<PAGE>
EV CLASSIC
MUNICIPAL FUNDS
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EV CLASSIC CALIFORNIA MUNICIPALS FUND EV CLASSIC NEW YORK MUNICIPALS FUND
EV CLASSIC FLORIDA MUNICIPALS FUND EV CLASSIC RHODE ISLAND MUNICIPALS FUND
THE EV CLASSIC MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THE STATE
TAXES DESCRIBED UNDER "THE FUNDS' INVESTMENT OBJECTIVES" IN THIS PROSPECTUS.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A SERIES
OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of
some or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future
reference. A combined Statement of Additional Information dated February 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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares .................................... 15
The Funds' Financial Highlights ....................... 4 Reports to Shareholders ...................................... 16
The Funds' Investment Objectives ...................... 5 The Lifetime Investing Account/Distribution Options ......... 16
How the Funds and the Portfolios Invest their Assets .. 5 The Eaton Vance Exchange Privilege ........................... 17
Organization of the Funds and the Portfolios .......... 9 Eaton Vance Shareholder Services ............................. 18
Management of the Funds and the Portfolios ............ 10 Distributions and Taxes ...................................... 18
Distribution Plans .................................... 12 Performance Information ...................................... 19
Valuing Fund Shares ................................... 13 Appendix -- State Specific Information ....................... 20
How to Buy Fund Shares ................................ 14
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</TABLE>
PROSPECTUS DATED FEBRUARY 1, 1996
<PAGE>
SHAREHOLDER AND FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
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Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charge Imposed on Redemption During
the First Year (as a percentage of redemption proceeds
exclusive of all reinvestments and capital appreciation in
the account) 1.00%
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ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a
percentage of average daily net assets)
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CALIFORNIA FLORIDA NEW YORK RHODE ISLAND
FUND FUND FUND FUND
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<S> <C> <C> <C> <C>
Investment Adviser Fee (after any applicable fee
reduction) 0.50% 0.47% 0.47% 0.12%
Rule 12b-1 Distribution (and Service) Fees 1.00 0.95 0.95 0.95
Other Expenses (after expense reduction) 0.17 0.17 0.15 0.22
---- ---- ---- ----
Total Operating Expenses (after reduction) 1.67% 1.59% 1.57% 1.29%
==== ==== ==== ====
EXAMPLE
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An investor would pay the following expenses (including a contingent deferred sales charge in the case of
redemption during the first year after purchase) on a $1,000 investment, assuming (a) 5% annual return and
(b) redemption at the end of each period:
<CAPTION>
CALIFORNIA FLORIDA NEW YORK RHODE ISLAND
FUND FUND FUND FUND
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<S> <C> <C> <C> <C>
1 Year $ 27 $ 26 $ 26 $ 23
3 Years 53 50 50 41
5 Years 91 87 86 71
10 Years 198 189 187 156
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b)
no redemptions:
1 Year $ 17 $ 16 $ 16 $ 13
3 Years 53 50 50 41
5 Years 91 87 86 71
10 Years 198 189 187 156
</TABLE>
NOTES:
The table and Example summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund.
Information for each Fund is based on its expenses for the most recent fiscal
year. Absent 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: California Fund Other Expenses would have been 1.57% and Total
Operating Expenses would have been 3.07%; Florida Fund Other Expenses would
have been 0.57% and Total Operating Expenses would have been 1.99%; New York
Fund Other Expenses would have been 0.59% and Total Operating Expenses would
have been 2.01%; and Rhode Island Fund Investment Adviser Fee and Other
Expenses would have been 0.25% and 0.83%, respectively 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 Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Example to assume a 5% annual return, but actual
return may vary. For further information regarding the expenses of the Funds
and the Portfolios see "The Funds' Financial Highlights", "Organization of
the Funds and the Portfolios", "Management of the Funds and the Portfolios"
and "How to Redeem Fund Shares". A long-term shareholder in a Fund may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by a rule of the National Association of Securities Dealers, Inc.
See "Distribution Plans."
No contingent deferred sales charge is imposed on (a) shares purchased more
than one year prior to redemption, (b) shares acquired through the
reinvestment of dividends and distributions or (c) any appreciation in value
of other shares in the account (see "How to Redeem Fund Shares"), and no such
charge is imposed on exchanges of Fund shares for shares of one or more other
funds listed under "The Eaton Vance Exchange Privilege."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 11.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and others may do so in the future. See
"Organization of the Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
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The following information should be read in conjunction with the audited
financial statements included in the Funds' annual report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon the report of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of a Fund is contained in its annual
report to shareholders which may be obtained without charge by contacting the
Principal Underwriter, Eaton Vance Distributors, Inc.
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<TABLE>
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YEAR ENDED SEPTEMBER 30,
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CALIFORNIA FUND FLORIDA FUND NEW YORK FUND RHODE ISLAND FUND
------------------------------- -------------------- -------------------- --------------------
MARCH 31,
1995 1994* 1994* 1995 1994* 1995 1994* 1995 1994*
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of
year $ 9.080 $ 9.340 $10.000 $ 8.970 $10.000 $ 9.060 $10.000 $ 8.890 $10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.460 $ 0.227 $ 0.140 $ 0.444 $ 0.351 $ 0.454 $ 0.344 $ 0.442 $ 0.347
Net realized and unrealized
gain (loss) on investments 0.267 (0.224) (0.635) 0.399 (0.967) 0.372 (0.869) 0.331 (1.046)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.727 $ 0.003 $(0.495) $ 0.843 $(0.616) $ 0.826 $(0.525) $ 0.773 $(0.699)
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.460) $(0.227) $(0.140) $(0.444) $(0.351) $(0.454) $(0.344) $(0.442) $(0.347)
In excess of net investment
income(3) (0.010) (0.036) (0.025) (0.019) (0.063) (0.012) (0.071) (0.011) (0.064)
In excess of net realized
gain on investments(3) (0.017) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.487) $(0.263) $(0.165) $(0.463) $(0.414) $(0.466) $(0.415) $(0.453) $(0.411)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.320 $ 9.080 $ 9.340 $ 9.350 $ 8.970 $ 9.420 $ 9.060 $ 9.210 $ 8.890
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 8.32% 0.03% (5.16)% 9.72% (6.36)% 9.45% (5.45)% 9.00% (7.29)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000
omitted) $ 2,761 $ 2,893 $ 2,095 $ 5,261 $ 8,063 $ 5,449 $ 5,137 $ 3,034 $ 3,919
Ratio of net expenses to
average daily net assets(2) 1.67% 1.73%+ 1.64%+ 1.59% 1.63%+ 1.57% 1.64%+ 1.29% 1.23%+
Ratio of net investment
income to average daily
net assets 5.11% 4.89%+ 4.17%+ 4.99% 4.51%+ 4.96% 4.41%+ 5.00% 4.50%+
**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 $ 0.335 $ 0.120 $ 0.123 $ 0.408 $ 0.331 $ 0.414 $ 0.293 $ 0.377 $ 0.299
======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of
average daily net assets):
Expenses(2) 3.07% 4.03%+ 2.15%+ 1.99% 1.88%+ 2.01% 2.29%+ 2.03% 1.85%+
Net investment income 3.71% 2.59%+ 3.66%+ 4.59% 4.26%+ 4.52% 3.76%+ 4.26% 3.88%+
Footnotes:
*For the California Fund, the Financial Highlights are for the period from the start of business, December 3, 1993 to March 31,
1994 and for the six months ended September 30, 1994 and for the Florida, New York and Rhode Island Funds, the Financial
Highlights are for the period from the start of business, December 3, 1993, December 6, 1993 and December 7, 1993, respectively,
to September 30, 1994.
+Annualized.
(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)During the year ended September 30, 1993 (March 31, 1994 for the California Fund), the Fund adopted Statement of Position (SOP)
93-2: Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. The SOP requires that differences in the recognition or classification of income between
the financial statements and tax earnings and profits that result in temporary over-distributions for financial statement
purposes, are classified as distributions in excess of net investment income or accumulated net realized gains.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
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The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) which are
rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment
Adviser. Each Portfolio has the same investment objective as its corresponding
Fund.
EV CLASSIC CALIFORNIA MUNICIPALS FUND (the "California Fund") seeks to provide
current income exempt from regular federal income tax and California State
personal income taxes. The California Fund seeks to meet its objective by
investing its assets in the California Municipals Portfolio (the "California
Portfolio").
EV CLASSIC FLORIDA MUNICIPALS FUND (the "Florida Fund") seeks to provide
current income exempt from regular federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Fund seeks to meet
its objective by investing its assets in the Florida Municipals Portfolio (the
"Florida Portfolio").
EV CLASSIC NEW YORK MUNICIPALS FUND (the "New York Fund") seeks to provide
current income exempt from regular federal income tax and New York State and
New York City personal income taxes. The New York Fund seeks to meet its
objective by investing its assets in the New York Municipals Portfolio (the
"New York Portfolio").
EV CLASSIC RHODE ISLAND MUNICIPALS FUND (the "Rhode Island Fund") seeks to
provide current income exempt from regular federal income tax and Rhode Island
State personal income taxes. The Rhode Island Fund seeks to meet its objective
by investing in the Rhode Island Municipals Portfolio (the "Rhode Island
Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
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EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER
DIRECTLY OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY
PRIMARILY (I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL
MARKET CONDITIONS) IN MUNICIPALS OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT
FROM REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE
WITH THE FUND'S INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing
policy is a fundamental policy of each Fund and its corresponding Portfolio,
which may not be changed unless authorized by a vote of the Fund's
shareholders or that Portfolio's investors, as the case may be.
At least 75% of the net assets of the California Portfolio and Florida
Portfolio, at least 70% of the net assets of the New York Portfolio, and at
least 80% of the net assets of the Rhode Island 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 September 30, 1995, the Portfolios had invested in such obligations as
follows (as a percentage of net assets): California Portfolio (18.0%); Florida
Portfolio (18.9%); New York Portfolio (4.82%); and Rhode Island Portfolio
(19.1%). At September 30, 1995, the Portfolios limited their investment in
obligations subject to the AMT to not more than 20% of net assets. The
Portfolios are no longer subject to such limitation. Distributions to
corporate investors of certain interest income may also be subject to the AMT.
The Funds may not be suitable for investors subject to the AMT.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State and that State's political
subdivisions. Each Portfolio is, therefore, more susceptible to factors
adversely affecting issuers in one State than mutual funds which do not
concentrate in a specific State. Municipal obligations of issuers in a single
State may be adversely affected by economic developments and by legislation
and other governmental activities in that State. To the extent that a
Portfolio's assets are concentrated in municipal obligations of issuers of a
single State, that Portfolio may be subject to an increased risk of loss. Each
Portfolio may also invest in obligations issued by the governments of Puerto
Rico, the U.S. Virgin Islands and Guam. See the Appendix to this Prospectus
for a description of some of the economic and other factors relating to the
States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its total assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities;
obligations of State and local housing finance authorities, municipal
utilities systems or public housing authorities; obligations of hospitals or
life care facilities; or industrial development or pollution control bonds
issued for electric utility systems, steel companies, paper companies or other
purposes. This may make a Portfolio more susceptible to adverse economic,
political, or regulatory occurrences affecting a particular category of
issuer. For example, health care-related issuers are susceptible to medicaid
reimbursement policies, and national and State health care legislation. As a
Portfolio's concentration increases, so does the potential for fluctuation in
the value of the corresponding Fund's shares.
NON-DIVERSIFIED STATUS. As "non-diversified" investment companies, each
Portfolio may invest, with respect to 50% of its total assets, more than 5%
(but not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio would be more susceptible to any single adverse economic or
political occurrence or development affecting issuers of the relevant State's
municipal obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive
their value from another instrument, security or index. In addition, each
Portfolio may temporarily borrow up to 5% of the value of its total assets to
satisfy redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the
securities may fluctuate prior to delivery and upon delivery the securities
may be worth more or less than a Portfolio agreed to pay for them. Each
Portfolio may also purchase instruments that give the Portfolio the option to
purchase a municipal obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in
inverse floaters may involve greater risk than an investment in a fixed rate
bond. Because changes in the interest rate on the other security or index
inversely affect the residual interest paid on the inverse floater, the value
of an inverse floater is generally more volatile than that of a fixed rate
bond. Inverse floaters have interest rate adjustment formulas which generally
reduce or, in the extreme, eliminate the interest paid to a Portfolio when
short-term interest rates rise, and increase the interest paid to the
Portfolio when short-term interest rates fall. Inverse floaters have varying
degrees of liquidity, and the market for these securities is new and
relatively volatile. These securities tend to underperform the market for
fixed rate bonds in a rising interest rate environment, but tend to outperform
the market for fixed rate bonds when interest rates decline. Shifts in long-
term interest rates may, however, alter this tendency. Although volatile,
inverse floaters typically offer the potential for yields exceeding the yields
available on fixed rate bonds with comparable credit quality and maturity.
These securities usually permit the investor to convert the floating rate to a
fixed rate (normally adjusted downward), and this optional conversion feature
may provide a partial hedge against rising rates if exercised at an opportune
time. Inverse floaters are leveraged because they provide two or more dollars
of bond market exposure for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities and municipal obligations) and securities
indices (such as the Municipal Bond Index traded on the Chicago Board of
Trade). Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not
purchase or sell futures contracts or related options, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of margin deposits and premiums paid on the Portfolio's outstanding positions
would exceed 5% of the market value of the Portfolio's net assets. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce a Fund's current yield.
Insurance generally will be obtained from insurers with a claims-paying
ability rated Aaa by Moody's or AAA by S&P or Fitch. The insurance does not
guarantee the market value of the insured obligations or the net asset value
of a Fund's shares.
ADDITIONAL RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, each Portfolio may invest in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which a Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations
may have some quality and protective characteristics, these characteristics
can be expected to be offset or outweighed by uncertainties or major risk
exposures to adverse conditions. Lower rated and comparable unrated municipal
obligations are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations (credit risk) and may also be subject
to greater price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated municipal obligations are also
more likely to react to real or perceived developments affecting market and
credit risk than are more highly rated obligations, which react primarily to
movements in the general level of interest rates. The Investment Adviser seeks
to minimize the risks of investing in below investment grade securities
through professional investment analysis and attention to current developments
in interest rates and economic conditions. When a Portfolio invests in lower
rated or unrated municipal obligations, the achievement of the Portfolio's
goals is more dependent on the Investment Adviser's ability than would be the
case if the Portfolio were investing in municipal obligations in the higher
rating categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by a Portfolio which
are rated below investment grade but which, subsequent to the assignment of
such rating, are backed by escrow accounts containing U.S. Government
obligations may be determined by the Investment Adviser to be of investment
grade quality for purposes of the Portfolio's investment policies. A Portfolio
may retain in its portfolio an obligation whose rating drops below B after its
acquisition, if such retention is considered desirable by the Investment
Adviser; provided, however, that holdings of obligations rated below Baa or
BBB will be less than 35% of net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary
in order to comply with the Portfolio's credit quality limitations.
The net asset value of shares of a Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by its corresponding Portfolio. When interest rates decline,
the value of securities held by a Portfolio can be expected to rise.
Conversely, when interest rates rise, the value of most portfolio security
holdings can be expected to decline. Changes in the credit quality of the
issuers of municipal obligations held by a Portfolio will affect the principal
value of (and possibly the income earned on) on such obligations. In addition,
the values of such securities are affected by changes in general economic
conditions and business conditions affecting the specific industries of their
issuers. Changes by recognized rating services in their ratings of a security
and in the ability of the issuer to make payments of principal and interest
may also affect the value of a Portfolio's investments. The amount of
information about the financial condition of an issuer of municipal
obligations may not be as extensive as that made available by corporations
whose securities are publicly traded. An investment in shares of a Fund will
not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other
accounts managed by the Investment Adviser and its affiliates, holds a major
portion or all of such securities. Under adverse market or economic conditions
or in the event of adverse changes in the financial condition of the issuer,
the Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain of the municipal
obligations in which a Portfolio may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, a Portfolio may be unable to dispose of
these municipal obligations at times when it would otherwise wish to do so at
the prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer redeems securities held by
the Portfolio during a time of declining interest rates, the Portfolio may not
be able to reinvest the proceeds in securities providing the same investment
return as the securities redeemed.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals during the
life of the security. Each Portfolio is required to accrue and distribute
income from zero-coupon bonds on a current basis, even though it does not
receive that income currently in cash. Thus, a Portfolio may have to sell
other investments to obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such
leases is often subject to the appropriation by the appropriate legislative
body, on an annual or other basis, of funds for the payment of the
obligations. Investments in municipal leases are thus subject to the risk that
the legislative body will not make the necessary appropriation and the issuer
will not otherwise be willing or able to meet its obligation.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A
SHAREHOLDER VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH
ENUMERATED RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE
INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT
FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE
TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF A FUND'S
SHAREHOLDERS OR THE INVESTORS IN THE CORRESPONDING PORTFOLIO, AS THE CASE
MAY BE. IF ANY CHANGES WERE MADE IN A FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH
AN INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A
SHAREHOLDER IN THE FUND.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
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EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST (THE
"TRUST"), A BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A
DECLARATION OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A
MUTUAL FUND -- AN OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the
Trust are responsible for the overall management and supervision of its
affairs. The Trust may issue an unlimited number of shares of beneficial
interest (no par value per share) in one or more series 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. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of a Fund, those shares may be subject to a contingent deferred sales charge,
as described in "How to Redeem Fund Shares". In the event a Fund withdraws all
of its assets from its corresponding Portfolio, or the Board of Trustees of
the Trust determines that the investment objective of such Portfolio is no
longer consistent with the investment objective of the Fund, such Trustees
would consider what action might be taken, including investing the assets of
such Fund in another pooled investment entity or retaining an investment
adviser to manage the Fund's assets in accordance with its investment
objective. A Fund's investment performance may be affected by a withdrawal of
all its assets from its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc.
(the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110,
(617) 482-8260. Smaller investors in a Portfolio may be adversely affected by
the actions of a larger investor in the Portfolio. For example, if a large
investor withdraws from a Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, a Portfolio may hold fewer securities, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured mutual funds which have
large or institutional investors.
Until 1992, the Administrator sponsored and advised historically structured
funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund
industry and, therefore, the Funds may be subject to additional regulations
than historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolios as partnerships for federal income tax purposes.
See "Distributions and Taxes" for further information. Whenever a Fund as an
investor in a Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may
be determined by the Trustees of the Portfolio without investor approval), the
Fund will hold a meeting of Fund shareholders and will vote its interest in
the Portfolio for or against such matters proportionately to the instructions
to vote for or against such matters received from Fund shareholders. A Fund
shall vote shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting instructions. Other
investors in a Portfolio may alone or collectively acquire sufficient voting
interests in the Portfolio to control matters relating to the operation of the
Portfolio, which may require the corresponding Fund to withdraw its investment
in the Portfolio or take other appropriate action. Any such withdrawal could
result in a distribution "in kind" of portfolio securities (as opposed to a
cash distribution from the Portfolio). If securities are distributed, a Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of a Fund.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of each Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between a Fund
and its corresponding Portfolio, and it is possible that the creation of
separate Boards may be considered. For further information concerning the
Trustees and officers of each of the Trust and the Portfolios, see the
Statement of Additional Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
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EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs 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. Categories (1) and (2) below do not
apply to the California Portfolio and Category (3) is for daily net
assets of the California Portfolio of up to $500 million.
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 September 30, 1995 equivalent to the annualized
percentage of average daily net assets stated below.
NET ASSETS AS OF
PORTFOLIO SEPTEMBER 30, 1995 ADVISORY FEE
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California ............................. $410,670,138 0.50%
Florida ................................ 712,203,136 0.47%
New York ............................... 652,736,309 0.47%
Rhode Island ........................... 42,905,967 0.25%(1)
(1) To enhance the net income of the Rhode Island Portfolio, BMR made a
reduction of its advisory fee in the amount of $50,721.
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, oil and gas operations, real estate investment, consulting and
management, and development of precious metals properties.
Nicole Anderes has acted as the portfolio manager of the New York and Rhode
Island Portfolios since they commenced operations. She joined Eaton Vance and
BMR as a Vice President in January 1994. Prior to joining Eaton Vance, she was
a Vice President and portfolio manager at Lazard Freres Asset Management
(1992-1994) and a Vice President and Manager -- Municipal Research at
Roosevelt & Cross (1978-1992).
