets $11,084,629 $ 21,494,624 $14,573,717 $ 18,839,206
NET ASSETS:
At beginning of period 17,935,086 95,226,250 76,653,095 173,828,107
----------- ------------ ----------- ------------
At end of period $29,019,715 $116,720,874 $91,226,812 $192,667,313
=========== ============ =========== ============
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT END OF
PERIOD $ (7,925) $ (45,524) $ (212,519) $ (359,695)
=========== ============ =========== ============
</TABLE>
* For the eleven months ended August 31, 1994 (Note 8).
See notes to financial statements
27
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 5,601,370 $ 2,125,854 $ 1,964,404 $ 7,818,657
Net realized gain (loss) on investments 10,766 (870,255) (99,969) (2,341,234)
Change in unrealized depreciation of
investments (11,817,058) (3,747,871) (3,794,864) (13,242,737)
------------ ------------ ----------- ------------
Net decrease in net assets from operations $ (6,204,922) $(2,492,272) $(1,930,429) $ (7,765,314)
------------ ------------ ----------- ------------
Distributions to shareholders (Note 2) --
From net investment income $ (5,601,370) $(2,125,854) $(1,964,404) $ (7,818,657)
In excess of net investment income (1,053,614) (419,749) (329,218) (1,350,463)
From net realized gain on investment
transactions (1,178,190) -- (378,309) --
In excess of net realized gain on investments -- -- (147,724) --
------------ ----------- ----------- ------------
Total distributions to shareholders $ (7,833,174) $(2,545,603) $(2,819,655) $ (9,169,120)
------------ ----------- ----------- ------------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $ 42,363,996 $26,431,421 $20,476,860 $ 43,159,145
Net asset value of shares issued to
shareholders in payment of distributions
declared 4,677,522 1,259,771 1,565,343 4,865,937
Cost of shares redeemed (10,105,394) (5,944,394) (1,560,949) (13,096,612)
------------ ----------- ----------- ------------
Increase in net assets from Fund share
transactions $ 36,936,124 $21,746,798 $20,481,254 $ 34,928,470
------------ ----------- ----------- ------------
Net increase in net assets $ 22,898,028 $16,708,923 $15,731,170 $ 17,994,036
NET ASSETS:
At beginning of period 128,229,388 43,169,499 39,648,157 175,426,215
------------ ----------- ----------- ------------
At end of period $151,127,416 $59,878,422 $55,379,327 $193,420,251
============ =========== =========== ============
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS
OF ) NET INVESTMENT INCOME INCLUDED IN NET ASSETS
AT END OF PERIOD $ (224,826) $ (46,126) $ 2,096 $ (422,226)
============ =========== =========== ============
</TABLE>
* For the eleven months ended August 31, 1994 (Note 8).
See notes to financial statements
28
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended September 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND* FUND FUND
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 2,135,181 $ 1,099,682 $ 3,403,589 $ 3,421,228
Net realized gain (loss) on investments (484,681) (241,061) 140,825 (413,257)
Change in unrealized appreciation of investments 4,569,419 2,831,062 6,277,782 7,096,313
----------- ----------- ------------ ------------
Net increase in net assets from operations $ 6,219,919 $ 3,689,683 $ 9,822,196 $ 10,104,284
----------- ----------- ------------ ------------
Distributions to shareholders (Note 2) --
From net investment income $(2,136,150) $(1,099,682) $ (3,403,589) $ (3,421,228)
In excess of net investment income (525,308) (269,054) (957,136) (923,973)
From net realized gain on investments -- -- (97,686) (39,000)
----------- ----------- ------------ ------------
Total distributions to shareholders $(2,661,458) $(1,368,736) $ (4,458,411) $ (4,384,201)
----------- ----------- ------------ ------------
Transactions in shares of beneficial interest (Note 3)
--
Proceeds from sales of shares $60,007,886 $57,146,145 $ 75,238,539 $ 69,654,556
Net asset value of shares issued to shareholders in
payment of distributions declared 1,379,193 642,945 2,353,661 2,272,127
Cost of shares redeemed (1,429,589) (905,031) (5,069,670) (4,388,610)
----------- ----------- ------------ ------------
Increase in net assets from Fund share
transactions $59,957,490 $56,884,059 $ 72,522,530 $ 67,538,073
----------- ----------- ------------ ------------
Net increase in net assets $63,515,951 $59,205,006 $ 77,886,315 $ 73,258,156
NET ASSETS:
At beginning of period 21,105,081 -- 42,156,233 46,835,128
----------- ----------- ------------ ------------
At end of period $84,621,032 $59,205,006 $120,042,548 $120,093,284
=========== =========== ============ ============
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (74,909) $ (42,193) $ (249,003) $ (247,891)
=========== =========== ============ ============
</TABLE>
* For the period from the start of business, October 2, 1992, to September 30,
1993.
See notes to financial statements
29
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended September 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND* FUND FUND FUND
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 302,938 $ 2,530,051 $ 2,033,636 $ 5,302,615
Net realized gain (loss) on investments 162,259 (198,615) (196,609) (316,081)
Change in unrealized appreciation of investments 681,425 5,792,466 4,850,867 10,119,454
----------- ----------- ----------- ------------
Net increase in net assets from operations $ 1,146,622 $ 8,123,902 $ 6,687,894 $ 15,105,988
----------- ----------- ----------- ------------
Distributions to shareholders (Note 2) --
From net investment income $ (302,938) $(2,530,051) $(2,033,636) $ (5,302,615)
In excess of net investment income (65,860) (599,682) (554,820) (1,356,733)
In excess of net realized gain on investments -- -- (82,695) (303,922)
----------- ----------- ----------- ------------
Total distributions to shareholders $ (368,798) $(3,129,733) $(2,671,151) $ (6,963,270)
----------- ----------- ----------- ------------
Transactions in shares of beneficial interest (Note
3) --
Proceeds from sales of shares $17,227,814 $61,739,775 $47,220,507 $ 96,169,085
Net asset value of shares issued to shareholders
in payment of distributions declared 191,480 1,700,104 1,344,195 3,529,662
Cost of shares redeemed (262,032) (2,388,004) (1,153,661) (5,746,256)
----------- ----------- ----------- ------------
Increase in net assets from Fund share
transactions $17,157,262 $61,051,875 $47,411,041 $ 93,952,491
----------- ----------- ----------- ------------
Net increase in net assets $17,935,086 $66,046,044 $51,427,784 $102,095,209
NET ASSETS:
At beginning of period -- 29,180,206 25,225,311 71,732,898
----------- ----------- ----------- ------------
At end of period $17,935,086 $95,226,250 $76,653,095 $173,828,107
=========== =========== =========== ============
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (3,615) $ (74,643) $ (128,350) $ (294,478)
=========== =========== =========== ============
</TABLE>
* For the period from the start of business, October 2, 1992, to September 30,
1993.
See notes to financial statements
30
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended September 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND* FUND FUND
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 3,492,356 $ 779,209 $ 820,041 $ 5,422,016
Net realized gain (loss) on investments 1,168,085 (44,873) 478,278 183,066
Change in unrealized appreciation of investments 6,698,327 1,894,199 1,749,389 9,038,871
------------ ----------- ----------- ------------
Net increase in net assets from operations $ 11,358,768 $ 2,628,535 $ 3,047,708 $ 14,643,953
------------ ----------- ----------- ------------
Distributions to shareholders (Note 2) --
From net investment income $ (3,492,356) $ (779,209) $ (819,639) $ (5,422,016)
In excess of net investment income (891,306) (162,316) (172,849) (1,458,494)
From net realized gain on investment
transactions (31,525) -- -- (183,066)
In excess of net realized gain on investments -- -- -- (87,866)
------------ ----------- ----------- ------------
Total distributions to shareholders $ (4,415,187) $ (941,525) $ (992,488) $ (7,151,442)
------------ ----------- ----------- ------------
Transactions in shares of beneficial interest (Note
3) --
Proceeds from sales of shares $ 82,847,326 $42,504,519 $34,140,154 $ 98,158,075
Net asset value of shares issued to shareholders
in payment of distributions declared 2,491,170 464,965 518,421 3,780,899
Cost of shares redeemed (5,755,734) (1,486,995) (541,127) (6,634,722)
------------ ----------- ----------- ------------
Increase in net assets from Fund share
transactions $ 79,582,762 $41,482,489 $34,117,448 $ 95,304,252
------------ ----------- ----------- ------------
Net increase in net assets $ 86,526,343 $43,169,499 $36,172,668 $102,796,763
NET ASSETS:
At beginning of period 41,703,045 -- 3,475,489 72,629,452
------------ ----------- ----------- ------------
At end of period $128,229,388 $43,169,499 $39,648,157 $175,426,215
============ =========== =========== ============
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (153,431) $ -- $ -- $ (370,953)
============ =========== =========== ============
</TABLE>
* For the period from the start of business, October 2, 1992, to September 30,
1993.
See notes to financial statements
31
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON ALABAMA FUND MARATHON ARKANSAS FUND
--------------------------------------------- -------------------------------------
YEAR ENDED YEAR ENDED
--------------------------------------------- -------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
--------------------- ------------------- ------------------- -------------
1995 1994*** 1993 1992** 1995 1994*** 1993++
-------- -------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 10.210 $ 11.060 $10.340 $10.000 $10.140 $10.910 $10.000
-------- -------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.479 $ 0.425 $ 0.475 $ 0.208 $ 0.460 $ 0.431 $ 0.471
Net realized and unrealized
gain (loss) on investments 0.244 (0.769) 0.837 0.385+++ 0.132 (0.703) 1.025
-------- -------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.723 $ (0.344) $ 1.312 $ 0.593 $ 0.592 $(0.272) $ 1.496
-------- -------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $ (0.479) $ (0.425) $(0.475) $(0.208) $(0.460) $(0.431) $(0.471)
In excess of net investment income (0.014) (0.081) (0.117) (0.045) (0.022) (0.067) (0.115)
-------- -------- ------- ------- ------- ------- -------
Total distributions $ (0.493) $ (0.506) $(0.592) $(0.253) $(0.482) $(0.498) $(0.586)
-------- -------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 10.440 $ 10.210 $11.060 $10.340 $10.250 $10.140 $10.910
======== ======== ======= ======= ======= ======= =======
TOTAL RETURN (3) 7.38% (3.18)% 13.09% 5.71% 6.15% (2.53)% 15.00%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000
omitted) $108,642 $105,553 $84,621 $21,105 $80,823 $82,436 $59,205
Ratio of net expenses to average
daily net assets (1) 1.51% 1.43%+ 1.37% 1.01%+ 1.50% 1.17%+ 0.88%+
Ratio of net investment income to
average daily net assets 4.74% 4.35%+ 4.30% 4.49%+ 4.67% 4.47%+ 4.27%+
PORTFOLIO TURNOVER (2) -- -- 15% 13% -- 5% 13%
</TABLE>
* For the year ended September 30, 1993 and for the period from the start of
business, May 1, 1992, to September 30, 1992 (for Marathon Alabama Fund) and
for the eleven months ended August 31, 1994 and for the period from the start
of business, October 2, 1992, to September 30, 1993 (for Marathon Arkansas
Fund), the operating expenses of the Funds and the Portfolios may reflect a
reduction of the investment adviser fee, an allocation of expenses to the
Investment Adviser, or both. Had such actions not been taken, net investment
income per share and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $0.462 $0.185 $0.409 $0.411
====== ====== ====== ======
RATIOS(As a percentage of average daily
net assets):
Expenses (1) 1.49% 1.50%+ 1.40%+ 1.42%+
Net investment income 4.18% 4.00%+ 4.24%+ 3.73%+
</TABLE>
** For the period from the start of business, May 1, 1992, to September 30,
1992.
*** For the eleven months ended August 31, 1994 (Note 8).
+ Annualized.
++ For the period from the start of business, October 2, 1992, to September
30, 1993.
+++ The per share amount is not in accord with the net realized and unrealized
gain (loss) for the period because of the timing of sales of Fund shares
and the amount of the per share realized and unrealized gains and losses
at such time.
(1) Includes each Fund's share of its corresponding Portfolio's allocated
expenses.
(2) Portfolio Turnover represents the rate of portfolio activity for the period
while the Funds were making investments directly in securities. The
portfolio turnover rate for the period since the Funds transferred
substantially all of their investable assets to their respective
Portfolios is shown in the Portfolios' financial statements which are
included elsewhere in this report.
(3) 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.
See notes to financial statements
32
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON GEORGIA FUND MARATHON KENTUCKY FUND
------------------------------------------- -------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------- -------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
-------------------- ------------------- -------------------- -------------------
1995 1994*** 1993 1992** 1995 1994*** 1993 1992**
-------- -------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.800 $ 10.750 $ 10.120 $10.000 $ 9.850 $ 10.780 $ 10.090 $10.000
-------- -------- -------- ------- -------- -------- -------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.450 $ 0.413 $ 0.459 $ 0.380 $ 0.458 $ 0.415 $ 0.462 $ 0.363
Net realized and unrealized
gain (loss) on investments 0.007++ (0.841) 0.776 0.215 0.163 (0.811) 0.820 0.192
-------- -------- -------- ------- -------- -------- -------- -------
Total income (loss) from
operations $ 0.457 $ (0.428) $ 1.235 $ 0.595 $ 0.621 $ (0.396) $ 1.282 $ 0.555
-------- -------- -------- ------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
From net investment income $ (0.450) $ (0.413) $ (0.459) $(0.380) $ (0.458) $ (0.415) $ (0.462) $(0.363)
In excess of net investment income (0.017) (0.065) (0.129) (0.095) (0.023) (0.075) (0.125) (0.102)
From net realized gain on
investment transactions -- -- (0.017) -- -- -- (0.005) --
In excess of net realized gain on
investment transactions -- (0.044) -- -- -- (0.044) -- --
-------- -------- -------- ------- -------- -------- -------- -------
Total distributions $ (0.467) $ (0.522) $ (0.605) $(0.475) $ (0.481) $ (0.534) $ (0.592) $(0.465)
-------- -------- -------- ------- -------- -------- -------- -------
NET ASSET VALUE, end of year $ 9.790 $ 9.800 $ 10.750 $10.120 $ 9.990 $ 9.850 $ 10.780 $10.090
======== ======== ======== ======= ======== ======== ======== =======
TOTAL RETURN (3) 4.90% (4.08)% 12.60% 5.85% 6.61% (3.78)% 13.05% 5.45%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $120,143 $134,481 $120,043 $42,156 $143,106 $141,994 $120,093 $46,835
Ratio of net expenses to average
daily net assets (1) 1.49% 1.41%+ 1.52% 1.13%+ 1.52% 1.44%+ 1.50% 1.44%+
Ratio of net investment income to
average daily net assets 4.72% 4.39%+ 4.27% 4.72%+ 4.74% 4.39%+ 4.29% 4.56%+
PORTFOLIO TURNOVER (2) -- -- 20% 33% -- -- 21% 64%
</TABLE>
* For the period from the start of business, December 23, 1991, to September 30,
1992 (for Marathon Georgia Fund), and for the period from the start of
business, December 23, 1991, to September 30, 1992 (for Marathon Kentucky
Fund), the operating expenses of the Funds and the Portfolios may reflect a
reduction of the investment adviser fee, an allocation of expenses to the
Investment Adviser, or both. Had such actions not been taken, net investment
income per share and the ratios would have been as follows:
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME PER SHARE $0.341 $0.357
====== ======
RATIOS (As a percentage of average
daily net assets):
Expenses(1) 1.61%+ 1.52%+
Net investment income 4.24%+ 4.48%+
</TABLE>
** For the period from the start of business, December 23, 1991, to
September 30, 1992.
*** For the eleven months ended August 31, 1994 (Note 8).
+ Annualized.
++ The per share amount is not in accord with the net realized and
unrealized gain (loss) for the period because of the timing of sales of
Fund shares and the amount of the per share realized and unrealized gains
and losses at such time.
(1) Includes each Fund's share of its corresponding Portfolio's allocated
expenses.
(2) Portfolio Turnover represents the rate of portfolio activity for the
period while the Funds were making investments directly in securities.
The portfolio turnover rate for the period since the Funds transferred
substantially all of their investable assets to their respective
Portfolios is shown in the Portfolios' financial statements which are
included elsewhere in this report.
(3) Total investment 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.
See notes to financial statements
33
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON LOUISIANA FUND MARATHON MARYLAND FUND
------------------------------------ ---------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------ ---------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
-------------------- ------------- --------------------- -------------------
1995 1994*** 1993** 1995 1994*** 1993 1992++
------- ------- ------------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.010 $11.130 $10.000 $ 10.070 $ 11.070 $10.290 $10.000
------- ------- ------- -------- -------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.487 $ 0.447 $ 0.478 $ 0.476 $ 0.428 $ 0.466 $ 0.303
Net realized and unrealized
gain (loss) on investments (0.006)+++ (0.937) 1.234 0.169 (0.922) 0.890 0.375+++
------- ------- ------- -------- -------- ------- -------
Total income (loss) from
operations $ 0.481 $(0.490) $ 1.712 $ 0.645 $ (0.494) $ 1.356 $ 0.678
------- ------- ------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.487) $(0.447) $(0.478) $ (0.476) $ (0.428) $(0.466) $(0.303)
In excess of net investment income (0.024) (0.074) (0.104) (0.009) (0.070) (0.110) (0.085)
In excess of net realized gain on
investment transactions -- (0.109) -- -- (0.008) -- --
------- ------- ------- -------- -------- ------- -------
Total distributions $(0.511) $(0.630) $(0.582) $ (0.485) $ (0.506) $(0.576) $(0.388)
------- ------- ------- -------- -------- ------- -------
NET ASSET VALUE, end of year $ 9.980 $10.010 $11.130 $ 10.230 $ 10.070 $11.070 $10.290
======= ======= ======= ======== ======== ======= =======
TOTAL RETURN (3) 5.08% (4.56)% 17.26% 6.71% (4.56)% 13.61% 6.65%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) $31,836 $29,020 $17,935 $113,826 $116,721 $95,226 $29,180
Ratio of net expenses to average
daily net assets (1) 1.31% 1.08%+ 1.07%+ 1.50% 1.43%+ 1.43% 1.30%+
Ratio of net investment income to
average daily net assets 4.97% 4.62%+ 4.27%+ 4.82% 4.44%+ 4.28% 4.25%+
PORTFOLIO TURNOVER (2) -- 14% 86% -- -- 12% 3%
</TABLE>
* For the year ended August 31, 1995, the eleven months ended August 31, 1994
and for the period from the start of business, October 2, 1992 to September
30, 1993 (for Marathon Louisiana Fund), and for the year ended September 30,
1993 and for the period from the start of business, February 3, 1992 to
September 30, 1992 (for Marathon Maryland Fund), the operating expenses of the
Funds and the Portfolios may reflect a reduction of the investment adviser
fee, an allocation of expenses to the Investment Adviser, or both. Had such
actions not been taken, net investment income per share and the ratios would
have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $0.476 $0.412 $0.401 $0.461 $0.280
====== ====== ====== ====== ======
RATIOS (As a percentage of average
daily net assets):
Expenses(1) 1.42% 1.44%+ 1.76%+ 1.48% 1.62%+
Net investment income 4.86% 4.26%+ 3.58%+ 4.23% 3.93%+
</TABLE>
** For the period from the start of business, October 2, 1992, to September
30, 1993.
*** For the eleven months ended August 31, 1994 (Note 8).
+ Annualized.
++ For the period from the start of business, February 3, 1992, to September
30, 1992.
+++ 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 suchtime.
(1) Includes each Fund's share of its corresponding Portfolio's allocated
expenses.
(2) Portfolio Turnover represents the rate of portfolio activity for the
period while the Funds were making investments directly in securities.
The portfolio turnover rate for the period since the Funds transferred
substantially all of their investable assets to their respective
Portfolios is shown in the Portfolios' financial statements which are
included elsewhere in this report.
(3) 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.
See notes to financial statements
34
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MISSOURI FUND MARATHON NORTH CAROLINA FUND
---------------------------------------- ---------------------------------------------
YEAR ENDED YEAR ENDED
---------------------------------------- ---------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
------------------ ------------------ ---------------------- -------------------
1995 1994*** 1993 1992** 1995 1994*** 1993 1992++
------- ------- ------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.240 $11.250 $10.400 $10.000 $ 9.970 $ 10.940 $ 10.300 $10.000
------- ------- ------- ------- -------- -------- -------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.477 $ 0.423 $ 0.470 $ 0.200 $ 0.466 $ 0.423 $ 0.468 $ 0.456
Net realized and unrealized
gain (loss) on investments 0.289 (0.904) 1.005 0.455 0.011+++ (0.895) 0.794 0.423+++
------- ------- ------- ------- -------- -------- -------- -------
Total income (loss) from
operations $ 0.766 $(0.481) $ 1.475 $ 0.655 $ 0.477 $ (0.472) $ 1.262 $ 0.879
------- ------- ------- ------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.477) $(0.423) $(0.470) $(0.200) $ (0.466) $ (0.423) $ (0.468) $(0.456)
In excess of net investment income (0.019) (0.084) (0.128) (0.055) (0.021) (0.075) (0.120) (0.123)
In excess of net realized gain on
investment transactions -- (0.022) (0.027) -- -- -- (0.034) --
------- ------- ------- ------- -------- -------- -------- -------
Total distributions $(0.496) $(0.529) $(0.625) $(0.255) $ (0.487) $ (0.498) $ (0.622) $(0.579)
------- ------- ------- ------- -------- -------- -------- -------
NET ASSET VALUE, end of year $10.510 $10.240 $11.250 $10.400 $ 9.960 $ 9.970 $ 10.940 $10.300
======= ======= ======= ======= ======== ======== ======== =======
TOTAL RETURN (3) 7.82% (4.33)% 14.66% 6.33% 5.03% (4.40)% 12.69% 8.75%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000
omitted) $89,811 $91,227 $76,653 $25,225 $188,450 $192,667 $173,828 $71,733
Ratio of net expenses to average
daily net assets (1) 1.53% 1.49%+ 1.52% 1.32%+ 1.51% 1.42%+ 1.52% 1.35%+
Ratio of net investment income to
average daily net assets 4.72% 4.30%+ 4.23% 4.31%+ 4.78% 4.43%+ 4.34% 4.54%+
PORTFOLIO TURNOVER (2) -- -- 14% 21% -- -- 16% 52%
</TABLE>
* For the year ended September 30, 1993 and for the period from the start of
business, May 1, 1992, to September 30, 1992 (for Marathon Missouri Fund), and
for the period from the start of business, October 23, 1991, to September 30,
1992 (for Marathon North Carolina Fund), the operating expenses of the Funds
and the Portfolios may reflect a reduction of the investment adviser fee, an
allocation of expenses to the Investment Adviser, or both. Had such actions
not been taken, net investment income per share and the ratios would have been
as follows:
<TABLE>
<S> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $0.467 $0.192 $0.434
====== ====== ======
RATIOS (As a percentage of average
daily net assets):
Expenses(1) 1.55% 1.49%+ 1.57%+
Net investment income 4.20% 4.14%+ 4.32%+
</TABLE>
** For the period from the start of business, May 1, 1992, to September 30,
1992.
*** For the eleven months ended August 31, 1994 (Note 8).
+ Annualized.
++ For the period from the start of business, October 23, 1991, to September
30, 1992.
+++ The per share amount is not in accord with the net realized and
unrealized gain (loss) for the period because of the timing of sales of
Fund shares and the amount of the per share realized and unrealized gains
and losses at such time.
(1) Includes each Fund's share of its corresponding Portfolio's allocated
expenses.
(2) Portfolio Turnover represents the rate of portfolio activity for the
period while the Funds were making investments directly in securities.
The portfolio turnover rate for the period since the Funds transferred
substantially all of their investable assets to their respective
Portfolios is shown in the Portfolios' financial statements which are
included elsewhere in this report.
(3) 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.
See notes to financial statements
35
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON OREGON FUND MARATHON SOUTH CAROLINA FUND
------------------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------- -----------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
-------------------- ------------------- ------------------ -------------
1995 1994*** 1993 1992** 1995 1994*** 1993++
-------- -------- -------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 10.090 $ 11.130 $ 10.270 $10.000 $ 9.940 $10.890 $10.000
-------- -------- -------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.455 $ 0.415 $ 0.459 $ 0.351 $ 0.460 $ 0.408 $ 0.461
Net realized and unrealized
gain (loss) on investments 0.241 (0.869) 0.983 0.368 0.071 (0.870) 0.986
-------- -------- -------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.696 $ (0.454) $ 1.442 $ 0.719 $ 0.531 $(0.462) $ 1.447
-------- -------- -------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $ (0.455) $ (0.415) $ (0.459) $(0.351) $(0.460) $(0.408) $(0.461)
In excess of net investment income (0.021) (0.078) (0.117) (0.098) (0.011) (0.080) (0.096)
From net realized gain on
investment transactions -- (0.093) (0.006) -- -- -- --
-------- -------- -------- ------- ------- ------- -------
Total distributions $ (0.476) $ (0.586) $ (0.582) $(0.449) $(0.471) $(0.488) $(0.557)
-------- -------- -------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 10.310 $ 10.090 $ 11.130 $10.270 $10.000 $ 9.940 $10.890
======== ======== ======== ======= ======= ======= =======
TOTAL RETURN (3) 7.22% (4.21)% 14.47% 7.10% 5.64% (4.33)% 14.50%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) $145,056 $151,127 $128,229 $41,703 $59,955 $59,878 $43,169
Ratio of net expenses to average
daily net assets (1) 1.53% 1.43%+ 1.55% 1.47%+ 1.49% 1.36%+ 1.07%+
Ratio of net investment income to
average daily net assets 4.59% 4.28%+ 4.22% 4.27%+ 4.77% 4.27%+ 4.22%+
PORTFOLIO TURNOVER (2) -- -- 23% 44% -- 3% 13%
</TABLE>
* For the period from the start of business, December 24, 1991, to September 30,
1992 (for Marathon Oregon Fund), and for the period from the start of
business, October 2, 1992, to September 30, 1993 (for Marathon South Carolina
Fund), the operating expenses of the Funds and the Portfolios may reflect a
reduction of the investment adviser fee, an allocation of expenses to the
Investment Adviser, or both. Had such actions not been taken, net investment
income per share and the ratios would have been as follows:
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME PER SHARE $0.338 $0.421
====== ======
RATIOS (As a percentage of average
daily net assets):
Expenses(1) 1.63%+ 1.44%+
Net investment income 4.11%+ 3.85%+
</TABLE>
** For the period from the start of business, December 24, 1991, to
September 30, 1992.
*** For the eleven months ended August 31, 1994 (Note 8).
+ Annualized.
++ For the period from the start of business, October 2, 1992, to September
30, 1993.
(1) Includes each Fund's share of its corresponding Portfolio's allocated
expenses.
(2) Portfolio Turnover represents the rate of portfolio activity for the
period while the Funds were making investments directly in securities.
The portfolio turnover rate for the period since the Funds transferred
substantially all of their investable assets to their respective
Portfolios is shown in the Portfolios' financial statements which are
included elsewhere in this report.
(3) 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.
See notes to financial statements
36
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON TENNESSEE FUND MARATHON VIRGINIA FUND
------------------------------------- --------------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------- --------------------------------------------------
AUGUST 31, SEPTEMBER 30, AUGUST 31, SEPTEMBER 30,
----------------- ----------------- ------------------- ----------------------------
1995 1994*** 1993 1992** 1995 1994*** 1993 1992 1991++
------- ------- ------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.020 $11.070 $10.010 $10.000 $ 10.120 $ 11.060 $ 10.460 $10.200 $10.000
------- ------- ------- ------- ------- -------- -------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.468 $ 0.426 $ 0.466 $ 0.040 $ 0.479 $ 0.438 $ 0.483 $ 0.526 $ 0.087
Net realized and unrealized
gain (loss) on investments 0.115 (0.848) 1.158 0.027+++ 0.161 (0.864) 0.762 0.385 0.220+++
------- ------- ------- ------- ------- -------- -------- ------- -------
Total income (loss) from
operations $ 0.583 $(0.422) $ 1.624 $ 0.067 $ 0.640 $ (0.426) $ 1.245 $ 0.911 $ 0.307
------- ------- ------- ------- ------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.468) $(0.426) $(0.466) $(0.040) $ (0.479) $ (0.438) $ (0.483) $(0.526) $(0.087)
In excess of net investment
income (0.025) (0.071) (0.098) (0.017) (0.021) (0.076) (0.130) (0.120) (0.020)
From net realized gain on
investment transactions -- (0.094) -- -- -- -- (0.022) (0.005) --
In excess of net realized gain on
investment transactions -- (0.037) -- -- -- -- (0.010) -- --
------- ------- ------- ------- ------- -------- -------- ------- -------
Total distributions $(0.493) $(0.628) $(0.564) $(0.057) $ (0.500) $ (0.514) $ (0.645) $(0.651) $(0.107)
------- ------- ------- ------- ------- -------- -------- ------- -------
NET ASSET VALUE, end of year $10.110 $10.020 $11.070 $10.010 $ 10.260 $ 10.120 $ 11.060 $10.460 $10.200
======= ======= ======= ======= ======= ======== ======== ======= =======
TOTAL RETURN (3) 6.12% (3.93)% 16.97% 0.01% 6.62% (3.95)% 12.33% 9.16% 2.82%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000
omitted) $57,484 $55,379 $39,648 $ 3,475 $189,535 $193,420 $175,426 $72,629 $11,081
Ratio of net expenses to average
daily net assets (1) 1.47% 1.37%+ 1.30% 1.00%+ 1.50% 1.44%+ 1.52% 1.36% 1.27%+
Ratio of net investment income to
average daily net assets 4.77% 4.44%+ 4.24% 2.91%+ 4.81% 4.51%+ 4.42% 4.86% 4.47%+
PORTFOLIO TURNOVER (2) -- -- 28% 0% -- -- 27% 85% 10%
</TABLE>
* For the year ended September 30, 1993 and for the period from the start of
business, August 25, 1992, to September 30, 1992 (for Marathon Tennessee
Fund), and for the year ended September 30, 1992 and for the period from the
start of business, July 26, 1991, to September 30, 1991 (for Marathon Virginia
Fund), the operating expenses of the Funds and the Portfolios may reflect a
reduction of the investment adviser fee, an allocation of expenses to the
Investment Adviser, or both. Had such actions not been taken, net investment
income per share and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $0.432 $0.025 $0.501 $0.079
====== ====== ====== ======
RATIOS (As a percentage of average
daily net assets):
Expenses(1) 1.61% 2.10%+ 1.59% 1.68%+
Net investment income 3.93% 1.81%+ 4.63% 4.06%+
</TABLE>
** For the period from the start of business, August 25, 1992, to
September 30, 1992.
*** For the eleven months ended August 31, 1994 (Note 8).
+ Annualized.
++ For the period from the start of business, July 26, 1991, to September 30,
1991.
+++ 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 the per share realized and unrealized gains and losses at such
time.
(1) Includes each Fund's share of its corresponding Portfolio's allocated
expenses.
(2) Portfolio Turnover represents the rate of portfolio activity for the
period while the Funds were making investments directly in securities.
The portfolio turnover rate for the period since the Funds transferred
substantially all of their investable assets to their respective
Portfolios is shown in the Portfolios' financial statements which are
included elsewhere in this report.
(3) 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.
See notes to financial statements
37
<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, twelve of the non-diversified funds are
included in these financial statements. They include EV Marathon Alabama Tax
Free Fund ("Marathon Alabama Fund"), EV Marathon Arkansas Tax Free Fund
("Marathon Arkansas Fund"), EV Marathon Georgia Tax Free Fund ("Marathon Georgia
Fund"), EV Marathon Kentucky Tax Free Fund ("Marathon Kentucky Fund"), EV
Marathon Louisiana Tax Free Fund ("Marathon Louisiana Fund"), EV Marathon
Maryland Tax Free Fund ("Marathon Maryland Fund"), EV Marathon Missouri Tax Free
Fund ("Marathon Missouri Fund"), EV Marathon North Carolina Tax Free Fund
("Marathon North Carolina Fund"), EV Marathon Oregon Tax Free Fund ("Marathon
Oregon Fund"), EV Marathon South Carolina Tax Free Fund ("Marathon South
Carolina Fund"), EV Marathon Tennessee Tax Free Fund ("Marathon Tennessee
Fund"), and EV Marathon Virginia Tax Free Fund ("Marathon Virginia 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
Marathon Alabama Fund invests its assets in the Alabama Tax Free Portfolio, the
Marathon Arkansas Fund invests its assets in the Arkansas Tax Free Portfolio,
the Marathon Georgia Fund invests its assets in the Georgia Tax Free Portfolio,
the Marathon Kentucky Fund invests its assets in the Kentucky Tax Free
Portfolio, the Marathon Louisiana Fund invests its assets in the Louisiana Tax
Free Portfolio, the Marathon Maryland Fund invests its assets in the Maryland
Tax Free Portfolio, the Marathon Missouri Fund invests its assets in the
Missouri Tax Free Portfolio, the Marathon North Carolina Fund invests its assets
in the North Carolina Portfolio, the Marathon Oregon Fund invests its assets in
the Oregon Tax Free Portfolio, the Marathon South Carolina Fund invests its
assets in the South Carolina Tax Free Portfolio, the Marathon Tennessee Fund
invests its assets in the Tennessee Tax Free Portfolio, and the Marathon
Virginia Fund invests its assets in the Virginia 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 (92.0%, 99.4%, 98.0%,
98.8%, 92.9%, 99.2%, 96.6%, 96.9%, 99.3%, 98.0%, 98.2%, and 99.2%, at August 31,
1995 for the Marathon Alabama Fund, Marathon Arkansas Fund, Marathon Georgia
Fund, Marathon Kentucky Fund, Marathon Louisiana Fund, Marathon Maryland Fund,
Marathon Missouri Fund, Marathon North Carolina Fund, Marathon Oregon Fund,
Marathon South Carolina Fund, Marathon Tennessee Fund, and Marathon Virginia
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 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 August 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.
38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The amounts and expiration dates of the capital loss carryovers are as follows:
<TABLE>
<CAPTION>
FUND AMOUNT EXPIRES
- ----------------------------- ---------- ------------------
<S> <C> <C>
Marathon Alabama Fund $1,877,237 August 31, 2003
362,951 August 31, 2002
1,050 September 30, 2000
Marathon Arkansas Fund 561,676 August 31, 2003
241,061 August 31, 2002
Marathon Georgia Fund 1,196,186 August 31, 2003
151,432 August 31, 2002
Marathon Kentucky Fund 1,058,247 August 31, 2003
Marathon Louisiana Fund 278,670 August 31, 2003
Marathon Maryland Fund 1,208,914 August 31, 2003
Marathon Missouri Fund 435,519 August 31, 2003
Marathon North Carolina Fund 4,995,953 August 31, 2003
451,305 August 31, 2002
63,556 September 30, 2001
Marathon Oregon Fund 4,339,899 August 31, 2003
Marathon South Carolina Fund 1,317,687 August 31, 2003
74,010 August 31, 2002
Marathon Tennessee Fund 195,240 August 31, 2003
Marathon Virginia Fund 2,423,779 August 31, 2003
</TABLE>
Additionally, at August 31, 1995, net capital losses of $2,346,219, $2,200,443,
$7,532,174, $2,762,731, $1,537,797, $2,993,588, $2,917,460, $7,411,597,
$3,871,018, $3,414,356, $1,850,895 and $7,632,832, for the Marathon Alabama
Fund, Marathon Arkansas Fund, Marathon Georgia Fund, Marathon Kentucky Fund,
Marathon Louisiana Fund, Marathon Maryland Fund, Marathon Missouri Fund,
Marathon North Carolina Fund, Marathon Oregon Fund, Marathon South Carolina
Fund, Marathon Tennessee Fund, and Marathon Virginia Fund, respectively,
attributable to security transactions incurred after October 31, 1994, are
treated as arising on the first day of the Funds' 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 each 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. 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 expense to paid-in capital to charging
the expense to operations. The change had no effect on either the Fund's current
yield or total return (Notes 2 and 5).
F. RECLASSIFICATION--Certain prior year amounts have been reclassified to
conform to the current year presentation.
G. OTHER--Investment transactions are accounted for on a trade date basis.
- --------------------------------------------------------------------------------
(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 shareholders, 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
39
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 August 31, 1995, the following reclassifications were made
due to permanent differences between book and tax accounting for distribution
costs and certain distributions related to capital gains:
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
ALABAMA ARKANSAS GEORGIA KENTUCKY
INCREASE/(DECREASE) FUND FUND FUND FUND
- -------------------------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Accumulated net realized loss on
investment and financial
futures transactions $ -- $ -- $ (5,548) $ --
Accumulated undistributed net
investment income 447,777 346,813 546,942 601,569
Paid-in capital (447,777) (346,813) (552,490) (601,569)
</TABLE>
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
INCREASE/(DECREASE) FUND FUND FUND FUND
- -------------------------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Accumulated net realized loss on
investment and financial
futures transactions $ (2,647) $ (4,301) $ (1,303) $ --
Accumulated undistributed net
investment income 123,165 480,806 379,289 806,275
Paid-in capital (125,812) (485,107) (380,592) (806,275)
</TABLE>
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
INCREASE/(DECREASE) FUND FUND FUND FUND
- -------------------------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Accumulated net realized loss on
investment and financial
futures transactions $(10,570) $ -- $ (3,824) $ --
Accumulated undistributed net
investment income 619,412 255,420 230,845 807,989
Paid-in capital (629,982) (255,420) (234,669) (807,989)
</TABLE>
Net investment income, net realized gains and net assets were not affected by
these reclassifications.
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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>
MARATHON ALABAMA MARATHON ARKANSAS
FUND FUND
------------------------------------------ ------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------ ------------------------------------------
AUGUST 31, AUGUST 31, SEPTEMBER 30, AUGUST 31, AUGUST 31, SEPTEMBER 30,
1995 1994* 1993 1995 1994* 1993**
----------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sales 1,241,529 3,167,514 5,603,885 685,186 2,786,569 5,450,147
Issued to shareholders electing
to
receive payments of
distributions in
Fund shares 262,695 233,307 132,023 189,639 161,980 60,441
Redemptions (1,432,449) (711,097) (128,454) (1,116,643) (245,910) (85,683)
---------- --------- --------- ---------- --------- ----------
Net increase (decrease) 71,775 2,689,724 5,607,454 (241,818) 2,702,639 5,424,905
========== ========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
MARATHON GEORGIA MARATHON KENTUCKY
FUND FUND
------------------------------------------ ------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------ ------------------------------------------
AUGUST 31, AUGUST 31, SEPTEMBER 30, AUGUST 31, AUGUST 31, SEPTEMBER 30,
1995 1994* 1993 1995 1994* 1993
----------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sales 1,118,366 3,355,248 7,259,216 1,296,010 3,625,642 6,698,642
Issued to shareholders electing
to
receive payments of
distributions in
Fund shares 319,177 340,835 226,214 383,359 369,461 217,995
Redemptions (2,878,588) (1,145,361) (484,606) (1,763,810) (719,208) (418,949)
---------- ---------- --------- ---------- --------- ---------
Net increase (decrease) (1,441,045) 2,550,722 7,000,824 (84,441) 3,275,895 6,497,688
========== ========= ========= ========== ========= =========
</TABLE>
* For the eleven months ended August 31, 1994 (Note 8).
** For the period from the start of business, October 2, 1992, to September 30,
1993.
41
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON LOUISIANA MARATHON MARYLAND
FUND FUND
------------------------------------------ ------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------ ------------------------------------------
AUGUST 31, AUGUST 31, SEPTEMBER 30, AUGUST 31, AUGUST 31, SEPTEMBER 30,
1995 1994* 1993** 1995 1994* 1993
----------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sales 537,770 1,324,035 1,618,021 1,391,822 3,395,967 5,828,592
Issued to shareholders electing
to receive payments of
distributions in Fund shares 80,245 75,761 17,753 298,558 276,002 159,603
Redemptions (327,579) (112,890) (24,424) (2,153,497) (681,305) (224,314)
-------- --------- --------- ---------- --------- ---------
Net increase (decrease) 290,436 1,286,906 1,611,350 (463,117) 2,990,664 5,763,881
======== ========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
MARATHON MISSOURI MARATHON NORTH CAROLINA
FUND FUND
------------------------------------------ ------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------ ------------------------------------------
AUGUST 31, AUGUST 31, SEPTEMBER 30, AUGUST 31, AUGUST 31, SEPTEMBER 30,
1995 1994* 1993 1995 1994* 1993
----------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sales 712,633 2,271,136 4,373,612 1,686,102 3,912,532 9,134,617
Issued to shareholders electing
to receive payments of
distributions in Fund shares 219,344 211,893 124,344 479,532 428,741 334,227
Redemptions (1,297,726) (391,617) (105,923) (2,567,819) (917,372) (540,210)
---------- --------- --------- ---------- --------- ---------
Net increase (decrease) (365,749) 2,091,412 4,392,033 (402,185) 3,423,901 8,928,634
========== ========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
MARATHON OREGON MARATHON SOUTH CAROLINA
FUND FUND
------------------------------------------ ------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------ ------------------------------------------
AUGUST 31, AUGUST 31, SEPTEMBER 30, AUGUST 31, AUGUST 31, SEPTEMBER 30,
1995 1994* 1993 1995 1994* 1993**
----------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sales 1,131,231 3,978,510 7,767,637 884,786 2,526,541 4,062,612
Issued to shareholders electing
to receive payments of
distributions in Fund shares 397,878 442,188 231,883 134,341 122,013 43,798
Redemptions (2,436,297) (963,856) (533,913) (1,047,426) (588,630) (141,783)
---------- --------- --------- ---------- --------- ---------
Net increase (decrease) (907,188) 3,456,842 7,465,607 (28,299) 2,059,924 3,964,627
========== ========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
MARATHON TENNESSEE MARATHON VIRGINIA
FUND FUND
------------------------------------------ ------------------------------------------
YEAR ENDED YEAR ENDED
------------------------------------------ ------------------------------------------
AUGUST 31, AUGUST 31, SEPTEMBER 30, AUGUST 31, AUGUST 31, SEPTEMBER 30,
1995 1994* 1993 1995 1994* 1993
----------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sales 754,435 1,947,543 3,237,571 2,254,165 4,034,241 9,185,856
Issued to shareholders electing
to receive payments of
distributions in Fund shares 144,886 149,324 48,577 501,177 461,655 352,806
Redemptions (743,561) (149,757) (50,969) (3,388,505) (1,253,270) (616,966)
-------- --------- --------- ---------- ---------- ---------
Net increase (decrease) 155,760 1,947,110 3,235,179 (633,163) 3,242,626 8,921,696
======== ========= ========= ========== ========= =========
</TABLE>
* For the eleven months ended August 31, 1994 (Note 8).
** For the period from the start of business, October 2, 1992, to September 30,
1993.
42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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. 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 Plans) pursuant to Rule 12b-1
under the Investment Company Act of 1940. 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 Fund's 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) 5% 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 (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 August 31, 1995, Marathon
Alabama Fund, Marathon Arkansas Fund, Marathon Georgia Fund, Marathon Kentucky
Fund, Marathon Louisiana Fund, Marathon Maryland Fund, Marathon Missouri Fund,
Marathon North Carolina Fund, Marathon Oregon Fund, Marathon South Carolina
Fund, Marathon Tennessee Fund, and Marathon Virginia Fund, paid or accrued
$788,932, $602,799, $931,910, $1,048,842, $224,688, $845,760, $667,042,
$1,405,043, $1,083,821, $442,983, $414,636 and $1,415,731, respectively, to or
payable to EVD, representing 0.75% (annualized) of average daily net assets. At
August 31, 1995, the amount of Uncovered Distribution Charges of EVD calculated
under the Plans for Marathon Alabama Fund, Marathon Arkansas Fund, Marathon
Georgia Fund, Marathon Kentucky Fund, Marathon Louisiana Fund, Marathon Maryland
Fund, Marathon Missouri Fund, Marathon North Carolina Fund, Marathon Oregon
Fund, Marathon South Carolina Fund, Marathon Tennessee Fund, and Marathon
Virginia Fund were approximately $4,287,000, $3,364,000, $4,634,000, $5,401,000,
$1,388,000, $4,520,000, $3,461,000, $7,188,000, $5,529,000, $2,527,000,
$2,357,000 and $7,026,000, respectively.
In addition, the Plans authorize the Funds to make payments of service fees to
the Principal Underwriter, Authorized Firms and 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 the Plans by authorizing the Funds to make
quarterly service fee payments to the Principal Underwriter and Authorized Firms
in amounts not expected to exceed 0.20% per annum of each Fund's average daily
net assets based on the value of Fund shares sold by such persons and remaining
outstanding for at least one year. For the year ended August 31, 1995, Marathon
Alabama Fund, Marathon Arkansas Fund, Marathon Georgia Fund, Marathon Kentucky
Fund, Marathon Louisiana Fund, Marathon Maryland Fund, Marathon Missouri Fund,
Marathon North Carolina Fund, Marathon Oregon Fund, Marathon South Carolina
Fund, Marathon Tennessee Fund and Marathon Virginia Fund paid or accrued service
fees to or payable to EVD in the amount of $147,549, $108,567, $178,805,
$201,042, $35,864, $153,640, $131,396, $285,584, $199,608, $78,666, $67,857 and
$271,986, respectively. 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 each Fund to EVD, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of EVD.
Certain officers and Trustees of the Fund are officers or directors of EVD.
43
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(6) CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge (CDSC) is imposed on any redemption of Fund
shares made within six years 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. The CDSC is imposed at declining rates that begin at 5% in
the case of redemptions in the first and second year after purchase declining
one percentage point each subsequent year. 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 Fund's Distribution Plan. CDSC charges
received when no Uncovered Distribution Charges exist will be credited to the
Fund. EVD received approximately $328,000, $312,000, $827,000, $466,000,
$78,000, $511,000, $279,000, $575,000, $666,000, $359,000, $235,000 and
$104,000, respectively, of CDSC paid by shareholders of Marathon Alabama Fund,
Marathon Arkansas Fund, Marathon Georgia Fund, Marathon Kentucky Fund, Marathon
Louisiana Fund, Marathon Maryland Fund, Marathon Missouri Fund, Marathon North
Carolina Fund, Marathon Oregon Fund, Marathon South Carolina Fund, Marathon
Tennessee Fund and Marathon Virginia Fund, respectively, for the year ended
August 31, 1995.
- --------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's investment in its corresponding Portfolio
for the year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Increases $13,574,937 $7,277,215 $11,478,624 $13,139,345
Decreases 18,599,105 14,087,076 32,307,290 22,151,078
</TABLE>
<TABLE>
<CAPTION>
MARATHON
MARATHON MARATHON MARATHON NORTH
LOUISIANA MARYLAND MISSOURI CAROLINA
FUND FUND FUND FUND
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Increases $ 5,691,144 $14,392,351 $ 7,450,617 $17,365,009
Decreases 4,488,942 25,216,950 16,264,082 31,826,299
</TABLE>
<TABLE>
<CAPTION>
MARATHON
MARATHON SOUTH MARATHON MARATHON
OREGON CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Increases $11,799,848 $8,880,034 $ 7,637,686 $23,694,620
Decreases 28,803,778 12,416,179 9,340,844 40,291,072
</TABLE>
- --------------------------------------------------------------------------------
(8) CHANGE IN FISCAL YEAR
The Funds changed their fiscal year end from September 30, to August 31,
effective August 31, 1994.
44
<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
Marathon Alabama Tax Free Fund, EV Marathon Arkansas Tax Free Fund, EV Marathon
Georgia Tax Free Fund, EV Marathon Kentucky Tax Free Fund, EV Marathon Louisiana
Tax Free Fund, EV Marathon Maryland Tax Free Fund, EV Marathon Missouri Tax Free
Fund, EV Marathon North Carolina Tax Free Fund, EV Marathon Oregon Tax Free
Fund, EV Marathon South Carolina Tax Free Fund, EV Marathon Tennessee Tax Free
Fund and EV Marathon Virginia Tax Free Fund (the Funds) (certain of the series
of Eaton Vance Municipals Trust) as of August 31, 1995, and the related
statements of operations for the year then ended, the statements of changes in
net assets for the years ended August 31, 1995 and 1994 and the year ended
September 30, 1993, and the financial highlights for each of the years in the
five-year period ended August 31, 1995. 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 each of the
aforementioned funds of Eaton Vance Municipals Trust at August 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
SEPTEMBER 29, 1995
45
<PAGE>
- --------------------------------------------------------------------------------
Alabama Tax Free Portfolio
Portfolio of Investments - August 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>
ELECTRIC UTILITIES - 3.0%
NR BBB $ 500 Guam Power Authority,
6.625%, 10/1/14 $ 511,180
Baa1 A- 500 Puerto Rico Electric Power
Authority, 7.00%, 7/1/07 537,105
Baa1 A- 500 Puerto Rico Electric Power
Authority, 6.375%, 7/1/24 508,735
Baa1 A- 935 Puerto Rico Electric Power
Authority, 6.00%, 7/1/16 929,409
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 6.00%, 7/1/10 1,008,360
------------
$ 3,494,789
------------
ESCROWED - 4.6%
NR AA $ 500 Birmingham City, Alabama
Improvement Warrants,
6.60%, 7/1/17 $ 560,295
NR BBB 2,000 Gadsden City, Alabama
Medical Clinic Board
(Baptist Hospital), 7.80%,
11/1/21 2,375,560
NR BBB 350 Gadsden City, Alabama
Medical Clinic Board
(Baptist Hospital), 7.60%,
11/1/08 412,006
Aaa AAA 250 Tuscaloosa County, Alabama
Limited Obligation-Capital
Outlay Warrants (AMBAC),
6.50%, 2/1/15 270,793
Aa NR 1,600 University of Alabama-
Birmingham Medical &
Educational Foundation
Housing, 7.00%, 12/1/19 1,788,944
------------
$ 5,407,598
------------
GENERAL OBLIGATIONS - 6.5%
A1 AA $1,500 Birmingham, Alabama
U.T.G.O., 5.75%, 4/1/19 $ 1,452,930
A1 AA 1,000 Birmingham, Alabama
U.T.G.O., 5.75%, 6/1/16 982,080
Baa1 A 2,000 Puerto Rico U.T.G.O.,
6.50%, 7/1/23 2,059,260
Baa1 A 1,980 Puerto Rico Public
Buildings Authority,
5.75%, 7/1/15 1,907,314
Baa1 A 1,000 Puerto Rico Public
Buildings Authority,
5.50%, 7/1/21 919,960
NR NR 250 Virgin Islands, Public
Finance Authority, 7.25%,
10/1/18 262,505
------------
$ 7,584,049
------------
HEALTH CARE - 4.2%
A1 A+ $2,000 DCH Healthcare, Alabama
5.75%, 6/1/23 $ 1,888,860
NR NR 325 Fairhope City, Alabama
Midtown Medical Clinic
Board (Beverly
Enterprises), 6.375%,
6/1/09 301,542
Baa BBB 2,000 Marshall County, Alabama
Health Care, 7.00%, 1/1/20 1,997,400
<CAPTION>
RATINGS
(UNAUDITED)
- ----------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 670 Mobile City, Alabama
Second Medical Clinic
Board (Beverly
Enterprises), 7.00%,
4/1/07 651,883
------------
$ 4,839,685
------------
HOSPITALS - 5.1%
Baa NR $1,000 Cullman, Alabama Medical
Clinic Board (Cullman
Regional Medical Center),
6.50%, 2/15/23 $ 947,460
Baa1 NR 3,550 Jasper City, Alabama
Medical Clinic Board
(Walker Regional Medical
Center), 6.375%, 7/1/18
(2) 3,530,582
A A 1,000 Montgomery City, Alabama
Medical Clinic Board
(Jackson Hospital), 7.00%,
3/1/15 1,044,270
Baa BBB 430 Troy City, Alabama
Hospital Building
Authority, 7.375%, 5/1/12 450,192
------------
$ 5,972,504
------------
HOUSING - 2.6%
Aaa NR $3,000 Alabama HFA Single Family
Mortgage (GNMA/FNMA),
6.60%, 4/1/19 $ 3,036,180
------------
INDUSTRIAL DEVELOPMENT
REVENUE/POLLUTION CONTROL
REVENUE - 12.7%
Baa1 BBB $1,200 Courtland, Alabama
(Champion International
Corporation), 7.20%,
12/1/13 $ 1,298,760
Baa1 BBB 5,500 Courtland, Alabama
(Champion International
Corporation), 5.90%,
2/1/17 5,311,790
Baa3 NR 1,000 Jackson, Alabama (Boise
Cascade), 7.875%, 8/1/00 1,037,310
Baa3 BBB- 2,000 Mobile, Alabama Industrial
Development Board (Solid
Waste), 6.95%, 1/1/20 2,045,340
Aa2 AA 3,000 Mobile County, Alabama
Pollution Control, 6.00%,
12/1/14 3,048,690
Baa3 BB+ 1,000 Puerto Rico Port Authority
(American Airlines),
(AMT), 6.30%, 6/1/23 992,100
A3 A- 1,000 Selma, Alabama, Industrial
Development Board (Solid
Waste), International
Paper Co., 6.00%, 12/1/17 997,450
------------
$ 14,731,440
------------
INSURED EDUCATION - 8.5%
Aaa AAA $1,000 Alabama A&M University
(MBIA), 6.375%, 11/1/09 $ 1,059,150
Aaa AAA 1,770 Alabama A&M University
(MBIA), 5.75%, 11/1/14 1,755,645
</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>
INSURED EDUCATION - (CONTINUED)
Aaa AAA 3,750 Alabama A&M University
(MBIA), 5.50%, 11/1/20 3,559,013
Aaa AAA 4,000 University of Alabama
(MBIA), 5.00%, 6/1/16 3,554,680
------------
$ 9,928,488
------------
INSURED ELECTRIC UTILITIES - 2.1%
Aaa AAA $ 250 Puerto Rico Electric Power
Authority (STRIPES) (FSA),
Variable, 7/1/03 (1) $ 279,153
Aaa AAA 2,000 Wilsonville, Alabama
Industrial Development
Board (MBIA), 6.75%,
2/1/15 2,122,760
------------
$ 2,401,913
------------
INSURED GENERAL OBLIGATION - 3.7%
Aaa AAA $ 500 Fairfield City, Alabama
U.T.G.O. (AMBAC), 6.30%,
6/1/22 $ 518,975
Aaa AAA 3,250 Madison City, Alabama
(MBIA), 6.00%, 2/1/24 3,269,760
Aaa AAA 500 Troy City, Alabama (CAPG),
6.60%, 6/1/12 526,725
------------
$ 4,315,460
------------
INSURED HEALTH CARE - 1.8%
Aaa AAA $2,000 Huntsville, Alabama Health
Care Facilities (MBIA),
6.50%, 6/1/13 $ 2,097,440
------------
INSURED HOSPITAL - 6.4%
Aaa AAA $2,500 Birmingham, Alabama
Baptist Medical Center
(MBIA), 5.875%, 11/15/20 $ 2,459,400
Aaa AAA 2,500 Birmingham, Alabama
Baptist Medical Center
(MBIA), 6.00%, 11/15/24 2,482,700
Aaa AAA 1,000 East Alabama Health Care
Facilities (MBIA), 5.25%,
9/1/23 906,400
Aaa AAA 1,000 Houston County, Southeast
Alabama Medical Center
(MBIA), 5.75%, 10/1/22 974,520
Aaa AAA 750 University of Alabama
Revenue (MBIA), 5.00%,
10/1/14 674,100
------------
$ 7,497,120
------------
INSURED INDUSTRIAL
DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - 4.4%
Aaa AAA $3,000 Columbia, Alabama (AL
Power Company) (AMBAC),
6.50%, 9/1/23 $ 3,107,940
Aaa AAA 2,000 West Jefferson, Alabama
Industrial Development
(MBIA), 6.05%, 5/1/23 2,004,620
------------
$ 5,112,560
------------
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 3.9%
Aaa AAA $4,700 Montgomery, Alabama
Downtown Redevelopment
Authority Mortgage (MBIA),
5.50%, 10/1/13 $ 4,497,571
------------
INSURED
MISCELLANEOUS - 0.4%
Aaa AAA $1,950 Jefferson County, Alabama
Birmingham-Jefferson Civic
Center (MBIA), 0%, 9/1/18 $ 492,180
------------
INSURED SOLID WASTE - 4.0%
Aaa AAA $4,000 Huntsville, Alabama Solid
Waste Disposal (FGIC)
(AMT), 7.00%, 10/1/14 $ 4,271,480
Aaa AAA 350 Huntsville, Alabama Solid
Waste Disposal (FGIC)
(AMT), 7.00%, 10/1/08 382,316
------------
$ 4,653,796
------------
INSURED TRANSPORTATION - 4.3%
Aaa AAA $3,475 Birmingham, Alabama
Airport Authority (AMBAC),
5.25%, 7/1/20 $ 3,186,471
Aaa AAA 2,000 Birmingham, Alabama
Airport Authority (AMBAC)
(AMT), 5.375%, 7/1/23 1,821,660
------------
$ 5,008,131
------------
INSURED WATER & SEWER - 17.2%
Aaa AAA $2,750 Alabama Water Pollution
Control Authority
(Jefferson County)
(AMBAC), 5.50%, 2/15/16 $ 2,623,363
Aaa AAA 2,500 Alabama Water Pollution
Control Authority (AMBAC),
5.00%, 8/15/15 2,254,400
Aaa AAA 1,100 Gulf Shores, Alabama Water
and Sewer (AMBAC), 6.50%,
2/1/15 1,156,001
Aaa AAA 2,360 Limestone County, Alabama
Water Authority (FGIC),
5.25%, 12/1/20 2,159,707
Aaa AAA 500 Northeast, Alabama Water,
Sewer and Fire Protection
(AMBAC), 5.70%, 5/1/23 487,065
Aaa AAA 3,075 Prichard City, Alabama
Water and Sewer (AMBAC),
6.125%, 11/15/14 3,148,460
Aaa AAA 6,000 Scottsboro, Alabama Water,
Sewer and Gas (AMBAC),
6.50%, 12/1/14 6,361,020
</TABLE>
47
<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 WATER & SEWER - (CONTINUED)
Aaa AAA 750 West Morgan-East Lawrence,
Alabama Water Authority
(FGIC), 6.00%, 5/1/22 754,200
Aaa AAA 1,000 West Morgan-East Lawrence,
Alabama Water Authority
(FSA), 6.85%, 8/15/25 1,077,410
------------
$ 20,021,626
------------
MISCELLANEOUS - 0.1%
A A $ 100 Tennessee Valley, Alabama
Exhibit Commission, 6.70%,
6/1/10 $ 107,061
------------
SPECIAL TAX REVENUE - 2.4%
Baa1 A $1,000 Puerto Rico Highway and
Transportation, 5.50%,
7/1/15 $ 950,160
Baa1 A 1,800 Puerto Rico Highway and
Transportation, 6.625%,
7/1/18 1,878,480
------------
$ 2,828,640
------------
TRANSPORTATION - 0.9%
NR BBB $1,000 Guam Airport Authority,
6.70%, 10/1/23 $ 1,007,200
------------
WATER AND SEWER - 1.2%
NR NR $1,500 Moulton City, Alabama
Water, 6.30%, 1/1/18 $ 1,444,425
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$112,610,415) $116,479,856
============
</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 Alabama
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 August 31, 1995, 56.7% 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 0.5% to 27.3% of total investments.
See notes to financial statements
48
<PAGE>
- --------------------------------------------------------------------------------
Arkansas Tax Free Portfolio
Portfolio of Investments - August 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%
A1 NR $1,750 University of Arkansas
Board of Trustees, 7.20%,
12/1/10 (2) $ 1,923,338
A NR 610 Arkansas State Student Loan
Authority, 7.25%, 6/1/09 666,193
-----------
$ 2,589,531
-----------
ELECTRIC UTILITIES - 9.2%
A NR $1,750 Conway, Arkansas Electric,
5.70%, 8/1/09 $ 1,764,368
NR BBB 1,250 Guam Power Authority,
5.25%, 10/1/13 1,123,200
NR BBB 1,250 Guam Power Authority,
5.25%, 10/1/23 1,072,300
Baa2 BBB 1,500 Independence, Arkansas PCR
(AR Power & Light), 6.25%,
1/1/21 1,507,470
Baa2 BBB- 750 Jefferson, Arkansas PCR (AR
Power & Light), 6.125%,
10/1/07 750,225
Baa2 BBB 550 Jefferson, Arkansas PCR (AR
Power & Light), 6.30%,
6/1/18 564,174
Baa2 BBB 500 Pope, Arkansas PCR (AR
Power & Light), 6.30%,
12/1/16 510,100
Baa1 A- 500 Puerto Rico Electric Power
Authority, 0%, 7/1/17 132,214
-----------
$ 7,424,051
-----------
ESCROWED - 3.4%
Aaa AAA $ 500 Arkansas DFA Wastewater
System (MBIA), 7.00%,
6/1/14 $ 567,760
Aaa NR 650 Arkansas State Waste
Disposal and Pollution
Abatement U.T.G.O., 6.25%,
7/1/22 714,110
Aaa AAA 500 Harrison, Arkansas Single
Family Mortgage (FGIC),
7.40%, 9/1/11 574,114
Aaa AAA 750 Puerto Rico Public
Buildings Authority 6.875%,
7/1/21 861,848
-----------
$ 2,717,832
-----------
GENERAL OBLIGATIONS - 8.2%
Aa AA $ 750 Arkansas State College
Savings, 0%, 6/1/13 $ 273,465
Aa AA 2,750 Arkansas State College
Savings, 0%, 6/1/14 938,658
Baa1 A 1,000 Puerto Rico Public
Improvement, 5.25%, 7/1/18 901,610
Baa1 A 2,000 Puerto Rico Commonwealth
Unlimited Tax 5.50%, 7/1/13 1,901,760
Baa1 A 2,000 Puerto Rico Public
Buildings Authority, 5.50%,
7/1/21 1,839,920
NR NR 750 Virgin Island, Public
Finance Authority, 7.25%,
10/1/18 787,515
-----------
$ 6,642,928
-----------
HOSPITALS - 14.8%
Aa AA $3,000 Arkansas DFA (Sisters of
Mercy), 5.00%, 6/1/19 $ 2,664,180
Baa NR 700 Baxter, Arkansas Hospital
Improvement, 7.25%, 9/1/07 744,611
Baa NR 750 Baxter, Arkansas Hospital
Improvement, 7.50%, 9/1/21 800,970
NR A+ 1,125 Little Rock, Arkansas
(Baptist Medical Center),
6.80%, 11/1/05 1,256,108
NR A+ 2,250 Little Rock, Arkansas
(Baptist Medical Center),
5.50%, 9/1/15 2,137,545
NR A 1,000 Little Rock, Arkansas
(Baptist Medical
Center-Parkway Village),
7.00%, 10/1/17 1,064,340
NR A- 2,250 Pulaski, Arkansas
(Children's Hospital),
6.20%, 3/1/22 2,253,150
A1 AA 1,000 Sebastian, Arkansas (Sparks
Regional Medical Center),
5.60%, 4/1/06 1,026,020
-----------
$11,946,924
-----------
HOUSING - 11.7%
NR AAA $2,400 Arkansas DFA Single Family
Mortgage (GNMA, AMT),
5.80%, 6/1/25 $ 2,230,272
NR AAA 765 Arkansas DFA Single Family
Mortgage (GNMA, AMT),
7.85%, 12/1/21 809,592
NR AAA 1,000 Arkansas DFA Single Family
Mortgage (GNMA/FNMA, AMT),
6.35%, 7/1/22 999,880
NR AAA 1,000 Arkansas DFA Single Family
Mortgage (GNMA/FNMA),
6.60%, 7/1/17 1,032,200
NR AAA 1,500 Arkansas DFA Single Family
Mortgage (GNMA/FNMA, AMT),
6.80%, 1/1/22 1,547,790
NR AAA 740 Arkansas DFA Single Family
Mortgage (GNMA/FNMA),
6.70%, 7/1/27 746,519
NR AAA 1,000 Arkansas DFA Single Family
Mortgage (GNMA, AMT),
7.45%, 1/1/27 1,077,470
A NR 3,000 Arkansas DFA Compound
Accretion, 0%, 12/1/11 974,010
-----------
$ 9,417,733
-----------
INDUSTRIAL DEVELOPMENT
REVENUE/POLLUTION CONTROL
REVENUE - 13.2%
Baa2 BBB $2,350 Baxter, Arkansas (Aeroquip
Corporation), 5.80%,
10/1/13 $ 2,280,816
A1 AA- 2,500 Blythesville, Arkansas
(Nucor Corporation), (AMT),
6.90%, 12/1/21 2,653,825
A3 A- 755 Gurdon, Arkansas
(International Paper),
5.75%, 2/1/08 755,627
A1 AA- 1,000 Jonesboro, Arkansas
(Anheuser-Busch), 6.50%,
11/15/12 1,074,290
</TABLE>
49
<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>
INDUSTRIAL DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - (CONTINUED)
NR A- 550 Pine Bluff, Arkansas
(International Paper),
(AMT), 5.55%, 10/1/17 517,347
A2 NR 750 Puerto Rico IME (American
Home Products), 5.10%,
12/1/18 670,215
Baa3 BB+ 2,740 Puerto Rico Ports Authority
(American Airlines) (AMT),
6.30%, 6/1/23 2,718,353
-----------
$10,670,473
-----------
INSURED ELECTRIC UTILITIES - 7.5%
Aaa AAA $ 500 Independence, Arkansas PCR
(AR Power & Light) (FSA),
6.25%, 1/1/21 $ 519,265
Aaa AAA 250 North Little Rock, Arkansas
Electric System (MBIA),
6.50%, 7/1/10 271,900
Aaa AAA 3,390 North Little Rock, Arkansas
Electric System (MBIA),
6.50%, 7/1/15 3,722,016
Aaa AAA 450 Puerto Rico Electric Power
Authority (STRIPES) (FSA),
Variable, 7/1/03 (1) 502,475
Aaa AAA 1,000 West Memphis, Arkansas
Public Utilities (MBIA),
6.60%, 1/1/09 1,073,250
-----------
$ 6,088,906
-----------
INSURED GENERAL OBLIGATIONS - 7.0%
Aaa AAA $1,610 Jonesboro, Arkansas School
District (AMBAC), 6.125%,
2/1/15 $ 1,629,352
Aaa AAA 3,000 Springdale, Arkansas School
District (AMBAC), 5.125%,
6/1/16 2,760,630
Aaa AAA 680 White Hall, Arkansas School
District (AMBAC), 4.75%,
4/1/12 620,140
Aaa AAA 710 White Hall, Arkansas School
District (AMBAC), 4.75%,
4/1/13 645,248
-----------
$ 5,655,370
-----------
INSURED HEALTH CARE - 1.1%
Aaa AAA $ 400 Saline, Arkansas Healthcare
(Evan Lutheran Good
Samaritan) (AMBAC), 5.80%,
5/1/11 $ 394,280
Aaa AAA 500 Saline, Arkansas Healthcare
(Evan Lutheran Good
Samaritan) (AMBAC), 6.00%,
6/1/18 513,665
-----------
$ 907,945
-----------
INSURED TRANSPORTATION - 0.6%
Aaa AAA $ 500 Little Rock, Arkansas
Airport (MBIA), 6.00%,
11/1/14 $ 508,370
-----------
INSURED WATER & SEWER - 7.2%
Aaa AAA $1,670 Arkansas DFA Wastewater
System (MBIA), 5.40%,
12/1/15 $ 1,598,541
Aaa AAA 1,680 Arkansas DFA Wastewater
System (MBIA), 5.00%,
12/1/08 1,621,502
Aaa AAA 2,000 Arkansas DFA Wastewater
System (MBIA), 5.00%,
6/1/15 1,821,960
Aaa AAA 300 Beaver, Arkansas Water
District (MBIA), 5.85%,
11/15/08 312,741
Aaa AAA 500 Jonesboro, Arkansas Water
and Light (AMBAC), 5.25%,
12/1/13 477,915
-----------
$ 5,832,659
-----------
MISCELLANEOUS - 2.9%
A NR $2,000 Little Rock, Arkansas Hotel
and Restaurant Gross
Receipts Tax, 7.375%,
8/1/15 $ 2,329,700
-----------
SPECIAL TAX REVENUE - 3.2%
Baa1 A $3,000 Puerto Rico Highway and
Transportation, 5.00%,
7/1/22 $ 2,591,430
-----------
WATER & SEWER REVENUE - 6.8%
NR NR $ 800 Conway, Arkansas Water,
5.40%, 5/1/11 $ 772,880
NR NR 1,250 Cross, Arkansas Rural
Water, 5.75%, 4/1/18 1,254,574
A1 NR 2,000 Little Rock, Arkansas
Sewer, 5.50%, 8/1/14 1,933,740
NR NR 1,500 South Sebastian, Arkansas
Water, 6.15%, 6/1/23 1,534,815
-----------
$ 5,496,009
-----------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$79,275,204) $80,819,861
===========
</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 Arkansas
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 August 31, 1995, 23.4% 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 0.7% to 6.1% of total investments.
See notes to financial statements
50
<PAGE>
- --------------------------------------------------------------------------------
Georgia Tax Free Portfolio
Portfolio of Investments - August 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 - 5.6%
Aa1 AA- $3,000 Dekalb County Georgia,
Emory University, 6.00%,
10/1/14 $ 3,058,170
Aa AA- 3,425 Private Colleges and
Universities Authority,
Agnes Scott College,
5.625%, 6/1/23 3,324,100
Aa1 AA- 310 Private Colleges and
Universities Authority,
Emory University, 6.40%,
10/1/23 321,628
------------
$ 6,703,898
------------
ESCROWED - 0.2%
Aaa AAA $ 250 Cherokee County, Georgia,
Water and Sewer, (MBIA),
6.90%, 8/1/18 $ 279,650
------------
GENERAL
OBLIGATIONS - 15.0%
Aa AA- $ 300 Alpharetta, Georgia,
6.50%, 5/1/10 $ 331,482
Aa AA 3,350 Atlanta, Georgia, 6.10%,
12/1/19 3,398,575
Aa AA 2,000 Atlanta, Georgia, 6.125%,
12/1/23 2,024,880
Aa AA 3,000 Atlanta, 6.25%, 10/1/12 3,111,120
Aa AA 1,650 Atlanta, 6.25%, 10/1/16 1,699,351
A1 NR 150 Cherokee County School
District, 6.375%, 6/1/7 160,494
Aa AA 1,000 Downtown Savannah
Authority Georgia Revenue,
5.00%, 1/1/11 931,930
Aa AA- 250 Clayton County, Georgia,
Solid Waste, 6.50%, 2/1/12 264,043
Aa AA 1,000 Fulton County School
District, 5.60%, 1/1/13 983,590
Aaa AA+ 500 Georgia, 6.30%, 3/1/08 553,930
Aa1 AA+ 1,480 Gwinnett County, Georgia,
Water and Sewerage, 6.50%,
8/1/06 1,491,618
A A 450 Paulding County School
District, 6.625%, 2/1/08 495,477
Baa1 A 1,000 Puerto Rico, 5.75%, 7/1/15 963,290
NR NR 1,400 Virgin Island, 7.25%,
10/1/18 1,470,028
------------
$ 17,879,808
------------
HOSPITALS - 10.5%
Baa1 NR $4,250 Fulco Hospital, Georgia
Baptist, 6.375%, 9/1/22 $ 3,973,495
A NR 5,040 Savannah, Georgia, St.
Joseph's Hospital, 6.20%,
7/1/23 4,877,460
NR BBB 1,285 Toombs County, Dr. John M.