Cynthia J. Clemson has acted as the portfolio manager of the California
Portfolio since February 1, 1996. She has been a Vice President of Eaton Vance
and BMR since 1993 and an employee of Eaton Vance since 1985.
Thomas J. Fetter has acted as the portfolio manager of the Florida Portfolio
since it commenced operations. He has been a Vice President of Eaton Vance
since 1987 and of BMR since inception.
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject
to the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLANS
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EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940
(THE "1940 ACT"). Rule 12b-1 permits a mutual fund, such as a Fund, to finance
distribution activities and bear expenses associated with the distribution of
its shares provided that any payments made by the Fund are made pursuant to a
written plan adopted in accordance with the Rule. Each Plan is subject to, and
complies with, the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD Rule"). Each Fund's Plan is described further in the
Statement of Additional Information, and the following is a description of the
salient features of the Plans. Each Fund's Plan provides that the Fund,
subject to the NASD Rule, will pay sales commissions and distribution fees to
the Principal Underwriter only after and as a result of the sale of shares of
the Fund. On each sale of Fund shares (excluding reinvestment of
distributions) a Fund will pay the Principal Underwriter amounts representing
(i) sales commissions equal to 6.25% of the amount received by a Fund for each
share sold and (ii) distribution fees calculated by applying the rate of 1%
over the prime rate then reported in The Wall Street Journal to the
outstanding balance of Uncovered Distribution Charges (as described below) of
the Principal Underwriter. On sales of shares made prior to January 30, 1995,
the Principal Underwriter currently pays monthly sales commissions to a
financial service firm (an "Authorized Firm") in amounts anticipated to be
equivalent to .75%, annualized, of the assets maintained in a Fund by the
customers of such Firm. On sales of shares made on January 30, 1995 and
thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .80% (.75% in the case of the
California Fund) of the purchase price of the shares sold by such Firm, and
(b) monthly sales commissions approximately equivalent to 1/12 of .75% of the
value of shares sold by such Firm and remaining outstanding for at least one
year. The Plan is designed to permit an investor to purchase Fund shares
through an Authorized Firm without incurring an initial sales charge and at
the same time permit the Principal Underwriter to compensate Authorized Firms
in connection with the sale of Fund shares.
THE NASD RULE REQUIRES 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.
During the fiscal year ended September 30, 1995, each Fund paid or accrued
sales commissions under its Plan equivalent to .75% (annualized) of such
Fund's average daily net assets. As at September 30, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter on such day
calculated under each Fund's Plan amounted to approximately $331,000
(equivalent to 12.0% of net assets on such day) in the case of the California
Fund, $713,000 (equivalent to 13.6% of net assets on such day) in the case of
the Florida Fund, $467,000 (equivalent to 8.6% of net assets on such day) in
the case of the New York Fund, and $340,000 (equivalent to 11.2% of net assets
on such day) in the case of the Rhode Island Fund.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The Trustees
of the Trust have initially implemented this provision of each Fund's Plan by
authorizing the Fund to make monthly service fee payments to the Principal
Underwriter in amounts not expected to exceed .20% (.25% for the California
Fund) 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% (.25% for the
California Fund) 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% (.25% for the California Fund), 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% (.25% for the California
Fund) of the purchase price of the shares sold by such Firm, and (b) monthly
service fees approximately equivalent to 1/12 of .20% (.25% for the
California Fund) 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. During the first year after a purchase of Fund shares, the
Principal Underwriter will retain the service fee as reimbursement for the
service fee payment made to the Authorized Firm at the time of sale. For the
fiscal year ended September 30, 1995, each Fund paid or accrued service fees
under its Plan equivalent to 0.20% (annualized) (0.25% (annualized) for the
California Fund) of such Fund's average daily net assets for such period.
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell a Fund's shares and/or shares of other funds
distributed by the Principal Underwriter. In some instances, such additional
incentives may be offered only to certain Authorized Firms whose
representatives sell or are expected to sell significant amounts of shares. In
addition, the Principal Underwriter may from time to time increase or decrease
the sales commissions payable to Authorized Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant
factors, including without limitation the size of a Fund, the investment
climate and market conditions, the volume of sales and redemptions of Fund
shares and the amount of Uncovered Distribution Charges of the Principal
Underwriter. Each Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of Fund shares; however, no Fund is contractually obligated to
continue its Plan for any particular period of time. Suspension of the
offering of Fund shares would not, of course, affect a shareholder's ability
to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio,
the Fund's net asset value will reflect the value of its interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
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SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares. Shares of each Fund are offered
for sale only in States where such shares may be legally sold. An Authorized
Firm may charge its customers a fee in connnection 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 Classic [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities to IBT. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult
his or her tax adviser with respect to the particular federal, State and local
tax consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
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A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO 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 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 Fund shares which have
been sold to Eaton Vance or its affiliates, or to their respective employees
or clients. The contingent deferred sales charge will also be waived for
shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance
Shareholder Services"), (2) as part of a distribution from a retirement plan
qualified under Section 401, 403(b) or 457 of the Internal Revenue Code of
1986, as amended (the "Code"), or (3) as part of a minimum required
distribution from other tax-sheltered retirement plans. The contingent
deferred sales charge will be paid to the Principal Underwriter or the Fund.
When paid to the Principal Underwriter it will reduce the amount of Uncovered
Distribution Charges calculated under the Fund's Distribution Plan. See
"Distribution Plans."
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Funds' independent certified public accountants.
Shortly after the end of each calendar year, each Fund will furnish its
shareholders with information necessary for preparing federal and State tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS'
TRANSFER AGENT, FIRST DATA INVESTOR SERVICES GROUP, WILL SET UP A LIFETIME
INVESTING ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This
account is a complete record of all transactions between the investor and the
Fund which at all times shows the balance of shares owned. A Fund will not
issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE to First Data
Investor Services Group.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA, 02104 (please provide the name of the shareholder, the
Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the
Funds' dividend disbursing agent, First Data Investor Services Group, BOS725,
P.O. Box 1559, Boston, MA 02104. The currently effective option will appear on
each account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more
will be reinvested in the account in shares at the then current net asset
value. Furthermore, the distribution option on the account will be
automatically changed to the Share Option until such time as the shareholder
selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a
shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the
account, or to obtain information about the account. The transfer of shares in
a "street name" account to an account with another dealer or to an account
directly with a Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares in
the account from the Authorized Firm. Before establishing a "street name"
account with an investment firm, or transferring the account to another
investment firm, an investor wishing to reinvest distributions should
determine whether the firm which will hold the shares allows reinvestment of
distributions in "street name" accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
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Shares of each Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Classic Group of Funds or Eaton Vance Money Market
Fund, which are distributed with a contingent deferred sales charge, on the
basis of the net asset value per share of each fund at the time of the
exchange, provided that such exchange offers are available only in States
where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
First Data Investor Services Group makes exchanges at the next determined net
asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult First Data Investor Services Group for
additional information concerning the exchange privilege. Applications and
prospectuses of other funds are available from Authorized Firms or the
Principal Underwriter. The prospectus for each fund describes its investment
objectives and policies, and shareholders should obtain a prospectus and
consider these objectives and policies carefully before requesting an
exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon redemption of shares
acquired in an exchange, the purchase of shares acquired in one or more
exchanges is deemed to have occurred at the time of the original purchase of
the exchanged shares.
Shares of the other funds in the Eaton Vance Classic Group of Funds (and
shares of Eaton Vance Money Market Fund acquired as a result of an exchange
from an EV Classic 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
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THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter.
The cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund being purchased may be mailed directly to First Data Investor Services
Group, BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not
dividends are reinvested. The name of the shareholder, the Fund and the
account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments
of $50 or more may be made automatically each month or quarter from a
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a contingent deferred sales charge. See "How to
Redeem Fund Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES
MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON
THE REDEEMED OR REPURCHASED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE
TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND,
provided that the reinvestment is effected within 60 days after such
repurchase or redemption and the privilege has not been used more than once in
the prior 12 months. Shares are sold to a reinvesting shareholder at the next
determined net asset value following timely receipt of a written purchase
order by the Principal Underwriter or by a Fund (or by the Fund's Transfer
Agent). To the extent that any shares of a Fund are sold at a loss and the
proceeds are reinvested in shares of a Fund (or other shares of the Fund are
acquired within the period beginning 30 days before and ending 30 days after
the date of the redemption) some or all of the loss generally will not be
allowed as a tax deduction. Shareholders should consult their tax advisers
concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
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SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL
BE DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME
OF DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the twenty-second day of each
month or the next business day thereafter. Each Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, will constitute tax-exempt income to
shareholders, except for the proportionate part of the distribution that may
be considered taxable income if the Fund has taxable income during the
calendar year. Shareholders reinvesting the monthly distribution should treat
the amount of the entire distribution as the tax cost basis of the additional
shares acquired by reason of such reinvestment. Daily distribution crediting
will commence on the day that collected funds for the purchase of Fund shares
are available at the Transfer Agent. Shareholders of a Fund will receive
timely federal income tax information as to the tax-exempt or taxable status
of all distributions made by the Fund during the calendar year. A Fund's net
realized capital gains, if any, consist of the net realized capital gains
allocated to the Fund by its corresponding Portfolio for tax purposes, after
taking into account any available capital loss carryovers; a Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
Each Fund intends to qualify as a regulated investment company under the Code,
and to satisfy all requirements necessary to be relieved of federal taxes on
income and gains it distributes to shareholders. In satisfying these
requirements, each Fund will treat itself as owning its proportionate share of
each of its corresponding Portfolio's assets and as entitled to the income of
the Portfolio properly attributable to such share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS
PARTNERSHIPS UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR
EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. Distributions are
taxed in the manner described above whether paid in cash or reinvested in
additional shares of a Fund. Tax-exempt distributions received from a Fund are
includable in the tax base for determining the taxability of social security
and railroad retirement benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
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FROM TIME TO TIME, EACH FUND MAY ADVERTISE THE YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN. Each Fund's current yield is calculated by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share (net asset value) of the Fund on the last day
of the period and annualizing the resulting figure. A taxable-equivalent yield
is computed by using the tax-exempt yield figure and dividing by one minus the
tax rate. Each Fund's average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price (net asset value) for specified periods ending
with the most recent calendar quarter, assuming reinvestment of all
distributions. The average annual total return calculation assumes a complete
redemption of the investment and the deduction of any applicable contingent
deferred sales charge at the end of the period. Each Fund may publish annual
and cumulative total return figures from time to time. Each Fund may also
quote total return for the period prior to commencement of operations which
would reflect the Portfolio's total return (or that of its predecessor)
adjusted to reflect any applicable Fund sales charge.
Each Fund may also publish total return figures which do not take into account
any contingent deferred sales charge which may be imposed upon redemptions at
the end of the specified period. Any performance figure which does not take
into account the contingent deferred sales charge would be reduced to the
extent such charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Fund's current yield or total return
for any prior period should not be considered a representation of what an
investment may earn or what the Fund's yield or total return may be in any
future period. If the expenses of a Fund or its corresponding Portfolio are
paid by Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to
factors affecting that State. Each Portfolio may also invest up to 5% of its
net assets in obligations issued by the governments of Guam and the U.S.
Virgin Islands and up to 35% of its assets in obligations issued by the
government of Puerto Rico. 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.
CALIFORNIA. California experienced severe economic and fiscal stress over the
1991-95 period. Between 1990 and 1993, California lost 3% of its total
employment base and nearly 16% of higher paying manufacturing jobs. This was
during a period when population increased 6%. The unemployment rate in
California was 9.1% in 1992 and 9.2% in 1993, well above the U.S. rates of
7.4% and 6.8% for the same periods, respectively. Unemployment was 8.8% in
November 1995, compared to 7.7% in November 1994.
The weak economy seriously undermined the government's ability to accurately
estimate tax revenues and increased social service expenditures for recession-
related welfare case loads. In addition, the continued influx of illegal
immigrants strained the State's welfare and health care systems. The result of
these various problems was a $2 billion accumulated budget deficit and a heavy
reliance on short-term borrowing for day-to-day operations. Short-term
borrowing increased from 7.8% of general fund receipts in 1990 to 12.4% in
1992 to an estimated 16% in 1995. In July, 1994, the State issued $7 billion
in short-term debt, an unprecedented amount for a State.
The $2 billion budget deficit built up during the 1991 and 1992 fiscal years
and was not adequately addressed during the 1993 or 1994 fiscal years, despite
a Deficit Retirement and Reduction Plan put in place in June, 1993. The budget
for fiscal year 1995 (which commenced on July 1, 1994) includes general fund
expenditures of $40.9 billion, a 4.2% increase over 1993-94, and general fund
revenues of $41.9 billion, a 5.2% increase. Growth in the State's employment
base and attendant revenue growth, led to a current year surplus for fiscal
year 1995. If fiscal year 1996 ends near budgeted levels, the accumulated
budget deficit will be eliminated.
On January 17, 1994, a major earthquake struck the Los Angeles area causing
significant property damage. Preliminary estimates of total property damage
approximate $15 billion. The federal government has approved $9.5 billion for
earthquake relief. The Governor has estimated that the State will have to pay
approximately $1.9 billion for relief not otherwise covered by the federal
aid. The Governor had proposed to cover $1.05 billion of relief costs from a
general obligation bond issue, but the proposal was rejected by California
voters in June 1994. The Governor subsequently announced that funds earmarked
for other projects would be used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9
of the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold
bonds of some of the governmental units that had money invested with the
County; the impact of the loss of access to these funds, the loss of expected
investment earnings and the potential loss of some of the principal invested
is not known at this point. There can be no assurances that these holdings
will maintain their current ratings and/or liquidity in the market.
In early June 1995, the County filed a proposal with the bankruptcy court that
would require holders of the County's short-term notes to wait one-year before
being repaid. The existence of this proposal and its adoption could disrupt
the market for short-term debt in California and possibly drive up the State's
borrowing costs. On June 27, 1995 the voters in Orange County rejected a
proposed one half cent increase in the sales tax, the revenues from which
would have been used to help the County emerge from bankruptcy. The failure of
this measure increases the likelihood that the County will default on some of
their obligations and, more broadly, could have a negative impact on the
perceived credit quality of municipal obligations throughout California.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to
ensure that school districts have sufficient funds to operate. Longer term,
this financial crisis could have an adverse impact on the economic recovery
that has only recently taken hold in Southern California.
California voters have approved a series of amendments to the California State
constitution which have imposed certain limits on the taxing and spending
powers of the State and local governments. While the State legislature has, in
the past, enacted legislation designed to assist California issuers in meeting
their debt service obligations, other laws limiting the State's authority to
provide financial assistance to localities have also been enacted. Because of
the uncertain impact of such constitutional amendments and statutes, the
possible inconsistencies in their respective terms and the impossibility of
predicting the level of future appropriations and applicability of related
statutes to such questions, it is not currently possible to assess the impact
of such legislation and policies on the ability of California issuers to pay
interest or repay principal on their obligations.
As a result of the significant economic and fiscal problems described above,
the State's debt has been downgraded by all three rating agencies from Aa to
A1 by Moody's, from A+ to A by S&P, and from AA to A by Fitch.
CALIFORNIA TAXES. California law provides that dividends paid by the
California Fund and designated by the California Fund as tax-exempt are exempt
from California personal income tax on individuals who reside in California to
the extent such dividends are derived from interest payments on municipal
obligations exempt from regular federal income tax and California State
personal income taxes, provided that at least 50% of the assets of the
California Portfolio at the close of each quarter of its taxable year are
invested in obligations the interest on which is exempt under either federal
or California law from taxation by the State of California. Distributions of
short-term capital gains are treated as ordinary income, and distributions of
long-term capital gains are treated as long-term capital gains under the
California personal income tax.
FLORIDA. Florida's financial operations are considerably different than most
other states because, under the State's constitution, there is no state income
tax on individuals. The lack of an income tax on individuals exposes total
State tax collections to considerably more volatility than would otherwise be
the case and, in the event of an economic downswing, could effect the State's
ability to pay principal and interest in a timely manner. The General Fund
budget for 1994-95 includes revenues of $14.6 billion and expenditures of
$14.3 billion. Due to lower than expected revenue collections, revenue
estimates have been reduced by 1.1% for 1994-95. Unencumbered reserves are
projected to be $252.6 million, or 1.8% of expenditures for fiscal year 1995.
The state's general revenue fund budget for fiscal year 1995-96 is estimated
to include revenues of $15.0 billion (a 2.7% increase over fiscal year 1994-
95) and expenditures of $14.8 billion (a 3.5% increase over fiscal year 1994-
95). Unemployment in the State for November, 1995 was 5.3%, compared to the
national unemployment rate of 5.6%.
In 1993, the Florida constitution was amended to limit the annual growth in
the assessed valuation of residential property, which, over time, could
constrain growth in property taxes, a major source of revenue for local
governments. In 1994, the Florida constitution was amended to limit state
revenue collections in any fiscal year to, subject to exception, that which
was allowed in the prior fiscal year plus a growth factor, to be determined by
reference to the average annual growth rate in Florida personal income over
the previous five years.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as
stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Fund that are subject to the Florida intangibles
tax will not be required to include the value of their Florida Fund shares in
their taxable intangible property if all of the Florida Fund's investments on
the annual assessment date are obligations that would be exempt from such tax
if held directly by such shareholders, such as Florida and U.S. Government
obligations. The Florida Portfolio will normally attempt to invest
substantially all of its assets in tax-exempt obligations of Florida, the
United States, the Territories or political subdivisions of the United States
or Florida ("Florida obligations"), and it will ensure that all of its assets
held on the annual assessment date are exempt from the Florida intanglibles
tax. Accordingly the value of the Florida Fund shares held by a shareholder
should under normal circumstances be exempt from the Florida intangibles tax.
NEW YORK. New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with
a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a comparatively
small share of the nation's farming and mining activity. However, as the
result of a recession ending in the first quarter of 1993, 560,000 jobs were
lost statewide (equal to 6.7% of the peak employment figure for 1989).
Although the State has added approximately 185,000 jobs since November 1992,
employment growth in the State has been hindered during recent years by
significant cutbacks in the computer, manufacturing, defense and banking
industries. New York's economy expanded modestly during 1995, growing at a
rate slower than the nation as a whole, and is expected to slow gradually
during 1996. In the 1992-1993 fiscal year, however, the State began the
process of financial reform. The State Financial Plans for the 1992-1993,
1993-1994 and 1994-1995 fiscal years produced positive fund balances at the
end of all three fiscal years. The State, however, completed its 1994-1995
fiscal year with a General Fund operating deficit of $1.426 billion primarily
due to the use of $1.026 billion of the 1993-1994 fiscal year surplus in the
1994-1995 fiscal year.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to
obtain additional financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in recent
years and currently continues to experience such difficulties owing, in part,
to lower than anticipated revenues. Because New York City taxes comprise
approximately 40% of the State's tax base, the City's difficulties adversely
affect the State.
In June, 1995, the Governor approved the 1995-1996 budget, which included
adoption of a three-year 20% reduction in the State's personal income tax. In
combination with business tax reductions enacted in 1994, State taxes will be
reduced by $5.5 billion by the 1997-1998 fiscal year. The 1995-1996 State
Financial Plan, based on the enacted 1995-1996 budget, includes gap-closing
actions to offset a projected budget gap of $5 billion, the largest in the
State's history.
The Governor has submitted his 1996-1997 budget proposal earlier than required
by State law, hoping the State legislature will approve it prior to the
beginning of the fiscal year. The Governor's proposed 1996-1997 budget
identifies a potential budget gap of approximately $3.9 billion and includes a
gap-closing program to eliminate such gap. There can be no assurances that the
Governor's budget proposals will be adopted, or the gap-closing program can be
implemented, as proposed.
New York's general obligations are rated A, A- and A+ by Moody's, S&P and Fitch,
respectively. S&P currently assesses the rating outlook for New York obligations
as positive. New York City obligations are rated Baa1, BBB+ and A- by Moody's,
S&P and Fitch, respectively. On July 10, 1995, S&P revised downward its rating
on City general obligation bonds from A- to BBB+ and removed City bonds from
CreditWatch. S&P stated that the downgrade was a reflection of the City's
inability to eliminate a structural budget imbalance due to persistent softness
in the City's economy, weak job growth, a trend of using nonrecurring budget
devices, optimistic projections of State and federal aid and high levels of debt
service.
NEW YORK TAXES. In the opinion of Brown & Wood, under New York law, for
individuals subject to the New York State or New York City personal income
tax, dividends paid by the New York Fund are exempt from New York State and
New York City income tax for individuals who reside in New York to the extent
such dividends are excluded from gross income for federal income tax purposes
and are derived from interest payments on tax-exempt obligations issued by or
on behalf of New York State and its political subdivisions and agencies, and
the govenments of Puerto Rico, the U.S. Virgin Islands and Guam. Other
distributions from the New York Fund, including distributions derived from
taxable ordinary income and net short-term and long-term capital gains, are
generally not exempt from New York State or City personal income tax.
Individuals subject to income taxation by states other than New York will
realize a lower after-tax return than individuals subject to tax by New York
State since the dividends distributed by the New York Fund generally will not
be exempt, to any significant degree, from income taxation by such other
states. Interest on indebtedness incurred or continued to purchase or carry
New York Fund shares is not deductible for New York personal income tax
purposes to the extent attributable to exempt-interest dividends. Persons who
may be "substantial users" (or "related persons" of substantial users) of
facilities financed by industrial development bonds or private activity bonds
held by the New York Fund should consult their tax advisors before purchasing
New York Fund shares.
RHODE ISLAND. In 1994, the State recorded a $5.2 million operating deficit,
drawing down the undesignated general fund balance to $3.5 million. The fiscal
year 1994 budget excluded nearly all gasoline tax revenues and transportation
expenditures, which will now be recorded in a new dedicated surface
transportation fund. The 1995 budget includes budgeted reserves of $46.5
million (equal to 3% of fiscal 1995 expenditures).
In January, 1991, the collapse of the Rhode Island Share and Deposit Indemnity
Corporation precipitated the closure of 45 financial institutions with a total
deposit liability of approximately $1.7 billion. In response, the State
created the Rhode Island Depositors Economic Protection Corporation, a public
corporation, ("DEPCO"), to assist in the resolution of the resulting banking
crisis. By the end of 1992, substantially all of the frozen deposits had been
repaid or otherwise made available to depositors through the reopening, sale
or liquidation of the closed institutions. As of June, 1994, DEPCO had
outstanding debt totalling approximately $494.2 million, the proceeds of which
were used to facilitate the sale of certain institutions and the payout of
frozen deposits. Receipts from .6% of the State's sales and use tax rate are
dedicated to a special revenue fund to be used for repayment of the special
obligation bonds. Over the next 20 years, DEPCO is also obligated to pay
former depositors approximately $54 million.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to A-1 by Moody's and AA- with a stable outlook from S&P.
General obligations of Rhode Island are rated AA-, A-1 and AA-, by S&P,
Moody's and Fitch, respectively.
RHODE ISLAND TAXES. The Rhode Island Fund obtained an opinion from Hinckley,
Allen & Snyder, special tax counsel to the Rhode Island Fund, that under Rhode
Island law, dividends paid by the Rhode Island Fund are exempt from Rhode
Island state income tax for individuals who reside in Rhode Island to the
extent such dividends are excluded from gross income for Federal income tax
purposes and are derived from interest payments on obligations of Rhode
Island, its political subdivisions, the Territories or the United States
("Rhode Island obligations"). Other distibutions from the Rhode Island Fund,
including distributions from capital gains, are generally not exempt from
Rhode Island state personal income tax.
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
November, 1995 was approximately 13.4%. The North American Free Trade
Agreement (NAFTA), which became effective January 1, 1994, could lead to the
loss of Puerto Rico's lower salaried or labor intensive jobs to Mexico. The
federal budget proposals currently being considered by the U.S. Congress
include the elimination of Section 936, a federal tax credit program credited
with encouraging economic development in Puerto Rico. The fate of Section 936
cannot be determined at this time. There can be no assurance that the
elimination of the credit available under Section 936 will not have a negative
impact on Puerto Rico's economy and the credit quality (and value) of Puerto
Rican bonds.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a stable outlook on Puerto Rico on April 26, 1994.
<PAGE>
[LOGO]
EATON VANCE
- -----------------
Mutual Funds
EV CLASSIC MUNICIPAL FUNDS
- -------------------------------------------------------------------------------
PROSPECTUS
FEBRUARY 1, 1996
EV CLASSIC CALIFORNIA MUNICIPALS FUND
EV CLASSIC FLORIDA MUNICIPALS FUND
EV CLASSIC NEW YORK MUNICIPALS FUND
EV CLASSIC RHODE ISLAND MUNICIPALS FUND
EV CLASSIC
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 0211
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 0211
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 0211
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
C-TFC2/1P
<PAGE>
EV MARATHON
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
EV MARATHON CALIFORNIA MUNICIPALS FUND EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND EV MARATHON WEST VIRGINIA MUNICIPALS FUND
</TABLE>
THE EV MARATHON MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THE STATE
TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES" IN THIS PROSPECTUS.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A SERIES
OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
combined Statement of Additional Information dated February 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>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares ............................... 20
The Funds' Financial Highlights ....................... 4 Reports to Shareholders ................................. 22
The Funds' Investment Objectives ...................... 10 The Lifetime Investing Account/Distribution Options ..... 22
How the Funds and the Portfolios Invest their Assets .. 10 The Eaton Vance Exchange Privilege ...................... 23
Organization of the Funds and the Portfolios .......... 14 Eaton Vance Shareholder Services ........................ 24
Management of the Funds and the Portfolios ............ 16 Distributions and Taxes ................................. 24
Distribution Plans .................................... 17 Performance Information ................................. 25
Valuing Fund Shares ................................... 19 Appendix -- State Specific Information .................. 26
How to Buy Fund Shares ................................ 19
</TABLE>
- -------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1996
<PAGE>
SHAREHOLDER AND FUND EXPENSES
<TABLE>
- ---------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
-------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on Redemption during
the First Seven Years (as a percentage of redemption proceeds exclusive of all
reinvestments and capital appreciation in the account) 5.00%-0%
</TABLE>
<TABLE>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
---------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any applicable fee
reduction) 0.50% 0.47% 0.46% 0.10%
Rule 12b-1 Distribution (and Service) Fees 0.94 0.89 0.89 0.87
Other Expenses (after expense reduction) 0.21 0.18 0.23 0.39
---- ---- ---- ----
Total Operating Expenses (after reduction) 1.65% 1.54% 1.58% 1.36%
==== ==== ==== ====
</TABLE>
<TABLE>
EXAMPLE
---------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and
expenses on a $1,000 investment, assuming (a) 5% annual return and (b)
redemption at the end of each period:
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $ 67 $ 66 $ 66 $ 64
3 Years 92 89 90 83
5 Years 110 104 106 94
10 Years 195 183 188 164
An investor would pay the following expenses on the same investment,
assuming (a) 5% annual return and (b) no redemptions:
1 Year $ 17 $ 16 $ 16 $ 14
3 Years 52 49 50 43
5 Years 90 84 86 74
10 Years 195 183 188 164
</TABLE>
<PAGE>
SHAREHOLDER AND FUND EXPENSES -- (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-------------------------------------------------------------------------------------------------------------
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any
applicable fee reduction) 0.47% 0.46% 0.12% 0.16%
Rule 12b-1 Distribution (and Service)
Fees 0.90 0.90 0.85 0.89
Other Expenses (after expense reduction) 0.18 0.23 0.36 0.35
---- ---- ---- ----
Total Operating Expenses
(after reduction) 1.55% 1.59% 1.33% 1.40%
==== ==== ==== ====
EXAMPLE
-------------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and
expenses on a $1,000 investment, assuming (a) 5% annual return and (b)
redemption at the end of each period:
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------
1 Year $ 66 $ 66 $ 64 $ 64
3 Years 89 90 82 84
5 Years 104 107 93 97
10 Years 185 189 160 168
An investor would pay the following expenses on the same investment,
assuming (a) 5% annual return and (b) no redemptions:
1 Year $ 16 $ 16 $ 14 $ 14
3 Years 49 50 42 44
5 Years 84 87 73 77
10 Years 185 189 160 168
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year. Absent a fee
reduction, the following Funds would have paid the following expenses (as a
percentage of average daily net assets): Mississippi Fund Investment Adviser Fee
and Total Operating Expenses would have been 0.22% and 1.49%, respectively;
Rhode Island Fund Investment Adviser Fee and Total Operating Expenses would have
been 0.25% and 1.59%, respectively; and West Virginia Fund Investment Adviser
Fee and Total Operating Expenses would have been 0.24% and 1.48%, respectively.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than, the per share
expenses the Fund would incur if the Fund were instead to retain the services of
an investment adviser and its assets were invested directly in the type of
securities being held by its corresponding Portfolio. The Examples should not be
considered a representation of past or future expenses and actual expenses may
be greater or less than those shown. Federal regulations require the Examples to
assume a 5% annual return, but actual return may 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 the
redemption, (b) shares acquired through the reinvestment of dividends and
distributions and (c) any appreciation in value of other shares in the account
(see "How to Redeem Fund Shares"), and no such charge is imposed on exchanges of
Fund shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege". Each Portfolio's monthly advisory fee has two components, a
fee based on daily net assets and a fee based on daily gross income, as set
forth in the fee schedule on page 16. 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 reports of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of a Fund is contained in its annual report to
shareholders which may be obtained without charge by contacting the Principal
Underwriter, Eaton Vance Distributors, Inc.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA FUND
---------------------------------------------------------------------------------------------------------
YEAR ENDED
---------------------------------------------------------------------------------------------------------
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
---------------------- ---------------------------------- ---------------------------------------------
1995 1994++ 1994 1993 1992** 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
beginning of year $ 9.290 $ 9.560 $10.200 $ 9.850 $10.000 $ 9.570 $ 9.880 $ 9.810 $ 9.490
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.475 $ 0.240 $ 0.480 $ 0.509 $ 0.264 $ 0.533 $ 0.558 $ 0.580 $ 0.590
Net realized and
unrealized gain
(loss) on investments 0.253 (0.234) (0.395) 0.524 (0.100) 0.544 (0.203) 0.166 0.417
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.728 $ 0.006 $ 0.085 $ 1.033 $ 0.164 $ 1.077 $ 0.355 $ 0.746 $ 1.007
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.475) $(0.240) $(0.480) $(0.509) $(0.264) $(0.533) $(0.558) $(0.580) $(0.590)
In excess of net
investment income(4) (0.016) (0.036) (0.092) (0.115) (0.050) (0.114) (0.107) (0.096) (0.097)
From net realized gain
on investment
transactions -- -- (0.153) (0.059) -- -- -- -- --
In excess of net
realized gain on
investment
transactions(4) (0.117) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.608) $(0.276) $(0.725) $(0.683) $(0.314) $(0.647) $(0.665) $(0.676) $(0.687)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of
year $ 9.410 $ 9.290 $ 9.560 $10.200 $ 9.850 $10.000 $ 9.570 $ 9.880 $ 9.810
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 8.30% 0.06% 0.55% 10.82% 3.29% 11.59% 3.63% 7.80% 10.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000 omitted) $401,742 $439,591 $463,414 $438,938 $362,597 $353,990 $281,723 $260,306 $206,741
Ratio of net expenses
to average daily net
assets(2) 1.65% 1.63%+ 1.67% 1.84% 1.87%+ 1.90% 1.95% 1.97% 1.97%
Ratio of net investment
income to average
daily net assets 5.19% 5.06%+ 4.64% 5.05% 5.28%+ 5.42% 5.65% 5.80% 6.06%
PORTFOLIO TURNOVER(3) -- -- 5% 139% 65% 36% 13% 8% 29%
(See footnotes on page 9.)
</TABLE>
<PAGE>
<TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA FUND FLORIDA FUND
------------------------ -----------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------ -----------------------------------------------------------------------------
1987 1986*** 1995 1994 1993 1992 1991 1990++
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year $10.480 $10.000 $10.270 $11.700 $10.940 $10.690 $ 9.990 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.612 $ 0.609 $ 0.514 $ 0.514 $ 0.516 $ 0.541 $ 0.573 $ 0.010
Net realized and
unrealized gain (loss) on
investments (0.886) 0.558 0.469 (1.228) 1.040 0.434 0.838 (0.003)+++
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $(0.274) $ 1.089 $ 0.983 $(0.714) $ 1.556 $ 0.975 $ 1.411 $ 0.007
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.612) $(0.609) $(0.514) $(0.514) $(0.516) $(0.541) $(0.573) $(0.010)
In excess of net
investment income(4) (0.104) -- (0.019) (0.082) (0.121) (0.127) (0.138) (0.007)
From net realized gain
on investment
transactions -- -- -- -- (0.159) (0.057) -- --
In excess of net
realized gain on
investment
transactions(4) -- -- -- (0.120) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions
$(0.716) $(0.609) $(0.533) $(0.716) $(0.796) $(0.725) $(0.711) $(0.017)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.490 $10.480 $10.720 $10.270 $11.700 $10.940 $10.690 $ 9.990
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) (2.93)% 10.80% 9.90% (6.34)% 14.85% 9.41% 14.45% (0.10)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $190,774 $105,979 $701,565 $760,867 $776,856 $463,279 $233,021 $22,028
Ratio of net expenses to
average daily net
assets(2) 1.70% 0.08%+ 1.54% 1.44% 1.53% 1.64% 1.56% 1.00%+
Ratio of net investment
income to average
daily net assets 5.82% 7.15%+ 4.97% 4.70% 4.54% 4.91% 5.33% 1.36%+
PORTFOLIO TURNOVER(3) 14% 41% -- -- 9% 95% 72% 6%
*For the periods indicated, the operating expenses of the Fund reflect an
allocation of expenses. Had such actions not been taken, net investment income
per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER
SHARE $ 0.561 $ 0.008
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.67% 1.25%+
Net investment income 5.22% 1.11%+
(See footnotes on page 9.)
</TABLE>
<PAGE>
<TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
MASSACHUSETTS FUND
-----------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991++
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.990 $11.250 $10.640 $10.250 $10.000
------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.499 $ 0.505 $ 0.514 $ 0.526 $ 0.245
Net realized and unrealized gain
(loss) on investments 0.307 (1.108) 0.784 0.556 0.305+++
------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.806 $(0.603) $ 1.298 $ 1.082 $ 0.550
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.499) $(0.505) $(0.514) $(0.526) $(0.245)
In excess of net
investment income(4) (0.027) (0.087) (0.116) (0.142) (0.055)
From net realized gain
on investment transactions -- -- (0.058) (0.024) --
In excess of net realized
gain on investment
transactions(4) -- (0.065) -- -- --
------- ------- ------- ------- -------
Total distributions $(0.526) $(0.657) $(0.688) $(0.692) $(0.300)
------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.270 $ 9.990 $11.250 $10.640 $10.250
======= ======= ======= ======= =======
TOTAL RETURN(1) 8.38% (5.57)% 12.67% 10.88 % 5.33%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $291,114 $295,011 $286,801 $165,964 $35,532
Ratio of net expenses to
average daily net assets(2) 1.58% 1.50% 1.58% 1.64% 1.28%+
Ratio of net investment income
to average daily net assets 5.00% 4.75% 4.69% 4.85% 5.15%+
PORTFOLIO TURNOVER(3)
-- -- 27% 72% 21%
*For the periods indicated, the operating expenses of the Fund reflect an
allocation of expenses. Had such actions not been taken, net investment income
per share and the ratios would have been as follows:
NET INVESTMENT INCOME
PER SHARE $ 0.226
=======
RATIOS (As a percentage of
average daily net assets):
Expenses(2)
Net investment income 1.68%+
(See footnotes on page 9.)
</TABLE>
<PAGE>
<TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ------------------------------------------------------------------------------
<CAPTION>
MISSISSIPPI FUND NEW YORK FUND
---------------------------- -----------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
---------------------------- -----------------------------------------------------------------
1995 1994 1993++ 1995 1994 1993 1992 1991 1990++
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.110 $10.260 $10.000 $10.450 $11.880 $11.070 $10.740 $ 9.950 $10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.449 $ 0.453 $ 0.106 $ 0.523 $ 0.528 $ 0.535 $ 0.553 $ 0.563 $ 0.014
Net realized and
unrealized gain
(loss) on
investments 0.379 (1.072) 0.300 0.406 (1.165) 1.014 0.524 0.929 (0.039)+++
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss)
from
operations $ 0.828 $ (0.619) $ 0.406 $ 0.929 $ (0.637) $ 1.549 $ 1.077 $ 1.492 $(0.025)
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $ (0.449) $ (0.453) $ (0.106) $ (0.523) $ (0.528) $ (0.535) $ (0.553) $ (0.563) $(0.014)
In excess of net
investment income(4) (0.009) (0.071) (0.040) (0.026) (0.089) (0.120) (0.135) (0.139) (0.011)
From net realized gain
on investment
transactions -- -- -- -- -- (0.084) (0.059) -- --
In excess of net
realized gain on
investment
transactions(4) -- (0.007) -- -- (0.176) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $ (0.458) $ (0.531) $ (0.146) $ (0.549) $ (0.793) $ (0.739) $ (0.747) $ (0.702) $(0.025)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of
year $ 9.480 $ 9.110 $10.260 $10.830 $10.450 $11.880 $11.070 $10.740 $ 9.950
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 9.40% (6.20)% 3.85% 9.23% (5.62)% 14.53% 10.41% 15.58% (0.50)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $26,756 $26,771 $11,810 $640,605 $648,325 $650,361 $415,144 $161,037 $7,640
Ratio of net expenses
to average daily net
assets(2) 1.36% 0.99% 0.75%+ 1.55% 1.46% 1.55% 1.65% 1.62% 1.00%+
Ratio of net
investment income to
average daily net
assets 4.89% 4.63% 3.50%+ 4.99% 4.72% 4.68% 4.99% 5.28% 1.18%+
PORTFOLIO TURNOVER(3) -- -- -- -- -- 11% 57% 50% 0%
*For the periods indicated, the operating expenses of the Funds and, in the case of the Mississippi Portfolio, the
Portfolio reflect an allocation of expenses to the Investment Adviser and/or the Administrator. Had such actions
not been taken, net investment income per share and the ratios would have been as follows:
NET INVESTMENT INCOME
PER SHARE $ 0.437 $ 0.407 $ 0.085 $ 0.556 $0.008
======= ======= ======= ======= ======
RATIOS (As a percentage
of average daily net
assets):
Expenses(2) 1.49% 1.45% 1.44%+ 1.69% 1.52%+
Net investment income 4.76% 4.17% 2.81%+ 5.21% 0.66%+
(See footnotes on page 9.)
</TABLE>
<PAGE>
<TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OHIO FUND RHODE ISLAND FUND
------------------------------------------------------------------- ----------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------- ----------------------------------
1995 1994 1993 1992 1991++ 1995 1994 1993++
-------- -------- -------- -------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year $ 10.070 $ 11.300 $ 10.550 $ 10.210 $10.000 $ 9.090 $10.330 $10.000
-------- -------- -------- -------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.487 $ 0.494 $ 0.499 $ 0.509 $ 0.245 $0.452 $ 0.454 $0.113
Net realized and
unrealized gain (loss)
on investments 0.461 (1.081) 0.901 0.495 0.261+++ 0.332 (1.146) 0.361
-------- -------- -------- -------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.948 $ (0.587) $ 1.400 $ 1.004 $ 0.506 $ 0.784 $(0.692) $ 0.474
-------- -------- -------- -------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $ (0.487) $ (0.494) $ (0.499) $ (0.509) $(0.245) $(0.452) $(0.454) $(0.113)
In excess of net
investment income(4) (0.021) (0.084) (0.118) (0.137) (0.051) (0.022) (0.078) (0.008)
From net realized gain
on investment
transactions -- -- (0.033) (0.018) -- -- -- (0.023)
In excess of net
realized gain on
investment
transactions(4) -- (0.065) -- -- -- -- (0.016) --
-------- -------- -------- -------- ------- ------- ------- -------
Total distributions $ (0.508) $ (0.643) $ (0.650) $ (0.664) $(0.296) $(0.474) $(0.548) $(0.144)
-------- -------- -------- -------- ------- ------- ------- -------
NET ASSET VALUE, end of
year $ 10.510 $ 10.070 $ 11.300 $ 10.550 $10.210 $ 9.400 $ 9.090 $ 10.330
======== ======== ======== ======== ======= ======= ======= ========
TOTAL RETURN(1) 9.74% (5.39)% 13.74% 10.13% 4.88% 8.94% (6.91)% 4.53%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $315,891 $321,578 $299,331 $164,400 $51,215 $39,864 $34,261 $ 17,680
Ratio of net expenses to
average daily net
assets(2) 1.59% 1.50% 1.58% 1.65% 1.47%+ 1.33% 1.02% 0.75%+
Ratio of net investment
income to average
daily net assets 4.80% 4.62% 4.57% 4.87% 5.04%+ 4.92% 4.65% 3.70%+
PORTFOLIO TURNOVER(3) -- -- 12% 40% 11% -- -- --
*For the periods indicated, the operating expenses of the Funds and, in the case of the Rhode Island Portfolio, the
Portfolio reflect an allocation of expenses by the Investment Adviser and/or the Administrator. Had such action
not been taken, net investment income per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.243 $ 0.440 $ 0.418 $ 0.096
======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.52%+ 1.47% 1.38% 1.30%+
Net investment income 4.99%+ 4.79% 4.29% 3.15%+
(See footnotes on page 9.)