Meadows Memorial Hospital,
7.00%, 12/1/17 1,262,088
NR BBB+ 2,750 Tri City Hospital, 6.375%,
7/1/16 2,449,947
------------
$ 12,562,990
------------
HOUSING - 13.9%
NR AAA $4,000 Fulton County, HFA, (AMT),
6.64%, 3/1/28 $ 4,031,960
Aa NR 1,450 Georgia HFA, (AMT),
6.875%, 12/1/20 1,495,342
Aa AA+ 395 Georgia Resource
Authority, SFMR, (FHA),
7.50%, 6/1/17 419,569
Aa AA 2,500 Georgia HFA, (FHA Insured
or VA Guaranteed), (AMT),
6.70%, 12/1/25 2,558,500
Aa AA+ 1,500 Georgia HFA, (AMT), 7.05%,
12/1/20 1,567,290
Aa AA+ 2,380 Georgia HFA, (AMT),
7.125%, 12/1/26 2,491,169
Aa AA+ 4,000 Georgia HFA, (AMT), 6.55%,
12/1/27 4,006,320
------------
$ 16,570,150
------------
INDUSTRIAL DEVELOPMENT
AUTHORITY - 5.6%
A1 AA- $1,000 Cartersville, Georgia,
Anheuser-Busch, (AMT),
7.375%, 5/1/09 $ 1,157,340
A2 NR 1,000 Puerto Rico IME, American
Home, 5.10%, 12/1/18 893,620
A1 A- 750 Savannah Union Camp
Corporation, 6.80%, 2/1/12 806,258
NR NR 1,250 Savannah Economic
Development, (AMT), 9.00%,
1/1/15 1,332,375
NR AA- 500 Savannah, Hershey Foods,
6.60%, 6/1/12 532,700
NR AA- 2,000 Vienna, Cargill Project,
6.00%, 9/1/14 2,002,940
------------
$ 6,725,233
------------
INSURED GENERAL
OBLIGATIONS - 4.0%
Aaa AAA $2,990 Houston County School
District, (MBIA), 5.375%,
3/1/11 $ 2,858,291
Aaa AAA 1,350 Jackson County School
District, (MBIA), 6.00%,
7/1/14 1,369,170
Aaa AAA 500 Puerto Rico, Public
Improvement Bonds of 1992,
(AMBAC), Variable, 7/1/15
(1) 505,850
------------
$ 4,733,311
------------
INSURED HOSPITAL - 13.2%
Aaa AAA $ 675 Chatham County, Memorial
Medical Center, (MBIA),
7.00%, 1/1/21 $ 723,424
Aaa AAA 305 Chatham County, Memorial
Medical Center, (MBIA),
6.85%, 1/1/21 325,972
Aaa AAA 1,300 Cobb County, Kennestone
Hospital, (MBIA), 5.00%,
4/1/24 1,137,682
</TABLE>
51
<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 3,225 Gainsville and Hall
County, NE Healthcare,
(MBIA), 6.00%, 10/1/25 3,235,804
Aaa AAA 3,000 Gwinnett County, Gwinnett
Hospital, (AMBAC), 5.00%,
9/1/13 2,709,300
Aaa AAA 2,500 Macon-Bibb County Hospital
Authority, The Medical
Center of Central Georgia,
(FGIC), 5.00%, 8/1/14 2,269,375
Aaa AAA 2,000 Medical Center Hospital
Authority, Columbus
Regional Healthcare
System, (MBIA), 6.40%,
8/1/06 2,165,640
Aaa AAA 1,500 Medical Center Hospital
Authority, Columbus
Regional Healthcare
System, (MBIA), Variable,
8/1/10 (1) 1,664,775
Aaa AAA 1,375 Walker, Dade and Catoosa
Counties Hospital, (FGIC),
7.00%, 10/1/10 1,518,688
------------
$ 15,750,660
------------
INSURED HOUSING - 0.9%
Aaa AAA $1,000 East Point Building
Authority, (FGIC), 6.00%,
2/1/10 $ 1,024,810
------------
INSURED SPECIAL TAX - 1.8%
Aaa AAA $1,000 Metropolitan Atlanta Rapid
Transit Authority,
(AMBAC), 6.25%, 7/1/11 $ 1,062,100
Aaa AAA 1,000 Metropolitan Atlanta Rapid
Transit Authority,
(AMBAC), 6.25%, 7/1/20 1,065,560
------------
$ 2,127,660
------------
INSURED TRANSPORTATION - 0.8%
Aaa AAA $1,000 Atlanta Airport Facility
Revenue, (AMBAC), (AMT),
6.00%, 1/1/21 $ 994,740
------------
INSURED UTILITIES - 3.3%
Aaa AAA $1,480 Cordele Public Utility
Authority, (MBIA), 6.50%,
11/1/19 $ 1,554,133
Aaa AAA 750 Municipal Electric
Authority of Georgia,
(MBIA), 0%, 1/1/07 409,410
Aaa AAA 1,000 Municipal Electric
Authority of Georgia,
(FGIC), 5.50%, 1/1/12 973,670
Aaa AAA 900 Puerto Rico Electric Power
Authority, (FSA),
Variable, 7/1/03 (1) 1,004,949
------------
$ 3,942,162
------------
INSURED WATER & SEWER - 3.8%
Aaa AAA $2,700 Atlanta, Water and Sewer,
(FGIC), 5.00%, 1/1/15 $ 2,424,708
Aaa AAA 1,975 Cherokee County, Water and
Sewerage, (MBIA), 6.875%,
8/1/13 2,121,012
------------
$ 4,545,720
------------
LEASE/CERTIFICATES OF
PARTICIPATION - 1.0%
Aa AA $ 310 Fulton County, Lease
Revenue, 0%, 1/1/09 $ 146,828
Aa AA 2,300 Fulton County, Lease
Revenue, 0%, 1/1/10 1,022,787
------------
$ 1,169,615
------------
LIFE CARE - 1.2%
NR NR $1,500 Dekalb Private Hospital,
Assisted Living, Atlanta
Inc, 8.50%, 3/1/25 $ 1,463,625
------------
SOLID WASTE - 0.9%
A1 A+ $1,000 Savannah Energy Systems
Company Project, 6.30%,
12/1/06 $ 1,049,330
------------
SPECIAL TAX REVENUE - 0.4%
Baa1 A $ 500 Puerto Rico Commonwealth
Highway, 5.50%, 7/1/17 $ 468,025
------------
TRANSPORTATION - 1.3%
Ba3 BB $1,500 Atlanta Special Purpose
Facilities, Delta
Airlines, (AMT), 7.90%,
12/1/18 $ 1,592,475
------------
UTILITIES - 15.5%
A1 A $2,000 Burke County, PCR, Georgia
Power, 6.375%, 8/1/24 $ 2,023,820
A A 1,000 Georgia Muni Electric
Power Authority, 0%,
1/1/12 368,600
A A 3,000 Georgia Muni Electric
Power Authority, 5.50%,
1/1/20 2,744,730
A A 3,000 Georgia Muni Electric
Power Authority, 5.70%,
1/1/23 2,795,940
A A 2,000 Georgia Muni Electric
Power Authority, 8.25%,
1/1/11 2,455,640
A1 A+ 1,000 Monroe County, PCR, Gulf
Power, 6.30%, 9/1/24 1,013,890
A3 A+ 4,000 Monroe County, PCR,
Ogelthorpe Power, 6.55%,
1/1/06 4,383,200
A3 A+ 2,000 Monroe County, PCR,
Ogelthorpe Power, 6.70%,
1/1/09 2,198,480
Baa1 A- 665 Puerto Rico Electrical
Power Authority, 0%,
7/1/17 175,846
Baa1 A- 250 Puerto Rico Electrical
Power Authority, 7.00%,
7/1/07 268,552
------------
$ 18,428,698
------------
</TABLE>
52
<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>
WATER & SEWER REVENUE - 1.1%
A NR $ 150 Augusta, Water and Sewer
Authority, 6.50%, 5/1/11 $ 157,886
A A+ 1,000 Columbus, Water and Sewer
Authority, 5.70%, 5/1/20 965,280
A NR 200 Richmond County, Water and
Sewer Authority, 6.50%,
10/1/21 207,606
------------
$ 1,330,772
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$115,913,957) $119,343,332
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by Georgia
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 August 31, 1995, 27.8% 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 15.0% of total investments.
See notes to financial statements
53
<PAGE>
- --------------------------------------------------------------------------------
Kentucky Tax Free Portfolio
Portfolio of Investments - August 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 - 5.5%
Aa1 NR $2,460 Berea, Kentucky
Educational Development,
5.45%, 3/1/14 $ 2,363,101
A1 AA- 500 University of Kentucky
Consolidated Educational
Buildings, 6.40%, 5/1/09 528,865
A1 AA- 785 University of Kentucky
Consolidated Educational
Buildings, 6.40%, 5/1/11 825,059
A1 AA- 1,295 University of Louisville
Consolidated Educational
Buildings, 5.875%, 5/1/11 1,322,350
A1 AA- 1,000 University of Louisville
Consolidated Educational
Buildings, 5.40%, 5/1/08 999,920
A1 AA- 2,000 University of Louisville
Consolidated Educational
Buildings, 5.40%, 5/1/11 1,958,500
------------
$ 7,997,795
------------
ELECTRIC UTILITIES - 6.8%
Aa2 AA- $2,000 Carroll, Kentucky PCR (KY
Utilities Company), 6.25%,
2/1/18 $ 2,069,820
NR BBB 400 Guam Power Authority,
5.25%, 10/1/23 343,135
Aa2 AA 1,000 Jefferson, Kentucky PCR
(Louisville G&E Company),
5.625%, 8/15/19 967,410
Aa2 AA- 1,000 Muhlenburg, Kentucky PCR
(KY Utilities Company),
6.25%, 2/1/18 1,031,540
NR A 2,315 Nicholasville, Kentucky
Utilities 5.10%, 10/1/12 2,089,635
Baa1 A- 3,500 Puerto Rico Electric Power
Authority, 0%, 7/1/17 925,505
Baa1 A- 2,250 Puerto Rico Electric Power
Authority, 6.375%, 7/1/2 2,289,308
------------
$ 9,716,353
------------
ESCROWED - 1.3%
NR NR $ 190 KY DFA St. Claire Medical
Center, 7.125%, 9/1/21 $ 216,674
Aaa NR 510 Lexington-Fayette,
Kentucky Government Public
Facilities, 6.40%, 4/1/12 569,084
Aaa A 1,000 University of Puerto Rico,
6.50%, 6/1/13 1,062,770
------------
$ 1,848,528
------------
GENERAL OBLIGATIONS - 2.9%
NR A+ $1,030 KY League of Cities
Funding Trust Floating
Indebtedness Certificates
of Participation, 6.15%,
8/1/13 $ 1,041,959
NR A 1,415 KY League of Cities
Funding Trust Floating
Indebtedness Certificates
of Participation, 5.90%,
8/1/16 1,376,837
Baa1 A 1,255 Puerto Rico Public
Building Authority, 5.50%,
7/1/21 1,154,550
NR NR 500 Virgin Islands, 7.25%,
10/1/18 525,010
------------
$ 4,098,356
------------
HOSPITALS - 0.8%
Baa1 BBB $ 975 Russell, Kentucky
Franciscan Sisters of the
Poor Health System, 8.10%,
7/1/15 $ 1,102,052
------------
HOUSING - 1.7%
NR AAA $1,500 Boone, Kentucky
Multi-Family (Walnut Creek
Apartments) (FHA), 7.00%,
1/1/27 $ 1,544,520
Aa1 AAA 840 KY Housing (FHA) (AMT),
7.45%, 1/1/23 869,492
------------
$ 2,414,012
------------
INDUSTRIAL DEVELOPMENT
REVENUE/POLLUTION CONTROL
REVENUE - 11.4%
Baa1 BBB $3,355 Ashland, Kentucky Solid
Waste (Ashland Oil) (AMT),
7.20%, 10/1/20 $ 3,515,470
Baa1 NR 2,425 Ashland, Kentucky Solid
Waste (Ashland Oil) (AMT),
7.125%, 2/1/22 2,537,569
NR NR 1,000 Elsmere, Kentucky
(Courtaulds Package
Corporation), 6.75%,
4/1/10 1,020,860
NR NR 3,075 Fulton, Kentucky
(H.I.S.-Chic Jeans),
(AMT), 7.50%, 2/1/10 3,125,123
Aa3 AA 1,000 Jefferson, Kentucky (E.I.
du Pont de Nemours),
6.30%,
7/1/12 1,067,180
Baa2 BBB 1,075 Johnson, Kentucky (KMart
Corporation), 6.45%,
7/1/08 1,073,011
NR BBB 985 Owensboro, Kentucky (KMart
Corporation), 6.80%,
12/1/07 1,005,232
NR BBB 915 Powderly, Kentucky (KMart
Corporation), 6.90%,
3/1/07 939,293
A2 NR 1,190 Puerto Rico IM&E (American
Home), 5.10%, 12/1/18 1,063,407
Baa3 BB+ 500 Puerto Rico Port Authority
(American Airlines),
(AMT), 6.30%, 6/1/23 496,050
Ba2 NR 500 Winchester, Kentucky
(Kroger Corporation),
6.90%, 7/1/99 524,640
------------
$ 16,367,835
------------
INSURED EDUCATION - 0.5%
Aaa AAA $ 700 Northern KY University
Educational Buildings
(AMBAC), 6.25%, 5/1/12 $ 733,817
------------
INSURED ELECTRIC UTILITIES - 4.1%
Aaa AAA $6,280 Boone, Kentucky
Collateralized PCR (MBIA),
5.50%, 1/1/24 $ 5,862,254
------------
</TABLE>
54
<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 - 0.6%
Aaa AAA $1,000 Jefferson, Kentucky School
District U.T.G.O. (MBIA),
4.875%, 1/1/13 $ 892,640
------------
INSURED HOSPITALS - 14.8%
Aaa AAA $2,500 Daviess, Kentucky Hospital
(ODCH Inc.) (MBIA), 6.25%,
8/1/22 $ 2,554,525
Aaa AAA 2,000 Hopkins, Kentucky Hospital
(Trover Clinic Foundation)
(MBIA), 6.625%, 11/15/11 2,122,200
Aaa AAA 2,500 Jefferson, Kentucky Jewish
Hospital (AMBAC), 6.50%,
5/1/15 2,610,575
Aaa AAA 1,750 Jefferson, Kentucky Jewish
Hospital (AMBAC), 6.55%,
5/1/22 1,833,283
Aaa AAA 4,000 KY DFA St. Luke's Hospital
(MBIA), 7.00%, 10/1/21 4,322,440
Aaa AAA 9,000 KY EDA Baptist Healthcare
(MBIA), 5.00%, 8/15/24 7,814,880
------------
$ 21,257,903
------------
INSURED LEASE/COP - 1.7%
Aaa AAA $2,000 Danville, Kentucky
Multi-City Lease (MBIA),
5.875%, 9/1/10 $ 2,044,640
Aaa AAA 400 Lexington-Fayette,Kentucky
Government Public
Facilities (FSA), 4.50%,
2/1/10 350,380
------------
$ 2,395,020
------------
INSURED TRANSPORTATION - 4.5%
Aaa AAA $1,000 Kenton, Kentucky Airport
(Cincinnati/Northern KY)
(FSA) (AMT), 6.30%, 3/1/15 $ 1,019,710
Aaa AAA 1,000 KY EDA Turnpike
(Revitalization Project)
(FGIC), 0%, 1/1/10 440,380
Aaa AAA 1,000 KY EDA Turnpike
(Revitalization Project)
(AMBAC), 5.50%, 7/1/11 981,280
Aaa AAA 1,170 Louisville & Jefferson,
Kentucky KY Regl. Airport
(MBIA), 5.30%, 7/1/23 1,077,500
Aaa AAA 3,250 Louisville & Jefferson,
Kentucky KY Regl. Airport
(MBIA) (AMT), 5.50%,
7/1/23 2,998,222
------------
$ 6,517,092
------------
INSURED WATER AND SEWER - 9.5%
Aaa AAA $1,000 Hardin, Kentucky Water
System (MBIA), 5.90%,
1/1/25 $ 1,001,620
Aaa AAA 800 Kenton, Kentucky Water
District (FGIC), 6.375%,
2/1/17 839,576
Aaa AAA 2,000 Kenton, Kentucky Water
District (FGIC), 6.00%,
2/1/17 2,027,020
Aaa AAA 500 Lexington-Fayette,
Kentucky Government Sewer
(MBIA), 6.375%, 7/1/12 527,360
Aaa AAA 1,000 Louisville & Jefferson,
Kentucky Sewer District
(MBIA), 5.25%, 5/15/14 938,730
Aaa AAA 2,840 Louisville & Jefferson,
Kentucky Sewer District
(MBIA), 5.40%, 5/15/19 2,680,477
Aaa AAA 2,000 Louisville & Jefferson,
Kentucky Sewer District
(MBIA), 5.50%, 5/15/21 1,909,900
Aaa AAA 500 Louisville & Jefferson,
Kentucky Sewer District
(MBIA), 5.50%, 5/15/23 474,130
Aaa AAA 1,000 Louisville & Jefferson,
Kentucky Sewer District
(AMBAC), 6.75%, 5/15/19 1,079,010
Aaa AAA 2,000 Louisville & Jefferson,
Kentucky Sewer District
(AMBAC), 6.75%, 5/15/25 2,149,480
------------
$ 13,627,303
------------
LEASE REVENUE BONDS - 21.4%
A A $1,300 Boone, Kentucky School
District Finance, 6.75%,
9/1/11 $ 1,390,077
A NR 2,250 Boone, Kentucky School
District Finance, 6.125%,
12/1/17 (1) 2,293,718
A NR 3,000 Boone, Kentucky School
District Finance, 5.70%,
5/1/18 2,921,610
A NR 1,670 Campbell, Kentucky School
District Finance, 5.10%,
2/1/12 1,533,995
A NR 700 Campbell, Kentucky School
District Finance, 4.80%,
2/1/11 617,568
A NR 1,790 Campbell, Kentucky School
District Finance, 4.875%,
2/1/14 1,544,054
A NR 820 Covington, Kentucky
Independent School
District Finance, 5.20%,
6/1/13 759,017
A1 A+ 905 Jefferson, Kentucky School
District Finance, 4.875%,
1/1/11 823,269
A1 A+ 1,250 Jefferson, Kentucky School
District Finance, 4.875%,
1/1/12 1,126,513
A1 A 4,990 Jefferson, Kentucky
Capital Projects
Corporation, 0%, 8/15/15 1,517,259
A NR 260 Johnson, Kentucky School
District Finance, 5.00%,
6/1/11 239,203
A NR 300 Johnson, Kentucky School
District Finance, 5.00%,
6/1/13 271,137
A A+ 2,860 KY State Property and
Buildings, 5.00%, 9/1/13 2,582,866
A A+ 2,500 KY State Property and
Buildings, 6.00%, 9/1/14 2,513,950
</TABLE>
55
<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 REVENUE BONDS -
(CONTINUED)
A A- 1,000 Louisville, Kentucky
Public Properties
Corporation, 6.80%,
12/1/22 1,057,500
Aa NR 2,000 Mount Sterling, Kentucky
League of Cities Trust,
6.15%, 3/1/13 1,964,300
Aa NR 4,500 Mount Sterling, Kentucky
League of Cities Trust,
6.20%, 3/1/18 4,382,955
A NR 2,000 Owensboro, Kentucky
Airport, 5.875%, 6/1/15 1,913,200
A NR 615 Pulaski, Kentucky School
District Finance, 5.75%,
2/1/10 615,978
A NR 595 Pulaski, Kentucky School
District Finance, 5.80%,
2/1/11 593,161
------------
$ 30,661,330
------------
SOLID WASTE - 2.2%
Baa2 BBB- $3,000 Henderson, Kentucky
(MacMillan Blodel Project)
(AMT), 7.00%, 3/1/25 $ 3,083,370
------------
SPECIAL TAX REVENUE - 4.4%
Baa1 A $ 415 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/21 $ 366,939
Baa1 A 5,655 Puerto Rico Highway &
Transportation Authority,
6.625%, 7/1/18 5,901,558
------------
$ 6,268,497
------------
TRANSPORTATION - 4.3%
NR BBB $2,000 Guam Airport Authority,
6.70%, 10/1/23 $ 2,014,400
Ba1 BB 1,000 Kenton, Kentucky Airport
(Delta Airlines) (AMT),
6.75%, 2/1/02 1,044,720
Ba1 BB 250 Kenton, Kentucky Airport
(Delta Airlines) (AMT),
7.50%, 2/1/12 263,820
Ba1 BB 500 Kenton, Kentucky Airport
(Delta Airlines) (AMT),
7.50%, 2/1/20 527,640
Ba1 BB 2,400 Kenton, Kentucky Airport
(Delta Airlines) (AMT),
6.125%, 2/1/22 2,258,183
------------
$ 6,108,763
------------
WATER AND SEWER REVENUE - 1.6%
NR A $1,500 Campbell, Kentucky Water
District, 6.60%, 12/1/11 $ 1,572,360
A NR 650 Hardin, Kentucky Water
District, 6.50%, 9/1/12 679,965
------------
$ 2,252,325
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$141,197,528) $143,205,245
============
</TABLE>
(1) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Kentucky
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 August 31, 1995, 35.8% 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 1.0% to 26.0% of total investments.
See notes to financial statements
56
<PAGE>
- --------------------------------------------------------------------------------
Louisiana Tax Free Portfolio
Portfolio of Investments - August 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%
Aa NR $ 150 Louisiana PFA, Student Loan
Revenue Bonds, (AMT),
6.75%, 9/1/06 $ 162,170
Aa NR 100 Louisiana PFA, Student Loan
Revenue Bonds, (AMT),
7.00%, 9/1/06 104,676
NR BBB- 400 Puerto Rico ITEM&EC,
(Polytechnic University of
Puerto Rico), 5.70%, 8/1/13 370,384
NR BBB- 500 Puerto Rico ITEM&EC,
(Polytechnic University of
Puerto Rico), 5.50%, 8/1/24 438,075
-----------
$ 1,075,305
-----------
GENERAL OBLIGATION - 2.8%
NR BBB $ 250 Government of Guam, 5.375%,
11/15/13 $ 222,418
Baa1 A 750 Puerto Rico PBA, Public
Education and Health
Facilities, 5.75%, 7/1/15 722,468
-----------
$ 944,886
-----------
HEALTH CARE - 8.1%
NR AAA $2,000 Louisiana HFA, Mortgage
Revenue Bonds, (GNMA
Collateralized) St. Joseph
Manor Retirement Center,
7.80%, 12/1/35 $ 2,215,260
NR AAA 500 Louisiana HFA, (GNMA
Collateralized), St.
Dominic Assisted
Care - Facility, 6.85%,
9/1/25 510,345
-----------
$ 2,725,605
-----------
HOUSING - 26.5%
Aaa NR $ 935 East Baton Rouge Mortgage
Finance Authority SF,
7.00%, 4/1/32 $ 966,528
Aaa NR 155 East Baton Rouge Mortgage
Finance Authority SF,
7.10%, 10/1/24 158,243
NR AAA 2,000 Parish of Jefferson, Home
Mortgage Authority (TEAMS),
7.35%, 12/1/16 2,208,760
NR AAA 620 Louisiana HFA, MFMB,
(FHA),6.95%, 7/1/16 631,916
Aaa NR 1,240 Louisiana HFA, SFMB, 8.00%,
3/1/25 1,349,318
Aaa NR 1,635 Louisiana HFA, SFMB, 6.55%,
12/1/26 1,621,887
NR AAA 500 Louisiana HFA, (Multifamily
Housing - Tall Timbers
Apartment), (FHA) (AMT),
5.90%, 12/1/18 475,705
NR AAA 150 Louisiana HFA, (Multifamily
Housing - Westview
Apartment II), (FHA),
7.95%,
1/1/32 159,129
NR AAA 1,000 Louisiana PFA, (FNMA
Collaterallized,
Multifamily
Housing - Edgewood
Apartments), 5.70%, 6/1/05 1,003,990
A NR 350 Shreveport, Louisiana HFA,
(Multifamily Mortgage
Bonds - U.S. Goodman
Plaza - Section 8
Assisted), 6.10%, 8/1/19 336,791
-----------
$ 8,912,267
-----------
HOSPITALS - 3.3%
Aa AA $1,000 Louisiana Public Health
Facilities Bonds, (Sisters
of Mercy Health System),
5.00%, 6/1/19 (2) $ 868,510
NR A- 250 St. Tammany Parish Hospital
Service District No. 1,
Hospital Revenue Bonds,
6.50%, 7/1/22 250,135
-----------
$ 1,118,645
-----------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL - 6.4%
A3 A- $1,750 Bastrop IDB, Louisiana,
(International Paper),
6.60%, 3/1/19 $ 1,824,428
Aa3 NR 150 Parish of DeSoto, Pollution
Control (Southwestern
Electric Power), Company
Project, 7.60%, 1/1/19 171,657
Baa1 A- 150 South Louisiana Port
Commission Terminal, (GATX
Terminals Corporation),
7.00%, 3/1/23 155,570
-----------
$ 2,151,655
-----------
INSURED COLLEGE &
UNIVERSITY - 10.3%
Aaa AAA $2,500 Louisiana State University
and Agricultural and
Mechanical College (FGIC),
5.75%, 7/1/14 $ 2,457,475
Aaa AAA 1,100 University of Puerto Rico
(MBIA), 5.25%, 6/1/25 1,008,821
-----------
$ 3,466,296
-----------
INSURED GENERAL
OBLIGATIONS LOCAL - 17.6%
Aaa AAA $ 500 Caddo Parish, Louisiana
(MBIA), 5.25%, 2/1/07 $ 500,705
Aaa AAA 1,000 Caddo Parish, Louisiana
(MBIA), 5.25%, 2/1/08 992,750
Aaa AAA 500 City of Lafayette, Public
Improvement Sales Tax
Refunding Bonds (FGIC),
5.00%, 3/1/15 446,690
Aaa AAA 500 City of Lafayette, Public
Improvement Sales Tax
Refunding Bonds (FGIC),
5.00%, 3/1/16 445,265
</TABLE>
57
<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 OBLIGATIONS
LOCAL - (CONTINUED)
Aaa AAA 1,000 City of Lafayette, Public
Improvement Sales Tax
Refunding Bonds (FGIC),
5.00%, 5/1/15 892,820
Aaa AAA 1,000 Louisiana PFA, Parish of
Jefferson, Drainage
Improvement Refunding Bonds
(FGIC), 5.00%, 8/1/10 919,900
Aaa AAA 500 Parish of East Baton Rouge,
Public Improvement Sales
Tax Bonds (FGIC), 5.90%,
2/1/17 494,575
Aaa AAA 990 Parish of East Baton Rouge,
Public Improvement Sales
Tax Bonds (FGIC), 4.80%,
2/1/14 864,646
Aaa AAA 400 Parish of East Baton Rouge,
Public Improvement Sales
Tax Bonds (FGIC), 4.90%,
2/1/16 349,020
-----------
$ 5,906,371
-----------
INSURED GENERAL OBLIGATIONS
SCHOOL DISTRICT - 1.4%
Aaa AAA $ 500 St. Tammany Parishwide
School District No.12,
Louisiana Unlimited Tax
School Bonds (FGIC), 5.00%,
3/1/12 $ 454,435
-----------
INSURED GENERAL OBLIGATIONS
STATE - 1.6%
Aaa AAA $ 300 State of Louisiana, (MBIA),
5.625%, 8/1/11 $ 299,511
Aaa AAA 250 Commonwealth of Puerto
Rico, Public Improvement
Bonds Residual Interest
Bonds (AMBAC), Variable,
7/1/15 (1) 252,925
-----------
$ 552,436
-----------
INSURED HOSPITAL - 3.0%
Aaa AAA $1,000 Parish of Jefferson,
Hospital District No.1
(FGIC), 5.25%, 1/1/19 $ 908,730
Aaa AAA 100 Louisiana PFA Hospital
Revenue Bonds, (Our Lady of
the Lake Regional Medical
Center), Residual Interest
Bonds (MBIA), Variable,
12/1/14 (1) 104,247
-----------
$ 1,012,977
-----------
INSURED MUNICIPAL ELECTRIC - 5.6%
Aaa AAA $2,000 Lafayette Public Power
Authority, Electric Revenue
Bonds (AMBAC), 5.25%,
11/1/12 $ 1,875,100
-----------
INSURED UTILITIES - 0.5%
Aaa AAA $ 150 City of Alexandria,
Utilities Bonds (FGIC),
6.00%, 5/1/06 $ 159,144
-----------
INSURED WATER & SEWER - 1.5%
Aaa AAA $ 500 Terrebone Parish,
Louisiana, Water Works
Revenue Bonds (FGIC),
5.75%, 11/1/08 $ 512,715
-----------
LIFE CARE - 2.3%
NR NR $ 500 Louisiana HFA, Assisted
Living Facility (HCC
Assisted Living Group I,
Inc.), 9.00%, 3/1/25 $ 484,475
NR NR 300 St. Tammany PFA (Christwood
Project), 9.00%, 11/15/25 287,667
-----------
$ 772,142
-----------
SPECIAL TAX - 3.9%
Baa1 A $1,500 Puerto Rico Highway and
Transportation Authority,
Highway Revenue Refunding
Bonds, Series X, 5.00%,
7/1/22 $ 1,295,715
-----------
TRANSPORTATION - 1.6%
A A- $ 500 Mississippi River Bridge
Authority, Bridge Revenue
Bonds, State of Louisiana,
Series 1992, 6.75%, 11/1/12
(2) $ 525,703
-----------
UTILITIES - 0.4%
Baa3 BBB- $ 150 Parish of Pointe Coupe, PCB
(Gulf States Utilities
Co.), 6.70%, 3/1/13 $ 149,387
-----------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$33,349,873) $33,610,784
===========
</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 Louisiana
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 August 31, 1995, 54.8% 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 3.8% to 26.5% of total investments.
See notes to financial statements.
58
<PAGE>
- --------------------------------------------------------------------------------
Maryland Tax Free Portfolio
Portfolio of Investments - August 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 - 0.9%
Aa AA+ $1,000 University of Maryland
Auxiliary Facilities &
Tuition, 6.30%, 2/1/10 $ 1,052,390
------------
ELECTRIC UTILITIES - 7.7%
A2 A $2,000 Calvert, Maryland PCR
(Baltimore Gas & Electric
Company), 5.55%, 7/15/14 $ 1,925,200
NR BBB 2,500 Guam Power Authority,
5.25%, 10/1/13 2,246,400
NR BBB 500 Guam Power Authority,
5.25%, 10/1/23 428,920
NR BBB 750 Guam Power Authority,
6.625%, 10/1/14 766,770
A1 A 500 Montgomery, Maryland PCR
(Potomac Electric Power
Company), 5.375%, 2/15/24 451,930
A1 A 2,225 Prince Georges, Maryland
PCR (Potomac Electric),
6.375%, 1/15/23 2,326,015
Baa1 A- 585 Puerto Rico Electric Power
Authority, 6.25%, 7/1/17 590,850
------------
$ 8,736,085
------------
ESCROWED - 5.3%
Aaa NR $1,125 Baltimore, Maryland Single
Family Mortgage (Inner
Harbor), 8.00%, 12/1/10 $ 1,359,543
Aaa AAA 500 Maryland Health & Higher
Educational (University of
Maryland) (FGIC), 6.50%,
7/1/21 552,000
NR AAA 1,000 Commonwealth of Puerto
Rico Public Improvement,
6.80%, 7/1/21 1,144,770
Aaa AAA 1,500 Puerto Rico Public
Buildings Authority,
6.875%, 7/1/21 1,723,695
NR AAA 1,000 University of Maryland
System Auxiliary Facility
and Tuition, 6.50%, 4/1/11 1,104,610
NR AAA 175 University of Maryland
System Auxiliary Facility
and Tuition, 6.50%, 4/1/2 197,971
------------
$ 6,082,589
------------
GENERAL OBLIGATIONS - 6.4%
Aa AA+ $1,000 Anne Arundel, Maryland,
5.30%, 4/15/16 $ 934,560
Aa AA- 1,500 Hartford, Maryland, 4.90%,
12/1/10 1,399,020
A AA- 230 Prince Georges, Maryland,
5.00%, 1/15/11 214,767
Baa1 A 1,000 Commonwealth of Puerto
Rico Public Improvement,
6.50%, 7/1/23 1,029,630
Baa1 A 100 Puerto Rico Aqueduct and
Sewer Authority, 7.875%,
7/1/17 111,057
Baa1 A 1,150 Puerto Rico Aqueduct and
Sewer Authority, 7.00%,
7/1/19 1,222,220
NR NR 750 Virgin Islands Public
Finance Authority, 7.25%
10/1/18 787,515
Aa1 AA 500 Washington, Maryland
Suburban Sanitary
District, 6.20%, 6/1/11 523,260
Aaa1 AA 600 Washington, Maryland
Suburban Sanitary
District, 5.00%, 6/1/10 577,542
Aa NR 500 Worcester, Maryland
Sanitary District, 6.55%,
8/15/17 539,210
------------
$ 7,338,781
------------
HOSPITALS - 20.7%
NR NR $ 490 Berlin, Maryland (Atlantic
General Hospital), 8.375%,
6/1/22 $ 516,382
A A 2,000 MD Health & Higher
Educational (Good
Samaritan Hospital),
5.75%, 7/1/19 1,881,420
A A 1,500 MD Health & Higher
Educational (Memorial
Hospital of Cumberland),
6.50%, 7/1/17 1,547,520
A1 A 4,050 MD Health & Higher
Educational (Suburban
Hospital), 5.125%, 7/1/21 3,563,271
Baa1 NR 1,000 MD Health & Higher
Educational (Union
Hospital of Cecil), 6.70%,
7/1/22 951,050
A A 1,200 MD Health & Higher
Educational (Peninsula
Regional Medical Center),
5.00%, 7/1/23 1,011,503
Baa1 BBB 1,250 MD Health & Higher
Educational (Howard County
General Hospital), 5.50%,
7/1/25 1,039,300
Aa AA- 2,000 MD State IDA (Holy Cross
Health System), 5.50%,
12/1/15 1,894,700
Baa NR 1,355 Prince Georges, Maryland
(Greater SouthEast
Healthcare System),
6.375%, 1/1/13 1,257,779
Baa NR 4,500 Prince Georges, Maryland
(Greater SouthEast
Healthcare System),
6.375%, 1/1/23 4,058,415
A NR 7,000 Prince Georges, Maryland
(Dimensions Health),
5.30%, 7/1/24 5,887,630
------------
$ 23,608,970
------------
HOUSING - 7.2%
Aa NR $3,000 Maryland CDA Single Family
(AMT), 6.75%, 4/1/26 $ 3,049,620
Aa NR 250 Maryland CDA Single
Family. 6.85%, 4/1/11 260,758
</TABLE>
59
<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>
HOUSING - (CONTINUED)
Aa NR 985 Maryland CDA Single Family
(AMT), 6.80%, 4/1/22 1,001,538
Aa NR 750 Maryland CDA Single Family
(AMT), 6.80%, 4/1/24 762,592
Aa NR 1,810 Maryland CDA Multi Family
(FHA), 6.70%, 5/15/27 1,844,336
Aa NR 1,000 Maryland CDA Multi Family
(FHA) (AMT), 6.70%,
5/15/36 1,011,180
NR AAA 300 Prince Georges, Maryland
(Antoinette Gardens
Apartments) (FHA), 7.00%,
3/1/28 313,239
------------
$ 8,243,263
------------
INDUSTRIAL DEVELOPMENT
REVENUE/POLLUTION CONTROL
REVENUE - 10.2%
A1 A $1,350 Allegany County, Maryland
(Westvaco Corporation
Project), 6.20%, 1/1/08 $ 1,426,167
NR NR 1,350 Baltimore, Maryland
(Bethlehem Steel
Corporation Project),
7.50%, 6/1/15 1,387,827
A3 BBB+ 1,000 Baltimore, Maryland
(General Motors), 5.35%,
4/1/08 971,460
Aa2 AA- 2,000 Baltimore, Maryland
(Consolidated Coal Sales
Company-E.I. Dupont),
6.50%, 12/1/10 2,145,900
Aa3 AA 2,000 Baltimore, Maryland
(Consolidated Coal Sales
Company-E.I. Dupont),
6.50%, 12/1/11 2,141,040
NR AA- 1,425 Frederick, Maryland EDA
(Cargill, Inc. Project),
6.30%, 11/1/09 (2) 1,518,067
A2 NR 600 Puerto Rico IM&E (American
Home), 5.10%, 12/1/18 536,171
Baa3 BB+ 1,500 Puerto Rico Port Authority
(American Airlines) (AMT),
6.30%, 6/1/23 1,488,150
------------
$ 11,614,782
------------
INSURED EDUCATION - 1.1%
Aaa AAA $1,200 Morgan State University,
Maryland Academic and
Facilities (MBIA), 6.10%,
7/1/20 $ 1,259,928
------------
INSURED ELECTRIC UTILITIES - 0.2%
Aaa AAA $ 250 Puerto Rico Electric Power
Authority (STRIPES) (FSA),
Variable, 7/1/03 (1) $ 279,153
------------
INSURED HOSPITALS - 17.9%
Aaa AAA $1,365 MD Health & Higher
Educational (Washington
Community Hospital)
(AMBAC), 6.375%, 7/1/22 $ 1,419,394
Aaa AAA 5,000 MD Health & Higher
Educational (Anne Arundel
Hospital) (AMBAC), 5.00%,
7/1/23 4,388,150
Aaa AAA 4,350 MD Health & Higher
Educational (Francis Scott
Key Hospital) (FGIC),
5.00%, 7/1/23 3,759,357
Aaa AAA 3,000 MD Health & Higher
Educational (University
Medical Center) (FGIC),
5.00%, 7/1/20 2,632,500
Aaa AAA 6,250 MD Health & Higher
Educational (Greater
Baltimore Medical Center)
(FGIC), 5.00%, 7/1/19 5,534,688
Aaa AAA 500 MD Health & Higher
Educational (General
Hospital) (MBIA), 6.20%,
7/1/24 512,220
Aaa AAA 2,150 Puerto Rico IM&E Hospital
(MBIA), 6.25%, 7/1/24 2,213,060
------------
$ 20,459,369
------------
INSURED HOUSING - 0.7%
Aaa AAA $ 235 MD CDA Housing and
Community Development
(AMBAC), 6.625%, 6/1/12 $ 240,675
Aaa AAA 500 Prince Georges, Maryland
(Keystone Apartments)
(FHA) (MBIA), 6.80%,
7/1/25 511,395
------------
$ 752,070
------------
INSURED INDUSTRIAL
DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - 0.8%
Aaa AAA $1,000 Prince Georges, Maryland
Solid Waste (FSA), 5.25%,
6/15/13 $ 931,010
------------
INSURED TRANSPORTATION - 6.1%
Aaa AAA $2,000 Baltimore, Maryland
International Airport
(AMT) (FGIC), 6.25%,
7/1/14 $ 2,066,500
Aaa AAA 5,250 Washington, D.C. Metro
Area Transportation
(FGIC), 5.25%, 7/1/14 4,881,660
------------
$ 6,948,160
------------
</TABLE>
60
<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 WATER & SEWER - 3.7%
Aaa AAA $2,000 Baltimore, Maryland
Wastewater (MBIA), 5.65%,
7/1/20 $ 1,942,420
Aaa AAA 2,550 Baltimore, Maryland
Wastewater (FGIC), 5.00%,
7/1/22 2,261,315
------------
$ 4,203,735
------------
MISCELLANEOUS - 0.8%
A NR $1,000 Baltimore, Maryland
Revenue Authority, 5.375%,
7/1/18 $ 921,600
------------
SOLID WASTE - 5.3%
A NR $6,000 North East Maryland Solid
Waste Disposal (AMT),
6.30%, 7/1/16 $ 6,016,680
------------
SPECIAL TAX REVENUE - 3.0%
Baa1 A $1,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 $ 900,160
Baa1 A 1,225 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/17 1,146,661
Baa1 A 1,500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/21 1,347,675
------------
$ 3,394,496
------------
TRANSPORTATION - 0.6%
NR BBB $ 700 Guam Airport Authority
(AMT), 6.70%, 10/1/23 $ 705,040
------------
WATER AND SEWER - 1.4%
Aa AA $1,000 Maryland Water Quality
Financing Administration
Revolving Loan Fund, 0%,
9/1/07 $ 534,740
Aa AA 1,000 Maryland Water Quality
Financing Administration
Revolving Loan Fund,
6.55%, 9/1/14 1,068,880
------------
$ 1,603,620
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$112,178,823) $114,151,721
============
</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 Maryland
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 August 31, 1995, 30.5% 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 19.0% of total investments.
See notes to financial statements
61
<PAGE>
- --------------------------------------------------------------------------------
Missouri Tax Free Portfolio
Portfolio of Investments - August 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 - 2.7%
A NR $2,750 Missouri Higher Education
Loan Authority, Student
Loan, (AMT), 5.45%, 2/15/09 $ 2,514,380
-----------
ESCROWED - 2.8%
Aaa AAA $ 240 Missouri Health & Education
Authority, St. Louis
Children's, (MBIA), 6.25%,
5/15/12 $ 266,258
Aaa AAA 410 Missouri Health & Education
Authority, St. Louis
Children's, (MBIA), 6.25%,
5/15/12 453,341
Aaa AAA 350 State of Missouri, Regional
Convention & Sports Complex
Authority, 6.80%, 8/15/11 399,480
Aaa AAA 425 Missouri Health & Education
Authority, Christian
Health, 6.875%, (FGIC),
2/15/21 480,998
Aaa AAA 250 St. Louis County, Regional
Convention & Sports Complex
Authority, 7.00%, 8/15/11 288,630
Aaa AAA 600 St. Louis County,
Pattonville School
District, 6.25%, (FGIC),
2/1/10 656,070
-----------
$ 2,544,777
-----------
GENERAL OBLIGATION - 4.3%
A1 NR $ 750 City of St. Peters, 5.85%,
1/1/13 $ 759,773
Baa1 A 700 Puerto Rico, 5.00%, 7/1/21 600,460
Baa1 A 1,250 Puerto Rico, 5.75%, 7/1/15 1,204,112
Baa1 A 1,000 Puerto Rico, 5.50%, 7/1/21 919,960
NR NR 450 Virgin Island Public
Finance Authority, 7.25%,
10/1/18 472,509
-----------
$ 3,956,814
-----------
HEALTHCARE - 0.4%
Baa1 NR $ 300 Cass County, Fox Springs
Living Center, 7.375%,
10/1/22 $ 317,127
-----------
HOSPITALS - 10.5%
A NR $1,000 Boone County Hospital,
5.50%, 8/1/09 $ 951,420
Baa1 NR 2,000 Missouri Health & Education
Authority, Jefferson
Memorial Hospital, 6.00%,
8/15/23 1,831,100
Aa AA 1,000 Missouri Health & Education
Authority, Barnes Jewish
Christian Hospital, 5.10%,
5/15/09 944,310
Aa AA 2,000 Missouri Health & Education
Authority, Barnes Jewish
Christian Hospital, 5.25%,
5/15/14 1,886,160
Aa AA 2,000 Missouri Health & Education
Authority, Barnes Jewish
Christian Hospital, 5.25%,
5/15/21 1,851,300
Aa AA 1,000 Missouri Health & Education
Authority, Sisters of Mercy
Hospital, 6.25%, 6/1/15 1,034,550
NR BBB+ 550 Moberly Industrial
Development Authority,
Moberly Regional Medical
Center, 8.75%, 3/1/16 603,471
NR AAA 500 Phelps County, Phelps
Regional Medical Center,
(CLEE), 6.00%, 5/15/13 503,000
-----------
$ 9,605,311
-----------
HOUSING - 0.6%
NR AAA $ 535 Missouri Housing
Development Authority SFMR,
(AMT), (GNMA), 6.75%,
6/1/24 $ 550,916
-----------
INDUSTRIAL DEVELOPMENT
REVENUE - 2.8%
NR BBB $1,390 Jefferson County Industrial
Development Authority,
Kmart Corporation, 6.40%,
8/1/08 $ 1,381,452
A3 NR 1,200 Missouri Environmental
Improvement & Energy
Resources Authority,
American Cynamid Company,
5.80%, 9/1/09 1,212,600
-----------
$ 2,594,052
-----------
INSURED - TRANSPORTATION - 1.7%
Aaa AAA $1,000 City of St. Louis, St.
Louis-Lambert International
Airport, (AMT), (FGIC),
6.125%, 7/1/12 $ 1,024,170
Aaa AAA 500 City of St. Louis, St.
Louis-Lambert International
Airport, (AMT), (FGIC),
6.125%, 7/1/15 510,350
-----------
$ 1,534,520
-----------
INSURED - EDUCATION - 2.1%
Aaa AAA $1,000 Missouri Western State
College Housing System,
(MBIA), 5.25%, 10/1/11 $ 947,960
Aaa AAA 1,000 Southeast Missouri State
University Housing System,
(MBIA), 5.70%, 4/1/14 1,003,600
-----------
$ 1,951,560
-----------
INSURED - GENERAL
OBLIGATION - 9.3%
Aaa AAA $1,000 Kansas City School
District, (FGIC), 5.00%,
2/1/14 $ 908,070
Aaa AAA 2,250 Kansas City School
District, (FGIC), 5.00%,
2/1/14 2,043,158
Aaa AAA 1,450 St. Louis County, Mehlville
School District, (MBIA),
6.00%, 2/15/13 1,484,554
Aaa AAA 1,000 St. Louis County, Parkway
School District, (MBIA),
5.00%, 2/1/12 931,020
</TABLE>
62
<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 1,500 City of St. Louis School
District, (FGIC), 5.75%,
4/1/12 1,508,340
Aaa AAA 620 City of St. Louis School
District, (FGIC), 6.00%,
4/1/12 634,333
Aaa AAA 500 Puerto Rico, (AMBAC),
Variable, 7/1/15 (1) 505,850
Aaa AAA 500 Puerto Rico, (FSA),
Variable, 7/1/22 (1) 513,080
-----------
$ 8,528,405
-----------
INSURED - HOSPITAL - 18.4%
Aaa AAA $1,000 Jackson County, Carondelet
Health System, St. Mary's
Hospital, (MBIA), 5.75%,
7/1/24 $ 981,950
Aaa AAA 800 Jackson County, St.
Joseph's Health System,
(MBIA), 6.50%, 7/1/19 836,464
Aaa AAA 1,000 Jackson County, St.
Joseph's Health System,
(MBIA), 6.50%, 7/1/12 1,052,620
Aaa AAA 1,500 Missouri Health & Education
Authority, Health Midwest,
(MBIA), 6.25%, 2/15/22 1,533,435
Aaa AAA 500 Missouri Health & Education
Authority, Sisters of St.
Mary, (MBIA), 6.25%, 6/1/07 535,710
Aaa AAA 1,600 Missouri Health & Education
Authority, Sisters of St.
Mary, (MBIA), 6.25%, 6/1/16 1,642,000
Aaa AAA 1,500 Missouri Health & Education
Authority, Heartland Health
System, (AMBAC), 6.35%,
11/15/17 1,554,735
Aaa AAA 2,900 Missouri Health & Education
Authority, Lester Cox
Medical Center, (MBIA),
5.35%, 6/1/10 2,813,493
Aaa AAA 1,865 Missouri Health & Education
Authority, St. Luke's
Health System, (MBIA),
5.10%, 11/15/13 1,719,287
Aaa AAA 2,000 Missouri Health & Education
Authority, St. Luke's
Health System, (MBIA),
5.125%, 11/15/19 1,801,460
Aaa AAA 575 Missouri Health & Education
Authority, St. Louis
Children's Hospital,
(MBIA), 0%, 5/15/08 287,023
Aaa AAA 9,500 Missouri Health & Education
Authority, Lester Cox
Medical Center, (MBIA), 0%,
9/1/20 2,101,400
-----------
$16,859,577
-----------
INSURED - HOUSING - 1.8%
Aaa AAA $1,500 City of Springfield, SCA
Realty Multifamily Mortgage
Receipts, (FSA), 7.15%,
1/1/30 $ 1,607,220
-----------
INSURED - LEASE/CERTIFICATE
OF PARTICIPATION - 4.4%
Aaa AAA $1,250 Kansas City Municipal
Assistance Corporation,
Bartle Hall Convention,
(AMBAC), 6.625%, 4/15/15 $ 1,336,050
Aaa AAA 500 Kansas City Municipal
Assistance Corporation,
Bartle Hall Convention,
(AMBAC), 6.00%, 4/15/20 507,075
Aaa AAA 600 Kansas City School
District, Building
Corporation, (FGIC), 6.50%,
2/1/08 641,280
Aaa AAA 500 St. Charles County, Public
Facilities Authority,
(FGIC), 6.375%, 3/15/07 536,420
Aaa AAA 1,000 St. Louis County Municipal
Finance Corporation, Civil
Courts Building, (FGIC),
5.75%, 8/1/13 1,002,340
-----------
$ 4,023,165
-----------
INSURED - UTILITIES - 11.4%
Aaa AAA $5,000 Missouri Environmental
Improvement & Energy
Resources Authority, Union
Electric Project, (AMT),
(AMBAC), 5.45%, 10/1/28 $ 4,540,000
Aaa AAA 700 Puerto Rico Electric Power
Authority, (FSA), Variable,
7/1/03 (1) 781,627
Aaa AAA 5,000 City of Sikeston, Electric
System, (MBIA), 6.25%,
6/1/22 5,138,150
-----------
$10,459,777
-----------
INSURED - WATER & SEWER - 1.7%
Aaa AAA $1,500 City of St. Louis, Water
Revenue Improvement Bonds,
(FGIC), 6.00%, 7/1/14 $ 1,539,480
-----------
LEASE/CERTIFICATE OF
PARTICIPATION - 5.1%
A1 A+ $2,000 State of Missouri, Regional
Convention & Sports Complex
Authority, 5.50%, 8/15/21 $ 1,844,580
A BBB+ 2,000 St. Louis County, Regional
Convention & Sports Complex
Authority, 5.50%, 8/15/13 1,861,880
Aa AA 1,000 Southeast Missouri
Correctional Facility,
5.75%, 8/15/16 995,090
-----------
$ 4,701,550
-----------
</TABLE>
63
<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>
LIFECARE - 1.1%
NR NR $ 950 Kansas City Industrial
Development Authority,
Kingswood United Methodist
Manor, 9.00%, 11/15/13 $ 1,018,457
-----------
NURSING HOMES - 1.7%
NR NR $ 500 Missouri Health & Education
Authority, Bethesda Health
Group, 6.625%, 8/15/05 $ 498,710
NR NR 1,000 Missouri Health & Education
Authority, Bethesda Health
Group, 7.50%, 8/15/12 1,011,820
-----------
$ 1,510,530
-----------
SPECIAL TAX REVENUE - 3.6%
Baa1 A $1,000 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/12 $ 1,050,590
Baa1 A 1,400 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/19 1,306,704
Baa1 A 1,000 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/17 936,050
-----------
$ 3,293,344
-----------
TRANSPORTATION - 0.2%
NR BBB $ 200 Guam Airport Authority,
6.375%, 10/1/10 $ 202,580
-----------
UTILITIES - 4.3%
A1 AA $ 500 City of Columbia, Water &
Electric, 6.125%, 10/1/12 $ 513,080
NR BBB 1,010 Guam Power Authority,
6.30%, 10/1/22 998,304
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 5.00%, 7/1/12 905,730
Baa1 A- 1,500 Puerto Rico Electric Power
Authority, 6.375%, 7/1/24 1,526,205
-----------
$ 3,943,319
-----------
WATER & SEWER - 9.1%
A1 AA- $ 760 City of Columbia, Sewerage
System, 6.25%, 10/1/15 $ 784,472
Aa NR 800 Missouri Environmental
Improvement & Energy
Resources Authority, Water
Pollution Control, 6.875%,
6/1/14 872,288
Aa NR 475 Missouri Environmental
Improvement & Energy
Resources Authority, Water
Pollution Control, 6.45%,
7/1/08 513,385
Aa NR 500 Missouri Environmental
Improvement & Energy
Resources Authority, Water
Pollution Control, 6.55%,
7/1/14 532,300
Aa NR 1,000 Missouri Environmental
Improvement & Energy
Resources Authority, Water
Pollution Control, 6.05%,
7/1/15 1,033,590
Aa NR 1,250 Missouri Environmental
Improvement & Energy
Resources Authority, Water
Pollution Control, 7.20%,
7/1/16 1,419,863
Aa NR 1,000 Missouri Environmental
Improvement & Energy
Resources Authority, Cape
Giradeau Project, 0%,
1/1/14 329,020
Aa A+ 3,000 City of Springfield,
Waterworks, 5.375%, 5/1/14 2,888,640
-----------
$ 8,373,558
-----------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$88,354,959) $91,630,419
===========
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by Missouri
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 August 31, 1995, 53.4% 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 27.9% of total investments.
See notes to financial statements
64
<PAGE>
- --------------------------------------------------------------------------------
North Carolina Tax Free Portfolio
Portfolio of Investments - August 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%
Aa1 AA $1,000 Educational Facilities
Finance Agency, Duke
University, 6.75%,
10/01/21 $ 1,061,130
NR AAA 1,000 Educational Facilities
Finance Agency, Elon
College, 6.375%, 1/1/07 1,063,860
------------
$ 2,124,990
------------
ESCROWED - 1.4%
Aaa A- $ 155 North Carolina Municipal
Power, Catawba Electric,
5.00%, 1/1/20 $ 141,755
NR AAA 150 Puerto Rico GO, 7.30%,
7/1/20 171,831
Aaa AAA 1,500 Puerto Rico Public
Building Authority,
6.875%, 7/1/12 1,723,695
Baa1 AAA 635 Puerto Rico Electric Power
Authority, 7.125%, 7/1/14 707,987
------------
$ 2,745,268
------------
GENERAL OBLIGATIONS - 8.7%
A A- $ 175 Eden, Water and Sewer
Bonds, (AMT), 6.75%,
6/1/08 $ 188,249
NR BBB 1,700 Guam, 5.40%, 11/15/18 1,484,729
Aaa AAA 4,000 North Carolina Capital
Improvement, 4.70%, 2/1/06 3,897,040
Aaa AAA 3,000 North Carolina Capital
Improvement, 4.70%, 2/1/10 2,768,850
Aaa AAA 4,000 North Carolina Capital
Improvement, 4.75%, 2/1/12 3,606,200
Baa1 A 1,000 Puerto Rico, 6.50%, 7/1/23 1,029,630
Baa1 A 1,000 Puerto Rico, 5.75%, 7/1/15 963,290
NR NR 2,550 Virgin Island, 7.25%,
10/1/18 2,677,551
------------
$ 16,615,539
------------
HEALTH CARE - 3.4%
Aa AA $1,700 North Carolina Medical
Care Commission, Carolina
Medicorp, 6.00%, 5/1/21 $ 1,669,281
Aa AA 5,060 North Carolina Medical
Care Commission, Carolina
Medicorp, 5.50%, 5/1/15 4,742,080
------------
$ 6,411,361
------------
HOSPITALS - 18.8%
Aa AA $2,090 Charlotte-Mecklenberg
Hospital, 0%, 1/1/06 $ 1,193,745
Aa AA 2,345 Charlotte-Mecklenberg
Hospital, 6.25%, 1/1/20 2,385,780
NR A 5,500 North Carolina Medical
Care Commission, Mercy
Hospital, 6.50%, 8/1/08 5,725,665
Aa AA- 3,000 North Carolina Medical
Care Commission, North
Carolina Baptist Hospital,
6.00%, 6/1/22 2,944,830
Aa AA 4,000 North Carolina Medical
Care Commission,
Presbyterian Health
Services, 5.50%, 10/1/14 3,778,720
Aa AA 3,700 North Carolina Medical
Care Commission,
Presbyterian Health
Services, 6.00%, 10/1/24 3,610,386
A1 A+ 5,000 North Carolina Medical
Care Commission, Rex
Hospital, 6.125%, 6/1/10 5,030,350
NR BBB+ 2,500 North Carolina Medical
Care Commission, Roanake-
Chowan Hospital, 7.75%,
10/1/19 2,638,475
NR AA 3,700 North Carolina Medical
Care Commission, Scotland
Memorial Hospital, 5.375%,
10/1/11 3,463,459
Aa AA- 2,450 Pitt County Memorial
Hospital, 6.90%, 12/1/21 2,602,807
A1 AA- 2,380 University of North
Carolina at Chapel Hill,
6.00%, 2/15/24 2,390,828
------------
$ 35,765,045
------------
HOUSING - 9.1%
NR AAA $1,900 Charlotte Housing, Double
Oaks, (FHA), (FNMA),
7.35%, 5/15/26 $ 2,032,639
Aa AA 2,250 North Carolina HFA, MFMR,
6.60%, 9/1/26 2,286,855
Aa AA 4,395 North Carolina HFA, MFMR,
6.85%, 7/1/13 4,619,848
Aa A+ 870 North Carolina HFA, SFMR,
6.95%, 3/1/17 910,220
Aa A+ 890 North Carolina HFA, SFMR,
(AMT), 7.05%, 9/1/20 925,066
Aa A+ 4,000 North Carolina HFA, SFMR,
(AMT), 6.70%, 9/1/26 4,093,680
Aa A+ 2,250 North Carolina HFA, MFMR,
(AMT), 6.70%, 1/1/26 2,321,348
Aaa AAA 200 Puerto Rico HFC, SFMR,
6.85%, 10/15/23 207,526
------------
$ 17,397,182
------------
INDUSTRIAL DEVELOPMENT - 5.5%
Baa1 BBB $2,750 Haywood County, Champion
International Corporation,
(AMT), 5.50%, 10/1/18 $ 2,518,395
Baa2 BBB 2,500 New Hanover County,
Occidental Petroleum
Corporation, 6.70%, 7/1/19 2,609,550
NR AA 850 Robeson County, Campbell
Soup Company, 6.40%,
12/1/06 917,847
</TABLE>
65
<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>
INDUSTRIAL DEVELOPMENT -
(CONTINUED)
A2 A 4,250 Martin County, Weyerhauser
Company, (AMT), 6.80%,
5/1/24 4,399,303
------------
$ 10,445,095
------------
INSURED GOVERNMENT
OBLIGATIONS - 2.4%
Aaa AAA $1,000 Puerto Rico, (AMBAC),
Variable, 7/1/15 (1) $ 1,011,700
Aaa AAA 3,500 Puerto Rico, (FSA),
Variable, 7/1/22 (1) 3,591,560
------------
$ 4,603,260
------------
INSURED HOSPITAL - 10.6%
Aaa AAA $2,000 Catawba County, Catawba
Memorial Hospital,
(AMBAC), 6.20%, 10/1/12 $ 2,065,660
Aaa AAA 500 Cumberland County
Hospital, (MBIA), 0%,
10/1/09 226,440
Aaa AAA 4,225 New Hanover Regional
Medical Center, (AMBAC),
4.75%, 10/1/23 3,567,378
Aaa AAA 1,750 North Carolina Medical
Care Commission, Moore
Regional Hospital, (FGIC),
5.20%, 10/1/13 1,616,720
Aaa AAA 3,750 North Carolina Medical
Care Commission, Moore
Regional Hospital, (FGIC),
5.00%, 10/1/18 3,288,863
Aaa AAA 2,000 North Carolina Medical
Care Commission, Wesley
Long Community Hospital,
(AMBAC), 5.25%, 10/1/13 1,858,720
Aaa AAA 2,500 North Carolina Medical
Care Commission, Wesley
Long Community Hospital,
(AMBAC), 5.25%, 10/1/17 2,260,825
Aaa AAA 935 North Carolina Medical
Care Commission, Memorial
Mission Hospital, (FSA),
0%, 10/1/06 518,944
Aaa AAA 5,000 North Carolina Medical
Care Commission, St.
Joseph's Medical Center,
(AMBAC), 5.10%, 10/1/14 4,524,250
Aaa AAA 250 Wake County, North
Carolina Hospital System,
(MBIA), 5.125%, 10/1/26 219,655
------------
$ 20,147,455
------------
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 8.4%
Aaa AAA $ 900 Burke County, COP,
Detention
Facility/Landfill
Equipment, (MBIA), 6.30%,
4/1/08 $ 960,561
Aaa AAA 4,500 Charlotte, COP, Convention
Facility, (AMBAC), 5.25%,
12/1/13 4,242,600
Aaa AAA 1,750 Duplin County, COP,
(FGIC), 5.25%, 8/1/14 1,623,195
Aaa AAA 1,575 Franklin, COP, (FGIC),
6.625%, 6/1/14 1,673,690
Aaa AAA 5,000 Iredell County, COP,
Iredell-Statesville
Schools, (FGIC), 6.125%,
6/1/07 5,288,550
Aaa AAA 1,000 Mooresville School
District, (AMBAC), COP,
6.35%, 10/1/14 1,034,750
Aaa AAA 1,000 Rutherford County, COP,
(FGIC), 6.25%, 6/1/23 1,022,640
Aaa AAA 200 Scotland County, COP,
(CGIC), 6.75%, 3/1/11 213,198
------------
$ 16,059,184
------------
INSURED TRANSPORTATION - 1.8%
Aaa AAA $3,750 Piedmont Triad Airport
Authority, (MBIA), 5.125%,
7/1/12 $ 3,464,888
------------
INSURED UTILITIES - 3.1%
Aaa AAA $3,000 North Carolina Municipal
Power Authority, Catawba
Electric, (AMBAC), 5.75%,
1/1/15 $ 2,917,920
Aaa AAA 1,500 North Carolina Eastern
Municipal Power Authority,
(FSA), Variable, 1/1/19
(1) 1,411,365
Aaa AAA 1,400 Puerto Rico Electric Power
Authority, Stripes, (FSA),
Variable, 7/1/02 (1) 1,546,062
------------
$ 5,875,347
------------
INSURED WATER & SEWER - 2.0%
Aaa AAA $ 750 Fayetteville Public Works
Commission, (FGIC), 4.75%,
3/1/14 $ 650,655
Aaa AAA 3,500 Fayetteville Public Works
Commission, (FGIC),
5.125%, 3/1/10 3,257,555
------------
$ 3,908,210
------------
LEASE/CERTIFICATE OF
PARTICIPATION - 6.7%
A1 A- $2,065 Buncombe County, COP,
6.625%, 12/1/10 $ 2,205,026
Aa1 AA 4,150 Charlotte County, COP,
Charolette Mecklendberg
Law, 5.375%, 6/1/13 4,022,803
NR AA 825 Durham County, COP, 6.10%,
7/15/07 872,900
Aa AA 985 Durham County, COP, 6.75%,
12/1/11 1,062,648
</TABLE>
66
<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)
A1 AA 2,400 Greensboro, COP,
Greensboro Coliseum Arena,
6.75%, 12/1/09 2,581,272
A NR 1,950 Rowan County, COP, 6.25%,
12/1/07 2,095,002
------------
$ 12,839,651
------------
SPECIAL TAX REVENUE - 2.8%
Baa1 BBB+ $ 200 Puerto Rico Finance
Authority, 7.90%, 7/1/07 $ 220,820
Baa1 A 4,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 3,600,640
Baa1 A 1,490 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 1,415,738
------------
$ 5,237,198
------------
TRANSPORTATION - 0.9%
Baa3 BB+ $1,500 Raleigh-Durham Airport
Authority, American
Airlines Inc., 9.40%,
11/1/00 $ 1,713,810
------------
UTILITIES - 12.3%
A2 A $1,015 Chatham County Industrial
Facilities and Pollution,
Carolina Power & Light,
6.30%, 6/1/14 $ 1,074,804
NR BBB 1,750 Guam Power Authority,
5.25%, 10/1/23 1,501,220
A A- 2,875 North Carolina Municipal
Power, Catawba Electric,
5.00%, 1/1/15 2,426,414
A A- 2,500 North Carolina Municipal
Power, Catawba Electric,
5.75%, 1/1/15 2,328,850
A A- 550 North Carolina Municipal
Power, Catawba Electric,
7.00%, 1/1/16 566,803
A BBB+ 5,000 North Carolina Municipal
Power, Eastern Power,
6.125%, 1/1/09 4,965,750
A BBB+ 1,500 North Carolina Municipal
Power, Eastern Power,
6.40%, 1/1/21 1,481,310
A BBB+ 3,200 North Carolina Municipal
Power, Eastern Power,
6.00%, 1/1/26 3,008,960
A BBB+ 1,750 North Carolina Municipal
Power, Eastern Power,
7.00%, 1/1/13 1,858,727
Baa1 A- 2,000 Puerto Rico Electric Power
Authority, 0%, 7/1/17 528,860
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 7.00%, 7/1/21 1,105,180
Baa1 A- 2,000 Puerto Rico Electric Power
Authority, 6.00%, 7/1/16 1,988,040
Baa1 A- 365 Puerto Rico Electric Power
Authority, 7.125%, 7/1/14 398,427
NR NR 250 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 261,877
------------
$ 23,495,222
------------
WATER & SEWER - 1.0%
Aa AA $2,000 Orange County, Water &
Sewer, 5.20%, 7/1/16 $ 1,815,440
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$183,328,988) $190,664,145
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by North Carolina
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 August 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 0.1% to 12.3% of total investments.
See notes to financial statements
67
<PAGE>
- --------------------------------------------------------------------------------
Oregon Tax Free Portfolio
Portfolio of Investments - August 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 - 1.6%
NR A+ $1,250 State of Oregon Health,
Housing, Educational and
Cultural Facilities
Authority, Reed College
Project, 6.75%, 7/1/21 $ 1,320,450
A NR 1,000 City of Salem, Educational
Facilities, Willamette
University Project, 6.10%,
4/1/14 1,010,800
------------
$ 2,331,250
------------
ESCROWED - 1.7%
A1 AAA $2,000 City of Medford, Rogue
Valley Memorial Hospital
(ETM), 6.25%, 12/1/07 $ 2,182,460
NR AAA 200 Puerto Rico Highway &
Transportation Authority,
Pre-Refunded, 6.625%,
7/1/18 226,918
------------
$ 2,409,378
------------
GENERAL
OBLIGATIONS - 17.7%
A A+ $2,000 Clackamas County,
Clackamas Community
College District, 5.25%,
12/1/09 $ 1,964,440
Aa AA+ 1,000 Tri County Metropolitan
Transportation District,
Light Rail Extention,
6.00%, 7/1/12 1,021,140
Aa NR 1,000 Clackamas & Multnomah
Counties, Lake Oswego
School District, 5.70%,
6/15/10 1,012,290
Aa NR 2,000 Lane County, City of
Eugene, School District,
5.375%, 7/1/13 1,932,000
Aa AA- 1,500 Washington and Multnomah
Counties, City of
Beaverton, School
District, 5.00%, 9/1/12 1,405,290
Aa AA- 1,000 State of Oregon, Oregon
Veterans' Welfare Bonds,
9.00%, 4/1/04 1,291,370
Aa AA- 1,000 State of Oregon, Board of
Higher Education, 6.00%,
10/15/18 1,013,760
Aa AA- 6,110 State of Oregon, Elderly
and Disabled Housing,
(AMT), 5.65%, 8/1/26 5,885,213
Aa AA- 1,250 State of Oregon, Elderly
and Disabled Housing,
6.375%, 8/1/24 1,294,063
Aa AA- 1,000 State of Oregon, Elderly
and Disabled Housing,
(AMT), 5.625%, 8/1/18 976,670
Aa AA- 3,505 State of Oregon,
Governmental Purpose,
5.625%, 6/1/13 (2) 3,491,015
Aa AA- 2,000 State of Oregon, Board of
Higher Education, 5.00%,
8/1/23 1,764,940
Baa1 A 2,000 Puerto Rico, 5.75%, 7/1/15 1,926,580
Baa1 A 1,000 Puerto Rico, 5.50%, 7/1/21 919,960
------------
$ 25,898,731
------------
HOSPITALS - 1.4%
NR A $1,000 Benton County, Good
Samaritan Hospital
Corvallis, 6.25%, 10/1/09 $ 1,006,810
Aa3 AA 1,000 Clackamas County, Kaiser
Permanente, 6.25%, 4/1/21 1,006,520
------------
$ 2,013,330
------------
HOUSING - 8.8%
Aa NR $2,500 State of Oregon Housing
and Community Services
Department, MFMR, 6.875%,
7/1/28 $ 2,623,425
Aa NR 1,055 State of Oregon Housing
and Community Services
Department, SFMR, (AMT),
6.80%, 7/1/27 1,097,105
Aa NR 1,500 State of Oregon Housing
and Community Services
Department, SFMR, 5.375%,
7/1/17 1,388,325
Aa NR 3,500 State of Oregon, Housing
and Community Services
Department, SFMR, 5.45%,
7/1/24 3,205,965
Aa NR 2,500 State of Oregon, Housing
and Community Services
Department, SFMR, (AMT),
6.45%, 7/1/26 2,579,025
Aa NR 2,000 State of Oregon, Housing
and Community Services
Department, SFMR, (AMT),
6.40%, 7/1/26 2,029,580
------------
$ 12,923,425
------------
INDUSTRIAL DEVELOPMENT
REVENUE - 4.7%
NR BBB- $5,000 Port of Astoria, PCR,
James River Project,
6.55%, 2/1/15 (2) $ 5,030,900
NR NR 750 Port of Portland, Ash
Grove Cement Co., 7.25%,
10/1/09 821,640
Baa1 A 1,000 Port of Portland, North
Portland Crown Zellerbach
Corporation, 6.125%,
5/15/08 1,000,200
------------
$ 6,852,740
------------
COGENERATION - 1.4%
NR NR $2,000 Western Generation Agency,
Wauna Cogeneration
Project, (AMT), 7.40%,
1/1/16 $ 2,084,360
------------
</TABLE>
68
<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 TRANSPORTATION - 4.6%
Aaa AAA $1,000 Port of Portland, Portland
International Airport,
(AMT), (AMBAC), 6.25%,
7/1/18 $ 1,050,930
Aaa AAA 2,750 Port of Portland, Portland
International Airport,
(AMT), (FGIC), 6.00%,
7/1/23 2,829,118
Aaa AAA 1,250 Port of Portland, Portland
International Airport,
(AMT), (FGIC), 5.75%,
7/1/25 1,213,475
Aaa AAA 1,500 Oregon Department of
Transportation, Westside
Light Rail, (MBIA), 6.25%,
6/1/09 1,585,155
------------
$ 6,678,678
------------
INSURED EDUCATION - 1.7%
Aaa AAA $1,000 State of Oregon Health,
Housing, Educational and
Cultural Facilities
Authority, Lewis and Clark
College, (MBIA), 6.00%,
10/1/13 $ 1,025,980
Aaa AAA 1,500 State of Oregon Health,
Housing, Educational and
Cultural Facilities
Authority, Lewis and Clark
College, (MBIA), 6.125%,
10/1/24 1,535,640
------------
$ 2,561,620
------------
INSURED GENERAL
OBLIGATIONS - 11.6%
Aaa AAA $1,850 Deschutes and Jefferson
Counties, Redmond School
District, (MBIA), 5.60%,
6/1/09 $ 1,865,984
Aaa AAA 2,500 Deschutes County, City of
Sisters School District,
(MBIA), 5.40%, 12/1/10 2,459,000
Aaa AAA 2,750 Jefferson County, Madras
School District, (FSA),
5.50%, 6/15/13 2,712,930
Aaa AAA 1,000 Multnomah County, Parkrose
School District, (FGIC),
5.70%, 12/1/09 1,027,770
Aaa AAA 1,000 Multnomah County, Parkrose
School District, (FGIC),
5.50%, 12/1/10 1,005,770
Aaa AAA 2,500 Marion and Polk Counties,
Salem-Keizer School
District, (FSA), 5.40%,
6/1/12 2,409,100
Aaa AAA 3,500 Yamhill, Clackamas &
Washington Counties,
Newberg School Dist.,
(FSA), 5.50%, 6/1/10 3,471,755
Aaa AAA 2,000 Puerto Rico, (AMBAC),
Variable, 7/1/15 (1) 2,023,400
------------
$ 16,975,709
------------
INSURED HOSPITALS - 2.2%
Aaa AAA $2,000 City of Portland, Hospital
Facilities Authority,
Legacy Health System,
(AMBAC), 6.70%, 5/1/21 $ 2,146,520
Aaa AAA 1,000 Western Lane Hospital
District Authority,
Sisters of St. Joseph of
Peace, (MBIA), 5.75%,
8/1/19 1,003,150
------------
$ 3,149,670
------------
INSURED - CERTIFICATES OF
PARTICIPATIONS - 2.0%
Aaa AAA $1,250 State of Oregon,
Department of General
Services, Real Property
Financing Program,
(AMBAC), 6.25%, 9/1/15 $ 1,295,138
Aaa AAA 1,500 State of Oregon,
Department of General
Services, Real Property
Financing Program, (MBIA),
6.25%, 11/1/19 (2) 1,559,595
------------
$ 2,854,733
------------
INSURED UTILITIES - 1.7%
Aaa AAA $1,000 Lane County, Emerald
People's Utility District,
Electric System, (AMBAC),
5.75%, 11/1/16 $ 1,000,610
Aaa AAA 1,000 City of Eugene, Electric
Utility Revenue, (MBIA),
5.80%, 8/1/22 1,011,210
Aaa AAA 500 Puerto Rico Electric Power
Authority, (FSA),
Variable, 7/1/03 (1) 558,305
------------
$ 2,570,125
------------
INSURED WATER
& SEWER - 4.5%
Aaa AAA $1,000 City of Beaverton,
Washington County, Water
Revenue, (FSA), 6.125%,
6/1/14 $ 1,027,200
Aaa AAA 1,500 City of Portland, Sewer
System, (FGIC), 6.00%,
10/1/12 1,542,135
Aaa AAA 1,000 South Fork Water Board,
First Lien Water Revenue,
(FSA), 6.00%, 2/1/19 1,024,020
Aaa AAA 1,375 Washington County, Unified
Sewerage Agency, Senior
Lien, (AMBAC), 6.125%,
10/1/12 1,427,690
Aaa AAA 1,500 Washington County, Unified
Sewerage Agency, (AMBAC),
6.125%, 10/1/12 1,557,480
------------
$ 6,578,525
------------
</TABLE>
69
<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>
CERTIFICATES OF
PARTICIPATION - 1.7%
Aa A $1,500 Multnomah County, Juvenile
Justice Complex, 6.00%,
8/1/12 $ 1,535,865
Aa NR 1,000 Multnomah County, Health
System Facilities, 5.50%,
7/1/13 979,900
------------
$ 2,515,765
------------
MISCELLANEOUS - 3.9%
A A $3,000 Metropolitan Service
District, Metro
Headquarters Building
Project, 5.25%, 8/1/22 $ 2,682,930
A NR 1,600 State of Oregon, Oregon
Bond Bank, Special Public
Works Fund, 5.375%, 1/1/14 1,523,744
A1 NR 1,500 State of Oregon Health,
Housing, Educational and
Cultural Facilities
Authority, Oregon Coast
Aquarium, 5.25%, 10/1/13 1,427,640
------------
$ 5,634,314
------------
SPECIAL TAX REVENUE - 6.8%
A NR $1,000 City of Portland, Urban
Renewal and Redevelopment
Bonds, Downtown Waterfront
Project, 6.40%, 6/1/08 $ 1,066,770
Baa1 A 1,500 Puerto Rico Highway and
Transportation Authority,
6.375%, 7/1/08 1,586,550
Baa1 A 1,720 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 1,548,275
Baa1 A 2000 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/17 1,872,100
Baa1 A 800 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/18 834,880
A1 AA 3,000 Tri-County Metropolitan
Transportation District,
Limited Tax Pledge, 5.70%,
8/1/13 2,993,130
------------
$ 9,901,705
------------
TRANSPORTATION - 3.4%
Ba1 BB $1,500 Port of Portland, Special
Obligation Revenue Bonds,
Delta Air Lines, Inc.