</TABLE>
<PAGE>
<TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ----------------------------------------------------------------------------------------------
<CAPTION>
WEST VIRGINIA FUND
--------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1995 1994 1993++
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.130 $10.220 $10.000
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.436 $ 0.450 $ 0.103
Net realized and unrealized gain (loss) on
investments 0.393 (1.011) 0.262
------- ------- -------
Total income (loss) from operations $ 0.829 $(0.561) $ 0.365
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.436) $(0.450) $(0.103)
In excess of net investment income(4) (0.023) (0.069) (0.042)
In excess of net realized gain on investment
transactions -- -- --
In excess of net realized gain on investment
transactions(4) -- (0.010) --
------- ------- -------
Total distributions $(0.459) $(0.529) $(0.145)
------- ------- -------
NET ASSET VALUE, end of year $ 9.500 $ 9.130 $10.220
======= ======= =======
TOTAL RETURN(1) 9.39% (5.66)% 3.47%
RATIOS/SUPPLEMENTAL
DATA*:
Net assets, end of year (000 omitted) $39,569 $38,476 $25,717
Ratio of net expenses to average daily
net assets(2) 1.40% 0.95% 0.75%+
Ratio of net investment income to average daily
net assets 4.74% 4.62% 3.40%+
PORTFOLIO TURNOVER(3) -- -- --
*For the periods indicated, the operating expenses of the Fund and the Portfolio 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 $ 0.429 $ 0.414 $ 0.090
======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) 1.48% 1.32% 1.19%+
Net investment income 4.66% 4.25% 2.96%+
</TABLE>
Footnotes:
** For the six months ended March 31, 1992. The California Fund changed its
fiscal year end from September 30, to March 31, effective March 31, 1992.
*** Period from the start of business, December 19, 1985, to September 30, 1986.
Certain of the above per share figures for the period ended September 30,
1986 are based on average shares outstanding during the period.
+ Annualized.
++ For the six months ended September 30, 1994 for the California Fund, for the
period from the start of business, August 28, 1990 and August 30, 1990, to
September 30, 1990 for the Florida and New York Funds, respectively, for the
period from the start of business, April 18, 1991, to September 30, 1991 for
the Massachusetts and Ohio Funds, and for the period from the start of
business, June 11, 1993, to September 30, 1993 for the Mississippi, Rhode
Island and West Virginia Funds.
+++ 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 valu e 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) Portfolio Turnover represents the rate of portfolio activity for the period
while a Fund was making investments directly in securities. The portfolio
turnover rate for the period since a Fund transferred substantially all of
its investable assets to a Portfolio is shown in the Portfolio's financial
statements which are included in the Fund's annual report.
(4) During the year ended September 30, 1993, (March 31, 1994 for the California
Fund), the Fund adopted Statement of Position (SOP) 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The SOP requires
that differences in the recognition or classification of income between the
financial statements and tax earnings and profits that result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
<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 CALIFORNIA MUNICIPALS FUND (the "California Fund") seeks to provide
current income exempt from regular federal income tax and California State
personal income taxes. The California Fund seeks to meet its objective by
investing its assets in the California Municipals Portfolio (the "California
Portfolio").
EV MARATHON FLORIDA MUNICIPALS FUND (the "Florida Fund") seeks to provide
current income exempt from regular federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Fund seeks to meet
its objective by investing its assets in the Florida Municipals Portfolio (the
"Florida Portfolio").
EV MARATHON MASSACHUSETTS MUNICIPALS FUND (the "Massachusetts Fund") seeks to
provide current income exempt from regular federal income tax and Massachusetts
state personal income taxes. The Massachusetts Fund seeks to meet its objective
by investing its assets in the Massachusetts Municipals Portfolio (the
"Massachusetts Portfolio").
EV MARATHON MISSISSIPPI MUNICIPALS FUND (the "Mississippi Fund") seeks to
provide current income exempt from regular federal income tax and Mississippi
State personal income taxes. The Mississippi Fund seeks to meet its objective by
investing its assets in the Mississippi Municipals Portfolio (the "Mississippi
Portfolio").
EV MARATHON NEW YORK MUNICIPALS FUND (the "New York Fund") seeks to provide
current income exempt from regular federal income tax and New York State and New
York City personal income taxes. The New York Fund seeks to meet its objective
by investing its assets in the New York Municipals Portfolio (the "New York
Portfolio").
EV MARATHON OHIO MUNICIPALS FUND (the "Ohio Fund") seeks to provide current
income exempt from regular federal income tax and Ohio State personal income
taxes. The Ohio Fund seeks to meet its objective by investing its assets in the
Ohio Municipals Portfolio (the "Ohio Portfolio").
EV MARATHON RHODE ISLAND MUNICIPALS FUND (the "Rhode Island Fund") seeks to
provide current income exempt from regular federal income tax and Rhode Island
State personal income taxes. The Rhode Island Fund seeks to meet its objective
by investing in the Rhode Island Municipals Portfolio (the "Rhode Island
Portfolio").
EV MARATHON WEST VIRGINIA MUNICIPALS FUND (the "West Virginia Fund") seeks to
provide current income exempt from regular federal income tax and West Virginia
State personal income taxes. The West Virginia Fund seeks to meet its objective
by investing its assets in the West Virginia Municipals Portfolio (the "West
Virginia Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE WITH
THE FUND'S INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy
is a fundamental policy of each Fund and its corresponding Portfolio, which may
not be changed unless authorized by a vote of the Fund's shareholders or that
Portfolio's investors, as the case may be.
At least 75% of the net assets of the California Portfolio and Florida
Portfolio, at least 70% of the net assets of the Massachusetts Portfolio and New
York Portfolio, and at least 80% of the net assets of the Mississippi Portfolio,
Ohio Portfolio, Rhode Island Portfolio and West Virginia Portfolio will normally
be invested in obligations rated at least investment grade at the time of
investment (which are those rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB or higher by either Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service, Inc. ("Fitch")) or, if unrated, determined
by the Investment Adviser to be of at least investment grade quality. 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
September 30, 1995, the Portfolios had invested in such obligations as follows
(as a percentage of net assets): California Portfolio (18.0%); Florida Portfolio
(18.9%); Massachusetts Portfolio (18.1%); Mississippi Portfolio (13.5%); New
York Portfolio (4.82%); Ohio Portfolio (17.8%); Rhode Island Portfolio (19.1%);
and West Virginia Portfolio (16.6%). At September 30, 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 AMT.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State and that State's political
subdivisions. Each Portfolio is, therefore, more susceptible to factors
adversely affecting issuers in one State than mutual funds which do not
concentrate in a specific State. Municipal obligations of issuers in a single
State may be adversely affected by economic developments and by legislation and
other governmental activities in that State. To the extent that a Portfolio's
assets are concentrated in municipal obligations of issuers of a single State,
that Portfolio may be subject to an increased risk of loss. Each Portfolio may
also invest in obligations issued by the governments of Puerto Rico, the U.S.
Virgin Islands and Guam. See the Appendix to this Prospectus for a description
of some of the economic and other factors relating to the States and Puerto
Rico.
In addition, each Portfolio may invest 25% or more of its total assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities; obligations
of State and local housing finance authorities, municipal utilities systems or
public housing authorities; obligations of hospitals or life care facilities; or
industrial development or pollution control bonds issued for electric utility
systems, steel companies, paper companies or other purposes. This may make a
Portfolio more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuer. For example, health
care-related issuers are susceptible to medicaid reimbursement policies, and
national and State health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
NON-DIVERSIFIED STATUS. As "non-diversified" investment companies, each
Portfolio may invest, with respect to 50% of its total assets, more than 5% (but
not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio would be more susceptible to any single adverse economic or political
occurrence or development affecting issuers of the relevant State's municipal
obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive their
value from another instrument, security or index. In addition, each Portfolio
may temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. Each Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed rate bond.
Because changes in the interest rate on the other security or index inversely
affect the residual interest paid on the inverse floater, the value of an
inverse floater is generally more volatile than that of a fixed rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to a Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
These securities tend to underperform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may,
however, alter this tendency. Although volatile, inverse floaters typically
offer the potential for yields exceeding the yields available on fixed rate
bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising rates if exercised at an opportune time. Inverse floaters
are leveraged because they provide two or more dollars of bond market exposure
for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities and municipal obligations) and securities
indices (such as the Municipal Bond Index traded on the Chicago Board of Trade).
Such transactions involve a risk of loss or depreciation due to unanticipated
adverse changes in securities prices, which may exceed a Portfolio's initial
investment in these contracts. A Portfolio may not purchase or sell futures
contracts or related options, except for closing purchase or sale transactions,
if immediately thereafter the sum of the amount of margin deposits and premiums
paid on the Portfolio's outstanding positions would exceed 5% of the market
value of the Portfolio's net assets. These transactions involve transaction
costs. There can be no assurance that the Investment Adviser's use of futures
will be advantageous to a Portfolio. Distributions by a Fund of any gains
realized on its corresponding Portfolio's transactions in futures and options on
futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of a Fund's shares.
ADDITIONAL RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest investment
grade category (Baa or BBB), lower categories or may be unrated. As indicated
above, each Portfolio may invest in municipal obligations rated below investment
grade (but not lower than B by Moody's, S&P or Fitch) and comparable unrated
obligations. The lowest investment grade, lower rated and comparable unrated
municipal obligations in which a Portfolio may invest will have speculative
characteristics in varying degrees. While such obligations may have some quality
and protective characteristics, these characteristics can be expected to be
offset or outweighed by uncertainties or major risk exposures to adverse
conditions. Lower rated and comparable unrated municipal obligations are subject
to the risk of an issuer's inability to meet principal and interest payments on
the obligations (credit risk) and may also be subject to greater price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated municipal obligations are also more likely to
react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. The Investment Adviser seeks to minimize the
risks of investing in below investment grade securities through professional
investment analysis and attention to current developments in interest rates and
economic conditions. When a Portfolio invests in lower rated or unrated
municipal obligations, the achievement of the Portfolio's goals is more
dependent on the Investment Adviser's ability than would be the case if the
Portfolio were investing in municipal obligations in the higher rating
categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking recovery
of its investment. Municipal obligations held by a Portfolio which are rated
below investment grade but which, subsequent to the assignment of such rating,
are backed by escrow accounts containing U.S. Government obligations may be
determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. A Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will be less than
35% of net assets. In the event the rating of an obligation held by a Portfolio
is downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the
Portfolio's credit quality limitations.
The net asset value of shares of a Fund will change in response to fluctuations
in prevailing interest rates and changes in the value of the securities held by
its corresponding Portfolio. When interest rates decline, the value of
securities held by a Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of the issuers of municipal
obligations held by a Portfolio will affect the principal value of (and possibly
the income earned on) 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 in a Portfolio may be adversely affected by the
actions of a larger investor in the Portfolio. For example, if a large investor
withdraws from a Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, a
Portfolio may hold fewer securities, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured mutual funds which have large or institutional
investors.
Until 1992, the Administrator sponsored and advised historically structured
funds. Funds which invest all their assets in interests in a separate investment
company are a relatively new development in the mutual fund industry and,
therefore, the Funds may be subject to additional regulations than historically
structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will terminate
120 days after the complete withdrawal of a Fund or any other investor in the
Portfolio, unless either the remaining investors, by unanimous vote at a meeting
of such investors, or a majority of the Trustees of the Portfolio, by written
instrument consented to by all investors, agree to continue the business of the
Portfolio. This provision is consistent with treatment of the Portfolios as
partnerships for federal income tax purposes. See "Distributions and Taxes" for
further information. Whenever a Fund as an investor in a Portfolio is requested
to vote on matters pertaining to the Portfolio (other than the termination of
the Portfolio's business, which may be determined by the Trustees of the
Portfolio without investor approval), the Fund will hold a meeting of Fund
shareholders and will vote its interest in the Portfolio for or against such
matters proportionately to the instructions to vote for or against such matters
received from Fund shareholders. A Fund shall vote shares for which it receives
no voting instructions in the same proportion as the shares for which it
receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, a Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Fund. Notwithstanding the above, there are other means
for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Trust and
the Trustees of each Portfolio are the same. Such procedures require each Board
to take action to resolve any conflict of interest between a Fund and its
corresponding Portfolio, and it is possible that the creation of separate Boards
may be considered. For further information concerning the Trustees and officers
of each of the Trust and the Portfolios, see the Statement of Additional
Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
- ------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each Portfolio,
BMR manages each Portfolio's investments and affairs and furnishes for the use
of each Portfolio office space and all necessary office facilities, equipment
and personnel for servicing the investments of the Porfolios. 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. Categories (1) and (2) below do not apply
to the California Portfolio and Category (3) is for daily net assets of
the California Portfolio of up to $500 million.
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $20 million .......................................... 0.100% 1.00%
2 $20 million but less than $40 million ...................... 0.200% 2.00%
3 $40 million but less than $500 million ..................... 0.300% 3.00%
4 $500 million but less than $1 billion ...................... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ...................... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ...................... 0.225% 2.25%
7 $2 billion but less than $3 billion ........................ 0.200% 2.00%
8 $3 billion and over ........................................ 0.175% 1.75%
</TABLE>
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory fees
for the fiscal year ended September 30, 1995 equivalent to the annualized
percentage of average daily net assets stated below:
<TABLE>
<CAPTION>
NET ASSETS AS OF
PORTFOLIO SEPTEMBER 30, 1995 ADVISORY FEE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
California ..................................................... $410,670,138 0.50%
Florida ........................................................ 712,203,136 0.47%
Massachusetts .................................................. 302,170,247 0.46%
Mississippi .................................................... 28,992,960 0.22%(1)
New York ....................................................... 652,736,309 0.47%
Ohio ........................................................... 319,016,648 0.46%
Rhode Island ................................................... 42,905,967 0.25%(2)
West Virginia .................................................. 40,835,061 0.24%(3)
(1) To enhance the net income of the Mississippi Portfolio, BMR made a reduction
of its advisory fee in the amount of $36,759.
(2) To enhance the net income of the Rhode Island Portfolio, BMR made a
reduction of its advisory fee in the amount of $50,721.
(3) To enhance the net income of the West Virginia Portfolio, BMR made a
reduction of its advisory fee in the amount of $32,526.
</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, oil and gas operations, real estate investment, consulting and
management, and development of precious metals properties.
Nicole Anderes has acted as the portfolio manager of the New York and Rhode
Island Portfolios since they commenced operations. She joined Eaton Vance and
BMR as a Vice President in January 1994. Prior to joining Eaton Vance, she was a
Vice President and portfolio manager at Lazard Freres Asset Management
(1992-1994) and a Vice President and Manager -- Municipal Research at Roosevelt
& Cross (1978-1992).
Timothy T. Browse has acted as the portfolio manager of the West Virginia
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance and of BMR since 1993 and an employee of Eaton Vance since 1992. Prior to
joining Eaton Vance, he was a municipal bond trader at Fidelity Management &
Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Mississippi
Portfolio since it commenced operations and the California Portfolio since
February 1, 1996. She has been a Vice President of Eaton Vance and BMR since
1993 and an employee of Eaton Vance since 1985.
Thomas J. Fetter has acted as the portfolio manager of the Florida and Ohio
Portfolios since they commenced operations. He has been a Vice President of
Eaton Vance since 1987 and of BMR since inception.
Robert B. MacIntosh has acted as the portfolio manager of the Massachusetts
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance since joining the firm in 1991 and of BMR since its inception. Prior to
joining Eaton Vance, he was a portfolio manager at Fidelity Management &
Research Company (1986-1991).
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and selling
at the higher asked price of the market, and the difference is customarily
referred to as the spread. In selecting firms which will execute portfolio
transactions, BMR judges their professional ability and quality of service and
uses its best efforts to obtain execution at prices which are advantageous to
the Portfolios and at reasonably competitive spreads. Subject to the foregoing,
BMR may consider sales of shares of the Funds or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of firms to execute
portfolio transactions.
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 INVESTMENT COMPANY ACT OF 1940 (THE
"1940 ACT"). Rule 12b-1 permits a mutual fund, such as a Fund, to finance
distribution activities and bear expenses associated with the distribution of
its shares provided that any payments made by the fund are made pursuant to a
written plan adopted in accordance with the Rule. Each Plan is subject to, and
complies with, the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD Rule"). Each Fund's Plan is described further in the
Statement of Additional Information, and the following is a description of the
salient features of the Plans. Each Fund's Plan provides that the Fund, subject
to the NASD Rule, will pay sales commissions and distribution fees to the
Principal Underwriter only after and as a result of the sale of shares of the
Fund. On each sale of Fund shares (excluding reinvestment of distributions) a
Fund will pay the Principal Underwriter amounts representing (i) sales
commissions equal to 5% of the amount received by a Fund for each share sold and
(ii) distribution fees calculated by applying the rate of 1% over the prime rate
then reported in The Wall Street Journal to the outstanding balance of Uncovered
Distribution Charges (as described below) of the Principal Underwriter. The
Principal Underwriter currently expects to pay sales commissions (except on
exchange transactions and reinvestments) to a financial service firm (an
"Authorized Firm") at the time of sale equal to 4% of the purchase price of the
shares sold by such Firm. The Principal Underwriter will use its own funds
(which may be borrowed from banks) to pay such commissions. Because the payment
of the sales commissions and distribution fees to the Principal Underwriter is
subject to the NASD Rule described below, it will take the Principal Underwriter
a number of years to recoup the sales commissions paid by it to Authorized Firms
from the payments received by it from a Fund pursuant to a Plan.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO 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 September 30, 1995, each Fund paid sales
commissions under its Plan equivalent to .75% (annualized) of such Fund's
average daily net assets. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter on such day calculated under
each Fund's Plan amounted to approximately $7,452,000 (equivalent to 1.9% of net
assets on such day) in the case of the California Fund, $22,542,000 (equivalent
to 3.2% of net assets on such day) in the case of the Florida Fund, $9,990,000
(equivalent to 3.4% of net assets on such day) in the case of the Massachusetts
Fund, $1,215,000 (equivalent to 4.5% of net assets on such day) in the case of
the Mississippi Fund, $19,716,000 (equivalent to 3.1% of net assets on such day)
in the case of the New York Fund, $10,953,000 (equivalent to 3.5% of net assets
on such day) in the case of the Ohio Fund, $1,772,000 (equivalent to 4.4% of net
assets on such day) in the case of the Rhode Island Fund, and $1,690,000
(equivalent to 4.3% of net assets on such day) in the case of the West 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% (.25%
for the California Fund) 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. Each Fund's Plan authorizes the Trustees
of the Trust on behalf of the Fund to increase payments to the Principal
Underwriter, Authorized Firms and other persons from time to time without
further action by shareholders of the Fund, provided that the aggregate amount
of payments made to such persons under the Plan in any fiscal year of the Fund
does not exceed .25% of the Fund's average daily net assets. As permitted by the
NASD Rule, such payments are made for personal services and/or the maintenance
of shareholder accounts. Service fees are separate and distinct from the sales
commissions and distribution fees payable by a Fund to the Principal
Underwriter, and as such are not subject to automatic discontinuance when there
are no outstanding Uncovered Distribution Charges of the Principal Underwriter.
For the fiscal year ended September 30, 1995, the following Funds made service
fee payments (as an annualized percentage of average daily net assets):
California Fund (0.19%); Florida Fund (0.14%); Massachusetts Fund (0.15%);
Mississippi Fund (0.12%); New York Fund (0.15%); Ohio Fund (0.15%); Rhode Island
Fund (0.10%); and West 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
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A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO FIRST DATA INVESTOR
SERVICES GROUP, BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission and
acceptable to First Data Investor Services Group. In addition, in some cases,
good order may require the furnishing of additional documents such as where
shares are registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by First
Data Investor Services Group, a Fund will make payment in cash for the net asset
value of the shares as of the date determined above, reduced by the amount of
any 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:
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE 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 exchanged shares.
No contingent deferred sales charge will be imposed on Fund shares 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.
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 redemption of shares
acquired in an exchange, the contingent deferred sales charge schedule
applicable to the shares at the time of purchase will apply and the purchase of
shares acquired in one or more exchanges is deemed to have occurred at the time
of the original purchase of the exchanged shares. For the contingent deferred
sales charge schedule applicable to the EV Marathon Group of Funds (except EV
Marathon 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 or Class I
shares of any EV Marathon Limited Maturity Fund is 3%, 2.5%, 2% or 1% in the
event of a redemption occurring in the first, second, third or fourth year,
respectively, after the original share purchase.
Shares of other funds in the Eaton Vance Marathon Group of Funds 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: 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 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 fifteenth day of each month or
the next business day thereafter. Each Fund anticipates that for tax purposes
the entire distribution, whether paid in cash or reinvested in additional shares
of the Fund, will constitute tax-exempt income to shareholders, except for the
proportionate part of the distribution that may be considered taxable income if
the Fund has taxable income during the calendar year. Shareholders reinvesting
the monthly distribution should treat the amount of the entire distribution as
the tax cost basis of the additional shares acquired by reason of such
reinvestment. Daily distribution crediting will commence on the day that
collected funds for the purchase of Fund shares are available at the Transfer
Agent. Shareholders of a Fund will receive timely federal income tax information
as to the tax-exempt or taxable status of all distributions made by the Fund
during the calendar year. A Fund's net realized capital gains, if any, consist
of the net realized capital gains allocated to the Fund by its corresponding
Portfolio for tax purposes, after taking into account any available capital loss
carryovers; a Fund's net realized capital gains, if any, will be distributed at
least once a year, usually in December.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS PARTNERSHIPS
UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. 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 one minus the tax rate. Each
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all distributions. The average annual
total return calculation assumes a complete redemption of the investment and the
deduction of any 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 total return figures which do not take into account
any contingent deferred sales charge which may be imposed upon redemptions at
the end of the specified period. Any performance figure which does not take into
account the contingent deferred sales charge would be reduced to the extent such
charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of the Fund's current yield or total return for any
prior period should not be considered a representation of what an investment may
earn or what the Fund's yield or total return may be in any future period. If
the expenses of a Fund or its corresponding Portfolio are paid by Eaton Vance,
the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
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.
CALIFORNIA. California experienced severe economic and fiscal stress over the
1991-95 period. Between 1990 and 1993, California lost 3% of its total
employment base and nearly 16% of higher paying manufacturing jobs. This was
during a period when population increased 6%. The unemployment rate in
California was 9.1% in 1992 and 9.2% in 1993, well above the U.S. rates of 7.4%
and 6.8% for the same periods, respectively. Unemployment was 8.8% in November
1995, compared to 7.7% in November 1994.
The weak economy seriously undermined the government's ability to accurately
estimate tax revenues and increased social service expenditures for recession-
related welfare case loads. In addition, the continued influx of illegal
immigrants strained the State's welfare and health care systems. The result of
these various problems was a $2 billion accumulated budget deficit and a heavy
reliance on short-term borrowing for day-to-day operations. Short-term borrowing
increased from 7.8% of general fund receipts in 1990 to 12.4% in 1992 to an
estimated 16% in 1995. In July, 1994, the State issued $7 billion in short-term
debt, an unprecedented amount for a State.
The $2 billion budget deficit built up during the 1991 and 1992 fiscal years and
was not adequately addressed during the 1993 or 1994 fiscal years, despite a
Deficit Retirement and Reduction Plan put in place in June, 1993. The budget for
fiscal year 1995 (which commenced on July 1, 1994) includes general fund
expenditures of $40.9 billion, a 4.2% increase over 1993-94, and general fund
revenues of $41.9 billion, a 5.2% increase. Growth in the State's employment
base and attendant revenue growth, led to a current year surplus for fiscal year
1995. If fiscal year 1996 ends near budgeted levels, the accumulated budget
deficit will be eliminated.
On January 17, 1994, a major earthquake struck the Los Angeles area causing
significant property damage. Preliminary estimates of total property damage
approximate $15 billion. The federal government has approved $9.5 billion for
earthquake relief. The Governor has estimated that the State will have to pay
approximately $1.9 billion for relief not otherwise covered by the federal aid.
The Governor had proposed to cover $1.05 billion of relief costs from a general
obligation bond issue, but the proposal was rejected by California voters in
June 1994. The Governor subsequently announced that funds earmarked for other
projects would be used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together with its
pooled investment fund (the "Fund") filed for protection under Chapter 9 of the
Federal Bankruptcy Code, after reports that the Fund had suffered significant
market losses in its investments caused a liquidity crisis for the Fund and the
County. More than 180 other public entities, most but not all located in the
County, were also depositors in the Fund. As of December 13, 1994, the County
estimated the Fund's loss at about $2 billion, or 27% of its initial deposits of
around $7.4 billion. These losses could increase as the County sells investments
to restructure the Fund, or if interest rates rise. Many of the entities which
kept moneys in the Fund, including the County, are facing cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects. The County and some of these entities have, and others may in
the future, default in payment of their obligations. Moody's and S&P have
suspended, reduced to below investment grade levels, or placed on "Credit Watch"
various securities of the County and the entities participating in the Fund. As
of December 1994, the Portfolio did not hold any direct obligations of the
County. However, the Portfolio did hold bonds of some of the governmental units
that had money invested with the County; the impact of the loss of access to
these funds, the loss of expected investment earnings and the potential loss of
some of the principal invested is not known at this point. There can be no
assurances that these holdings will maintain their current ratings and/or
liquidity in the market.
In early June 1995, the County filed a proposal with the bankruptcy court that
would require holders of the County's short-term notes to wait one-year before
being repaid. The existence of this proposal and its adoption could disrupt the
market for short-term debt in California and possibly drive up the State's
borrowing costs. On June 27, 1995 the voters in Orange County rejected a
proposed one half cent increase in the sales tax, the revenues from which would
have been used to help the County emerge from bankruptcy. The failure of this
measure increases the likelihood that the County will default on some of their
obligations and, more broadly, could have a negative impact on the perceived
credit quality of municipal obligations throughout California. Although the
State of California has no obligation with respect to any obligations or
securities of the County or any of the other participating entities, under
existing legal precedents, the State may be obligated to ensure that school
districts have sufficient funds to operate. Longer term, this financial crisis
could have an adverse impact on the economic recovery that has only recently
taken hold in Southern California.
California voters have approved a series of amendments to the California State
constitution which have imposed certain limits on the taxing and spending powers
of the State and local governments. While the State legislature has, in the
past, enacted legislation designed to assist California issuers in meeting their
debt service obligations, other laws limiting the State's authority to provide
financial assistance to localities have also been enacted. Because of the
uncertain impact of such constitutional amendments and statutes, the possible
inconsistencies in their respective terms and the impossibility of predicting
the level of future appropriations and applicability of related statutes to such
questions, it is not currently possible to assess the impact of such legislation
and policies on the ability of California issuers to pay interest or repay
principal on their obligations.
As a result of the significant economic and fiscal problems described above, the
State's debt has been downgraded by all three rating agencies from Aa to A1 by
Moody's, from A(D) to A by S&P, and from AA to A by Fitch.
CALIFORNIA TAXES. California law provides that dividends paid by the California
Fund and designated by the California Fund as tax-exempt are exempt from
California personal income tax on individuals who reside in California to the
extent such dividends are derived from interest payments on municipal
obligations exempt from regular federal income tax and California State personal
income taxes, provided that at least 50% of the assets of the California
Portfolio at the close of each quarter of its taxable year are invested in
obligations the interest on which is exempt under either federal or California
law from taxation by the State of California. Distributions of short-term
capital gains are treated as ordinary income, and distributions of long-term
capital gains are treated as long-term capital gains under the California
personal income tax.
FLORIDA. Florida's financial operations are considerably different than most
other states because, under the State's constitution, there is no state income
tax on individuals. The lack of an income tax on individuals exposes total State
tax collections to considerably more volatility than would otherwise be the case
and, in the event of an economic downswing, could effect the State's ability to
pay principal and interest in a timely manner. The General Fund budget for
1994-95 includes revenues of $14.6 billion and expenditures of $14.3 billion.
Due to lower than expected revenue collections, revenue estimates have been
reduced by 1.1% for 1994-95. Unencumbered reserves are projected to be $252.6
million, or 1.8% of expenditures for fiscal year 1995. The state's general
revenue fund budget for fiscal year 1995-96 is estimated to include revenues of
$15.0 billion (a 2.7% increase over fiscal year 1994- 95) and expenditures of
$14.8 billion (a 3.5% increase over fiscal year 1994- 95). Unemployment in the
State for November, 1995 was 5.3%, compared to the national unemployment rate of
5.6%.
In 1993, the Florida constitution was amended to limit the annual growth in the
assessed valuation of residential property, which, over time, could constrain
growth in property taxes, a major source of revenue for local governments. In
1994, the Florida constitution was amended to limit state revenue collections in
any fiscal year to, subject to exception, that which was allowed in the prior
fiscal year plus a growth factor, to be determined by reference to the average
annual growth rate in Florida personal income over the previous five years.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Fund that are subject to the Florida intangibles tax
will not be required to include the value of their Florida Fund shares in their
taxable intangible property if all of the Florida Fund's investments on the
annual assessment date are obligations that would be exempt from such tax if
held directly by such shareholders, such as Florida and U.S. Government
obligations. The Florida Portfolio will normally attempt to invest substantially
all of its assets in tax-exempt obligations of Florida, the United States, the
Territories or political subdivisions of the United States or Florida ("Florida
obligations"), and it will ensure that all of its assets held on the annual
assessment date are exempt from the Florida intanglibles tax. Accordingly the
value of the Florida Fund shares held by a shareholder should under normal
circumstances be exempt from the Florida intangibles tax.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a significant
economic slowdown, and has experienced shifts in employment from labor-
intensive manufacturing industries to technology and service-based industries.
The unemployment rate was 5.3% as of October, 1995, while the national
unemployment rate was 5.5%.
Effective July 1, 1990, limitations were placed on the amount of direct bonds
the Commonwealth could have outstanding in a fiscal year, and the amount of the
total appropriation in any fiscal year that may be expended for debt service on
general obligation debt of the Commonwealth (other than certain debt incurred to
pay the fiscal 1990 deficit, certain Medicaid reimbursement payments for prior
years and refunding bonds) was limited, for each subsequent fiscal year, to 105%
of the previous fiscal year's limit. In addition, the power of Massachusetts
cities and towns and certain tax-supported districts and public agencies to
raise revenue from property taxes to support their operations, including the
payment of debt service, is limited. Property taxes are virtually the only
source of tax revenues available to cities and towns to meet local costs. This
limitation on cities and towns to generate revenues could create a demand for
increases in state-funded local aid. Fiscal 1995 expenditures for direct Local
Aid were $2.976 billion, which is an increase of approximately 9.1% above the
fiscal 1994 level. It is estimated that fiscal 1996 expenditures for direct
Local Aid will be $3.242 billion, which is an increase of approximately 8.9%
above the fiscal 1995 level.
General obligations of Massachusetts are rated A1, A+ and A+ by Moody's, S&P and
Fitch, respectively.
MASSACHUSETTS TAXES. The Massachusetts Portfolio has received a letter ruling
(the "Ruling") from the Department of Revenue of The Commonwealth of
Massachusetts to the effect that it will be classified as a partnership for
Massachusetts tax purposes. The Ruling provides that, consequently, interest
income received by the Massachusetts Portfolio on (1) debt obligations issued by
The Commonwealth of Massachusetts or its political subdivisions, including
agencies or instrumentalities thereof ("Massachusetts Obligations"), (2) the
Governments of Puerto Rico, Guam, or the United States Virgin Islands
("Possessions Obligations"), or (3) the United States ("United States
Obligations") will be treated as if realized directly by investors in the
Massachusetts Portfolio. The Ruling concludes that, provided that an investor in
the Massachusetts Portfolio qualifies as a regulated investment company ("RIC")
under the Code and satisfies certain notice requirements of Massachusetts law,
(1) dividends paid by such a RIC that are treated as tax-exempt interest under
the Code and that are directly attributable to interest on Massachusetts
Obligations (including the RIC's allocable share of interest earned by the
Massachusetts Portfolio on such obligations) and (2) dividends paid by such a
RIC that are directly attributable to interest on Possessions Obligations or
United States Obligations (including the RIC's allocable share of interest
earned by the Massachusetts Portfolio on such obligations) will, in each case,
be excluded from Massachusetts gross income. Because the Massachusetts Fund
intends to continue to invest in the Massachusetts Portfolio, qualify for
treatment as a RIC under the Code, and satisfy the applicable notice
requirements, the Massachusetts Fund's distributions to its shareholders of its
allocable share of the interest received by the Massachusetts Portfolio that is
attributable to Massachusetts Obligations, Possessions Obligations or United
States Obligations should consequently be excluded from Massachusetts gross
income for individuals, estates and trusts that are subject to Massachusetts
taxation. Distributions properly designated as capital gain dividends under the
Code and attributable to gains realized by the Massachusetts Portfolio and
allocated to the Massachusetts Fund on the sale of certain Massachusetts
tax-exempt obligations issued pursuant to statues that specifically exempt such
gains from Massachusetts taxation will also be exempt from Massachusetts
personal income tax. Other distributions from the Massachusetts Fund included in
a shareholder's federal gross income, including distributions derived from net
long-term capital gains not described in the preceding sentence and net
short-term capital gains, are generally not exempt from Massachusetts personal
income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. These new tax rates are,
however, being challenged in litigation. It is not clear what Massachusetts tax
rate will be applicable to capital gain dividends for taxable years beginning
after 1995.
Distributions from the Massachusetts Fund will be included in net income, and in
the case of intangible property corporations, shares of the Massachusetts Fund,
will be included in net worth for purposes of determining the Massachusetts
excise tax on corporations subject to Massachusetts taxation.
MISSISSIPPI. The State's economic outlook can be characterized as moving from
one of economic expansion to one of moderate growth. The manufacturing sector
suffered modest declines in 1995, as a result of weak national retail sales and
foreign competition. Employment in the paper industry has fallen 5% since the
last quarter of 1994. Residential construction experienced modest growth in
1995. Commercial construction remained healthy and is expected to continue to
experience steady growth throughout 1996. The casino industry experienced a
slowdown in early 1995, but appears to have returned to its more steady path of
growth late in 1995. Also, the governmental and wholesale/retail trade and
service sectors have had modest gains in employment in 1995. In recent years,
the State has successfully expanded its economy through technology-based
research and education, and the Mississippi banking system has exhibited
relative strength and stability over the past several years, a period
characterized by a growing number of bank failures nationwide. The construction
and casino industries have also experienced growth recently.
All State indebtedness must be authorized by legislation governing the specific
programs or projects to be financed. Such debt may include short- and long-term
indebtedness, self-supporting general obligation bonds, highway bonds and other
types of indebtedness. As of June 30, 1995, the State's total bond indebtedness
was $1.03 billion. For the fiscal year ended June 30, 1995, the constitutional
debt limit was approximately $5.5 billion. State revenues were $7.4 billion as
of June 30, 1995.
General obligations of Mississippi are rated AA-, and Aa by S&P and Moody's. S&P
has a positive outlook for the State.
MISSISSIPPI TAXES. Under existing Mississippi law, interest received by a
Mississippi resident individual upon the obligations of the State of Mississippi
or political subdivisions thereof ("Mississippi obligations") are exempt from
Mississippi income tax. A recently adopted Mississippi Income Tax Regulation
provides a pass-through of the tax-exempt character of interest received by a
regulated investment company, such as the Mississippi Fund, upon distribution to
its shareholders where the Mississippi Fund directly owns such Mississippi
tax-exempt obligations. Under the new regulation, a taxpayer's pro rata portion
of interest dividends distributed by a regulated investment company is exempt
from Mississippi income tax to the extent that such pro rata portion represents
interest received by a regulated investment company from governmental securities
which would be exempt for Mississippi income tax purposes if such governmental
securities were directly held by the taxpayer. In this situation, however, the
Mississippi Fund will not own the Mississippi tax-exempt obligations directly
but will invest in the Mississippi Portfolio, which will own the Mississippi
tax-exempt obligations. There is no law addressing the Mississippi income tax
consequences to Mississippi resident individuals receiving interest dividends
from a regulated investment company, such as the Mississippi Fund, that
contributes its assets to a trust, such as the Mississippi Portfolio, in
exchange for an interest therein where the trust owns Mississippi tax-exempt
obligations and distributes the income therefrom to the regulated investment
company. In 1993, the Mississippi State Tax Commission issued a ruling stating
that a Mississippi resident taxpayer's pro rata portion of interest dividends
distributed by the Mississippi Fund will be non-taxable to the extent that such
pro rata portion represents interest received by the Mississippi Fund, either
directly or through the Mississippi Portfolio, from Mississippi tax-exempt
obligations, which would be exempt for Mississippi income tax purposes if such
tax-exempt obligations were directly held by the taxpayer. In the opinion of
Butler, Snow, O'Mara, Stevens & Cannada, PLLC, special Mississippi tax counsel
to the Mississippi Fund, a Mississippi resident individual's pro rata portion of
interest dividends distributed by the Mississippi Fund will be exempt from
Mississippi income tax to the extent that such pro rata portion (i) is excluded
from gross income under the Code and (ii) represents interest the Mississippi
Fund receives, either directly or through the Mississippi Portfolio, from
investments in Mississippi tax-exempt obligations.
NEW YORK. New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a comparatively small share of the
nation's farming and mining activity. However, as the result of a recession
ending in the first quarter of 1993, 560,000 jobs were lost statewide (equal to
6.7% of the peak employment figure for 1989). Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer,
manufacturing, defense and banking industries. New York's economy expanded
modestly during 1995, growing at a rate slower than the nation as a whole, and
is expected to slow gradually during 1996. In the 1992-1993 fiscal year,
however, the State began the process of financial reform. The State Financial
Plans for the 1992-1993, 1993-1994 and 1994-1995 fiscal years produced positive
fund balances at the end of all three fiscal years. The State, however,
completed its 1994-1995 fiscal year with a General Fund operating deficit of
$1.426 billion primarily due to the use of $1.026 billion of the 1993-1994
fiscal year surplus in the 1994-1995 fiscal year.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies, authorities
and localities to meet their financial obligations and, in some cases, to
prevent or cure defaults. To the extent State agencies and local governments
require State assistance to meet their financial obligations, the ability of the
State to meet its own obligations as they become due or to obtain additional
financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in recent
years and currently continues to experience such difficulties owing, in part, to
lower than anticipated revenues. Because New York City taxes comprise 40% of the
State's tax base, the City's difficulties adversely affect the State.
In June, 1995, the Governor approved the 1995-1996 budget, which included
adoption of a three-year 20% reduction in the State's personal income tax. In
combination with business tax reductions enacted in 1994, State taxes will be
reduced by $5.5 billion by the 1997-1998 fiscal year. The 1995-1996 State
Financial Plan, based on the enacted 1995-1996 budget, includes gap-closing
actions to offset a projected budget gap of $5 billion, the largest in the
State's history.
The Governor has submitted his 1996-1997 budget proposal earlier than required
by State law, hoping the State legislature will approve it prior to the
beginning of the fiscal year. The Governor's proposed 1996-1997 budget
identifies a potential budget gap of approximately $3.9 billion and includes a
gap-closing program to eliminate such gap. There can be no assurances that the
Governor's budget proposals will be adopted, or the gap-closing program can be
implemented, as proposed.