Project, (AMT), 6.20%,
9/1/22 $ 1,435,725
NR BBB 2,000 Guam Airport Authority,
6.50%, 10/1/23 2,007,180
NR BBB 1,500 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 1,510,800
------------
$ 4,953,705
------------
UTILITIES - 14.3%
A1 AA $1,500 City of Eugene, Electric
Utility System, 6.00%,
8/1/11 $ 1,533,000
A1 AA 4,055 City of Eugene, Electric
Utility System, 5.75%,
8/1/16 4,025,480
Aa AA 4,000 City of Eugene, Trojan
Nuclear Power Project,
5.90%, 9/1/09 (2) 3,999,920
Aa AA 4,000 Northern Wasco County,
People's Utility District,
McNary Dam Fishway
Hydroelectric Project,
Bonneville Power
Administration, 5.20%,
12/1/24 3,571,040
Baa1 A- 8,000 Puerto Rico Electric Power
Authority, 5.00%, 7/1/12 7,245,840
A A+ 500 Puerto Rico Telephone
Authority, Variable,
1/1/20 (1) 510,830
------------
$ 20,886,110
------------
WATER & SEWER - 4.3%
NR A+ $2,000 Clackamus County, Water
Revenue, 6.375%, 10/1/14 $ 2,097,880
A A+ 1,500 City of Gresham, Water
Revenue, 5.20%, 11/1/10 1,470,615
A A+ 1,000 City of Gresham, Water
Revenue, 5.30%, 11/1/15 965,110
Aa A+ 1,800 City of Portland, Water
Systems, 5.25%, 8/1/13 1,711,673
------------
$ 6,245,278
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$143,369,782) $146,019,151
============
</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 Oregon
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 August 31, 1995, 35.3% 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 5.2% to 8.2% of total investments.
See notes to financial statements
70
<PAGE>
- --------------------------------------------------------------------------------
South Carolina Tax Free Portfolio
Portfolio of Investments - August 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 - 3.8%
NR BBB- $1,000 Puerto Rico ITEME,
Polytechnic University of
Puerto Rico, 5.50%, 8/1/24 $ 876,150
NR A 1,500 SC Education Authority,
Student Loan, (AMT), 6.30%,
9/1/08 1,516,575
-----------
$ 2,392,725
-----------
ESCROWED - 1.5%
Aaa AA $ 500 Columbia, South Carolina
Waterworks and Sewer
System, 7.10%, 2/1/12 $ 570,865
Aaa AAA 350 South Carolina Public
Service Authority, Santee
Cooper, 6.625%, 7/1/31 397,292
-----------
$ 968,157
-----------
GENERAL OBLIGATIONS - 5.7%
NR BBB $1,025 Guam, 5.40%, 11/15/18 $ 895,204
Baa1 A 1,000 Puerto Rico Public
Building, 5.75%, 7/1/16 956,670
Baa1 A 1,000 Puerto Rico, 6.50%, 7/1/23 1,029,630
A A 500 Spartanburg Sanitary Sewer
District, 5.40%, 3/1/10 481,520
NR NR 200 Virgin Islands, 7.25%,
10/1/18 210,004
-----------
$ 3,573,028
-----------
HOSPITALS - 6.0%
NR AA- $ 725 Greenville Hospital System
Board of Trustees, 7.00%,
5/1/17 $ 759,365
Baa1 NR 1,500 Horry County, Conway
Hospital, 6.75%, 7/1/12 1,527,705
NR AAA 1,500 SC Jobs Economic
Development, Oconee
Memorial Hospital, 6.15%,
3/1/25 1,499,970
-----------
$ 3,787,040
-----------
HOUSING - 9.5%
NR AA $ 995 South Carolina HFA, MFMR,
Westbury Place, 6.05%,
7/1/27 $ 951,698
NR BBB+ 1,000 South Carolina HDA, MFMR,
Hunting Ridge, (AMT),
6.75%, 6/1/25 983,480
Aa AA 1,500 South Carolina HFA, SFMR,
6.375%, 7/1/16 1,501,560
Aa NR 1,500 South Carolina HFA, SFMR,
6.45%, 7/1/17 1,510,260
Aa NR 1,000 South Carolina HFA, SFMR,
(AMT), 6.75%, 7/1/26 1,010,570
-----------
$ 5,957,568
-----------
INDUSTRIAL DEVELOPMENT - 18.0%
Baa2 BBB $1,000 Aiken County, Beliot
Corporation, 6.00%, 12/1/11 $ 991,700
NR BBB+ 1,500 Chester County, 7.35%,
2/1/14 1,609,395
A1 AA- 1,500 Darlington County, Nucor
Corporation, (AMT), 5.75%,
8/1/23 (3) 1,405,185
A2 A+ 500 Darlington County, Sonoco
Products, (AMT), 6.125%,
6/1/25 498,920
Aa3 AA 500 Florence County, Pollution
Control, E.I. du Pont de
Nemours & Co., 6.35%,
7/1/22 520,050
A1 A- 2,665 Richland County, Pollution
Control, Union Camp
Corporation, (AMT), 6.75%,
11/1/22 2,812,854
NR NR 1,500 Spartanburg County, Solid
Waste, Bavarian Motor Works
Corporation, (AMT), 7.55%,
11/1/24 1,618,440
A2 A+ 2,000 York County, Hoechst
Celanese Corporation,
(AMT), 5.70%, 1/1/24 1,869,640
-----------
$11,326,184
-----------
INSURED EDUCATION - 0.4%
Aaa AAA $ 250 College of Charleston,
Housing and Auxiliary
Facilities, (MBIA), 6.00%,
10/1/07 $ 257,818
-----------
INSURED GENERAL OBLIGATION - 1.7%
Aaa AAA $1,000 Berkeley County School
District, (AMBAC), 6.30%,
2/1/16 $ 1,039,360
-----------
INSURED HOSPITAL - 5.9%
Aaa AAA $1,000 Florence County, McLeod
Medical Center, (FGIC),
5.25%, 11/1/09 $ 947,310
Aaa AAA 1,500 Greenwood County, Self
Memorial Hospital, (FGIC),
5.875%, 10/1/17 1,493,490
Aaa AAA 300 Lexington County Health
Services District, Inc.,
(FSA), 6.75%, 10/1/18 317,547
Aaa AAA 1,000 South Carolina
Jobs-Economic Development,
South Carolina Baptist
Hospital, (AMBAC), 5.45%,
8/1/15 934,330
-----------
$ 3,692,677
-----------
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 7.3%
Aaa AAA $ 500 Charleston County, COP,
(MBIA), 6.10%, 6/1/11 $ 513,820
Aaa AAA 1,000 Charleston County, COP,
(MBIA), 7.00%, 6/1/19 1,079,830
Aaa AAA 1,060 Chesterfield County School
District, COP, (MBIA),
6.00%, 7/1/15 1,058,664
Aaa AAA 1,000 Florence County, COP, Law
Center, (AMBAC), 6.00%,
3/1/14 1,003,570
Aaa AAA 900 North Charleston, COP,
Coliseum Capital
Improvements, (FGIC),
6.00%, 1/1/11 915,318
-----------
$ 4,571,202
-----------
</TABLE>
71
<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 SOLID WASTE - 0.8%
Aaa AAA $ 500 Charleston County, (FGIC),
6.00%, 1/1/14 $ 508,995
-----------
INSURED TRANSPORTATION - 1.5%
Aaa AAA $1,105 Charleston County Airport,
(MBIA), 4.75%, 7/1/15 $ 952,919
-----------
INSURED UTILITIES - 12.5%
Aaa AAA $ 300 Piedmont Municipal Power
Agency, (MBIA), 6.25%,
1/1/09 $ 322,785
Aaa AAA 1,000 Piedmont Municipal Power
Agency, (MBIA), 6.30%,
1/1/14 1,039,880
Aaa AAA 400 Puerto Rico Electric Power
Authority, (STRIPES),
(FSA), Variable, 7/1/02 (1) 441,732
Aaa AAA 150 Rock Hill, Downtown
Redevelopment, (AMBAC),
5.375%, 1/1/24 141,399
Aaa AAA 1,000 South Carolina Public
Service Authority, Santee
Cooper, (AMBAC), 5.00%,
1/1/14 907,230
Aaa AAA 1,000 South Carolina Public
Service Authority, Santee
Cooper, (MBIA), 5.125%,
1/1/32 867,170
Aaa AAA 1,500 South Carolina Public
Service Authority, (MBIA),
5.75%, 1/1/10 (2) 1,478,295
Aaa AAA 1,500 South Carolina Public
Service Authority, (MBIA),
5.75%, 1/1/22 (2) 1,422,090
Aaa AAA 1,250 South Carolina Public
Service Authority, (AMBAC),
6.375%, 7/1/21 1,279,025
-----------
$ 7,899,606
-----------
INSURED WATER & SEWER - 5.2%
Aaa AAA $1,000 Berkeley County, South
Carolina Water and Sewer
System, (MBIA), 5.55%,
6/1/15 $ 954,920
Aaa AAA 2,000 Cayce, South Carolina Water
and Sewer System, (AMBAC),
5.25%, 7/1/15 (3) 1,840,320
Aaa AAA 500 Mount Pleasant, Waterworks
and Sewer System, (AMBAC),
6.00%, 12/1/20 505,950
-----------
$ 3,301,190
-----------
LEASE/CERTIFICATE OF
PARTICIPATION - 4.1%
Baa NR $ 750 Lexington School District,
COP, 6.90%, 7/1/08 $ 784,223
Baa1 BBB+ 1,750 Myrtle Beach Convention
Center, COP, 6.875%, 7/1/17 1,802,762
-----------
$ 2,586,985
-----------
MISCELLANEOUS - 0.5%
NR A+ $ 300 South Carolina Resource
Authority, 7.00%, 4/1/13 $ 311,634
-----------
SPECIAL TAX - 1.1%
Baa1 A $ 750 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/19 $ 700,020
-----------
UTILITIES - 13.5%
A2 A- $1,650 Berkeley County, South
Carolina Electric & Gas
Company, 6.50%, 10/1/14 $ 1,746,195
A2 A 1,500 Darlington County, Carolina
Power & Light Company,
6.60%, 11/1/10 1,596,915
NR BBB 500 Guam Power Authority,
5.25%, 10/1/23 428,920
Aa2 AA- 1,000 Oconee County, PCR, Duke
Power, 5.80%, 4/1/14 990,970
A BBB 500 Piedmont Municipal Power
Agency, 5.75%, 1/1/24 458,910
Baa1 A- 1,400 Puerto Rico Electric Power
Authority, 6.250%, 7/1/17 1,414,000
Baa1 A- 500 Puerto Rico Electric Power
Authority, 6.375%, 7/1/24 508,735
A1 A+ 500 South Carolina Public
Service Authority, Santee
Cooper, 6.00%, 7/1/31 488,435
A1 A+ 1,000 South Carolina Public
Service Authority, 5.125%,
1/1/32 849,170
-----------
$ 8,482,250
-----------
WATER & SEWER REVENUE - 1.0%
Aa AA $ 500 Columbia, Waterworks and
Sewer System, 5.375%,
2/1/12 $ 483,830
A1 AA- 150 Spartanburg, Water System,
6.25%, 6/1/12 155,079
-----------
$ 638,909
-----------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$60,604,156) $62,948,267
===========
</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.
The Portfolio invests primarily in debt securities issued by South Carolina
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 August 31, 1995, 35.3% 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 1.2% to 15.8% of total investments.
See notes to financial statements
72
<PAGE>
- --------------------------------------------------------------------------------
Tennessee Tax Free Portfolio
Portfolio of Investments - August 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 - 4.3%
Aa AA $1,600 Nashville and Davidson
County, The Vanderbilt
University, 5.20%, 7/1/18 $ 1,462,256
Baa NR 1,000 Nashville and Davidson
County, The Belmont
University, 6.40%, 12/1/19 998,650
-----------
$ 2,460,906
-----------
GENERAL OBLIGATION - 4.1%
Aa AA+ $1,000 Shelby County, 5.625%,
4/1/14 $ 973,560
Aa AA+ 1,000 Shelby County, 5.125%,
3/1/16 907,440
Aa NR 500 Williamson County, Rural
School Bonds, 5.80%, 3/1/12 504,710
-----------
$ 2,385,710
-----------
HOSPITAL - 4.0%
Baa1 NR $ 500 City of Clarksville,
Clarksville Memorial
Hospital, 6.25%, 7/1/08 $ 497,765
Baa1 NR 500 City of Clarksville,
Clarksville Memorial
Hospital, 6.375%, 7/1/08 487,915
Baa1 BBB+ 250 County of Knox, East
Tennessee Children's
Hospital, 6.50%, 10/1/12 249,728
NR A- 1,000 Sumner County, Sumner
Regional Health Systems,
7.50%, 11/1/14 1,084,970
-----------
$ 2,320,378
-----------
HOUSING - 16.2%
NR AAA $ 500 Knoxville Community
Development Corporation,
MFMR, Morningside Gardens,
(GNMA) 6.10%, 7/20/20 $ 486,860
NR A 750 Knoxville Community
Development Corporation,
MFMR, Clinton Towers,
6.65%, 10/15/10 760,140
NR A 1,645 Nashville and Davidson
County, MFMR, The Park at
Hermitage, 5.90%, 2/1/19 1,494,054
NR A 800 Murfreesboro Housing
Authority, MFMR, Westbrooks
Towers Project, 5.875%,
7/15/10 755,120
Aa A+ 500 TN HDA, Homeownership
Program, 6.80%, 7/1/17 510,560
A1 A+ 2,000 TN HDA, Mortgage Finance
Program, 5.85%, 7/1/13 1,973,680
A1 A+ 2,000 TN HDA, Mortgage Finance
Program, 5.95%, 7/1/28 1,938,180
Aa AA 1,500 TN HDA, Homeownership
Program, (AMT), 5.75%,
7/1/24 1,394,550
-----------
$ 9,313,144
-----------
INDUSTRIAL DEVELOPMENT
REVENUE - 16.0%
Aa2 AA $1,000 City of Chattanooga, E.I.
du Pont de Nemours and
Company Project, 6.35%,
7/1/22 $ 1,040,100
Aa2 AA 1,000 Humphreys County, E.I. du
Pont de Nemours and Company
Project, 6.70%, 5/1/24 1,056,030
Aa2 AA 2,000 Loudon County,
Kimberly-Clark Corporation
Project, (AMT), 6.20%,
2/1/23 (2) 2,006,900
Baa1 BBB 1,750 Maury County, Saturn
Corporation Project, 6.50%,
9/1/24 1,796,970
Baa1 BBB 250 McMinn County, Calhoun
Newsprint Company, Bowater
Incorporated Obligor,
(AMT), 7.40%, 12/1/22 264,340
Baa3 BBB 1,500 Memphis-Shelby County
Airport Authority, Federal
Express Corporation, 6.75%,
9/1/12 1,562,475
Baa3 BBB 1,000 Memphis-Shelby County
Airport Authority, Federal
Express Corporation, (AMT),
6.20%, 7/1/14 1,005,000
NR BBB+ 500 Nashville and Davidson
County, Osco Treatment
Systems, (AMT), 6.00%,
5/1/03 499,040
-----------
$ 9,230,855
-----------
INSURED GENERAL OBLIGATION - 0.5%
Aaa AAA $ 300 Puerto Rico, (AMBAC),
Variable, 7/1/15 (1) $ 303,510
-----------
INSURED HOUSING - 1.8%
Aaa AAA $1,000 Knox County, SCA Realty
Multifamily Mortgage
Receipts, (FSA), 7.125%,
1/1/30 (2) $ 1,069,290
-----------
INSURED HOSPITAL - 21.9%
Aaa AAA $ 500 City of Bristol, Bristol
Memorial Hospital, (FGIC),
6.75%, 9/1/10 $ 552,955
Aaa AAA 2,000 City of Bristol, Bristol
Memorial Hospital, (FGIC),
5.125%, 9/1/13 1,839,980
Aaa AAA 1,500 Chattanooga-Hamilton
County, Erlanger Medical
Center, (FSA), 5.625%,
10/1/18 1,442,805
Aaa AAA 250 City of Chattanooga,
Memorial Hospital Project,
(MBIA), 6.625%, 9/1/09 276,158
Aaa AAA 1,000 City of Johnson, Johnson
City Medical Center,
(MBIA), 5.00%, 7/1/13 906,620
Aaa AAA 1,500 City of Johnson, Johnson
City Medical Center,
(MBIA), 5.25%, 7/1/16 1,377,135
Aaa AAA 1,000 Knox County, Mercy Health
System, (AMBAC), 6.00%,
9/1/19 (2) 1,004,450
Aaa AAA 2,000 Knox County, Fort Sanders
Alliance Obligated Group,
(MBIA), 5.25%, 1/1/23 1,802,000
</TABLE>
73
<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 1,500 Shelby County, LeBonheur
Children's Medical Center,
Inc., (MBIA), 5.50%,
8/15/12 1,436,204
Aaa AAA 2,000 Sullivan County, Holston
Valley Health Care Inc.,
(MBIA), 5.75%, 2/15/13 (2) 1,980,380
-----------
$12,618,687
-----------
INSURED SPECIAL TAX - 1.9%
Aaa AAA $1,000 City of Johnson, School
Sales Tax Revenue, (AMBAC),
6.70%, 5/1/21 $ 1,070,690
-----------
INSURED TRANSPORTATION - 4.4%
Aaa AAA $1,500 Memphis-Shelby County
Airport Authority, (MBIA),
5.65%, 9/1/15 $ 1,468,350
Aaa AAA 1,000 Memphis-Shelby County
Airport Authority, (MBIA),
(AMT), 6.50%, 2/15/09 1,080,230
-----------
$ 2,548,580
-----------
INSURED UTILITIES - 2.4%
Aaa AAA $1,000 Madison County Suburban
Utility District, (MBIA),
5.00%, 2/1/19 $ 905,310
Aaa AAA 400 Puerto Rico Electric Power
Authority, (FSA), Variable,
7/1/03 (1) 446,644
-----------
$ 1,351,954
-----------
INSURED WATER & SEWER - 4.8%
Aaa AAA $ 500 Roane and Morgan Counties,
Cumberland Utility
District, Waterworks
Revenue, (MBIA), 5.90%,
1/1/23 $ 499,950
Aaa AAA 1,000 Nashville and Davidson
Counties, Water and Sewer
Revenue, (AMBAC), 5.75%,
1/1/15 989,560
Aaa AAA 350 Nashville and Davidson
Counties, Water and Sewer
Revenue, (AMBAC), Variable,
1/1/22 (1) 358,740
Aaa AAA 1,000 Nashville and Davidson
Counties, Water and Sewer
Revenue, (FGIC), 5.20%,
1/1/13 935,930
-----------
$ 2,784,180
-----------
CERTIFICATE OF
PARTICIPATION - 0.9%
A NR $ 500 Wilson County Educational
Facilities Corporation,
6.125%, 6/30/10 $ 508,050
-----------
POOLED LOANS - 6.7%
A AA- $ 700 Tennessee Local Development
Authority, State Loan
Program, 5.00%, 3/1/15 $ 637,406
A AA- 2,000 Tennessee Local Development
Authority, State Loan
Program, 5.75%, 3/1/11 2,004,320
NR A- 1,200 Tennessee Local Development
Authority, Community
Provider Pooled Loan
Program, 6.55%, 10/1/23 1,227,420
-----------
$ 3,869,146
-----------
NURSING HOMES - 1.8%
NR A+ $1,000 Tennessee State Veterans'
Homes Board, Humboldt
Project, 6.65%, 2/1/14 $ 1,025,410
-----------
TRANSPORTATION - 1.7%
NR BBB $1,000 Guam Airport Authority,
6.70%, 10/1/23 $ 1,007,200
-----------
UTILITIES - 4.4%
NR NR $1,000 Scott and Morgan Counties,
Citizens Gas Utility
District, 6.00%, 1/1/13 $ 959,390
Aa AA 1,000 Nashville and Davidson
Counties, Electric System
Revenue, 6.00%, 5/15/17 1,013,400
Baa1 A- 500 Puerto Rico Electric Power
Authority, 5.00%, 7/1/12 452,865
Baa1 A- 100 Puerto Rico Electric Power
Authority, 7.00%, 7/1/21 110,518
-----------
$ 2,536,173
-----------
WATER & SEWER - 2.2%
NR BBB+ $ 250 Hamilton County, Eastside
Utility District, 6.50%,
11/1/05 $ 263,208
NR BBB+ 250 Hamilton County, Eastside
Utility District, 6.75%,
11/1/11 260,455
A1 A 750 Davidson and Williamson
Counties, Harpeth Valley
Utility District, 5.50,
9/1/11 722,212
-----------
$ 1,245,875
-----------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$57,120,750) $57,649,738
===========
</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 Tennessee
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 August 31, 1995, 37.7% 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 0.8% to 20.3% of total investments.
See notes to financial statements
74
<PAGE>
- --------------------------------------------------------------------------------
Virginia Tax Free Portfolio
Portfolio of Investments - August 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 - 10.1%
NR A $2,000 Lynchburgh, IDA, Randolph-
Macon Woman's College,
5.875%, 9/1/23 $ 1,945,140
Baa1 NR 2,220 Rockingham County, IDA,
Bridgewater College,
5.95%, 10/1/13 2,120,633
NR A- 1,570 Virginia College Building
Authority, Hampden-Sydney
College, 6.60%, 9/1/16 1,631,073
NR A+ 400 Virginia College Building
Authority, Hampton
University, 6.50%, 4/1/08 421,988
NR A+ 1,000 Virginia College Building
Authority, Hampton
University, 5.75%, 4/1/14 962,440
NR BBB- 1,150 Virginia College Building
Authority, Marymount
University, 7.00%, 7/1/12 1,203,694
NR BBB- 2,200 Virginia College Building
Authority, Marymount
University, 7.00%, 7/1/22 2,287,626
Aa AA 1,500 Virginia College Building
Authority, Washington and
Lee University, 5.80%,
1/1/24 1,491,585
A NR 1,350 Virginia Education Loan
Authority, (AMT), 6.15%,
9/1/09 1,336,271
Aaa NR 5,650 Virginia Education Loan
Authority, (AMT), 5.55%,
9/1/10 5,422,417
------------
$ 18,822,867
------------
ESCROWED - 1.9%
Aaa NR $1,000 Arlington, IDA, Arlington
Hospital, 7.125%, 9/1/21 $ 1,154,580
A NR 500 Augusta, IDA, Augusta
Hospital, 7.00%, 9/1/21 572,615
NR A+ 1,700 Virginia Beach, Virginia
Water and Sewer System,
6.625%, 2/01/17 1,914,353
------------
$ 3,641,548
------------
GENERAL OBLIGATIONS - 5.6%
Aaa AAA $1,000 Fairfax County, 5.625%,
6/1/14 $ 985,670
Baa1 A 350 Puerto Rico, 0.00%, 7/1/04 218,953
A1 AA 500 Richmond, 6.25%, 1/5/18 509,085
A1 AA 2,000 Richmond, 6.25%, 1/15/21 2,024,460
Aa AA 1,000 Roanoke County, 5.00%,
6/01/21 881,520
Aa AA 1,500 Virginia Public School
Authority, 6.50%, 8/1/12 1,571,505
NR NR 4,000 Virgin Island, 7.25%,
10/1/18 4,200,080
------------
$ 10,391,273
------------
HEALTH CARE - 0.2%
NR NR $ 365 Covington-Allegheny
County, IDA, Beverly
Enterprises, 9.375%,
9/1/01 $ 412,304
------------
HOSPITALS - 16.7%
A NR $1,100 Albermarle County, IDA,
Martha Jefferson Hospital,
5.50%, 10/1/15 $ 1,024,133
A NR 3,800 Albermarle County, IDA,
Martha Jefferson Hospital,
5.50%, 10/1/20 3,463,586
A NR 380 Chesapeake Hospital,
Chesapeake General
Hospital, 7.60%, 7/1/00 417,057
Aa AA- 2,910 Fairfax, IDA, Inova Health
System Hospitals, 5.00%,
8/15/14 2,580,122
Aa AA- 2,000 Fairfax, IDA, Inova Health
System Hospitals, 5.00%,
8/15/15 1,756,440
A A 1,250 Martinsville, IDA,
Memorial Hospital of
Martinsville and Henry
County, 7.00%, 1/1/06 1,317,113
NR A- 2,000 Medical College of Hampton
Roads, GO, 6.875%,
11/15/11 2,117,000
Aa AA 1,000 Norfolk, IDA, Sentara
Health System, 5.50%,
11/01/17 941,400
Aa AA 3,000 Norfolk, IDA, Sentara
Health System, 5.00%,
11/1/20 2,612,760
Aa AA 2,250 Norfolk, IDA, Sentara
Health System, 6.50%,
11/1/13 2,377,823
Aa AA- 3,500 Peninsula Ports Authority
of Virginia, Riverside
Health System, 6.625%,
7/1/10 3,679,550
A NR 1,200 Prince William County,
IDA, Prince William
Hospital, 5.25%, 4/1/19 1,030,548
A NR 2,400 Prince William County,
IDA, Potomac Hospital,
6.85%, 10/1/25 2,545,728
Aa AA 4,000 Virginia Beach Development
Authority, Sentara Bayside
Hospital, 6.60%, 11/1/09 4,205,200
A NR 1,060 Washington County, IDA,
Johnston Memorial
Hospital, 7.00%, 7/1/22 1,121,989
------------
$ 31,190,449
------------
HOUSING - 10.9%
NR AAA $1,250 Fairfax County
Redevelopment and Housing
Authority, MFMR, (FHA),
7.00%, 5/1/26 $ 1,309,138
NR AAA 200 Harrisonburg Redevelopment
and Housing Authority,
MFMR, (GNMA), 7.375%,
11/20/28 210,291
Aa1 AA+ 5,000 Virginia HDA, MFMR, 6.75%,
7/1/21 5,065,950
</TABLE>
75
<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>
HOUSING - (CONTINUED)
Aa AA+ 3,500 Virginia HDA, MFMR, 7.05%,
5/1/18 3,663,170
Aa1 A+ 2,350 Virginia HDA, SFMR, 7.10%,
1/1/17 2,463,811
Aa1 NR 2,500 Virginia HDA, SFMR, 6.85%,
1/1/15 2,589,325
Aa1 A+ 3,000 Virginia HDA, SFMR, 7.10%,
1/1/22 3,135,450
Aa NR 1,900 Virginia HDA, SFMR,
Variable, 7/1/04 (1) 1,916,359
------------
$ 20,353,494
------------
INDUSTRIAL DEVELOPMENT
AUTHORITY - 7.5%
Aa NR $2,190 Chesapeake, IDA, Cargill
Inc., 5.875%, 3/1/13 $ 2,200,643
A2 A+ 1,000 Giles City, IDA, Hoechst
Celanese Corporation,
(AMT), 6.625%, 12/1/22 1,035,820
A1 A- 4,000 Isle of Wright County,
IDA, Union Camp
Corporation, (AMT), 6.55%,
4/1/24 4,192,480
Baa3 BBB 5,520 West Point, IDA,
Chesapeake Corporation,
(AMT), 6.375%, 3/1/19 5,516,578
Baa3 BBB 980 West Point, IDA,
Chesapeake Corporation,
6.25%, 3/1/19 981,480
------------
$ 13,927,001
------------
INSURED GENERAL
OBLIGATION - 0.9%
Aaa AAA $2,000 Loudon County, (MBIA),
5.25%, 1/1/30 $ 1,785,320
------------
INSURED HEALTH CARE - 1.0%
Aaa AAA $2,000 Hanover County, Bonsecour
Health System, (MBIA),
5.50%, 8/15/25 $ 1,853,800
------------
INSURED HOSPITALS - 7.6%
Aaa AAA $1,665 Arlington, IDA, The
Arlington Hospital,
(AMBAC), 5.00%, 9/1/21 $ 1,421,960
Aaa AAA 5,000 Augusta County, IDA,
Augusta Hospital
Corporation, (AMBAC),
5.125%, 9/1/21 4,543,500
Aaa AAA 3,000 Chesapeake Hospital
Authority, Chesapeake
General Hospital, (MBIA),
5.25%, 7/1/18 2,739,390
Aaa AAA 1,000 Norfolk, IDA, Children's
Hospital of the King's
Daughters Obligated Group,
(AMBAC), 5.50%, 6/1/20 934,650
Aaa AAA 1,000 Roanoke, IDA, Franklin
Memorial Hospital and St.
Albans Psychiatric
Hospital (MBIA), 5.25%,
7/1/25 896,350
Aaa AAA 2,250 Virginia Beach, IDA,
Virginia Beach Memorial
Hospital, (AMBAC), 5.125%,
2/15/18 2,034,495
Aaa AAA 1,700 Winchester, IDA,
Winchester Medical Center,
(AMBAC), Variable, 1/1/08
(1) 1,667,836
------------
$ 14,238,181
------------
INSURED LEASE - 0.5%
Aaa AAA $1,000 Riverside Regional Jail
Authority, (MBIA), 6.00%,
7/1/25 $ 999,890
------------
INSURED TRANSPORTATION - 5.4%
Aaa AAA $6,500 Metropolitan Washington
Airports Authority,
(MBIA), (AMT), 5.75%,
10/1/20 $ 6,233,500
Aaa AAA 3,000 Northern Virginia
Transportation District
Commission, (CGIC), 5.25%,
7/1/10 2,868,750
Aaa AAA 1,000 Richmond Metropolitan
Authority Expressway,
(FGIC), 6.375%, 7/15/16 1,035,800
------------
$ 10,138,050
------------
INSURED WATER & SEWER - 2.8%
Aaa AAA $2,000 Loudon County Sanitation
Authority, (MBIA), 5.25%,
1/1/25 $ 1,809,240
Aaa AAA 1,000 Norfolk Water, (AMBAC),
5.25%, 11/1/13 937,610
Aaa AAA 1,000 Roanoke County, Water and
Sewer, (FGIC), 5.00%,
7/1/21 881,360
Aaa AAA 1,750 Upper Occoquan Sewage
Authority, (FGIC), 5.00%,
7/1/15 1,578,570
------------
$ 5,206,780
------------
LEASE/CERTIFICATES OF
PARTICIPATION - 11.2%
Aa AA $4,250 Fairfax County Economic
Development Authority,
Lease, Government Center
Properties, 5.50%, 5/15/18 $ 4,033,378
Aa AA 1,750 Fairfax County Economic
Development Authority,
Lease, Government Center
Properties 5.25%, 11/15/18 1,605,030
Aa AA 3,200 Fairfax County Economic
Development Authority,
Lease, Government Center
Properties 5.50%, 5/15/14 3,073,407
NR A- 2,500 Hampton, Museum Revenue,
5.25%, 1/1/09 2,389,025
A NR 3,000 Harrisonburg Redevelopment
and Housing Authority,
Lease, Rockingham County
and Harrisonburg, 6.50%,
9/1/14 3,089,640
</TABLE>
76
<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/CERTIFICATES OF
PARTICIPATION - (CONTINUED)
Aa AA 2,000 Henrico County, IDA,
Lease, 7.00%, 8/1/13 2,251,580
Aa AA 2,250 Henrico County, IDA,
Lease, 7.125%, 8/1/21 2,545,043
NR NR 1,250 King George County, Lease,
7.00%, 12/15/12 1,299,025
NR A 600 Prince William County,
IDA, Virginia Commuter
Parking Facilities Lease,
7.25%, 3/1/11 677,484
------------
$ 20,963,612
------------
LIFE CARE - 1.1%
NR NR $2,000 Loudon County, IDA,
Falcons Landing, 8.75%,
11/01/24 $ 2,032,500
------------
SOLID WASTE - 1.2%
A1 A+ $ 915 Fairfax County Economic
Development Authority,
Ogden Martin Systems of
Fairfax Incorporated,
(AMT), 7.75%, 2/1/11 $ 1,002,694
Baa1 A- 1,250 Southeastern Public
Service Authority, Solid
Waste Systems, 6.00%,
7/1/13 1,208,750
------------
$ 2,211,444
------------
SPECIAL TAX REVENUE - 6.9%
Baa1 A $1,375 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/19 $ 1,283,370
Baa1 A 2,200 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/20 1,980,352
Baa1 A 1,000 Puerto Rico Highway &
Transportation Authority,
5.00%, 7/1/22 863,810
Baa1 A 1,000 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/15 950,160
Aa AA 1,000 Virginia State
Transportation Board
Revenue, Route 28,
Variable, 4/1/18 (1) 1,092,590
Aa AA 2,800 Virginia State
Transportation Board
Revenue, US Route 28,
5.25%, 5/15/19 2,565,724
Aa AA 4,000 Virginia State
Transportation Board
Revenue, Route 28, 6.50%,
4/1/18 4,156,640
------------
$ 12,892,646
------------
UTILITIES - 2.9%
Baa1 A- $3,000 Puerto Rico Electric
Authority Power, 0.00%,
7/1/17 $ 793,290
Baa1 A- 1,000 Puerto Rico Electric
Authority Power, 6.00%,
7/1/14 994,320
NR NR 1,000 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 1,047,510
A2 A 2,700 Louisa, IDA, Virginia
Electric and Power
Company, 5.45%, 1/1/24 2,488,320
------------
$ 5,323,440
------------
WATER & SEWER REVENUE - 5.6%
Aa AA- $2,250 Fairfax County Virginia
Water Authority, 5.75%,
4/1/29 $ 2,194,380
Aa AA- 1,000 Fairfax County Virginia
Water Authority, Variable,
4/1/29 (1) 934,120
Aa AA- 4,095 Fairfax County Virginia
Water Authority, 5.00%,
4/1/16 3,650,037
NR AA 2,000 Virginia Resource
Authority, Hopewell Waste
Water, (AMT), 6.00%,
10/1/25 1,950,960
NR AA 1,880 Virginia Resource
Authority, Campbell
Utilities, 5.125%, 10/1/19 1,663,085
------------
$ 10,392,582
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$179,383,019) $186,777,181
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by Virginia
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 August 31, 1995, 18.3% 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 0.7% to 8.7% of total investments.
See notes to financial statements
77
<PAGE>
- --------------------------------------------------------------------------------
Tax Free Portfolios
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $112,610,415 $79,275,204 $115,913,957 $141,197,528
Unrealized appreciation 3,869,441 1,544,657 3,429,375 2,007,717
------------ ----------- ------------ ------------
Total investments, at value (Note 1A) $116,479,856 $80,819,861 $119,343,332 $143,205,245
Cash 479 631 1,575,423 291,390
Receivable for investments sold 1,953,475 -- -- --
Interest receivable 1,842,994 1,202,749 2,030,938 2,222,506
Deferred organization expenses (Note 1D) 3,759 5,177 5,511 3,157
------------ ----------- ------------ ------------
Total assets $120,280,563 $82,028,418 $122,955,204 $145,722,298
------------ ----------- ------------ ------------
LIABILITIES:
Demand note payable (Note 5) $ 103,000 $ 444,000 $ -- $ --
Payable for investments purchased 1,625,182 -- -- 370,873
Payable for daily variation margin on open financial
futures contracts (Note 1E) 59,704 42,646 -- 74,630
Payable to affiliates --
Trustees' fees 1,339 1,009 1,339 1,339
Custodian fees 1,824 2,436 1,500 2,783
Accrued expenses 3,461 3,325 3,698 4,047
------------ ----------- ------------ ------------
Total liabilities $ 1,794,510 $ 493,416 $ 6,537 $ 453,672
------------ ----------- ------------ ------------
NET ASSETS applicable to investors' interest in
Portfolio $118,486,053 $81,535,002 $122,948,667 $145,268,626
============ =========== ============ ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $114,679,646 $80,035,368 $119,519,292 $143,339,700
Unrealized appreciation of investments and financial
futures contracts (computed on the basis of
identified cost) 3,806,407 1,499,634 3,429,375 1,928,926
------------ ----------- ------------ ------------
Total $118,486,053 $81,535,002 $122,948,667 $145,268,626
============ =========== ============ ============
</TABLE>
See notes to financial statements
78
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $33,349,873 $112,178,823 $88,354,959 $183,382,988
Unrealized appreciation 260,911 1,972,898 3,275,460 7,281,157
----------- ------------ ----------- ------------
Total investments, at value (Note 1A) $33,610,784 $114,151,721 $91,630,419 $190,664,145
Cash 47,590 732 358 1,453,646
Receivable for investments sold -- -- 866,873 --
Interest receivable 659,890 1,517,519 1,190,249 3,059,961
Deferred organization expenses (Note 1D) 4,697 3,865 3,364 8,323
----------- ------------ ----------- ------------
Total assets $34,322,961 $115,673,837 $93,691,263 $195,186,075
----------- ------------ ----------- ------------
LIABILITIES:
Demand note payable (Note 5) $ -- $ 603,000 $ 524,000 $ --
Payable for daily variation margin on open
financial futures contracts (Note 1E) 11,875 59,704 -- --
Payable to affiliates --
Trustees' fees 275 1,339 1,009 1,779
Custodian fees 500 1,974 1,978 1,500
Accrued expenses 1,632 3,644 2,173 4,072
----------- ------------ ----------- ------------
Total liabilities $ 14,282 $ 669,661 $ 529,160 $ 7,351
----------- ------------ ----------- ------------
NET ASSETS applicable to investors' interest in
Portfolio $34,308,679 $115,004,176 $93,162,103 $195,178,724
=========== ============ =========== ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $34,063,019 $113,094,311 $89,886,643 $187,897,567
Unrealized appreciation of investments and
financial futures contracts (computed
on the basis of identified cost) 245,660 1,909,865 3,275,460 7,281,157
----------- ------------ ----------- ------------
Total $34,308,679 $115,004,176 $93,162,103 $195,178,724
=========== ============ =========== ============
</TABLE>
See notes to financial statements
79
<PAGE>
- -------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
August 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $143,369,782 $ 60,604,156 $57,120,750 $179,383,019
Unrealized appreciation 2,649,369 2,344,111 528,988 7,394,162
------------ ------------- ----------- ------------
Total investments, at value (Note 1A) $146,019,151 $ 62,948,267 $57,649,738 $186,777,181
Cash 414,837 922,554 611 644
Receivable for investments sold -- 250,069 349,174 3,747,425
Interest receivable 2,002,597 901,959 930,255 3,441,666
Deferred organization expenses (Note 1D) 5,037 4,978 5,807 6,791
------------ ------------- ----------- ------------
Total assets $148,441,622 $ 65,027,827 $58,935,585 $193,973,707
------------ ------------- ----------- ------------
LIABILITIES:
Due to Bank $ -- $ -- $ 230,000 $ --
Demand note payable (Note 5) -- -- -- 795,000
Payable for investments purchased 2,012,175 737,459 -- 1,423,116
Payable for when issued securities (Note 1F) -- 2,872,768 -- --
Payable for daily variation margin on open
financial futures contracts (Note 1E) 32,063 -- 28,500 --
Payable to affiliates --
Trustees' fees 1,339 1,009 1,009 1,779
Custodian fees 3,011 1,770 1,000 1,500
Accrued expenses 2,113 3,153 1,773 4,390
------------ ------------ ----------- ------------
Total liabilities $ 2,050,701 $ 3,616,159 $ 262,282 $ 2,225,785
------------ ------------ ----------- ------------
NET ASSETS applicable to investors' interest in
Portfolio $146,390,921 $ 61,411,668 $58,673,303 $191,747,922
============ ============ =========== ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $143,780,409 $ 59,067,557 $58,178,854 $184,353,760
Unrealized appreciation of investments and
financial futures contracts (computed on the
basis of identified cost) 2,610,512 2,344,111 494,449 7,394,162
------------ ------------ ----------- ------------
Total $146,390,921 $ 61,411,668 $58,673,303 $191,747,922
============ ============ =========== ============
</TABLE>
See notes to financial statements
80
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 7,218,221 $ 4,986,371 $ 7,872,386 $ 8,874,638
----------- ----------- ----------- -----------
Expenses --
Investment adviser fee (Note 2) $ 466,320 $ 296,231 $ 521,159 $ 595,483
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 9,218 6,366 8,154 8,932
Custodian fee (Note 2) 16,491 23,999 1,500 35,132
Legal and accounting services 21,471 19,471 21,476 21,478
Amortization of organization expenses (Note 1D) 1,569 1,504 2,194 1,332
Miscellaneous 26,725 24,449 26,661 32,366
----------- ----------- ----------- -----------
Total expenses $ 541,794 $ 372,020 $ 581,144 $ 694,723
----------- ----------- ----------- -----------
Net investment income $ 6,676,427 $ 4,614,351 $ 7,291,242 $ 8,179,915
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(1,890,084) $(1,454,374) $(4,616,970) $ (885,272)
Financial futures contracts (1,483,364) (1,063,446) (2,695,409) (1,829,860)
----------- ----------- ----------- -----------
Net realized loss on investments $(3,373,448) $(2,517,820) $(7,312,379) $(2,715,132)
----------- ----------- ----------- -----------
Change in unrealized appreciation (depreciation) --
Investments $ 5,912,494 $ 3,484,695 $ 6,554,692 $ 4,974,832
Financial futures contracts (28,264) (20,556) 124,961 (32,432)
----------- ----------- ----------- -----------
Net unrealized appreciation $ 5,884,230 $ 3,464,139 $ 6,679,653 $ 4,942,400
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments $ 2,510,782 $ 946,319 $ (632,726) $ 2,227,268
----------- ----------- ----------- -----------
Net increase in net assets from operations $ 9,187,209 $ 5,560,670 $ 6,658,516 $10,407,183
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
81
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 2,046,922 $ 7,192,618 $ 5,770,761 $12,179,577
----------- ----------- ----------- -----------
Expenses --
Investment adviser fee (Note 2) $ 73,471 $ 459,907 $ 353,176 $ 851,448
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 1,618 8,154 5,709 10,743
Custodian fee (Note 2) 975 16,357 35,917 1,500
Interest expense (Note 5) 6,263 -- 13,828 --
Legal and accounting services 15,814 21,471 19,565 26,148
Bond pricing 6,060 -- -- --
Amortization of organization expenses (Note 1D) 1,355 1,518 1,405 3,365
Miscellaneous 1,842 25,883 14,442 35,974
----------- ----------- ----------- -----------
Total expenses $ 107,398 $ 533,290 $ 444,042 $ 929,178
Deduct reduction of investment adviser fee
(Note 2) 36,188 -- -- --
----------- ----------- ----------- -----------
Net expenses $ 71,210 $ 533,290 $ 444,042 $ 929,178
----------- ----------- ----------- -----------
Net investment income $ 1,975,712 $ 6,659,328 $ 5,326,719 $11,250,399
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $ (705,098) $(1,843,753) $(2,564,654) $(4,108,823)
Financial futures contracts (964,523) (1,471,264) (474,286) (4,996,239)
----------- ----------- ----------- -----------
Net realized loss on investments $(1,669,621) $(3,315,017) $(3,038,940) $(9,105,062)
----------- ----------- ----------- -----------
Change in unrealized appreciation (depreciation) --
Investments $ 1,644,370 $ 4,940,542 $ 5,450,131 $ 8,883,601
Financial futures contracts 19,876 (26,976) 21,133 176,415
----------- ----------- ----------- -----------
Net unrealized appreciation $ 1,664,246 $ 4,913,566 $ 5,471,264 $ 9,060,016
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments $ (5,375) $ 1,598,549 $ 2,432,324 $ (45,046)
----------- ----------- ----------- -----------
Net increase in net assets from
operations $ 1,970,337 $ 8,257,877 $ 7,759,043 $11,205,353
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
82
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 8,920,231 $ 3,791,815 $ 3,518,306 $11,988,135
----------- ----------- ----------- -----------
Expenses --
Investment adviser fee (Note 2) $ 609,837 $ 198,498 $ 177,788 $ 834,074
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 8,155 6,212 7,096 10,743
Custodian fee (Note 2) 56,584 16,809 13,033 1,500
Legal and accounting services 21,580 19,464 19,554 26,931
Amortization of organization expenses
(Note 1D) 2,091 1,442 2,358 2,763
Miscellaneous 35,210 23,093 14,329 30,392
----------- ----------- ----------- -----------
Total expenses $ 733,457 $ 265,518 $ 234,158 $ 906,403
----------- ----------- ----------- -----------
Net investment income $ 8,186,774 $ 3,526,297 $ 3,284,148 $11,081,732
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost
basis) $(3,335,521) $(2,946,871) $(1,045,028) $(3,901,492)
Financial futures contracts (1,035,171) (1,080,892) (866,769) (3,709,160)
----------- ----------- ----------- -----------
Net realized loss on investments $(4,370,692) $(4,027,763) $(1,911,797) $(7,610,652)
----------- ----------- ----------- -----------
Change in unrealized appreciation (depreciation) --
Investments $ 7,376,821 $ 4,213,366 $ 2,650,662 $10,104,183
Financial futures contracts (4,860) 53,292 (23,513) 175,497
----------- ----------- ----------- -----------
Net unrealized appreciation $ 7,371,961 $ 4,266,658 $ 2,627,149 $10,279,680
----------- ----------- ----------- -----------
Net realized and unrealized gain on
investments $ 3,001,269 $ 238,895 $ 715,352 $ 2,669,028
----------- ----------- ----------- -----------
Net increase in net assets from
operations $11,188,043 $ 3,765,192 $ 3,999,500 $13,750,760
=========== =========== =========== ============
</TABLE>
See notes to financial statements
83
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 6,676,427 $ 4,614,351 $ 7,291,242 $ 8,179,915
Net realized loss on investment transactions (3,373,448) (2,517,820) (7,312,379) (2,715,132)
Change in unrealized appreciation of investments 5,884,230 3,464,139 6,679,653 4,942,400
------------ ------------ ------------ ------------
Net increase in net assets from operations $ 9,187,209 $ 5,560,670 $ 6,658,516 $ 10,407,183
------------ ------------ ------------ ------------
Capital transactions --
Contributions $ 15,271,028 $ 7,773,910 $ 12,224,959 $ 13,579,954
Withdrawals (23,135,575) (14,716,313) (33,658,605) (23,928,447)
------------ ------------ ------------ ------------
Decrease in net assets resulting from
capital transactions $ (7,864,547) (6,942,403) $(21,433,646) $(10,348,493)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets $ 1,322,662 $ (1,381,733) $(14,775,130) $ 58,690
NET ASSETS:
At beginning of year 117,163,391 82,916,735 137,723,797 145,209,936
------------ ------------ ------------ ------------
At end of year $118,486,053 $ 81,535,002 $122,948,667 $145,268,626
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 1,975,712 $ 6,659,328 $ 5,326,719 $ 11,250,399
Net realized loss on investment transactions (1,669,621) (3,315,017) (3,038,940) (9,105,062)
Change in unrealized appreciation of
investments 1,664,246 4,913,566 5,471,264 9,060,016
----------- ------------ ----------- ------------
Net increase in net assets from operations $ 1,970,337 $ 8,257,877 $ 7,759,043 $ 11,205,353
----------- ------------ ----------- ------------
Capital transactions --
Contributions $ 6,817,148 $ 14,770,279 $ 8,450,749 $ 18,834,488
Withdrawals (5,902,141) (25,879,697) (18,215,122) (34,633,470)
----------- ------------ ----------- ------------
Increase (decrease) in net assets resulting
from capital transactions $ 915,007 $(11,109,418) $(9,764,373) $(15,798,982)
----------- ------------ ----------- ------------
Net increase (decrease) in net assets $ 2,885,344 $ (2,851,541) $(2,005,330) $ (4,593,629)
NET ASSETS:
At beginning of year 31,423,335 117,855,717 95,167,433 199,772,353
----------- ------------ ----------- ------------
At end of year $34,308,679 $115,004,176 $93,162,103 $195,178,724
=========== ============ =========== =============
</TABLE>
See notes to financial statements
84
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 8,186,774 $ 3,526,297 $ 3,284,148 $ 11,081,732
Net realized loss on investment transactions (4,370,692) (4,027,763) (1,911,797) (7,610,652)
Change in unrealized appreciation of
investments 7,371,961 4,266,658 2,627,149 10,279,680
------------ ------------- ----------- ------------
Net increase in net assets from operations $ 11,188,043 $ 3,765,192 $ 3,999,500 $ 13,750,760
------------ ------------ ----------- ------------
Capital transactions --
Contributions $ 12,298,876 $ 9,608,721 $ 7,946,656 $ 24,173,920
Withdrawals (30,215,219) (14,226,934) (9,768,536) (40,695,946)
------------ ------------ ----------- ------------
Decrease in net assets resulting from capital
transactions $(17,916,343) $ (4,618,213) $(1,821,880) $(16,522,026)
------------ ------------ ----------- ------------
Net increase (decrease) in net assets $ (6,728,300) $ (853,021) $ 2,177,620 $ (2,771,266)
NET ASSETS:
At beginning of year 153,119,221 62,264,689 56,495,683 194,519,188
------------ ------------ ----------- ------------
At end of year $146,390,921 $ 61,411,668 $58,673,303 $191,747,922
============ ============ =========== ============
</TABLE>
See notes to financial statements
85
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
PORTFOLIO* PORTFOLIO** PORTFOLIO* PORTFOLIO*
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 5,213,587 $ 2,555,613 $ 6,604,249 $ 6,772,813
Net realized loss on investment transactions (1,159,958) (349,879) (1,311,944) (59,807)
Change in unrealized depreciation of investments (6,819,050) (5,522,249) (9,992,777) (10,955,591)
------------ ----------- ------------ ------------
Net decrease in net assets from operations $ (2,765,421) $(3,316,515) $ (4,700,472) $ (4,242,585)
------------ ----------- ------------ ------------
Capital transactions --
Contributions $ 48,883,547 $90,005,753 $ 42,445,028 $ 44,883,326
Withdrawals (12,582,537) (3,872,523) (19,332,141) (13,367,045)
------------ ----------- ------------ ------------
Increase in net assets resulting from capital
transactions $ 36,301,010 $86,133,230 $ 23,112,887 $ 31,516,281
------------ ----------- ------------ ------------
Net increase in net assets $ 33,535,589 $82,816,715 $ 18,412,415 $ 27,273,696
NET ASSETS:
At beginning of period 83,627,802 100,020 119,311,382 117,936,240
------------ ----------- ------------ ------------
At end of period $117,163,391 $82,916,735 $137,723,797 $145,209,936
============ ============ ============ ============
</TABLE>
* For the eleven months ended August 31, 1994 (Note 7).
** For the seven months ended August 31, 1994.
See notes to financial statements
86
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
PORTFOLIO** PORTFOLIO* PORTFOLIO* PORTFOLIO*
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 976,696 $ 5,460,165 $ 4,337,756 $ 9,444,440
Net realized loss on investment transactions (259,364) (590,974) (14,916) (3,785,407)
Change in unrealized depreciation of
investments (2,361,484) (9,137,805) (7,434,028) (12,662,593)
----------- ------------ ----------- ------------
Net decrease in net assets from operations $(1,644,152) $ (4,268,614) $(3,111,188) $ (7,003,560)
----------- ------------ ----------- -------------
Capital transactions --
Contributions $34,683,852 $ 38,617,526 $30,851,018 $ 52,654,042
Withdrawals (1,716,385) (10,706,479) (7,845,180) (18,412,361)
----------- ------------ ----------- --------------
Increase in net assets resulting from
capital transactions $32,967,467 $ 27,911,047 $23,005,838 $ 34,241,681
----------- ------------ ----------- -------------
Net increase in net assets $31,323,315 $ 23,642,433 $19,894,650 $ 27,238,121
NET ASSETS:
At beginning of period 100,020 94,213,284 75,272,783 172,534,232
----------- ------------ ----------- -------------
At end of period $31,423,335 $117,855,717 $95,167,433 $199,772,353
=========== ============ =========== ============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
PORTFOLIO* PORTFOLIO** PORTFOLIO* PORTFOLIO*
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 6,932,765 $ 1,863,481 $ 2,453,518 $ 9,556,570
Net realized gain (loss) on investment
transactions 4,146 (984,439) (105,080) (2,385,959)
Change in unrealized depreciation of
investments (11,945,088) (4,190,757) (3,871,496) (13,323,277)
------------ ----------- ----------- ------------
Net decrease in net assets from operations $ (5,008,177) $(3,311,715) $(1,523,058) $ (6,152,666)
------------ ----------- ----------- ------------
Capital transactions --
Contributions $ 47,210,240 $72,540,601 $22,707,167 $ 47,023,229
Withdrawals (16,579,534) (7,064,217) (3,954,097) (20,611,874)
------------ ----------- ----------- ------------
Increase in net assets resulting from capital
transactions $ 30,630,706 $65,476,384 $18,753,070 $ 26,411,355
------------ ----------- ----------- ------------
Net increase in net assets $ 25,622,529 $62,164,669 $17,230,012 $ 20,258,689
NET ASSETS:
At beginning of period 127,496,692 100,020 39,265,671 174,260,499
------------ ----------- ----------- ------------
At end of period $153,119,221 $62,264,689 $56,495,683 $194,519,188
============ =========== =========== ============
</TABLE>
* For the eleven months ended August 31, 1994 (Note 7).
** For the seven months ended August 31, 1994.
See notes to financial statements
87
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended September 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA GEORGIA KENTUCKY MARYLAND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 2,179,903 $ 3,313,669 $ 3,277,040 $ 2,481,633
Net realized gain (loss) on investment
transactions (464,133) 73,591 (535,372) (224,803)
Change in unrealized appreciation of investments 3,994,097 5,637,256 6,325,963 5,066,445
------------ ------------ ------------ ------------
Net increase in net assets from operations $ 5,709,867 $ 9,024,516 $ 9,067,631 $ 7,323,275
------------ ------------ ------------ ------------
Capital transactions --
Contributions $ 81,040,375 $116,822,592 $115,630,800 $ 94,448,256
Withdrawals (3,222,460) (6,635,746) (6,862,211) (7,658,267)
------------ ------------ ------------ ------------
Increase in net assets resulting from capital
transactions $ 77,817,915 $110,186,846 $108,768,589 $ 86,789,989
------------ ------------ ------------ ------------
Net increase in net assets $ 83,527,782 $119,211,362 $117,836,220 $ 94,113,264
NET ASSETS:
At beginning of period 100,020 100,020 100,020 100,020
------------ ------------ ------------ ------------
At end of period $ 83,627,802 $119,311,382 $117,936,240 $ 94,213,284
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MISSOURI NORTH CAROLINA OREGON TENNESSEE VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 1,996,871 $ 4,992,912 $ 3,445,924 $ 926,224 $ 5,091,661
Net realized gain (loss) on
investment transactions (201,650) (495,879) 1,139,513 454,397 (192,625)
Change in unrealized
appreciation of investments 4,258,226 8,668,236 5,331,993 1,499,177 7,938,495
----------- ------------ ------------ ------------ ------------
Net increase in net assets
from operations $ 6,053,447 $ 13,165,269 $ 9,917,430 $ 2,879,798 $ 12,837,531
----------- ------------- ------------ ------------ ------------
Capital transactions --
Contributions $71,730,941 $177,359,369 $142,413,151 $ 41,826,943 $170,140,465
Withdrawals (2,611,625) (18,090,426) (24,933,909) (5,541,090) (8,817,517)
----------- ------------- ------------ ------------ ------------
Increase in net assets
resulting from capital
transactions $69,119,316 $159,268,943 $117,479,242 $ 36,285,853 $161,322,948
----------- ------------ ------------ ------------ ------------
Net increase in net
assets $75,172,763 $172,434,212 $127,396,672 $ 39,165,651 $174,160,479
NET ASSETS:
At beginning of period 100,020 100,020 100,020 100,020 100,020
----------- ------------ ------------ ------------ ------------
At end of period $75,272,783 $172,534,232 $127,496,692 $ 39,265,671 $174,260,499
=========== ============ ============ ============ ============
</TABLE>
* For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
88
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA PORTFOLIO ARKANSAS PORTFOLIO
----------------------------------- -----------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------
AUGUST 31, AUGUST 31, SEPT. 30, AUGUST 31, AUGUST 31,
1995 1994* 1993** 1995 1994***
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets)++:
Net expenses 0.47% 0.44%+ 0.25%+ 0.46% 0.24%+
Net investment income 5.77% 5.37%+ 5.52%+ 5.69% 5.60%+
Portfolio Turnover 51% 26% 10% 23% 16%
NET ASSETS, end of period (000 omitted) $118,486 $117,163 $83,628 $ 81,535 $ 82,917
</TABLE>
++The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and an allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
<TABLE>
<S> <C> <C>
RATIOS (As a percentage of average daily net assets):
Expenses 0.35%+ 0.43%+
Net investment income 5.42%+ 5.41%+
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GEORGIA PORTFOLIO KENTUCKY PORTFOLIO
----------------------------------- ------------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- ------------------------------------
AUGUST 31, AUGUST 31, SEPT. 30, AUGUST 31, AUGUST 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 0.46% 0.44%+ 0.40%+ 0.49% 0.46%+ 0.40%+
Net investment income 5.73% 5.37%+ 5.37%+ 5.75% 5.39%+ 5.40%+
Portfolio Turnover 48% 45% 35% 30% 21% 11%
NET ASSETS, end of period (000
omitted) $122,949 $137,724 $119,311 $145,269 $145,210 $117,936
</TABLE>
+ Annualized.
* For the eleven months ended August 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to September
30, 1993.
*** For the seven months ended August 31, 1994.
See notes to financial statements
89
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA PORTFOLIO MARYLAND PORTFOLIO
----------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------- -----------------------------------
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, SEPT. 30,
1995 1994*** 1995 1994* 1993**
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets)++:
Net expenses 0.22% 0.14%+ 0.47% 0.44%+ 0.36%+
Net investment income 6.06% 5.86%+ 5.79% 5.44%+ 5.41%+
Portfolio Turnover 46% 21% 30% 41% 34%
NET ASSETS, end of period (000 omitted) $34,309 $31,423 $115,004 $117,856 $94,213
</TABLE>
++ The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and an 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>
RATIOS (As a percentage of average net assets):
Expenses 0.33% 0.33%+ 0.38%+
Net investment income 5.95% 5.67%+ 5.39%+
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MISSOURI PORTFOLIO NORTH CAROLINA PORTFOLIO
----------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------------------
AUGUST 31, AUGUST 31, SEPT. 30, AUGUST 31, AUGUST 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 0.48% 0.45%+ 0.40%+ 0.48% 0.46%+ 0.43%+
Net investment income 5.76% 5.36%+ 5.36%+ 5.78% 5.40%+ 5.43%+
Portfolio Turnover 24% 28% 6% 33% 37% 21%
NET ASSETS, end of period (000
omitted) $93,162 $95,167 $75,273 $195,179 $199,772 $172,534
</TABLE>
+ Annualized.
* For the eleven months ended August 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to September
30, 1993.
*** For the seven months ended August 31, 1994.
See notes to financial statements
90
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SOUTH CAROLINA
OREGON PORTFOLIO PORTFOLIO
----------------------------------- -----------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------
AUGUST 31, AUGUST 31, SEPT. 30, AUGUST 31, AUGUST 31,
1995 1994* 1993** 1995 1994***
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets):
Net expenses 0.50% 0.46%+ 0.43%+ 0.44% 0.37%+
Net investment income 5.60% 5.26%+ 5.30%+ 5.81% 5.47%+
Portfolio Turnover 22% 15% 32% 75% 23%
NET ASSETS, end of period (000 omitted) $146,391 $153,119 $127,497 $61,412 $62,265
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TENNESSEE PORTFOLIO VIRGINIA PORTFOLIO
----------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------------------
AUGUST 31, AUGUST 31, SEPT. 30, AUGUST 31, AUGUST 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 0.41% 0.36%+ 0.08%+ 0.48% 0.46%+ 0.43%+
Net investment income 5.81% 5.49%+ 5.60%+ 5.81% 5.49%+ 5.49%+
Portfolio Turnover 20% 10% 69% 38% 48% 29%
NET ASSETS, end of period (000
omitted) $58,673 $56,496 $39,266 $191,748 $194,519 $174,260
</TABLE>
++The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and an allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
<TABLE>
<S> <C>
RATIOS (As a percentage of average daily net assets):
Expenses 0.31%+
Net investment income 5.37%+
</TABLE>
+ Annualized.
* For the eleven months ended August 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to September
30, 1993.
*** For the seven months ended August 31, 1994.
See notes to financial statements
91
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Alabama Tax Free Portfolio (Alabama Portfolio), Arkansas Tax Free Portfolio
(Arkansas Portfolio), Georgia Tax Free Portfolio (Georgia Portfolio), Kentucky
Tax Free Portfolio (Kentucky Portfolio), Louisiana Tax Free Portfolio (Louisiana
Portfolio), Maryland Tax Free Portfolio (Maryland Portfolio), Missouri Tax Free
Portfolio (Missouri Portfolio), North Carolina Tax Free Portfolio (North
Carolina Portfolio), Oregon Tax Free Portfolio (Oregon Portfolio), South
Carolina Tax Free Portfolio (South Carolina Portfolio), Tennessee Tax Free
Portfolio (Tennessee Portfolio) and Virginia Tax Free Portfolio (Virginia
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 Portfolio 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
contract and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Portfolios may engage in
when-issued or 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 accruing interest on settlement date.
G. OTHER--Investment transactions are accounted for on a trade date basis.
92
<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 August 31, 1995, each Portfolio paid advisory fees as
follows:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT EFFECTIVE RATE*
--------------------------------- -------- ---------------
<S> <C> <C>
Alabama $466,320 0.40%
Arkansas 296,231 0.37%
Georgia 521,159 0.41%
Kentucky 595,483 0.42%
Louisiana 73,471 0.23%
Maryland 459,907 0.40%
Missouri 353,176 0.38%
North Carolina 851,448 0.44%
Oregon 609,837 0.42%
South Carolina 198,498 0.33%
Tennessee 177,788 0.31%
Virginia 834,074 0.44%
</TABLE>
* Advisory fees paid as a percentage of average daily net assets.
To enhance the net income of the Louisiana Portfolio, BMR made a partial
reduction in its fee in the amount of $36,188 for the year ended August 31,
1995.
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 Portfolios 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 August 31, 1995, no significant amounts have been deferred.
- --------------------------------------------------------------------------------
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, for the year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
ALABAMA PORTFOLIO ARKANSAS PORTFOLIO GEORGIA PORTFOLIO KENTUCKY PORTFOLIO
------------------- ------------------------ ------------------- ------------------------
<S> <C> <C> <C> <C>
Purchases $57,406,180 $18,763,229 $59,548,573 $42,276,757
Sales 61,142,289 21,156,422 74,913,164 47,472,754
</TABLE>
<TABLE>
<CAPTION>
LOUISIANA PORTFOLIO MARYLAND PORTFOLIO MISSOURI PORTFOLIO NORTH CAROLINA PORTFOLIO
------------------- ------------------------ ------------------- ------------------------
<S> <C> <C> <C> <C>
Purchases $15,588,103 $33,410,454 $22,283,879 $63,087,915
Sales 15,182,545 38,920,632 26,604,957 70,378,217
</TABLE>
<TABLE>
<CAPTION>
OREGON PORTFOLIO SOUTH CAROLINA PORTFOLIO TENNESSEE PORTFOLIO VIRGINIA PORTFOLIO
------------------- ------------------------ ------------------- ------------------------
<S> <C> <C> <C> <C>
Purchases $31,234,927 $45,794,201 $12,215,128 $66,007,726
Sales 39,597,788 45,177,886 10,940,645 73,486,977
</TABLE>
93
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investments
owned by each Portfolio at August 31, 1995, as computed on a federal income tax
basis, are as follows:
<TABLE>
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Aggregate Cost $112,610,415 $79,275,204 $115,913,957 $141,197,528
------------ ------------ ------------ ------------
Gross unrealized
appreciation $ 4,365,636 $ 2,221,739 $ 3,989,210 $ 4,126,437
Gross unrealized
depreciation 496,195 677,082 559,835 2,118,720
------------ ------------ ------------ ------------
Net unrealized
appreciation $ 3,869,441 $ 1,544,657 $ 3,429,375 $ 2,007,717
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Aggregate Cost $33,349,873 $112,178,823 $88,354,959 $183,382,988
----------- ------------ ----------- ------------
Gross unrealized
appreciation $ 705,823 $ 3,928,104 $ 3,711,528 $ 8,278,474
Gross unrealized
depreciation 444,912 1,955,206 436,068 997,317
----------- ------------ ----------- ------------
Net unrealized
appreciation $ 260,911 $ 1,972,898 $ 3,275,460 $ 7,281,157
=========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Aggregate Cost $143,369,782 $60,604,156 $57,120,750 $179,383,019
------------ ----------- ----------- ------------
Gross unrealized
appreciation $ 4,380,388 $ 2,552,611 $ 1,185,756 $ 8,251,752
Gross unrealized
depreciation 1,731,019 208,500 656,768 857,590
------------ ----------- ----------- ------------
Net unrealized
appreciation $ 2,649,369 $ 2,344,111 $ 528,988 $ 7,394,162
============ =========== =========== ============
</TABLE>
94
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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. At August 31, 1995, the Alabama Portfolio, Arkansas Portfolio,
Maryland Portfolio, Missouri Portfolio and Virginia Portfolio had balances
outstanding pursuant to this line of credit of $103,000, $444,000, $603,000,
$524,000 and $795,000, respectively. For the Louisiana Portfolio the average
daily loan balance for the year ended August 31, 1995 was $526,873 and the
average daily interest rate was 7.17%. The maximum borrowings during the year
ended August 31, 1995 was $1,803,000. The Portfolios, exclusive of the Louisiana
Portfolio, did not have any significant borrowings or allocated fees during the
year ended August 31, 1995.
- --------------------------------------------------------------------------------
(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 August 31, 1995 is
as follows:
<TABLE>
<CAPTION>
FUTURES CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
- ---------------- ----------------- ------------------------ -------- --------------
<S> <C> <C> <C> <C>
Alabama 12/95 112 U.S. Treasury Bonds Short $ 63,034
Arkansas 12/95 120 U.S. Treasury Bonds Short 45,023
Kentucky 12/95 140 U.S. Treasury Bonds Short 78,791
Louisiana 12/95 20 U.S. Treasury Bonds Short 15,251
Maryland 12/95 112 U.S. Treasury Bonds Short 63,033
Oregon 12/95 54 U.S. Treasury Bonds Short 38,857
Tennessee 12/95 48 U.S. Treasury Bonds Short 34,539
</TABLE>
At August 31, 1995 each Portfolio had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
The Georgia Portfolio, Missouri Portfolio, North Carolina Portfolio, South
Carolina Portfolio and Virginia Portfolio had no obligations outstanding at
August 31, 1995.
- --------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The Portfolios changed their fiscal year end from September 30, to August 31,
effective August 31, 1994.
95
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF:
ALABAMA TAX FREE PORTFOLIO
ARKANSAS TAX FREE PORTFOLIO
GEORGIA TAX FREE PORTFOLIO
KENTUCKY TAX FREE PORTFOLIO
LOUISIANA TAX FREE PORTFOLIO
MARYLAND TAX FREE PORTFOLIO
MISSOURI TAX FREE PORTFOLIO
NORTH CAROLINA TAX FREE PORTFOLIO
OREGON TAX FREE PORTFOLIO
SOUTH CAROLINA TAX FREE PORTFOLIO
TENNESSEE TAX FREE PORTFOLIO
VIRGINIA TAX FREE PORTFOLIO
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Alabama Tax Free Portfolio, Arkansas Tax Free
Portfolio, Georgia Tax Free Portfolio, Kentucky Tax Free Portfolio, Louisiana
Tax Free Portfolio, Maryland Tax Free Portfolio, Missouri Tax Free Portfolio,
North Carolina Tax Free Portfolio, Oregon Tax Free Portfolio, South Carolina Tax
Free Portfolio, Tennessee Tax Free Portfolio and Virginia Tax Free Portfolio as
of August 31, 1995, and the related statements of operations for the year then
ended, the statements of changes in net assets and the supplementary data for
the years ended August 31, 1995 and 1994 and the year ended 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 August
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 Alabama Tax Free Portfolio,
Arkansas Tax Free Portfolio, Georgia Tax Free Portfolio, Kentucky Tax Free
Portfolio, Louisiana Tax Free Portfolio, Maryland Tax Free Portfolio, Missouri
Tax Free Portfolio, North Carolina Tax Free Portfolio, Oregon Tax Free
Portfolio, South Carolina Tax Free Portfolio, Tennessee Tax Free Portfolio and
Virginia Tax Free Portfolio at August 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
SEPTEMBER 29, 1995
96
<PAGE>
- --------------------------------------------------------------------------------
Investment Management
- --------------------------------------------------------------------------------
FUNDS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspapers of New
JAMES B. HAWKES England, Inc.
Vice President, Trustee
SAMUEL L. HAYES, III
ROBERT B. MACINTOSH Jacob H. Schiff Professor of
Vice President Investment Banking,
Harvard University Graduate
JAMES L. O'CONNOR School of Business
Treasurer Administration
THOMAS OTIS NORTON H. REAMER
Secretary President and Director, United
Asset Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Company
Incorporated
JACK L. TREYNOR
Investment Adviser and
Consultant
- --------------------------------------------------------------------------------
PORTFOLIOS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspapers of New
JAMES B. HAWKES England, Inc.
Vice President, Trustee
SAMUEL L. HAYES, III
ROBERT B. MACINTOSH Jacob H. Schiff Professor of
Vice President of Alabama, Investment Banking, Harvard
Arkansas, Georgia, Kentucky, University Graduate School of
Louisiana, Maryland, Missouri, Business Administration
North Carolina, Oregon, South
Carolina, Tennessee and NORTON H. REAMER
Virginia Tax Free Portfolios President and Director, United
Asset Management Corporation
NICOLE ANDERES
Vice President and Portfolio JOHN L. THORNDIKE
Manager of Louisiana Tax Director, Fiduciary Company
Free Portfolios Incorporated
TIMOTHY T. BROWSE JACK L. TREYNOR
Vice President and Portfolio Investment Adviser and
Manager of Alabama, Arkansas, Consultant
Kentucky and Maryland
Tax Free Portfolios
CYNTHIA J. CLEMSON
Vice President and Portfolio
Manager of Missouri, Oregon
and Tennessee Tax Free
Portfolios
DAVID C. REILLY
Vice President and Portfolio
Manager of Georgia, North
Carolina, South Carolina and
Virginia Tax Free Portfolios
97
<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
98
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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
24 FEDERAL STREET
BOSTON, MA 02110
M-12CSRC
<PAGE>
The Eaton Vance Municipals Trust
For the Portfolios:
Alabama Tax Free Fund
Arkansas Tax Free Fund
Georgia Tax Free Fund
Kentucky Tax Free Fund
Louisiana Tax Free Fund
Maryland Tax Free Fund
Missouri Tax Free Fund
North Carolina Tax Free Fund
Oregon Tax Free Fund
South Carolina Tax Free Fund
Tennessee Tax Free Fund
Virginia Tax Free Fund
[LOGO]
Annual Shareholder Report
August 31, 1995
Portfolio Investment Adviser
Boston Management and Research
24 Federal Street
Boston, MA 02110
Fund Administrator
Eaton Vance Management
24 Federal Street
Boston, MA 02110
(617) 482-8260
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
<PAGE>
EV TRADITIONAL
ALABAMA MUNICIPALS FUND
EV TRADITIONAL
ARKANSAS MUNICIPALS FUND
EV TRADITIONAL
GEORGIA MUNICIPALS FUND
EV TRADITIONAL
KENTUCKY MUNICIPALS FUND
EV TRADITIONAL
LOUISIANA MUNICIPALS FUND
EV TRADITIONAL
MARYLAND MUNICIPALS FUND
EV TRADITIONAL
MISSOURI MUNICIPALS FUND
EV TRADITIONAL
NORTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL
OREGON MUNICIPALS FUND
EV TRADITIONAL
SOUTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL
TENNESSEE MUNICIPALS FUND
EV TRADITIONAL
VIRGINIA MUNICIPALS FUND
SUPPLEMENT TO
STATEMENT OF ADDITIONAL INFORMATION
DATED
JANUARY 1, 1996
Each Fund is currently known as "EV Classic [State Name] Municipals Fund."
The Funds will change their names to "EV Traditional [State Name] Municipals
Fund" on February 1, 1996.
January 1, 1996
T-TFC1/1AIS
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
January 1, 1996
EV TRADITIONAL MUNICIPAL FUNDS
<TABLE>
<CAPTION>
<S> <C>
EV TRADITIONAL ALABAMA MUNICIPALS FUND EV TRADITIONAL MISSOURI MUNICIPALS FUND
EV TRADITIONAL ARKANSAS MUNICIPALS FUND EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL GEORGIA MUNICIPALS FUND EV TRADITIONAL OREGON MUNICIPALS FUND
EV TRADITIONAL KENTUCKY MUNICIPALS FUND EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL LOUISIANA MUNICIPALS FUND EV TRADITIONAL TENNESSEE MUNICIPALS FUND
EV TRADITIONAL MARYLAND MUNICIPALS FUND EV TRADITIONAL VIRGINIA MUNICIPALS FUND
</TABLE>
24 Federal Street, Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Part II provides information solely about a Fund and
its corresponding Portfolio. Where appropriate Part I includes cross-references
to the relevant sections of Part II.