New York's general obligations are rated A, A- and A(D) by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as positive. New York City obligations are rated Baa1, A- and A- by
Moody's, S&P and Fitch, respectively. On July 10, 1995, S&P revised downward its
rating on City general obligation bonds from A- to BBB(D) and removed City bonds
from CreditWatch. S&P stated that the downgrade was a reflection of the City's
inability to eliminate a structural budget imbalance due to persistent softness
in the City's economy, weak job growth, a trend of using nonrecurring budget
devices, optimistic projections of State and federal aid and high levels of debt
service.
NEW YORK TAXES. In the opinion of Brown & Wood, under New York law, for
individuals subject to the New York State or New York City personal income tax,
dividends paid by the New York Fund are exempt from New York State and New York
City income tax for individuals who reside in New York to the extent such
dividends are excluded from gross income for federal income tax purposes and are
derived from interest payments on tax-exempt obligations issued by or on behalf
of New York State and its political subdivisions and agencies, and the
governments or Puerto Rico, the U.S. Virgin Islands and Guam. Other
distributions from the New York Fund, including distributions derived from
taxable ordinary income and net short-term and long-term capital gains, are
generally not exempt from New York State or City personal income tax.
Individuals subject to income taxation by states other than New York will
realize a lower after-tax return than individuals subject to tax by New York
State since the dividends distributed by the New York Fund generally will not be
exempt, to any significant degree, from income taxation by such other states
Interest on indebtedness incurred or continued to purchase or carry New York
Fund shares is not deductible for New York personal income tax purposes to the
extent attributable to exempt-interest dividends. Persons who may be
"substantial users" (or "related persons" of substantial users) of facilities
financed by industrial development bonds or private activity bonds held by the
New York Fund should consult their tax advisors before purchasing New York Fund
shares.
OHIO. The State's economy is reliant in part on durable goods manufacturing,
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, economic activity in Ohio tends to be more
cyclical than in some other states and in the nation as a whole. The State's
1994-95 biennium ended June 30, 1995 with a General Revenue Fund balance of $928
million, of which $535.2 million has been transferred into the Budget
Stabilization Fund (a cash and budgetary management fund, which had a January 4,
1996 balance of over $828 million).
General obligations of Ohio are rated Aa and AA by S&P and Moody's, respectively
(except that highway obligations are rated Aaa by S&P). Fitch does not currently
rate the State's general obligations.
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund, Squire,
Sanders & Dempsey, under Ohio law, individuals who are otherwise subject to the
Ohio personal income tax will not be subject to such tax on dividends paid by
the Ohio Fund to the extent such dividends are properly attributable to interest
on obligations issued by or on behalf of the State of Ohio or its political
subdivisions or the agencies or instrumentalities thereof ("Ohio Obligations").
Dividends paid by the Ohio Fund also will be excluded from the net income base
of the Ohio corporation franchise tax to the extent such dividends are excluded
from gross income for federal income tax purposes or are properly attributable
to interest on Ohio obligations. However, the Ohio Fund's shares will be
included in the tax base for purposes of computing the Ohio corporation
franchise tax on the net worth basis. These conclusions regarding Ohio taxation
are based on the assumption that the Ohio Fund will continue to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Ohio Fund will consist of Ohio
obligations or similar obligations of other states or their subdivisions
determined, to the extent the Ohio Fund invests in the Ohio Portfolio, by
treating the Ohio Fund as owning its proportionate share of the assets owned by
the Ohio Portfolio.
RHODE ISLAND. In 1994, the State recorded a $5.2 million operating deficit,
drawing down the undesignated general fund balance to $3.5 million. The fiscal
year 1994 budget excluded nearly all gasoline tax revenues and transportation
expenditures, which will now be recorded in a new dedicated surface
transportation fund. The 1995 budget includes budgeted reserves of $46.5 million
(equal to 3% of fiscal 1995 expenditures).
In January, 1991, the collapse of the Rhode Island Share and Deposit Indemnity
Corporation precipitated the closure of 45 financial institutions with a total
deposit liability of approximately $1.7 billion. In response, the State created
the Rhode Island Depositors Economic Protection Corporation, a public
corporation, ("DEPCO"), to assist in the resolution of the resulting banking
crisis. By the end of 1992, substantially all of the frozen deposits had been
repaid or otherwise made available to depositors through the reopening, sale or
liquidation of the closed institutions. As of June, 1994, DEPCO had outstanding
debt totalling approximately $494.2 million, the proceeds of which were used to
facilitate the sale of certain institutions and the payout of frozen deposits.
Receipts from .6% of the State's sales and use tax rate are dedicated to a
special revenue fund to be used for repayment of the special obligation bonds.
Over the next 20 years, DEPCO is also obligated to pay former depositors
approximately $54 million.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to A-1 by Moody's and AA- with a stable outlook from S&P. General
obligations of Rhode Island are rated AA-, A-1 and AA-, by S&P, Moody's and
Fitch, respectively.
RHODE ISLAND TAXES. The Rhode Island Fund obtained an opinion from Hinckley,
Allen & Snyder, special tax counsel to the Rhode Island Fund, that under Rhode
Island law, dividends paid by the Rhode Island Fund are exempt from Rhode Island
state income tax for individuals who reside in Rhode Island to the extent such
dividends are excluded from gross income for federal income tax purposes and are
derived from interest payments on obligations of Rhode Island, its political
subdivisions, the Territories or the United States ("Rhode Island Obligations").
Other distibutions from the Rhode Island Fund, including distributions from
capital gains, are generally not exempt from Rhode Island state personal income
tax.
WEST VIRGINIA. The West Virginia economy is heavily dependent on the resource-
based industries, specifically coal, chemical and steel. Although the State's
economy has begun to rebound from the economic recession, the State unemployment
rate remains significantly above the national average. For August, 1995, the
State unemployment rate was 8.2% down from the August, 1994 level of 8.5%, but
well above the national average of 5.6%. The service and wood sectors and
tourism are expected to lead the improving State economy. The manufacturing
sector has contracted in past years, and mining employment is 16% below the
level which existed in 1990. Per capita income for the state is approximately
78% of the national average.
Despite attempts to make State government more efficient, the State continues to
experience revenue shortfalls. In addition, the State was faced with significant
unfunded liabilities in its Workers Compensation Fund, Teachers Retirement Fund
and certain other retirement systems in 1992. A Public Retirement Task Force was
established to examine the State's retirement systems and to make
recommendations to place the systems on a sound financial basis. The current
status of this situation was unavailable. In 1994, the State established a rainy
day reserve fund into which 50% of annual surplus general fund revenues will be
deposited until the reserve fund balance reaches 5% of general fund
appropriations. At June 30, 1995, the estimated balance in the fund was $63.7
million or 2.8% of appropriations.
The West Virginia Supreme Court of Appeals recently declared a School Building
Authority to be unconstitutional. Although prior issuances were unaffected by
the ruling, the State cannot issue lease obligations going forward. There can be
no assurance as to the level of future debt borrowing and the possible
implications on the financial position of the State.
General obligations of West Virginia are currently rated A+ , A1 and A+ , by
S&P, Moody's and Fitch, respectively.
WEST VIRGINIA TAXES. In the opinion of Bowles, Rice, McDavid, Graff & Love,
special West Virginia tax counsel to the West Virginia Fund, under existing West
Virginia law, in 1991 the West Virginia Department of Tax and Revenue issued
Technical Assistance Advisory 91-002 which was declared to be of precedential
value. This Technical Assistance Advisory addresses liability for West Virginia
personal income tax on interest and dividend income received by investors in
regulated investment companies. Accordingly, under existing law, as long as the
West Virginia Fund qualifies as a separate "regulated investment company" under
the Code, that portion of exempt-interest dividends that represents interest
income received by the West Virginia Fund from obligations of the United States
and its possessions and interest or dividend income received by the West
Virginia Fund on obligations or securities of any authority commission or
instrumentality of the United States or of the State of West Virginia, which is
exempt from West Virginia State income tax by federal or West Virginia law, is
exempt from West Virginia Personal Income Tax. This exemption does not apply to
any portion of interest income on obligations of any state other than West
Virginia, regardless of any exemption provided under federal law. In the event
the West Virginia Fund fails to qualify as a separate "regulated investment
company", the foregoing exemption may be unavailable or substantially limited.
The Technical Assistance Advisory contains a more specific, although
nonexclusive, list of obligations and authorities which are exempt from
taxation. The Technical Assistance Advisory also confirms that interest on
indebtedness incurred (directly or indirectly) by a shareholder of the West
Virginia Fund to purchase or carry shares of the West Virginia Fund will not be
deductible for West Virginia income purposes.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for November, 1995 was approximately
13.4%. The North American Free Trade Agreement (NAFTA), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico. The federal budget proposals currently being
considered by the U.S. Congress include the elimination of Section 936, a
federal tax credit program credited with encouraging economic development in
Puerto Rico. The fate of Section 936 cannot be determined at this time. There
can be no assurance that the elimination of the credit available under Section
936 will not have a negative impact on Puerto Rico's economy and the credit
quality (and value) of Puerto Rican bonds.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P assigned
a stable outlook on Puerto Rico on April 26, 1994.
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[LOGO]
EATON VANCE
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Mutual Funds
EV MARATHON MUNICIPAL FUNDS
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PROSPECTUS
FEBRUARY 1, 1996
EV MARATHON CALIFORNIA MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND
EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON WEST VIRGINIA MUNICIPALS FUND
EV MARATHON
MUNICIPALS FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
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PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 0211
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 0211
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 0211
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, O.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-TFC2/1P
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EV TRADITIONAL
MUNICIPAL FUNDS
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EV TRADITIONAL CALIFORNIA MUNICIPALS FUND EV TRADITIONAL NEW YORK MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND EV TRADITIONAL OHIO MUNICIPALS FUND
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND
</TABLE>
THE EV TRADITIONAL MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THE STATE
TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES" IN THIS PROSPECTUS.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A SERIES
OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
combined Statement of Additional Information dated February 1, 1996 for the
Funds, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares .......................... 15
The Funds' Financial Highlights ........................ 3 Reports to Shareholders ............................ 16
The Funds' Investment Objectives ....................... 5 The Lifetime Investing Account/Distribution
How the Funds and the Portfolios Invest Options ......................................... 16
their Assets .......................................... 5 The Eaton Vance Exchange Privilege ................. 17
Organization of the Funds and the Portfolios ........... 9 Eaton Vance Shareholder Services ................... 18
Management of the Funds and the Portfolios ............. 11 Distributions and Taxes ............................ 18
Service Plans .......................................... 12 Performance Information ............................ 19
Valuing Fund Shares .................................... 13 Statement of Intention and Escrow Agreement ........ 20
How to Buy Fund Shares ................................. 13 Appendix - State Specific Information .............. 21
</TABLE>
- -------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1996
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
-------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 3.75%
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average net assets)
---------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI NEW YORK OHIO WEST VIRGINIA
FUND FUND FUND FUND FUND FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Adviser Fee (after any
applicable fee reduction) 0.50% 0.47% 0.46% 0.10% 0.47% 0.46% 0.16%
Other Expenses (including Service Plan
Fees and after expense reduction) 0.13 0.19 0.27 0.58 0.12 0.30 0.39
---- ---- ---- ---- ---- ---- ----
Total Operating Expenses (after
expense reductions) 0.63% 0.66% 0.73% 0.68% 0.59% 0.76% 0.55%
==== ==== ==== ==== ==== ==== ====
<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 time period:
---------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI NEW YORK OHIO WEST VIRGINIA
FUND FUND FUND FUND FUND FUND FUND
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 44 $ 44 $ 45 $ 44 $ 43 $ 45 $ 43
3 Years 57 58 45 44 56 61 54
5 Years 71 73 77 74 69 78 67
10 Years 113 117 125 119 109 128 104
</TABLE>
NOTES:
The table and the Example summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year, except that
the Service Plan Fees have been estimated for the Massachusetts, Mississippi,
Ohio and West Virginia Funds (assuming the Service Plan in effect for those
Funds on February 1, 1996). Absent an expense allocation, the expenses and Total
Operating Expenses of the following Funds would have been the following
percentage of average daily net assets: California Fund Other Expenses and Total
Operating Expenses would have been 1.10% and 1.60%, respectively; Florida Fund
Other Expenses and Total Operating Expenses would have been 1.06% and 1.53%,
respectively; and New York Fund Other Expenses and Total Operating Expenses
would have been 0.82% and 0.94%, respectively.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe the aggregate per share expenses of a Fund and its corresponding
Portfolio should approximate, and over time may be less than, the per share
expenses the Fund would incur if the Fund were instead to retain the services of
an investment adviser and its assets were invested directly in the type of
securities being held by its corresponding Portfolio.
The Example should not be considered a representation of past or future expenses
and actual expenses may be greater or less than those shown. Federal regulations
require the Example to assume a 5% annual return, but actual return may 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 11.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and others may do so in the future. See
"Organization of the Funds and the Portfolios".
<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 reports of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of a Fund is contained in its annual report to
shareholders which may be obtained without charge by contacting the Principal
Underwriter, Eaton Vance Distributors, Inc.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FUND FLORIDA FUND MASSACHUSETTS FUND MISSISSIPPI FUND
------------------------ ------------------------ ------------------------ ------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------ ------------------------ ------------------------ ------------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
--------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.840 $10.000 $10.020 $10.000 $ 9.000 $10.000 $ 8.920 $10.000
--------- ------- ------- ------- ------- ------- -------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.610 $ 0.209 $ 0.587 $ 0.288 $ 0.449 $ 0.350 $ 0.426 $ 0.338
Net realized and
unrealized gain
(loss) on investments 0.335 (0.158) 0.438 0.023++ 0.283 (0.933) 0.391 (1.024)
--------- ------- ------- ------- ------- ------- -------- -------
Total income from
operations $ 0.945 $ 0.051 $ 1.025 $ 0.311 $ 0.732 $(0.583) $ 0.817 $(0.686)
--------- ------- ------- ------- ------- ------- -------- -------
LESS DISTRIBUTIONS:
From net investment
income $ (0.605) $(0.209) $(0.587) $(0.288) $(0.449) $(0.350) $ (0.426) $(0.338)
In excess of net
investment income\3/ (0.002) (0.008) (0.003) (0.023) (0.067) (0.011) (0.056)
In excess of net
realized capital
gain on investments\3/ -- -- -- -- -- -- -- --
--------- ------- ------- ------- ------- ------- -------- -------
Total distributions $ (0.605) $(0.211) $(0.595) $(0.291) $(0.472) $(0.417) $ (0.437) $(0.394)
--------- ------- ------- ------- ------- ------- -------- -------
ET ASSET VALUE,
end of year $ 10.180 $ 9.840 $10.450 $10.020 $ 9.260 $ 9.000 $ 9.300 $ 8.920
--------- ------- ------- ------- ------- ------- -------- -------
TOTAL RETURN\1/ 9.94% 0.50% 10.59% 3.10% 8.45% (6.02)% 9.47% (6.96)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of
year (000 omitted) $ 4,093 $ 3,101 $ 3,548 $ 1,246 $ 2,764 $ 3,743 $ 2,330 $ 2,800
Ratio of net expenses
to average daily net
assets\2/ 0.63% 0.54%+ 0.66% 0.50%+ 1.53% 1.61%+ 1.48% 1.24%+
Ratio of net investment
income to average daily
net assets 6.08% 5.60%+ 5.68% 5.30%+ 5.05% 4.55%+ 4.79% 4.42%+
**For the periods indicated, the operating expenses of the Funds and the Portfolios reflects 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 $ 0.513 $ 0.158 $ 0.497 $ 0.081 $ 0.405 $ 0.260 $ 0.364 $ 0.246
RATIOS (As a percentage
of average daily net
assets):
Expenses\2/ 1.60% 1.92%+ 1.53% 2.48%+ 2.02% 2.78%+ 2.18% 2.45%+
Net investment income 5.11% 4.22%+ 4.81% 3.32%+ 4.56% 3.38%+ 4.09% 3.21%+
Footnotes:
+Annualized.
++The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing
of sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
*For the California, Florida, Massachusetts and Mississippi Funds, the Financial Highlights are for the period from the start
of business, May 27, 1994, April 5, 1994, December 7, 1993 and December 7, 1993, respectively, to September 30, 1994.
\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/During the year ended September 30, 1993, (September 30, 1994 for the California Fund) the Fund adopted Statement of
Position (SOP) 93-2: Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain, and Return
of Capital Distributions by Investment Companies. The SOP requires that differences in the recognition or classification
of income between the financial statements and tax earnings and profits that result in temporary over-distributions for
financial statement purposes, are classified as distributions in excess of net investment income or accumulated net
realized gains.
\4/Prior to February 1, 1996, the Massachusetts Fund and Mississippi Fund, each made distribution fee payments pursuant to a
Distribution Plan.
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
NEW YORK FUND OHIO FUND WEST VIRGINIA FUND
------------------------ ------------------------ ------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------ ------------------------ ------------------------
1995 1994* 1995 1994* 1995 1994*
---- ----- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $9.780 $10.000 $8.940 $10.000 $8.980 $10.000
------ ------- ------ ------- ------ -------
INCOME FROM OPERATIONS:
Net investment income $0.583 $0.271 $0.428 $0.348 $0.427 $0.326
Net realized and unrealized gain
(loss) on investments 0.390 (0.214) 0.404 (0.992) 0.385 (0.959)
------ ------- ------ ------- ------ -------
Total income from operations $0.973 $0.057 $0.832 $(0.644) $0.812 $(0.633)
====== ====== ====== ======= ====== =======
LESS DISTRIBUTIONS:
From net investment income $(0.583) $(0.271) $(0.428) $(0.348) $(0.427) $(0.326)
In excess of net investment
income(3) (0.017) (0.006) (0.024) (0.068) (0.015) (0.061)
In excess of net realized capital
gain on investments(3) (0.003) -- -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions $(0.603) $(0.277) $(0.452) $(0.416) $(0.442) $(0.387)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.150 $9.780 $ 9.320 $ 8.940 $ 9.350 $ 8.980
======= ====== ======= ======= ======= =======
TOTAL RETURN(1) 10.32% 0.56% 9.64% (6.75)% 9.35% (6.53)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year
(000 omitted) $4,427 $ 1,382 $2,168 $2,111 $1,032 $1,897
Ratio of net expenses to
average daily net assets(2) 0.59% 0.44%+ 1.56% 1.60%+ 1.35% 1.28%+
Ratio of net investment income
to average daily net assets 5.77% 5.36%+ 4.76% 4.42%+ 4.81% 4.53%+
**For the periods indicated, the operating expenses of the Funds and the Portfolios reflects 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 $0.512 $ 0.156 $0.336 $0.241 $0.318 $0.204
====== ======= ====== ====== ====== ======
RATIOS (As a percentage of average
daily net assets):
Expenses(2) 1.29% 2.71%+ 2.58% 2.96%+ 2.58% 2.66%+
Net investment income 5.07% 3.09%+ 3.74% 3.06%+ 3.58% 3.15%+
Footnotes:
+Annualized.
++The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of
sales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
*For the New York, Ohio and West Virginia Funds, the Financial Highlights are for the period from the start of business, April
15, 1994, December 7, 1993 and December 13, 1993, respectively, to September 30, 1994.
(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)During the year ended September 30, 1993, (September 30, 1994 for the California Fund) the Fund adopted Statement of Position
(SOP) 93-2: Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. The SOP requires that differences in the recognition or classification of income
between the financial statements and tax earnings and profits that result in temporary over-distributions for financial
statement purposes, are classified as distributions in excess of net investment income or accumulated net realized gains.
(4)Prior to February 1, 1996, the Ohio Fund and West Virginia Fund, each made distribution fee payments pursuant to a
Distribution Plan.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- ------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund seeks to
meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") 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 CALIFORNIA MUNICIPALS FUND (the "California Fund") seeks to
provide current income exempt from regular federal income tax and California
State personal income taxes. The California Fund seeks to meet its objective by
investing its assets in the California Municipals Portfolio (the "California
Portfolio").
EV TRADITIONAL FLORIDA MUNICIPALS FUND (the "Florida Fund") seeks to provide
current income exempt from regular federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Fund seeks to meet
its objective by investing its assets in the Florida Municipals Portfolio (the
"Florida Portfolio").
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND (the "Massachusetts Fund") seeks to
provide current income exempt from regular federal income tax and Massachusetts
state personal income taxes. The Massachusetts Fund seeks to meet its objective
by investing its assets in the Massachusetts Municipals Portfolio (the
"Massachusetts Portfolio").
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND (the "Mississippi Fund") seeks to
provide current income exempt from regular federal income tax and Mississippi
State personal income taxes. The Mississippi Fund seeks to meet its objective by
investing its assets in the Mississippi Municipals Portfolio (the "Mississippi
Portfolio").
EV TRADITIONAL NEW YORK MUNICIPALS FUND (the "New York Fund") seeks to provide
current income exempt from regular federal income tax and New York State and New
York City personal income taxes. The New York Fund seeks to meet its objective
by investing its assets in the New York Municipals Portfolio (the "New York
Portfolio").
EV TRADITIONAL OHIO MUNICIPALS FUND (the "Ohio Fund") seeks to provide current
income exempt from regular federal income tax and Ohio State personal income
taxes. The Ohio Fund seeks to meet its objective by investing its assets in the
Ohio Municipals Portfolio (the "Ohio Portfolio").
EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND (the "West Virginia Fund") seeks to
provide current income exempt from regular federal income tax and West Virginia
State personal income taxes. The West Virginia Fund seeks to meet its objective
by investing its assets in the West Virginia Municipals Portfolio (the "West
Virginia Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
- ------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE WITH
THE FUND'S INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy
is a fundamental policy of each Fund and its corresponding Portfolio, which may
not be changed unless authorized by a vote of the Fund's shareholders or that
Portfolio's investors, as the case may be.
At least 75% of the net assets of the California Portfolio and Florida
Portfolio, at least 70% of the net assets of the Massachusetts Portfolio and New
York Portfolio, and at least 80% of the net assets of the Mississippi Portfolio,
Ohio Portfolio and West Virginia Portfolio will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch")) or, if unrated, determined by the Investment Adviser to
be of at least investment grade quality. 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
September 30, 1995, the Portfolios had invested in such obligations as follows
(as a percentage of net assets): California Portfolio (18.0%); Florida Portfolio
(18.9%); Massachusetts Portfolio (18.1%); Mississippi Portfolio (13.5%), New
York Portfolio (4.82%); Ohio Portfolio (17.8%); and West Virginia Portfolio
(16.6%). At September 30, 1995, the Portfolios limited their investment in
obligations subject to the AMT to not more than 20% of net assets. The
Portfolios are no longer subject to such limitation. Distributions to corporate
investors of certain interest income may also be subject to the AMT. The Funds
may not be suitable for investors subject to the AMT.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State and that State's political
subdivisions. Each Portfolio is, therefore, more susceptible to factors
adversely affecting issuers in one State than mutual funds which do not
concentrate in a specific State. Municipal obligations of issuers in a single
State may be adversely affected by economic developments and by legislation and
other governmental activities in that State. To the extent that a Portfolio's
assets are concentrated in municipal obligations of issuers of a single State,
that Portfolio may be subject to an increased risk of loss. Each Portfolio may
also invest in obligations issued by the governments of Puerto Rico, the U.S.
Virgin Islands and Guam. See the Appendix to this Prospectus for a description
of some of the economic and other factors relating to the States and Puerto
Rico.
In addition, each Portfolio may invest 25% or more of its total assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities; obligations
of State and local housing finance authorities, municipal utilities systems or
public housing authorities; obligations of hospitals or life care facilities; or
industrial development or pollution control bonds issued for electric utility
systems, steel companies, paper companies or other purposes. This may make a
Portfolio more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuer. For example, health
care-related issuers are susceptible to medicaid reimbursement policies, and
national and State health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
NON-DIVERSIFIED STATUS. As "non-diversified" investment companies, each
Portfolio may invest, with respect to 50% of its total assets, more than 5% (but
not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio would be more susceptible to any single adverse economic or political
occurrence or development affecting issuers of the relevant State's municipal
obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive their
value from another instrument, security or index. In addition, each Portfolio
may temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. Each Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed rate bond.
Because changes in the interest rate on the other security or index inversely
affect the residual interest paid on the inverse floater, the value of an
inverse floater is generally more volatile than that of a fixed rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to a Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
These securities tend to underperform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may,
however, alter this tendency. Although volatile, inverse floaters typically
offer the potential for yields exceeding the yields available on fixed rate
bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising rates if exercised at an opportune time. Inverse floaters
are leveraged because they provide two or more dollars of bond market exposure
for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities and municipal obligations) and securities
indices (such as the Municipal Bond Index traded on the Chicago Board of Trade).
Such transactions involve a risk of loss or depreciation due to unanticipated
adverse changes in securities prices, which may exceed a Portfolio's initial
investment in these contracts. A Portfolio may not purchase or sell futures
contracts or related options, except for closing purchase or sale transactions,
if immediately thereafter the sum of the amount of margin deposits and premiums
paid on the Portfolio's outstanding positions would exceed 5% of the market
value of the Portfolio's net assets. These transactions involve transaction
costs. There can be no assurance that the Investment Adviser's use of futures
will be advantageous to a Portfolio. Distributions by a Fund of any gains
realized on its corresponding Portfolio's transactions in futures and options on
futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of a Fund's shares.
ADDITIONAL RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest investment
grade category (Baa or BBB), lower categories or may be unrated. As indicated
above, each Portfolio may invest in municipal obligations rated below investment
grade (but not lower than B by Moody's, S&P or Fitch) and comparable unrated
obligations. The lowest investment grade, lower rated and comparable unrated
municipal obligations in which a Portfolio may invest will have speculative
characteristics in varying degrees. While such obligations may have some quality
and protective characteristics, these characteristics can be expected to be
offset or outweighed by uncertainties or major risk exposures to adverse
conditions. Lower rated and comparable unrated municipal obligations are subject
to the risk of an issuer's inability to meet principal and interest payments on
the obligations (credit risk) and may also be subject to greater price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated municipal obligations are also more likely to
react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. The Investment Adviser seeks to minimize the
risks of investing in below investment grade securities through professional
investment analysis and attention to current developments in interest rates and
economic conditions. When a Portfolio invests in lower rated or unrated
municipal obligations, the achievement of the Portfolio's goals is more
dependent on the Investment Adviser's ability than would be the case if the
Portfolio were investing in municipal obligations in the higher rating
categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking recovery
of its investment. Municipal obligations held by a Portfolio which are rated
below investment grade but which, subsequent to the assignment of such rating,
are backed by escrow accounts containing U.S. Government obligations may be
determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. A Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will be less than
35% of net assets. In the event the rating of an obligation held by a Portfolio
is downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the
Portfolio's credit quality limitations.
The net asset value of shares of a Fund will change in response to fluctuations
in prevailing interest rates and changes in the value of the securities held by
its corresponding Portfolio. When interest rates decline, the value of
securities held by a Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of the issuers of municipal
obligations held by a Portfolio will affect the principal value of (and possibly
the income earned on) 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 hold fewer securities, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured mutual funds which have large or institutional
investors.
Until 1992, the Administrator sponsored and advised historically structured
funds. Funds which invest all their assets in interests in a separate investment
company are a relatively new development in the mutual fund industry and,
therefore, the Funds may be subject to additional regulations than historically
structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will terminate
120 days after the complete withdrawal of a Fund or any other investor in the
Portfolio, unless either the remaining investors, by unanimous vote at a meeting
of such investors, or a majority of the Trustees of the Portfolio, by written
instrument consented to by all investors, agree to continue the business of the
Portfolio. This provision is consistent with treatment of the Portfolios as
partnerships for federal income tax purposes. See "Distributions and Taxes" for
further information. Whenever a Fund as an investor in a Portfolio is requested
to vote on matters pertaining to the Portfolio (other than the termination of
the Portfolio's business, which may be determined by the Trustees of the
Portfolio without investor approval), the Fund will hold a meeting of Fund
shareholders and will vote its interest in the Portfolio for or against such
matters proportionately to the instructions to vote for or against such matters
received from Fund shareholders. A Fund shall vote shares for which it receives
no voting instructions in the same proportion as the shares for which it
receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, a Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Fund. Notwithstanding the above, there are other means
for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested Trustees,
have approved written procedures designed to identify and address any potential
conflicts of interest arising from the fact that the Trustees of the Trust and
the Trustees of each Portfolio are the same. Such procedures require each Board
to take action to resolve any conflict of interest between a Fund and its
corresponding Portfolio, and it is possible that the creation of separate Boards
may be considered. For further information concerning the Trustees and officers
of 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.
Categories (1) and (2) below do not apply to the California Portfolio and
Category (3) is for daily net assets of the California Portfolio of up to
$500 million.
<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 advisory fees for the fiscal year ended September 30, 1995
equivalent to the annualized percentage of average daily net assets stated
below:
NET ASSETS AS OF
PORTFOLIO SEPTEMBER 30, 1995 ADVISORY FEE
- -------------------------------------------------------------------------------
California ............................. $410,670,138 0.50%
Florida ................................ $712,203,136 0.47%
Massachusetts .......................... $302,170,247 0.46%
Mississippi ............................ $ 28,992,960 0.22%\1/
New York ............................... $652,736,309 0.47%
Ohio ................................... $319,016,648 0.46%
West Virginia .......................... $ 40,835,061 0.24%\2/
\1/To enhance the net income of the Mississippi Portfolio, BMR made a reduction
of its advisory fee in the amount of $36,759.
\2/To enhance the net income of the West Virginia Portfolio, BMR made a
reduction of its advisory fee in the amount of $32,526.
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, oil and gas operations, real estate investment, consulting and
management, and development of precious metals properties.
Nicole Anderes has acted as the portfolio manager of the New York Portfolio
since January, 1994. She joined Eaton Vance and BMR as a Vice President in
January 1994. Previously, she was a Vice President and portfolio manager at
Lazard Freres Asset Management (1992-1994) and a Vice President and Manager --
Municipal Research at Roosevelt & Cross (1978-1992).
Timothy T. Browse has acted as the portfolio manager of the West Virginia
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance and of BMR since 1993 and an employee of Eaton Vance since 1992. Prior to
joining Eaton Vance, he was a municipal bond trader at Fidelity Management &
Research Company (1987-1992).
Thomas J. Fetter has acted as the portfolio manager of the Florida and Ohio
Portfolios since they commenced operations. He has been a Vice President of
Eaton Vance since 1987 and of BMR since inception.
Robert B. MacIntosh has acted as the portfolio manager of the Massachusetts
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance since joining the firm in 1991 and of BMR since its inception. Prior to
joining Eaton Vance, he was a portfolio manager at Fidelity Management &
Research Company (1986-1991).
Cynthia J. Clemson has acted as the portfolio manager of the Mississippi
Portfolio since it commenced operations and the California Portfolio since
February 1, 1996. She has been a Vice President of Eaton Vance and BMR since
1993 and an employee of Eaton Vance since 1985.
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% (0.25% for the California Fund) 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. Each Fund's Plan
authorizes the Trustees of the Trust on behalf of the Fund to increase payments
to the Principal Underwriter, Authorized Firms and other persons from time to
time without further action by shareholders of the Fund, provided that the
aggregate amount of payments made to such persons under the Plan in any fiscal
year of the Fund does not exceed .25% of the Fund's average daily net assets.
For the fiscal year ended September 30, 1995, each Fund made service fee
payments (as a percentage of average daily net assets) as follows: California
Fund (0.01%); Florida Fund (0.01%); Massachusetts Fund (0.20% annualized);
Mississippi Fund (0.20% annualized); New York Fund (0.01%); Ohio Fund (0.20%
annualized); and West Virginia Fund (0.20% annualized). The service fee payments
made by the Massachusetts, Mississippi, Ohio and West Virginia Funds were made
pursuant to a prior version of the Plan. The Plan is described further in the
Statement of Additional Information.
VALUING FUND SHARES
- ------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, the Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share and the public offering price
based thereon. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter, which is a wholly-owned subsidiary of
Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) based
on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- ------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the effective public offering price, which price is based on the effective net
asset value per share plus the applicable sales charge. A Fund receives the net
asset value, while the sales charge is divided between the Authorized Firm and
the Principal Underwriter. The Principal Underwriter will furnish the names of
Authorized Firms to an investor upon request. An Authorized Firm may charge its
customers a fee in connection with transactions executed by that Firm. A Fund
may suspend the offering of shares at any time and may refuse an order for the
purchase of shares. Shares of each Fund are offered for sale only in States
where such shares may be legally sold.
The sales charge may vary depending on the size of the purchase and the number
of shares of Eaton Vance funds the investor may already own, any arrangement to
purchase additional shares during a 13-month period or special purchase
programs. Complete details of how investors may purchase shares at reduced sales
charges under a Statement of Intention or Right of Accumulation are available
from Authorized Firms or the Principal Underwriter.
The current sales charges and dealer commissions are:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER COMMISSION
AS PERCENTAGE OF AS PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 3.75% 3.90% 4.00%
$50,000 but less than $100,000 2.75 2.83 3.00
$100,000 but less than $250,000 2.25 2.30 2.50
$250,000 but less than $500,000 1.75 1.78 2.00
$500,000 but less than $1,000,000 1.25 1.27 1.50
$1,000,000 or more 0.00* 0.00* 0.50
</TABLE>
*No sales charge is payable at the time of purchase on investments of $1 million
or more. A contingent deferred sales charge ("CDSC") of 0.50% will be imposed
on such investments (as described below) in the event of certain redemptions
within 12 months of purchase. For the California Fund, Florida Fund and New
York Fund, such purchases made before March 27, 1995 will be subject to a CDSC
of 1% in the event of certain redemptions within 18 months of purchase.
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 a minimum dollar amount of 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. For the California Fund, Florida Fund and New York Fund such
purchases made before March 27, 1995 will be subject to a CDSC of 1% in the
event of certain redemptions made within 18 months of purchase. In addition,
certain shares of the Massachusetts Fund, Mississippi Fund, Ohio Fund and West
Virginia Fund purchased prior to February 1, 1996 and redeemed within the first
year of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a CDSC equal to 1% of the net asset
value of redeemed shares. The CDSC will be retained by the Principal
Underwriter. The CDSC will be imposed on an amount equal to the lesser of the
current market value or the original purchase price of the shares redeemed.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends or distributions that have been
reinvested in additional shares. In determining whether a CDSC is applicable to
a redemption, the calculation will be made in a manner that results in the
lowest possible rate being charged. It will be assumed that redemptions are made
first from any shares in the shareholder's account that are not subject to a
CDSC.
The CDSC is waived for redemptions involving certain liquidation, merger or
acquisition transactions involving other investment companies. If a shareholder
reinvests redemption proceeds within a 60-day period and in accordance with the
conditions set forth under "Eaton Vance Shareholder Services -- Reinvestment
Privilege," the shareholder's account will be credited with the amount of any
CDSC paid on such redeemed shares. In addition, the CDSC applicable to shares of
the Massachusetts Fund, Mississippi Fund, Ohio Fund and West Virginia Fund
purchased prior to February 1, 1996 will be waived for shares redeemed (1)
pursuant to a Withdrawal Plan (see "Eaton Vance Shareholder Services"), (2) as
part of a distribution from a retirement plan qualified under Section 401,
403(b) or 457 of the 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
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing federal and State tax returns.
Consistent with applicable law, duplicate mailings of shareholder reports and
certain other Fund information to shareholders residing at the same address may
be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS' TRANSFER
AGENT, FIRST DATA INVESTOR SERVICES GROUP, WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This account is a
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. A Fund will not issue share
certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE to First Data Investor
Services Group.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to First Data Investor Services Group, BOS725, P.O.
Box 1559, Boston, MA, 02104 (please provide the name of the shareholder, the
Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Funds'
dividend disbursing agent, First Data Investor Services Group, BOS725, P.O. Box
1559, Boston, MA 02104. The currently effective option will appear on each
account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal Service
as not deliverable or which remain uncashed for six months or more will be
reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name" account
with an Authorized Firm, all recordkeeping, transaction processing and payments
of distributions relating to the beneficial owner's account will be performed by
the Authorized Firm, and not by the Fund and its Transfer Agent. Since the Fund
will have no record of the beneficial owner's transactions, a beneficial owner
should contact the Authorized Firm to purchase, redeem or exchange shares, to
make changes in or give instructions concerning the account, or to obtain
information about the account. The transfer of shares in a "street name" account
to an account with another dealer or to an account directly with a Fund involves
special procedures and will require the beneficial owner to obtain historical
purchase information about the shares in the account from the Authorized Firm.
Before establishing a "street name" account with an investment firm, or
transferring the account to another investment firm, an investor wishing to
reinvest distributions should determine whether the firm which will hold the
shares allows reinvestment of distributions in "street name" accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
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Shares of each Fund may currently be exchanged for shares of any of the
following funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of
Boston, Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and
any fund in the Eaton Vance Traditional Group of Funds on the basis of the net
asset value per share of each fund at the time of the exchange (plus, in the
case of an exchange made within six months of the date of purchase of shares
subject to an initial sales charge, an amount equal to the difference, if any,
between the sales charge previously paid on the shares being exchanged and the
sales charge payable on the shares being acquired). Such exchange offers are
available only in States where shares of the fund being acquired may be legally
sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
Shares of a Fund which are subject to a CDSC may be exchanged into any of the
above funds without incurring the CDSC. The shares acquired in an exchange may
be subject to a CDSC upon redemption. For purposes of computing the CDSC payable
upon redemption of shares acquired in an exchange, the holding period of the
original shares is added to the holding period of the shares acquired in the
exchange.
First Data Investor Services Group makes exchanges at the next determined net
asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult First Data Investor Services Group for additional
information concerning the exchange privilege. Applications and prospectuses of
other funds are available from Authorized Firms or the Principal Underwriter.
The prospectus for each fund describes its investment objectives and policies,
and shareholders should obtain a prospectus and consider these objectives and
policies carefully before requesting an exchange.
Shares of certain other funds for which Eaton Vance acts as investment adviser
or administrator may be exchanged for Fund shares on the basis of the net asset
value per share of each fund at the time of 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
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THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to First Data Investor Services Group,
BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not dividends
are reinvested. The name of the shareholder, the Fund and the account number
should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from the
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
STATEMENT OF INTENTION: Purchases of $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "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 ANY PORTION OR ALL OF THE REPURCHASE OR REDEMPTION PROCEEDS (PLUS THAT
AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO ROUND OFF THE PURCHASE TO THE
NEAREST FULL SHARE) IN SHARES OF A FUND, or, provided that the shares
repurchased or redeemed have been held for at least 60 days, in shares of any of
the other funds offered by the Principal Underwriter subject to an initial sales
charge, provided that the reinvestment is effected within 60 days after such
repurchase or redemption, and the privilege has not been used more than once in
the prior 12 months. Shares are sold to a reinvesting shareholder at the next
determined net asset value following timely receipt of a written purchase order
by the Principal Underwriter or by the fund the shares of which are being
purchased (or by such fund's transfer agent). The privilege is also available to
shareholders of the funds listed under "The Eaton Vance Exchange Privilege" who
wish to reinvest such redemption or repurchase proceeds in shares of a Fund. If
a shareholder reinvests redemption proceeds within the 60 day period the
shareholder's account will be credited with the amount of any CDSC paid on such
redeemed shares. To the extent that any shares of the Fund are sold at a loss
and the proceeds are reinvested in shares of the Fund (or other shares of the
Fund are acquired within the period beginning 30 days before and ending 30 days
after the date of the redemption) some or all of the loss generally will not be
allowed as a tax deduction. Shareholders should consult their tax advisers
concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
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SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the last day of each month or the
next business day thereafter. Each Fund anticipates that for tax purposes the
entire distribution, whether paid in cash or reinvested in additional shares of
the Fund, will constitute tax-exempt income to shareholders, except for the
proportionate part of the distribution that may be considered taxable income if
the Fund has taxable income during the calendar year. Shareholders reinvesting
the monthly distribution should treat the amount of the entire distribution as
the tax cost basis of the additional shares acquired by reason of such
reinvestment. Daily distribution crediting will commence on the day that
collected funds for the purchase of Fund shares are available at the Transfer
Agent. Shareholders of a Fund will receive timely federal income tax information
as to the tax-exempt or taxable status of all distributions made by the Fund
during the calendar year. A Fund's net realized capital gains, if any, consist
of the net realized capital gains allocated to the Fund by its corresponding
Portfolio for tax purposes, after taking into account any available capital loss
carryovers; a Fund's net realized capital gains, if any, will be distributed at
least once a year, usually in December.