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ................. 1
Investment Restrictions .......................................... 8
Trustees and Officers ............................................ 9
Investment Adviser and Administrator ............................. 11
Custodian ........................................................ 13
Service for Accumulation ......................................... 14
Service for Withdrawal ........................................... 14
Determination of Net Asset Value ................................. 15
Investment Performance ........................................... 15
Taxes ............................................................ 16
Principal Underwriter ............................................ 18
Service Plan ..................................................... 19
Portfolio Security Transactions .................................. 20
Other Information ................................................ 22
Independent Certified Public Accountants ......................... 23
Financial Statements ............................................. 23
Appendix ......................................................... 24
PART II
EV Traditional Alabama Municipals Fund ........................... a-1
EV Traditional Arkansas Municipals Fund .......................... b-1
EV Traditional Georgia Municipals Fund ........................... c-1
EV Traditional Kentucky Municipals Fund .......................... d-1
EV Traditional Louisiana Municipals Fund ......................... e-1
EV Traditional Maryland Municipals Fund .......................... f-1
EV Traditional Missouri Municipals Fund .......................... g-1
EV Traditional North Carolina Municipals Fund .................... h-1
EV Traditional Oregon Municipals Fund ............................ i-1
EV Traditional South Carolina Municipals Fund .................... j-1
EV Traditional Tennessee Municipals Fund ......................... k-1
EV Traditional Virginia Municipals Fund .......................... l-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information. This 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 JANUARY 1, 1996 AS SUPPLEMENTED FROM
TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ
IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT
CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this 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 also exempt from federal income taxes and is not a tax preferred item
for purposes of the federal alternative minimum tax: (i) certain "public
purpose" obligations (whenever issued), which include obligations issued
directly by state and local governments or their agencies to fulfill essential
governmental functions; (ii) certain obligations issued before August 8, 1986
for the benefit of non-governmental persons or entities; and (iii) certain
"private activity bonds" issued after August 7, 1986, which include "qualified
Section 501(c)(3) bonds" or refundings of certain obligations included in the
second category. In assessing the federal income tax treatment of interest on
any municipal obligation, the Portfolio will generally rely on an opinion of the
issuer's counsel (when available) and will not undertake any independent
verification of the basis for the opinion. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adusted current earnings" for purposes of the
federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does have original issue discount or (ii) in
the case of an obligation that does have original issue discount, the sum of the
issue price and any original issue discount that accrued before the obligation
was purchased, subject to a de minimus amount.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds, although nominally
issued by municipal authorities, are in most cases revenue bonds and are
generally not secured by the taxing power of the municipality, but are usually
secured by the revenues derived by the authority from payments of the industrial
user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of 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 of this SAI.
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.
Pollution control and other industrial development bonds are issued by state
or local agencies to finance various projects, including those of domestic steel
producers, and may be backed solely by agreements with such companies. Domestic
steel companies are expected to suffer the consequences of such adverse trends
as high labor costs, high foreign imports encouraged by foreign productivity
increases and a strong U.S. dollar, and other cost pressures such as those
imposed by anti-pollution legislation. Domestic steel capacity is being reduced
currently by large-scale plant closings and this period of rationalization may
not end until further legislative protection is provided through tariff price
supports or mandatory import quotas, such as those recently enacted for certain
specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state industrial development
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject to
a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt service
payments. Moreover, since a portion of housing, medical care and other services
may be financed by an initial deposit, it is important that the facility
maintain adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost pressures is
an important factor in this process. The facilities may also be affected
adversely by regulatory cost restrictions applied to health care delivery in
general, particularly state regulations or changes in Medicare and Medicaid
payments or qualifications, or restrictions imposed by medical insurance
companies. They may also face competition from alternative health care or
conventional housing facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
Accordingly, the Portfolio may be adversely affected by local political and
economic conditions and developments within Puerto Rico affecting the issuers
of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. Manufacturing is the largest sector in terms of gross domestic
product and is more diversified than during earlier phases of Puerto Rico's
industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and manufacturing
(16.4%). These three sectors represent 39%, 11% and 39%, respectively, of the
gross domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
This decline was broad based among all manufacturing industries. The North
American Free Trade Agreement ("NAFTA"), which became effective January 1, 1994,
could lead to the loss of Puerto Rico's lower salaried or labor intensive jobs
to Mexico. The February, 1995 unemployment rate was 12.5%, down from 16% for
1994.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the Federal government. Most Federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Internal Revenue Code was amended and provided for two
alternative limitations to the Section 936 credit. The first option will limit
the credit against such income to 40% of the credit allowable under current law,
with a five year phase-in period starting at 60% of the allowable credit. The
second option is a wage and depreciation based credit. The reduction of the tax
benefits to those U.S. companies with operations in Puerto Rico may lead to
slower growth in the future. There can be no assurance that these modifications
will not lead to a weakened economy, a lower rating on Puerto Rico's debt or
lower prices for Puerto Rican bonds that may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. The measure was defeated, with 48.5% voting
to remain a Commonwealth, 46% voting for statehood and 4% voting for
independence. Retaining Commonwealth status will leave intact the current
relationship with the Federal government. There can be no assurance that the
statehood issue will not be brought to a vote in the future. A successful
statehood vote in Puerto Rico would then require the U.S. Congress to ratify the
election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. Population, after reaching a peak of 110,800 in 1985, declined to 101,809
in 1990. The economy is heavily reliant on the tourism industry, with roughly
43% of non-agricultural employment in tourist-related trade and services. As of
April, 1993, unemployment stood at 2.7%. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe. 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 assurance that the market for USVI bonds will
not be affected. Hurricanes 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 budget deficits in fiscal
years 1989 and 1990: in 1989 due to wage settlements with the unionized
government employees, and in 1990 as a result of Hurricane Hugo. The USVI
recorded a small surplus in fiscal year 1991. At the end of fiscal 1992, the
last year for which results are available, the USVI had an unreserved General
Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. Population, 133,000 in 1990, up 26% from the 1980 census level. The U.S.
military is a key component of Guam's economy. The Federal government directly
comprises more than 10% of the employment base, with a substantial component of
the service sector to support these personnel. Guam is expected to benefit from
the closure of the Subic Bay Naval Base and the Clark Air Force Base in the
Philippines. The Naval Air Station, one of several U.S. military facilities on
the island, has been slated for closure by the Defense Base Closure and
Realignment Committee; however, the administration plans to use these facilities
to expand the Island's commercial airport. Guam is also heavily reliant on
tourists, particularly the Japanese. Unemployment was 3.2% in 1991. For 1994,
the financial position of Guam has weakened further as it incurred an unaudited
General Fund operating deficit. The administration has taken steps to improve
its financial position; however, there are no guarantees that an improvement
will be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt). State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value. In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell securities in anticipation of a market decline (a
rise in interest rates) or purchase and later sell securities in anticipation of
a market rise (a decline in interest rates). In addition, a security may be sold
and another purchased at approximately the same time to take advantage of what
the Portfolio believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for reasons
not directly related to the investment quality of particular issues or the
general movement of interest rates, such as changes in the overall demand for or
supply of various types of municipal obligations or changes in the investment
objectives of investors. Such trading may be expected to increase the portfolio
turnover rate, which may increase capital gains and the expenses incurred in
connection with such trading. The Portfolio anticipates that its annual
portfolio turnover rate will generally not exceed 100% (excluding turnover of
securities having a maturity of one year or less). 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 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, (ii) futures
contracts on securities indices and (iii) futures contracts on other financial
instruments and indices. All futures contracts entered into by the Portfolio are
traded on exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States 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 (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (60), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, 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 (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (52), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and
the Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments --
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice President of
the Trust on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodubury was elected Assistant
Secretary on 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.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of approximately $16 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment- grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 30 long-term state portfolios, 5
national portfolios and 12 limited maturity portfolios. A staff of 32 is
responsible for the day-to-day management of over 3,500 issues in 46 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The following persons manage one or more of the Eaton Vance
tax-free portfolios. For the identity of the Portfolio's portfolio manager, see
the Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and 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 and engage in other
business activities and may permit other fund clients and other corporations and
organizations to use the words "Eaton Vance" or "Boston Management and Research"
in their names. The Agreement also provides that BMR shall not be liable for any
loss incurred in connection with the performance of its duties, or action taken
or omitted under that Agreement, in the absence of willful misfeasance, bad
faith, gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties thereunder, or for any losses
sustained in the acquisition, holding or disposition of any security or other
investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator, see
"Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV are owned by EVC. All of the issued and outstanding shares
of BMR are owned by Eaton Vance. All shares of the outstanding Voting Common
Stock of EVC are deposited in a Voting Trust, which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. The Voting Trustees have unrestricted voting rights for the
election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers and Directors of EVC and EV. As of October
31, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders are
officers of the Trust and/or the Portfolio and are also members of the BMR,
Eaton Vance and EV organizations. BMR will receive the fees paid under the
Investment Advisory Agreement.
EVC owns all of the stock of Energex Energy Corporation, which engages in
oil and gas operations. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all of the stock of Fulcrum Management, Inc.
and MinVen Inc., which are engaged in the development of precious metal
properties. EVC also owns 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
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts, acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund, and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT charges
fees which are competitive within the industry. A portion of the fee relates to
custody, bookkeeping and valuation services and is based upon a percentage of
Fund and Portfolio net assets and a portion of the fee relates to activity
charges, primarily the number of portfolio transactions. These fees are then
reduced by a credit for cash balances of the particular investment company at
the custodian equal to 75% of the 91-day, U.S. Treasury Bill auction rate
applied to the particular investment company's average daily collected balances
for the week. Landon T. Clay, a Director of EVC and an officer, Trustee or
Director of other entities in the Eaton Vance organization, owns approximately
13% of the voting stock of Investors Financial Services Corp., the holding
company parent of IBT. Management believes that such ownership does not create
an affiliated person relationship between the Fund or the Portfolio and IBT
under the Investment Company Act of 1940. For the custody fees that the
Portfolio and the Fund paid to IBT, see "Fees and Expenses" in the Fund's Part
II of this Statement of Additional Information.
SERVICES FOR ACCUMULATION
The following services (which will become available on February 1, 1996) are
voluntary, involve no extra charge, other than the sales charge included in the
offering price, and may be changed or discontinued without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is anticipated
that $50,000 or more of Fund shares and shares of the other continuously offered
open-end funds listed under "The Eaton Vance Exchange Privilege" in the current
Prospectus of the Fund will be purchased within a 13-month period, a Statement
of Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum. Shares
held under Right of Accumulation (see below) as of the date of the Statement
will be included toward the completion of the Statement. The Statement
authorizes the Transfer Agent to hold in escrow sufficient shares (5% of the
dollar amount specified in the Statement) which can be redeemed to make up any
difference in sales charge on the amount intended to be invested and the amount
actually invested. Execution of a Statement does not obligate the shareholder to
purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. For sales
charges and other information on quantity purchases, see "How to Buy Fund
Shares" in the Fund's current Prospectus. Any investor considering signing a
Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable sales
charge level for the purchase of Fund shares is calculated by taking the dollar
amount of the current purchase and adding it to the value (calculated at the
maximum current offering price) of the shares the shareholder owns in his
account(s) in the Fund and in the other continuously offered open-end funds
listed under "The Eaton Vance Exchange Privilege" in the current Prospectus of
the Fund for which Eaton Vance acts as investment adviser or administrator at
the time of purchase. The sales charge on the shares being purchased will then
be at the rate applicable to the aggregate. For example, if the shareholder
owned shares valued at $30,000 in EV Traditional California Municipals Fund, and
purchased an additional $20,000 of Fund shares, the sales charge for the $20,000
purchase would be at the rate of 2.75% of the offering price (2.83% of the net
amount invested) which is the rate applicable to single transactions of $50,000.
For sales charges on quantity purchases, see "How to Buy Fund Shares" in the
Fund's current Prospectus. Shares purchased (i) by an individual, his or her
spouse and their children under the age of twenty-one, and (ii) by a trustee,
guardian or other fiduciary of a single trust estate or a single fiduciary
account, will be combined for the purpose of determining whether a purchase will
qualify for the Right of Accumulation and if qualifying, the applicable sales
charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her financial service firm ("Authorized Firm") must provide
Eaton Vance Distributors, Inc. (the "Principal Underwriter") (in the case of a
purchase made through an Authorized Firm) or the Transfer Agent (in the case of
an investment made by mail) with sufficient information to permit verification
that the purchase order qualifies for the accumulation privilege. Confirmation
of the order is subject to such verification. The Right of Accumulation
privilege may be amended or terminated at any time as to purchases occurring
thereafter.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal accounts will be credited at net asset value as of
the record date for each distribution. Continued withdrawals in excess of
current income will eventually use up principal, particularly in a period of
declining market prices.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value plus, after February 1, 1996, 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 made after February 1, 1996. A shareholder may not have a withdrawal
plan in effect at the same time he or she has authorized Bank Automated
Investing or is otherwise making regular purchases of Fund shares. The
shareholder, the Transfer Agent or the Principal Underwriter will be able to
terminate the withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the Portfolio is also
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transaction prices for most municipal obligations held by the Portfolio, and
such obligations, including those purchased on a when- issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing services uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by the Trustees of the Portfolio. The Fund and
the Portfolio will be closed for business and will not price their respective
shares or interests on the following business holidays: New Year's Day,
Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the result. The
calculation assumes the maximum sales charge (which is effective February 1,
1996) is deducted from the initial $1,000 purchase order and that all
distributions are reinvested at net asset value on the reinvestment dates during
the period. For information concerning the total return of the Fund, see
"Performance Information" in the Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing the net
investment income per share earned during a recent thirty-day period by the
maximum offering price (which includes the maximum sales charge in effect on
February 1, 1996) 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 will assume
a maximum sales charge equal to 3.75% of the public offering price. A
taxable-equivalent yield is computed by dividing the tax-exempt yield by 1 minus
a stated rate. For the yield and taxable-equivalent yield of the Fund, see
"Performance Information" in the Fund's Part II.
The Fund may also publish the distribution rate and/or the effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current 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.
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, CDA/Wiesenberger and 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.
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 Internal Revenue Code
of 1986, as amended (the "Code"). Accordingly, the Fund intends to satisfy
certain requirements relating to sources of its income and diversification of
its assets and to distribute its net investment income (including tax-exempt
income) and net realized capital gains in accordance with the timing
requirements imposed by the Code, so as to avoid any federal income or excise
tax on the Fund. The Fund so qualified for its fiscal year ended August 31, 1995
(see the Notes to the Financial Statements incorporated by reference in this
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, until February 1, 1996 the Fund will make
payments to the Principal Underwriter pursuant to its Distribution Plan. The
Distribution Agreement as in effect on February 1, 1996 is renewable annually by
the Trust's Board of Trustees (including a majority of its Trustees who are not
interested persons of the Principal Underwriter or 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 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.
Commencing February 1, 1996, the public offering price of Fund shares will
be 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 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. 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 discount allowed to Authorized Firms on the sale of Fund
shares. During periods when the discount includes the full sales charge, such
Authorized Firms may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Subject to the applicable provisions of the 1940 Act and after February 1,
1996, 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.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet the requirements of Rule 12b-1 (the "Rule") under the 1940 Act
and the service fee requirements of the revised sales charge rule of the
National Association of Securities Dealers, Inc. (Management believes service
fee payments are not distribution expenses governed by the Rule, but has chosen
to have the Plan approved as if the Rule were applicable.) The following
supplements the discussion of the Plan contained in the Fund's Prospectus. The
Plan is effective February 1, 1996.
The Plan remains in effect through April 28, 1996, and from year to year
thereafter, provided such continuance is approved by a vote of both a majority
of (i) those Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Rule 12b-1 Trustees") and (ii) all of the
Trustees then in office, cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan. The Plan may be terminated any time by vote
of the Rule 12b-1 Trustees or by a vote of a majority of the outstanding voting
securities of the Fund. Pursuant to such Rule, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, including the Rule 12b-1 Trustees.
Under the Plan, the President or a Vice President of the Trust shall provide
to the Trustees for their review, and the Trustees shall review at least
quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. The Plan may not be amended to
increase materially the payments described herein without approval of the
shareholders of the Fund, and all material amendments of the Plan must also be
approved by the Trustees of the Trust as prescribed by the Rule. So long as the
Plan is in effect, the selection and nomination of Trustees who are not
interested persons of the Trust shall be committed to the discretion of the
Trustees who are not such interested persons. The Trustees have determined that
in their judgment there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders.
Prior to February 1, 1966, the Fund will make payments pursuant to a
Distribution Plan. This 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 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.) For the sales commission
and service fee payments made by the Fund and the outstanding Uncovered
Distribution Charges of the Principal Underwriter, see "Fees and Expenses --
Distribution Plan" in the Fund's Part II of this SAI. The Fund believes that the
combined rate of all these payments may be higher than the rate of payments made
under distribution plans adopted by other investment companies pursuant to Rule
12b-1. Although the Principal Underwriter will use its own funds (which may be
borrowed from banks) to pay sales commissions at the time of sale, it is
anticipated that the Eaton Vance organization will profit by reason of the
operation of such 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 such Plan. The Eaton
Vance organization may be considered to have realized a profit under such Plan
if at any point in time the aggregate amounts therefore received by the
Principal Underwriter pursuant to such 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 Distribution Plan provides for the accrual of Uncovered Distribution
Charges. 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 such Plan since its inception. Payments theretofore paid and
payable under the Distribution 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.
The Distribution Plan provides that the Fund will receive all contingent
deferred sales charges paid in connection with redemptions occurring prior to
February 1, 1996 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 Distribution Plan.
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 Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche, LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Funds' most
recent Annual Report accompanies this SAI.
<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.
- ----------------
+ 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>
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
365 days.
Issuers (or supporting institutions) rated PRIME-1 (P-1) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 or P-1 repayment
ability will often be evidenced by many of the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
S&P's commercial paper ratings are a current assessments of the likelihood of
timely payment of debts considered short-term in the relevant market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F- 1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F- 1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL ALABAMA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Alabama State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Alabama Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Alabama considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Alabama issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Alabama issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Alabama's business cycle is closely related to the national economy, due to
its manufacturing based economy. The State's economy has changed little in the
past few years. Growth in machinery, aerospace and electronic manufacturing have
become increasingly important to the State. The present movement toward
diversification of the State's manufacturing base and a similar trend toward
enlargement and diversification of the service industries are expected to lead
to increased stability. With its strong natural gas and oil deposits, Alabama is
well positioned in energy markets. An important factor affecting the economy is
the State owned Port of Mobile which primarily handles coal exports and serves
as a major Gulf Coast port. The Port of Mobile is one of the nation's busiest
ports in tons of cargo handled.
Although manufacturing remains the largest employment sector, the State
economy has become less dependent on manufacturing. Strong growth in the service
and wholesale/retail trade sectors combined with a weakening manufacturing
sector has enabled the economy to become more diverse. However, its reliance on
the manufacturing sector remains significantly greater than the national
average. In the past several years, the loss of manufacturing jobs has been
primarily as a result of weakness in the durable good sector. Overall,
non-agricultural employment has steadily grown during the past five years.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $118,486,053. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$466,320 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid BMR
advisory fees of $373,047 (equivalent to 0.38% (annualized) of the Portfolio's
average daily net assets for such period). For the period from the Portfolio's
start of business, February 1, 1993, to the fiscal year ended September 30,
1993, the Portfolio paid BMR advisory fees of $123,740 (equivalent to 0.31%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended August 31, 1994, $11,742 and $13,973,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid to
Authorized Firms sales commissions of $76,033 on sales of Fund shares. During
the same period, the Fund paid sales commission payments under the Plan to the
Principal Underwriter aggregating $77,307. Such payments reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $85 were imposed on early redeeming shareholders and
paid to the Principal Underwriter to reduce Uncovered Distribution Charges. As
at August 31, 1995, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$870,170 (which amount was equivalent to 9.2% of the Fund's net assets on such
date). During the fiscal year ended August 31, 1995, the Fund paid service fee
payments under the Plan aggregating $20,392, of which $20,390 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter. Commencing February 1, 1996, the Fund will make service fee
payments pursuant to the Service Plan described in Part I. See "Service Plan".
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $217.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $3,416 and the
Portfolio paid IBT $16,491.
BROKERAGE
For the fiscal year ended August 31, 1995, and for the period from the start
of business, February 1, 1993, to the fiscal year ended September 30, 1993, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 $1,563\2/ $135,000\4/
Samuel L. Hayes, III ...... 32 1,608\3/ 150,000\5/
Norton H. Reamer .......... 31 1,631 135,000
John L. Thorndike ......... 32 1,718 140,000
Jack L. Treynor ........... 34 1,647 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
\2/ Includes $393 of deferred compensation.
\3/ Includes $517 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) is a Vice President of the Portfolio. Mr.
Browse has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Browse has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1992. Mr. Browse is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from May 1, 1992 through August
31, 1995 and for the one year period ended August 31, 1995. The total return for
the period prior to the Fund's commencement of operations on December 7, 1993
reflects the Portfolio's total return (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Such performance has not been adjusted
to reflect the Fund's service fees and certain other expenses. The performance
reflects the sales charge and fee structure for the Fund effective February 1,
1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ------------------------ ------------------------
PERIOD DATE INVESTMENT* ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 5/1/92 $962.51 $1,191.35 23.78% 6.61% 19.13% 5.39%
1 Year Ended
8/31/95 8/31/94 $962.81 $1,029.25 6.90% 6.90% 2.89% 2.89%
</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%. This sales charge
is effective February 1, 1996. Prior thereto, Fund shares redeemed within one
year of their purchase are subject to a contingent deferred sales charge of
1%.
** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.19%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.19% would be 6.39%, assuming a
combined federal and State tax rate of 34.45%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.27%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.35%. 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 15, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 85.2% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Alabama Tax Free Fund to EV Classic Alabama Municipals Fund
on January 1, 1996 and to EV Traditional Alabama Municipals Fund on February 1,
1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Alabama State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND ALABAMA STATE
TAX-EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------- ----------------- AL STATE ------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------ ------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 31.60% 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 56,551-$117,950 $ 94,251-$143,600 34.45% 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$117,951-$256,500 $143,601-$256,500 39.20% 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $256,500 Over $256,500 42.62% 6.97 7.84 8.71 9.59 10.46 11.33 12.20
</TABLE>
* Net amount subject to federal and Alabama personal income tax after deductions
and exemptions.
+ The first tax bracket is calculated using the highest Alabama tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax rates assume that Alabama taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The assumed Alabama State income tax rate is
5%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Alabama State income taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phase out of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Traditional Alabama
Municipals Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Alabama personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for Alabama personal income taxes. It
should also be noted that the interest earned on certain "private activity"
bonds issued after August 7, 1986, while exempt from the regular federal income
tax, is treated as a tax preference item which could subject the recipient to
the federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult with their tax advisers for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL ARKANSAS MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Arkansas State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Arkansas Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Arkansas considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Arkansas issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Arkansas issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The Constitution of the State does not limit the amount of general
obligation bonds which may be issued by the State; however, no such bonds may be
issued unless approved by the voters of the State at a general election or a
special election held for that purpose. There is no constitutional limitation on
the aggregate principal amount of revenue bonds that may be issued by the State
and its agencies. All revenue bonds and notes are secured only by specific
revenue streams and neither the general revenues of the State nor its full faith
and credit are pledged to repayment.
Pursuant to the Revenue Stabilization Law, the General Assembly must enact
legislation to provide for an allotment process of funding appropriations in
order to comply with State law prohibiting deficit spending whereby spending is
limited to actual revenues received by the State. The Governor may restrict
spending to a level below the level of appropriations. Pursuant to the
Stabilization Act, the General Assembly establishes five levels of priority for
general revenue spending, levels "A," "B," "B-1," "C" and "C-1". Successive
levels of appropriations are funded only in the event sufficient revenues have
been generated to fully fund any prior level. Accordingly, appropriations made
to programs and agencies are only maximum authorizations to spend. Actual
expenditures are limited to the lesser of (i) moneys flowing into a program or
agency's fund maintained by the Treasurer or (ii) the maximum appropriation by
the General Assembly. Since State revenues are not collected throughout the year
in a pattern consistent with program and agency expenditures, a budget revolving
fund, which receives interest earnings from State fund investments, has been
established and is utilized to assure proper cash flow during any period.
One-half of all moneys deposited into the budget revolving fund ultimately are
utilized to supplement the State's capital construction program and the balance
is distributed to programs and agencies funded from general revenues.
The State operates under a biennial budgeting system with July 1, 1995
beginning the current biennium. The State ended fiscal 1994 in balance as
required by the Revenue Stabilization Act. Net available general revenue growth
for fiscal 1994 was 9%.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $81,535,002. For the
fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$296,231 (equivalent to 0.37% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, February 1,
1994, to the fiscal year ended August 31, 1994, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $172,691 (equivalent to 0.38%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of its advisory
fee in the amount of $88,417. The Portfolio's Investment Advisory Agreement with
BMR is dated February 1, 1994 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
February 9, 1994, to the fiscal year ended August 31, 1994, $15,164 and $13,217,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid to
Authorized Firms sales commissions of $3,904 on sales of Fund shares. During the
same period, the Fund paid sales commission payments under the Plan to the
Principal Underwriter aggregating $4,353. Such payments reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $7 were imposed on early redeeming shareholders and
paid to the Principal Underwriter to reduce Uncovered Distribution Charges. As
at August 31, 1995, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$52,400 (which amount was equivalent to 9.7% of the Fund's net assets on such
date). During the fiscal year ended August 31, 1995, the Fund paid service fee
payments under the Plan aggregating $1,151, of which $1,041 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter. Commencing February 1, 1996, the Fund will make service fee
payments pursuant to the Service Plan described in Part I. See "Service Plan".
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $12.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $2,881 and the
Portfolio paid IBT $23,999.
BROKERAGE
For the fiscal year ended August 31, 1995, and for the period from the start
of business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended August 31, 1995, the noninterested
Trustees of the Trust and the Portfolio 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 $1,164\2/ $135,000\4/
Samuel L. Hayes, III ...... 0 1,222\3/ 150,000\5/
Norton H. Reamer .......... 0 1,254 135,000
John L. Thorndike ......... 0 1,336 140,000
Jack L. Treynor ........... 0 1,235 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
\2/ Includes $436 of deferred compensation.
\3/ Includes $559 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) is a Vice President of the Portfolio. Mr.
Browse has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Browse has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1992. Mr. Browse is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to Joining Eaton
Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from October 2, 1992 through
August 31, 1995 and for the one year period ended August 31, 1995. The total
return for the period prior to the Fund's commencement of operations on February
9, 1994 reflects the Portfolio's total return (or that of its predecessor)
adjusted to reflect any applicable Fund sales charge. The total return for such
prior period has not been adjusted to reflect the Fund's service fees and
certain other expenses. The performance reflects the sales charge and fee
structure for the Fund 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 INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ---------------------------
PERIOD DATE INVESTMENT* ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 10/2/92 $962.50 $1,157.69 20.28% 6.55% 15.77% 5.16%
1 Year Ended
8/31/95** 8/31/94 $962.63 $1,015.74 5.52% 5.52% 1.56% 1.56%
</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%. This sales charge
is effective February 1, 1996. Prior thereto, Fund shares redeemed within one
year of their purchase are subject to a contingent deferred sales charge of
1%.
** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.19%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.19% would be 6.53%, assuming a
combined federal and State tax rate of 35.83%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on the
Fund's monthly distribution paid August 22, 1995) was 4.32%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.40%. 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 13, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 19.4% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of such date, the following shareholders owned beneficially and
of record the percentages of outstanding shares of the Fund indicated after
their names: Painewebber for the Benefit of Johnnie Lile Sullinger TTEE The
Johnnie Lile Sullinger Trust, dtd 8/7/92, Little Rock, AR (18.9%); Delmer L.
O'Bar & Willene E. O'Bar & Jimmy L. O'Bar & Deborah L. Crane Jt Ten, Scranton,
AR (18.1%); Painewebber for the Benefit of Doris Kinard Byrd Rev Trust, Doris
Kinard Byrd TTEE dtd 1/20/94, No. Little Rock, AR (10.2%); Edward D. Jones and
Co. F/A/O Robert E. Bonham & Vivian J. Bonham TTEES, Maryland Heights, MO (5.1%)
and Paul A. Paladino, Russellville, AR (5.1%). To the knowledge of the Trust, no
other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7,1991. The Fund changed its
name from EV Classic Arkansas Tax Free Fund to EV Classic Arkansas Municipals
Fund on January 1, 1996 and to EV Traditional Arkansas 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
Arkansas State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND ARKANSAS STATE
TAX-EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------- ----------------- AR STATE ------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------ ------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551-$117,950 $ 94,251-$143,600 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$117,951-$256,500 $143,601-$256,500 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over $256,500 Over $256,500 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
</TABLE>
* Net amount subject to federal and Arkansas personal income tax after
deductions and exemptions.
+ The first tax bracket is calculated using the highest Arkansas tax rate within
the bracket. Taxpayers with taxable income within this bracket may have a
lower combined bracket and taxable equivalent yield than indicated above. The
combined tax rates assume that Arkansas taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal
tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The assumed Arkansas State income tax rate is
7%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Arkansas State income taxes) for
taxpayers with adjusted gross income in excess of $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 EV Traditional Arkansas
Municipals Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations, the interest from
which is exempt from the regular federal income tax and Arkansas personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for Arkansas personal income taxes. It
should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular federal income
tax, is treated as a tax preference item which could subject the recipient to
the federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL GEORGIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Georgia State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Georgia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Georgia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Georgia issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Georgia issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The Georgia Constitution provides that the State may incur public debt of
two types for public purposes: (1) general obligation debt and (2) guaranteed
revenue debt. General obligation debt may be incurred to acquire, construct,
develop, extend, enlarge or improve land, waters, property, highways,
buildings, structures, equipment or facilities of the State, its agencies,
departments, institutions and certain State authorities, to provide
educational facilities for county and independent school systems, to provide
public library facilities for county and independent school systems, counties,
municipalities, and boards of trustees of public libraries or boards of
trustees of public library systems, to make loans to counties, municipal
corporations, political subdivisions, local authorities and other local
government entities for water or sewerage facilities or systems, and to make
loans to local government entities for regional or multijurisdictional solid
waste recycling or solid waste facilities or systems. No general obligation
debt may be incurred, however, when the highest aggregate annual debt service
requirements for the then current year or any subsequent year for outstanding
general obligation debt and guaranteed revenue debt, including any proposed
debt, and the highest aggregate annual payments for the then current year or
any subsequent fiscal year of the State under certain State contracts, exceed
ten percent of the total revenue receipts, less refunds, of the State Treasury
in the fiscal year immediately preceding the year in which the debt is to be
incurred. In addition, no general obligation debt may be incurred with a term
in excess of twenty-five years.
Guaranteed revenue debt may be incurred by guaranteeing the payment of
certain revenue obligations issued by an instrumentality of the State. No
guaranteed revenue debt may be incurred to finance water or sewage treatment
facilities or systems when the highest aggregate annual debt service
requirements for the then current year or any subsequent fiscal year of the
State for outstanding or proposed guaranteed revenue debt for water or
sewerage facilities or systems exceed one percent of the total revenue
receipts, less refunds, of the State Treasury in the fiscal year immediately
preceding the year in which any debt is to be incurred. In addition, the
aggregate amounts of guaranteed revenue debt incurred to make loans for
educational purposes may not exceed $18 million, and the aggregate guaranteed
revenue debt incurred to purchase, or to lend or deposit against the security
of, loans for educational purposes that may be outstanding may not exceed $72
million.
As of July 31, 1995, the State's outstanding general obligation debt was
$4,279,170,000. The State had outstanding at July 31, 1995, $185,135,000 of
guaranteed revenue debt.
In addition to the State's general obligation debt and guaranteed revenue
debt, the State had outstanding at June 30, 1995, $1,030,000 in revenue bonds
and notes issued by various State agencies, authorities and institutions of
higher education.
In the 1995 Legislative Session, the General Assembly authorized the
issuance of $530,500,000 in aggregate principal amount of general obligation
bonds for fiscal year 1996, the proceeds of which are to be used for various
planned capital projects of the State, its departments and agencies.
The Georgia Constitution also permits the State to incur public debt to
supply a temporary deficit in the State Treasury in any fiscal year created by
a delay in collecting the taxes of that year. Such debt must not exceed, in
the aggregate, 5% of the total revenue receipts, less refunds, of the State
Treasury in the fiscal year immediately preceding the year in which such debt
is incurred. The debt incurred must be repaid on or before the last day of the
fiscal year in which it is to be incurred out of the taxes levied for that
fiscal year. No such debt may be incurred in any fiscal year if there is then
outstanding unpaid debt from any previous fiscal year which was incurred to
supply a temporary deficit in the State Treasury. No such debt has been
incurred under this provision since its inception.
Virtually all of the issues of long-term debt obligations issued by or on
behalf of the State of Georgia and counties, municipalities and other
political subdivisions and public authorities thereof are required by law to
be validated and confirmed in a judicial proceeding prior to issuance. The
legal effect of a validation in Georgia is to tender incontestable the
validity of the pertinent bond issue and the security therefor.
Tax collections of the State for fiscal year 1994 were 7.8% over tax
collections for fiscal year 1993. Corporate and individual income tax receipts
and general sales tax receipts of the State for fiscal year 1994 comprised an
estimated 49.0% and 40.2%, respectively, of the total State tax revenues.
Revenues from sales and income taxes increased 9.2% and 6.7%, respectively,
during fiscal year 1994, and 8.3% and 9.1%, respectively, during fiscal year
1995.
On December 6, 1994, the United States Supreme Court reversed the Georgia
Supreme Court's decision in Reich v. Collins which had determined that the
plaintiff federal retiree was not entitled to a refund of taxes paid on
federal retirement pension benefits for tax years before 1989. The plaintiff
had sought refunds under the United States Supreme Court's decision in Davis
v. Michigan Department of Treasury. On February 1, 1995, the Governor signed
H.B. 90 into law, which provides for the payment of refunds to federal
retirees who timely filed claims for any of the tax years 1985 through 1988,
inclusive. The total amount payable is estimated at approximately $110
million, to be paid in four roughly equal annual installments beginning on or
before October 15, 1995. Based on this legislation, Reich has been dismissed.
Three suits have been filed against the State of Georgia seeking refunds
of liquor taxes in light of Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)
under Georgia's pre-Bacchus statute. In James B. Beam Distilling Co. v. State,
501 U.S. 529 (1991), the Supreme Court indicated that Bacchus was retroactive,
but only within the bounds of State statutes of limitations and procedural
bars, and left State courts to determine any remedy in light of reliance
interests, equitable considerations, and other defenses. Georgia's statute of
limitations has run on all pre-Bacchus claims for refund except five pending
claims seeking $31.7 million in tax plus interest. On remand, the Fulton
County Superior Court ruled that procedural bars and other defenses bar any
recovery by taxpayers on Beam's claims for refund. The Georgia Supreme Court
affirmed, and Beam's petition to the United States Supreme Court for a writ of
certiorari was denied. Thus, the Beam case is now concluded. The State has
filed a motion for summary judgment, based upon Beam, in the remaining two
suits for refund, i.e., Joseph E. Seagram & Sons, Inc. v. State and Heublein,
Inc. v. State, in DeKalb County Superior Court.
Three suits (two for refund and one for declaratory and injunctive relief)
have been filed with the State of Georgia by foreign producers of alcoholic
beverages. The first suit seeks $96 million in refunds of alcohol import taxes
imposed under Georgia's post-Bacchus statute. These claims constitute 99% of
all such taxes paid during the three years preceding these claims. In
addition, the claimants have filed a second suit for refund of an additional
$23 million for apparently later time periods. These two cases encompass all
known or anticipated claims for refund of such type within the apparent
statute of limitations. The two refund cases are still pending in the trial
court. The declaration/injunctive relief case was dismissed by the District
Court and was affirmed by the Eleventh Circuit Court of Appeals. The claimants
have filed a petition for rehearing which is pending.
A suit has also been filed based on a local school board's claim that the
State finance the major portion of the costs of its desegregation program. The
Savannah Board originally requested restitution in the amount of $30 million,
but the Federal District Court set forth a formula which would require a State
payment in the amount of approximately $8,900,000. The plaintiffs,
dissatisfied with the apportionment of desegregation costs between State and
county, and an adverse ruling on the State funding formula for transportation
costs, have appealed to the Eleventh Circuit Court of Appeals. The State has
filed a responsive cross-appeal on the ground that there is no basis for any
liability. Subsequently, the parties agreed to a settlement, which has been
submitted to the Court for approval. The proposed settlement calls for the
State to pay the amount awarded to the plaintiffs and to offer an option
regarding future funding methodology for pupil transportation. Because
interest was accruing in the settlement, in March 1995, the State paid to the
plaintiffs $8,925,000 in partial satisfaction of the settlement agreement.
A similar complaint has been filed by DeKalb County and seeking
approximately $67,500,000 in restitution. The federal District Court ruled
that the State's funding formula for pupil transportation (which the District
Court in the Savannah case upheld) was contrary to State law. This ruling
would require a State payment of a State law funding entitlement in the amount
of approximately $34,000,000 computed through June 30, 1994. Motions to
reconsider and amend the Court's judgment were filed by both parties. The
State's motion was granted, in part, which reduced the required State payment
to approximately $28,000,000. Notices of appeal to the Eleventh Circuit Court
of Appeals have been filed. There are approximately five other school
districts which might file similar claims.
Another suit has been filed in federal district and State superior courts
challenging the constitutionality of Georgia's transfer fee (often referred to
as "impact fee") by asserting that the fee violates the commerce clause, due
process, equal protection and privilege and immunities provisions of the
constitution. The plaintiff seeks to prohibit the State from further
collections and to require the State to return to her and those similarly
situated all fees previously collected. A similar lawsuit previously filed in
another State superior court has been voluntarily dismissed and will likely be
joined with this action. From May of 1992 to June 1995, the State has
collected $24,168,203. All amounts collected after June 7, 1995 are being paid
into an escrow account. The State continues to collect approximately $500,000
to $600,000 per month.
On September 1, 1994, a civil action was filed in the Fulton County
Superior Court on behalf of all certain employees of the State of Georgia who
were subjected to a freeze in pay between 1992 and 1995. The State believes
that it has good and adequate defenses to the claims made, but, should the
plaintiffs prevail in every aspect of their claims, the liability of the State
in this matter could be as much as $295,000,000, based on best estimates
currently available.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $122,948,667. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$521,159 (equivalent to 0.41% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $496,637 (equivalent to 0.40% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $228,627
(equivalent to 0.37% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended August 31, 1994, $16,832, $11,268,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid
to Authorized Firms sales commissions of $18,865 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $19,022. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $46 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at August 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $398,720 (which amount was equivalent to 16.0% of
the Fund's net assets on such date). During the fiscal year ended August 31,
1995, the Fund paid service fee payments under the Plan aggregating $5,148, of
which $4,994 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter. Commencing February 1, 1996, the Fund
will make service fee payments pursuant to the Service Plan described in Part
I. See "Service Plan".
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $145.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $1,507 and
the Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio 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 $1,563\2/ $135,000\4/
Samuel L. Hayes, III ...... 0 1,608\3/ 150,000\5/
Norton H. Reamer .......... 0 1,631 135,000
John L. Thorndike ......... 0 1,718 140,000
Jack L. Treynor ........... 0 1,647 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
\2/ Includes $393 of deferred compensation.
\3/ Includes $517 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since January 1, 1996.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from December 23, 1991
through August 31, 1995. The total return for the period prior to the Fund's
commencement of operations on December 7, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. Such performance has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the sales
charge and fee structure for the Fund effective February 1, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ----------------------------
PERIOD DATE INVESTMENT* ON 08/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ----------------- -------------- ----------------- ----------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund 12/23/91 $962.54 $1,145.47 19.01% 4.83% 14.54% 3.75%
1 Year Ended 8/31/95 8/31/94 $962.42 $1,006.70 4.60% 4.60% 0.68% 0.68%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1, 1996. Prior thereto, Fund
shares redeemed within one year of their purchase are subject to a contingent deferred sales charge of 1%.
** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.59%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.59% would be 7.08%,
assuming a combined federal and State tax rate of 35.14%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.40%, 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 October 15, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 61.57% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Georgia Tax Free Fund to EV Classic Georgia
Municipals Fund on January 1, 1996 and to EV Traditional Georgia Municipals
Fund on February 1, 1996.
<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
Georgia State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND GEORGIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------- ---------------------- GA STATE ----------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------- ------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<FN>
<F1> Net amount subject to federal and Georgia personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Georgia tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Georgia taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Georgia State income taxes)
for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint
filers with Adjusted Gross Income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Traditional Georgia
Municipals Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations, the
interest from which is exempt from the regular federal income tax and Georgia
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for Georgia personal
income taxes. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL KENTUCKY MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Kentucky state personal income taxes in
the form of an investment exempt from the Kentucky intangibles tax. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Kentucky Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Kentucky considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Kentucky issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Kentucky issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Because the Kentucky Constitution requires the vote of a majority of the
state's electorate to approve the issuance of state general obligation
indebtedness and requires the vote of two-thirds of a municipality's
electorate to approve the issuance of general obligation indebtedness by any
city, county, or other municipality within the state, most Kentucky state and
local government indebtedness is issued not as general obligation indebtedness
but as either debt payable only from revenues produced by the particular
project or as indebtedness subject to biennial, in the case of the state, or
annual, in the case of a local government, legislative appropriation for the
payment of debt service. Such appropriation-backed indebtedness is customarily
issued in the form of lease revenue bonds by a public authority or public
holding company which uses the proceeds of the bonds to finance the particular
public project and leases the project to the state or local government
pursuant to a lease renewable each fiscal biennium (in the case of the state)
or each fiscal year (in the case of a local government). Failure of the lessee
government to renew the lease would terminate the lessee's obligation to make
further rental payments and would leave the bondholders with recourse only
against the property which was subject to the lease and any other security
pledged for the payment of the bonds. An amendment to the state constitution
approved by the electorate at the November 1994 general election authorizes
the Kentucky General Assembly to enact legislation permitting local
governments to issue general obligation indebtedness without voter approval
but subject to prescribed limitations on the maximum amount of indebtedness
that may be incurred based on the assessed value of the taxable property
within the municipality and such additional limitations and conditions as may
be prescribed by statute.
The Kentucky General Assembly has not yet enacted any such enabling
legislation and, therefore, appropriation-backed indebtedness continues to be
the prevailing form of financing for local governments in Kentucky.
The Commonwealth of Kentucky recently retired the last of its outstanding
general obligation debt. In September 1994 S&P upgraded the rating of the
State's appropriation-back debt from A to A+. Moody's and Fitch rate the
State's appropriation-back debt as A and A+, respectively.
Kentucky is an "average" state in terms of size and in terms of its
proportion of the national economy. Kentucky has 1.5% of total U.S.
population, 1.2% of total U.S. personal income, and 1.3% of total U.S.
nonagricultural employment. However, during the latter part of the 1980's and
throughout the 1990's, Kentucky's economy has outperformed the national
average. During 1994 the unemployment rate in Kentucky averaged 5.4% as
compared to the national average of 6.1%; nonagricultural employment in
Kentucky grew 3.3% as compared to a national growth rate of 2.6%; and personal
income in Kentucky grew 6.0% compared to a national growth rate of 5.3%.
The Commonwealth of Kentucky's financial condition has steadily improved
during the last three years. State General Fund revenue grew by 10.9% in
fiscal year 1995 to a total of $5.15 billion. To avoid the need for state
budget cuts in the event revenues do not meet expectations, a Budget Reserve
Trust Fund was established with a $90 million deposit in fiscal year 1994. An
additional $10 million was deposited into the Budget Reserve Trust Fund on in
fiscal year 1995, bringing the balance to the targeted level of $100 million.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $145,268,626. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$595,483 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $510,287 (equivalent to 0.41% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $224,010
(equivalent to 0.37% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended August 31, 1994, $27,092, $9,744,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid
to Authorized Firms sales commissions of $14,848 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $15,262. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $840 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at August 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $300,783 (which amount was equivalent to 16.5% of
the Fund's net assets on such date). During the fiscal year ended August 31,
1995, the Fund paid service fee payments under the Plan aggregating $4,061, of
which $3,929 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter. Commencing February 1, 1996, the Fund
will make service fee payments pursuant to the Service Plan described in Part
I. See "Service Plan."
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $157.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $4,262 and
the Portfolio paid IBT $35,132.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio 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 $1,563\2/ $135,000\4/
Samuel L. Hayes, III ...... 0 1,608\3/ 150,000\5/
Norton H. Reamer .......... 0 1,631 135,000
John L. Thorndike ......... 0 1,718 140,000
Jack L. Treynor ........... 0 1,647 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
\2/ Includes $393 of deferred compensation.
\3/ Includes $517 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of addtional Information,
David C. Reilly (38) is a Vice President of the Portfolio. Mr. Reilly has
served as a Vice President of the Portfolio since January 1, 1996. 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 Sudder, 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 December 23, 1991
through August 31, 1995. The total return for the period prior to the Fund's
commencement of operations on December 7, 1993 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. Such performance has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the sales
charge and fee structure for the Fund effective February 1, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INITIAL INVESTMENT -------------------------- --------------------------
INVESTMENT PERIOD DATE INVESTMENT* ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------------------- ------------ --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 12/23/91 $962.48 $1,168.20 21.37% 5.39% 16.82% 4.30%
1 Year Ended 8/31/95 8/31/94 $962.38 $1,022.95 6.29% 6.29% 2.31% 2.31%
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%. This sales charge is effective February 1, 1996. Prior thereto, Fund
shares redeemed within one year of their purchase are subject to a contingent deferred sales charge of 1%.
** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.28%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.28% would be 6.60%,
assuming a combined federal and State tax rate of 35.14%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.44%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.53%. 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 brackes.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 15, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 54.5% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition as of October 15, 1995, Samuel R.
Rechter and Bonnie J. Rechter, JTWROS, Louisville, KY, owned beneficially and
of record 5.18% of the outstanding shares of the Fund. To the knowledge of the
Trust, no other person owned of record or beneficially 5% or more of the
Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Kentucky Tax Free Fund to EV Classic Kentucky
Municipals Fund on January 1, 1996 and to EV Traditional Kentucky Municipals
Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below give the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Kentucky State income tax laws, and intangibles tax laws and tax rates
applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND KENTUCKY STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------- ---------------------- KY STATE ----------------------------------------------------------------
(TAXABLE INCOME<F1>) TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------- ------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<CAPTION>
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------- ---------------------- ----------------------------------------------------------------------
(TAXABLE INCOME<F1>) TAXABLE EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX<F3>:
- -------------------------------------------------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 5.36% 5.99% 6.61% 7.23% 7.86% 8.48% 9.11%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 6.33 7.07 7.80 8.54 9.28 10.01 10.75
$ 56,551 - $117,950 $ 94,251 - $143,600 6.61 7.37 8.14 8.91 9.68 10.45 11.22
$117,951 - $256,500 $143,601 - $256,500 7.12 7.95 8.78 9.61 10.44 11.27 12.10
Over $256,500 Over $256,500 7.55 8.42 9.30 10.18 11.06 11.94 12.82
<F1> Net amount subject to federal and Kentucky personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Kentucky tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Kentucky taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The Kentucky State income tax is 6%, and the intangibles tax as a percentage of income is 5.0%.
Note: The federal income tax portion of above-indicated combined income tax brackets does not take into account the effect of a
reduction in the deductibility of itemized deductions (including Kentucky state income taxes) for taxpayers with Adjusted
Gross Income in excess of $114,700. The tax brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint filers with Adjusted Gross Income in excess of
$172,050. The effective tax brackets and equivalent taxable yields of such taxpayers will be higher than those indicated
above.
<F3> The Kentucky intangibles tax on stocks, bonds, notes and other evidences of debt is 25 cents on every $100 of the value
thereof. An example of the effect of the Kentucky intangibles tax on the combined tax brackets of taxpayers is as follows: A
$10,000 investment subject to the tax would require payment of $25 annually in intangibles taxes. If the investment yielded
5.5% annually or $550, the intangibles tax as a percentage of income would be $25/$550 or 4.55%. If a taxpayer owning such an
investment were in the 6% state income tax bracket, he or she would be paying combined state taxes as a percentage of income
of 6% plus 4.55% or 10.55%. Assuming the deductibility of these taxes as itemized deductions and that such taxpayer were in
the 36% federal income tax bracket, the taxpayer would then be in a 42.75% [36% + (1 - .36) X 10.55%] combined tax bracket
with respect to such investment. This is higher than the 39.84% combined tax bracket without taking into account the
intangibles tax.
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Traditional
Kentucky Municipals Fund will achieve any specific tax exempt yield. While it
is expected that the Portfolio will invest principally in obligations, the
interest from which is exempt from the regular federal income tax and Kentucky
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for Kentucky personal
income taxes. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL LOUISIANA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Louisiana State individual
and corporate income taxes. The Fund currently seeks to achieve its investment
objective by investing its assets in the Louisiana Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Louisiana considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Louisiana issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Louisiana issuers. Neither the Trust nor the Portfolio has independently
verified this information.
In 1991, the Louisiana Legislature enacted the Louisiana Riverboat
Economic Development and Gaming Control Act ("Act 753") to assist the growth
of tourism by the development of a riverboat industry in the State authorized
to operate regulated gaming activities. Act 753 designates certain rivers and
waterways in the State upon which riverboat gaming may be conducted and
provides for the creation of a gaming commission known as the Riverboat Gaming
Commission (the "Riverboat Commission"), and for the creation of the Riverboat
Gaming Enforcement Division (the "Enforcement Division"). The Enforcement
Division is responsible for investigation of license and permit applications.
The Riverboat Commission has the responsibility of licensing, regulating and
inspecting riverboat gaming facilities and enforcing Act 753 and regulations
promulgated thereunder. Act 753 allows the issuance of up to fifteen licenses
to conduct gaming activities on riverboats of new construction (built after
January 1, 1992); provided that, no more than six licenses may be granted for
the operation of riverboat gaming in any one parish. As of January 1, 1995
there were 10 riverboats in operation in Louisiana, including two riverboats
in Orleans Parish, two riverboats in other parts of the New Orleans
metropolitan area, two in Baton Rouge, one in Lake Charles, and three in
Shreveport/Bossier City. Act 753 imposes annual license fees for gaming
employee, manufacture, supplies and other permits. In addition, there is a
license fee equal to 3.5% of net gaming proceeds and a franchise fee equal to
15% of net gaming proceeds. Of the 3.5% fee, up to 0.5% can be used to meet
the expenses of the Riverboat Gaming Commission; the remainder of the 3.5%
shall be used by the Enforcement Division to meet its regular, administrative,
investigative and enforcement expenses. The 15% franchise fees are to be
deposited to the credit of the State General Fund. The official forecast for
riverboat gaming revenues is $30 million for fiscal year 1994-95 and $200
million for fiscal year 1995-96.
For fiscal 1996, the State failed to receive a Section 1115 waiver from
the U.S. Department of Health and Human Services resulting in a significant
reduction of federal funding for its health care programs. As a result, the
State faces a large operating gap for its fiscal 1996 budget. At this time, it
is uncertain as to how the State plans to close the fiscal gap and how it will
affect the creditworthiness of State obligations and related debt.
In 1991, the Louisiana Legislature enacted the Video Draw Poker Devices
Control Law (the "Act 1062") for the purpose of regulating and licensing the
use and operation of video draw poker devices through the video gaming
division (the "Video Division") of the gaming enforcement section of the
office of the State police. Act 1062 imposes annual license fees and a
franchise payment equal to 22.5% of the net device revenue derived from the
operation of each device. The forecast of Video Draw Poker gaming revenue is
$38 million for fiscal year 1994-1995 and $150 million for fiscal year 1995-
1996.
In 1992, Act 384 of the Louisiana Legislature created the Louisiana
Economic Development and Gaming Corporation (the "LEDGC") for the purpose of
contracting with a casino operator to provide for or furnish an official
gaming establishment and to conduct casino gaming operations at the official
gaming establishment (the "Permanent Casino"). Act 384 directs that the
Permanent Casino be located on the site of the Rivergate Convention Center in
New Orleans. The LEDGC has entered into a contract ("Contract") with Harrah's
Jazz Company ("Company"), a general partnership owned equally by Harrah's New
Orleans Investment Company, New Orleans/Louisiana Development Corporation and
Grand Palais Casino Inc. Pursuant to the Contract, the Company is currently
operating a Temporary Casino until the expected opening of the Permanent
Casino in April of 1996. Pursuant to the Contract, the Company is required to
pay an amount equal to 25% of its gross gaming revenue to the LEDGC during
operation of the Temporary Casino. To date, the Temporary Casino has failed to
match revenue projections. Upon the opening of the Permanent Casino, the
Company will be required to make a payment to the LEDGC in an amount equal to
the greater of $100 million and an amount that is 18.5% of the gross gaming
revenues of the Company. Each quarter, the LEDGC must transfer to the State
Treasury for deposit in the Casino Gaming Proceeds Fund net revenues which are
surplus to its needs. Such revenues will be first credited to the Bond
Security and Redemption Fund before being credited to the Casino Gaming
Proceeds Fund. Monies in the Casino Gaming Proceeds Fund may be allocated or
expended only pursuant to legislative appropriation.
On January 23, 1995, the Legislative Auditor, as the result of his
financial and compliance audit of the State's general purpose financial
statements as of and for the fiscal year 1993-94, issued a qualified audit
opinion on those statements.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $34,308,679. For
the fiscal year ended August 31, 1995, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $73,471 (equivalent to 0.23% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$36,188. For the period from the Portfolio's start of business, February 1,
1994, to the fiscal year ended August 31, 1994, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $34,790 (equivalent to 0.21%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of its advisory
fee in the amount of $31,760. The Portfolio's Investment Advisory Agreement
with BMR is dated February 1, 1994 and remains in effect until February 28,
1996. The Agreement may be continued as described under "Investment Adviser
and Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995, and for the period from the start of business,
February 14, 1994, to the fiscal year ended August 31, 1994, $10,912 and
$12,236, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid
to Authorized Firms sales commissions of $19,393 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $19,870. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating aproximately $284 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at August 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $252,000 (which amount was equivalent to 10.6% of
the Fund's net assets on such date). During the fiscal year ended August 31,
1995, the Fund paid service fee payments under the Plan aggregating $5,262, of
which $5,171 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter. Commencing February 1, 1996, the Fund
will make service fee payments pursuant to the Service Plan described in Part
I. See "Service Plan".
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $82.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $1,675 and
the Portfolio paid IBT $975.
BROKERAGE
For the fiscal year ended August 31, 1995 and for the period from the
start of business, February 1, 1994, to the fiscal year ended August 31, 1994,
the Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio 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.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from October 2, 1992
through August 31, 1995 and for the one-year period ended August 31, 1995. The
total return for the period prior to the Fund's commencement of operations on
February 14, 1994 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the sales
charge and fee structure for the Fund 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 INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ----------------------------
PERIOD DATE INVESTMENT* ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ------ ------- ------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 10/02/92 $962.54 $1,167.56 21.30% 6.86% 16.75% 5.46%
1 Year Ended 8/31/95** 8/31/94 $962.40 $1,009.35 4.88% 4.88% 0.95% 0.95%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ------------
*Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1, 1996. Prior thereto, Fund
shares redeemed within one year of their purchase are subject to a contingent deferred sales charge of 1%.
**If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.56%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.56% would be 7.03%,
assuming a combined federal and State tax rate of 35.14%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, respectively, the Fund would have had a lower
yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.69%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.79%. 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 October 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 44.2% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of the same date, the following
shareholders owned of record the percentages of outstanding shares indicated
after their names: Rozelle Hahn MD, Benton, LA 71006-4230 (7.3%); PaineWebber
for the benefit of Brigette and Charles Belair tennants in common, Belle
Chasse, LA 70037-2630 (5.7%); and PaineWebber for the benefit of William E.
Wynne, New Orleans, LA 70124-2643 (5.2%). To the knowledge of the Trust, no
other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Louisiana Tax Free Fund to EV Classic
Louisiana Municipals Fund on January 1, 1996 and to EV Traditional Louisiana
Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Louisiana State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND LOUISIANA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------- ---------------------- LA STATE ---------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------- -------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.32 5.91% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17% 6.94% 7.71% 8.48% 9.25% 10.02% 10.79%
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65% 7.48% 8.31% 9.14% 9.97% 10.80% 11.64%
Over - $256,500 Over - $256,500 43.22 7.05% 7.93% 8.81% 9.69% 10.57% 11.45% 12.33%
<F1> Net amount subject to federal and Louisiana personal income tax after deductions and exemptions.
<F2> Tax brackets are calculated using the highest Louisiana tax rate within the brackets. Taxpayers with taxable income within
these brackets may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax rates
assume that Louisiana taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions
on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those
indicated above. The applicable federal tax rates within each of these combined brackets are 15%, 28%, 31% and 39.6%
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Louisiana State income taxes)
for taxpayers with adjusted gross income in excess of $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 EV Traditional
Louisiana Municipals Fund will achieve any specific tax exempt yield. While it
is expected that the Portfolio will invest principally in obligations, the
interest from which is exempt from the regular federal income tax and
Louisiana personal income taxes, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for
Louisiana personal income taxes. It should also be noted that the interest
earned on certain "private activity bonds" issued after August 7, 1986, while
exempt from the regular federal income tax, is treated as a tax preference
item which could subject the recipient to the federal alternative minimum tax.
The illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult with their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL MARYLAND MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Maryland State and local income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Maryland Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Maryland considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Maryland issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Maryland issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Generally Maryland has been among the most heavily indebted of the states,
although its position is more moderate with the inclusion of local debt,
reflecting in part the State assumption several years ago of a substantial
portion of local school construction costs. The State became concerned over
its debt levels and, following recommendations of a debt affordability
committee, has practiced restraint in borrowing. Resources have also expanded
and debt ratios have fallen. Capital borrowing plans are reasonable and
designed not to increase debt levels. Recently, major infrastructure projects
undertaken, including a light rail line, a stadium, and airport and convention
center improvements, have been financed primarily by revenue-backed or other
non-general obligation financings.
The public indebtedness of Maryland and its instrumentalities is divided
into three basic types. The State, as well as the various counties and
municipalities of the State, issues general obligation bonds payable from ad
valorem taxes for capital improvements. The Department of Transportation of
Maryland issues limited, special obligation bonds for transportation purposes
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities, as well as several local
governments, issue obligations payable solely from identified taxes or revenue
streams, including loan obligations from nonprofits, companies or other
private entities, and for which the State or local government has no liability
and has given no moral obligation assurance. The State, its agencies and
departments and the various localities also enter into municipal leases or
installment purchase obligations. Such a lease is not a general obligation of
the municipality for which the municipality's taxing power is pledged but is
ordinarily backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease. Such municipal leases generally
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease payments in future years unless money is appropriated
for such purpose on a yearly basis.
During fiscal year 1991 through 1993, the State experienced budgetary
problems caused by a national recession. To address revenue shortfalls and
expanded expenditure requirements the State increased tax and other revenues,
curtailed various programs and transferred funds from various reserve
accounts. The State ended its fiscal year 1994 with a General Fund surplus on
a budgetary basis of approximately $60.0 million, and ended its fiscal year
1995 with a General Fund surplus on a budgetary basis of approximately $26.5
million (excluding $106 million to be applied to the fiscal year 1996 budget)
and $286.1 million in the Revenue Stabilization Account of the State Reserve
Fund. When the fiscal year 1996 budget was enacted, it was anticipated that
the year-end General Fund surplus on a budgetary basis would be approximately
$7.8 million and that there would be $370.9 million in the State's Revenue
Stabilization Account. The State currently projects the year-end General Fund
surplus on a budgetary basis to be approximately $34.3 million and the balance
in the Revenue Stabilization Account to be approximately $51.8 million. Fiscal
year 1995 revenues for the General Fund were $7.09 billion; fiscal 1996
revenues for the General Fund are anticipated to be $7.43 billion.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $115,004,176. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$459,907 (equivalent to 0.40% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $390,773 (equivalent to 0.39% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, absent a fee reduction, the Portfolio would have paid BMR,
advisory fees of $153,778 (equivalent to 0.34% (annualized) of the Portfolio's
average daily net assets for such period). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $11,256.
The Portfolio's Investment Advisory Agreement with BMR is dated October 13,
1992 and remains in effect until February 28, 1996. The Agreement may be
continued as described under "Investment Adviser and Administrator" in Part I
of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of the
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 10, 1993, to the fiscal year ended August 31, 1994, $19,261 and
$18,532, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid
to Authorized Firms sales commissions of $6,688 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $7,199. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $33 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at August 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $93,000 (which amount was equivalent to 9.9% of the
Fund's net assets on such date). During the fiscal year ended August 31, 1995,
the Fund paid service fee payments under the Plan aggregating $1,934, of which
$1,756 was paid to Authorized Firms and the balance of which was retained by
the Principal Underwriter. Commencing February 1, 1996, the Fund will make
service fee payments pursuant to the Service Plan described in Part I. See
"Service Plan".
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $27.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $4,183 and
the Portfolio paid IBT $16,357.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio 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 $1,563\2/ $135,000\4/
Samuel L. Hayes, III .. 0 1,608\3/ 150,000\5/
Noton H. Reamer ....... 0 1,630 135,000
John L. Thorndike ..... 0 1,718 140,000
Jack L. Treynor ....... 0 1,647 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
\2/ Includes $393 of deferred compensation.
\3/ Includes $517 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Timothy T. Browse (36) is a Vice President of the Portfolio. Mr.
Browse has served as a Vice President of the Portfolio since June 19, 1995.
Mr. Browse has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1992. Mr. Browse is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Mr. Browse was a Municipal Bond Trader -- Fidelity Management &
Research Company (1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from February 3, 1992
through August 31, 1995 and for the one year period ended August 31, 1995. The
total return for the period prior to the Fund's commencement of operations on
December 10, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the sales
charge and fee structure for the Fund 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 INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ---------------------------
PERIOD DATE INVESTMENT<F1> ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 2/3/92 $962.54 $1,194.22 24.07% 6.22% 19.42% 5.09%
1 Year Ended 8/31/95<F2> 8/31/94 $962.38 $1,028.87 6.91% 6.91% 2.90% 2.90%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ------------
<FN>
<F1> Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1, 1996. Prior thereto,
Fund shares redeemed within one year of their purchase are subject to a contingent deferred sales charge of 1%.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.32%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.32% would be 6.81%,
assuming a combined federal and State tax rate of 36.52%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.36%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.45%. 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.
TAXES
The Fund will not be subject to Maryland corporate income tax, provided
that, if there exists sufficient nexus between the State of Maryland and the
Fund to enable Maryland to tax the Fund, then the Fund will not be subject to
the corporate income tax for a taxable year if the Fund distributes to
shareholders all of its net investment income for such year.
The Fund will not be subject to Maryland financial institution franchise
taxes.
Obligations held by the Fund will not be subject to Maryland personal
property tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, the following shareholders owned beneficially
and of record, the percentages of shares of the Fund indicated after their
names: Calvert R. Bregel, Glen Arm, MD (19.1%); Cecile B. Taubman, Baltimore,
MD (10.4%); and Paine Webber for the Benefit of William J. Shaw, Potomac, MD
(7.8%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Maryland Tax Free Fund to EV Classic Maryland
Municipals Fund on January 1, 1996 and to EV Traditional Maryland Municipals
Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Maryland State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND MARYLAND STATE AND LOCAL
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MD STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- -------------------- AND LOCAL --------------------------------------------------------------------
(TAXABLE INCOME<F1>) TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- --------------------------------------------- -------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 21.80% 5.12% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.76 6.04 6.79 7.55 8.30 9.06 9.81 10.57
$ 56,551 - $117,950 $ 94,251 - $143,600 36.52 6.30 7.09 7.88 8.66 9.45 10.24 11.03
$117,951 - $256,500 $143,601 - $256,500 41.12 6.79 7.64 8.49 9.34 10.19 11.04 11.89
Over $256,500 Over $256,500 44.43 7.20 8.10 9.00 9.90 10.80 11.70 12.60
<FN>
<F1> Net amount subject to federal and Maryland State and local personal income taxes after deductions and exemptions.
<F2> Tax brackets are calculated using the highest Maryland State and local tax rate within the brackets. Taxpayers with taxable
income within these brackets may have a lower combined bracket and taxable equivalent yield than indicated above. The
illustration assumes the taxpayer is subject to a local income tax which is 60% of the State rate. The combined tax rates
assume that Maryland taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions
on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those
indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over
the same ranges of income.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Maryland State and local
income taxes) for taxpayers with adjusted gross income in excess of $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 EV Traditional
Maryland Municipals Fund will achieve any specific tax exempt yield. While it
is expected that the Portfolio will invest principally in obligations, the
interest from which is exempt from the regular federal income tax and Maryland
State personal income taxes, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for
Maryland State personal income taxes. It should also be noted that the
interest earned on certain "private activity bonds" issued after August 7,
1986, while exempt from the regular federal income tax, is treated as a tax
preference item which could subject the recipient to the federal alternative
minimum tax. The illustrations assume that the federal alternative minimum tax
is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL MISSOURI MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Missouri State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Missouri Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Missouri considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Missouri issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Missouri issuers. Neither the Trust nor the Portfolio has independently
verified this information.
While Missouri has a diverse economy with a distribution of earnings and
employment among manufacturing, trade and service sectors closely
approximating the average national distribution, the national economic
recession of the early 1980's had a disproportionately adverse impact on the
economy of Missouri. However, since the 1980 to 1983 recession periods,
Missouri unemployment levels generally approximated or slightly exceeded the
national average. The St. Louis and Kansas City metropolitan areas are
important contributors to the Missouri economy. Economic reversals in either
of these two areas would have a major impact on the overall economic condition
of the State of Missouri. Additionally, the State of Missouri has a
significant agricultural sector which is experiencing farm-related problems
comparable to those which are occurring in other states. To the extent that
these problems were to intensify, there could possibly be an adverse impact on
the overall economic condition of the State.
Defense related business plays an important role in Missouri's economy. In
addition to the large number of civilians employed at the various military
installations and training bases in the State, aircraft and related businesses
in Missouri are the recipients of substantial annual dollar volumes of defense
contract awards. McDonnell Douglas Corporation, the State's largest employer,
received the second largest dollar amount of defense contracts in the United
States in 1994. There can be no assurances there will not be further changes
in the levels of military appropriations, and, to the extent that further
changes in military appropriations are enacted by the United States Congress,
Missouri could be disproportionately affected.
Desegregation lawsuits in St. Louis and Kansas City continue to require
significant levels of state funding and are sources of uncertainty: litigation
continues on many issues, court orders are unpredictable, and school district
spending patterns have proven difficult to predict. A recent Supreme Court
decision favorable to the State may decrease the level of State funding
required in the future, but the impact of this decision is uncertain. The
State paid $282 million for desegregation costs in fiscal 1994 and the budget
for fiscal 1995 provided $315 million. This expense accounts for close to 17%
of total state General Revenue Fund spending.
Article X, Sections 16-24 of the Constitution of Missouri (the "Hancock
Amendment") imposes limitations on the amount of State taxes which may be
imposed by the General Assembly of Missouri (the "General Assembly") as well
as on the amount of local taxes, licenses and fees (including taxes, licenses
and fees used to meet debt service commitments on debt obligations) which may
be imposed by local governmental units (such as cities, counties, school
districts, fire protection districts and other similar bodies) in the State of
Missouri in any fiscal year.
The limit on taxes is tied to total State revenues determined in
accordance with the formula set forth in the amendment, which adjusts the
limit based on increases in the average personal income of Missouri for
certain designated periods. The details of the amendment are complex and
clarification from subsequent legislation and further judicial decisions may
be necessary. Generally, if the total State revenues exceed the State revenue
limit imposed by Section 18 of Article X by more than 1%, the State is
required to refund the excess. The State revenue limitation imposed by the
Hancock Amendment does not apply to taxes imposed for the payment of principal
and interest on bonds, approved by the voters and authorized by the Missouri
Constitution. The revenue limit can also be exceeded by a constitutional
amendment authorizing new or increased taxes or revenues adopted by the voters
of the State of Missouri. The Hancock Amendment also limits new taxes,
licenses and fees and increases in taxes, licenses and fees by local
governmental units in Missouri. It prohibits counties and other political
subdivisions (essentially all local governmental units) from levying new
taxes, licenses and fees or increasing the current levy of an existing tax,
license or fee "without the approval of the required majority of the qualified
voters of that county or other political subdivision voting thereon."
When a local governmental unit's tax base with respect to certain fees or
taxes is broadened, the Hancock Amendment requires the tax levy or fees to be
reduced "to yield the same estimated gross revenue as on the prior base." It
also effectively limits any percentage increase in property tax revenues to
the percentage increase in the general price level (plus the value of new
construction and improvements), even if the assessed valuation of property in
the local governmental unit, excluding the value of new construction and
improvements, increases at a rate exceeding the increase in the general price
level.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $93,162,103. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$353,176 (equivalent to 0.38% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $296,556 (equivalent to 0.37% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $112,605
(equivalent to 0.30% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 7, 1993, to the fiscal year ended August 31, 1994, $20,693 and
$11,502, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid to
Authorized Firms sales commissions of $23,964 on sales of Fund shares. During
the same period, the Fund paid sales commission payments under the Plan to the
Principal Underwriter aggregating $24,737. Such payments reduced Uncovered
Distribution Charges. During such period, contingent deferred sales charges
aggregating approximately $105 were imposed on early redeeming shareholders and
paid to the Principal Underwriter to reduce Uncovered Distribution Charges. As
at August 31, 1995, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$341,300 (which amount was equivalent to 10.8% of the Fund's net assets on such
date). During the fiscal year ended August 31, 1995, the Fund paid service fee
payments under the Plan aggregating $6,791, of which $6,347 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter. Commencing February 1, 1996, the Fund will make service fee
payments pursuant to the Service Plan described in Part I. See "Service Plan".
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $122.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $3,937 and
the Portfolio paid IBT $35,917.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio 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 $1,164\2/ $135,000\4/
Samuel L. Hayes, III ...... 0 1,222\3/ 150,000\5/
Norton H. Reamer .......... 0 1,254 135,000
John L. Thorndike ......... 0 1,336 140,000
Jack L. Treynor ........... 0 1,235 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
\2/ Includes $294 of deferred compensation.
\3/ Includes $393 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from May 1, 1992 through
August 31, 1995 and for the one year period ended August 31, 1995. The total
return for the period prior to the Fund's commencement of operations on
December 7, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the sales
charge and fee structure for the Fund effective February 1, 1996.
<PAGE>
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ---------------------------
PERIOD DATE INVESTMENT<F1> ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 5/1/92 $962.47 $1,209.96 25.71% 7.10% 21.00% 5.88%
1 Year Ended 8/31/95<F2> 8/31/94 $962.69 $1,030.84 7.08% 7.08% 3.06% 3.06%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1, 1996. Prior thereto,
Fund shares redeemed within one year of their purchase are subject to a contingent deferred sales charge of 1%.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.10%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.10% would be 6.06%,
assuming a combined federal and State tax rate of 35.14%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.29%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.38%. 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 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 16.9% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of such date, the following
shareholders owned beneficially and of record the percentages of the
outstanding shares of the Fund indicated after their names: Ted Drewes, Inc.,
Towne Country, MO (10.3%) and Dolores T. Stegman TTEE, u/a dtd 6/20/91, FBO
Dolores Stegman Rev Tr, Raytown, MO (6.3%). To the knowledge of the Trust, no
other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Missouri Tax Free Fund to EV Classic Missouri
Municipals Fund on January 1, 1996 and to EV Traditional Missouri Municipals
Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Missouri State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND MISSOURI STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------- ---------------------- MO STATE ----------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------- ------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<FN>
<F1> Net amount subject to federal and Missouri personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Missouri tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Missouri taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The assumed Missouri State income tax rate is 6%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Missouri State income taxes)
for taxpayers with adjusted gross income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $114,700 and joint
filers with adjusted gross income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Traditional
Missouri Municipals Fund will achieve any specific tax exempt yield. While it
is expected that the Portfolio will invest principally in obligations, the
interest from which is exempt from the regular federal income tax and Missouri
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for Missouri personal
income taxes. It should also be noted that the interest earned on certain
"private activity bonds" issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL NORTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and North Carolina State
personal income taxes. The Fund currently seeks to achieve its investment
objective by investing its assets in the North Carolina Municipals Portfolio
(the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain North Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in North Carolina issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of North Carolina issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The economic profile of the State consists of a combination of industry,
agriculture and tourism. The State's seasonally adjusted unemployment rate in
June 1995 was 4.4% of the labor force, as compared with an unemployment rate
of 5.6% nationwide. The labor force has undergone significant change during
recent years. The State has moved from an agricultural to a service and "goods
producing" economy. Those persons displaced by farm mechanization and farm
consolidations have, in large measure, sought and found employment in other
pursuits.
During fiscal 1991 and 1992, the State was forced to employ various non-
recurring items and budget reductions in order to balance the State's budget.
Among other things, the State deferred Basic Education Program improvements.
In addition, the State also implemented approximately $640 million in tax
increases, including raising the State sales tax from 3% to 4%. This 4% tax is
the State's portion of the total 6% sales tax with the rest dedicated to local
governments. A 4% corporate income tax surcharge was also implemented and is
scheduled to terminate on January 1, 1995. The State's fiscal position has
improved considerably since 1992, with the general fund balance increasing
from a deficit position to a surplus equal to 11% of 1994 expenditures.
The State is a defendent in pending court actions involving the taxing of
benefits paid to federal retirees and related matters. Although specific
claims for damages have not been precisely calculated, the amount could exceed
$400 million over a period of years. The State is also a defendent in several
other litigations which, in the opinion of the Department of the Treasurer,
could have a material adverse affect on the State's ability to meet its
obligations. In the Leandro action, the plaintiffs claim that the State has
failed to provide adequate or substantially equal educational opportunities to
children. In the Francisco action, the plaintiffs claim that the State has
failed to fund programs to educate non-English speaking students. In a series
of cases involving State retirement benefits, disabled retirees are
challenging on various grounds changes in the formula for paying retirement
benefits. Damages could exceed $100 million. In the Fulton case, the
imposition of the State's intangible personal property tax on shares of stock
has been challenged.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $195,178,724. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$851,448 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $744,143 (equivalent to 0.42% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $373,030
(equivalent to 0.40% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995, and for the period from the start of business,
December 7, 1993, to the fiscal year ended August 31, 1994, $17,410 and
$14,638, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid
to Authorized Firms sales commissions of $40,252 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $49,635. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $45 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at August 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $653,000 (which amount was equivalent to 10.7% of
the Fund's net assets on such date). During the fiscal year ended August 31,
1995, the Fund paid service fee payments under the Plan aggregating $13,397,
of which $10,668 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter. Commencing February 1, 1996, the Fund
will make service fee payments pursuant to the Service Plan described in Part
I. See "Service Plan".
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $157.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $500 and the
Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, for the eleven months ended
August 31, 1994, and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio 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 ...... $33 $2,096\2/ $135,000\4/
Samuel L. Hayes, III .. 32 2,123\3/ 150,000\5/
Norton H. Reamer ...... 31 2,133 135,000
John L. Thorndike ..... 32 2,227 140,000
Jack L. Treynor 34 2,196 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
\2/ Includes $525 of deferred compensation.
\3/ Includes $682 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from October 23, 1991
through August 31, 1995 and for the one-year period ended August 31, 1995. The
total return for the period prior to the Fund's commencement of operations on
December 7, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the sales
charge and fee structure for the Fund 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 INVESTMENT AMOUNT OF INVESTMENT -----------------------------------------------------
PERIOD DATE INVESTMENT<F1> ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ------ ------- ------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 10/23/91 $962.54 $1,189.30 23.56% 5.64% 18.93% 4.60%
1 Year Ended 8/31/95<F2> 8/31/94 $962.65 $1,010.96 5.02% 5.02% 1.08% 1.08%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares,
when redeemed, may be worth more or less than their original cost.
- ------------
<FN>
<F1> Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1, 1996. Prior thereto,
Fund shares redeemed within one year of their purchase are subject to a contingent deferred sales charge of 1%.
<F2> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.41%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.41% would be 6.93%,
assuming a combined federal and State tax rate of 36.35%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.46%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.55%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 10.01% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of the same date, the following
shareholder owned of record the percentage of outstanding shares indicated
after its name: Healthsource North Carolina Inc., Morrisville, NC 27560-8508
(31.2%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic North Carolina Tax Free Fund to EV Classic
North Carolina Municipals Fund on January 1, 1996 and to EV Traditional North
Carolina 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 the North Carolina State income tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND NORTH CAROLINA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------- ---------------------- NC STATE ----------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------- ------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551 - $117,950 $ 94,251 - $143,600 36.35 6.28 7.07 7.86 8.64 9.43 10.21 11.00
$117,951 - $256,500 $143,601 - $256,500 40.96 6.78 7.62 8.47 9.32 10.16 11.01 11.86
Over $256,500 Over $256,500 44.28 7.18 8.08 8.97 9.87 10.77 11.67 12.56
<FN>
<F1> Net amount subject to the federal and North Carolina personal income tax
after deductions and exemptions.
<F2> Tax brackets are calculated using the highest North Carolina tax rate within each bracket. Accordingly, taxpayers with
taxable income within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The
combined tax rates assume that North Carolina taxes are itemized deductions for federal income tax purposes. Investors who do
not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent
yield than those indicated above. The applicable federal tax rates within each of these combined brackets are 15%, 28%, 31%
and 39.6%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including North Carolina State income
taxes) for taxpayers with adjusted gross income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $114,700 and joint
filers with adjusted gross income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Traditional North
Carolina Municipals Fund will achieve any specific tax exempt yield. While it
is expected that the Fund will invest principally in obligations, the interest
from which is exempt from the regular federal income tax and North Carolina
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for North Carolina
personal income taxes. It should also be noted that the interest earned on
certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, is treated as a tax preference item which
could subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult with their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL OREGON MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Oregon State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Oregon Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Oregon considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Oregon issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Oregon issuers. Neither the Trust nor the Portfolio has independently verified
this information.
As of September 1, 1995, $3.99 billion in general obligation bonds issued
by the State of Oregon and its agencies and instrumentalities were
outstanding, including $83.9 million in general obligation bonds supported by
the budget for the State's general fund and $3.91 billion of self-supporting
general obligation bonds. The State's self-supporting general obligation bonds
include $3.12 billion of State veteran's bonds, which, in the event of poor
economic conditions resulting in an increased number of mortgage defaults,
could cease to be self-supporting. All of the existing and outstanding general
obligation bonds of the State have been issued under specific State
constitutional provisions that authorize the issuance of such bonds and
provide authority for ad valorem taxation to pay the principal of and interest
on such bonds. With the exception of the veteran's bonds, for which no more
than two mills on each dollar valuation may be levied to pay principal and
interest, the authority of the State to tax property for the payment of its
general obligation bonds is unlimited. Since at least 1950, the State has not
imposed ad valorem tax for the payment of any of its obligations because other
revenues, including those generated by the self-supporting bonds, have been
sufficient.
In addition to general obligation bonds, various state statutes authorize
the issuance of State revenue bonds and certificates of participation. These
limited obligations of the State or its agencies or instrumentalities may be
payable from a specific project or source, including lease rentals. The State
is not authorized to impose ad valorem taxes on property for the payment of
principal and interest on these bonds, so they are more sensitive to changes
in the economy. There can be no assurance that future economic problems will
not adversely affect the market value of Oregon obligations held by the
Portfolio or the ability of the respective obligors (both private and
governmental) to make required payments on such obligations.
Oregon does not have a sales tax. As a result, State tax revenues are
particularly sensitive to economic recessions. The principal source of State
tax revenues are personal income and corporate income taxes. For the 1993-95
biennium, approximately 96.7% of the State's revenues are projected to come
from combined income taxes, insurance taxes, gift and inheritance taxes, and
cigarette and tobacco taxes.
Over the past several years, a number of species of Oregon wildlife have
been added to the Endangered Species list, including the northern spotted owl
and certain populations of salmon. The spotted owl listing has already had a
substantial economic impact on the State's economy, primarily through a
reduction in timber harvests from federal lands. The salmon listings also have
had a substantial economic impact, primarily through increased electricity
rates and related impacts on rate-sensitive industries such as the aluminum
industry. Efforts to protect the spotted owl and salmon and steelhead
populations may eventually affect a wide variety of agricultural, industrial,
recreational and land use activities, with corresponding impacts on long-term
economic growth. The magnitude and extent of any futuure environmental action
is difficult to predict.
Ballot Measure 5. Article XI, section 11b of the Oregon Constitution,
adopted by Oregon's voters in November 1990 ("Ballot Measure 5"), imposes an
aggregate limit on the rate of property taxes, including ad valorem taxes,
that may be levied against any real or personal property. The limit is subject
to certain exceptions and is being phased in over a five-year period.
Beginning with the tax year that starts on July 1, 1996, the final year of the
phase-in period, not more than $15 per $1,000 of real market value can be
levied against any piece of property. Of this amount, $5 may be used for
public education, and the remaining $10 may be used for general governmental
purposes.
The limitations of Ballot Measure 5 do not apply to taxes imposed to pay
the principal of and interest on bonded indebtedness authorized by a specific
provision of the State Constitution or which has received voter approval.
Therefore, since the State has traditionally issued only general obligation
indebtedness that is authorized by specific provisions of the State
Constitution and units of local government have generally adopted policies of
seeking specific approval for all general obligation indebtedness, the ability
of the State and units of local government to levy taxes to service their
general obligation indebtedness has generally avoided the limit. In addition,
because the State currently receives its revenues from sources other than
property taxes, Ballot Measure 5 has not directly affected State revenues.
Ballot Measure 5 does affect the financial condition of the State,
however, since it (i) requires the State to replace losses to school funds
caused by its restriction on the levy of ad valorem taxes for education
through fiscal year 1995-96, and (ii) restricts the ability of Oregon local
governments to raise revenues through the imposition of property tax
increases. The State's Legislative Revenue Office estimates that the State
will make payments in excess of its obligations to replace school revenues
during the 1993-95 biennium and the 1995-96 fiscal year. The State's
obligation to replace school revenues terminates after fiscal year 1995-96.
The effect that Ballot Measure 5 will ultimately have on local government
revenues is difficult to predict. Since passage of Ballot Measure 5, property
values have been adjusted to more closely approximate real market values. If
the trend of increased property values in Oregon continues, the real market
value base of property against which the limited tax rate may be imposed maybe
more than enough to support the needs of Oregon governments.
The tax limitations of Ballot Measure 5 do not apply to user fees,
licenses, excise or income taxes and incurred charges for local improvements.
Therefore, since 1990 local governments have begun to rely more heavily on
such fees and taxes to finance certain services and improvements.
Ballot Measure 11. In November 1994, voters approved three measures
affecting the State's penal system. The most significant in terms of financial
impact for the State is Ballot Measure 11, which established mandatory minimum
prison sentences for certain felons. It is anticipated that this initiative
will require construction of a substantial number of additional prison beds.
Currently, the State expects to fund construction from sources other than the
State general fund.
Several litigation matters are pending involving the State. These matters
include (i) an action filed by several out-of-state insurers challenging
Oregon's gross premium tax on out-of-state insurers and seeking refunds of
taxes previously paid, which could result in the State being liable for
approximately $50 million in refunds and (ii) several cases in which federal
retirees have challenged the validity of a State Public Employees Retirement
System benefit increase to offset the taxation of such benefits or have sought
refunds of State taxes paid on federal retirement benefits. In addition, the
Oregon Supreme Court has ruled against the State in an action brought to
require the State to return $81 million that was transferred in 1983 from the
State's Industrial Accident Fund ("SAIF") to the State's general fund. The
amount required to be returned to SAIF, including interest, has been estimated
to be approximately $280 million.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $146,390,921. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$609,837 (equivalent to 0.42% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $534,681 (equivalent to 0.41% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $243,569
(equivalent to 0.37% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 28, 1993, to the fiscal year ended August 31, 1994, $20,572 and
$17,241, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid
to Authorized Firms sales commissions of $9,224 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $9,677. Such payments reduced
Uncovered Distribution Charges. During such period, no contingent deferred
sales charges were paid to the Principal Underwriter. As at August 31, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $224,200 (which amount was
equivalent to 22.4% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $2,562, of which $2,383 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter. Commencing
February 1, 1996, the Fund will make service fee payments pursuant to the
Service Plan described in Part I. See "Service Plan".
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $152.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $3,946 and
the Portfolio paid IBT $56,584.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio 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 $1,563\2/ $135,000\4/
Samuel L. Hayes, III ...... 0 1,608\3/ 150,000\5/
Norton H. Reamer .......... 0 1,631 135,000
John L. Thorndike ......... 0 1,718 140,000
Jack L. Treynor ........... 0 1,647 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
\2/ Includes $393 of deferred compensation.
\3/ Includes $517 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, David C. Reilly (38) is a Vice President of the Portfolio. Mr.
Reilly has served as a Vice President of the Portfolio since January 1, 1996.
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 December 24, 1991
through August 31, 1995 and for the one year period ended August 31, 1995. The
total return for the period prior to the Fund's commencement of operations on
December 28, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the sales
charge and fee structure for the Fund 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 INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ---------------------------
PERIOD DATE INVESTMENT<F1> ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 12/24/91 $962.49 $1,219.63 26.72% 6.63% 21.96% 5.53%
1 Year Ended 8/31/95<F2> 8/31/94 $962.50 $1,030.91 7.11% 7.11% 3.09% 3.09%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1, 1996. Prior thereto,
Fund shares redeemed within one year of their purchase are subject to a contingent deferred sales charge of 1%.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.10%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.10% would be 6.53%,
assuming a combined federal and State tax rate of 37.21%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.23%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.31%. 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 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL and Donaldson Lufkin Jenrette, New York, NY, were the record
owners of approximately 24.3% and 5.5% of the outstanding shares, which were
held on behalf of their customers who are the beneficial owners of such
shares, and as to which they have voting power under certain limited
circumstances. In addition, as of such date, John H. Dunlevy, Bend, Oregon,
owned beneficially and of record 6.0% of the outstanding shares of the Fund.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Oregon Tax Free Fund to EV Classic Oregon
Municipals Fund on January 1, 1996 and to EV Traditional Oregon Municipals
Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Oregon State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND OREGON STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------- ---------------------- OR STATE ----------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------- ------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 22.65% 5.17% 5.82% 6.46% 7.11% 7.76% 8.40% 9.05%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 34.48 6.11 6.87 7.63 8.39 9.16 9.92 10.68
$ 56,551 - $117,950 $ 94,251 - $143,600 37.21 6.37 7.17 7.96 8.76 9.56 10.35 11.15
$117,951 - $256,500 $143,601 - $256,500 41.76 6.87 7.73 8.59 9.44 10.30 11.16 12.02
Over $256,500 Over $256,500 45.04 7.28 8.19 9.10 10.01 10.92 11.83 12.74
<FN>
<F1> Net amount subject to federal and Oregon personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest Oregon tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that Oregon taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The assumed Oregon State income tax rate is 9%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Oregon State income taxes) for
taxpayers with adjusted gross income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $114,700 and joint filers with
adjusted gross income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those
indicated above. The tax brackets and taxable equivalent yields do not take
into account the limited deductibility of federal income tax withholding in
arriving at state taxable income, which may decrease the taxable equivalent
yield of the Fund to certain investors.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Traditional Oregon
Municipals Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations, the
interest from which is exempt from the regular federal income tax and Oregon
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for Oregon personal income
taxes. It should also be noted that the interest earned on certain "private
activity bonds" issued after August 7, 1986, while exempt from the regular
federal income tax, is treated as a tax preference item which could subject
the recipient to the federal alternative minimum tax. The illustrations assume
that the federal alternative minimum tax is not appliable and do not take into
account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL SOUTH CAROLINA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and South Carolina State
personal income taxes. The Fund currently seeks to achieve its investment
objective by investing its assets in the South Carolina Municipals Portfolio
(the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain South Carolina considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in South Carolina issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of South Carolina issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The South Carolina Constitution requires the General Assembly to provide a
balanced budget and requires that if there is a deficit, such deficit shall be
provided for in the succeeding fiscal year. The State Constitution also
provides that (i) the State Budget and Control Board may, if a deficit appears
likely, effect such reductions in appropriations as may be necessary to
prevent a deficit, (ii) annual increases in State appropriations may not
exceed the average growth rate of the economy of the State, (iii) that the
annual increase in the number of State employees may not exceed the average
growth of the population of the State, and (iv) a General Reserve Fund be
maintained in an amount equal to 3% of General Fund revenue for the latest
fiscal year. The State also maintains a Capital Reserve Fund equal to 2% of
the General Reserve Fund.
Despite several spending reductions in fiscal 1992, the State recorded a
budgetary basis operating deficit of $54 million due to lower than anticipated
sales and corporate-income tax revenues. The State ended fiscal 1992 with only
$7.6 million in its budgetary general fund. In June 1993, the presidential
base-closing commission voted to close the Charleston Naval Base. South
Carolina has estimated lost revenues of $100 million over the three-year
period from July 1, 1993 to June 30, 1996 due to the closing. There can be no
guarantee that the actual cost will not be more or less than the State's
estimate. Budgetary General Fund revenues and expenditures for fiscal 1993
were $3.673 billion and $3.521 billion, respectively. There was a $151 million
surplus of which $33.7 million was deposited into the General Reserve Fund
("Rainy Day Fund") bringing its total to $100 million. Fiscal 1994 had
budgeted revenues and expenditures of $3.828 billion and $3.795 billion,
respectively. No new taxes were implemented. Fiscal 1994 ended with a General
Fund surplus of $248 million. The General Reserve Fund is now at its fully
funded level of $110.2 million. Fiscal 1995 has budgeted $3.93 billion for
expenditures with no new taxes expected.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $61,411,668. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$198,498 (equivalent to 0.33% of the Portfolio's average daily net assets for
such year). For the period from the start of business, February 1, 1994 to
August 31, 1994, the Portfolio paid BMR advisory fees of $106,785 (equivalent
to 0.31% (annualized) of the Portfolio's average daily net assets for such
period). The Portfolio's Investment Advisory Agreement with BMR is dated
February 1, 1994 and remains in effect until February 28, 1996. The Agreement
may be continued as described under "Investment Adviser and Administrator" in
Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
February 14, 1994, to the fiscal year ended August 31, 1994, $14,531 and
$9,477, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid
to Authorized Firms sales commissions of $11,146 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $11,396. Such payments reduced
Uncovered Distribution Charges. During such period, contingent deferred sales
charges aggregating approximately $100 were imposed on early redeeming
shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at August 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $160,000 (which amount was equivalent to 12.8% of
the Fund's net assets on such date). During the fiscal year ended August 31,
1995, the Fund paid service fee payments under the Plan aggregating $3,019, of
which $2,933 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter. Commencing February 1, 1996, the Fund
will make service fee payments pursuant to the Service Plan described in Part
I. See "Service Plan."
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $15.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $3,203 and
the Portfolio paid IBT $16,809.
BROKERAGE
For the fiscal year ended August 31, 1995, and the period from the start
of business, February 1, 1994, to the fiscal year ended August 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio 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 $1,164\2/ $135,000\4/
Samuel L. Hayes, III ...... 0 1,222\3/ 150,000\5/
Norton H. Reamer .......... 0 1,254 135,000
John L. Thorndike ......... 0 1,336 140,000
Jack L. Treynor ........... 0 1,235 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
\2/ Includes $294 of deferred compensation.
\3/ Includes $393 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from October 2, 1992
through August 31, 1995. The total return for the period prior to the Fund's
commencement of operations on February 14, 1994 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. Such performance has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the sales
charge and fee structure for the Fund effective February 1, 1996.
VALUE OF $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
VALUE OF VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT -----------------------------------------------------
PERIOD DATE INVESTMENT* ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ------ ------- ------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 10/02/92 $962.51 $1,126.79 17.07% 5.56% 12.68% 4.18%
1 Year Ended 8/31/95 8/31/94 $962.01 $1,013.75 5.38% 5.38% 1.43% 1.43%
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%. This sales charge is effective February 1, 1996. Prior thereto,
Fund shares redeemed within one year of their purchase are subject to a contingent deferred sales charge of 1%.
** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.37%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.37% would be 6.81%,
assuming a combined federal and State tax rate of 35.83%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.29%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.38%. 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 15, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 15, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 11.73% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. As of the same date, the following shareholders
owned beneficially and of record, the percentages of outstanding shares of the
Fund indicated after their names: Anthony P. Cuozzo & Joseph A. Cuozzo,
JTWROS, Surfside Beach, South Carolina (39.28%); Barbara B. McDaniel, Awendaw,
South Carolina (9.13%) and PaineWebber FBO Douglas P. Magann and Sarah R.
Magann JTWROS, Georgetown, South Carolina (8.19%). To the knowledge of the
Trust, no other person owned of record or beneficially 5% or more of the
Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic South Carolina Tax Free Fund to EV Classic
South Carolina Municipals Fund on January 1, 1996 and to EV Traditional South
Carolina Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
TAX EXEMPT VERSUS TAXABLE SECURITIES
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and South Carolina State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND SOUTH CAROLINA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------- ---------------------- SC STATE ----------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------- ------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 23,351 - $ 56,500 $ 39,001 - $ 94,250 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 56,551 - $117,950 $ 94,251 - $143,600 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$117,951 - $256,500 $143,601 - $256,500 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over - $256,500 Over - $256,500 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
<FN>
<F1> Net amount subject to federal and South Carolina personal income tax after deductions and exemptions.
<F2> The first tax bracket is calculated using the highest South Carolina tax rate within the bracket. Taxpayers with taxable
income within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined
tax rates assume that South Carolina taxes are itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield
than those indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and
39.6% over the same ranges of income.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including South Carolina State income
tax) for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint
filers with Adjusted Gross Income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Traditional South
Carolina Municipals Fund will achieve any specific tax exempt yield. While it
is expected that the Portfolio will invest principally in obligations, the
interest from which is exempt from the regular federal income tax and South
Carolina personal income taxes, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for South
Carolina personal income taxes. It should also be noted that the interest
earned on certain "private activity bonds" issued after August 7, 1986, while
exempt from the regular federal income tax, is treated as a tax preference
item which could subject the recipient to the federal alternative minimum tax.
The illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credit that may be available.
The information set forth above is as of the date of this Statement of
Information. Subsequent tax law changes could result in prospective or
retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL TENNESSEE
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Tennessee State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Tennessee Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Tennessee considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Tennessee issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Tennessee issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Tennessee's State Constitution requires that (1) the total expenditures of
the State for any fiscal year shall not exceed the State's revenues and
reserves, including the proceeds of debt obligations issued to finance capital
expenditures and (2) in no year shall the rate of growth of appropriations
from State tax revenues exceed the estimated rate of growth of the State's
economy. In the past, the Governor and the General Assembly have had to
restrict expenditures to comply with the State Constitution.
The Tennessee economy generally tends to rise and fall in a roughly
parallel manner with the U.S. economy. Like the U.S. economy, the Tennessee
economy entered recession in the last half of 1990 which continued throughout
1991 and into 1992 as the Tennessee index of leading economic indicators
trended downward throughout the period. The Tennessee economy gained strength
during the latter part of 1992 and this renewed vitality steadily continued
through 1993 and 1994. Current indicators are for the State to enjoy a year of
moderate economic gains in 1995.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $58,673,303. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$177,788 (equivalent to 0.31% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $125,060 (equivalent to 0.28% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, BMR would have earned, absent a fee reduction, advisory
fees of $32,069 (equivalent to 0.19% (annualized) of the Portfolio's average
daily net assets for such period). To enhance the net income of the Portfolio,
BMR made a reduction of the full amount of its advisory fee and BMR was
allocated a portion of expenses related to the operation of the Portfolio in
the amount of $4,724. The Portfolio's Investment Advisory Agreement with BMR
is dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995 and for the period from the start of business,
December 9, 1993, to the fiscal year ended August 31, 1994, $16,872 and
$13,987, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid
to Authorized Firms sales commissions of $8,450 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $8,628. Such payments reduced
Uncovered Distribution Charges. During such period, no contingent deferred
sales charges were paid to the Principal Underwriter. As at August 31, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $116,000 (which amount was
equivalent to 10.7% of the Fund's net assets on such date). During the fiscal
year ended August 31, 1995, the Fund paid service fee payments under the Plan
aggregating $2,319, of which $2,202 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter. Commencing
February 1, 1996, the Fund will make service fee payments pursuant to the
Service Plan described in Part I. See "Service Plan."
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $20 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $3,903 and
the Portfolio paid IBT $13,033.
BROKERAGE
For the fiscal year ended August 31, 1995, the eleven months ended August
31, 1994, and for the period from the start of business, February 1, 1993, to
the fiscal year ended September 30, 1993, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio 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 $1,164\2/ $135,500\4/
Samuel L. Hayes, III . 0 1,222\3/ 150,000\5/
Norton H. Reamer ..... 0 1,254 135,000
John L. Thorndike .... 0 1,336 140,000
Jack L. Treynor ...... 0 1,235 140,000
- ----------
\1/ The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
\2/ Includes $294 of deferred compensation.
\3/ Includes $393 of deferred compensation.
\4/ Includes $35,000 of deferred compensation.
\5/ Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this Statement of Additional
Information, Cynthia J. Clemson (32) is a Vice President of the Portfolio. Ms.
Clemson has served as a Vice President of the Portfolio since June 19, 1995.
Ms. Clemson has been a Vice President of BMR and Eaton Vance since 1993 and an
employee of Eaton Vance since 1985. Ms. Clemson is an officer of various
investment companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from August 25, 1992
through August 31, 1995 and for the one year period ended August 31, 1995. The
total return for the period prior to the Fund's commencement of operations on
December 9, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the sales
charge and fee structure for the Fund 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 INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ---------------------------
PERIOD DATE INVESTMENT<F1> ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 8/25/92 $962.34 $1,151.40 19.62% 6.12% 15.14% 4.78%
1 Year Ended 8/31/95<F2> 8/31/94 $962.42 $1,023.28 6.32% 6.32% 2.34% 2.34%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
<FN>
<F1> Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1, 1996. Prior thereto,
Fund shares redeemed within one year of their purchase are subject to a contingent deferred sales charge of 1%.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.35%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.35% would be 6.71%,
assuming a combined federal and State tax rate of 35.14%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.49%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.58%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
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 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 63.2% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of such date, the following
shareholders owned beneficially and of record the percentages of the
outstanding shares of the Fund indicated after their names: Buford Deford &
Jane Deford, Nashville, TN (7.0%) and Patrick B. Apfeld & Kristine H. Apfeld
Jt Ten, Signal Mountain, TN (5.4%). To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
shares on such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Tennessee Tax Free Fund to EV Classic
Tennessee Municipals Fund on January 1, 1996 and to EV Traditional Tennessee
Municipals Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Tennessee State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND TENNESSEE STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------- ---------------------- TN STATE ----------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------- ------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$117,951 - $256,500 $143,601 - $256,500 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $256,500 Over $256,500 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<FN>
<F1> Net amount subject to federal and Tennessee personal income tax after deductions and exemptions.
<F2> The combined tax rates assume that Tennessee taxes are itemized deductions for federal income tax purposes. Investors who do
not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent
yield than those indicated above. The applicable federal tax rates within the brackets set forth above ar 15%, 28%, 31%, 36%
and 39.6% over the same ranges of income. The assumed Tennessee State income tax rate is 6%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Tennessee State income taxes)
for taxpayers with adjusted gross income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $114,700 and joint
filers with adjusted gross income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Traditional
Tennessee Municipals Fund will achieve any specific tax exempt yield. While it
is expected that the Portfolio will invest principally in obligations, the
interest from which is exempt from the regular federal income tax and
Tennessee personal income taxes, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for
Tennessee personal income taxes. It should also be noted that the interest
earned on certain "private activity bonds" issued after August 7, 1986, while
exempt from the regular federal income tax, is treated as a tax preference
item which could subject the recipient to the federal alternative minimum tax.
The illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL VIRGINIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Virginia State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its
assets in the Virginia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Virginia considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Virginia issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Virginia issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The Commonwealth of Virginia has had a tradition of low debt, and a large
proportion of its general obligation bonds has been supported by particular
revenue-producing projects. However, a trend towards more use of non-general
obligation debt, which is not subject to constitutional limits on borrowing,
is now changing the Commonwealth's debt profile. In recent years, the
Commonwealth has expanded its limited obligation borrowings through various
financing vehicles such as the Virginia Public Building Authority and the
Virginia College Building Authority, and has embarked upon a substantial
transportation bonding program to which certain increases in retail sales and
motor vehicle-related taxes enacted in 1986 are dedicated. The general fund is
the Commonwealth's major operating fund and accounts for about half of
Commonwealth expenditures. It covers all functions except highways and Federal
grant disbursements, for which there are special revenue funds.
While the Commonwealth has had a long history of sound financial
operations, variations of a cyclical nature have occurred during the past
several years. During fiscal year 1992, financial operations were somewhat
more favorable than expected. Revenues of $5.6 billion exceeded expenditures
by approximately $150 million with $44 million in increased revenues and the
balance in decreased expenditures ordered by the Governor in December of 1991.
The closing balance at June 30, 1992 was $195.1 million, of which $142.3
million will be reappropriated, leaving $52.8 million as an unreserved,
undesignated balance, the first such balance in four years. The fiscal 1993
ending balance for the General Fund was $331.8 million of which $59.7 is
unreserved, undesignated. Revenues for the 1993 fiscal year were 8.9% higher
than fiscal year 1992, a $103 million increase. At the close of the biennium
ending June 30, 1994, the Fund balance amounted to $518.7 million of which $81
million was reserved, including $79.9 million for the Revenue Stabilization
Fund. Preliminary results for fiscal 1995 indicate a general fund surplus of
$65 million.
Virginia's economy is generally affected by economic trends throughout the
country and in the Mid-Atlantic region, and it is particularly influenced by
Federal civilian and military installations and the growth of suburban
communities around Washington, D.C. Also significant to the economy of
Virginia are manufacturing (such as electronic equipment, shipbuilding and
chemical products), minerals (chiefly coal), service sector occupations
(including banking and insurance), agriculture and tourism. Unemployment rates
are typically below the national average, but because of a large military and
civilian government employment component, and the related civilian employment,
a substantial decrease in defense or other governmental spending could have a
material adverse effect on both the unemployment rate and the economy of the
Commonwealth in general.
FEES AND EXPENSES
INVESTMENT ADVISER
As of August 31, 1995, the Portfolio had net assets of $191,747,922. For
the fiscal year ended August 31, 1995, the Portfolio paid BMR advisory fees of
$834,074 (equivalent to 0.44% of the Portfolio's average daily net assets for
such year). For the eleven months ended August 31, 1994, the Portfolio paid
BMR advisory fees of $744,841 (equivalent to 0.43% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $378,975
(equivalent to 0.41% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended August 31, 1995, and for the period from the start of business,
December 17, 1993, to the fiscal year ended August 31, 1994, $19,518 and
$13,546, respectively, of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
Until February 1, 1996, the Fund will make payments under a Distribution
Plan, which has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, as required by Rule 12b-1.
During the fiscal year ended August 31, 1995, the Principal Underwriter paid
to Authorized Firms sales commissions of $8,156 on sales of Fund shares.
During the same period, the Fund paid sales commission payments under the Plan
to the Principal Underwriter aggregating $10,351. Such payments reduced
Uncovered Distribution Charges. During such period, there were no contingent
deferred sales charges imposed on early redeeming shareholders. As at August
31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $163,000
(which amount was equivalent to 10.9% of the Fund's net assets on such date).
During the fiscal year ended August 31, 1995, the Fund paid service fee
payments under the Plan aggregating $2,765, of which $2,550 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter. Commencing February 1, 1996, the Fund will make service fee
payments pursuant to the Service Plan described in Part I. See "Service Plan."
PRINCIPAL UNDERWRITER
For the fiscal year ended August 31, 1995, the Fund paid the Principal
Underwriter $52.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended August 31, 1995, the Fund paid IBT $2,535 and
the Portfolio paid IBT $1,500.
BROKERAGE
For the fiscal year ended August 31, 1995, for the eleven months ended
August 31, 1994, and for the period from the start of business, February 1,
1993, to the fiscal year ended September 30, 1993, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended August 31, 1995, the
noninterested Trustees of the Trust and the Portfolio 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 of this Statement of Additional
Information, David C. Reilly (38) has served as a Vice President of the
Portfolio since June 19, 1995. Mr. Reilly has been a Vice President of BMR
since 1992 and Eaton Vance since 1991, and is an officer of various investment
companies managed by Eaton Vance or BMR. Prior to joining Eaton Vance, Mr.
Reilly was a Vice President and a municipal bond analyst at Scudder, Stevens &
Clark (1984-1991).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from July 26, 1991 through
August 31, 1995 and for the one-year period ended August 31, 1995. The total
return for the period prior to the Fund's commencement of operations on
December 17, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the sales
charge and fee structure for the Fund 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 INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ---------------------------
PERIOD DATE INVESTMENT<F1> ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------ ------ ------- ------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 7/26/91 $962.54 $1,241.37 28.97% 6.40% 24.13% 5.41%
1 Year Ended 8/31/95<F2> 8/31/94 $962.38 $1,025.04 6.51% 6.51% 2.52% 2.52%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Initial investment less the maximum sales charge of 3.75%. The sales charge is effective February 1, 1996. Prior thereto,
Fund shares redeemed within one year of their purchase are subject to a contingent deferred sales charge of 1%.
<F2> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended August 31, 1995, the yield of the Fund was
4.32%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.32% would be 6.64%,
assuming a combined federal and State tax rate of 34.97%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on August 31, 1995 and based on
the Fund's monthly distribution paid August 22, 1995) was 4.52%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.62%. 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 13, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 13, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL and PaineWebber Incorporated for the benefit of Olive M.
Wolters, Hanover, Virginia were the record owners of approximately 39.81% and
6.71%, 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 had voting power under certain limited circumstances. In addition, as of
the same date, the following shareholders owned of record the percentages of
outstanding shares indicated after their names: Kevin Miley Fogarty, Falls
Church, VA 22043 (12.53%) and PaineWebber for the benefit of Cynthia M.
Gumbinner, Trustee, Cynthia M. Gumbinner Trust U/A dtd 12/10/92, Annandale, VA
23069-3821(5.66%). To the knowledge of the Trust, no other person owned of
record or beneficially 5% or more of the Fund's outstanding shares as of such
date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Virginia Tax Free Fund to EV Classic Virginia
Municipals Fund on January 1, 1996 and to EV Traditional Virginia Municipals
Fund on February 1, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Virginia State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND VIRGINIA STATE
SINGLE RETURN JOINT RETURN FEDERAL AND TAX EXEMPT YIELD OF:
- -------------------------- ---------------------- VA STATE ----------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------------------------------- ------------- ----------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 19.89% 4.99% 5.62% 6.24% 6.87% 7.49% 8.11% 8.74%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.14 5.89 6.63 7.37 8.10 8.84 9.58 10.32
$ 56,551 - $117,950 $ 94,251 - $143,600 34.97 6.15 6.92 7.69 8.46 9.23 10.00 10.76
$117,951 - $256,500 $143,601 - $256,500 39.68 6.63 7.46 8.29 9.12 9.95 10.78 11.60
Over $256,500 Over $256,500 43.07 7.03 7.90 8.78 9.66 10.54 11.42 12.30
<FN>
<F1> Net amount subject to federal and Virginia personal income tax after deductions and exemptions.
<F2> The combined federal and Virginia tax brackets are calculated using the highest Virginia tax rate within each bracket.
Taxpayers with taxable income within such brackets may have lower combined tax brackets and taxable equivalent yields than
indicated above. The combined tax rates assume that Virginia taxes are itemized deductions for federal income tax purposes.
Investors who do not itemize deductions on their federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The applicable federal tax rates within each of these combined brackets
are 15%, 28%, 31% and 39.6%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Virginia State income taxes)
for taxpayers with adjusted gross income in excess of $117,400. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $117,400 and joint
filers with adjusted gross income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that EV Traditional
Virginia Municipals Fund will achieve any specific tax exempt yield. While it
is expected that the Portfolio will invest principally in obligations, the
interest from which is exempt from the regular federal income tax and Virginia
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for regular Virginia
personal income taxes. It should also be noted that the interest earned on
certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, and regular Virginia personal income tax,
is treated as a tax preference item which could subject the recipient to the
federal and Virginia alternative minimum taxes. The illustrations assume that
the federal and Virginia alternative minimum taxes are not applicable and do
not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult with their tax adviser for
additional information.
<PAGE>
[LOGO]
EATON VANCE
MUTUAL FUNDS
EV TRADITIONAL
MUNICIPAL
FUNDS
STATEMENT OF ADDITIONAL
INFORMATION
JANUARY 1, 1996
EV TRADITIONAL ALABAMA MUNICIPALS FUND
EV TRADITIONAL ARKANSAS MUNICIPALS FUND
EV TRADITIONAL GEORGIA MUNICIPALS FUND
EV TRADITIONAL KENTUCKY MUNICIPALS FUND
EV TRADITIONAL LOUISIANA MUNICIPALS FUND
EV TRADITIONAL MARYLAND MUNICIPALS FUND
EV TRADITIONAL MISSOURI MUNICIPALSFUND
EV TRADITIONAL NORTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL OREGON MUNICIPALS FUND
EV TRADITIONAL SOUTH CAROLINA MUNICIPALS FUND
EV TRADITIONAL TENNESSEE MUNICIPALS FUND
EV TRADITIONAL VIRGINIA MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-TFC1/1SAI
<PAGE>
EATON VANCE MUNICIPALS TRUST
FOR THE FUNDS:
- EV Classic Alabama Tax Free Fund
- EV Classic Arkansas Tax Free Fund
- EV Classic Georgia Tax Free Fund
- EV Classic Kentucky Tax Free Fund
- EV Classic Louisiana Tax Free Fund
- EV Classic Maryland Tax Free Fund
- EV Classic Missouri Tax Free Fund
- EV Classic North Carolina Tax Free Fund
- EV Classic Oregon Tax Free Fund
- EV Classic South Carolina Tax Free Fund
- EV Classic Tennessee Tax Free Fund
- EV Classic Virginia Tax Free Fund
===============================================================================
[EATON VANCE LOGO]
===============================================================================
ANNUAL SHAREHOLDER REPORT
AUGUST 31, 1995
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
President's letter to shareholders ..................................... 3
Year-end results, listed by state ...................................... 4
Management Reports:
EV Classic Alabama Tax Free Fund ............................... 5
EV Classic Arkansas Tax Free Fund .............................. 6
EV Classic Georgia Tax Free Fund ............................... 7
EV Classic Kentucky Tax Free Fund .............................. 8
EV Classic Louisiana Tax Free Fund ............................. 9
EV Classic Maryland Tax Free Fund .............................. 10
EV Classic Missouri Tax Free Fund .............................. 11
EV Classic North Carolina Tax Free Fund ........................ 12
EV Classic Oregon Tax Free Fund ................................ 13
EV Classic South Carolina Tax Free Fund ........................ 14
EV Classic Tennessee Tax Free Fund ............................. 15
EV Classic Virginia Tax Free Fund .............................. 16
Financial Results .............................................. 17
</TABLE>
<PAGE>
To Shareholders
The global economy continues to demonstrate a pattern of slow growth with low
inflation. The U.S. economy is no exception, as Gross Domestic Product should
grow only modestly during 1995 at 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 by
realizing strong capital appreciation 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 probably be
underperformers relative to taxable bonds because the current tax-advantaged
status of municipal bonds likely would be eliminated.
[Chart entitled "Despite tax policy uncertainties, 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 5.95%.
Below that bar is a second bar, showing the yield of 30-year Treasury bonds as
6.70%.
Extending to the right of the upper bar--the one describing general obligation
yield--is an additional bar labeled 9.30% - Taxable equivalent yield of
investment for couple in 36% tax bracket.
An asterisk after "30-year AA General Obligation (GO) bonds" refers to the
following footnote: "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 August 31, 1995. Past performance is no guarantee of future
results.
Source: Bloomberg, L.P.
Other footnotes:
Principal and interest payments of Treasury securities are guaranteed by the
U.S. government.
However, we at Eaton Vance believe there is little chance of major tax reform
legislation being enacted. Many factors 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 (because of
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.
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 of Thomas J. Fetter, President]
Sincerely,
/s/ Thomas J. Fetter
Thomas J. Fetter
President
October 3, 1995
+ A portion of the Portfolios' income could be subject to Federal alternative
minimum tax.
3
<PAGE>
INFORMATION ABOUT YOUR MUTUAL FUND INVESTMENT
<TABLE>
<CAPTION>
RESULTS FOR THE YEAR ENDED AUGUST 31, 1995
-------------------------------------------------------------------------------------------------------
FINANCIAL DATA: TAX DATA:
------------------------------------- ----------------------------------------------
Dividends Fund's Fund's The after-tax
paid NAV per distribution If your combined equivalent Federal
by Fund share at rate at Federal & state yield you would income tax
during period 8/31/95 8/31/95 tax rate is ... need is ... information*
------------- -------- ------------ ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
EV Classic ALABAMA [Graphic of
Tax Free Fund $0.437 $9.51 4.43% Alabama] 39.20% 7.26% 99.39%
EV Classic ARKANSAS [Graphic of
Tax Free Fund $0.440 $9.59 4.48% Arkansas] 40.48% 7.52% 99.44
EV Classic GEORGIA [Graphic of
Tax Free Fund $0.433 $9.19 4.57% Georgia] 39.84% 7.58% 99.59
EV Classic KENTUCKY [Graphic of
Tax Free Fund $0.443 $9.32 4.61% Kentucky] 39.47% 7.61% 99.63
EV Classic LOUISIANA [Graphic of
Tax Free Fund $0.469 $9.44 4.87% Louisiana] 39.84% 8.09% 99.62
EV Classic MARYLAND [Graphic of
Tax Free Fund $0.439 $9.38 4.53% Maryland] 41.12% 7.67% 99.12
EV Classic MISSOURI [Graphic of
Tax Free Fund $0.439 $9.48 4.46% Missouri] 39.84% 7.39% 99.20
EV Classic NORTH CAROLINA [Graphic of
Tax Free Fund $0.444 $9.28 4.63% North Carolina] 40.96% 7.81% 98.76
EV Classic OREGON [Graphic of
Tax Free Fund $0.429 $9.44 4.40% Oregon] 41.76% 7.54% 99.65
EV Classic SOUTH CAROLINA [Graphic of
Tax Free Fund $0.431 $9.42 4.46% South Carolina] 40.48% 7.49% 99.99
EV Classic TENNESSEE [Graphic of
Tax Free Fund $0.446 $9.33 4.66% Tennessee] 39.84% 7.74% 99.52
EV Classic VIRGINIA [Graphic of
Tax Free Fund $0.454 $9.33 4.69% Virginia] 39.68% 7.75% 99.07
</TABLE>
* Percentages represent the amounts of the total dividends paid by the Funds
from net investment income during the year ended August 31, 1995, that have
been designated as exempt-interest dividends. Tax legislation eliminated
the exception to market discount rules applicable to tax-exempt
obligations. As a result, certain tax-exempt obligations acquired by the
Portfolio subsequent to April 30, 1993, at market discounts may generate a
small amount of ordinary taxable income.
Included on 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 comprised 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 Alabama Tax Free Fund
YOUR INVESTMENT AT WORK
City of Scottsboro
Water, Sewer and Gas Bonds
These bonds were used to allow the City of Scottsboro to extend and improve its
natural gas distribution system and to improve its sanitary sewer system. The
improvements included collection and transmission mains that allow the sewer
system to serve additional customers. Similarly, improvements to the natural gas
distribution system give it the capacity to accommodate new customers. The bond
issue also provided funds to purchase related equipment and to expand the office
operated by the city's Waterworks, Sewer and Gas Board. The bonds, totaling $6
million, were issued in 1994.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of Alabama]
<TABLE>
<S> <C>
Number of issues............................... 73
Average quality................................ AA
Investment grade............................... 97.7
Effective maturity............................. 16.79 yrs.
Largest sectors:
Insured water and sewer..................... 17.2%*
Industrial development/pollution
control revenue ............................ 12.7
Insured education.......................... 8.5*
General obligations......................... 6.5
Insured hospitals........................... 6.4*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: Alabama
Alabama's state government has put a great deal of effort into diversifying the
state's economy in recent years. Those efforts have met with some success, led
by the development of the high technology sector, primarily in the Huntsville
area. In terms of employment, manufacturing continues to be the largest sector,
with the service sector experiencing some growth in and around the state's
cities.
Since adoption of the state's economic development plan in 1993, more than 50
companies have invested more than $2.2 billion in Alabama. The largest project
to date is the Mercedes Benz manufacturing facility that will build the
company's sport utility vehicle. The assembly plant is located in Vance, in
Tuscaloosa County, and is expected to open in 1997.
Employment levels, which traditionally were higher than the national average,
have been approximately equal to the national average during the last three
years.
The economic forecast for Alabama is for only moderate growth. The state's
conservative economic policies have kept its budgets in balance.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC ALABAMA TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 5.9% 3.2%
Without CDSC 6.9% 3.2%
</TABLE>
<TABLE>
<CAPTION>
DATE C. ALABAMA LEHMAN BROS.
- ---- ---------- ------------
<S> <C> <C>
12/93+ 10000 10000
1/94 10097 10114
2/94 9825 9852
3/94 9318 9451
4/94 9400 9531
5/94 9493 9614
6/94 9401 9558
7/94 9616 9730
8/94 9617 9764
9/94 9432 9621
10/94 9196 9450
11/94 8956 9279
12/94 9254 9483
1/95 9598 9754
2/95 9909 10038
3/95 9996 10153
4/95 9983 10165
5/95 10284 10490
6/95 10108 10398
7/95 10180 10496
8/95 10281 10630
</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 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.
FROM THE PORTFOLIO MANAGER:
[Photo of Timothy T. Browse]
"The bond market has had a nice upward run during late 1994 and through the
middle of 1995. As a result, we're shifting our emphasis from capital
appreciation to more of a balanced approach because we believe the good total
return will come from a mixture of coupon income and price appreciation.
"We believe that over the long term, the outlook for municipal bonds is
positive. While concerns over dramatic tax reform have depressed the market, it
is hard to imagine an approved reform package that will be as extreme as the
plans now being discussed.
" As part of our efforts to provide a diverse selection of bonds in the Alabama
Portfolio, we have diversified away from a large representation in the hospital
sector."
-Timothy T. Browse
5
<PAGE>
EV Classic Arkansas Tax Free Fund
YOUR INVESTMENT AT WORK
Baxter County
Aeroquip Corp. Project
This $7.2 million bond issue was used to finance the costs of building and
equipping a rubber mixing facility, an expansion of the Aeroquip Corp.'s
business in Arkansas.
The plant is located in the community of Mountain Home.Aeroquip Corp.
manufactures and sells engineered component systems for industrial, aerospace
and defense and automotive markets. It is a wholly-owned subsidiary of Trinova
Corporation, which has backed payment of the bonds.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of Arkansas]
<TABLE>
<S> <C>
Number of issues............................... 66
Average quality................................ A+
Investment grade............................... 94.6%
Effective maturity............................. 16.96 yrs.
Largest sectors:
Hospitals................................... 14.8%
Industrial development/pollution
control revenue ............................ 13.2
Housing..................................... 11.7
Electric utilities.......................... 9.2
General obligations........................ 8.2
</TABLE>
THE STATE OF THE STATE: Arkansas
The Arkansas economy is relatively diverse and is led by the manufacturing,
service and trade sectors. Manufacturing is the largest of the three, employing
25% of the state's workforce. Unemployment, however, has remained above the
national average.
The state's food processing industry has given a boost to the state's economic
performance. Four of the nation's biggest poultry processors are located in
Arkansas, including Tyson Foods, Inc., which has more than 18,000 employees in
the state and is expanding a poultry processing center.
The state's main revenue sources -- sales and use, individual income, and
corporate income taxes, all have been raised in recent years. Another factor in
the state's fiscal stability has been its revenue stabilization law. This law,
enacted in 1973, prohibits expenditures from exceeding revenues during any
fiscal year. Arkansas also is considered to have a very low public debt burden.
In the near future, the construction industry, stimulated by population growth,
is likely to provide additional job growth and strength to the state's economy.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC ARKANSAS TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From February 28, 1994, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 4.5% 3.1%
Without CDSC 5.5% 3.1%
</TABLE>
<TABLE>
<CAPTION>
DATE C. ARKANSAS LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
2/94+ 10000 10000
3/94 9452 9593
4/94 9543 9674
5/94 9644 9758
6/94 9500 9701
7/94 9723 9876
8/94 9795 9910
9/94 9620 9765
10/94 9311 9592
11/94 9029 9418
12/94 9295 9625
1/95 9617 9900
2/95 9949 10188
3/95 10026 10305
4/95 10013 10318
5/95 10293 10647
6/95 10129 10554
7/95 10201 10654
8/95 10335 10789
</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 2/9/94. +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:
[Photo of Timothy T. Browse]
"The supply of Arkansas bonds is limited. We take advantage of the ebbs and
flows of supply and demand by buying larger blocks of bonds in the new issue
market, when they are relatively attractive and more readily available and, over
time, reselling them in smaller pieces as the supply dries up.
"We remain optimistic about the future of the municipal bond market. While
worries about the possibility of dramatic tax reform have depressed the market,
it is difficult to conceive of an approved tax reform package that will be as
extreme as the plans now being discussed. The lessening of these fears, coupled
with the ever-decreasing supply of bonds, should produce a positive picture for
municipals bonds in the future."
-Timothy T. Browse
6
<PAGE>
EV Classic Georgia Tax Free Fund
YOUR INVESTMENT AT WORK
Savannah Resource Recovery
Development Authority
These bonds were issued in 1992 to refund a 1984 bond issue that financed a
steam-generating waste-to-energy plant in Savannah.
The facility is set up to convert solid waste to steam for commercial sale.
Since it began operation, the plant has produced amounts of steam exceeding the
required minimum for commercial sale.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of Georgia]
<TABLE>
<S> <C>
Number of issues............................... 76
Average quality................................ Aa
Investment grade............................... 96.4%
Effective maturity............................. 14.92 yrs.
Largest sectors:
Utilities................................... 15.5%
General obligations......................... 15.0
Housing..................................... 13.9
Insured hospitals........................... 13.2*
Hospitals................................... 10.5
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: Georgia
Georgia recovered quickly from the recession of the early 1990s and is
demonstrating strong economic growth as the decade continues.
As a regional center, Atlanta has led the state's growth. According to the Selig
Center for Economic Growth at the University of Georgia, Atlanta accounts for
half the state's employment base, but creates seven out of ten of the state's
new jobs. The Atlanta area is also benefiting from the current construction boom
in preparation for the 1996 Summer Olympic Games, as well as economic activity
generated by the Games themselves.
State population is growing at about twice the national average. Employment
trends also have been positive and the state's unemployment rate stands
significantly below the national rate. The Selig Center estimates that
employment will rise 3.5% in 1995 and 3.2% in 1996. Many of the jobs will be in
the service, wholesale and retail sectors. No sector is expected to lose jobs.
The Georgia state budget for the 1995 fiscal year is balanced. Although state
debt has grown in recent years, the state's debt position is considered good.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC GEORGIA TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 3.6% -0.1%
Without CDSC 4.6% -0.1%
</TABLE>
<TABLE>
<CAPTION>
DATE C. GEORGIA LEHMAN BROS.
- ---- ---------- ------------
<S> <C> <C>
12/93+ 10000 10000
1/94 10136 10114
2/94 9873 9852
3/94 9354 9451
4/94 9414 9531
5/94 9455 9614
6/94 9341 9558
7/94 9514 9730
8/94 9534 9764
9/94 9369 9621
10/94 9120 9450
11/94 8836 9279
12/94 9093 9483
1/95 9385 9754
2/95 9664 10038
3/95 9752 10153
4/95 9728 10165
5/95 9976 10490
6/95 9810 10398
7/95 9850 10496
8/95 9973 10630
</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 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.
FROM THE PORTFOLIO MANAGER:
[Photo of David C. Reilly]
"The Olympics will help the economic base of the Atlanta area, which should, in
turn, support the credit quality of local borrowers.
"We continue to watch the hospital sector as the health care industry continues
to consolidate. Our goal is to avoid bonds issued by hospitals that are left out
of the consolidation and affiliation process.
"We continue to believe that over the long term, the outlook for municipal bonds
is favorable. Tax reform of the type that would impair or eliminate the
franchise of municipal bonds is unlikely."
- David C. Reilly
7
<PAGE>
EV Classic Kentucky Tax Free Fund
YOUR INVESTMENT AT WORK
Fulton County
H.I.S. Kentucky, Inc.
The proceeds of these industrial development bonds were used to allow H.I.S.
Kentucky, Inc., to build a plant in Fulton County. The facility was designed to
stone-wash blue jeans and other clothing manufactured by the company.
H.I.S. Kentucky, Inc. is the holding company for Henry I.Siegel Company, a
designer and manufacturer of moderately priced blue jeans and similar products
under the Chic and H.I.S. labels. The company is a major seller of women's jeans
in Europe.
A total of $9.5 million of the bonds were issued in 1995.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of Kentucky]
<TABLE>
<S> <C>
Number of issues............................... 89
Average quality................................ AA-
Investment grade............................... 98.8%
Effective maturity............................. 15.91 yrs.
Largest sectors:
Lease revenue bonds......................... 21.4%
Insured hospital............................ 14.8*
Industrial development/pollution
control revenue ............................ 11.4
Insured water and sewer..................... 9.5*
Electric utilities.......................... 6.8
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: Kentucky
Kentucky has aggressively pursued economic growth during the 1990s. As a result,
the commonwealth has become more attractive as a location for businesses because
of legislation passed in 1990 that expanded the commonwealth's General Fund to
finance education reform. This tends to give employers confidence that they will
have access to a well-trained workforce in the future.
Kentucky has seen a fairly rapid rate of growth in its service sector in recent
years, with both the service and trade sectors contributing larger shares to its
economy than manufacturing or coal mining.
Among the major recent projects are the Delta Airlines Inc. expansion of its
facilities at the Cincinnati Airport. Delta has spent $300 million to establish
a hub at the airport.
Another area of strength has been the automotive industry. Toyota Motor Corp.
added 1,500 jobs through an expansion of its manufacturing facility near
Georgetown. Ford Motor Co. has committed to a $650 million expansion of its
truck plant in Louisville.
It is expected that growth in the state's economy will slow somewhat during the
remainder of the decade. Still, that growth should continue at a rate higher
than the national average.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC KENTUCKY TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 5.3% 0.8%
Without CDSC 6.3% 0.8%
</TABLE>
<TABLE>
<CAPTION>
DATE C. KENTUCKY LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
12/93+ 10000 10000
1/94 10097 10114
2/94 9824 9852
3/94 9285 9451
4/94 9366 9531
5/94 9428 9614
6/94 9315 9558
7/94 9520 9730
8/94 9531 9764
9/94 9335 9621
10/94 9066 9450
11/94 8814 9279
12/94 9083 9483
1/95 9439 9754
2/95 9741 10038
3/95 9829 10153
4/95 9828 10165
5/95 10120 10490
6/95 9944 10398
7/95 10006 10496
8/95 10131 10630
</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 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.
FROM THE PORTFOLIO MANAGER
[Photo of Timothy T. Browse]
"In managing the Portfolio, we are shifting our emphasis more toward adding
yield throughout all sectors because we believe the total return will come from
a balance of coupon income and price appreciation.
"Although quality spreads are tight for higher-grade bonds, we feel there are
opportunities in the nonrated and private placement sectors. These are extremely
research-intensive investments and are a way that we look to add value to the
Portfolio.
"This value-added research plus what we feel is an undervalued municipal bond
market because of tax reform concerns give us confidence in the Portfolio's
prospects going forward. "
- Timothy T. Browse
8
<PAGE>
EV Classic Louisiana Tax Free Fund
YOUR INVESTMENT AT WORK
Bastrop City Industrial
Development Board
International Paper Co.
The proceeds from these bonds were used to finance solid waste disposal
facilities, including a landfill cell, for International Paper's Louisiana mill,
located in Bastrop.
These are tax-exempt bonds backed by a corporate guarantor, International Paper.
Because they carry the company's guarantee, the bonds are rated A3/A-.
One aspect of this purchase that we particularly liked is that these bonds add
geographic diversity to a single-state Portfolio because International Paper
runs facilities throughout the country.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of Louisiana]
<TABLE>
<S> <C>
Number of issues............................... 47
Average quality................................ AA+
Investment grade............................... 97.3%
Effective maturity............................. 18.48 yrs.
Largest sectors:
Housing..................................... 26.5%
Insured general obligations local........... 17.6*
Insured colleges and universities........... 10.3*
Health care................................. 8.1
Industrial development/pollution
control revenue ............................ 6.4
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: Louisiana
Louisiana has suffered a recent spate of bad news; the good news is that none of
it directly affects the Louisiana Portfolio. This summer, Standard & Poor's
downgraded the state's general obligation rating from A to A-. Given both the
state's checkered past with the rating agencies and the fact that Louisiana has
been on a negative Creditwatch for almost 6 months, the downgrade was
essentially a non-event in the credit market.
The rating agency cited concerns with the state's structural budgetary balance
for the 1996 fiscal year and beyond, pivoting on the potential for significant
cuts in Federal Medicaid funds to the state. Bonds in the Portfolio are largely
insulated from the state's budget problems.
On top of the aforementioned difficulties, the Wall Street Journal recently
published an article questioning the gaming industry's ability to be an economic
savior for so many states. At the time this was written, Louisiana's gaming
industry revenues were running below expectations in 1995. Again, bonds in the
Louisiana Portfolio are not directly dependent on gaming revenues. While credit
concerns swirl around the state, we remain confident of the credit quality of
our Louisiana tax-exempt holdings.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC LOUISIANA
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From February 28, 1994, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 3.9% 1.3%
Without CDSC 4.9% 1.3%
</TABLE>
<TABLE>
<CAPTION>
DATE C. LOUISIANA LEHMAN BROS.
- ---- ------------ ------------
<S> <C> <C>
2/94+ 10000 10000
3/94 9475 9593
4/94 9578 9674
5/94 9692 9758
6/94 9569 9701
7/94 9775 9876
8/94 9767 9910
9/94 9562 9765
10/94 9296 9592
11/94 9046 9418
12/94 9327 9625
1/95 9674 9900
2/95 10010 10188
3/95 10068 10305
4/95 10027 10318
5/95 10246 10647
6/95 10062 10554
7/95 10138 10654
8/95 10243 10789
</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 2/14/94. +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:
[Photo of Nicole Anderes]
"The secondary bond market has provided opportunities to diversify the
Portfolio's structure and to add yield through higher coupon housing bonds.
"New issuance in Louisiana continues to be sporadic, and proposals to reform the
country's tax system, especially flat tax proposals, are having a dampening
effect on the municipal market.
"We remain convinced that any tax changes that are enacted will not be as
radical as the plans that are being talked about now. Despite this uncertainty,
1995 has given us an opportunity to recoup losses suffered in 1994."
- Nicole Anderes
9
<PAGE>
EV Classic Maryland Tax Free Fund
YOUR INVESTMENT AT WORK
Health & Higher Educational
Facilities Authority
Suburban Hospital
This $63 million bond issue was used to refund in advance the bonds the hospital
issued in 1988 and 1992 to improve its facilities.
Suburban Hospital is a 380-bed acute care facility located in Bethesda, MD.
Among the services it offers are orthopedics, cardiology, oncology and
neurosurgery.
The hospital also runs a 23-bed comprehensive care unit, which provides skilled
nursing services, and a 26-bed Addiction Treatment Center. Among its outpatient
services is the largest ambulatory surgical service in Montgomery County.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of Maryland]
<TABLE>
<S> <C>
Number of issues............................... 74
Average quality................................ AA-
Investment grade............................... 97.6%
Effective maturity............................. 18.41 yrs.
Largest sectors:
Hospital revenue............................ 20.7%
Insured hospital............................ 17.9*
Industrial development/pollution
control revenue ............................ 10.2
Electric utilities.......................... 7.7
Housing..................................... 7.2
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: Maryland
In terms of finances, Maryland remains one of the strongest states in the
nation.State officials are proud of its "AAA" rating and have demonstrated their
inclination to do whatever it takes to protect that rating during difficult
times.
During the 1994 fiscal year, the state's general fund revenues exceeded
estimates, a positive factor when compared to the period from 1990-1992, when
there was a revenue shortfall.
Maryland is one of the nation's most affluent states, based on median household
income. The population is concentrated in the metropolitan Washington, D.C. area
and in and around Baltimore.
The state's largest employment sector is services, at more than 30%, followed by
trade and government. Manufacturing employment has declined steadily during the
last few years. Despite an increase in unemployment during the recession of the
early 1990s, Maryland's unemployment has remained below national levels. Its
rate in 1994 was 5.4%, compared to the national rate of 6.1%.
It is estimated that the state's population will continue to grow slightly and
that its economy will grow at a slow, but steady, rate.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC MARYLAND TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 5.9% 1.1%
Without CDSC 6.9% 1.1%
</TABLE>
<TABLE>
<CAPTION>
DATE C. MARYLAND LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
12/93+ 10000 10000
1/94 10117 10114
2/94 9825 9852
3/94 9238 9451
4/94 9239 9531
5/94 9361 9614
6/94 9248 9558
7/94 9462 9730
8/94 9494 9764
9/94 9289 9621
10/94 9052 9450
11/94 8791 9279
12/94 9120 9483
1/95 9433 9754
2/95 9786 10038
3/95 9874 10153
4/95 9850 10165
5/95 10152 10490
6/95 9933 10398
7/95 10016 10496
8/95 10150 10630
</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 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.
FROM THE PORTFOLIO MANAGER:
[Photo of Timothy T. Browse]
"The Maryland Portfolio shows a heavy representation of hospital bonds. The
state's strong hospital infrastructure makes us more comfortable with holding a
large portion of the Portfolio in this sector. Over time, our goal of Portfolio
diversification may cause us to trim these hospital holdings.
"We continue to be optimistic about the municipal bond market. The market has
been depressed by worries about possible dramatic tax reform, but it's hard to
imagine an approved tax reform package as extreme as the plans now being
discussed. The lessening of these fears, coupled with the ever-decreasing supply
of bonds, should produce a positive future for municipal bonds."
- Timothy T. Browse
10
<PAGE>
EV Classic Missouri Tax Free Fund
YOUR INVESTMENT AT WORK
Environmental and Energy
Resource Authority
Water Pollution Control Bonds
The Revolving Fund, controlled by the state Department of Natural Resources and
Clean Water Commission, was established in 1987 to finance construction of
wastewater treatment facilities.
The proceeds of these bonds, issued in 1994, are used to finance the improvement
and extension of sewerage systems in a variety of communities around the state.
The participating communities comprise a diverse group, with no one city
dominating. After the offering,Duckett Creek Sewer District was expected to have
nearly 20% of the bonds outstanding. Each city's bonds have been approved by
voters.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of Missouri]
<TABLE>
<CAPTION>
<S> <C>
Number of issues............................... 80
Average quality................................ Aa
Investment grade............................... 98.4%
Effective maturity............................. 15.23 yrs.
Largest sectors:
Insured hospitals........................... 18.4%*
Insured utilities........................... 11.4*
Hospitals................................... 10.5
Insured general obligations................. 9.3*
Water & sewer............................... 9.1*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: Missouri
Missouri has a strong and diverse economy, with a greater-than-average
dependence on manufacturing jobs. The largest sectors are transportation
equipment, machinery and chemicals.
The largest creator of jobs and income in the state is currently the service
sector, which is responsible for one quarter of all jobs. Manufacturing accounts
for slightly less than one-fifth.
The state has continued to grow during the past 12 months, buoyed by growth in
the area of transportation equipment.
One segment of Missouri's economy that has grown significantly is tourism, led
by the city of Branson's development as a destination resort for music and
entertainment. While adding one attraction after another, this rural city has
quickly developed into one of the nation's major tourist attractions.
Missouri is expected to demonstrate continued growth in the near future.
However, it is somewhat vulnerable to any defense cutbacks, as McDonnell Douglas
Corp. is the state's largest employer.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC MISSOURI TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 6.1% 1.8%
Without CDSC 7.1% 1.8%
</TABLE>
<TABLE>
<CAPTION>
DATE C. MISSOURI LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
12/93+ 10000 10000
1/94 10106 10114
2/94 9855 9852
3/94 9299 9451
4/94 9340 9531
5/94 9433 9614
6/94 9350 9558
7/94 9544 9730
8/94 9566 9764
9/94 9362 9621
10/94 9105 9450
11/94 8824 9279
12/94 9121 9483
1/95 9475 9754
2/95 9807 10038
3/95 9884 10153
4/95 9881 10165
5/95 10235 10490
6/95 10070 10398
7/95 10110 10496
8/95 10244 10630
</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 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.
FROM THE PORTFOLIO MANAGER:
[Photo of Cynthia J. Clemson]
"We continue to be selective when looking at hospital bonds because of the
uncertainty of the health care market throughout the U.S.. This is one area in
which the contributions of our Research Department are especially important.
However, we do feel that hospital bonds can add value and diversification to the
overall Portfolio.
"The Missouri bond market continued to be characterized by low issuance. This
factor, combined with narrow quality spreads between AA-rated and insured bonds,
caused us to focus on slightly upgrading the Portfolio quality. We also balanced
a large weighting in high-quality bonds with positions in higher-yielding issues
to boost the Fund's income."
- Cynthia J. Clemson
11
<PAGE>
EV Classic North Carolina Tax Free Fund
YOUR INVESTMENT AT WORK
University of North Carolina
University Hospital, Chapel Hill
These bonds were issued to pay for providing new facilities at the University of
North Carolina Hospital at Chapel Hill.
UNC Hospital provides comprehensive health care services including general acute
care, specialized care, outpatient services, psychiatric and rehabilitative
services. In addition, the hospital supports the university's teaching and
research needs.
The bond issue, totaling nearly $60 million, was issued in 1992.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of North Carolina]
<TABLE>
<S> <C>
Number of issues............................... 90
Average quality................................ Aa
Investment grade............................... 98.6%
Effective maturity............................. 15.33 yrs.
Largest sectors:
Hospitals................................... 18.8%
Utilities................................... 12.3
Insured hospital............................ 10.6*
Housing..................................... 9.1
General obligations......................... 8.7
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: North Carolina
Having recovered well from the recession of the early 1990s, North Carolina has
continued to see significant growth throughout the decade. The state's economy
continues to be led by the manufacturing sector -- principally machinery,
textiles and furniture. However, high technology and financial services continue
to grow, rapidly with Charlotte and Raleigh developing as regional banking
centers.
In its attempts to attract new business, the state is assisted by its low wages,
the low cost of housing and what is viewed as an attractive quality of life.
North Carolina is not expected to maintain its rapid growth rate, but should
continue to grow at a rate higher than the national average.
North Carolina's conservative style of fiscal management and its low debt levels
provide long-term, fundamental credit support.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC NORTH
CAROLINA TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From December 31, 1993, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 4.0% 0.6%
Without CDSC 5.0% 0.6%
</TABLE>
<TABLE>
<CAPTION>
DATE C. N. CAROLINA LEHMAN BROS.
- ---- -------------- ------------
<S> <C> <C>
12/93+ 10000 10000
1/94 10117 10114
2/94 9886 9852
3/94 9419 9451
4/94 9450 9531
5/94 9503 9614
6/94 9400 9558
7/94 9554 9730
8/94 9586 9764
9/94 9432 9621
10/94 9175 9450
11/94 8893 9279
12/94 9171 9483
1/95 9495 9754
2/95 9796 10038
3/95 9895 10153
4/95 9872 10165
5/95 10121 10490
6/95 9934 10398
7/95 9975 10496
8/95 10067 10630
</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 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.
FROM THE PORTFOLIO MANAGER:
[Photo of David C. Reilly]
"We have kept a close watch on North Carolina utility bonds during the year. We
switched out of Catawba bonds, which are issued by the power authority serving
the western half of the state, and into bonds issued by the North Carolina
Eastern Municipal Power Authority. This strategy has resulted in additional
yield and total return performance for the Portfolio.
"We expect North Carolina bonds to hold their value, largely because new debt
issuance in the state is quite low. In fact, debt issued in the state from
January through June, 1995 is 60% lower than that of the equivalent period in
1994."
- David C. Reilly
12
<PAGE>
EV Classic Oregon Tax Free Fund
YOUR INVESTMENT AT WORK
Oregon Housing, Educational
& Cultural Facilities Authority
Reed College
The greatest portion of the proceeds of these bonds allowed Reed College to
renovate student housing facilities. The funds also were used to acquire land,
improve the college library, construct campus parking facilities and add a
pedestrian bridge over a lake located on college property. The bonds were issued
in 1991.
Reed College, founded in 1909, is a private school located near downtown
Portland. Its student body numbers about 1,100.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of Oregon]
<TABLE>
<S> <C>
Number of issues............................... 80
Average quality................................ Aa
Investment grade............................... 97.3%
Effective maturity............................. 15.35 yrs.
Largest sectors:
General obligation.......................... 17.7%
Utilities................................... 14.3
Insured general obligation.................. 11.6*
Housing..................................... 8.8
Special tax revenue......................... 6.8
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: Oregon
Oregon continues to benefit from strong economic growth. The state's levels of
payroll employment have continued to increase through May.
While most employment gains have been in the service and trade sectors, the
construction sector also has been busy. Continued population growth and
relatively low office vacancy rates have caused significant residential and
commercial building activity.
In the second half of 1995, the economy is expected to be further helped by
Hyundai's plans to build a $1.3 billion computer chip plant near Eugene. When
completed, the facility is expected to employ about 900 workers.
Oregon has aggressively pursued high technology manufacturers. However, the
Yamhill County Commissioners recently rejected a proposal to grant property tax
relief for a new silicon wafer plant. It was the first rejection of such a
proposal under the state's Strategic Investment Program and demonstrates the
state's commitment to achieving balanced growth. The state's income, population
and employment growth all are expected to exceed the national average through
the remainder of the decade, though future job growth will be limited by tight
labor markets.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC OREGON TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 6.1% 1.3%
Without CDSC 7.1% 1.3%
</TABLE>
<TABLE>
<CAPTION>
DATE C. OREGON LEHMAN BROS.
- ---- --------- ------------
<S> <C> <C>
12/93+ 10000 10000
1/94 10097 10114
2/94 9904 9852
3/94 9335 9451
4/94 9385 9531
5/94 9446 9614
6/94 9342 9558
7/94 9525 9730
8/94 9546 9764
9/94 9339 9621
10/94 9080 9450
11/94 8818 9279
12/94 9126 9483
1/95 9480 9754
2/95 9833 10038
3/95 9920 10153
4/95 9906 10165
5/95 10207 10490
6/95 10041 10398
7/95 10091 10496
8/95 10224 10630
</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 12/28/93. +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.
FROM THE PORTFOLIO MANAGER:
[Photo of Cynthia J. Clemson]
"The Oregon bond market is characterized by low issuance, with issuance down
over 50% year-to-date, compared to 22% nationally. This larger-than-average
decline in issuance is a result of greater-than-average issuance prior to the
1994 tax initiative ballots.
"We are continually looking for bonds that will allow us to increase the overall
call protection of the Portfolio. In part because of the lack of new issues,
this is a slow process."
- Cynthia J. Clemson
13
<PAGE>
EV Classic South Carolina Tax Free Fund
YOUR INVESTMENT AT WORK
Chester County
Springs Industries, Inc.
These industrial development bonds were issued in 1992 to refund bonds issued in
1968. The 1968 bonds allowed the company to build a new textile manufacturing
facility in Chester County. It was completed in 1969.
Springs Industries, Inc. is a major manufacturer and marketer of home
furnishings, finished fabrics and industrial products.
The company's headquarters are in Fort Mill,S.C. The company operates 45
manufacturing facilities in 10 states, Belgium and England. Among its home
furnishings are products sold under the Springmaid and Wamsutta brands.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of South Carolina]
<TABLE>
<S> <C>
Number of issues............................... 65
Average quality................................ Aa
Investment grade............................... 97.1%
Effective maturity............................. 15.9 yrs.
Largest sectors:
Industrial development ..................... 18.0%
Utilities................................... 13.5
Insured utilities........................... 12.5*
Housing..................................... 9.5
Insured lease/certificate of
participation............................... 7.3*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: So. Carolina
South Carolina's strong growth continued during the past year, leading to a more
diverse economy that relies less on agriculture and textiles and more on the
service sector and on higher-skilled manufacturing jobs.
Business views the state as a favorable location because of its tax structure
and low cost of living. A major contributor to the state's economic growth has
been the Bavarian Motor Works manufacturing plant in Spartanburg County, which
is now operational and is expected to be running at full capacity in 1996. It is
estimated that this facility will add 4,000 direct and indirect jobs to the
state.
Future growth is likely to be focused in metropolitan areas -- Charlestown,
Columbia and Greenville. In addition, tourism in South Carolina continues to
grow.
The state still wrestles with alternatives for dealing with local property
tax burdens. One plan would gradually relieve property taxes until all such
taxes are eliminated. Another would allow voters to approve a one-cent sales tax
increase to eliminate the property tax all at once.
South Carolina benefits from conservative fiscal management and relatively low
debt. During the last year, the state has put into effect several changes to
help balance its budget and make budgeting more predictable.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC SOUTH
CAROLINA TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From February 28, 1994, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 4.4% 0.8%
Without CDSC 5.4% 0.8%
</TABLE>
<TABLE>
<CAPTION>
DATE C. S. CAROLINA LEHMAN BROS.
- ---- -------------- ------------
<S> <C> <C>
2/94+ 10000 10000
3/94 9438 9593
4/94 9498 9674
5/94 9558 9758
6/94 9454 9701
7/94 9636 9876
8/94 9657 9910
9/94 9501 9765
10/94 9253 9592
11/94 8991 9418
12/94 9236 9625
1/95 9548 9900
2/95 9837 10188
3/95 9934 10305
4/95 9910 10318
5/95 10168 10647
6/95 10024 10554
7/95 10053 10654
8/95 10176 10789
</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 2/14/94. +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:
[Photo of David C. Reilly]
"We have remained cautious in acquiring utility bonds, a strategy that paid off
when Piedmont Municipal Power Agency was downgraded from A- to BBB in late July.
Because the Portfolio held only one Piedmont bond, we avoided most of the pain
associated with this downgrade.
"New bond issuance in South Carolina has decreased dramatically in the last
year, with the number of new issues from January through June 1995, almost 75%
less than new issuance during the previous period. This is one reason why we are
optimistic about the performance of South Carolina debt."
- David C. Reilly
14
<PAGE>
EV Classic Tennessee Tax Free Fund
YOUR INVESTMENT AT WORK
Maury County Industrial
Development Board
Saturn Corp.
The bonds were issued in 1994 to refund bonds that were originally used to
finance equipment at the Saturn facility in Spring Hill. The Saturn plant was
part of a multi-billion-dollar project created by General Motors, with a goal of
developing a state-of-the-art automobile manufacturing facility.
The proceeds of the original bonds were used to purchase and install air and
water pollution control equipment and solid waste disposal facilities at the
Saturn plant. The bonds are the obligations of the Saturn Corp. and also are
backed by General Motors.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of Tennessee]
<TABLE>
<S> <C>
Number of issues............................... 59
Average quality................................ Aa-
Investment grade............................... 98.3%
Effective maturity............................. 16.87 yrs.
Largest sectors:
Insured hospitals........................... 21.9%*
Housing..................................... 16.2
Industrial development revenue.............. 16.0
Pooled loans................................ 6.7
Insured water & sewer....................... 4.8*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: Tennessee
Tennessee's economy still relies on manufacturing, but is diversifying as the
services sector grows in size and importance. Growth has been steady during the
past several years.
The state's efforts to develop its economy continue to be rewarded. In 1992 and
1993, for example, economic development projects, including both new projects
and the expansion of existing facilities, totaled more than $2 billion annually.
Within the manufacturing sector, apparel manufacturing is the largest segment,
with automobile equipment only slightly smaller.
The state's TennCare comprehensive health care program, which relies on managed
care to reduce costs, is expected to benefit the state's economic condition in
the long run. However, initial TennCare expenses exceeded estimates and required
some budget-balancing actions during the past year.
State fiscal operations benefit from a conservative management style and
continued relatively low debt levels.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC TENNESSEE
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 5.3% 0.9%
Without CDSC 6.3% 0.9%
</TABLE>
<TABLE>
<CAPTION>
DATE C. TENNESSEE LEHMAN BROS.
- ---- ------------ ------------
<S> <C> <C>
12/93+ 10000 10000
1/94 10112 10114
2/94 9840 9852
3/94 9273 9451
4/94 9274 9531
5/94 9366 9614
6/94 9273 9558
7/94 9477 9730
8/94 9499 9764
9/94 9314 9621
10/94 9046 9450
11/94 8775 9279
12/94 9053 9483
1/95 9419 9754
2/95 9762 10038
3/95 9819 10153
4/95 9785 10165
5/95 10066 10490
6/95 9891 10398
7/95 9954 10496
8/95 10100 10630
</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 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.
FROM THE PORTFOLIO MANAGER:
[Photo of Cynthia J. Clemson]
"We like to buy industrial development bonds whenever possible because they
offer an attractive combination of yield and security. Over the past year, we
have added to our positions in industrial development bonds used to finance
facilities for both Saturn and DuPont.
"Quality spreads for medium-grade bonds are very tight. As a result, we have
focused on adding both higher quality bonds and on purchasing higher yielding
bonds of slightly lower quality."
- Cynthia J. Clemson
15
<PAGE>
EV Classic Virginia Tax Free Fund
YOUR INVESTMENT AT WORK
Prince William County
Potomac Hospital
The proceeds from this issue are being used to pay for construction and
renovation of the Potomac Hospital, located in Prince William County.
Additionally, funds are being used to acquire a medical office building in
Stafford County, refund outstanding bonds and refinance the hospital's 1991
lease of cardiac catheterization equipment.
A total of $22 million of these bonds were issued in 1995 by the Prince William
County Industrial Development Authority.
PORTFOLIO OVERVIEW
Based on market value as of August 31, 1995
[Graphic of Virginia]
<TABLE>
<S> <C>
Number of issues............................... 94
Average quality................................ Aa-
Investment grade............................... 95.8%
Effective maturity............................. 16.24 yrs.
Largest sectors:
Hospitals................................... 16.7%
Lease/certificates of participation......... 11.2
Housing .................................... 10.9
Education................................... 10.1
Insured hospital............................ 7.6*
</TABLE>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
THE STATE OF THE STATE: Virginia
The Virginia economy remains diversified and relatively strong. This vitality is
demonstrated by the fact that economic growth was stronger in the first quarter
of 1995 than in the last quarter of 1994.
Employment figures set new records, and employment gains were seen in all the
state's eight metropolitan areas. Military and civilian defense employment in
the state declined nearly 3% in 1994, though Virginia remained the
second-ranking state in terms of military payrolls. It is expected that the
commonwealth will continue to lose some military and military-related jobs, but
it is expected to add more than enough jobs in other areas to offset the loss.
The service sector is Virginia's largest source of employment and is expected to
be the fastest growing segment of the economy in the next few years. High
technology industries have grown considerably in the northern part of the state
in recent years. The manufacturing, tourism and technology segments are expected
to lead the state's growth in the near future.
Virginia's economic picture is aided by its conservative fiscal management and
low debt burden.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC VIRGINIA TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through August 31, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1 Life
TOTAL RETURN Year of Fund*
- -------------- ---- --------
<S> <C> <C>
With CDSC 5.5% 1.0%
Without CDSC 6.5% 1.0%
</TABLE>
<TABLE>
<CAPTION>
DATE C. VIRGINIA LEHMAN BROS.
- ---- ----------- ------------
<S> <C> <C>
12/93+ 10000 10000
1/94 10084 10114
2/94 9833 9852
3/94 9356 9451
4/94 9429 9531
5/94 9463 9614
6/94 9340 9558
7/94 9485 9730
8/94 9540 9764
9/94 9408 9621
10/94 9161 9450
11/94 8911 9279
12/94 9159 9483
1/95 9474 9754
2/95 9799 10038
3/95 9899 10153
4/95 9876 10165
5/95 10180 10490
6/95 9994 10398
7/95 10025 10496
8/95 10161 10630
</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 12/17/93. +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.
FROM THE PORTFOLIO MANAGER:
[Photo of David C. Reilly]
"The health care industry continues to go through a consolidation, with
hospitals forming alliances with health maintenance organizations or merging
with other institutions.
"We feel that the hospitals that are left out of this consolidation may face a
shaky future, and as a result we continue to watch the hospital sector closely.
"We believe that the long-term future of municipal, bonds is strong. On a simple
supply-and-demand basis, their value should be enhanced by the fact that fewer
new bonds are being issued now than previously."
- David C. Reilly
16
<PAGE>
-------
EV Classic Tax Free Funds
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $9,363,913 $513,259 $2,490,451 $1,926,544
Unrealized appreciation (depreciation) 132,946 (203) (22,349) (135,405)
---------- -------- ---------- ----------
Total investment in Portfolio, at value (Note 1A) $9,496,859 $513,056 $2,468,102 $1,791,139
Receivable for Fund shares sold -- -- 5,001 --
Receivable from the Administrator (Note 4) 11,742 15,164 16,832 27,092
Deferred organization expenses (Note 1D) 8,872 6,630 8,026 8,214
---------- -------- ---------- ----------
Total assets $9,517,473 $534,850 $2,497,961 $1,826,445
---------- -------- ---------- ----------
LIABILITIES:
Dividends payable $ 10,398 $ 590 $ 2,802 $ 2,074
Payable for Fund shares redeemed 76,418 -- 6,717 --
Payable to affiliates --
Trustees' fees 27 -- -- --
Custodian fee 584 584 500 584
Accrued expenses 3,148 283 945 706
---------- -------- ---------- ----------
Total liabilities $ 90,575 $ 1,457 $ 10,964 $ 3,364
---------- -------- ---------- ----------
NET ASSETS $9,426,898 $533,393 $2,486,997 $1,823,081
========== ======== ========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $9,839,889 $555,221 $2,751,810 $2,055,547
Accumulated net realized loss on investment and financial
futures transactions (computed on the basis of identified
cost) (571,499) (23,421) (247,758) (100,200)
Accumulated undistributed net investment income 25,562 1,796 5,294 3,139
Unrealized appreciation (depreciation) of investments and
financial futures contracts from Portfolio (computed on
the basis of identified cost) 132,946 (203) (22,349) (135,405)
---------- -------- ---------- ----------
Total $9,426,898 $533,393 $2,486,997 $1,823,081
========== ======== ========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 991,720 55,622 270,746 195,625
========== ======== ========== ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE (NOTE 6) PER SHARE
(net assets / shares of beneficial interest outstanding) $9.51 $9.59 $9.19 $9.32
===== ===== ===== =====
</TABLE>
See notes to financial statements
17
<PAGE>
-------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $2,408,599 $ 942,269 $3,151,119 $6,046,335
Unrealized appreciation (depreciation) 11,726 (27,271) (22,513) 59,664
---------- ---------- ---------- ----------
Total investment in Portfolio, at value (Note 1A) $2,420,325 $ 914,998 $3,128,606 $6,105,999
Receivable for Fund shares sold -- 150 17,984 --
Receivable from the Administrator (Note 4) 10,912 19,261 20,693 17,410
Deferred organization expenses (Note 1D) 7,653 6,639 6,195 5,860
---------- ---------- ---------- ----------
Total assets $2,438,890 $ 941,048 $3,173,478 $6,129,269
---------- ---------- ---------- ----------
LIABILITIES:
Dividends payable $ 2,925 $ 1,049 $ 3,472 $ 6,999
Payable for Fund shares redeemed 50,314 50 4,740 5,030
Payable to affiliates --
Trustees' fees -- -- -- 27
Custodian fee 84 584 84 500
Accrued expenses 1,186 387 1,884 1,942
---------- ---------- ---------- ----------
Total liabilities $ 54,509 $ 2,070 $ 10,180 $ 14,498
---------- ---------- ---------- ----------
NET ASSETS $2,384,381 $ 938,978 $3,163,298 $6,114,771
========== ========== ========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $2,513,389 $1,009,357 $3,320,530 $6,472,235
Accumulated net realized loss on investment and
financial futures transactions (computed on the
basis of identified cost) (151,087) (45,087) (140,712) (434,353)
Accumulated undistributed net investment income 10,353 1,979 5,993 17,225
Unrealized appreciation (depreciation) of investments
and financial futures contracts from Portfolio
(computed on the basis of identified cost) 11,726 (27,271) (22,513) 59,664
---------- ---------- ---------- ----------
Total $2,384,381 $ 938,978 $3,163,298 $6,114,771
========== ========== ========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 252,473 100,121 333,512 659,253
========== ========== ========== ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE (NOTE 6) PER SHARE
(net assets / shares of beneficial interest
outstanding) $9.44 $9.38 $9.48 $9.28
===== ===== ===== =====
</TABLE>
See notes to financial statements
18
<PAGE>
-------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
---------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $1,056,984 $1,222,108 $1,083,644 $1,428,577
Unrealized appreciation (depreciation) (83,634) 219 (19,653) 36,670
---------- ---------- ---------- ----------
Total investment in Portfolio, at value (Note
1A) $ 973,350 $1,222,327 $1,063,991 $1,465,247
Receivable for Fund shares sold -- 8,000 -- --
Receivable from the Administrator (Note 4) 20,572 14,531 16,782 19,518
Deferred organization expenses (Note 1D) 6,887 5,918 5,415 6,061
---------- ---------- ---------- ----------
Total assets $1,000,809 $1,250,776 $1,086,188 $1,490,826
---------- ---------- ---------- ----------
LIABILITIES:
Dividends payable $ 1,084 $ 1,392 $ 1,247 $ 1,723
Payable for Fund shares redeemed -- 2,952 -- --
Payable to affiliate --
Custodian fee 84 584 23 551
Accrued expenses 1,156 460 656 592
---------- ---------- ---------- ----------
Total liabilities $ 2,324 $ 5,388 $ 1,926 $ 2,866
---------- ---------- ---------- ----------
NET ASSETS $ 998,485 $1,245,388 $1,084,262 $1,487,960
========== ========== ========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $1,148,985 $1,423,136 $1,151,003 $1,590,913
Accumulated net realized loss on investment and
financial futures transactions (computed on the
basis of identified cost) (68,979) (181,560) (48,956) (141,795)
Accumulated undistributed net investment income 2,113 3,593 1,868 2,172
Unrealized appreciation (depreciation) of
investments and financial futures contracts from
Portfolio (computed on the basis of identified
cost) (83,634) 219 (19,653) 36,670
---------- ---------- ---------- ----------
Total $ 998,485 $1,245,388 $1,084,262 $1,487,960
========== ========== ========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 105,729 132,239 116,232 159,557
========== ========== ========== ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE (NOTE 6) PER SHARE
(net assets / shares of beneficial interest
outstanding) $9.44 $9.42 $9.33 $9.33
===== ===== ===== =====
</TABLE>
See notes to financial statements
19
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
--------- -------- --------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 640,949 $ 33,895 $ 156,681 $124,286
Expenses allocated from Portfolio (48,160) (2,523) (11,570) (9,712)
--------- -------- --------- --------
Net investment income from Portfolio $ 592,789 $ 31,372 $ 145,111 $114,574
--------- -------- --------- --------
Expenses --
Compensation of Trustees not members of the Administrator's
organization (Note 4) $ 176 $ -- $ -- $ --
Distribution costs (Note 5) 97,288 5,391 23,981 18,873
Custodian fee (Note 4) 3,416 2,881 1,507 4,262
Transfer and dividend disbursing agent fees 8,624 143 2,698 1,855
Printing and postage 10,772 3,631 6,318 11,058
Legal and accounting services 8,898 3,195 6,313 5,798
Registration costs 1,223 2,000 28 800
Amortization of organization expenses (Note 1D) 2,715 1,934 2,456 2,515
Miscellaneous 2,021 1,509 1,293 1,137
--------- -------- --------- --------
Total expenses $ 135,133 $ 20,684 $ 44,594 $ 46,298
Deduct allocation of expenses to the Administrator (Note 4) 11,742 15,164 16,832 27,092
--------- -------- --------- --------
Net expenses $ 123,391 $ 5,520 $ 27,762 $ 19,206
--------- -------- --------- --------
Net investment income $ 469,398 $ 25,852 $ 117,349 $ 95,368
--------- -------- --------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(310,164) $(12,865) $(118,768) $(62,342)
Financial futures contracts (122,170) (6,531) (51,391) (19,656)
--------- -------- --------- --------
Net realized loss on investments $(432,334) $(19,396) $(170,159) $(81,998)
Change in unrealized appreciation of investments 565,868 19,959 136,523 32,478
--------- -------- --------- --------
Net realized and unrealized gain (loss) $ 133,534 $ 563 $ (33,636) $(49,520)
--------- -------- --------- --------
Net increase in net assets from operations $ 602,932 $ 26,415 $ 83,713 $ 45,848
========= ======== ========= ========
</TABLE>
See notes to financial statements
20
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
--------- -------- --------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 165,603 $ 58,238 $ 207,168 $ 413,676
Expenses allocated from Portfolio (5,997) (4,330) (15,939) (31,553)
--------- -------- --------- ----------
Net investment income from Portfolio $ 159,606 $ 53,908 $ 191,229 $ 382,123
--------- -------- --------- ----------
Expenses --
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ -- $ -- $ -- $ 190
Distribution costs (Note 5) 24,971 8,909 31,617 62,690
Custodian fee (Note 4) 1,675 4,183 3,937 500
Transfer and dividend disbursing agent fees 2,062 677 2,362 4,680
Printing and postage 4,706 5,520 8,789 9,194
Legal and accounting services 6,184 5,637 6,390 7,574
Registration costs -- 1,149 2,077 444
Amortization of organization expenses (Note 1D) 2,238 2,033 1,909 1,793
Miscellaneous -- 900 1,210 1,330
--------- -------- --------- ----------
Total expenses $ 41,836 $ 29,008 $ 58,291 $ 88,395
Deduct allocation of expenses to the Administrator
(Note 4) 10,912 19,261 20,693 17,410
--------- -------- --------- ----------
Net expenses $ 30,924 $ 9,747 $ 37,598 $ 70,985
--------- -------- --------- ----------
Net investment income $ 128,682 $ 44,161 $ 153,631 $ 311,138
--------- -------- --------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $ (59,042) $(23,010) $(100,742) $ (175,472)
Financial futures contracts (74,428) (9,448) (16,537) (152,866)
--------- -------- --------- ----------
Net realized loss on investments $(133,470) $(32,458) $(117,279) $ (328,338)
Change in unrealized appreciation of investments 93,765 14,214 147,556 292,395
--------- -------- --------- ----------
Net realized and unrealized gain (loss) $ (39,705) $(18,244) $ 30,277 $ (35,943)
--------- -------- --------- ----------
Net increase in net assets from operations $ 88,977 $ 25,917 $ 183,908 $ 275,195
========= ======== ========= ==========
</TABLE>
See notes to financial statements
21
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
-------- -------------- --------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 76,497 $ 92,921 $ 70,282 $ 85,888
Expenses allocated from Portfolio (6,301) (6,659) (4,725) (6,493)
-------- --------- -------- --------
Net investment income from Portfolio $ 70,196 $ 86,262 $ 65,557 $ 79,395
-------- --------- -------- --------
Expenses --
Distribution costs (Note 5) $ 11,891 $ 14,231 $ 10,837 $ 13,139
Custodian fee (Note 4) 3,946 3,203 3,903 2,535
Transfer and dividend disbursing agent fees 1,067 856 874 1,114
Printing and postage 5,868 4,231 4,586 7,642
Legal and accounting services 5,866 5,562 5,245 5,534
Registration costs 726 544 541 95
Amortization of organization expenses (Note 1D) 2,106 1,726 1,657 1,855
Miscellaneous 1,653 1,550 929 747
-------- --------- -------- --------
Total expenses $ 33,123 $ 31,903 $ 28,572 $ 32,661
Deduct allocation of expenses to the Administrator
(Note 4) 20,572 14,531 16,782 19,518
-------- --------- -------- --------
Net expenses $ 12,551 $ 17,372 $ 11,790 $ 13,143
-------- --------- -------- --------
Net investment income $ 57,645 $ 68,890 $ 53,767 $ 66,252
-------- --------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(55,954) $ (130,854) $(26,033) $(47,531)
Financial futures contracts (6,405) (15,162) (17,811) (49,539)
-------- --------- -------- --------
Net realized loss on investments $(62,359) $ (146,016) $(43,844) $(97,070)
Change in unrealized appreciation of investments 44,395 69,094 56,979 117,210
-------- --------- -------- --------
Net realized and unrealized gain (loss) $(17,964) $ (76,922) $ 13,135 $ 20,140
-------- --------- -------- --------
Net increase (decrease) in net assets from
operations $ 39,681 $ (8,032) $ 66,902 $ 86,392
======== ========= ======== ========
</TABLE>
See notes to financial statements
22
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 469,398 $ 25,852 $ 117,349 $ 95,368
Net realized loss on investments (432,334) (19,396) (170,159) (81,998)
Change in unrealized appreciation of investments 565,868 19,959 136,523 32,478
----------- --------- ----------- -----------
Net increase in net assets from operations $ 602,932 $ 26,415 $ 83,713 $ 45,848
----------- --------- ----------- -----------
Distributions to shareholders (Note 2) --
From net investment income $ (469,398) $ (25,852) $ (117,349) $ (95,368)
In excess of net investment income (19,415) (908) (5,530) (4,011)
----------- --------- ----------- -----------
Total distributions to shareholders $ (488,813) $ (26,760) $ (122,879) $ (99,379)
----------- --------- ----------- -----------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sales of shares $ 1,410,677 $ 483,477 $ 678,731 $ 393,541
Net asset value of shares issued to shareholders in
payment of distributions declared 227,751 13,686 83,789 71,981
Cost of shares redeemed (4,057,732) (590,275) (1,225,047) (1,653,843)
----------- --------- ----------- -----------
Decrease in net assets from Fund share transactions $(2,419,304) $ (93,112) $ (462,527) $(1,188,321)
----------- --------- ----------- -----------
Net decrease in net assets $(2,305,185) $ (93,457) $ (501,693) $(1,241,852)
NET ASSETS:
At beginning of year 11,732,083 626,850 2,988,690 3,064,933
----------- --------- ----------- -----------
At end of year $ 9,426,898 $ 533,393 $ 2,486,997 $ 1,823,081
=========== ========= =========== ===========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS AT END OF YEAR $ 25,562 $ 1,796 $ 5,294 $ 3,139
=========== ========= =========== ===========
</TABLE>
See notes to financial statements
23
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
----------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 128,682 $ 44,161 $ 153,631 $ 311,138
Net realized loss on investments (133,470) (32,458) (117,279) (328,338)
Change in unrealized appreciation of investments 93,765 14,214 147,556 292,395
----------- ---------- ----------- -----------
Net increase in net assets from operations $ 88,977 $ 25,917 $ 183,908 $ 275,195
----------- ---------- ----------- -----------
Distributions to shareholders (Note 2) --
From net investment income $ (128,682) $ (44,161) $ (153,631) $ (311,138)
In excess of net investment income (5,452) (1,699) (6,545) (11,754)
----------- ---------- ----------- -----------
Total distributions to shareholders $ (134,134) $ (45,860) $ (160,176) $ (322,892)
----------- ---------- ----------- -----------
Transactions in shares of beneficial interest (Note 3)
--
Proceeds from sales of shares $ 522,545 $ 357,842 $ 986,779 $ 1,049,995
Net asset value of shares issued to shareholders in
payment of distributions declared 91,373 26,884 138,957 172,455
Cost of shares redeemed (1,325,169) (614,046) (1,845,598) (2,470,737)
----------- ---------- ----------- -----------
Decrease in net assets from Fund share
transactions $ (711,251) $ (229,320) $ (719,862) $ (1,248,287)
----------- ---------- ----------- -----------
Net decrease in net assets $ (756,408) $ (249,263) $ (696,130) $ (1,295,984)
NET ASSETS:
At beginning of year 3,140,789 1,188,241 3,859,428 7,410,755
----------- ---------- ----------- -----------
At end of year $ 2,384,381 $ 938,978 $ 3,163,298 $ 6,114,771
=========== ========== =========== ===========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS AT END OF YEAR $ 10,353 $ 1,979 $ 5,993 $ 17,225
=========== ========== =========== ===========
</TABLE>
See notes to financial statements
24
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
----------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 57,645 $ 68,890 $ 53,767 $ 66,252
Net realized loss on investments (62,359) (146,016) (43,844) (97,070)
Change in unrealized appreciation of investments 44,395 69,094 56,979 117,210
----------- ----------- ---------- ----------
Net increase (decrease) in net assets from
operations $ 39,681 $ (8,032) $ 66,902 $ 86,392
----------- ----------- ---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (57,645) $ (68,890) $ (53,767) $ (66,252)
In excess of net investment income (2,990) (2,876) (2,616) (2,716)
----------- ----------- ---------- ----------
Total distributions to shareholders $ (60,635) $ (71,766) $ (56,383) $ (68,968)
----------- ----------- ---------- ----------
Transactions in shares of beneficial interest (Note 3)
--
Proceeds from sales of shares $ 447,667 $ 715,884 $ 254,527 $ 436,659
Net asset value of shares issued to shareholders in
payment
of distributions declared 45,657 54,145 50,580 54,590
Cost of shares redeemed (1,351,747) (1,753,784) (363,364) (335,327)
----------- ----------- ---------- ----------
Increase (decrease) in net assets from Fund share
transactions $ (858,423) $ (983,755) $ (58,257) $ 155,922
----------- ----------- ---------- ----------
Net increase (decrease) in net assets $ (879,377) $(1,063,553) $ (47,738) $ 173,346
NET ASSETS:
At beginning of year 1,877,862 2,308,941 1,132,000 1,314,614
----------- ----------- ---------- ----------
At end of year $ 998,485 $ 1,245,388 $1,084,262 $1,487,960
=========== =========== ========== ==========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS AT END OF YEAR $ 2,113 $ 3,593 $ 1,868 $ 2,172
=========== =========== ========== ==========
</TABLE>
See notes to financial statements
25
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 266,620 $ 13,517 $ 81,742 $ 70,617
Net realized loss on investments (139,165) (4,025) (77,599) (18,202)
Change in unrealized depreciation of investments (432,922) (20,162) (158,872) (167,883)
----------- --------- ----------- -----------
Net decrease in net assets from operations $ (305,467) $ (10,670) $ (154,729) $ (115,468)
----------- --------- ----------- -----------
Distributions to shareholders (Note 2) --
From net investment income $ (266,620) $ (13,517) $ (81,742) $ (70,617)
In excess of net investment income (47,508) (2,484) (15,187) (14,752)
----------- --------- ----------- -----------
Total distributions to shareholders $ (314,128) $ (16,001) $ (96,929) $ (85,369)
----------- --------- ----------- -----------
Transactions in shares of beneficial interest (Note 3) --
Proceeds from sales of shares $13,246,256 $ 796,471 $ 5,865,211 $ 4,273,450
Net asset value of shares issued to shareholders in
payment of distributions declared 120,817 12,009 70,504 66,458
Cost of shares redeemed (1,015,395) (154,959) (2,695,367) (1,074,138)
----------- --------- ----------- -----------
Increase in net assets from Fund share transactions $12,351,678 $ 653,521 $ 3,240,348 $ 3,265,770
----------- --------- ----------- -----------
Net increase in net assets $11,732,083 $ 626,850 $ 2,988,690 $ 3,064,933
NET ASSETS:
At beginning of period -- -- -- --
----------- --------- ----------- -----------
At end of period $11,732,083 $ 626,850 $ 2,988,690 $ 3,064,933
=========== ========= =========== ===========
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (513) $ 62 $ (253) $ (1,926)
=========== ========= =========== ===========
</TABLE>
* For the Classic Alabama, Classic Arkansas, Classic Georgia and Classic
Kentucky Funds, the Statements of Changes in Net Assets are for the period
from the start of business, December 7, 1993, February 9, 1994, December 7,
1993, and December 7, 1993, respectively, to August 31, 1994.
See notes to financial statements
26
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 50,708 $ 22,009 $ 83,385 $ 137,370
Net realized loss on investments (12,701) (12,629) (23,433) (106,015)
Change in unrealized depreciation of investments (82,039) (41,485) (170,069) (232,731)
---------- ---------- ---------- ------------
Net decrease in net assets from operations $ (44,032) $ (32,105) $ (110,117) $ (201,376)
---------- ---------- ---------- ------------
Distributions to shareholders (Note 2) --
From net investment income $ (50,708) $ (22,009) $ (83,385) $ (137,370)
In excess of net investment income (10,050) (4,650) (16,888) (25,093)
---------- ---------- ---------- ------------
Total distributions to shareholders $ (60,758) $ (26,659) $ (100,273) $ (162,463)
---------- ---------- ---------- ------------
Transactions in shares of beneficial interest (Note 3)
--
Proceeds from sales of shares $3,511,047 $1,266,968 $4,770,534 $ 9,910,991
Net asset value of shares issued to shareholders in
payment of distributions declared 38,029 15,143 83,202 77,171
Cost of shares redeemed (303,497) (35,106) (783,918) (2,213,568)
---------- ---------- ---------- -------------
Increase in net assets from Fund share transactions $3,245,579 $1,247,005 $4,069,818 $ 7,774,594
---------- ---------- ---------- ------------
Net increase in net assets $3,140,789 $1,188,241 $3,859,428 $ 7,410,755
NET ASSETS:
At beginning of period -- -- -- --
---------- ---------- ---------- -------------
At end of period $3,140,789 $1,188,241 $3,859,428 $ 7,410,755
========== ========== ========== =============
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (978) $ (598) $ (1,948) $ (976)
========== ========== ========== ============
</TABLE>
* For the Classic Louisiana, Classic Maryland, Classic Missouri and Classic
North Carolina Funds, the Statements of Changes in Net Assets are for the
period from the start of business, February 14, 1994, December 10, 1993,
December 7, 1993, and December 7, 1993, respectively, to August 31, 1994.
See notes to financial statements
27
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
---------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 41,042 $ 44,380 $ 30,297 $ 37,871
Net realized loss on investments (6,620) (35,544) (5,112) (44,725)
Change in unrealized depreciation of investments (128,029) (68,875) (76,632) (80,540)
---------- ---------- ---------- ----------
Net decrease in net assets from operations $ (93,607) $ (60,039) $ (51,447) $ (87,394)
---------- ---------- ---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (41,042) $ (44,380) $ (30,297) $ (37,871)
In excess of net investment income (8,847) (9,498) (5,915) (7,397)
---------- ---------- ---------- ----------
Total distributions to shareholders $ (49,889) $ (53,878) $ (36,212) $ (45,268)
---------- ---------- ---------- ----------
Transactions in shares of beneficial interest (Note 3)
--
Proceeds from sales of shares $3,095,770 $2,384,821 $1,608,238 $2,184,393
Net asset value of shares issued to shareholders in
payment of distributions declared 33,517 43,839 29,202 35,920
Cost of shares redeemed (1,107,929) (5,802) (417,781) (773,037)
---------- ---------- ---------- ----------
Increase in net assets from Fund share
transactions $2,021,358 $2,422,858 $1,219,659 $1,447,276
---------- ---------- ---------- ----------
Net increase in net assets $1,877,862 $2,308,941 $1,132,000 $1,314,614
NET ASSETS:
At beginning of period -- -- -- --
---------- ---------- ---------- ----------
At end of period $1,877,862 $2,308,941 $1,132,000 $1,314,614
========== ========== ========== ==========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME INCLUDED IN NET ASSETS AT END OF PERIOD $ (1,114) $ (1,341) $ (458) $ (843)
========== ========== ========== ==========
</TABLE>
* For the Classic Oregon, Classic South Carolina, Classic Tennessee and Classic
Virginia Funds, the Statements of Changes in Net Assets are for the period
from the start of business, December 28, 1993, February 14, 1994, December 9,
1993, and December 17, 1993, respectively, to August 31, 1994.
See notes to financial statements
28
<PAGE>
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ALABAMA FUND ARKANSAS FUND GEORGIA FUND KENTUCKY FUND
----------------- ----------------- ----------------- ------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
----------------- ----------------- ----------------- ------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.320 $10.000 $ 9.530 $10.000 $ 9.220 $10.000 $ 9.210 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.418 $ 0.296 $ 0.424 $ 0.214 $ 0.412 $ 0.294 $ 0.423 $ 0.285
Net realized and unrealized gain (loss)
on investments 0.207 (0.628) 0.075 (0.430) (0.011) (0.726) 0.128++ (0.730)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.625 $(0.332) $ 0.499 $(0.216) $ 0.401 $(0.432) $ 0.551 $(0.445)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.418) $(0.296) $(0.424) $(0.214) $(0.412) $(0.294) $(0.423) $(0.285)
In excess of net investment income (0.017) (0.052) (0.015) (0.040) (0.019) (0.054) (0.018) (0.060)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.435) $(0.348) $(0.439) $(0.254) $(0.431) $(0.348) $(0.441) $(0.345)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.510 $ 9.320 $ 9.590 $ 9.530 $ 9.190 $ 9.220 $ 9.320 $ 9.210
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (2) 6.90% (3.44)% 5.52% (2.25)% 4.60% (4.56)% 6.29% (4.60)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $ 9,427 $11,732 $ 533 $ 627 $ 2,487 $ 2,989 $ 1,823 $ 3,065
Ratio of net expenses to average daily
net assets (1) 1.68% 1.49%+ 1.42% 1.59%+ 1.55% 1.64%+ 1.46% 1.69%+
Ratio of net investment income to average
daily net assets 4.59% 4.23%+ 4.56% 3.97%+ 4.62% 4.09%+ 4.81% 4.12%+
</TABLE>
** For the year ended August 31, 1995 and for the period from the start of
business, December 7, 1993, February 9, 1994, December 7, 1993 and December
7, 1993, respectively, to August 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 (loss) per share and the ratios would have been as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (LOSS) PER SHARE $ 0.408 $ 0.280 $ 0.175 $(0.005) $ 0.353 $ 0.253 $ 0.303 $ 0.253
======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net
assets):
Expenses (1) 1.80% 1.71%+ 4.09% 5.66%+ 2.21% 2.20%+ 2.82% 2.26%+
Net investment income (loss) 4.47% 4.01%+ 1.89% (0.10)%+ 3.96% 3.53%+ 3.45% 3.56%+
</TABLE>
+ Computed on an annualized basis.
++ The per share amount is not in accord with the net realized 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 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.
* For the Classic Alabama, Classic Arkansas, Classic Georgia and Classic
Kentucky Funds, the Financial Highlights are for the period from the start
of business, December 7, 1993, February 9, 1994, December 7, 1993, and
December 7, 1993, respectively, to August 31, 1994.
See notes to financial statements
29
<PAGE>
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC NORTH
LOUISIANA FUND MARYLAND FUND MISSOURI FUND CAROLINA FUND
----------------- ------------------ ----------------- ------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
----------------- ------------------ ----------------- ------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.470 $10.000 $ 9.210 $10.000 $ 9.290 $10.000 $ 9.280 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.449 $ 0.223 $ 0.421 $ 0.277 $ 0.419 $ 0.289 $ 0.427 $ 0.295
Net realized and unrealized gain (loss)
on investments (0.011) (0.486) 0.187++ (0.731) 0.208 (0.651) 0.016++ (0.666)
------ ------ ------ ------ ------- ------- ------- -------
Total income (loss) from operations $ 0.438 $(0.263) $ 0.608 $(0.454) $ 0.627 $(0.362) $ 0.443 $(0.371)
------ ------ ------ ------ ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.449) $(0.223) $(0.421) $(0.277) $(0.419) $(0.289) $(0.427) $(0.295)
In excess of net investment income (0.019) (0.044) (0.017) (0.059) (0.018) (0.059) (0.016) (0.054)
------ ------ ------ ------ ------- ------- ------- -------
Total distributions $(0.468) $(0.267) $(0.438) $(0.336) $(0.437) $(0.348) $(0.443) $(0.349)
------ ------ ------ ------ ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.440 $ 9.470 $ 9.380 $ 9.210 $ 9.480 $ 9.290 $ 9.280 $ 9.280
====== ====== ====== ====== ======= ======= ======= =======
TOTAL RETURN (2) 4.88% (2.72)% 6.91% (4.68)% 7.08% (3.76)% 5.02% (3.85)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $ 2,384 $ 3,141 $ 939 $ 1,188 $ 3,163 $ 3,859 $ 6,115 $ 7,411
Ratio of net expenses to average daily
net assets (1) 1.41% 1.57%+ 1.50% 1.64%+ 1.61% 1.61%+ 1.55% 1.56%+
Ratio of net investment income to average
daily net assets 4.90% 4.16%+ 4.71% 4.07%+ 4.62% 4.20%+ 4.72% 4.19%+
</TABLE>
** For the year ended August 31, 1995 and for the period from the start of
business, February 14, 1994, December 10, 1993 and December 7, 1993, and
December 7, 1993, respectively, to August 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 the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $ 0.401 $ 0.169 $ 0.238 $ 0.046 $ 0.363 $ 0.255 $ 0.403 $ 0.263
======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net
assets):
Expenses (1) 1.93% 2.77%+ 3.56% 5.07%+ 2.23% 2.19%+ 1.82% 2.01%+
Net investment income 4.38% 2.96%+ 2.65% 0.64%+ 4.00% 3.62%+ 4.45% 3.74%+
</TABLE>
+ Computed on an annualized 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.
(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.
* For the Classic Louisiana, Classic Maryland, Classic Missouri and Classic
North Carolina Funds, the Financial Highlights are for the period from the
start of business, February 14, 1994, December 10, 1993, December 7, 1993,
and December 7, 1993, respectively, to August 31, 1994.
See notes to financial statements
30
<PAGE>
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC OREGON CLASSIC SOUTH CLASSIC TENNESSEE CLASSIC VIRGINIA
FUND CAROLINA FUND FUND FUND
------------------ ------------------ ----------------- -----------------
YEAR ENDED AUGUST YEAR ENDED AUGUST YEAR ENDED AUGUST YEAR ENDED AUGUST
31, 31, 31, 31,
------------------ ------------------ ----------------- -----------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.240 $10.000 $ 9.370 $10.000 $ 9.220 $10.000 $ 9.210 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.406 $ 0.263 $ 0.413 $ 0.205 $ 0.425 $ 0.285 $ 0.434 $ 0.296
Net realized and unrealized gain (loss)
on investments 0.221++ (0.703) 0.067++ (0.587) 0.131 (0.724) 0.138 (0.732)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.627 $(0.440) $ 0.480 $(0.382) $ 0.556 $(0.439) $ 0.572 $(0.436)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.406) $(0.263) $(0.413) $(0.205) $(0.425) $(0.285) $(0.434) $(0.296)
In excess of net investment income (0.021) (0.057) (0.017) (0.043) (0.021) (0.056) (0.018) (0.058)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.427) $(0.320) $(0.430) $(0.248) $(0.446) $(0.341) $(0.452) $(0.354)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.440 $ 9.240 $ 9.420 $ 9.370 $ 9.330 $ 9.220 $ 9.330 $ 9.210
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (2) 7.11% (4.54)% 5.38% (3.92)% 6.32% (4.54)% 6.51% (4.51)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $ 998 $ 1,878 $ 1,245 $ 2,309 $ 1,084 $ 1,132 $ 1,488 $ 1,315
Ratio of net expenses to average daily
net assets (1) 1.51% 1.65%+ 1.61% 1.76%+ 1.45% 1.59%+ 1.42% 1.54%+
Ratio of net investment income to
average daily net assets 4.61% 3.99%+ 4.61% 4.06%+ 4.71% 4.15%+ 4.79% 4.31%+
</TABLE>
** For the year ended August 31, 1995 and for the period from the start of
business, December 28, 1993, February 14, 1994, December 9, 1993, and
December 17, 1993, respectively, to August 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 the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $ 0.261 $ 0.153 $ 0.326 $ 0.161 $ 0.292 $ 0.158 $ 0.306 $ 0.190
======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net
assets):
Expenses (1) 3.16% 3.33%+ 2.58% 2.62%+ 2.92% 3.50%+ 2.83% 3.08%+
Net investment income 2.96% 2.31%+ 3.64% 3.19%+ 3.24% 2.24%+ 3.38% 2.77%+
</TABLE>
+ Computed on an annualized basis.
++ The per share amount is not in accord with the net realized gain (loss) for
the period because of the timing of sales of Fund shares and the amount of
the 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 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.
* For the Classic Oregon, Classic South Carolina, Classic Tennessee and
Classic Virginia Funds, the Financial Highlights are for the period from the
start of business, December 28, 1993, February 14, 1994, December 9, 1993,
and December 17, 1993, respectively, to August 31, 1994.
See notes to financial statements
31
<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, twelve of the non-diversified funds are
included in these financial statements. They include EV Classic Alabama Tax Free
Fund ("Classic Alabama Fund"), EV Classic Arkansas Tax Free Fund ("Classic
Arkansas Fund"), EV Classic Georgia Tax Free Fund ("Classic Georgia Fund"), EV
Classic Kentucky Tax Free Fund ("Classic Kentucky Fund"), EV Classic Louisiana
Tax Free Fund ("Classic Louisiana Fund"), EV Classic Maryland Tax Free Fund
("Classic Maryland Fund"), EV Classic Missouri Tax Free Fund ("Classic Missouri
Fund"), EV Classic North Carolina Tax Free Fund ("Classic North Carolina Fund"),
EV Classic Oregon Tax Free Fund ("Classic Oregon Fund"), EV Classic South
Carolina Tax Free Fund ("Classic South Carolina Fund"), EV Classic Tennessee Tax
Free Fund ("Classic Tennessee Fund"), and EV Classic Virginia Tax Free Fund
("Classic Virginia 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 Alabama Fund invests its assets in the Alabama
Tax Free Portfolio, the Classic Arkansas Fund invests its assets in the Arkansas
Tax Free Portfolio, the Classic Georgia Fund invests its assets in the Georgia
Tax Free Portfolio, the Classic Kentucky Fund invests its assets in the Kentucky
Tax Free Portfolio, the Classic Louisiana Fund invests its assets in the
Louisiana Tax Free Portfolio, the Classic Maryland Fund invests its assets in
the Maryland Tax Free Portfolio, the Classic Missouri Fund invests its assets in
the Missouri Tax Free Portfolio, the Classic North Carolina Fund invests its
assets in the North Carolina Tax Free Portfolio, the Classic Oregon Fund invests
its assets in the Oregon Tax Free Portfolio, the Classic South Carolina Fund
invests its assets in the South Carolina Tax Free Portfolio, the Classic
Tennessee Fund invests its assets in the Tennessee Tax Free Portfolio, and the
Classic Virginia Fund invests its assets in the Virginia 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 (8.0%, 0.6%,
2.0%, 1.2%, 7.1%, 0.8%, 3.4%, 3.1%, 0.7%, 2.0%, 1.8% and 0.8% at August 31, 1995
for the Classic Alabama Fund, Classic Arkansas Fund, Classic Georgia Fund,
Classic Kentucky Fund, Classic Louisiana Fund, Classic Maryland Fund, Classic
Missouri Fund, Classic North Carolina Fund, Classic Oregon Fund, Classic South
Carolina Fund, Classic Tennessee Fund and Classic Virginia 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 August 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.
32
<PAGE>
-------
- --------------------------------------------------------------------------------
The amounts and expiration dates of the capital loss carryovers are as follows:
<TABLE>
<CAPTION>
FUND AMOUNT EXPIRES
---- ------ -------
<S> <C> <C>
Classic Alabama Fund $ 82,635 August 31, 2003
132,241 August 31, 2002
Classic Arkansas Fund 1,121 August 31, 2003
4,856 August 31, 2002
Classic Georgia Fund 57,929 August 31, 2002
Classic Kentucky Fund 247 August 31, 2003
15,369 August 31, 2002
Classic Louisiana Fund 19,017 August 31, 2002
Classic Maryland Fund 2,744 August 31, 2003
11,063 August 31, 2002
Classic Missouri Fund 533 August 31, 2003
21,383 August 31, 2002
Classic North Carolina Fund 34,428 August 31, 2003
106,971 August 31, 2002
Classic Oregon Fund 7,233 August 31, 2003
7,028 August 31, 2002
Classic South Carolina Fund 10,887 August 31, 2003
35,320 August 31, 2002
Classic Tennessee Fund 941 August 31, 2003
5,333 August 31, 2002
Classic Virginia Fund 39,429 August 31, 2002
</TABLE>
Additionally, at August 31, 1995, net capital losses of $294,422, $16,756,
$177,148, $68,271, $129,577, $26,844, $115,735, $283,346, $51,243, $126,176,
$42,939 and $92,608 for the Classic Alabama Fund, Classic Arkansas Fund, Classic
Georgia Fund, Classic Kentucky Fund, Classic Louisiana Fund, Classic Maryland
Fund, Classic Missouri Fund, Classic North Carolina Fund, Classic Oregon Fund,
Classic South Carolina Fund, Classic Tennessee Fund and Classic Virginia 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. 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 expense to paid-in capital to charging
the expense 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. 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
33
<PAGE>
-------
- --------------------------------------------------------------------------------
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 August 31, 1995, $45,490, $2,642, $11,077, $9,076, $11,867,
$4,276, $14,486, $29,955, $6,217, $7,810, $4,942 and $5,731 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 Alabama Fund, Classic Arkansas Fund, Classic Georgia Fund, Classic
Kentucky Fund, Classic Louisiana Fund, Classic Maryland Fund, Classic Missouri
Fund, Classic North Carolina Fund, Classic Oregon Fund, Classic South Carolina
Fund, Classic Tennessee Fund and Classic Virginia Fund, respectively.
Additionally, $4,916 was reclassified from distributions in excess of net
investment income to accumulated net realized loss on investment and financial
futures transactions due to differences between book and tax accounting for
certain distributions related to capital gains for the Classic Louisiana Fund.
Net investment income, net realized gains and net assets were not affected by
these reclassifications. The tax treatment of distributions for the calendar
year will be reported to shareholders prior to February 1, 1996 and will be
based on tax accounting methods which may differ from amounts determined for
financial statement purposes.
- --------------------------------------------------------------------------------
(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 ALABAMA FUND CLASSIC ARKANSAS FUND CLASSIC GEORGIA FUND CLASSIC KENTUCKY FUND
---------------------- ---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 153,312 1,354,053 51,939 80,932 76,660 596,633 44,029 440,715
Issued to shareholders electing
to receive payments of
distributions in Fund shares 24,926 12,887 1,472 1,273 9,363 7,503 8,023 7,143
Redemptions (445,597) (107,861) (63,594) (16,400) (139,520) (279,893) (189,080) (115,205)
-------- --------- ------- ------- -------- -------- -------- --------
Net increase (decrease) (267,359) 1,259,079 (10,183) 65,805 (53,497) 324,243 (137,028) 332,653
======== ========= ======= ======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CLASSIC NORTH CAROLINA
CLASSIC LOUISIANA FUND CLASSIC MARYLAND FUND CLASSIC MISSOURI FUND FUND
---------------------- ---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 57,113 359,284 39,462 131,307 108,433 490,789 117,585 1,023,040
Issued to shareholders electing
to receive payments of
distributions in Fund shares 9,932 4,005 2,992 1,558 15,293 8,907 19,110 8,209
Redemptions (146,149) (31,712) (71,369) (3,829) (205,875) (84,035) (275,818) (232,873)
-------- --------- ------- ------- -------- -------- -------- --------
Net increase (decrease) (79,104) 331,577 (28,915) 129,036 (82,149) 415,661 (139,123) 798,376
======== ========= ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CLASSIC SOUTH CAROLINA
CLASSIC OREGON FUND FUND CLASSIC TENNESSEE FUND CLASSIC VIRGINIA FUND
---------------------- ---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1995 1994* 1995 1994* 1995 1994* 1995 1994*
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 49,605 317,728 78,633 242,302 28,310 164,365 47,563 223,577
Issued to shareholders electing
to receive payments of
distributions in Fund shares 5,073 3,588 6,010 4,661 5,622 3,139 6,044 3,838
Redemptions (152,245) (118,020) (198,740) (627) (40,430) (44,774) (36,854) (84,611)
-------- --------- ------- ------- -------- -------- -------- --------
Net increase (decrease) (97,567) 203,296 (114,097) 246,336 (6,498) 122,730 16,753 142,804
======== ========= ======== ======== ======== ======== ======== ========
</TABLE>
* For the Classic Alabama, Classic Arkansas, Classic Georgia, Classic Kentucky,
Classic Louisiana, Classic Maryland, Classic Missouri, Classic North Carolina,
Classic Oregon, Classic South Carolina, Classic Tennessee and Classic Virginia
Funds, the transactions in Fund shares are for the period from the start of
business, December 7, 1993, February 9, 1994, December 7, 1993, December 7,
1993, February 14, 1994, December 10, 1993, December 7, 1993, December 7,
1993, December 28, 1993, February 14, 1994, December 9, 1993, and December 17,
1993, respectively, to August 31, 1994.
34
<PAGE>
-------
- --------------------------------------------------------------------------------
(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, $11,742,
$15,164, $16,832, $27,092, $10,912, $19,261, $20,693, $17,410, $20,572, $14,531,
$16,782 and $19,518 of expenses related to the operation of the Classic Alabama
Fund, Classic Arkansas Fund, Classic Georgia Fund, Classic Kentucky Fund,
Classic Louisiana Fund, Classic Maryland Fund, Classic Missouri Fund, Classic
North Carolina Fund, Classic Oregon Fund, Classic South Carolina, Classic
Tennessee Fund and Classic Virginia 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 August 31,
1995, Classic Alabama Fund, Classic Arkansas Fund, Classic Georgia Fund, Classic
Kentucky Fund, Classic Louisiana Fund, Classic Maryland Fund, Classic Missouri
Fund, Classic North Carolina Fund, Classic Oregon Fund, Classic South Carolina,
Classic Tennessee Fund and Classic Virginia Fund, paid or accrued $76,806,
$4,256, $18,902, $14,899, $19,714, $7,033, $24,961, $49,492, $9,388, $11,235,
$8,556 and $10,372, respectively, to or payable to EVD representing 0.75%
(annualized) of average daily net assets. At August 31, 1995, the amount of
Uncovered Distribution Charges of EVD calculated under the Plans for Classic
Alabama Fund, Classic Arkansas Fund, Classic Georgia Fund, Classic Kentucky
Fund, Classic Louisiana Fund, Classic Maryland Fund, Classic Missouri Fund,
Classic North Carolina Fund, Classic Oregon Fund, Classic South Carolina,
Classic Tennessee Fund and Classic Virginia Fund were approximately $870,200,
$52,400, $398,700, $300,800, $252,400, $93,000, $341,300, $652,900, $224,200,
$201,800, $116,000 and $162,900, 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
August 31, 1995, Classic Alabama Fund, Classic Arkansas Fund, Classic Georgia
Fund, Classic Kentucky Fund, Classic Louisiana Fund, Classic Maryland Fund,
Classic Missouri Fund, Classic North Carolina Fund, Classic Oregon Fund, Classic
South Carolina, Classic Tennessee Fund and Classic Virginia Fund paid or accrued
service fees to or payable to EVD in the amount of $20,482, $1,135, $5,079,
$3,974, $5,257, $1,876, $6,656, $13,198, $2,503, $2,996, $2,281 and $2,767,
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 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 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.
35
<PAGE>
-------
- --------------------------------------------------------------------------------
(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. 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 August 31, 1995, EVD received $86, $7, $46, $840,
$284, $33, $105, $45 and $100 of CDSC paid by shareholders of Classic Alabama
Fund, Classic Arkansas Fund, Classic Georgia Fund, Classic Kentucky Fund,
Classic Louisiana Fund, Classic Maryland Fund, Classic Missouri Fund, Classic
North Carolina Fund and Classic South Carolina Fund, respectively.
- --------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's investment in its corresponding Portfolio
for the year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
ALABAMA ARKANSAS GEORGIA KENTUCKY
FUND FUND FUND FUND
---------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Increases $1,696,091 $ 496,695 $ 746,335 $ 440,609
Decreases 4,536,470 629,238 1,351,315 1,777,368
</TABLE>
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
FUND FUND FUND FUND
---------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Increases $1,126,003 $ 377,923 $1,000,132 $1,469,479
Decreases 1,413,199 662,747 1,951,040 2,807,171
</TABLE>
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
FUND FUND FUND FUND
---------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Increases $ 499,029 $ 728,687 $ 308,970 $ 479,300
Decreases 1,411,441 1,810,754 417,692 404,874
</TABLE>
- --------------------------------------------------------------------------------
36
<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
Classic Alabama Tax Free Fund, EV Classic Arkansas Tax Free Fund, EV Classic
Georgia Tax Free Fund, EV Classic Kentucky Tax Free Fund, EV Classic Louisiana
Tax Free Fund, EV Classic Maryland Tax Free Fund, EV Classic Missouri Tax Free
Fund, EV Classic North Carolina Tax Free Fund, EV Classic Oregon Tax Free Fund,
EV Classic South Carolina Tax Free Fund, EV Classic Tennessee Tax Free Fund and
EV Classic Virginia Tax Free Fund (the Funds) (certain of the series of Eaton
Vance Municipals Trust) as of August 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 August 31, 1995 and the period
from the start of business to August 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 each
of the aforementioned funds of Eaton Vance Municipals Trust at August 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
SEPTEMBER 29, 1995
37
<PAGE>
-------
Alabama Tax Free Portfolio
Portfolio of Investments - August 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>
ELECTRIC UTILITIES - 3.0%
NR BBB $ 500 Guam Power Authority,
6.625%, 10/1/14 $ 511,180
Baa1 A- 500 Puerto Rico Electric Power
Authority, 7.00%, 7/1/07 537,105
Baa1 A- 500 Puerto Rico Electric Power
Authority, 6.375%, 7/1/24 508,735
Baa1 A- 935 Puerto Rico Electric Power
Authority, 6.00%, 7/1/16 929,409
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 6.00%, 7/1/10 1,008,360
------------
$ 3,494,789
------------
ESCROWED - 4.6%
NR AA $ 500 Birmingham City, Alabama
Improvement Warrants,
6.60%, 7/1/17 $ 560,295
NR BBB 2,000 Gadsden City, Alabama
Medical Clinic Board
(Baptist Hospital), 7.80%,
11/1/21 2,375,560
NR BBB 350 Gadsden City, Alabama
Medical Clinic Board
(Baptist Hospital), 7.60%,
11/1/08 412,006
Aaa AAA 250 Tuscaloosa County, Alabama
Limited Obligation-Capital
Outlay Warrants (AMBAC),
6.50%, 2/1/15 270,793
Aa NR 1,600 University of Alabama-
Birmingham Medical &
Educational Foundation
Housing, 7.00%, 12/1/19 1,788,944
------------
$ 5,407,598
------------
GENERAL OBLIGATIONS - 6.5%
A1 AA $1,500 Birmingham, Alabama
U.T.G.O., 5.75%, 4/1/19 $ 1,452,930
A1 AA 1,000 Birmingham, Alabama
U.T.G.O., 5.75%, 6/1/16 982,080
Baa1 A 2,000 Puerto Rico U.T.G.O.,
6.50%, 7/1/23 2,059,260
Baa1 A 1,980 Puerto Rico Public
Buildings Authority,
5.75%, 7/1/15 1,907,314
Baa1 A 1,000 Puerto Rico Public
Buildings Authority,
5.50%, 7/1/21 919,960
NR NR 250 Virgin Islands, Public
Finance Authority, 7.25%,
10/1/18 262,505
------------
$ 7,584,049
------------
HEALTH CARE - 4.2%
A1 A+ $2,000 DCH Healthcare, Alabama
5.75%, 6/1/23 $ 1,888,860
NR NR 325 Fairhope City, Alabama
Midtown Medical Clinic
Board (Beverly
Enterprises), 6.375%,
6/1/09 301,542
Baa BBB 2,000 Marshall County, Alabama
Health Care, 7.00%, 1/1/20 1,997,400
NR NR 670 Mobile City, Alabama
Second Medical Clinic
Board (Beverly
Enterprises), 7.00%,
4/1/07 651,883
------------
$ 4,839,685
------------
HOSPITALS - 5.1%
Baa NR $1,000 Cullman, Alabama Medical
Clinic Board (Cullman
Regional Medical Center),
6.50%, 2/15/23 $ 947,460
Baa1 NR 3,550 Jasper City, Alabama
Medical Clinic Board
(Walker Regional Medical
Center), 6.375%, 7/1/18
(2) 3,530,582
A A 1,000 Montgomery City, Alabama
Medical Clinic Board
(Jackson Hospital), 7.00%,
3/1/15 1,044,270
Baa BBB 430 Troy City, Alabama
Hospital Building
Authority, 7.375%, 5/1/12 450,192
------------
$ 5,972,504
------------
HOUSING - 2.6%
Aaa NR $3,000 Alabama HFA Single Family
Mortgage (GNMA/FNMA),
6.60%, 4/1/19 $ 3,036,180
------------
INDUSTRIAL DEVELOPMENT
REVENUE/POLLUTION CONTROL
REVENUE - 12.7%
Baa1 BBB $1,200 Courtland, Alabama
(Champion International
Corporation), 7.20%,
12/1/13 $ 1,298,760
Baa1 BBB 5,500 Courtland, Alabama
(Champion International
Corporation), 5.90%,
2/1/17 5,311,790
Baa3 NR 1,000 Jackson, Alabama (Boise
Cascade), 7.875%, 8/1/00 1,037,310
Baa3 BBB- 2,000 Mobile, Alabama Industrial
Development Board (Solid
Waste), 6.95%, 1/1/20 2,045,340
Aa2 AA 3,000 Mobile County, Alabama
Pollution Control, 6.00%,
12/1/14 3,048,690
Baa3 BB+ 1,000 Puerto Rico Port Authority
(American Airlines),
(AMT), 6.30%, 6/1/23 992,100
A3 A- 1,000 Selma, Alabama, Industrial
Development Board (Solid
Waste), International
Paper Co., 6.00%, 12/1/17 997,450
------------
$ 14,731,440
------------
INSURED EDUCATION - 8.5%
Aaa AAA $1,000 Alabama A&M University
(MBIA), 6.375%, 11/1/09 $ 1,059,150
Aaa AAA 1,770 Alabama A&M University
(MBIA), 5.75%, 11/1/14 1,755,645
</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 EDUCATION - (CONTINUED)
Aaa AAA 3,750 Alabama A&M University
(MBIA), 5.50%, 11/1/20 3,559,013
Aaa AAA 4,000 University of Alabama
(MBIA), 5.00%, 6/1/16 3,554,680
------------
$ 9,928,488
------------
INSURED ELECTRIC UTILITIES - 2.1%
Aaa AAA $ 250 Puerto Rico Electric Power
Authority (STRIPES) (FSA),
Variable, 7/1/03 (1) $ 279,153
Aaa AAA 2,000 Wilsonville, Alabama
Industrial Development
Board (MBIA), 6.75%,
2/1/15 2,122,760
------------
$ 2,401,913
------------
INSURED GENERAL OBLIGATION - 3.7%
Aaa AAA $ 500 Fairfield City, Alabama
U.T.G.O. (AMBAC), 6.30%,
6/1/22 $ 518,975
Aaa AAA 3,250 Madison City, Alabama
(MBIA), 6.00%, 2/1/24 3,269,760
Aaa AAA 500 Troy City, Alabama (CAPG),
6.60%, 6/1/12 526,725
------------
$ 4,315,460
------------
INSURED HEALTH CARE - 1.8%
Aaa AAA $2,000 Huntsville, Alabama Health
Care Facilities (MBIA),
6.50%, 6/1/13 $ 2,097,440
------------
INSURED HOSPITAL - 6.4%
Aaa AAA $2,500 Birmingham, Alabama
Baptist Medical Center
(MBIA), 5.875%, 11/15/20 $ 2,459,400
Aaa AAA 2,500 Birmingham, Alabama
Baptist Medical Center
(MBIA), 6.00%, 11/15/24 2,482,700
Aaa AAA 1,000 East Alabama Health Care
Facilities (MBIA), 5.25%,
9/1/23 906,400
Aaa AAA 1,000 Houston County, Southeast
Alabama Medical Center
(MBIA), 5.75%, 10/1/22 974,520
Aaa AAA 750 University of Alabama
Revenue (MBIA), 5.00%,
10/1/14 674,100
------------
$ 7,497,120
------------
INSURED INDUSTRIAL
DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - 4.4%
Aaa AAA $3,000 Columbia, Alabama (AL
Power Company) (AMBAC),
6.50%, 9/1/23 $ 3,107,940
Aaa AAA 2,000 West Jefferson, Alabama
Industrial Development
(MBIA), 6.05%, 5/1/23 2,004,620
------------
$ 5,112,560
------------
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 3.9%
Aaa AAA $4,700 Montgomery, Alabama
Downtown Redevelopment
Authority Mortgage (MBIA),
5.50%, 10/1/13 $ 4,497,571
------------
INSURED
MISCELLANEOUS - 0.4%
Aaa AAA $1,950 Jefferson County, Alabama
Birmingham-Jefferson Civic
Center (MBIA), 0%, 9/1/18 $ 492,180
------------
INSURED SOLID WASTE - 4.0%
Aaa AAA $4,000 Huntsville, Alabama Solid
Waste Disposal (FGIC)
(AMT), 7.00%, 10/1/14 $ 4,271,480
Aaa AAA 350 Huntsville, Alabama Solid
Waste Disposal (FGIC)
(AMT), 7.00%, 10/1/08 382,316
------------
$ 4,653,796
------------
INSURED TRANSPORTATION - 4.3%
Aaa AAA $3,475 Birmingham, Alabama
Airport Authority (AMBAC),
5.25%, 7/1/20 $ 3,186,471
Aaa AAA 2,000 Birmingham, Alabama
Airport Authority (AMBAC)
(AMT), 5.375%, 7/1/23 1,821,660
------------
$ 5,008,131
------------
INSURED WATER & SEWER - 17.2%
Aaa AAA $2,750 Alabama Water Pollution
Control Authority
(Jefferson County)
(AMBAC), 5.50%, 2/15/16 $ 2,623,363
Aaa AAA 2,500 Alabama Water Pollution
Control Authority (AMBAC),
5.00%, 8/15/15 2,254,400
Aaa AAA 1,100 Gulf Shores, Alabama Water
and Sewer (AMBAC), 6.50%,
2/1/15 1,156,001
Aaa AAA 2,360 Limestone County, Alabama
Water Authority (FGIC),
5.25%, 12/1/20 2,159,707
Aaa AAA 500 Northeast, Alabama Water,
Sewer and Fire Protection
(AMBAC), 5.70%, 5/1/23 487,065
Aaa AAA 3,075 Prichard City, Alabama
Water and Sewer (AMBAC),
6.125%, 11/15/14 3,148,460
Aaa AAA 6,000 Scottsboro, Alabama Water,
Sewer and Gas (AMBAC),
6.50%, 12/1/14 6,361,020
</TABLE>
39
<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 WATER & SEWER - (CONTINUED)
Aaa AAA 750 West Morgan-East Lawrence,
Alabama Water Authority
(FGIC), 6.00%, 5/1/22 754,200
Aaa AAA 1,000 West Morgan-East Lawrence,
Alabama Water Authority
(FSA), 6.85%, 8/15/25 1,077,410
------------
$ 20,021,626
------------
MISCELLANEOUS - 0.1%
A A $ 100 Tennessee Valley, Alabama
Exhibit Commission, 6.70%,
6/1/10 $ 107,061
------------
SPECIAL TAX REVENUE - 2.4%
Baa1 A $1,000 Puerto Rico Highway and
Transportation, 5.50%,
7/1/15 $ 950,160
Baa1 A 1,800 Puerto Rico Highway and
Transportation, 6.625%,
7/1/18 1,878,480
------------
$ 2,828,640
------------
TRANSPORTATION - 0.9%
NR BBB $1,000 Guam Airport Authority,
6.70%, 10/1/23 $ 1,007,200
------------
WATER AND SEWER - 1.2%
NR NR $1,500 Moulton City, Alabama
Water, 6.30%, 1/1/18 $ 1,444,425
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$112,610,415) $116,479,856
============
</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 Alabama
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 August 31, 1995, 56.7% 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 0.5% to 27.3% of total investments.
See notes to financial statements
40
<PAGE>
-------
Arkansas Tax Free Portfolio
Portfolio of Investments - August 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%
A1 NR $1,750 University of Arkansas
Board of Trustees, 7.20%,
12/1/10 (2) $ 1,923,338
A NR 610 Arkansas State Student Loan
Authority, 7.25%, 6/1/09 666,193
-----------
$ 2,589,531
-----------
ELECTRIC UTILITIES - 9.2%
A NR $1,750 Conway, Arkansas Electric,
5.70%, 8/1/09 $ 1,764,368
NR BBB 1,250 Guam Power Authority,
5.25%, 10/1/13 1,123,200
NR BBB 1,250 Guam Power Authority,
5.25%, 10/1/23 1,072,300
Baa2 BBB 1,500 Independence, Arkansas PCR
(AR Power & Light), 6.25%,
1/1/21 1,507,470
Baa2 BBB- 750 Jefferson, Arkansas PCR (AR
Power & Light), 6.125%,
10/1/07 750,225
Baa2 BBB 550 Jefferson, Arkansas PCR (AR
Power & Light), 6.30%,
6/1/18 564,174
Baa2 BBB 500 Pope, Arkansas PCR (AR
Power & Light), 6.30%,
12/1/16 510,100
Baa1 A- 500 Puerto Rico Electric Power
Authority, 0%, 7/1/17 132,214
-----------
$ 7,424,051
-----------
ESCROWED - 3.4%
Aaa AAA $ 500 Arkansas DFA Wastewater
System (MBIA), 7.00%,
6/1/14 $ 567,760
Aaa NR 650 Arkansas State Waste
Disposal and Pollution
Abatement U.T.G.O., 6.25%,
7/1/22 714,110
Aaa AAA 500 Harrison, Arkansas Single
Family Mortgage (FGIC),
7.40%, 9/1/11 574,114
Aaa AAA 750 Puerto Rico Public
Buildings Authority 6.875%,
7/1/21 861,848
-----------
$ 2,717,832
-----------
GENERAL OBLIGATIONS - 8.2%
Aa AA $ 750 Arkansas State College
Savings, 0%, 6/1/13 $ 273,465
Aa AA 2,750 Arkansas State College
Savings, 0%, 6/1/14 938,658
Baa1 A 1,000 Puerto Rico Public
Improvement, 5.25%, 7/1/18 901,610
Baa1 A 2,000 Puerto Rico Commonwealth
Unlimited Tax 5.50%, 7/1/13 1,901,760
Baa1 A 2,000 Puerto Rico Public
Buildings Authority, 5.50%,
7/1/21 1,839,920
NR NR 750 Virgin Island, Public
Finance Authority, 7.25%,
10/1/18 787,515
-----------
$ 6,642,928
-----------
HOSPITALS - 14.8%
Aa AA $3,000 Arkansas DFA (Sisters of
Mercy), 5.00%, 6/1/19 $ 2,664,180
Baa NR 700 Baxter, Arkansas Hospital
Improvement, 7.25%, 9/1/07 744,611
Baa NR 750 Baxter, Arkansas Hospital
Improvement, 7.50%, 9/1/21 800,970
NR A+ 1,125 Little Rock, Arkansas
(Baptist Medical Center),
6.80%, 11/1/05 1,256,108
NR A+ 2,250 Little Rock, Arkansas
(Baptist Medical Center),
5.50%, 9/1/15 2,137,545
NR A 1,000 Little Rock, Arkansas
(Baptist Medical
Center-Parkway Village),
7.00%, 10/1/17 1,064,340
NR A- 2,250 Pulaski, Arkansas
(Children's Hospital),
6.20%, 3/1/22 2,253,150
A1 AA 1,000 Sebastian, Arkansas (Sparks
Regional Medical Center),
5.60%, 4/1/06 1,026,020
-----------
$11,946,924
-----------
HOUSING - 11.7%
NR AAA $2,400 Arkansas DFA Single Family
Mortgage (GNMA, AMT),
5.80%, 6/1/25 $ 2,230,272
NR AAA 765 Arkansas DFA Single Family
Mortgage (GNMA, AMT),
7.85%, 12/1/21 809,592
NR AAA 1,000 Arkansas DFA Single Family
Mortgage (GNMA/FNMA, AMT),
6.35%, 7/1/22 999,880
NR AAA 1,000 Arkansas DFA Single Family
Mortgage (GNMA/FNMA),
6.60%, 7/1/17 1,032,200
NR AAA 1,500 Arkansas DFA Single Family
Mortgage (GNMA/FNMA, AMT),
6.80%, 1/1/22 1,547,790
NR AAA 740 Arkansas DFA Single Family
Mortgage (GNMA/FNMA),
6.70%, 7/1/27 746,519
NR AAA 1,000 Arkansas DFA Single Family
Mortgage (GNMA, AMT),
7.45%, 1/1/27 1,077,470
A NR 3,000 Arkansas DFA Compound
Accretion, 0%, 12/1/11 974,010
-----------
$ 9,417,733
-----------
INDUSTRIAL DEVELOPMENT
REVENUE/POLLUTION CONTROL
REVENUE - 13.2%
Baa2 BBB $2,350 Baxter, Arkansas (Aeroquip
Corporation), 5.80%,
10/1/13 $ 2,280,816
A1 AA- 2,500 Blythesville, Arkansas
(Nucor Corporation), (AMT),
6.90%, 12/1/21 2,653,825
A3 A- 755 Gurdon, Arkansas
(International Paper),
5.75%, 2/1/08 755,627
A1 AA- 1,000 Jonesboro, Arkansas
(Anheuser-Busch), 6.50%,
11/15/12 1,074,290
</TABLE>
41
<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>
INDUSTRIAL DEVELOPMENT
REVENUE/POLLUTION CONTROL
REVENUE - (CONTINUED)
NR A- 550 Pine Bluff, Arkansas
(International Paper),
(AMT), 5.55%, 10/1/17 517,347
A2 NR 750 Puerto Rico IME (American
Home Products), 5.10%,
12/1/18 670,215
Baa3 BB+ 2,740 Puerto Rico Ports
Authority (American
Airlines) (AMT),
6.30%, 6/1/23 2,718,353
-----------
$10,670,473
-----------
INSURED ELECTRIC UTILITIES - 7.5%
Aaa AAA $ 500 Independence, Arkansas PCR
(AR Power & Light) (FSA),
6.25%, 1/1/21 $ 519,265
Aaa AAA 250 North Little Rock, Arkansas
Electric System (MBIA),
6.50%, 7/1/10 271,900
Aaa AAA 3,390 North Little Rock, Arkansas
Electric System (MBIA),
6.50%, 7/1/15 3,722,016
Aaa AAA 450 Puerto Rico Electric Power
Authority (STRIPES) (FSA),
Variable, 7/1/03 (1) 502,475
Aaa AAA 1,000 West Memphis, Arkansas
Public Utilities (MBIA),
6.60%, 1/1/09 1,073,250
-----------
$ 6,088,906
-----------
INSURED GENERAL OBLIGATIONS - 7.0%
Aaa AAA $1,610 Jonesboro, Arkansas School
District (AMBAC), 6.125%,
2/1/15 $ 1,629,352
Aaa AAA 3,000 Springdale, Arkansas School
District (AMBAC), 5.125%,
6/1/16 2,760,630
Aaa AAA 680 White Hall, Arkansas School
District (AMBAC), 4.75%,
4/1/12 620,140
Aaa AAA 710 White Hall, Arkansas School
District (AMBAC), 4.75%,
4/1/13 645,248
-----------
$ 5,655,370
-----------
INSURED HEALTH CARE - 1.1%
Aaa AAA $ 400 Saline, Arkansas Healthcare
(Evan Lutheran Good
Samaritan) (AMBAC), 5.80%,
5/1/11 $ 394,280
Aaa AAA 500 Saline, Arkansas Healthcare
(Evan Lutheran Good
Samaritan) (AMBAC), 6.00%,
6/1/18 513,665
-----------
$ 907,945
-----------
INSURED TRANSPORTATION - 0.6%
Aaa AAA $ 500 Little Rock, Arkansas
Airport (MBIA), 6.00%,
11/1/14 $ 508,370
-----------
INSURED WATER & SEWER - 7.2%
Aaa AAA $1,670 Arkansas DFA Wastewater
System (MBIA), 5.40%,
12/1/15 $ 1,598,541
Aaa AAA 1,680 Arkansas DFA Wastewater
System (MBIA), 5.00%,
12/1/08 1,621,502
Aaa AAA 2,000 Arkansas DFA Wastewater
System (MBIA), 5.00%,
6/1/15 1,821,960
Aaa AAA 300 Beaver, Arkansas Water
District (MBIA), 5.85%,
11/15/08 312,741
Aaa AAA 500 Jonesboro, Arkansas Water
and Light (AMBAC), 5.25%,
12/1/13 477,915
-----------
$ 5,832,659
-----------
MISCELLANEOUS - 2.9%
A NR $2,000 Little Rock, Arkansas Hotel
and Restaurant Gross
Receipts Tax, 7.375%,
8/1/15 $ 2,329,700
-----------
SPECIAL TAX REVENUE - 3.2%
Baa1 A $3,000 Puerto Rico Highway and
Transportation, 5.00%,
7/1/22 $ 2,591,430
-----------
WATER & SEWER REVENUE - 6.8%
NR NR $ 800 Conway, Arkansas Water,
5.40%, 5/1/11 $ 772,880
NR NR 1,250 Cross, Arkansas Rural
Water, 5.75%, 4/1/18 1,254,574
A1 NR 2,000 Little Rock, Arkansas
Sewer, 5.50%, 8/1/14 1,933,740
NR NR 1,500 South Sebastian, Arkansas
Water, 6.15%, 6/1/23 1,534,815
-----------
$ 5,496,009
-----------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$79,275,204) $80,819,861
===========
</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 Arkansas
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 August 31, 1995, 23.4% 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 0.7% to 6.1% of total investments.
See notes to financial statements
42
<PAGE>
-------
Georgia Tax Free Portfolio
Portfolio of Investments - August 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 - 5.6%
Aa1 AA- $3,000 Dekalb County Georgia,
Emory University, 6.00%,
10/1/14 $ 3,058,170
Aa AA- 3,425 Private Colleges and
Universities Authority,
Agnes Scott College,
5.625%, 6/1/23 3,324,100
Aa1 AA- 310 Private Colleges and
Universities Authority,
Emory University, 6.40%,
10/1/23 321,628
------------
$ 6,703,898
------------
ESCROWED - 0.2%
Aaa AAA $ 250 Cherokee County, Georgia,
Water and Sewer, (MBIA),
6.90%, 8/1/18 $ 279,650
------------
GENERAL
OBLIGATIONS - 15.0%
Aa AA- $ 300 Alpharetta, Georgia,
6.50%, 5/1/10 $ 331,482
Aa AA 3,350 Atlanta, Georgia, 6.10%,
12/1/19 3,398,575
Aa AA 2,000 Atlanta, Georgia, 6.125%,
12/1/23 2,024,880
Aa AA 3,000 Atlanta, 6.25%, 10/1/12 3,111,120
Aa AA 1,650 Atlanta, 6.25%, 10/1/16 1,699,351
A1 NR 150 Cherokee County School
District, 6.375%, 6/1/7 160,494
Aa AA 1,000 Downtown Savannah
Authority Georgia Revenue,
5.00%, 1/1/11 931,930
Aa AA- 250 Clayton County, Georgia,
Solid Waste, 6.50%, 2/1/12 264,043
Aa AA 1,000 Fulton County School
District, 5.60%, 1/1/13 983,590
Aaa AA+ 500 Georgia, 6.30%, 3/1/08 553,930
Aa1 AA+ 1,480 Gwinnett County, Georgia,
Water and Sewerage, 6.50%,
8/1/06 1,491,618
A A 450 Paulding County School
District, 6.625%, 2/1/08 495,477
Baa1 A 1,000 Puerto Rico, 5.75%, 7/1/15 963,290
NR NR 1,400 Virgin Island, 7.25%,
10/1/18 1,470,028
------------
$ 17,879,808
------------
HOSPITALS - 10.5%
Baa1 NR $4,250 Fulco Hospital, Georgia
Baptist, 6.375%, 9/1/22 $ 3,973,495
A NR 5,040 Savannah, Georgia, St.
Joseph's Hospital, 6.20%,
7/1/23 4,877,460
NR BBB 1,285 Toombs County, Dr. John M.
Meadows Memorial Hospital,
7.00%, 12/1/17 1,262,088
NR BBB+ 2,750 Tri City Hospital, 6.375%,
7/1/16 2,449,947
------------
$ 12,562,990
------------
HOUSING - 13.9%
NR AAA $4,000 Fulton County, HFA, (AMT),
6.64%, 3/1/28 $ 4,031,960
Aa NR 1,450 Georgia HFA, (AMT),
6.875%, 12/1/20 1,495,342
Aa AA+ 395 Georgia Resource
Authority, SFMR, (FHA),
7.50%, 6/1/17 419,569
Aa AA 2,500 Georgia HFA, (FHA Insured
or VA Guaranteed), (AMT),
6.70%, 12/1/25 2,558,500
Aa AA+ 1,500 Georgia HFA, (AMT), 7.05%,
12/1/20 1,567,290
Aa AA+ 2,380 Georgia HFA, (AMT),
7.125%, 12/1/26 2,491,169
Aa AA+ 4,000 Georgia HFA, (AMT), 6.55%,
12/1/27 4,006,320
------------
$ 16,570,150
------------
INDUSTRIAL DEVELOPMENT
AUTHORITY - 5.6%
A1 AA- $1,000 Cartersville, Georgia,
Anheuser-Busch, (AMT),
7.375%, 5/1/09 $ 1,157,340
A2 NR 1,000 Puerto Rico IME, American
Home, 5.10%, 12/1/18 893,620
A1 A- 750 Savannah Union Camp
Corporation, 6.80%, 2/1/12 806,258
NR NR 1,250 Savannah Economic
Development, (AMT), 9.00%,
1/1/15 1,332,375
NR AA- 500 Savannah, Hershey Foods,
6.60%, 6/1/12 532,700
NR AA- 2,000 Vienna, Cargill Project,
6.00%, 9/1/14 2,002,940
------------
$ 6,725,233
------------
INSURED GENERAL
OBLIGATIONS - 4.0%
Aaa AAA $2,990 Houston County School
District, (MBIA), 5.375%,
3/1/11 $ 2,858,291
Aaa AAA 1,350 Jackson County School
District, (MBIA), 6.00%,
7/1/14 1,369,170
Aaa AAA 500 Puerto Rico, Public
Improvement Bonds of 1992,
(AMBAC), Variable, 7/1/15
(1) 505,850
------------
$ 4,733,311
------------
INSURED HOSPITAL - 13.2%
Aaa AAA $ 675 Chatham County, Memorial
Medical Center, (MBIA),
7.00%, 1/1/21 $ 723,424
Aaa AAA 305 Chatham County, Memorial
Medical Center, (MBIA),
6.85%, 1/1/21 325,972
Aaa AAA 1,300 Cobb County, Kennestone
Hospital, (MBIA), 5.00%,
4/1/24 1,137,682
</TABLE>
43
<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 3,225 Gainsville and Hall
County, NE Healthcare,
(MBIA), 6.00%, 10/1/25 3,235,804
Aaa AAA 3,000 Gwinnett County, Gwinnett
Hospital, (AMBAC), 5.00%,
9/1/13 2,709,300
Aaa AAA 2,500 Macon-Bibb County Hospital
Authority, The Medical
Center of Central Georgia,
(FGIC), 5.00%, 8/1/14 2,269,375
Aaa AAA 2,000 Medical Center Hospital
Authority, Columbus
Regional Healthcare
System, (MBIA), 6.40%,
8/1/06 2,165,640
Aaa AAA 1,500 Medical Center Hospital
Authority, Columbus
Regional Healthcare
System, (MBIA), Variable,
8/1/10 (1) 1,664,775
Aaa AAA 1,375 Walker, Dade and Catoosa
Counties Hospital, (FGIC),
7.00%, 10/1/10 1,518,688
------------
$ 15,750,660
------------
INSURED HOUSING - 0.9%
Aaa AAA $1,000 East Point Building
Authority, (FGIC), 6.00%,
2/1/10 $ 1,024,810
------------
INSURED SPECIAL TAX - 1.8%
Aaa AAA $1,000 Metropolitan Atlanta Rapid
Transit Authority,
(AMBAC), 6.25%, 7/1/11 $ 1,062,100
Aaa AAA 1,000 Metropolitan Atlanta Rapid
Transit Authority,
(AMBAC), 6.25%, 7/1/20 1,065,560
------------
$ 2,127,660
------------
INSURED TRANSACTION - 0.8%
Aaa AAA $1,000 Atlanta Airport Facility
Revenue, (AMBAC), (AMT),
6.00%, 1/1/21 $ 994,740
------------
INSURED UTILITIES - 3.3%
Aaa AAA $1,480 Cordele Public Utility
Authority, (MBIA), 6.50%,
11/1/19 $ 1,554,133
Aaa AAA 750 Municipal Electric
Authority of Georgia,
(MBIA), 0%, 1/1/07 409,410
Aaa AAA 1,000 Municipal Electric
Authority of Georgia,
(FGIC), 5.50%, 1/1/12 973,670
Aaa AAA 900 Puerto Rico Electric Power
Authority, (FSA),
Variable, 7/1/03 (1) 1,004,949
------------
$ 3,942,162
------------
INSURED WATER & SEWER - 3.8%
Aaa AAA $2,700 Atlanta, Water and Sewer,
(FGIC), 5.00%, 1/1/15 $ 2,424,708
Aaa AAA 1,975 Cherokee County, Water and
Sewerage, (MBIA), 6.875%,
8/1/13 2,121,012
------------
$ 4,545,720
------------
LEASE/CERTIFICATES OF
PARTICIPATION - 1.0%
Aa AA $ 310 Fulton County, Lease
Revenue, 0%, 1/1/09 $ 146,828
Aa AA 2,300 Fulton County, Lease
Revenue, 0%, 1/1/10 1,022,787
------------
$ 1,169,615
------------
LIFE CARE - 1.2%
NR NR $1,500 Dekalb Private Hospital,
Assisted Living, Atlanta
Inc, 8.50%, 3/1/25 $ 1,463,625
------------
SOLID WASTE - 0.9%
A1 A+ $1,000 Savannah Energy Systems
Company Project, 6.30%,
12/1/06 $ 1,049,330
------------
SPECIAL TAX REVENUE - 0.4%
Baa1 A $ 500 Puerto Rico Commonwealth
Highway, 5.50%, 7/1/17 $ 468,025
------------
TRANSPORTATION - 1.3%
Ba3 BB $1,500 Atlanta Special Purpose
Facilities, Delta
Airlines, (AMT), 7.90%,
12/1/18 $ 1,592,475
------------
UTILITIES - 15.5%
A1 A $2,000 Burke County, PCR, Georgia
Power, 6.375%, 8/1/24 $ 2,023,820
A A 1,000 Georgia Muni Electric
Power Authority, 0%,
1/1/12 368,600
A A 3,000 Georgia Muni Electric
Power Authority, 5.50%,
1/1/20 2,744,730
A A 3,000 Georgia Muni Electric
Power Authority, 5.70%,
1/1/23 2,795,940
A A 2,000 Georgia Muni Electric
Power Authority, 8.25%,
1/1/11 2,455,640
A1 A+ 1,000 Monroe County, PCR, Gulf
Power, 6.30%, 9/1/24 1,013,890
A3 A+ 4,000 Monroe County, PCR,
Ogelthorpe Power, 6.55%,
1/1/06 4,383,200
A3 A+ 2,000 Monroe County, PCR,
Ogelthorpe Power, 6.70%,
1/1/09 2,198,480
Baa1 A- 665 Puerto Rico Electrical
Power Authority, 0%,
7/1/17 175,846
Baa1 A- 250 Puerto Rico Electrical
Power Authority, 7.00%,
7/1/07 268,552
------------
$ 18,428,698
------------
</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>
WATER & SEWER REVENUE - 1.1%
A NR $ 150 Augusta, Water and Sewer
Authority, 6.50%, 5/1/11 $ 157,886
A A+ 1,000 Columbus, Water and Sewer
Authority, 5.70%, 5/1/20 965,280
A NR 200 Richmond County, Water and
Sewer Authority, 6.50%,
10/1/21 207,606
------------
$ 1,330,772
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$115,913,957) $119,343,332
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by Georgia
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 August 31, 1995, 27.8% 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 15.0% of total investments.
See notes to financial statements
45
<PAGE>
-------
Kentucky Tax Free Portfolio
Portfolio of Investments - August 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 - 5.5%
Aa1 NR $2,460 Berea, Kentucky
Educational Development,
5.45%, 3/1/14 $ 2,363,101
A1 AA- 500 University of Kentucky
Consolidated Educational
Buildings, 6.40%, 5/1/09 528,865
A1 AA- 785 University of Kentucky
Consolidated Educational
Buildings, 6.40%, 5/1/11 825,059
A1 AA- 1,295 University of Louisville
Consolidated Educational
Buildings, 5.875%, 5/1/11 1,322,350
A1 AA- 1,000 University of Louisville
Consolidated Educational
Buildings, 5.40%, 5/1/08 999,920
A1 AA- 2,000 University of Louisville
Consolidated Educational
Buildings, 5.40%, 5/1/11 1,958,500
------------
$ 7,997,795
------------
ELECTRIC UTILITIES - 6.8%
Aa2 AA- $2,000 Carroll, Kentucky PCR (KY
Utilities Company), 6.25%,
2/1/18 $ 2,069,820
NR BBB 400 Guam Power Authority,
5.25%, 10/1/23 343,135
Aa2 AA 1,000 Jefferson, Kentucky PCR
(Louisville G&E Company),
5.625%, 8/15/19 967,410
Aa2 AA- 1,000 Muhlenburg, Kentucky PCR
(KY Utilities Company),
6.25%, 2/1/18 1,031,540
NR A 2,315 Nicholasville, Kentucky
Utilities 5.10%, 10/1/12 2,089,635
Baa1 A- 3,500 Puerto Rico Electric Power
Authority, 0%, 7/1/17 925,505
Baa1 A- 2,250 Puerto Rico Electric Power
Authority, 6.375%, 7/1/2 2,289,308
------------
$ 9,716,353
------------
ESCROWED - 1.3%
NR NR $ 190 KY DFA St. Claire Medical
Center, 7.125%, 9/1/21 $ 216,674
Aaa NR 510 Lexington-Fayette,
Kentucky Government Public
Facilities, 6.40%, 4/1/12 569,084
Aaa A 1,000 University of Puerto Rico,
6.50%, 6/1/13 1,062,770
------------
$ 1,848,528
------------
GENERAL OBLIGATIONS - 2.9%
NR A+ $1,030 KY League of Cities
Funding Trust Floating
Indebtedness Certificates
of Participation, 6.15%,
8/1/13 $ 1,041,959
NR A 1,415 KY League of Cities
Funding Trust Floating
Indebtedness Certificates
of Participation, 5.90%,
8/1/16 1,376,837
Baa1 A 1,255 Puerto Rico Public
Building Authority, 5.50%,
7/1/21 1,154,550
NR NR 500 Virgin Islands, 7.25%,
10/1/18 525,010
------------
$ 4,098,356
------------
HOSPITALS - 0.8%
Baa1 BBB $ 975 Russell, Kentucky
Franciscan Sisters of the
Poor Health System, 8.10%,
7/1/15 $ 1,102,052
------------
HOUSING - 1.7%
NR AAA $1,500 Boone, Kentucky
Multi-Family (Walnut Creek
Apartments) (FHA), 7.00%,
1/1/27 $ 1,544,520
Aa1 AAA 840 KY Housing (FHA) (AMT),
7.45%, 1/1/23 869,492
------------
$ 2,414,012
------------
INDUSTRIAL DEVELOPMENT
REVENUE/POLLUTION CONTROL
REVENUE - 11.4%
Baa1 BBB $3,355 Ashland, Kentucky Solid
Waste (Ashland Oil) (AMT),
7.20%, 10/1/20 $ 3,515,470
Baa1 NR 2,425 Ashland, Kentucky Solid
Waste (Ashland Oil) (AMT),
7.125%, 2/1/22 2,537,569
NR NR 1,000 Elsmere, Kentucky
(Courtaulds Package
Corporation), 6.75%,
4/1/10 1,020,860
NR NR 3,075 Fulton, Kentucky
(H.I.S.-Chic Jeans),
(AMT), 7.50%, 2/1/10 3,125,123
Aa3 AA 1,000 Jefferson, Kentucky (E.I.
du Pont de Nemours),
6.30%,
7/1/12 1,067,180
Baa2 BBB 1,075 Johnson, Kentucky (KMart
Corporation), 6.45%,
7/1/08 1,073,011
NR BBB 985 Owensboro, Kentucky (KMart
Corporation), 6.80%,
12/1/07 1,005,232
NR BBB 915 Powderly, Kentucky (KMart
Corporation), 6.90%,
3/1/07 939,293
A2 NR 1,190 Puerto Rico IM&E (American
Home), 5.10%, 12/1/18 1,063,407
Baa3 BB+ 500 Puerto Rico Port Authority
(American Airlines),
(AMT), 6.30%, 6/1/23 496,050
Ba2 NR 500 Winchester, Kentucky
(Kroger Corporation),
6.90%, 7/1/99 524,640
------------
$ 16,367,835
------------
INSURED EDUCATION - 0.5%
Aaa AAA $ 700 Northern KY University
Educational Buildings
(AMBAC), 6.25%, 5/1/12 $ 733,817
------------
INSURED ELECTRIC UTILITIES - 4.1%
Aaa AAA $6,280 Boone, Kentucky
Collateralized PCR (MBIA),
5.50%, 1/1/24 $ 5,862,254
------------
</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>
INSURED GENERAL OBLIGATION - 0.6%
Aaa AAA $1,000 Jefferson, Kentucky School
District U.T.G.O. (MBIA),
4.875%, 1/1/13 $ 892,640
------------
INSURED HOSPITALS - 14.8%
Aaa AAA $2,500 Daviess, Kentucky Hospital
(ODCH Inc.) (MBIA), 6.25%,
8/1/22 $ 2,554,525
Aaa AAA 2,000 Hopkins, Kentucky Hospital
(Trover Clinic Foundation)
(MBIA), 6.625%, 11/15/11 2,122,200
Aaa AAA 2,500 Jefferson, Kentucky Jewish
Hospital (AMBAC), 6.50%,
5/1/15 2,610,575
Aaa AAA 1,750 Jefferson, Kentucky Jewish
Hospital (AMBAC), 6.55%,
5/1/22 1,833,283
Aaa AAA 4,000 KY DFA St. Luke's Hospital
(MBIA), 7.00%, 10/1/21 4,322,440
Aaa AAA 9,000 KY EDA Baptist Healthcare
(MBIA), 5.00%, 8/15/24 7,814,880
------------
$ 21,257,903
------------
INSURED LEASE/COP - 1.7%
Aaa AAA $2,000 Danville, Kentucky
Multi-City Lease (MBIA),
5.875%, 9/1/10 $ 2,044,640
Aaa AAA 400 Lexington-Fayette,Kentucky
Government Public
Facilities (FSA), 4.50%,
2/1/10 350,380
------------
$ 2,395,020
------------
INSURED TRANSPORTATION - 4.5%
Aaa AAA $1,000 Kenton, Kentucky Airport
(Cincinnati/Northern KY)
(FSA) (AMT), 6.30%, 3/1/15 $ 1,019,710
Aaa AAA 1,000 KY EDA Turnpike
(Revitalization Project)
(FGIC), 0%, 1/1/10 440,380
Aaa AAA 1,000 KY EDA Turnpike
(Revitalization Project)
(AMBAC), 5.50%, 7/1/11 981,280
Aaa AAA 1,170 Louisville & Jefferson,
Kentucky KY Regl. Airport
(MBIA), 5.30%, 7/1/23 1,077,500
Aaa AAA 3,250 Louisville & Jefferson,
Kentucky KY Regl. Airport
(MBIA) (AMT), 5.50%,
7/1/23 2,998,222
------------
$ 6,517,092
------------
INSURED WATER AND SEWER - 9.5%
Aaa AAA $1,000 Hardin, Kentucky Water
System (MBIA), 5.90%,
1/1/25 $ 1,001,620
Aaa AAA 800 Kenton, Kentucky Water
District (FGIC), 6.375%,
2/1/17 839,576
Aaa AAA 2,000 Kenton, Kentucky Water
District (FGIC), 6.00%,
2/1/17 2,027,020
Aaa AAA 500 Lexington-Fayette,
Kentucky Government Sewer
(MBIA), 6.375%, 7/1/12 527,360
Aaa AAA 1,000 Louisville & Jefferson,
Kentucky Sewer District
(MBIA), 5.25%, 5/15/14 938,730
Aaa AAA 2,840 Louisville & Jefferson,
Kentucky Sewer District
(MBIA), 5.40%, 5/15/19 2,680,477
Aaa AAA 2,000 Louisville & Jefferson,
Kentucky Sewer District
(MBIA), 5.50%, 5/15/21 1,909,900
Aaa AAA 500 Louisville & Jefferson,
Kentucky Sewer District
(MBIA), 5.50%, 5/15/23 474,130
Aaa AAA 1,000 Louisville & Jefferson,
Kentucky Sewer District
(AMBAC), 6.75%, 5/15/19 1,079,010
Aaa AAA 2,000 Louisville & Jefferson,
Kentucky Sewer District
(AMBAC), 6.75%, 5/15/25 2,149,480
------------
$ 13,627,303
------------
LEASE REVENUE BONDS - 21.4%
A A $1,300 Boone, Kentucky School
District Finance, 6.75%,
9/1/11 $ 1,390,077
A NR 2,250 Boone, Kentucky School
District Finance, 6.125%,
12/1/17 (1) 2,293,718
A NR 3,000 Boone, Kentucky School
District Finance, 5.70%,
5/1/18 2,921,610
A NR 1,670 Campbell, Kentucky School
District Finance, 5.10%,
2/1/12 1,533,995
A NR 700 Campbell, Kentucky School
District Finance, 4.80%,
2/1/11 617,568
A NR 1,790 Campbell, Kentucky School
District Finance, 4.875%,
2/1/14 1,544,054
A NR 820 Covington, Kentucky
Independent School
District Finance, 5.20%,
6/1/13 759,017
A1 A+ 905 Jefferson, Kentucky School
District Finance, 4.875%,
1/1/11 823,269
A1 A+ 1,250 Jefferson, Kentucky School
District Finance, 4.875%,
1/1/12 1,126,513
A1 A 4,990 Jefferson, Kentucky
Capital Projects
Corporation, 0%, 8/15/15 1,517,259
A NR 260 Johnson, Kentucky School
District Finance, 5.00%,
6/1/11 239,203
A NR 300 Johnson, Kentucky School
District Finance, 5.00%,
6/1/13 271,137
A A+ 2,860 KY State Property and
Buildings, 5.00%, 9/1/13 2,582,866
A A+ 2,500 KY State Property and
Buildings, 6.00%, 9/1/14 2,513,950
</TABLE>
47
<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 REVENUE BONDS - (CONTINUED)
A A- 1,000 Louisville, Kentucky
Public Properties
Corporation, 6.80%,
12/1/22 1,057,500
Aa NR 2,000 Mount Sterling, Kentucky
League of Cities Trust,
6.15%, 3/1/13 1,964,300
Aa NR 4,500 Mount Sterling, Kentucky
League of Cities Trust,
6.20%, 3/1/18 4,382,955
A NR 2,000 Owensboro, Kentucky
Airport, 5.875%, 6/1/15 1,913,200
A NR 615 Pulaski, Kentucky School
District Finance, 5.75%,
2/1/10 615,978
A NR 595 Pulaski, Kentucky School
District Finance, 5.80%,
2/1/11 593,161
------------
$ 30,661,330
------------
SOLID WASTE - 2.2%
Baa2 BBB- $3,000 Henderson, Kentucky
(MacMillan Blodel Project)
(AMT), 7.00%, 3/1/25 $ 3,083,370
------------
SPECIAL TAX REVENUE - 4.4%
Baa1 A $ 415 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/21 $ 366,939
Baa1 A 5,655 Puerto Rico Highway &
Transportation Authority,
6.625%, 7/1/18 5,901,558
------------
$ 6,268,497
------------
TRANSPORTATION - 4.3%
NR BBB $2,000 Guam Airport Authority,
6.70%, 10/1/23 $ 2,014,400
Ba1 BB 1,000 Kenton, Kentucky Airport
(Delta Airlines) (AMT),
6.75%, 2/1/02 1,044,720
Ba1 BB 250 Kenton, Kentucky Airport
(Delta Airlines) (AMT),
7.50%, 2/1/12 263,820
Ba1 BB 500 Kenton, Kentucky Airport
(Delta Airlines) (AMT),
7.50%, 2/1/20 527,640
Ba1 BB 2,400 Kenton, Kentucky Airport
(Delta Airlines) (AMT),
6.125%, 2/1/22 2,258,183
------------
$ 6,108,763
------------
WATER AND SEWER REVENUE - 1.6%
NR A $1,500 Campbell, Kentucky Water
District, 6.60%, 12/1/11 $ 1,572,360
A NR 650 Hardin, Kentucky Water
District, 6.50%, 9/1/12 679,965
------------
$ 2,252,325
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$141,197,528) $143,205,245
============
</TABLE>
(1) Security has been segregated to cover margin requirements for open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Kentucky
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 August 31, 1995, 35.8% 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 1.0% to 26.0% of total investments.
See notes to financial statements
48
<PAGE>
-------
Louisiana Tax Free Portfolio
Portfolio of Investments - August 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%
Aa NR $ 150 Louisiana PFA, Student Loan
Revenue Bonds, (AMT),
6.75%, 9/1/06 $ 162,170
Aa NR 100 Louisiana PFA, Student Loan
Revenue Bonds, (AMT),
7.00%, 9/1/06 104,676
NR BBB- 400 Puerto Rico ITEM&EC,
(Polytechnic University of
Puerto Rico), 5.70%, 8/1/13 370,384
NR BBB- 500 Puerto Rico ITEM&EC,
(Polytechnic University of
Puerto Rico), 5.50%, 8/1/24 438,075
-----------
$ 1,075,305
-----------
GENERAL OBLIGATION - 2.8%
NR BBB $ 250 Government of Guam, 5.375%,
11/15/13 $ 222,418
Baa1 A 750 Puerto Rico PBA, Public
Education and Health
Facilities, 5.75%, 7/1/15 722,468
-----------
$ 944,886
-----------
HEALTH CARE - 8.1%
NR AAA $2,000 Louisiana HFA, Mortgage
Revenue Bonds, (GNMA
Collateralized) St. Joseph
Manor Retirement Center,
7.80%, 12/1/35 $ 2,215,260
NR AAA 500 Louisiana HFA, (GNMA
Collateralized), St.
Dominic Assisted
Care - Facility, 6.85%,
9/1/25 510,345
-----------
$ 2,725,605
-----------
HOUSING - 26.5%
Aaa NR $ 935 East Baton Rouge Mortgage
Finance Authority SF,
7.00%, 4/1/32 $ 966,528
Aaa NR 155 East Baton Rouge Mortgage
Finance Authority SF,
7.10%, 10/1/24 158,243
NR AAA 2,000 Parish of Jefferson, Home
Mortgage Authority (TEAMS),
7.35%, 12/1/16 2,208,760
NR AAA 620 Louisiana HFA, MFMB,
(FHA),6.95%, 7/1/16 631,916
Aaa NR 1,240 Louisiana HFA, SFMB, 8.00%,
3/1/25 1,349,318
Aaa NR 1,635 Louisiana HFA, SFMB, 6.55%,
12/1/26 1,621,887
NR AAA 500 Louisiana HFA, (Multifamily
Housing - Tall Timbers
Apartment), (FHA) (AMT),
5.90%, 12/1/18 475,705
NR AAA 150 Louisiana HFA, (Multifamily
Housing - Westview
Apartment II), (FHA),
7.95%,
1/1/32 159,129
NR AAA 1,000 Louisiana PFA, (FNMA
Collaterallized,
Multifamily
Housing - Edgewood
Apartments), 5.70%, 6/1/05 1,003,990
A NR 350 Shreveport, Louisiana HFA,
(Multifamily Mortgage
Bonds - U.S. Goodman
Plaza - Section 8
Assisted), 6.10%, 8/1/19 336,791
-----------
$ 8,912,267
-----------
HOSPITALS - 3.3%
Aa AA $1,000 Louisiana Public Health
Facilities Bonds, (Sisters
of Mercy Health System),
5.00%, 6/1/19 (2) $ 868,510
NR A- 250 St. Tammany Parish Hospital
Service District No. 1,
Hospital Revenue Bonds,
6.50%, 7/1/22 250,135
-----------
$ 1,118,645
-----------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL - 6.4%
A3 A- $1,750 Bastrop IDB, Louisiana,
(International Paper),
6.60%, 3/1/19 $ 1,824,428
Aa3 NR 150 Parish of DeSoto, Pollution
Control (Southwestern
Electric Power), Company
Project, 7.60%, 1/1/19 171,657
Baa1 A- 150 South Louisiana Port
Commission Terminal, (GATX
Terminals Corporation),
7.00%, 3/1/23 155,570
-----------
$ 2,151,655
-----------
INSURED COLLEGE &
UNIVERSITY - 10.3%
Aaa AAA $2,500 Louisiana State University
and Agricultural and
Mechanical College (FGIC),
5.75%, 7/1/14 $ 2,457,475
Aaa AAA 1,100 University of Puerto Rico
(MBIA), 5.25%, 6/1/25 1,008,821
-----------
$ 3,466,296
-----------
INSURED GENERAL
OBLIGATIONS LOCAL - 17.6%
Aaa AAA $ 500 Caddo Parish, Louisiana
(MBIA), 5.25%, 2/1/07 $ 500,705
Aaa AAA 1,000 Caddo Parish, Louisiana
(MBIA), 5.25%, 2/1/08 992,750
Aaa AAA 500 City of Lafayette, Public
Improvement Sales Tax
Refunding Bonds (FGIC),
5.00%, 3/1/15 446,690
Aaa AAA 500 City of Lafayette, Public
Improvement Sales Tax
Refunding Bonds (FGIC),
5.00%, 3/1/16 445,265
</TABLE>
49
<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 OBLIGATIONS
LOCAL - (CONTINUED)
Aaa AAA 1,000 City of Lafayette, Public
Improvement Sales Tax
Refunding Bonds (FGIC),
5.00%, 5/1/15 892,820
Aaa AAA 1,000 Louisiana PFA, Parish of
Jefferson, Drainage
Improvement Refunding Bonds
(FGIC), 5.00%, 8/1/10 919,900
Aaa AAA 500 Parish of East Baton Rouge,
Public Improvement Sales
Tax Bonds (FGIC), 5.90%,
2/1/17 494,575
Aaa AAA 990 Parish of East Baton Rouge,
Public Improvement Sales
Tax Bonds (FGIC), 4.80%,
2/1/14 864,646
Aaa AAA 400 Parish of East Baton Rouge,
Public Improvement Sales
Tax Bonds (FGIC), 4.90%,
2/1/16 349,020
-----------
$ 5,906,371
-----------
INSURED GENERAL OBLIGATIONS
SCHOOL DISTRICT - 1.4%
Aaa AAA $ 500 St. Tammany Parishwide
School District No.12,
Louisiana Unlimited Tax
School Bonds (FGIC), 5.00%,
3/1/12 $ 454,435
-----------
INSURED GENERAL OBLIGATIONS
STATE - 1.6%
Aaa AAA $ 300 State of Louisiana, (MBIA),
5.625%, 8/1/11 $ 299,511
Aaa AAA 250 Commonwealth of Puerto
Rico, Public Improvement
Bonds Residual Interest
Bonds (AMBAC), Variable,
7/1/15 (1) 252,925
-----------
$ 552,436
-----------
INSURED HOSPITAL - 3.0%
Aaa AAA $1,000 Parish of Jefferson,
Hospital District No.1
(FGIC), 5.25%, 1/1/19 $ 908,730
Aaa AAA 100 Louisiana PFA Hospital
Revenue Bonds, (Our Lady of
the Lake Regional Medical
Center), Residual Interest
Bonds (MBIA), Variable,
12/1/14 (1) 104,247
-----------
$ 1,012,977
-----------
INSURED MUNICIPAL ELECTRIC -
5.6%
Aaa AAA $2,000 Lafayette Public Power
Authority, Electric Revenue
Bonds (AMBAC), 5.25%,
11/1/12 $ 1,875,100
-----------
INSURED UTILITIES - 0.5%
Aaa AAA $ 150 City of Alexandria,
Utilities Bonds (FGIC),
6.00%, 5/1/06 $ 159,144
-----------
INSURED WATER & SEWER - 1.5%
Aaa AAA $ 500 Terrebone Parish,
Louisiana, Water Works
Revenue Bonds (FGIC),
5.75%, 11/1/08 $ 512,715
-----------
LIFE CARE - 2.3%
NR NR $ 500 Louisiana HFA, Assisted
Living Facility (HCC
Assisted Living Group I,
Inc.), 9.00%, 3/1/25 $ 484,475
NR NR 300 St. Tammany PFA (Christwood
Project), 9.00%, 11/15/25 287,667
-----------
$ 772,142
-----------
SPECIAL TAX - 3.9%
Baa1 A $1,500 Puerto Rico Highway and
Transportation Authority,
Highway Revenue Refunding
Bonds, Series X, 5.00%,
7/1/22 $ 1,295,715
-----------
TRANSPORTATION - 1.6%
A A- $ 500 Mississippi River Bridge
Authority, Bridge Revenue
Bonds, State of Louisiana,
Series 1992, 6.75%, 11/1/12
(2) $ 525,703
-----------
UTILITIES - 0.4%
Baa3 BBB- $ 150 Parish of Pointe Coupe, PCB
(Gulf States Utilities
Co.), 6.70%, 3/1/13 $ 149,387
-----------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$33,349,873) $33,610,784
===========
</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 Louisiana
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 August 31, 1995, 54.8% 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 3.8% to 26.5% of total investments.
See notes to financial statements.
50
<PAGE>
-------
Maryland Tax Free Portfolio
Portfolio of Investments - August 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 - 0.9%
Aa AA+ $1,000 University of Maryland
Auxiliary Facilities &
Tuition, 6.30%, 2/1/10 $ 1,052,390
------------
ELECTRIC UTILITIES - 7.7%
A2 A $2,000 Calvert, Maryland PCR
(Baltimore Gas & Electric
Company), 5.55%, 7/15/14 $ 1,925,200
NR BBB 2,500 Guam Power Authority,
5.25%, 10/1/13 2,246,400
NR BBB 500 Guam Power Authority,
5.25%, 10/1/23 428,920
NR BBB 750 Guam Power Authority,
6.625%, 10/1/14 766,770
A1 A 500 Montgomery, Maryland PCR
(Potomac Electric Power
Company), 5.375%, 2/15/24 451,930
A1 A 2,225 Prince Georges, Maryland
PCR (Potomac Electric),
6.375%, 1/15/23 2,326,015
Baa1 A- 585 Puerto Rico Electric Power
Authority, 6.25%, 7/1/17 590,850
-----------
$ 8,736,085
------------
ESCROWED - 5.3%
Aaa NR $1,125 Baltimore, Maryland Single
Family Mortgage (Inner
Harbor), 8.00%, 12/1/10 $ 1,359,543
Aaa AAA 500 Maryland Health & Higher
Educational (University of
Maryland) (FGIC), 6.50%,
7/1/21 552,000
NR AAA 1,000 Commonwealth of Puerto
Rico Public Improvement,
6.80%, 7/1/21 1,144,770
Aaa AAA 1,500 Puerto Rico Public
Buildings Authority,
6.875%, 7/1/21 1,723,695
NR AAA 1,000 University of Maryland
System Auxiliary Facility
and Tuition, 6.50%, 4/1/11 1,104,610
NR AAA 175 University of Maryland
System Auxiliary Facility
and Tuition, 6.50%, 4/1/2 197,971
------------
$ 6,082,589
------------
GENERAL OBLIGATIONS - 6.4%
Aa AA+ $1,000 Anne Arundel, Maryland,
5.30%, 4/15/16 $ 934,560
Aa AA- 1,500 Hartford, Maryland, 4.90%,
12/1/10 1,399,020
A AA- 230 Prince Georges, Maryland,
5.00%, 1/15/11 214,767
Baa1 A 1,000 Commonwealth of Puerto
Rico Public Improvement,
6.50%, 7/1/23 1,029,630
Baa1 A 100 Puerto Rico Aqueduct and
Sewer Authority, 7.875%,
7/1/17 111,057
Baa1 A 1,150 Puerto Rico Aqueduct and
Sewer Authority, 7.00%,
7/1/19 1,222,220
NR NR 750 Virgin Islands Public
Finance Authority, 7.25%
10/1/18 787,515
Aa1 AA 500 Washington, Maryland
Suburban Sanitary
District, 6.20%, 6/1/11 523,260
Aaa1 AA 600 Washington, Maryland
Suburban Sanitary
District, 5.00%, 6/1/10 577,542
Aa NR 500 Worcester, Maryland
Sanitary District, 6.55%,
8/15/17 539,210
------------
$ 7,338,781
------------
HOSPITALS - 20.7%
NR NR $ 490 Berlin, Maryland (Atlantic
General Hospital), 8.375%,
6/1/22 $ 516,382
A A 2,000 MD Health & Higher
Educational (Good
Samaritan Hospital),
5.75%, 7/1/19 1,881,420
A A 1,500 MD Health & Higher
Educational (Memorial
Hospital of Cumberland),
6.50%, 7/1/17 1,547,520
A1 A 4,050 MD Health & Higher
Educational (Suburban
Hospital), 5.125%, 7/1/21 3,563,271
Baa1 NR 1,000 MD Health & Higher
Educational (Union
Hospital of Cecil), 6.70%,
7/1/22 951,050
A A 1,200 MD Health & Higher
Educational (Peninsula
Regional Medical Center),
5.00%, 7/1/23 1,011,503
Baa1 BBB 1,250 MD Health & Higher
Educational (Howard County
General Hospital), 5.50%,
7/1/25 1,039,300
Aa AA- 2,000 MD State IDA (Holy Cross
Health System), 5.50%,
12/1/15 1,894,700
Baa NR 1,355 Prince Georges, Maryland
(Greater SouthEast
Healthcare System),
6.375%, 1/1/13 1,257,779
Baa NR 4,500 Prince Georges, Maryland
(Greater SouthEast
Healthcare System),
6.375%, 1/1/23 4,058,415
A NR 7,000 Prince Georges, Maryland
(Dimensions Health),
5.30%, 7/1/24 5,887,630
------------
$ 23,608,970
------------
HOUSING - 7.2%
Aa NR $3,000 Maryland CDA Single Family
(AMT), 6.75%, 4/1/26 $ 3,049,620
Aa NR 250 Maryland CDA Single
Family. 6.85%, 4/1/11 260,758
</TABLE>
51
<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>
HOUSING - (CONTINUED)
Aa NR 985 Maryland CDA Single Family
(AMT), 6.80%, 4/1/22 1,001,538
Aa NR 750 Maryland CDA Single Family
(AMT), 6.80%, 4/1/24 762,592
Aa NR 1,810 Maryland CDA Multi Family
(FHA), 6.70%, 5/15/27 1,844,336
Aa NR 1,000 Maryland CDA Multi Family
(FHA) (AMT), 6.70%,
5/15/36 1,011,180
NR AAA 300 Prince Georges, Maryland
(Antoinette Gardens
Apartments) (FHA), 7.00%,
3/1/28 313,239
------------
$ 8,243,263
------------
INDUSTRIAL DEVELOPMENT
REVENUE/POLLUTION CONTROL
REVENUE - 10.2%
A1 A $1,350 Allegany County, Maryland
(Westvaco Corporation
Project), 6.20%, 1/1/08 $ 1,426,167
NR NR 1,350 Baltimore, Maryland
(Bethlehem Steel
Corporation Project),
7.50%, 6/1/15 1,387,827
A3 BBB+ 1,000 Baltimore, Maryland
(General Motors), 5.35%,
4/1/08 971,460
Aa2 AA- 2,000 Baltimore, Maryland
(Consolidated Coal Sales
Company-E.I. Dupont),
6.50%, 12/1/10 2,145,900
Aa3 AA 2,000 Baltimore, Maryland
(Consolidated Coal Sales
Company-E.I. Dupont),
6.50%, 12/1/11 2,141,040
NR AA- 1,425 Frederick, Maryland EDA
(Cargill, Inc. Project),
6.30%, 11/1/09 (2) 1,518,067
A2 NR 600 Puerto Rico IM&E (American
Home), 5.10%, 12/1/18 536,171
Baa3 BB+ 1,500 Puerto Rico Port Authority
(American Airlines) (AMT),
6.30%, 6/1/23 1,488,150
------------
$ 11,614,782
------------
INSURED EDUCATION - 1.1%
Aaa AAA $1,200 Morgan State University,
Maryland Academic and
Facilities (MBIA), 6.10%,
7/1/20 $ 1,259,928
------------
INSURED ELECTRIC
UTILITIES - 0.2%
Aaa AAA $ 250 Puerto Rico Electric Power
Authority (STRIPES) (FSA),
Variable, 7/1/03 (1) $ 279,153
------------
INSURED HOSPITALS - 17.9%
Aaa AAA $1,365 MD Health & Higher
Educational (Washington
Community Hospital)
(AMBAC), 6.375%, 7/1/22 $ 1,419,394
Aaa AAA 5,000 MD Health & Higher
Educational (Anne Arundel
Hospital) (AMBAC), 5.00%,
7/1/23 4,388,150
Aaa AAA 4,350 MD Health & Higher
Educational (Francis Scott
Key Hospital) (FGIC),
5.00%, 7/1/23 3,759,357
Aaa AAA 3,000 MD Health & Higher
Educational (University
Medical Center) (FGIC),
5.00%, 7/1/20 2,632,500
Aaa AAA 6,250 MD Health & Higher
Educational (Greater
Baltimore Medical Center)
(FGIC), 5.00%, 7/1/19 5,534,688
Aaa AAA 500 MD Health & Higher
Educational (General
Hospital) (MBIA), 6.20%,
7/1/24 512,220
Aaa AAA 2,150 Puerto Rico IM&E Hospital
(MBIA), 6.25%, 7/1/24 2,213,060
------------
$ 20,459,369
------------
INSURED HOUSING - 0.7%
Aaa AAA $ 235 MD CDA Housing and
Community Development
(AMBAC), 6.625%, 6/1/12 $ 240,675
Aaa AAA 500 Prince Georges, Maryland
(Keystone Apartments)
(FHA) (MBIA), 6.80%,
7/1/25 511,395
------------
$ 752,070
------------
INSURED INDUSTRIAL
DEVELOPMENT REVENUE/
POLLUTION CONTROL REVENUE - 0.8%
Aaa AAA $1,000 Prince Georges, Maryland
Solid Waste (FSA), 5.25%,
6/15/13 $ 931,010
------------
INSURED TRANSPORTATION - 6.1%
Aaa AAA $2,000 Baltimore, Maryland
International Airport
(AMT) (FGIC), 6.25%,
7/1/14 $ 2,066,500
Aaa AAA 5,250 Washington, D.C. Metro
Area Transportation
(FGIC), 5.25%, 7/1/14 4,881,660
------------
$ 6,948,160
------------
</TABLE>
52
<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 WATER & SEWER - 3.7%
Aaa AAA $2,000 Baltimore, Maryland
Wastewater (MBIA), 5.65%,
7/1/20 $ 1,942,420
Aaa AAA 2,550 Baltimore, Maryland
Wastewater (FGIC), 5.00%,
7/1/22 2,261,315
------------
$ 4,203,735
------------
MISCELLANEOUS - 0.8%
A NR $1,000 Baltimore, Maryland
Revenue Authority, 5.375%,
7/1/18 $ 921,600
------------
SOLID WASTE - 5.3%
A NR $6,000 North East Maryland Solid
Waste Disposal (AMT),
6.30%, 7/1/16 $ 6,016,680
------------
SPECIAL TAX REVENUE - 3.0%
Baa1 A $1,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 $ 900,160
Baa1 A 1,225 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/17 1,146,661
Baa1 A 1,500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/21 1,347,675
------------
$ 3,394,496
------------
TRANSPORTATION - 0.6%
NR BBB $ 700 Guam Airport Authority
(AMT), 6.70%, 10/1/23 $ 705,040
------------
WATER AND SEWER - 1.4%
Aa AA $1,000 Maryland Water Quality
Financing Administration
Revolving Loan Fund, 0%,
9/1/07 $ 534,740
Aa AA 1,000 Maryland Water Quality
Financing Administration
Revolving Loan Fund,
6.55%, 9/1/14 1,068,880
------------
$ 1,603,620
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$112,178,823) $114,151,721
============
</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 Maryland
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 August 31, 1995, 30.5% 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 19.0% of total investments.
See notes to financial statements
53
<PAGE>
-------
Missouri Tax Free Portfolio
Portfolio of Investments - August 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 - 2.7%
A NR $2,750 Missouri Higher Education
Loan Authority, Student
Loan, (AMT), 5.45%, 2/15/09 $ 2,514,380
-----------
ESCROWED - 2.8%
Aaa AAA $ 240 Missouri Health & Education
Authority, St. Louis
Children's, (MBIA), 6.25%,
5/15/12 $ 266,258
Aaa AAA 410 Missouri Health & Education
Authority, St. Louis
Children's, (MBIA), 6.25%,
5/15/12 453,341
Aaa AAA 350 State of Missouri, Regional
Convention & Sports Complex
Authority, 6.80%, 8/15/11 399,480
Aaa AAA 425 Missouri Health & Education
Authority, Christian
Health, 6.875%, (FGIC),
2/15/21 480,998
Aaa AAA 250 St. Louis County, Regional
Convention & Sports Complex
Authority, 7.00%, 8/15/11 288,630
Aaa AAA 600 St. Louis County,
Pattonville School
District, 6.25%, (FGIC),
2/1/10 656,070
-----------
$ 2,544,777
-----------
GENERAL OBLIGATION - 4.3%
A1 NR $ 750 City of St. Peters, 5.85%,
1/1/13 $ 759,773
Baa1 A 700 Puerto Rico, 5.00%, 7/1/21 600,460
Baa1 A 1,250 Puerto Rico, 5.75%, 7/1/15 1,204,112
Baa1 A 1,000 Puerto Rico, 5.50%, 7/1/21 919,960
NR NR 450 Virgin Island Public
Finance Authority, 7.25%,
10/1/18 472,509
-----------
$ 3,956,814
-----------
HEALTHCARE - 0.4%
Baa1 NR $ 300 Cass County, Fox Springs
Living Center, 7.375%,
10/1/22 $ 317,127
-----------
HOSPITALS - 10.5%
A NR $1,000 Boone County Hospital,
5.50%, 8/1/09 $ 951,420
Baa1 NR 2,000 Missouri Health & Education
Authority, Jefferson
Memorial Hospital, 6.00%,
8/15/23 1,831,100
Aa AA 1,000 Missouri Health & Education
Authority, Barnes Jewish
Christian Hospital, 5.10%,
5/15/09 944,310
Aa AA 2,000 Missouri Health & Education
Authority, Barnes Jewish
Christian Hospital, 5.25%,
5/15/14 1,886,160
Aa AA 2,000 Missouri Health & Education
Authority, Barnes Jewish
Christian Hospital, 5.25%,
5/15/21 1,851,300
Aa AA 1,000 Missouri Health & Education
Authority, Sisters of Mercy
Hospital, 6.25%, 6/1/15 1,034,550
NR BBB+ 550 Moberly Industrial
Development Authority,
Moberly Regional Medical
Center, 8.75%, 3/1/16 603,471
NR AAA 500 Phelps County, Phelps
Regional Medical Center,
(CLEE), 6.00%, 5/15/13 503,000
-----------
$ 9,605,311
-----------
HOUSING - 0.6%
NR AAA $ 535 Missouri Housing
Development Authority SFMR,
(AMT), (GNMA), 6.75%,
6/1/24 $ 550,916
-----------
INDUSTRIAL DEVELOPMENT
REVENUE - 2.8%
NR BBB $1,390 Jefferson County Industrial
Development Authority,
Kmart Corporation, 6.40%,
8/1/08 $ 1,381,452
A3 NR 1,200 Missouri Environmental
Improvement & Energy
Resources Authority,
American Cynamid Company,
5.80%, 9/1/09 1,212,600
-----------
$ 2,594,052
-----------
INSURED - TRANSPORTATION - 1.7%
Aaa AAA $1,000 City of St. Louis, St.
Louis-Lambert International
Airport, (AMT), (FGIC),
6.125%, 7/1/12 $ 1,024,170
Aaa AAA 500 City of St. Louis, St.
Louis-Lambert International
Airport, (AMT), (FGIC),
6.125%, 7/1/15 510,350
-----------
$ 1,534,520
-----------
INSURED - EDUCATION - 2.1%
Aaa AAA $1,000 Missouri Western State
College Housing System,
(MBIA), 5.25%, 10/1/11 $ 947,960
Aaa AAA 1,000 Southeast Missouri State
University Housing System,
(MBIA), 5.70%, 4/1/14 1,003,600
-----------
$ 1,951,560
-----------
INSURED - GENERAL
OBLIGATION - 9.3%
Aaa AAA $1,000 Kansas City School
District, (FGIC), 5.00%,
2/1/14 $ 908,070
Aaa AAA 2,250 Kansas City School
District, (FGIC), 5.00%,
2/1/14 2,043,158
Aaa AAA 1,450 St. Louis County, Mehlville
School District, (MBIA),
6.00%, 2/15/13 1,484,554
Aaa AAA 1,000 St. Louis County, Parkway
School District, (MBIA),
5.00%, 2/1/12 931,020
</TABLE>
54
<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 1,500 City of St. Louis School
District, (FGIC), 5.75%,
4/1/12 1,508,340
Aaa AAA 620 City of St. Louis School
District, (FGIC), 6.00%,
4/1/12 634,333
Aaa AAA 500 Puerto Rico, (AMBAC),
Variable, 7/1/15 (1) 505,850
Aaa AAA 500 Puerto Rico, (FSA),
Variable, 7/1/22 (1) 513,080
-----------
$ 8,528,405
-----------
INSURED - HOSPITAL - 18.4%
Aaa AAA $1,000 Jackson County, Carondelet
Health System, St. Mary's
Hospital, (MBIA), 5.75%,
7/1/24 $ 981,950
Aaa AAA 800 Jackson County, St.
Joseph's Health System,
(MBIA), 6.50%, 7/1/19 836,464
Aaa AAA 1,000 Jackson County, St.
Joseph's Health System,
(MBIA), 6.50%, 7/1/12 1,052,620
Aaa AAA 1,500 Missouri Health & Education
Authority, Health Midwest,
(MBIA), 6.25%, 2/15/22 1,533,435
Aaa AAA 500 Missouri Health & Education
Authority, Sisters of St.
Mary, (MBIA), 6.25%, 6/1/07 535,710
Aaa AAA 1,600 Missouri Health & Education
Authority, Sisters of St.
Mary, (MBIA), 6.25%, 6/1/16 1,642,000
Aaa AAA 1,500 Missouri Health & Education
Authority, Heartland Health
System, (AMBAC), 6.35%,
11/15/17 1,554,735
Aaa AAA 2,900 Missouri Health & Education
Authority, Lester Cox
Medical Center, (MBIA),
5.35%, 6/1/10 2,813,493
Aaa AAA 1,865 Missouri Health & Education
Authority, St. Luke's
Health System, (MBIA),
5.10%, 11/15/13 1,719,287
Aaa AAA 2,000 Missouri Health & Education
Authority, St. Luke's
Health System, (MBIA),
5.125%, 11/15/19 1,801,460
Aaa AAA 575 Missouri Health & Education
Authority, St. Louis
Children's Hospital,
(MBIA), 0%, 5/15/08 287,023
Aaa AAA 9,500 Missouri Health & Education
Authority, Lester Cox
Medical Center, (MBIA), 0%,
9/1/20 2,101,400
-----------
$16,859,577
-----------
INSURED - HOUSING - 1.8%
Aaa AAA $1,500 City of Springfield, SCA
Realty Multifamily Mortgage
Receipts, (FSA), 7.15%,
1/1/30 $ 1,607,220
-----------
INSURED - LEASE/CERTIFICATE
OF PARTICIPATION - 4.4%
Aaa AAA $1,250 Kansas City Municipal
Assistance Corporation,
Bartle Hall Convention,
(AMBAC), 6.625%, 4/15/15 $ 1,336,050
Aaa AAA 500 Kansas City Municipal
Assistance Corporation,
Bartle Hall Convention,
(AMBAC), 6.00%, 4/15/20 507,075
Aaa AAA 600 Kansas City School
District, Building
Corporation, (FGIC), 6.50%,
2/1/08 641,280
Aaa AAA 500 St. Charles County, Public
Facilities Authority,
(FGIC), 6.375%, 3/15/07 536,420
Aaa AAA 1,000 St. Louis County Municipal
Finance Corporation, Civil
Courts Building, (FGIC),
5.75%, 8/1/13 1,002,340
-----------
$ 4,023,165
-----------
INSURED - UTILITIES - 11.4%
Aaa AAA $5,000 Missouri Environmental
Improvement & Energy
Resources Authority, Union
Electric Project, (AMT),
(AMBAC), 5.45%, 10/1/28 $ 4,540,000
Aaa AAA 700 Puerto Rico Electric Power
Authority, (FSA), Variable,
7/1/03 (1) 781,627
Aaa AAA 5,000 City of Sikeston, Electric
System, (MBIA), 6.25%,
6/1/22 5,138,150
-----------
$10,459,777
-----------
INSURED - WATER & SEWER - 1.7%
Aaa AAA $1,500 City of St. Louis, Water
Revenue Improvement Bonds,
(FGIC), 6.00%, 7/1/14 $ 1,539,480
-----------
LEASE/CERTIFICATE OF
PARTICIPATION - 5.1%
A1 A+ $2,000 State of Missouri, Regional
Convention & Sports Complex
Authority, 5.50%, 8/15/21 $ 1,844,580
A BBB+ 2,000 St. Louis County, Regional
Convention & Sports Complex
Authority, 5.50%, 8/15/13 1,861,880
Aa AA 1,000 Southeast Missouri
Correctional Facility,
5.75%, 8/15/16 995,090
-----------
$ 4,701,550
-----------
</TABLE>
55
<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>
LIFECARE - 1.1%
NR NR $ 950 Kansas City Industrial
Development Authority,
Kingswood United Methodist
Manor, 9.00%, 11/15/13 $ 1,018,457
-----------
NURSING HOMES - 1.7%
NR NR $ 500 Missouri Health & Education
Authority, Bethesda Health
Group, 6.625%, 8/15/05 $ 498,710
NR NR 1,000 Missouri Health & Education
Authority, Bethesda Health
Group, 7.50%, 8/15/12 1,011,820
-----------
$ 1,510,530
-----------
SPECIAL TAX REVENUE - 3.6%
Baa1 A $1,000 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/12 $ 1,050,590
Baa1 A 1,400 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/19 1,306,704
Baa1 A 1,000 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/17 936,050
-----------
$ 3,293,344
-----------
TRANSPORTATION - 0.2%
NR BBB $ 200 Guam Airport Authority,
6.375%, 10/1/10 $ 202,580
-----------
UTILITIES - 4.3%
A1 AA $ 500 City of Columbia, Water &
Electric, 6.125%, 10/1/12 $ 513,080
NR BBB 1,010 Guam Power Authority,
6.30%, 10/1/22 998,304
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 5.00%, 7/1/12 905,730
Baa1 A- 1,500 Puerto Rico Electric Power
Authority, 6.375%, 7/1/24 1,526,205
-----------
$ 3,943,319
-----------
WATER & SEWER - 9.1%
A1 AA- $ 760 City of Columbia, Sewerage
System, 6.25%, 10/1/15 $ 784,472
Aa NR 800 Missouri Environmental
Improvement & Energy
Resources Authority, Water
Pollution Control, 6.875%,
6/1/14 872,288
Aa NR 475 Missouri Environmental
Improvement & Energy
Resources Authority, Water
Pollution Control, 6.45%,
7/1/08 513,385
Aa NR 500 Missouri Environmental
Improvement & Energy
Resources Authority, Water
Pollution Control, 6.55%,
7/1/14 532,300
Aa NR 1,000 Missouri Environmental
Improvement & Energy
Resources Authority, Water
Pollution Control, 6.05%,
7/1/15 1,033,590
Aa NR 1,250 Missouri Environmental
Improvement & Energy
Resources Authority, Water
Pollution Control, 7.20%,
7/1/16 1,419,863
Aa NR 1,000 Missouri Environmental
Improvement & Energy
Resources Authority, Cape
Giradeau Project, 0%,
1/1/14 329,020
Aa A+ 3,000 City of Springfield,
Waterworks, 5.375%, 5/1/14 2,888,640
-----------
$ 8,373,558
-----------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$88,354,959) $91,630,419
=============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by Missouri
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 August 31, 1995, 53.4% 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 27.9% of total investments.
See notes to financial statements
56
<PAGE>
-------
North Carolina Tax Free Portfolio
Portfolio of Investments - August 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%
Aa1 AA $1,000 Educational Facilities
Finance Agency, Duke
University, 6.75%,
10/01/21 $ 1,061,130
NR AAA 1,000 Educational Facilities
Finance Agency, Elon
College, 6.375%, 1/1/07 1,063,860
------------
$ 2,124,990
------------
ESCROWED - 1.4%
Aaa A- $ 155 North Carolina Municipal
Power, Catawba Electric,
5.00%, 1/1/20 $ 141,755
NR AAA 150 Puerto Rico GO, 7.30%,
7/1/20 171,831
Aaa AAA 1,500 Puerto Rico Public
Building Authority,
6.875%, 7/1/12 1,723,695
Baa1 AAA 635 Puerto Rico Electric Power
Authority, 7.125%, 7/1/14 707,987
------------
$ 2,745,268
------------
GENERAL OBLIGATIONS - 8.7%
A A- $ 175 Eden, Water and Sewer
Bonds, (AMT), 6.75%,
6/1/08 $ 188,249
NR BBB 1,700 Guam, 5.40%, 11/15/18 1,484,729
Aaa AAA 4,000 North Carolina Capital
Improvement, 4.70%, 2/1/06 3,897,040
Aaa AAA 3,000 North Carolina Capital
Improvement, 4.70%, 2/1/10 2,768,850
Aaa AAA 4,000 North Carolina Capital
Improvement, 4.75%, 2/1/12 3,606,200
Baa1 A 1,000 Puerto Rico, 6.50%, 7/1/23 1,029,630
Baa1 A 1,000 Puerto Rico, 5.75%, 7/1/15 963,290
NR NR 2,550 Virgin Island, 7.25%,
10/1/18 2,677,551
------------
$ 16,615,539
------------
HEALTH CARE - 3.4%
Aa AA $1,700 North Carolina Medical
Care Commission, Carolina
Medicorp, 6.00%, 5/1/21 $ 1,669,281
Aa AA 5,060 North Carolina Medical
Care Commission, Carolina
Medicorp, 5.50%, 5/1/15 4,742,080
------------
$ 6,411,361
------------
HOSPITALS - 18.8%
Aa AA $2,090 Charlotte-Mecklenberg
Hospital, 0%, 1/1/06 $ 1,193,745
Aa AA 2,345 Charlotte-Mecklenberg
Hospital, 6.25%, 1/1/20 2,385,780
NR A 5,500 North Carolina Medical
Care Commission, Mercy
Hospital, 6.50%, 8/1/08 5,725,665
Aa AA- 3,000 North Carolina Medical
Care Commission, North
Carolina Baptist Hospital,
6.00%, 6/1/22 2,944,830
Aa AA 4,000 North Carolina Medical
Care Commission,
Presbyterian Health
Services, 5.50%, 10/1/14 3,778,720
Aa AA 3,700 North Carolina Medical
Care Commission,
Presbyterian Health
Services, 6.00%, 10/1/24 3,610,386
A1 A+ 5,000 North Carolina Medical
Care Commission, Rex
Hospital, 6.125%, 6/1/10 5,030,350
NR BBB+ 2,500 North Carolina Medical
Care Commission, Roanake-
Chowan Hospital, 7.75%,
10/1/19 2,638,475
NR AA 3,700 North Carolina Medical
Care Commission, Scotland
Memorial Hospital, 5.375%,
10/1/11 3,463,459
Aa AA- 2,450 Pitt County Memorial
Hospital, 6.90%, 12/1/21 2,602,807
A1 AA- 2,380 University of North
Carolina at Chapel Hill,
6.00%, 2/15/24 2,390,828
------------
$ 35,765,045
------------
HOUSING - 9.1%
NR AAA $1,900 Charlotte Housing, Double
Oaks, (FHA), (FNMA),
7.35%, 5/15/26 $ 2,032,639
Aa AA 2,250 North Carolina HFA, MFMR,
6.60%, 9/1/26 2,286,855
Aa AA 4,395 North Carolina HFA, MFMR,
6.85%, 7/1/13 4,619,848
Aa A+ 870 North Carolina HFA, SFMR,
6.95%, 3/1/17 910,220
Aa A+ 890 North Carolina HFA, SFMR,
(AMT), 7.05%, 9/1/20 925,066
Aa A+ 4,000 North Carolina HFA, SFMR,
(AMT), 6.70%, 9/1/26 4,093,680
Aa A+ 2,250 North Carolina HFA, MFMR,
(AMT), 6.70%, 1/1/26 2,321,348
Aaa AAA 200 Puerto Rico HFC, SFMR,
6.85%, 10/15/23 207,526
------------
$ 17,397,182
------------
INDUSTRIAL DEVELOPMENT - 5.5%
Baa1 BBB $2,750 Haywood County, Champion
International Corporation,
(AMT), 5.50%, 10/1/18 $ 2,518,395
Baa2 BBB 2,500 New Hanover County,
Occidental Petroleum
Corporation, 6.70%, 7/1/19 2,609,550
NR AA 850 Robeson County, Campbell
Soup Company, 6.40%,
12/1/06 917,847
</TABLE>
57
<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>
INDUSTRIAL DEVELOPMENT -
(CONTINUED)
A2 A 4,250 Martin County, Weyerhauser
Company, (AMT), 6.80%,
5/1/24 4,399,303
------------
$ 10,445,095
------------
INSURED GOVERNMENT
OBLIGATIONS - 2.4%
Aaa AAA $1,000 Puerto Rico, (AMBAC),
Variable, 7/1/15 (1) $ 1,011,700
Aaa AAA 3,500 Puerto Rico, (FSA),
Variable, 7/1/22 (1) 3,591,560
------------
$ 4,603,260
------------
INSURED HOSPITAL - 10.6%
Aaa AAA $2,000 Catawba County, Catawba
Memorial Hospital,
(AMBAC), 6.20%, 10/1/12 $ 2,065,660
Aaa AAA 500 Cumberland County
Hospital, (MBIA), 0%,
10/1/09 226,440
Aaa AAA 4,225 New Hanover Regional
Medical Center, (AMBAC),
4.75%, 10/1/23 3,567,378
Aaa AAA 1,750 North Carolina Medical
Care Commission, Moore
Regional Hospital, (FGIC),
5.20%, 10/1/13 1,616,720
Aaa AAA 3,750 North Carolina Medical
Care Commission, Moore
Regional Hospital, (FGIC),
5.00%, 10/1/18 3,288,863
Aaa AAA 2,000 North Carolina Medical
Care Commission, Wesley
Long Community Hospital,
(AMBAC), 5.25%, 10/1/13 1,858,720
Aaa AAA 2,500 North Carolina Medical
Care Commission, Wesley
Long Community Hospital,
(AMBAC), 5.25%, 10/1/17 2,260,825
Aaa AAA 935 North Carolina Medical
Care Commission, Memorial
Mission Hospital, (FSA),
0%, 10/1/06 518,944
Aaa AAA 5,000 North Carolina Medical
Care Commission, St.
Joseph's Medical Center,
(AMBAC), 5.10%, 10/1/14 4,524,250
Aaa AAA 250 Wake County, North
Carolina Hospital System,
(MBIA), 5.125%, 10/1/26 219,655
------------
$ 20,147,455
------------
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 8.4%
Aaa AAA $ 900 Burke County, COP,
Detention
Facility/Landfill
Equipment, (MBIA), 6.30%,
4/1/08 $ 960,561
Aaa AAA 4,500 Charlotte, COP, Convention
Facility, (AMBAC), 5.25%,
12/1/13 4,242,600
Aaa AAA 1,750 Duplin County, COP,
(FGIC), 5.25%, 8/1/14 1,623,195
Aaa AAA 1,575 Franklin, COP, (FGIC),
6.625%, 6/1/14 1,673,690
Aaa AAA 5,000 Iredell County, COP,
Iredell-Statesville
Schools, (FGIC), 6.125%,
6/1/07 5,288,550
Aaa AAA 1,000 Mooresville School
District, (AMBAC), COP,
6.35%, 10/1/14 1,034,750
Aaa AAA 1,000 Rutherford County, COP,
(FGIC), 6.25%, 6/1/23 1,022,640
Aaa AAA 200 Scotland County, COP,
(CGIC), 6.75%, 3/1/11 213,198
------------
$ 16,059,184
------------
INSURED TRANSPORTATION - 1.8%
Aaa AAA $3,750 Piedmont Triad Airport
Authority, (MBIA), 5.125%,
7/1/12 $ 3,464,888
------------
INSURED UTILITIES - 3.1%
Aaa AAA $3,000 North Carolina Municipal
Power Authority, Catawba
Electric, (AMBAC), 5.75%,
1/1/15 $ 2,917,920
Aaa AAA 1,500 North Carolina Eastern
Municipal Power Authority,
(FSA), Variable, 1/1/19
(1) 1,411,365
Aaa AAA 1,400 Puerto Rico Electric Power
Authority, Stripes, (FSA),
Variable, 7/1/02 (1) 1,546,062
------------
$ 5,875,347
------------
INSURED WATER & SEWER - 2.0%
Aaa AAA $ 750 Fayetteville Public Works
Commission, (FGIC), 4.75%,
3/1/14 $ 650,655
Aaa AAA 3,500 Fayetteville Public Works
Commission, (FGIC),
5.125%, 3/1/10 3,257,555
------------
$ 3,908,210
------------
LEASE/CERTIFICATE OF
PARTICIPATION - 6.7%
A1 A- $2,065 Buncombe County, COP,
6.625%, 12/1/10 $ 2,205,026
Aa1 AA 4,150 Charlotte County, COP,
Charolette Mecklendberg
Law, 5.375%, 6/1/13 4,022,803
NR AA 825 Durham County, COP, 6.10%,
7/15/07 872,900
Aa AA 985 Durham County, COP, 6.75%,
12/1/11 1,062,648
</TABLE>
58
<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)
A1 AA 2,400 Greensboro, COP,
Greensboro Coliseum Arena,
6.75%, 12/1/09 2,581,272
A NR 1,950 Rowan County, COP, 6.25%,
12/1/07 2,095,002
------------
$ 12,839,651
------------
SPECIAL TAX REVENUE - 2.8%
Baa1 BBB+ $ 200 Puerto Rico Finance
Authority, 7.90%, 7/1/07 $ 220,820
Baa1 A 4,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 3,600,640
Baa1 A 1,490 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 1,415,738
------------
$ 5,237,198
------------
TRANSPORTATION - 0.9%
Baa3 BB+ $1,500 Raleigh-Durham Airport
Authority, American
Airlines Inc., 9.40%,
11/1/00 $ 1,713,810
------------
UTILITIES - 12.3%
A2 A $1,015 Chatham County Industrial
Facilities and Pollution,
Carolina Power & Light,
6.30%, 6/1/14 $ 1,074,804
NR BBB 1,750 Guam Power Authority,
5.25%, 10/1/23 1,501,220
A A- 2,875 North Carolina Municipal
Power, Catawba Electric,
5.00%, 1/1/15 2,426,414
A A- 2,500 North Carolina Municipal
Power, Catawba Electric,
5.75%, 1/1/15 2,328,850
A A- 550 North Carolina Municipal
Power, Catawba Electric,
7.00%, 1/1/16 566,803
A BBB+ 5,000 North Carolina Municipal
Power, Eastern Power,
6.125%, 1/1/09 4,965,750
A BBB+ 1,500 North Carolina Municipal
Power, Eastern Power,
6.40%, 1/1/21 1,481,310
A BBB+ 3,200 North Carolina Municipal
Power, Eastern Power,
6.00%, 1/1/26 3,008,960
A BBB+ 1,750 North Carolina Municipal
Power, Eastern Power,
7.00%, 1/1/13 1,858,727
Baa1 A- 2,000 Puerto Rico Electric Power
Authority, 0%, 7/1/17 528,860
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 7.00%, 7/1/21 1,105,180
Baa1 A- 2,000 Puerto Rico Electric Power
Authority, 6.00%, 7/1/16 1,988,040
Baa1 A- 365 Puerto Rico Electric Power
Authority, 7.125%, 7/1/14 398,427
NR NR 250 Virgin Islands Water and
Power Authority,
7.40%, 7/1/11 261,877
------------
$ 23,495,222
------------
WATER & SEWER - 1.0%
Aa AA $2,000 Orange County, Water &
Sewer, 5.20%, 7/1/16 $ 1,815,440
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$183,328,988) $190,664,145
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by North Carolina
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 August 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 0.1% to 12.3% of total investments.
See notes to financial statements
59
<PAGE>
-------
Oregon Tax Free Portfolio
Portfolio of Investments - August 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 - 1.6%
NR A+ $1,250 State of Oregon Health,
Housing, Educational and
Cultural Facilities
Authority, Reed College
Project, 6.75%, 7/1/21 $ 1,320,450
A NR 1,000 City of Salem, Educational
Facilities, Willamette
University Project, 6.10%,
4/1/14 1,010,800
------------
$ 2,331,250
------------
ESCROWED - 1.7%
A1 AAA $2,000 City of Medford, Rogue
Valley Memorial Hospital
(ETM), 6.25%, 12/1/07 $ 2,182,460
NR AAA 200 Puerto Rico Highway &
Transportation Authority,
Pre-Refunded, 6.625%,
7/1/18 226,918
------------
$ 2,409,378
------------
GENERAL
OBLIGATIONS - 17.7%
A A+ $2,000 Clackamas County,
Clackamas Community
College District, 5.25%,
12/1/09 $ 1,964,440
Aa AA+ 1,000 Tri County Metropolitan
Transportation District,
Light Rail Extention,
6.00%, 7/1/12 1,021,140
Aa NR 1,000 Clackamas & Multnomah
Counties, Lake Oswego
School District, 5.70%,
6/15/10 1,012,290
Aa NR 2,000 Lane County, City of
Eugene, School District,
5.375%, 7/1/13 1,932,000
Aa AA- 1,500 Washington and Multnomah
Counties, City of
Beaverton, School
District, 5.00%, 9/1/12 1,405,290
Aa AA- 1,000 State of Oregon, Oregon
Veterans' Welfare Bonds,
9.00%, 4/1/04 1,291,370
Aa AA- 1,000 State of Oregon, Board of
Higher Education, 6.00%,
10/15/18 1,013,760
Aa AA- 6,110 State of Oregon, Elderly
and Disabled Housing,
(AMT), 5.65%, 8/1/26 5,885,213
Aa AA- 1,250 State of Oregon, Elderly
and Disabled Housing,
6.375%, 8/1/24 1,294,063
Aa AA- 1,000 State of Oregon, Elderly
and Disabled Housing,
(AMT), 5.625%, 8/1/18 976,670
Aa AA- 3,505 State of Oregon,
Governmental Purpose,
5.625%, 6/1/13 (2) 3,491,015
Aa AA- 2,000 State of Oregon, Board of
Higher Education, 5.00%,
8/1/23 1,764,940
Baa1 A 2,000 Puerto Rico, 5.75%, 7/1/15 1,926,580
Baa1 A 1,000 Puerto Rico, 5.50%, 7/1/21 919,960
------------
$ 25,898,731
------------
HOSPITALS - 1.4%
NR A $1,000 Benton County, Good
Samaritan Hospital
Corvallis, 6.25%, 10/1/09 $ 1,006,810
Aa3 AA 1,000 Clackamas County, Kaiser
Permanente, 6.25%, 4/1/21 1,006,520
------------
$ 2,013,330
------------
HOUSING - 8.8%
Aa NR $2,500 State of Oregon Housing
and Community Services
Department, MFMR, 6.875%,
7/1/28 $ 2,623,425
Aa NR 1,055 State of Oregon Housing
and Community Services
Department, SFMR, (AMT),
6.80%, 7/1/27 1,097,105
Aa NR 1,500 State of Oregon Housing
and Community Services
Department, SFMR, 5.375%,
7/1/17 1,388,325
Aa NR 3,500 State of Oregon, Housing
and Community Services
Department, SFMR, 5.45%,
7/1/24 3,205,965
Aa NR 2,500 State of Oregon, Housing
and Community Services
Department, SFMR, (AMT),
6.45%, 7/1/26 2,579,025
Aa NR 2,000 State of Oregon, Housing
and Community Services
Department, SFMR, (AMT),
6.40%, 7/1/26 2,029,580
------------
$ 12,923,425
------------
INDUSTRIAL DEVELOPMENT
REVENUE - 4.7%
NR BBB- $5,000 Port of Astoria, PCR,
James River Project,
6.55%,
2/1/15 (2) $ 5,030,900
NR NR 750 Port of Portland, Ash
Grove Cement Co., 7.25%,
10/1/09 821,640
Baa1 A 1,000 Port of Portland, North
Portland Crown Zellerbach
Corporation, 6.125%,
5/15/08 1,000,200
------------
$ 6,852,740
------------
COGENERATION - 1.4%
NR NR $2,000 Western Generation Agency,
Wauna Cogeneration
Project, (AMT), 7.40%,
1/1/16 $ 2,084,360
------------
</TABLE>
60
<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 TRANSPORTATION -
4.6%
Aaa AAA $1,000 Port of Portland, Portland
International Airport,
(AMT), (AMBAC), 6.25%,
7/1/18 $ 1,050,930
Aaa AAA 2,750 Port of Portland, Portland
International Airport,
(AMT), (FGIC), 6.00%,
7/1/23 2,829,118
Aaa AAA 1,250 Port of Portland, Portland
International Airport,
(AMT), (FGIC), 5.75%,
7/1/25 1,213,475
Aaa AAA 1,500 Oregon Department of
Transportation, Westside
Light Rail, (MBIA), 6.25%,
6/1/09 1,585,155
-----------
$ 6,678,678
-----------
INSURED EDUCATION - 1.7%
Aaa AAA $1,000 State of Oregon Health,
Housing, Educational and
Cultural Facilities
Authority, Lewis and Clark
College, (MBIA), 6.00%,
10/1/13 $ 1,025,980
Aaa AAA 1,500 State of Oregon Health,
Housing, Educational and
Cultural Facilities
Authority, Lewis and Clark
College, (MBIA), 6.125%,
10/1/24 1,535,640
-----------
$ 2,561,620
-----------
INSURED GENERAL
OBLIGATIONS - 11.6%
Aaa AAA $1,850 Deschutes and Jefferson
Counties, Redmond School
District, (MBIA), 5.60%,
6/1/09 $ 1,865,984
Aaa AAA 2,500 Deschutes County, City of
Sisters School District,
(MBIA), 5.40%, 12/1/10 2,459,000
Aaa AAA 2,750 Jefferson County, Madras
School District, (FSA),
5.50%, 6/15/13 2,712,930
Aaa AAA 1,000 Multnomah County, Parkrose
School District, (FGIC),
5.70%, 12/1/09 1,027,770
Aaa AAA 1,000 Multnomah County, Parkrose
School District, (FGIC),
5.50%, 12/1/10 1,005,770
Aaa AAA 2,500 Marion and Polk Counties,
Salem-Keizer School
District, (FSA), 5.40%,
6/1/12 2,409,100
Aaa AAA 3,500 Yamhill, Clackamas &
Washington Counties,
Newberg School Dist.,
(FSA), 5.50%, 6/1/10 3,471,755
Aaa AAA 2,000 Puerto Rico, (AMBAC),
Variable, 7/1/15 (1) 2,023,400
-----------
$16,975,709
INSURED HOSPITALS - 2.2%
Aaa AAA $2,000 City of Portland, Hospital
Facilities Authority,
Legacy Health System,
(AMBAC), 6.70%, 5/1/21 $ 2,146,520
Aaa AAA 1,000 Western Lane Hospital
District Authority,
Sisters of St. Joseph of
Peace, (MBIA), 5.75%,
8/1/19 1,003,150
-----------
$ 3,149,670
-----------
INSURED - CERTIFICATES OF
PARTICIPATIONS - 2.0%
Aaa AAA $1,250 State of Oregon,
Department of General
Services, Real Property
Financing Program,
(AMBAC), 6.25%, 9/1/15 $ 1,295,138
Aaa AAA 1,500 State of Oregon,
Department of General
Services, Real Property
Financing Program, (MBIA),
6.25%, 11/1/19 (2) 1,559,595
-----------
$ 2,854,733
-----------
INSURED UTILITIES - 1.7%
Aaa AAA $1,000 Lane County, Emerald
People's Utility District,
Electric System, (AMBAC),
5.75%, 11/1/16 $ 1,000,610
Aaa AAA 1,000 City of Eugene, Electric
Utility Revenue, (MBIA),
5.80%, 8/1/22 1,011,210
Aaa AAA 500 Puerto Rico Electric Power
Authority, (FSA),
Variable, 7/1/03 (1) 558,305
-----------
$ 2,570,125
-----------
INSURED WATER & SEWER -
4.5%
Aaa AAA $1,000 City of Beaverton,
Washington County, Water
Revenue, (FSA), 6.125%,
6/1/14 $ 1,027,200
Aaa AAA 1,500 City of Portland, Sewer
System, (FGIC), 6.00%,
10/1/12 1,542,135
Aaa AAA 1,000 South Fork Water Board,
First Lien Water Revenue,
(FSA), 6.00%, 2/1/19 1,024,020
Aaa AAA 1,375 Washington County, Unified
Sewerage Agency, Senior
Lien, (AMBAC), 6.125%,
10/1/12 1,427,690
Aaa AAA 1,500 Washington County, Unified
Sewerage Agency, (AMBAC),
6.125%, 10/1/12 1,557,480
-----------
$ 6,578,525
-----------
</TABLE>
61
<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>
CERTIFICATES OF
PARTICIPATION - 1.7%
Aa A $1,500 Multnomah County, Juvenile
Justice Complex, 6.00%,
8/1/12 $ 1,535,865
Aa NR 1,000 Multnomah County, Health
System Facilities, 5.50%,
7/1/13 979,900
------------
$ 2,515,765
------------
MISCELLANEOUS - 3.9%
A A $3,000 Metropolitan Service
District, Metro
Headquarters Building
Project, 5.25%, 8/1/22 $ 2,682,930
A NR 1,600 State of Oregon, Oregon
Bond Bank, Special Public
Works Fund, 5.375%, 1/1/14 1,523,744
A1 NR 1,500 State of Oregon Health,
Housing, Educational and
Cultural Facilities
Authority, Oregon Coast
Aquarium, 5.25%, 10/1/13 1,427,640
------------
$ 5,634,314
------------
SPECIAL TAX REVENUE - 6.8%
A NR $1,000 City of Portland, Urban
Renewal and Redevelopment
Bonds, Downtown Waterfront
Project, 6.40%, 6/1/08 $ 1,066,770
Baa1 A 1,500 Puerto Rico Highway and
Transportation Authority,
6.375%, 7/1/08 1,586,550
Baa1 A 1,720 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 1,548,275
Baa1 A 2000 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/17 1,872,100
Baa1 A 800 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/18 834,880
A1 AA 3,000 Tri-County Metropolitan
Transportation District,
Limited Tax Pledge, 5.70%,
8/1/13 2,993,130
------------
$ 9,901,705
------------
TRANSPORTATION - 3.4%
Ba1 BB $1,500 Port of Portland, Special
Obligation Revenue Bonds,
Delta Air Lines, Inc.
Project, (AMT), 6.20%,
9/1/22 $ 1,435,725
NR BBB 2,000 Guam Airport Authority,
6.50%, 10/1/23 2,007,180
NR BBB 1,500 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 1,510,800
------------
$ 4,953,705
------------
UTILITIES - 14.3%
A1 AA $1,500 City of Eugene, Electric
Utility System, 6.00%,
8/1/11 $ 1,533,000
A1 AA 4,055 City of Eugene, Electric
Utility System, 5.75%,
8/1/16 4,025,480
Aa AA 4,000 City of Eugene, Trojan
Nuclear Power Project,
5.90%, 9/1/09 (2) 3,999,920
Aa AA 4,000 Northern Wasco County,
People's Utility District,
McNary Dam Fishway
Hydroelectric Project,
Bonneville Power
Administration, 5.20%,
12/1/24 3,571,040
Baa1 A- 8,000 Puerto Rico Electric Power
Authority, 5.00%, 7/1/12 7,245,840
A A+ 500 Puerto Rico Telephone
Authority, Variable,
1/1/20 (1) 510,830
------------
$ 20,886,110
------------
WATER & SEWER - 4.3%
NR A+ $2,000 Clackamus County, Water
Revenue, 6.375%, 10/1/14 $ 2,097,880
A A+ 1,500 City of Gresham, Water
Revenue, 5.20%, 11/1/10 1,470,615
A A+ 1,000 City of Gresham, Water
Revenue, 5.30%, 11/1/15 965,110
Aa A+ 1,800 City of Portland, Water
Systems, 5.25%, 8/1/13 1,711,673
------------
$ 6,245,278
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$143,369,782) $146,019,151
============
</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 Oregon
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 August 31, 1995, 35.3% 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 5.2% to 8.2% of total investments.
See notes to financial statements
62
<PAGE>
-------
South Carolina Tax Free Portfolio
Portfolio of Investments - August 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 - 3.8%
NR BBB- $1,000 Puerto Rico ITEME,
Polytechnic University of
Puerto Rico, 5.50%, 8/1/24 $ 876,150
NR A 1,500 SC Education Authority,
Student Loan, (AMT), 6.30%,
9/1/08 1,516,575
-----------
$ 2,392,725
-----------
ESCROWED - 1.5%
Aaa AA $ 500 Columbia, South Carolina
Waterworks and Sewer
System, 7.10%, 2/1/12 $ 570,865
Aaa AAA 350 South Carolina Public
Service Authority, Santee
Cooper, 6.625%, 7/1/31 397,292
-----------
$ 968,157
-----------
GENERAL OBLIGATIONS - 5.7%
NR BBB $1,025 Guam, 5.40%, 11/15/18 $ 895,204
Baa1 A 1,000 Puerto Rico Public
Building, 5.75%, 7/1/16 956,670
Baa1 A 1,000 Puerto Rico, 6.50%, 7/1/23 1,029,630
A A 500 Spartanburg Sanitary Sewer
District, 5.40%, 3/1/10 481,520
NR NR 200 Virgin Islands, 7.25%,
10/1/18 210,004
-----------
$ 3,573,028
-----------
HOSPITALS - 6.0%
NR AA- $ 725 Greenville Hospital System
Board of Trustees, 7.00%,
5/1/17 $ 759,365
Baa1 NR 1,500 Horry County, Conway
Hospital, 6.75%, 7/1/12 1,527,705
NR AAA 1,500 SC Jobs Economic
Development, Oconee
Memorial Hospital, 6.15%,
3/1/25 1,499,970
-----------
$ 3,787,040
-----------
HOUSING - 9.5%
NR AA $ 995 South Carolina HFA, MFMR,
Westbury Place, 6.05%,
7/1/27 $ 951,698
NR BBB+ 1,000 South Carolina HDA, MFMR,
Hunting Ridge, (AMT),
6.75%, 6/1/25 983,480
Aa AA 1,500 South Carolina HFA, SFMR,
6.375%, 7/1/16 1,501,560
Aa NR 1,500 South Carolina HFA, SFMR,
6.45%, 7/1/17 1,510,260
Aa NR 1,000 South Carolina HFA, SFMR,
(AMT), 6.75%, 7/1/26 1,010,570
-----------
$ 5,957,568
-----------
INDUSTRIAL DEVELOPMENT - 18.0%
Baa2 BBB $1,000 Aiken County, Beliot
Corporation, 6.00%, 12/1/11 $ 991,700
NR BBB+ 1,500 Chester County, 7.35%,
2/1/14 1,609,395
A1 AA- 1,500 Darlington County, Nucor
Corporation, (AMT), 5.75%,
8/1/23 (3) 1,405,185
A2 A+ 500 Darlington County, Sonoco
Products, (AMT), 6.125%,
6/1/25 498,920
Aa3 AA 500 Florence County, Pollution
Control, E.I. du Pont de
Nemours & Co., 6.35%,
7/1/22 520,050
A1 A- 2,665 Richland County, Pollution
Control, Union Camp
Corporation, (AMT), 6.75%,
11/1/22 2,812,854
NR NR 1,500 Spartanburg County, Solid
Waste, Bavarian Motor Works
Corporation, (AMT), 7.55%,
11/1/24 1,618,440
A2 A+ 2,000 York County, Hoechst
Celanese Corporation,
(AMT), 5.70%, 1/1/24 1,869,640
-----------
$11,326,184
-----------
INSURED EDUCATION - 0.4%
Aaa AAA $ 250 College of Charleston,
Housing and Auxiliary
Facilities, (MBIA), 6.00%,
10/1/07 $ 257,818
-----------
INSURED GENERAL OBLIGATION - 1.7%
Aaa AAA $1,000 Berkeley County School
District, (AMBAC), 6.30%,
2/1/16 $ 1,039,360
-----------
INSURED HOSPITAL - 5.9%
Aaa AAA $1,000 Florence County, McLeod
Medical Center, (FGIC),
5.25%, 11/1/09 $ 947,310
Aaa AAA 1,500 Greenwood County, Self
Memorial Hospital, (FGIC),
5.875%, 10/1/17 1,493,490
Aaa AAA 300 Lexington County Health
Services District, Inc.,
(FSA), 6.75%, 10/1/18 317,547
Aaa AAA 1,000 South Carolina
Jobs-Economic Development,
South Carolina Baptist
Hospital, (AMBAC), 5.45%,
8/1/15 934,330
-----------
$ 3,692,677
-----------
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 7.3%
Aaa AAA $ 500 Charleston County, COP,
(MBIA), 6.10%, 6/1/11 $ 513,820
Aaa AAA 1,000 Charleston County, COP,
(MBIA), 7.00%, 6/1/19 1,079,830
Aaa AAA 1,060 Chesterfield County School
District, COP, (MBIA),
6.00%, 7/1/15 1,058,664
Aaa AAA 1,000 Florence County, COP, Law
Center, (AMBAC), 6.00%,
3/1/14 1,003,570
Aaa AAA 900 North Charleston, COP,
Coliseum Capital
Improvements, (FGIC),
6.00%, 1/1/11 915,318
-----------
$ 4,571,202
-----------
</TABLE>
63
<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 SOLID WASTE - 0.8%
Aaa AAA $ 500 Charleston County, (FGIC),
6.00%, 1/1/14 $ 508,995
-----------
INSURED TRANSPORTATION - 1.5%
Aaa AAA $1,105 Charleston County Airport,
(MBIA), 4.75%, 7/1/15 $ 952,919
-----------
INSURED UTILITIES - 12.5%
Aaa AAA $ 300 Piedmont Municipal Power
Agency, (MBIA), 6.25%,
1/1/09 $ 322,785
Aaa AAA 1,000 Piedmont Municipal Power
Agency, (MBIA), 6.30%,
1/1/14 1,039,880
Aaa AAA 400 Puerto Rico Electric Power
Authority, (STRIPES),
(FSA), Variable, 7/1/02 (1) 441,732
Aaa AAA 150 Rock Hill, Downtown
Redevelopment, (AMBAC),
5.375%, 1/1/24 141,399
Aaa AAA 1,000 South Carolina Public
Service Authority, Santee
Cooper, (AMBAC), 5.00%,
1/1/14 907,230
Aaa AAA 1,000 South Carolina Public
Service Authority, Santee
Cooper, (MBIA), 5.125%,
1/1/32 867,170
Aaa AAA 1,500 South Carolina Public
Service Authority, (MBIA),
5.75%, 1/1/10 (2) 1,478,295
Aaa AAA 1,500 South Carolina Public
Service Authority, (MBIA),
5.75%, 1/1/22 (2) 1,422,090
Aaa AAA 1,250 South Carolina Public
Service Authority, (AMBAC),
6.375%, 7/1/21 1,279,025
-----------
$ 7,899,606
-----------
INSURED WATER & SEWER - 5.2%
Aaa AAA $1,000 Berkeley County, South
Carolina Water and Sewer
System, (MBIA), 5.55%,
6/1/15 $ 954,920
Aaa AAA 2,000 Cayce, South Carolina Water
and Sewer System, (AMBAC),
5.25%, 7/1/15 (3) 1,840,320
Aaa AAA 500 Mount Pleasant, Waterworks
and Sewer System, (AMBAC),
6.00%, 12/1/20 505,950
-----------
$ 3,301,190
-----------
LEASE/CERTIFICATE OF
PARTICIPATION - 4.1%
Baa NR $ 750 Lexington School District,
COP, 6.90%, 7/1/08 $ 784,223
Baa1 BBB+ 1,750 Myrtle Beach Convention
Center, COP, 6.875%, 7/1/17 1,802,762
-----------
$ 2,586,985
-----------
MISCELLANEOUS - 0.5%
NR A+ $ 300 South Carolina Resource
Authority, 7.00%, 4/1/13 $ 311,634
-----------
SPECIAL TAX - 1.1%
Baa1 A $ 750 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/19 $ 700,020
-----------
UTILITIES - 13.5%
A2 A- $1,650 Berkeley County, South
Carolina Electric & Gas
Company, 6.50%, 10/1/14 $ 1,746,195
A2 A 1,500 Darlington County, Carolina
Power & Light Company,
6.60%, 11/1/10 1,596,915
NR BBB 500 Guam Power Authority,
5.25%, 10/1/23 428,920
Aa2 AA- 1,000 Oconee County, PCR, Duke
Power, 5.80%, 4/1/14 990,970
A BBB 500 Piedmont Municipal Power
Agency, 5.75%, 1/1/24 458,910
Baa1 A- 1,400 Puerto Rico Electric Power
Authority, 6.250%, 7/1/17 1,414,000
Baa1 A- 500 Puerto Rico Electric Power
Authority, 6.375%, 7/1/24 508,735
A1 A+ 500 South Carolina Public
Service Authority, Santee
Cooper, 6.00%, 7/1/31 488,435
A1 A+ 1,000 South Carolina Public
Service Authority, 5.125%,
1/1/32 849,170
-----------
$ 8,482,250
-----------
WATER & SEWER REVENUE - 1.0%
Aa AA $ 500 Columbia, Waterworks and
Sewer System, 5.375%,
2/1/12 $ 483,830
A1 AA- 150 Spartanburg, Water System,
6.25%, 6/1/12 155,079
-----------
$ 638,909
-----------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$60,604,156) $62,948,267
===========
</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.
The Portfolio invests primarily in debt securities issued by South Carolina
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 August 31, 1995, 35.3% 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 1.2% to 15.8% of total investments.
See notes to financial statements
64
<PAGE>
-------
Tennessee Tax Free Portfolio
Portfolio of Investments - August 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 - 4.3%
Aa AA $1,600 Nashville and Davidson
County, The Vanderbilt
University, 5.20%, 7/1/18 $ 1,462,256
Baa NR 1,000 Nashville and Davidson
County, The Belmont
University, 6.40%, 12/1/19 998,650
-----------
$ 2,460,906
-----------
GENERAL OBLIGATION - 4.1%
Aa AA+ $1,000 Shelby County, 5.625%,
4/1/14 $ 973,560
Aa AA+ 1,000 Shelby County, 5.125%,
3/1/16 907,440
Aa NR 500 Williamson County, Rural
School Bonds, 5.80%, 3/1/12 504,710
-----------
$ 2,385,710
-----------
HOSPITAL - 4.0%
Baa1 NR $ 500 City of Clarksville,
Clarksville Memorial
Hospital, 6.25%, 7/1/08 $ 497,765
Baa1 NR 500 City of Clarksville,
Clarksville Memorial
Hospital, 6.375%, 7/1/08 487,915
Baa1 BBB+ 250 County of Knox, East
Tennessee Children's
Hospital, 6.50%, 10/1/12 249,728
NR A- 1,000 Sumner County, Sumner
Regional Health Systems,
7.50%, 11/1/14 1,084,970
-----------
$ 2,320,378
-----------
HOUSING - 16.2%
NR AAA $ 500 Knoxville Community
Development Corporation,
MFMR, Morningside Gardens,
(GNMA) 6.10%, 7/20/20 $ 486,860
NR A 750 Knoxville Community
Development Corporation,
MFMR, Clinton Towers,
6.65%, 10/15/10 760,140
NR A 1,645 Nashville and Davidson
County, MFMR, The Park at
Hermitage, 5.90%, 2/1/19 1,494,054
NR A 800 Murfreesboro Housing
Authority, MFMR, Westbrooks
Towers Project, 5.875%,
7/15/10 755,120
Aa A+ 500 TN HDA, Homeownership
Program, 6.80%, 7/1/17 510,560
A1 A+ 2,000 TN HDA, Mortgage Finance
Program, 5.85%, 7/1/13 1,973,680
A1 A+ 2,000 TN HDA, Mortgage Finance
Program, 5.95%, 7/1/28 1,938,180
Aa AA 1,500 TN HDA, Homeownership
Program, (AMT), 5.75%,
7/1/24 1,394,550
-----------
$ 9,313,144
-----------
INDUSTRIAL DEVELOPMENT
REVENUE - 16.0%
Aa2 AA $1,000 City of Chattanooga, E.I.
du Pont de Nemours and
Company Project, 6.35%,
7/1/22 $ 1,040,100
Aa2 AA 1,000 Humphreys County, E.I. du
Pont de Nemours and Company
Project, 6.70%, 5/1/24 1,056,030
Aa2 AA 2,000 Loudon County,
Kimberly-Clark Corporation
Project, (AMT), 6.20%,
2/1/23 (2) 2,006,900
Baa1 BBB 1,750 Maury County, Saturn
Corporation Project, 6.50%,
9/1/24 1,796,970
Baa1 BBB 250 McMinn County, Calhoun
Newsprint Company, Bowater
Incorporated Obligor,
(AMT), 7.40%, 12/1/22 264,340
Baa3 BBB 1,500 Memphis-Shelby County
Airport Authority, Federal
Express Corporation, 6.75%,
9/1/12 1,562,475
Baa3 BBB 1,000 Memphis-Shelby County
Airport Authority, Federal
Express Corporation, (AMT),
6.20%, 7/1/14 1,005,000
NR BBB+ 500 Nashville and Davidson
County, Osco Treatment
Systems, (AMT), 6.00%,
5/1/03 499,040
-----------
$ 9,230,855
-----------
INSURED GENERAL OBLIGATION - 0.5%
Aaa AAA $ 300 Puerto Rico, (AMBAC),
Variable, 7/1/15 (1) $ 303,510
-----------
INSURED HOUSING - 1.8%
Aaa AAA $1,000 Knox County, SCA Realty
Multifamily Mortgage
Receipts, (FSA), 7.125%,
1/1/30 (2) $ 1,069,290
-----------
INSURED HOSPITAL - 21.9%
Aaa AAA $ 500 City of Bristol, Bristol
Memorial Hospital, (FGIC),
6.75%, 9/1/10 $ 552,955
Aaa AAA 2,000 City of Bristol, Bristol
Memorial Hospital, (FGIC),
5.125%, 9/1/13 1,839,980
Aaa AAA 1,500 Chattanooga-Hamilton
County, Erlanger Medical
Center, (FSA), 5.625%,
10/1/18 1,442,805
Aaa AAA 250 City of Chattanooga,
Memorial Hospital Project,
(MBIA), 6.625%, 9/1/09 276,158
Aaa AAA 1,000 City of Johnson, Johnson
City Medical Center,
(MBIA), 5.00%, 7/1/13 906,620
Aaa AAA 1,500 City of Johnson, Johnson
City Medical Center,
(MBIA), 5.25%, 7/1/16 1,377,135
Aaa AAA 1,000 Knox County, Mercy Health
System, (AMBAC), 6.00%,
9/1/19 (2) 1,004,450
Aaa AAA 2,000 Knox County, Fort Sanders
Alliance Obligated Group,
(MBIA), 5.25%, 1/1/23 1,802,000
</TABLE>
65
<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 1,500 Shelby County, LeBonheur
Children's Medical Center,
Inc., (MBIA), 5.50%,
8/15/12 1,436,204
Aaa AAA 2,000 Sullivan County, Holston
Valley Health Care Inc.,
(MBIA), 5.75%, 2/15/13 (2) 1,980,380
-----------
$12,618,687
-----------
INSURED SPECIAL TAX - 1.9%
Aaa AAA $1,000 City of Johnson, School
Sales Tax Revenue, (AMBAC),
6.70%, 5/1/21 $ 1,070,690
-----------
INSURED TRANSPORTATION - 4.4%
Aaa AAA $1,500 Memphis-Shelby County
Airport Authority, (MBIA),
5.65%, 9/1/15 $ 1,468,350
Aaa AAA 1,000 Memphis-Shelby County
Airport Authority, (MBIA),
(AMT), 6.50%, 2/15/09 1,080,230
-----------
$ 2,548,580
-----------
INSURED UTILITIES - 2.4%
Aaa AAA $1,000 Madison County Suburban
Utility District, (MBIA),
5.00%, 2/1/19 $ 905,310
Aaa AAA 400 Puerto Rico Electric Power
Authority, (FSA), Variable,
7/1/03 (1) 446,644
-----------
$ 1,351,954
-----------
INSURED WATER & SEWER - 4.8%
Aaa AAA $ 500 Roane and Morgan Counties,
Cumberland Utility
District, Waterworks
Revenue, (MBIA), 5.90%,
1/1/23 $ 499,950
Aaa AAA 1,000 Nashville and Davidson
Counties, Water and Sewer
Revenue, (AMBAC), 5.75%,
1/1/15 989,560
Aaa AAA 350 Nashville and Davidson
Counties, Water and Sewer
Revenue, (AMBAC), Variable,
1/1/22 (1) 358,740
Aaa AAA 1,000 Nashville and Davidson
Counties, Water and Sewer
Revenue, (FGIC), 5.20%,
1/1/13 935,930
-----------
$ 2,784,180
-----------
CERTIFICATE OF
PARTICIPATION - 0.9%
A NR $ 500 Wilson County Educational
Facilities Corporation,
6.125%, 6/30/10 $ 508,050
-----------
POOLED LOANS - 6.7%
A AA- $ 700 Tennessee Local Development
Authority, State Loan
Program, 5.00%, 3/1/15 $ 637,406
A AA- 2,000 Tennessee Local Development
Authority, State Loan
Program, 5.75%, 3/1/11 2,004,320
NR A- 1,200 Tennessee Local Development
Authority, Community
Provider Pooled Loan
Program, 6.55%, 10/1/23 1,227,420
-----------
$ 3,869,146
-----------
NURSING HOMES - 1.8%
NR A+ $1,000 Tennessee State Veterans'
Homes Board, Humboldt
Project, 6.65%, 2/1/14 $ 1,025,410
-----------
TRANSPORTATION - 1.7%
NR BBB $1,000 Guam Airport Authority,
6.70%, 10/1/23 $ 1,007,200
-----------
UTILITIES - 4.4%
NR NR $1,000 Scott and Morgan Counties,
Citizens Gas Utility
District, 6.00%, 1/1/13 $ 959,390
Aa AA 1,000 Nashville and Davidson
Counties, Electric System
Revenue, 6.00%, 5/15/17 1,013,400
Baa1 A- 500 Puerto Rico Electric Power
Authority, 5.00%, 7/1/12 452,865
Baa1 A- 100 Puerto Rico Electric Power
Authority, 7.00%, 7/1/21 110,518
-----------
$ 2,536,173
-----------
WATER & SEWER - 2.2%
NR BBB+ $ 250 Hamilton County, Eastside
Utility District, 6.50%,
11/1/05 $ 263,208
NR BBB+ 250 Hamilton County, Eastside
Utility District, 6.75%,
11/1/11 260,455
A1 A 750 Davidson and Williamson
Counties, Harpeth Valley
Utility District, 5.50,
9/1/11 722,212
-----------
$ 1,245,875
-----------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$57,120,750) $57,649,738
===========
</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 Tennessee
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 August 31, 1995, 37.7% 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 0.8% to 20.3% of total investments.
See notes to financial statements
66
<PAGE>
-------
Virginia Tax Free Portfolio
Portfolio of Investments - August 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 - 10.1%
NR A $2,000 Lynchburgh, IDA, Randolph-
Macon Woman's College,
5.875%, 9/1/23 $ 1,945,140
Baa1 NR 2,220 Rockingham County, IDA,
Bridgewater College,
5.95%, 10/1/13 2,120,633
NR A- 1,570 Virginia College Building
Authority, Hampden-Sydney
College, 6.60%, 9/1/16 1,631,073
NR A+ 400 Virginia College Building
Authority, Hampton
University, 6.50%, 4/1/08 421,988
NR A+ 1,000 Virginia College Building
Authority, Hampton
University, 5.75%, 4/1/14 962,440
NR BBB- 1,150 Virginia College Building
Authority, Marymount
University, 7.00%, 7/1/12 1,203,694
NR BBB- 2,200 Virginia College Building
Authority, Marymount
University, 7.00%, 7/1/22 2,287,626
Aa AA 1,500 Virginia College Building
Authority, Washington and
Lee University, 5.80%,
1/1/24 1,491,585
A NR 1,350 Virginia Education Loan
Authority, (AMT), 6.15%,
9/1/09 1,336,271
Aaa NR 5,650 Virginia Education Loan
Authority, (AMT), 5.55%,
9/1/10 5,422,417
------------
$ 18,822,867
------------
ESCROWED - 1.9%
Aaa NR $1,000 Arlington, IDA, Arlington
Hospital, 7.125%, 9/1/21 $ 1,154,580
A NR 500 Augusta, IDA, Augusta
Hospital, 7.00%, 9/1/21 572,615
NR A+ 1,700 Virginia Beach, Virginia
Water and Sewer System,
6.625%, 2/01/17 1,914,353
------------
$ 3,641,548
------------
GENERAL OBLIGATIONS - 5.6%
Aaa AAA $1,000 Fairfax County, 5.625%,
6/1/14 $ 985,670
Baa1 A 350 Puerto Rico, 0.00%, 7/1/04 218,953
A1 AA 500 Richmond, 6.25%, 1/5/18 509,085
A1 AA 2,000 Richmond, 6.25%, 1/15/21 2,024,460
Aa AA 1,000 Roanoke County, 5.00%,
6/01/21 881,520
Aa AA 1,500 Virginia Public School
Authority, 6.50%, 8/1/12 1,571,505
NR NR 4,000 Virgin Island, 7.25%,
10/1/18 4,200,080
------------
$ 10,391,273
------------
HEALTH CARE - 0.2%
NR NR $ 365 Covington-Allegheny
County, IDA, Beverly
Enterprises, 9.375%,
9/1/01 $ 412,304
------------
HOSPITALS - 16.7%
A NR $1,100 Albermarle County, IDA,
Martha Jefferson Hospital,
5.50%, 10/1/15 $ 1,024,133
A NR 3,800 Albermarle County, IDA,
Martha Jefferson Hospital,
5.50%, 10/1/20 3,463,586
A NR 380 Chesapeake Hospital,
Chesapeake General
Hospital,
7.60%, 7/1/00 417,057
Aa AA- 2,910 Fairfax, IDA, Inova Health
System Hospitals, 5.00%,
8/15/14 2,580,122
Aa AA- 2,000 Fairfax, IDA, Inova Health
System Hospitals, 5.00%,
8/15/15 1,756,440
A A 1,250 Martinsville, IDA,
Memorial Hospital of
Martinsville and Henry
County, 7.00%, 1/1/06 1,317,113
NR A- 2,000 Medical College of Hampton
Roads, GO, 6.875%,
11/15/11 2,117,000
Aa AA 1,000 Norfolk, IDA, Sentara
Health System, 5.50%,
11/01/17 941,400
Aa AA 3,000 Norfolk, IDA, Sentara
Health System, 5.00%,
11/1/20 2,612,760
Aa AA 2,250 Norfolk, IDA, Sentara
Health System, 6.50%,
11/1/13 2,377,823
Aa AA- 3,500 Peninsula Ports Authority
of Virginia, Riverside
Health System, 6.625%,
7/1/10 3,679,550
A NR 1,200 Prince William County,
IDA, Prince William
Hospital, 5.25%, 4/1/19 1,030,548
A NR 2,400 Prince William County,
IDA, Potomac Hospital,
6.85%, 10/1/25 2,545,728
Aa AA 4,000 Virginia Beach Development
Authority, Sentara Bayside
Hospital, 6.60%, 11/1/09 4,205,200
A NR 1,060 Washington County, IDA,
Johnston Memorial
Hospital, 7.00%, 7/1/22 1,121,989
------------
$ 31,190,449
------------
HOUSING - 10.9%
NR AAA $1,250 Fairfax County
Redevelopment and Housing
Authority, MFMR, (FHA),
7.00%, 5/1/26 $ 1,309,138
NR AAA 200 Harrisonburg Redevelopment
and Housing Authority,
MFMR, (GNMA), 7.375%,
11/20/28 210,291
Aa1 AA+ 5,000 Virginia HDA, MFMR, 6.75%,
7/1/21 5,065,950
</TABLE>
67
<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>
HOUSING - (CONTINUED)
Aa AA+ 3,500 Virginia HDA, MFMR, 7.05%,
5/1/18 3,663,170
Aa1 A+ 2,350 Virginia HDA, SFMR, 7.10%,
1/1/17 2,463,811
Aa1 NR 2,500 Virginia HDA, SFMR, 6.85%,
1/1/15 2,589,325
Aa1 A+ 3,000 Virginia HDA, SFMR, 7.10%,
1/1/22 3,135,450
Aa NR 1,900 Virginia HDA, SFMR,
Variable, 7/1/04 (1) 1,916,359
------------
$ 20,353,494
------------
INDUSTRIAL DEVELOPMENT
AUTHORITY - 7.5%
Aa NR $2,190 Chesapeake, IDA, Cargill
Inc., 5.875%, 3/1/13 $ 2,200,643
A2 A+ 1,000 Giles City, IDA, Hoechst
Celanese Corporation,
(AMT), 6.625%, 12/1/22 1,035,820
A1 A- 4,000 Isle of Wright County,
IDA, Union Camp
Corporation, (AMT), 6.55%,
4/1/24 4,192,480
Baa3 BBB 5,520 West Point, IDA,
Chesapeake Corporation,
(AMT), 6.375%, 3/1/19 5,516,578
Baa3 BBB 980 West Point, IDA,
Chesapeake Corporation,
6.25%, 3/1/19 981,480
------------
$ 13,927,001
------------
INSURED GENERAL
OBLIGATION - 0.9%
Aaa AAA $2,000 Loudon County, (MBIA),
5.25%, 1/1/30 $ 1,785,320
------------
INSURED HEALTH CARE - 1.0%
Aaa AAA $2,000 Hanover County, Bonsecour
Health System, (MBIA),
5.50%, 8/15/25 $ 1,853,800
------------
INSURED HOSPITALS - 7.6%
Aaa AAA $1,665 Arlington, IDA, The
Arlington Hospital,
(AMBAC), 5.00%, 9/1/21 $ 1,421,960
Aaa AAA 5,000 Augusta County, IDA,
Augusta Hospital
Corporation, (AMBAC),
5.125%, 9/1/21 4,543,500
Aaa AAA 3,000 Chesapeake Hospital
Authority, Chesapeake
General Hospital, (MBIA),
5.25%, 7/1/18 2,739,390
Aaa AAA 1,000 Norfolk, IDA, Children's
Hospital of the King's
Daughters Obligated Group,
(AMBAC), 5.50%, 6/1/20 934,650
Aaa AAA 1,000 Roanoke, IDA, Franklin
Memorial Hospital and St.
Albans Psychiatric
Hospital (MBIA), 5.25%,
7/1/25 896,350
Aaa AAA 2,250 Virginia Beach, IDA,
Virginia Beach Memorial
Hospital, (AMBAC), 5.125%,
2/15/18 2,034,495
Aaa AAA 1,700 Winchester, IDA,
Winchester Medical Center,
(AMBAC), Variable, 1/1/08
(1) 1,667,836
------------
$ 14,238,181
------------
INSURED LEASE - 0.5%
Aaa AAA $1,000 Riverside Regional Jail
Authority, (MBIA), 6.00%,
7/1/25 $ 999,890
------------
INSURED TRANSPORTATION - 5.4%
Aaa AAA $6,500 Metropolitan Washington
Airports Authority,
(MBIA), (AMT), 5.75%,
10/1/20 $ 6,233,500
Aaa AAA 3,000 Northern Virginia
Transportation District
Commission, (CGIC), 5.25%,
7/1/10 2,868,750
Aaa AAA 1,000 Richmond Metropolitan
Authority Expressway,
(FGIC), 6.375%, 7/15/16 1,035,800
------------
$ 10,138,050
------------
INSURED WATER & SEWER - 2.8%
Aaa AAA $2,000 Loudon County Sanitation
Authority, (MBIA), 5.25%,
1/1/25 $ 1,809,240
Aaa AAA 1,000 Norfolk Water, (AMBAC),
5.25%, 11/1/13 937,610
Aaa AAA 1,000 Roanoke County, Water and
Sewer, (FGIC), 5.00%,
7/1/21 881,360
Aaa AAA 1,750 Upper Occoquan Sewage
Authority, (FGIC), 5.00%,
7/1/15 1,578,570
------------
$ 5,206,780
------------
LEASE/CERTIFICATES OF
PARTICIPATION - 11.2%
Aa AA $4,250 Fairfax County Economic
Development Authority,
Lease, Government Center
Properties, 5.50%, 5/15/18 $ 4,033,378
Aa AA 1,750 Fairfax County Economic
Development Authority,
Lease, Government Center
Properties 5.25%, 11/15/18 1,605,030
Aa AA 3,200 Fairfax County Economic
Development Authority,
Lease, Government Center
Properties 5.50%, 5/15/14 3,073,407
NR A- 2,500 Hampton, Museum Revenue,
5.25%, 1/1/09 2,389,025
A NR 3,000 Harrisonburg Redevelopment
and Housing Authority,
Lease, Rockingham County
and Harrisonburg, 6.50%,
9/1/14 3,089,640
</TABLE>
68
<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/CERTIFICATES OF
PARTICIPATION - (CONTINUED)
Aa AA 2,000 Henrico County, IDA,
Lease, 7.00%, 8/1/13 2,251,580
Aa AA 2,250 Henrico County, IDA,
Lease, 7.125%, 8/1/21 2,545,043
NR NR 1,250 King George County, Lease,
7.00%, 12/15/12 1,299,025
NR A 600 Prince William County,
IDA, Virginia Commuter
Parking Facilities Lease,
7.25%, 3/1/11 677,484
------------
$ 20,963,612
------------
LIFE CARE - 1.1%
NR NR $2,000 Loudon County, IDA,
Falcons Landing, 8.75%,
11/01/24 $ 2,032,500
------------
SOLID WASTE - 1.2%
A1 A+ $ 915 Fairfax County Economic
Development Authority,
Ogden Martin Systems of
Fairfax Incorporated,
(AMT), 7.75%, 2/1/11 $ 1,002,694
Baa1 A- 1,250 Southeastern Public
Service Authority, Solid
Waste Systems, 6.00%,
7/1/13 1,208,750
------------
$ 2,211,444
------------
SPECIAL TAX REVENUE - 6.9%
Baa1 A $1,375 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/19 $ 1,283,370
Baa1 A 2,200 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/20 1,980,352
Baa1 A 1,000 Puerto Rico Highway &
Transportation Authority,
5.00%, 7/1/22 863,810
Baa1 A 1,000 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/15 950,160
Aa AA 1,000 Virginia State
Transportation Board
Revenue, Route 28,
Variable, 4/1/18 (1) 1,092,590
Aa AA 2,800 Virginia State
Transportation Board
Revenue, US Route 28,
5.25%, 5/15/19 2,565,724
Aa AA 4,000 Virginia State
Transportation Board
Revenue, Route 28, 6.50%,
4/1/18 4,156,640
------------
$ 12,892,646
------------
UTILITIES - 2.9%
Baa1 A- $3,000 Puerto Rico Electric
Authority Power, 0.00%,
7/1/17 $ 793,290
Baa1 A- 1,000 Puerto Rico Electric
Authority Power, 6.00%,
7/1/14 994,320
NR NR 1,000 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 1,047,510
A2 A 2,700 Louisa, IDA, Virginia
Electric and Power
Company, 5.45%, 1/1/24 2,488,320
------------
$ 5,323,440
------------
WATER & SEWER REVENUE - 5.6%
Aa AA- $2,250 Fairfax County Virginia
Water Authority, 5.75%,
4/1/29 $ 2,194,380
Aa AA- 1,000 Fairfax County Virginia
Water Authority, Variable,
4/1/29 (1) 934,120
Aa AA- 4,095 Fairfax County Virginia
Water Authority, 5.00%,
4/1/16 3,650,037
NR AA 2,000 Virginia Resource
Authority, Hopewell Waste
Water, (AMT), 6.00%,
10/1/25 1,950,960
NR AA 1,880 Virginia Resource
Authority, Campbell
Utilities, 5.125%, 10/1/19 1,663,085
------------
$ 10,392,582
------------
TOTAL TAX-EXEMPT
INVESTMENTS
(IDENTIFIED COST,
$179,383,019) $186,777,181
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by Virginia
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 August 31, 1995, 18.3% 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 0.7% to 8.7% of total investments.
See notes to financial statements
69
<PAGE>
-------
Tax Free Portfolios
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $112,610,415 $79,275,204 $115,913,957 $141,197,528
Unrealized appreciation 3,869,441 1,544,657 3,429,375 2,007,717
------------ ----------- ------------ ------------
Total investments, at value (Note 1A) $116,479,856 $80,819,861 $119,343,332 $143,205,245
Cash 479 631 1,575,423 291,390
Receivable for investments sold 1,953,475 -- -- --
Interest receivable 1,842,994 1,202,749 2,030,938 2,222,506
Deferred organization expenses (Note 1D) 3,759 5,177 5,511 3,157
------------ ----------- ------------ ------------
Total assets $120,280,563 $82,028,418 $122,955,204 $145,722,298
------------ ----------- ------------ ------------
LIABILITIES:
Demand note payable (Note 5) $ 103,000 $ 444,000 $ -- $ --
Payable for investments purchased 1,625,182 -- -- 370,873
Payable for daily variation margin on open financial
futures contracts (Note 1E) 59,704 42,646 -- 74,630
Payable to affiliates --
Trustees' fees 1,339 1,009 1,339 1,339
Custodian fees 1,824 2,436 1,500 2,783
Accrued expenses 3,461 3,325 3,698 4,047
------------ ----------- ------------ ------------
Total liabilities $ 1,794,510 $ 493,416 $ 6,537 $ 453,672
------------ ----------- ------------ ------------
NET ASSETS applicable to investors' interest in
Portfolio $118,486,053 $81,535,002 $122,948,667 $145,268,626
============ =========== ============ ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $114,679,646 $80,035,368 $119,519,292 $143,339,700
Unrealized appreciation of investments and financial
futures contracts (computed on the basis of
identified cost) 3,806,407 1,499,634 3,429,375 1,928,926
------------ ----------- ------------ ------------
Total $118,486,053 $81,535,002 $122,948,667 $145,268,626
============ =========== ============ ============
</TABLE>
See notes to financial statements
70
<PAGE>
-------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $33,349,873 $112,178,823 $88,354,959 $183,382,988
Unrealized appreciation 260,911 1,972,898 3,275,460 7,281,157
----------- ------------ ----------- ------------
Total investments, at value (Note 1A) $33,610,784 $114,151,721 $91,630,419 $190,664,145
Cash 47,590 732 358 1,453,646
Receivable for investments sold -- -- 866,873 --
Interest receivable 659,890 1,517,519 1,190,249 3,059,961
Deferred organization expenses (Note 1D) 4,697 3,865 3,364 8,323
----------- ------------ ----------- ------------
Total assets $34,322,961 $115,673,837 $93,691,263 $195,186,075
----------- ------------ ----------- ------------
LIABILITIES:
Demand note payable (Note 5) $ -- $ 603,000 $ 524,000 $ --
Payable for daily variation margin on open
financial futures contracts (Note 1E) 11,875 59,704 -- --
Payable to affiliates --
Trustees' fees 275 1,339 1,009 1,779
Custodian fees 500 1,974 1,978 1,500
Accrued expenses 1,632 3,644 2,173 4,072
----------- ------------ ----------- ------------
Total liabilities $ 14,282 $ 669,661 $ 529,160 $ 7,351
----------- ------------ ----------- ------------
NET ASSETS applicable to investors' interest in
Portfolio $34,308,679 $115,004,176 $93,162,103 $195,178,724
=========== ============ ============ ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $34,063,019 $113,094,311 $89,886,643 $187,897,567
Unrealized appreciation of investments and
financial futures
contracts (computed on the basis of
identified cost) 245,660 1,909,865 3,275,460 7,281,157
----------- ------------ ----------- ------------
Total $34,308,679 $115,004,176 $93,162,103 $195,178,724
=========== ============ =========== ============
</TABLE>
See notes to financial statements
71
<PAGE>
-------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $143,369,782 $ 60,604,156 $57,120,750 $179,383,019
Unrealized appreciation 2,649,369 2,344,111 528,988 7,394,162
------------ ------------ ----------- ------------
Total investments, at value (Note 1A) $146,019,151 $ 62,948,267 $57,649,738 $186,777,181
Cash 414,837 922,554 611 644
Receivable for investments sold -- 250,069 349,174 3,747,425
Interest receivable 2,002,597 901,959 930,255 3,441,666
Deferred organization expenses (Note 1D) 5,037 4,978 5,807 6,791
------------ ------------ ----------- ------------
Total assets $148,441,622 $ 65,027,827 $58,935,585 $193,973,707
------------ ------------ ----------- ------------
LIABILITIES:
Due to Bank $ -- $ -- $ 230,000 $ --
Demand note payable (Note 5) -- -- -- 795,000
Payable for investments purchased 2,012,175 737,459 -- 1,423,116
Payable for when issued securities (Note 1F) -- 2,872,768 -- --
Payable for daily variation margin on open
financial futures contracts (Note 1E) 32,063 -- 28,500 --
Payable to affiliates --
Trustees' fees 1,339 1,009 1,009 1,779
Custodian fees 3,011 1,770 1,000 1,500
Accrued expenses 2,113 3,153 1,773 4,390
------------ ------------ ----------- ------------
Total liabilities $ 2,050,701 $ 3,616,159 $ 262,282 $ 2,225,785
------------ ------------ ----------- ------------
NET ASSETS applicable to investors' interest in
Portfolio $146,390,921 $ 61,411,668 $58,673,303 $191,747,922
============ ============ =========== ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $143,780,409 $ 59,067,557 $58,178,854 $184,353,760
Unrealized appreciation of investments and
financial futures contracts (computed on the
basis of
identified cost) 2,610,512 2,344,111 494,449 7,394,162
------------ ------------ ----------- ------------
Total $146,390,921 $ 61,411,668 $58,673,303 $191,747,922
============ ============ =========== ============
</TABLE>
See notes to financial statements
72
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 7,218,221 $ 4,986,371 $ 7,872,386 $ 8,874,638
----------- ----------- ----------- -----------
Expenses --
Investment adviser fee (Note 2) $ 466,320 $ 296,231 $ 521,159 $ 595,483
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 9,218 6,366 8,154 8,932
Custodian fee (Note 2) 16,491 23,999 1,500 35,132
Legal and accounting services 21,471 19,471 21,476 21,478
Amortization of organization expenses (Note 1D) 1,569 1,504 2,194 1,332
Miscellaneous 26,725 24,449 26,661 32,366
----------- ----------- ----------- -----------
Total expenses $ 541,794 $ 372,020 $ 581,144 $ 694,723
----------- ----------- ----------- -----------
Net investment income $ 6,676,427 $ 4,614,351 $ 7,291,242 $ 8,179,915
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(1,890,084) $(1,454,374) $(4,616,970) $ (885,272)
Financial futures contracts (1,483,364) (1,063,446) (2,695,409) (1,829,860)
----------- ----------- ----------- -----------
Net realized loss on investments $(3,373,448) $(2,517,820) $(7,312,379) $(2,715,132)
----------- ----------- ----------- -----------
Change in unrealized appreciation (depreciation) --
Investments $ 5,912,494 $ 3,484,695 $ 6,554,692 $ 4,974,832
Financial futures contracts (28,264) (20,556) 124,961 (32,432)
----------- ----------- ----------- -----------
Net unrealized appreciation $ 5,884,230 $ 3,464,139 $ 6,679,653 $ 4,942,400
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments $ 2,510,782 $ 946,319 $ (632,726) $ 2,227,268
----------- ----------- ----------- -----------
Net increase in net assets from operations $ 9,187,209 $ 5,560,670 $ 6,658,516 $10,407,183
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
73
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 2,046,922 $ 7,192,618 $ 5,770,761 $ 12,179,577
----------- ----------- ----------- --------------
Expenses --
Investment adviser fee (Note 2) $ 73,471 $ 459,907 $ 353,176 $ 851,448
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 1,618 8,154 5,709 10,743
Custodian fee (Note 2) 975 16,357 35,917 1,500
Interest expense (Note 5) 6,263 -- 13,828 --
Legal and accounting services 15,814 21,471 19,565 26,148
Bond pricing 6,060 -- -- --
Amortization of organization expenses (Note 1D) 1,355 1,518 1,405 3,365
Miscellaneous 1,842 25,883 14,442 35,974
----------- ----------- ----------- --------------
Total expenses $ 107,398 $ 533,290 $ 444,042 $ 929,178
Deduct reduction of investment adviser fee
(Note 2) 36,188 -- -- --
----------- ----------- ----------- --------------
Net expenses $ 71,210 $ 533,290 $ 444,042 $ 929,178
----------- ----------- ----------- --------------
Net investment income $ 1,975,712 $ 6,659,328 $ 5,326,719 $ 11,250,399
----------- ----------- ----------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $ (705,098) $(1,843,753) $(2,564,654) $ (4,108,823)
Financial futures contracts (964,523) (1,471,264) (474,286) (4,996,239)
----------- ----------- ----------- --------------
Net realized loss on investments $(1,669,621) $(3,315,017) $(3,038,940) $ (9,105,062)
----------- ----------- ----------- --------------
Change in unrealized appreciation
(depreciation) --
Investments $ 1,644,370 $ 4,940,542 $ 5,450,131 $ 8,883,601
Financial futures contracts 19,876 (26,976) 21,133 176,415
----------- ----------- ----------- --------------
Net unrealized appreciation $ 1,664,246 $ 4,913,566 $ 5,471,264 $ 9,060,016
----------- ----------- ----------- --------------
Net realized and unrealized gain (loss)
on investments $ (5,375) $ 1,598,549 $ 2,432,324 $ (45,046)
----------- ----------- ----------- --------------
Net increase in net assets from
operations $ 1,970,337 $ 8,257,877 $ 7,759,043 $ 11,205,353
=========== =========== =========== =============
</TABLE>
See notes to financial statements
74
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 8,920,231 $ 3,791,815 $ 3,518,306 $11,988,135
----------- -------------- ----------- -----------
Expenses --
Investment adviser fee (Note 2) $ 609,837 $ 198,498 $ 177,788 $ 834,074
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 8,155 6,212 7,096 10,743
Custodian fee (Note 2) 56,584 16,809 13,033 1,500
Legal and accounting services 21,580 19,464 19,554 26,931
Amortization of organization expenses (Note
1D) 2,091 1,442 2,358 2,763
Miscellaneous 35,210 23,093 14,329 30,392
----------- -------------- ----------- -----------
Total expenses $ 733,457 $ 265,518 $ 234,158 $ 906,403
----------- -------------- ----------- -----------
Net investment income $ 8,186,774 $ 3,526,297 $ 3,284,148 $11,081,732
----------- -------------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost
basis) $(3,335,521) $ (2,946,871) $(1,045,028) $(3,901,492)
Financial futures contracts (1,035,171) (1,080,892) (866,769) (3,709,160)
----------- -------------- ----------- -----------
Net realized loss on investments $(4,370,692) $ (4,027,763) $(1,911,797) $(7,610,652)
----------- -------------- ----------- -----------
Change in unrealized appreciation
(depreciation) --
Investments $ 7,376,821 $ 4,213,366 $ 2,650,662 $10,104,183
Financial futures contracts (4,860) 53,292 (23,513) 175,497
----------- -------------- ----------- -----------
Net unrealized appreciation $ 7,371,961 $ 4,266,658 $ 2,627,149 $10,279,680
----------- -------------- ----------- -----------
Net realized and unrealized gain on
investments $ 3,001,269 $ 238,895 $ 715,352 $ 2,669,028
----------- -------------- ----------- -----------
Net increase in net assets from
operations $11,188,043 $ 3,765,192 $ 3,999,500 $13,750,760
=========== ============ ========== ===========
</TABLE>
See notes to financial statements
75
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 6,676,427 $ 4,614,351 $ 7,291,242 $ 8,179,915
Net realized loss on investment transactions (3,373,448) (2,517,820) (7,312,379) (2,715,132)
Change in unrealized appreciation of investments 5,884,230 3,464,139 6,679,653 4,942,400
------------ ------------ ------------ ------------
Net increase in net assets from operations $ 9,187,209 $ 5,560,670 $ 6,658,516 $ 10,407,183
------------ ------------ ------------ ------------
Capital transactions --
Contributions $ 15,271,028 $ 7,773,910 $ 12,224,959 $ 13,579,954
Withdrawals (23,135,575) (14,716,313) (33,658,605) (23,928,447)
------------ ------------ ------------ ------------
Decrease in net assets resulting from
capital transactions $ (7,864,547) (6,942,403) $(21,433,646) $(10,348,493)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets $ 1,322,662 $ (1,381,733) $(14,775,130) $ 58,690
NET ASSETS:
At beginning of year 117,163,391 82,916,735 137,723,797 145,209,936
------------ ------------ ------------ ------------
At end of year $118,486,053 $ 81,535,002 $122,948,667 $145,268,626
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 1,975,712 $ 6,659,328 $ 5,326,719 $ 11,250,399
Net realized loss on investment transactions (1,669,621) (3,315,017) (3,038,940) (9,105,062)
Change in unrealized appreciation of
investments 1,664,246 4,913,566 5,471,264 9,060,016
----------- ------------ ----------- --------------
Net increase in net assets from operations $ 1,970,337 $ 8,257,877 $ 7,759,043 $ 11,205,353
----------- ------------ ----------- --------------
Capital transactions --
Contributions $ 6,817,148 $ 14,770,279 $ 8,450,749 $ 18,834,488
Withdrawals (5,902,141) (25,879,697) (18,215,122) (34,633,470)
----------- ------------ ----------- --------------
Increase (decrease) in net assets resulting
from
capital transactions $ 915,007 $(11,109,418) $(9,764,373) $(15,798,982)
----------- ------------ ----------- --------------
Net increase (decrease) in net assets $ 2,885,344 $ (2,851,541) $(2,005,330) $ (4,593,629)
NET ASSETS:
At beginning of year 31,423,335 117,855,717 95,167,433 199,772,353
----------- ------------ ----------- --------------
At end of year $34,308,679 $115,004,176 $93,162,103 $195,178,724
=========== ============ =========== ============
</TABLE>
See notes to financial statements
76
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 8,186,774 $ 3,526,297 $ 3,284,148 $ 11,081,732
Net realized loss on investment transactions (4,370,692) (4,027,763) (1,911,797) (7,610,652)
Change in unrealized appreciation of
investments 7,371,961 4,266,658 2,627,149 10,279,680
------------ -------------- ----------- ------------
Net increase in net assets from operations $ 11,188,043 $ 3,765,192 $ 3,999,500 $ 13,750,760
------------ -------------- ----------- ------------
Capital transactions --
Contributions $ 12,298,876 $ 9,608,721 $ 7,946,656 $ 24,173,920
Withdrawals (30,215,219) (14,226,934) (9,768,536) (40,695,946)
------------ -------------- ----------- ------------
Decrease in net assets resulting from capital
transactions $(17,916,343) $ (4,618,213) $(1,821,880) $(16,522,026)
------------ -------------- ----------- ------------
Net increase (decrease) in net assets $ (6,728,300) $ (853,021) $ 2,177,620 $ (2,771,266)
NET ASSETS:
At beginning of year 153,119,221 62,264,689 56,495,683 194,519,188
------------ -------------- ----------- ------------
At end of year $146,390,921 $ 61,411,668 $58,673,303 $191,747,922
============ ============ =========== ============
</TABLE>
See notes to financial statements
77
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
PORTFOLIO* PORTFOLIO** PORTFOLIO* PORTFOLIO*
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 5,213,587 $2,555,613 $ 6,604,249 $ 6,772,813
Net realized loss on investment transactions (1,159,958) (349,879 ) (1,311,944) (59,807)
Change in unrealized depreciation of investments (6,819,050) (5,522,249 ) (9,992,777) (10,955,591)
------------ ----------- ------------ ------------
Net decrease in net assets from operations $ (2,765,421) $(3,316,515) $ (4,700,472) $ (4,242,585)
------------ ----------- ------------ ------------
Capital transactions --
Contributions $ 48,883,547 $90,005,753 $ 42,445,028 $ 44,883,326
Withdrawals (12,582,537) (3,872,523 ) (19,332,141) (13,367,045)
------------ ----------- ------------ ------------
Increase in net assets resulting from capital
transactions $ 36,301,010 $86,133,230 $ 23,112,887 $ 31,516,281
------------ ----------- ------------ ------------
Net increase in net assets $ 33,535,589 $82,816,715 $ 18,412,415 $ 27,273,696
NET ASSETS:
At beginning of period 83,627,802 100,020 119,311,382 117,936,240
------------ ----------- ------------ ------------
At end of period $117,163,391 $82,916,735 $137,723,797 $145,209,936
============ =========== ============ ============
</TABLE>
* For the eleven months ended August 31, 1994 (Note 7).
** For the seven months ended August 31, 1994.
See notes to financial statements
78
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended August 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
PORTFOLIO** PORTFOLIO* PORTFOLIO* PORTFOLIO*
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 976,696 $ 5,460,165 $ 4,337,756 $ 9,444,440
Net realized loss on investment transactions (259,364) (590,974) (14,916) (3,785,407)
Change in unrealized depreciation of
investments (2,361,484) (9,137,805) (7,434,028) (12,662,593)
----------- ------------ ----------- --------------
Net decrease in net assets from operations $(1,644,152) $ (4,268,614) $(3,111,188) $ (7,003,560)
----------- ------------ ----------- --------------
Capital transactions --
Contributions $34,683,852 $ 38,617,526 $30,851,018 $ 52,654,042
Withdrawals (1,716,385) (10,706,479) (7,845,180) (18,412,361)
----------- ------------ ----------- --------------
Increase in net assets resulting from
capital transactions $32,967,467 $ 27,911,047 $23,005,838 $ 34,241,681
----------- ------------ ----------- --------------
Net increase in net assets $31,323,315 $ 23,642,433 $19,894,650 $ 27,238,121
NET ASSETS:
At beginning of period 100,020 94,213,284 75,272,783 172,534,232
----------- ------------ ----------- --------------
At end of period $31,423,335 $117,855,717 $95,167,433 $199,772,353
=========== ============ =========== ==============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OREGON SOUTH CAROLINA TENNESSEE VIRGINIA
PORTFOLIO* PORTFOLIO** PORTFOLIO* PORTFOLIO*
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 6,932,765 $ 1,863,481 $ 2,453,518 $ 9,556,570
Net realized gain (loss) on investment
transactions 4,146 (984,439) (105,080) (2,385,959)
Change in unrealized depreciation of
investments (11,945,088) (4,190,757) (3,871,496) (13,323,277)
------------ -------------- ----------- ------------
Net decrease in net assets from operations $ (5,008,177) $ (3,311,715) $(1,523,058) $ (6,152,666)
------------ -------------- ----------- ------------
Capital transactions --
Contributions $ 47,210,240 $ 72,540,601 $22,707,167 $ 47,023,229
Withdrawals (16,579,534) (7,064,217) (3,954,097) (20,611,874)
------------ -------------- ----------- ------------
Increase in net assets resulting from capital
transactions $ 30,630,706 $ 65,476,384 $18,753,070 $ 26,411,355
------------ -------------- ----------- ------------
Net increase in net assets $ 25,622,529 $ 62,164,669 $17,230,012 $ 20,258,689
NET ASSETS:
At beginning of period 127,496,692 100,020 39,265,671 174,260,499
------------ -------------- ----------- ------------
At end of period $153,119,221 $ 62,264,689 $56,495,683 $194,519,188
============ ============== =========== ============
</TABLE>
* For the eleven months ended August 31, 1994 (Note 7).
** For the seven months ended August 31, 1994.
See notes to financial statements
79
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended September 30, 1993*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA GEORGIA KENTUCKY MARYLAND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 2,179,903 $ 3,313,669 $ 3,277,040 $ 2,481,633
Net realized gain (loss) on investment
transactions (464,133) 73,591 (535,372) (224,803)
Change in unrealized appreciation of investments 3,994,097 5,637,256 6,325,963 5,066,445
------------ ------------ ------------ ------------
Net increase in net assets from operations $ 5,709,867 $ 9,024,516 $ 9,067,631 $ 7,323,275
------------ ------------ ------------ ------------
Capital transactions --
Contributions $ 81,040,375 $116,822,592 $115,630,800 $ 94,448,256
Withdrawals (3,222,460) (6,635,746) (6,862,211) (7,658,267)
------------ ------------ ------------ ------------
Increase in net assets resulting from capital
transactions $ 77,817,915 $110,186,846 $108,768,589 $ 86,789,989
------------ ------------ ------------ ------------
Net increase in net assets $ 83,527,782 $119,211,362 $117,836,220 $ 94,113,264
NET ASSETS:
At beginning of period 100,020 100,020 100,020 100,020
------------ ------------ ------------ ------------
At end of period $ 83,627,802 $119,311,382 $117,936,240 $ 94,213,284
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MISSOURI NORTH CAROLINA OREGON TENNESSEE VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 1,996,871 $ 4,992,912 $ 3,445,924 $ 926,224 $ 5,091,661
Net realized gain (loss) on
investment transactions (201,650) (495,879) 1,139,513 454,397 (192,625)
Change in unrealized
appreciation of investments 4,258,226 8,668,236 5,331,993 1,499,177 7,938,495
----------- -------------- ------------ ------------ ------------
Net increase in net assets
from operations $ 6,053,447 $ 13,165,269 $ 9,917,430 $ 2,879,798 $ 12,837,531
----------- -------------- ------------ ------------ ------------
Capital transactions --
Contributions $71,730,941 $177,359,369 $142,413,151 $ 41,826,943 $170,140,465
Withdrawals (2,611,625) (18,090,426) (24,933,909) (5,541,090) (8,817,517)
----------- -------------- ------------ ------------ ------------
Increase in net assets
resulting from capital
transactions $69,119,316 $159,268,943 $117,479,242 $ 36,285,853 $161,322,948
----------- -------------- ------------ ------------ ------------
Net increase in net
assets $75,172,763 $172,434,212 $127,396,672 $ 39,165,651 $174,160,479
NET ASSETS:
At beginning of period 100,020 100,020 100,020 100,020 100,020
----------- -------------- ------------ ------------ ------------
At end of period $75,272,783 $172,534,232 $127,496,692 $ 39,265,671 $174,260,499
=========== ============== ============ ============ ============
</TABLE>
* For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
80
<PAGE>
-------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALABAMA PORTFOLIO ARKANSAS PORTFOLIO
----------------------------------- -----------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------
AUGUST 31, AUGUST 31, SEPT. 30, AUGUST 31, AUGUST 31,
1995 1994* 1993** 1995 1994***
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets)++:
Net expenses 0.47% 0.44%+ 0.25%+ 0.46% 0.24%+
Net investment income 5.77% 5.37%+ 5.52%+ 5.69% 5.60%+
Portfolio Turnover 51% 26% 10% 23% 16%
NET ASSETS, end of period (000 omitted) $118,486 $117,163 $83,628 $ 81,535 $ 82,917
</TABLE>
++The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and an 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>
RATIOS (As a percentage of average daily net assets):
Expenses 0.35%+ 0.43%+
Net investment income 5.42%+ 5.41%+
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GEORGIA PORTFOLIO KENTUCKY PORTFOLIO
----------------------------------- ------------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- ------------------------------------
AUGUST 31, AUGUST 31, SEPT. 30, AUGUST 31, AUGUST 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 0.46% 0.44%+ 0.40% + 0.49% 0.46%+ 0.40%+
Net investment income 5.73% 5.37%+ 5.37% + 5.75% 5.39%+ 5.40%+
Portfolio Turnover 48% 45% 35% 30% 21% 11%
NET ASSETS, end of period (000
omitted) $122,949 $137,724 $119,311 $145,269 $145,210 $117,936
</TABLE>
+ Annualized.
* For the eleven months ended August 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to
September 30, 1993.
*** For the seven months ended August 31, 1994.
See notes to financial statements
81
<PAGE>
-------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOUISIANA PORTFOLIO MARYLAND PORTFOLIO
----------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------- -----------------------------------
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, SEPT. 30,
1995 1994*** 1995 1994* 1993**
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets)++:
Net expenses 0.22% 0.14%+ 0.47% 0.44%+ 0.36%+
Net investment income 6.06% 5.86%+ 5.79% 5.44%+ 5.41%+
Portfolio Turnover 46% 21% 30% 41% 34%
NET ASSETS, end of period (000 omitted) $ 34,309 $ 31,423 $115,004 $117,856 $94,213
</TABLE>
++ The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and an 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>
RATIOS (As a percentage of average net assets):
Expenses 0.33% 0.33%+ 0.38%+
Net investment income 5.95% 5.67%+ 5.39%+
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MISSOURI PORTFOLIO NORTH CAROLINA PORTFOLIO
----------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------------------
AUGUST 31, AUGUST 31, SEPT. 30, AUGUST 31, AUGUST 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 0.48% 0.45%+ 0.40%+ 0.48% 0.46%+ 0.43% +
Net investment income 5.76% 5.36%+ 5.36%+ 5.78% 5.40%+ 5.43% +
Portfolio Turnover 24% 28% 6% 33% 37% 21%
NET ASSETS, end of period (000
omitted) $ 93,162 $ 95,167 $75,273 $195,179 $199,772 $172,534
</TABLE>
+ Annualized.
* For the eleven months ended August 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to
September 30, 1993.
*** For the seven months ended August 31, 1994.
See notes to financial statements
82
<PAGE>
-------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SOUTH CAROLINA
OREGON PORTFOLIO PORTFOLIO
----------------------------------- -----------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------
AUGUST 31, AUGUST 31, SEPT. 30, AUGUST 31, AUGUST 31,
1995 1994* 1993** 1995 1994***
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets):
Net expenses 0.50% 0.46%+ 0.43% + 0.44% 0.37%+
Net investment income 5.60% 5.26%+ 5.30% + 5.81% 5.47%+
Portfolio Turnover 22% 15% 32% 75% 23%
NET ASSETS, end of period (000 omitted) $146,391 $153,119 $127,497 $ 61,412 $ 62,265
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TENNESSEE PORTFOLIO VIRGINIA PORTFOLIO
----------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- -----------------------------------
AUGUST 31, AUGUST 31, SEPT. 30, AUGUST 31, AUGUST 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 0.41% 0.36%+ 0.08%+ 0.48% 0.46%+ 0.43% +
Net investment income 5.81% 5.49%+ 5.60%+ 5.81% 5.49%+ 5.49% +
Portfolio Turnover 20% 10% 69% 38% 48% 29%
NET ASSETS, end of period (000
omitted) $ 58,673 $ 56,496 $39,266 $191,748 $194,519 $174,260
</TABLE>
++The operating expenses of the Portfolios may reflect a reduction of the
investment adviser fee and an allocation of expenses to the Investment
Adviser. Had such actions not been taken, the ratios would have been as
follows:
<TABLE>
<S> <C>
RATIOS (As a percentage of average daily net assets):
Expenses 0.31%+
Net investment income 5.37%+
</TABLE>
+ Annualized.
* For the eleven months ended August 31, 1994 (Note 7).
** For the period from the start of business, February 1, 1993, to
September 30, 1993.
*** For the seven months ended August 31, 1994.
See notes to financial statements
83
<PAGE>
-------
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Alabama Tax Free Portfolio (Alabama Portfolio), Arkansas Tax Free Portfolio
(Arkansas Portfolio), Georgia Tax Free Portfolio (Georgia Portfolio), Kentucky
Tax Free Portfolio (Kentucky Portfolio), Louisiana Tax Free Portfolio (Louisiana
Portfolio), Maryland Tax Free Portfolio (Maryland Portfolio), Missouri Tax Free
Portfolio (Missouri Portfolio), North Carolina Tax Free Portfolio (North
Carolina Portfolio), Oregon Tax Free Portfolio (Oregon Portfolio), South
Carolina Tax Free Portfolio (South Carolina Portfolio), Tennessee Tax Free
Portfolio (Tennessee Portfolio) and Virginia Tax Free Portfolio (Virginia
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 Portfolio 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
contract and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Portfolios may engage in
when-issued or 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 accruing interest on settlement date.
G. OTHER--Investment transactions are accounted for on a trade date basis.
84
<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 August 31, 1995, each Portfolio paid advisory fees as
follows:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT EFFECTIVE RATE*
--------------------------------- -------- ---------------
<S> <C> <C>
Alabama $466,320 0.40%
Arkansas 296,231 0.37%
Georgia 521,159 0.41%
Kentucky 595,483 0.42%
Louisiana 73,471 0.23%
Maryland 459,907 0.40%
Missouri 353,176 0.38%
North Carolina 851,448 0.44%
Oregon 609,837 0.42%
South Carolina 198,498 0.33%
Tennessee 177,788 0.31%
Virginia 834,074 0.44%
</TABLE>
* Advisory fees paid as a percentage of average daily net assets.
To enhance the net income of the Louisiana Portfolio, BMR made a partial
reduction in its fee in the amount of $36,188 for the year ended August 31,
1995.
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 Portfolios 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 August 31, 1995, no significant amounts have been deferred.
- --------------------------------------------------------------------------------
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, for the year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
ALABAMA PORTFOLIO ARKANSAS PORTFOLIO GEORGIA PORTFOLIO KENTUCKY PORTFOLIO
------------------- ------------------------ ------------------- ------------------------
<S> <C> <C> <C> <C>
Purchases $57,406,180 $ 18,763,229 $59,548,573 $ 42,276,757
Sales 61,142,289 21,156,422 74,913,164 47,472,754
</TABLE>
<TABLE>
<CAPTION>
LOUISIANA PORTFOLIO MARYLAND PORTFOLIO MISSOURI PORTFOLIO NORTH CAROLINA PORTFOLIO
------------------- ------------------------ ------------------- ------------------------
<S> <C> <C> <C> <C>
Purchases $15,588,103 $ 33,410,454 $22,283,879 $ 63,087,915
Sales 15,182,545 38,920,632 26,604,957 70,378,217
</TABLE>
<TABLE>
<CAPTION>
OREGON PORTFOLIO SOUTH CAROLINA PORTFOLIO TENNESSEE PORTFOLIO VIRGINIA PORTFOLIO
------------------- ------------------------ ------------------- ------------------------
<S> <C> <C> <C> <C>
Purchases $31,234,927 $ 45,794,201 $12,215,128 $ 66,007,726
Sales 39,597,788 45,177,886 10,940,645 73,486,977
</TABLE>
85
<PAGE>
-------
- --------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investments
owned by each Portfolio at August 31, 1995, as computed on a federal income tax
basis, are as follows:
<TABLE>
<CAPTION>
ALABAMA ARKANSAS GEORGIA KENTUCKY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Aggregate Cost $112,610,415 $ 79,275,204 $115,913,957 $141,197,528
------------ ------------ ------------ ------------
Gross unrealized
appreciation $ 4,365,636 $ 2,221,739 $ 3,989,210 $ 4,126,437
Gross unrealized
depreciation 496,195 677,082 559,835 2,118,720
------------ ------------ ------------ ------------
Net unrealized
appreciation $ 3,869,441 $ 1,544,657 $ 3,429,375 $ 2,007,717
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Aggregate Cost $ 33,349,873 $112,178,823 $ 88,354,959 $183,382,988
------------ ------------ ------------ ------------
Gross unrealized
appreciation $ 705,823 $ 3,928,104 $ 3,711,528 $ 8,278,474
Gross unrealized
depreciation 444,912 1,955,206 436,068 997,317
------------ ------------ ------------ ------------
Net unrealized
appreciation $ 260,911 $ 1,972,898 $ 3,275,460 $ 7,281,157
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
OREGON SOUTH CAROLIN A TENNESSEE VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Aggregate Cost $143,369,782 $ 60,604,156 $ 57,120,750 $179,383,019
------------ ------------ ------------ ------------
Gross unrealized
appreciation $ 4,380,388 $ 2,552,611 $ 1,185,756 $ 8,251,752
Gross unrealized
depreciation 1,731,019 208,500 656,768 857,590
------------ ------------ ------------ ------------
Net unrealized
appreciation $ 2,649,369 $ 2,344,111 $ 528,988 $ 7,394,162
============ ============ ============ ============
</TABLE>
86
<PAGE>
-------
- --------------------------------------------------------------------------------
(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. At August 31, 1995, the Alabama Portfolio, Arkansas Portfolio,
Maryland Portfolio, Missouri Portfolio and Virginia Portfolio had balances
outstanding pursuant to this line of credit of $103,000, $444,000, $603,000,
$524,000 and $795,000, respectively. For the Louisiana Portfolio the average
daily loan balance for the year ended August 31, 1995 was $526,873 and the
average daily interest rate was 7.17%. The maximum borrowings during the year
ended August 31, 1995 was $1,803,000. The Portfolios, exclusive of the Louisiana
Portfolio, did not have any significant borrowings or allocated fees during the
year ended August 31, 1995.
- --------------------------------------------------------------------------------
(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 August 31, 1995 is
as follows:
<TABLE>
<CAPTION>
FUTURES CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
- ---------------- ----------------- ------------------------ -------- --------------
<S> <C> <C> <C> <C>
Alabama 12/95 112 U.S. Treasury Bonds Short $ 63,034
Arkansas 12/95 120 U.S. Treasury Bonds Short 45,023
Kentucky 12/95 140 U.S. Treasury Bonds Short 78,791
Louisiana 12/95 20 U.S. Treasury Bonds Short 15,251
Maryland 12/95 112 U.S. Treasury Bonds Short 63,033
Oregon 12/95 54 U.S. Treasury Bonds Short 38,857
Tennessee 12/95 48 U.S. Treasury Bonds Short 34,539
</TABLE>
At August 31, 1995 each Portfolio had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
The Georgia Portfolio, Missouri Portfolio, North Carolina Portfolio, South
Carolina Portfolio and Virginia Portfolio had no obligations outstanding at
August 31, 1995.
- --------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The Portfolios changed their fiscal year end from September 30, to August 31,
effective August 31, 1994.
87
<PAGE>
-------
Independent Auditors' Report
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF:
ALABAMA TAX FREE PORTFOLIO
ARKANSAS TAX FREE PORTFOLIO
GEORGIA TAX FREE PORTFOLIO
KENTUCKY TAX FREE PORTFOLIO
LOUISIANA TAX FREE PORTFOLIO
MARYLAND TAX FREE PORTFOLIO
MISSOURI TAX FREE PORTFOLIO
NORTH CAROLINA TAX FREE PORTFOLIO
OREGON TAX FREE PORTFOLIO
SOUTH CAROLINA TAX FREE PORTFOLIO
TENNESSEE TAX FREE PORTFOLIO
VIRGINIA TAX FREE PORTFOLIO
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Alabama Tax Free Portfolio, Arkansas Tax Free
Portfolio, Georgia Tax Free Portfolio, Kentucky Tax Free Portfolio, Louisiana
Tax Free Portfolio, Maryland Tax Free Portfolio, Missouri Tax Free Portfolio,
North Carolina Tax Free Portfolio, Oregon Tax Free Portfolio, South Carolina Tax
Free Portfolio, Tennessee Tax Free Portfolio and Virginia Tax Free Portfolio as
of August 31, 1995, and the related statements of operations for the year then
ended, the statements of changes in net assets and the supplementary data for
the years ended August 31, 1995 and 1994 and the year ended 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 August
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 Alabama Tax Free Portfolio,
Arkansas Tax Free Portfolio, Georgia Tax Free Portfolio, Kentucky Tax Free
Portfolio, Louisiana Tax Free Portfolio, Maryland Tax Free Portfolio, Missouri
Tax Free Portfolio, North Carolina Tax Free Portfolio, Oregon Tax Free
Portfolio, South Carolina Tax Free Portfolio, Tennessee Tax Free Portfolio and
Virginia Tax Free Portfolio at August 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
SEPTEMBER 29, 1995
88
<PAGE>
-------
Investment Management
- --------------------------------------------------------------------------------
<TABLE>
<S> <S> <S>
FUNDS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspapers of New
JAMES B. HAWKES England, Inc.
Vice President, Trustee
SAMUEL L. HAYES, III
ROBERT B. MACINTOSH Jacob H. Schiff Professor of Investment
Vice President Banking, Harvard University Graduate
School of Business Administration
JAMES L. O'CONNOR
Treasurer NORTON H. REAMER
President and Director, United Asset
THOMAS OTIS Management Corporation
Secretary
JOHN L. THORNDIKE
Director, Fiduciary Company
Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
- -------------------------------------------------------------------------------------------------
PORTFOLIOS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspapers of New
JAMES B. HAWKES England, Inc.
Vice President, Trustee
SAMUEL L. HAYES, III
ROBERT B. MACINTOSH Jacob H. Schiff Professor of Investment
Vice President of Alabama, Arkansas, Banking, Harvard University Graduate
Georgia, Kentucky, Louisiana, Maryland, School of Business Administration
Missouri, North Carolina, Oregon, South
Carolina, Tennessee and Virginia Tax NORTON H. REAMER
Free Portfolios President and Director, United Asset
Management Corporation
NICOLE ANDERES
Vice President and Portfolio Manager of JOHN L. THORNDIKE
Louisiana Tax Free Portfolio Director, Fiduciary Company Incorporated
TIMOTHY T. BROWSE JACK L. TREYNOR
Vice President and Portfolio Manager of Investment Adviser and Consultant
Alabama, Arkansas, Kentucky and Maryland
Tax Free Portfolios
CYNTHIA J. CLEMSON
Vice President and Portfolio Manager of
Missouri, Oregon and Tennessee Tax Free
Portfolios
DAVID C. REILLY
Vice President and Portfolio Manager of
Georgia, North Carolina, South Carolina
and Virginia Tax Free Portfolios
</TABLE>
89
<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
90
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
91
<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
24 FEDERAL STREET
BOSTON, MA 02110
C-12CSRC
<PAGE>
The Eaton Vance Municipals Trust
For the Portfolios:
Alabama Tax Free Fund
Arkansas Tax Free Fund
Georgia Tax Free Fund
Kentucky Tax Free Fund
Louisiana Tax Free Fund
Maryland Tax Free Fund
Missouri Tax Free Fund
North Carolina Tax Free Fund
Oregon Tax Free Fund
South Carolina Tax Free Fund
Tennessee Tax Free Fund
Virginia Tax Free Fund
[LOGO]
Annual Shareholder Report
August 31, 1995
Portfolio Investment Adviser
Boston Management and Research
24 Federal Street
Boston, MA 02110
Fund Administrator
Eaton Vance Management
24 Federal Street
Boston, MA 02110
(617) 482-8260
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