Sales charges paid upon a purchase of Fund shares cannot be taken into account
for purposes of determining gain or loss on a redemption or exchange of the
shares before the 91st day after their purchase to the extent shares of a Fund
or of another fund are subsequently acquired pursuant to a Fund's reinvestment
or exchange privilege. Any disregarded amounts will result in an adjustment to
the shareholder's tax basis in some or all of any other shares acquired.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS PARTNERSHIPS
UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. 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. Each Fund may publish
annual and cumulative total return figures from time to time. Each Fund may also
quote total return for the period prior to commencement of operations which
would reflect the Portfolio's total return (or that of its predecessor) adjusted
to reflect any applicable Fund sales charge.
Each Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which is
based on a Fund's net asset value per share would be reduced if a sales charge
were taken into account. The Fund's performance may be compared in publications
to the performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information prepared
by recognized mutual fund statistical services.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of the Fund's current yield or total return for any
prior period should not be considered a representation of what an investment may
earn or what the Fund's yield or total return may be in any future period. If
the expenses of a Fund or its corresponding Portfolio are paid by Eaton Vance,
the Fund's performance will be higher.
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.
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.
CALIFORNIA. California experienced severe economic and fiscal stress over the
1991-95 period. Between 1990 and 1993, California lost 3% of its total
employment base and nearly 16% of higher paying manufacturing jobs. This was
during a period when population increased 6%. The unemployment rate in
California was 9.1% in 1992 and 9.2% in 1993, well above the U.S. rates of 7.4%
and 6.8% for the same periods, respectively. Unemployment was 8.8% in November
1995, compared to 7.7% in November 1994.
The weak economy seriously undermined the government's ability to accurately
estimate tax revenues and increased social service expenditures for recession-
related welfare case loads. In addition, the continued influx of illegal
immigrants strained the State's welfare and health care systems. The result of
these various problems was a $2 billion accumulated budget deficit and a heavy
reliance on short-term borrowing for day-to-day operations. Short-term borrowing
increased from 7.8% of general fund receipts in 1990 to 12.4% in 1992 to an
estimated 16% in 1995. In July, 1994, the State issued $7 billion in short-term
debt, an unprecedented amount for a State.
The $2 billion budget deficit built up during the 1991 and 1992 fiscal years and
was not adequately addressed during the 1993 or 1994 fiscal years, despite a
Deficit Retirement and Reduction Plan put in place in June, 1993. The budget for
fiscal year 1995 (which commenced on July 1, 1994) includes general fund
expenditures of $40.9 billion, a 4.2% increase over 1993-94, and general fund
revenues of $41.9 billion, a 5.2% increase. Growth in the State's employment
base and attendant revenue growth, led to a current year surplus for fiscal year
1995. If fiscal year 1996 ends near budgeted levels, the accumulated budget
deficit will be eliminated.
On January 17, 1994, a major earthquake struck the Los Angeles area causing
significant property damage. Preliminary estimates of total property damage
approximate $15 billion. The federal government has approved $9.5 billion for
earthquake relief. The Governor has estimated that the State will have to pay
approximately $1.9 billion for relief not otherwise covered by the federal aid.
The Governor had proposed to cover $1.05 billion of relief costs from a general
obligation bond issue, but the proposal was rejected by California voters in
June 1994. The Governor subsequently announced that funds earmarked for other
projects would be used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together with its
pooled investment fund (the "Fund") filed for protection under Chapter 9 of the
Federal Bankruptcy Code, after reports that the Fund had suffered significant
market losses in its investments caused a liquidity crisis for the Fund and the
County. More than 180 other public entities, most but not all located in the
County, were also depositors in the Fund. As of December 13, 1994, the County
estimated the Fund's loss at about $2 billion, or 27% of its initial deposits of
around $7.4 billion. These losses could increase as the County sells investments
to restructure the Fund, or if interest rates rise. Many of the entities which
kept moneys in the Fund, including the County, are facing cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects. The County and some of these entities have, and others may in
the future, default in payment of their obligations. Moody's and S&P have
suspended, reduced to below investment grade levels, or placed on "Credit Watch"
various securities of the County and the entities participating in the Fund. As
of December 1994, the Portfolio did not hold any direct obligations of the
County. However, the Portfolio did hold bonds of some of the governmental units
that had money invested with the County; the impact of the loss of access to
these funds, the loss of expected investment earnings and the potential loss of
some of the principal invested is not known at this point. There can be no
assurances that these holdings will maintain their current ratings and/or
liquidity in the market.
In early June 1995, the County filed a proposal with the bankruptcy court that
would require holders of the County's short-term notes to wait one-year before
being repaid. The existence of this proposal and its adoption could disrupt the
market for short-term debt in California and possibly drive up the State's
borrowing costs. On June 27, 1995 the voters in Orange County rejected a
proposed one half cent increase in the sales tax, the revenues from which would
have been used to help the County emerge from bankruptcy. The failure of this
measure increases the likelihood that the County will default on some of their
obligations and, more broadly, could have a negative impact on the perceived
credit quality of municipal obligations throughout California. Although the
State of California has no obligation with respect to any obligations or
securities of the County or any of the other participating entities, under
existing legal precedents, the State may be obligated to ensure that school
districts have sufficient funds to operate. Longer term, this financial crisis
could have an adverse impact on the economic recovery that has only recently
taken hold in Southern California.
California voters have approved a series of amendments to the California State
constitution which have imposed certain limits on the taxing and spending powers
of the State and local governments. While the State legislature has, in the
past, enacted legislation designed to assist California issuers in meeting their
debt service obligations, other laws limiting the State's authority to provide
financial assistance to localities have also been enacted. Because of the
uncertain impact of such constitutional amendments and statutes, the possible
inconsistencies in their respective terms and the impossibility of predicting
the level of future appropriations and applicability of related statutes to such
questions, it is not currently possible to assess the impact of such legislation
and policies on the ability of California issuers to pay interest or repay
principal on their obligations.
As a result of the significant economic and fiscal problems described above, the
State's debt has been downgraded by all three rating agencies from Aa to A1 by
Moody's, from A+ to A by S&P, and from AA to A by Fitch.
CALIFORNIA TAXES. California law provides that dividends paid by the California
Fund and designated by the California Fund as tax-exempt are exempt from
California personal income tax on individuals who reside in California to the
extent such dividends are derived from interest payments on municipal
obligations exempt from regular federal income tax and California State personal
income taxes, provided that at least 50% of the assets of the California
Portfolio at the close of each quarter of its taxable year are invested in
obligations the interest on which is exempt under either federal or California
law from taxation by the State of California. Distributions of short-term
capital gains are treated as ordinary income, and distributions of long-term
capital gains are treated as long-term capital gains under the California
personal income tax.
FLORIDA. Florida's financial operations are considerably different than most
other states because, under the State's constitution, there is no state income
tax on individuals. The lack of an income tax on individuals exposes total State
tax collections to considerably more volatility than would otherwise be the case
and, in the event of an economic downswing, could effect the State's ability to
pay principal and interest in a timely manner. The General Fund budget for
1994-95 includes revenues of $14.6 billion and expenditures of $14.3 billion.
Due to lower than expected revenue collections, revenue estimates have been
reduced by 1.1% for 1994-95. Unencumbered reserves are projected to be $252.6
million, or 1.8% of expenditures for fiscal year 1995. The State's general
revenue fund budget for fiscal year 1995-96 is estimated to include revenues of
$15.0 billion (a 2.7% increase over fiscal year 1994- 95) and expenditures of
$14.8 billion (a 3.5% increase over fiscal year 1994- 95). Unemployment in the
State for November, 1995 was 5.3%, compared to the national unemployment rate of
5.6%.
In 1993, the Florida constitution was amended to limit the annual growth in the
assessed valuation of residential property, which, over time, could constrain
growth in property taxes, a major source of revenue for local governments. In
1994, the Florida constitution was amended to limit state revenue collections in
any fiscal year to, subject to exception, that which was allowed in the prior
fiscal year plus a growth factor, to be determined by reference to the average
annual growth rate in Florida personal income over the previous five years.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as stable.
FLORIDA TAXES. Based on an opinion of tax counsel, management believes that
shareholders of the Florida Fund that are subject to the Florida intangibles tax
will not be required to include the value of their Florida Fund shares in their
taxable intangible property if all of the Florida Portfolio's investments on the
annual assessment date are obligations that would be exempt from such tax if
held directly by such shareholders, such as Florida and U.S. Government
obligations ("Florida obligations"). A ruling confirming this tax treatment is
being requested from the Florida Department of Revenue. The Florida Portfolio
will normally attempt to invest substantially all of its assets in Florida
obligations, and it will ensure that all of its assets held on the annual
assessment date are exempt from the Florida intangibles tax. Accordingly, the
value of the Florida Fund shares held by a shareholder should under normal
circumstances be exempt from the Florida intangibles tax.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a significant
economic slowdown, and has experienced shifts in employment from labor-
intensive manufacturing industries to technology and service-based industries.
The unemployment rate was 5.3% as of October, 1995, while the national
unemployment rate was 5.5%.
Effective July 1, 1990, limitations were placed on the amount of direct bonds
the Commonwealth could have outstanding in a fiscal year, and the amount of the
total appropriation in any fiscal year that may be expended for debt service on
general obligation debt of the Commonwealth (other than certain debt incurred to
pay the fiscal 1990 deficit, certain Medicaid reimbursement payments for prior
years and refunding bonds) was limited, for each subsequent fiscal year, to 105%
of the previous fiscal year's limit. In addition, the power of Massachusetts
cities and towns and certain tax-supported districts and public agencies to
raise revenue from property taxes to support their operations, including the
payment of debt service, is limited. Property taxes are virtually the only
source of tax revenues available to cities and towns to meet local costs. This
limitation on cities and towns to generate revenues could create a demand for
increases in state-funded local aid. Fiscal 1995 expenditures for direct Local
Aid were $2.976 billion, which is an increase of approximately 9.1% above the
fiscal 1994 level. It is estimated that fiscal 1996 expenditures for direct
Local Aid will be $3.242 billion, which is an increase of approximately 8.9%
above the fiscal 1995 level.
General obligations of Massachusetts are rated A1, A+ and A+ by Moody's, S&P and
Fitch, respectively.
MASSACHUSETTS TAXES. The Massachusetts Portfolio has received a letter ruling
(the "Ruling") from the Department of Revenue of The Commonwealth of
Massachusetts to the effect that it will be classified as a partnership for
Massachusetts tax purposes. The Ruling provides that, consequently, interest
income received by the Massachusetts Portfolio on (1) debt obligations issued by
The Commonwealth of Massachusetts or its political subdivisions, including
agencies or instrumentalities thereof ("Massachusetts Obligations"), (2) the
Governments of Puerto Rico, Guam, or the United States Virgin Islands
("Possessions Obligations"), or (3) the United States ("United States
Obligations") will be treated as if realized directly by investors in the
Massachusetts Portfolio. The Ruling concludes that, provided that an investor in
the Massachusetts Portfolio qualifies as a regulated investment company ("RIC")
under the Code and satisfies certain notice requirements of Massachusetts law,
(1) dividends paid by such a RIC that are treated as tax-exempt interest under
the Code and that are directly attributable to interest on Massachusetts
Obligations (including the RIC's allocable share of interest earned by the
Massachusetts Portfolio on such obligations) and (2) dividends paid by such a
RIC that are directly attributable to interest on Possessions Obligations or
United States Obligations (including the RIC's allocable share of interest
earned by the Massachusetts Portfolio on such obligations) will, in each case,
be excluded from Massachusetts gross income. Because the Massachusetts Fund
intends to continue to invest in the Massachusetts Portfolio, qualify for
treatment as a RIC under the Code, and satisfy the applicable notice
requirements, the Massachusetts Fund's distributions to its shareholders of its
allocable share of the interest received by the Massachusetts Portfolio that is
attributable to Massachusetts Obligations, Possessions Obligations or United
States Obligations should consequently be excluded from Massachusetts gross
income for individuals, estates and trusts that are subject to Massachusetts
taxation. Distributions properly designated as capital gain dividends under the
Code and attributable to gains realized by the Massachusetts Portfolio and
allocated to the Massachusetts Fund on the sale of certain Massachusetts
tax-exempt obligations issued pursuant to statues that specifically exempt such
gains from Massachusetts taxation will also be exempt from Massachusetts
personal income tax. Other distributions from the Massachusetts Fund included in
a shareholder's Federal gross income, including distributions derived from net
long-term capital gains not described in the preceding sentence and net
short-term capital gains, are generally not exempt from Massachusetts personal
income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. These new tax rates are,
however, being challenged in litigation. It is not clear what Massachusetts tax
rate will be applicable to capital gain dividends for taxable years beginning
after 1995.
Distributions from the Massachusetts Fund will be included in net income, and in
the case of intangible property corporations, shares of the Massachusetts Fund,
will be included in net worth for purposes of determining the Massachusetts
excise tax on corporations subject to Massachusetts taxation.
MISSISSIPPI. The State's economic outlook can be characterized as moving from
rone of economic expansion to one of moderate growth. The manufacturing sector
suffered modest declines in 1995, as a result of weak national retail sales and
foreign competition. Employment in the paper industry has fallen 5% since the
last quarter of 1994. Residential contruction experienced modest growth in 1995.
Commercial construction remained healthy and is expected to continue to
experience steady growth through 1996. The casino industry experienced a
slowdown in early 1995, but appears to have returned to its more steady path of
growth late in 1995. Also, the governmental and wholesale/retail trade and
service sectors have had modest gains in employment in 1995. In recent years,
the State has successfully expanded its economy through technology-based
research and education, and the Mississippi banking system has exhibited
relative strength and stability over the past several years, a period
characterized by a growing number of bank failures nationwide. The construction
and casino industries have also experienced growth recently.
All State indebtedness must be authorized by legislation governing the specific
programs or projects to be financed. Such debt may include short- and long-term
indebtedness, self-supporting general obligation bonds, highway bonds and other
types of indebtedness. As of June 30, 1995, the State's total bond indebtedness
was $1.03 billion. For the fiscal year ended June 30, 1995, the constitutional
debt limit was approximately $5.5 billion. State revenues were $7.4 billion as
of June 30, 1995.
General obligations of Mississippi are rated AA-, and Aa by S&P and Moody's. S&P
has a positive outlook for the State.
MISSISSIPPI TAXES. Under existing Mississippi law, interest received by a
Mississippi resident individual upon the obligations of the State of Mississippi
or political subdivisions thereof ("Mississippi obligations") are exempt from
Mississippi income tax. A recently adopted Mississippi Income Tax Regulation
provides a pass-through of the tax-exempt character of interest received by a
regulated investment company, such as the Mississippi Fund, upon distribution to
its shareholders where the Mississippi Fund directly owns such Mississippi
tax-exempt obligations. Under the new regulation, a taxpayer's pro rata portion
of interest dividends distributed by a regulated investment company is exempt
from Mississippi income tax to the extent that such pro rata portion represents
interest received by a regulated investment company from governmental securities
which would be exempt for Mississippi income tax purposes if such governmental
securities were directly held by the taxpayer. In this situation, however, the
Mississippi Fund will not own the Mississippi tax-exempt obligations directly
but will invest in the Mississippi Portfolio, which will own the Mississippi
tax-exempt obligations. There is no law addressing the Mississippi income tax
consequences to Mississippi resident individuals receiving interest dividends
from a regulated investment company, such as the Mississippi Fund, that
contributes its assets to a trust, such as the Mississippi Portfolio, in
exchange for an interest therein where the trust owns Mississippi tax-exempt
obligations and distributes the income therefrom to the regulated investment
company. In 1993, the Mississippi State Tax Commission issued a ruling stating
that a Mississippi resident taxpayer's pro rata portion of interest dividends
distributed by the Mississippi Fund will be non-taxable to the extent that such
pro rata portion represents interest received by the Mississippi Fund, either
directly or through the Mississippi Portfolio, from Mississippi tax-exempt
obligations, which would be exempt for Mississippi income tax purposes if such
tax-exempt obligations were directly held by the taxpayer. In the opinion of
Butler, Snow, O'Mara, Stevens & Cannada, PLLC, special Mississippi tax counsel
to the Mississippi Fund, a Mississippi resident individual's pro rata portion of
interest dividends distributed by the Mississippi Fund will be exempt from
Mississippi income tax to the extent that such pro rata portion (i) is excluded
from gross income under the Code and (ii) represents interest the Mississippi
Fund receives, either directly or through the Mississippi Portfolio, from
investments in Mississippi tax-exempt obligations.
NEW YORK. New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a comparatively small share of the
nation's farming and mining activity. However, as the result of a recession
ending in the first quarter of 1993, 560,000 jobs were lost statewide (equal to
6.7% of the peak employment figure for 1989). Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer,
manufacturing, defense and banking industries. New York's economy expanded
modestly during 1995, growing at a rate slower than the nation as a whole, and
is expected to slow gradually during 1996. In the 1992-1993 fiscal year,
however, the State began the process of financial reform. The State Financial
Plans for the 1992-1993, 1993-1994 and 1994-1995 fiscal years produced positive
fund balances at the end of all three fiscal years. The State, however,
completed its 1994-1995 fiscal year with a General Fund operating deficit of
$1.426 billion primarily due to the use of $1.026 billion of the 1993-1994
fiscal year surplus in the 1994-1995 fiscal year.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies, authorities
and localities to meet their financial obligations and, in some cases, to
prevent or cure defaults. To the extent State agencies and local governments
require State assistance to meet their financial obligations, the ability of the
State to meet its own obligations as they become due or to obtain additional
financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in recent
years owing, in part, to lower than anticipated revenues. Because New York City
taxes comprise 40% of the State's tax base, the City's difficulties adversely
affect the State.
In June, 1995, the Governor approved the 1995-1996 budget, which included
adoption of a three-year 20% reduction in the State's personal income tax. In
combination with business tax reductions enacted in 1994, State taxes will be
reduced by $5.5 billion by the 1997-1998 fiscal year. The 1995-1996 State
Financial Plan, based on the enacted 1995-1996 budget, includes gap-closing
actions to offset a projected budget gap of $5 billion, the largest in the
State's history.
The Governor has submitted his 1996-1997 budget proposal earlier than required
by State Law, hoping the State legislature will approve it prior to the
beginning of the fiscal year. The Governor's proposed 1996-1997 budget
identifies a potential budget gap of approximately $3.9 billion and includes a
gap-closing program to eliminate such gap. There can be no assurances that the
Governor's budget proposals will be adopted, or the gap-closing program can be
implemented, as proposed.
New York's general obligations are rated A, A- and A+ by Moody's, S&P and Fitch,
respectively. S&P currently assesses the rating outlook for New York obligations
as "positive." New York City obligations are rated Baa1, BB+ and A- by Moody's,
S&P and Fitch, respectively. On July 10, 1995, S&P revised downward its rating
on City general obligation bonds from A- to BBB+ and removed City bonds from
CreditWatch. S&P stated that the downgrade was a reflection of the City's
inability to eliminate a structural budget imbalance due to persistent softness
in the City's economy, weak job growth, a trend of using nonrecurring budget
devices, optimistic projections of State and federal aid and high levels of debt
service.
NEW YORK TAXES. Based upon the advice of tax counsel, the management of the New
York Fund believes that under New York law dividends paid by the New York Fund
are exempt from New York State and New York City income tax for individuals who
reside in New York to the extent such dividends are excluded from gross income
for Federal income tax purposes and are derived from interest payments on
obligations exempt from regular Federal income tax, and New York State and City
income taxes. Other distributions from the New York Fund, including
distributions derived from net short-term and long-term capital gains, are
generally not exempt from New York State or City personal income tax.
Individuals subject to income taxation by states other than New York will
realize a lower after-tax return than individuals subject to tax by New York
State since the dividends distributed by the New York Fund generally will not be
exempt, to any significant degree, from income taxation by such other states.
Interest on indebtedness incurred or continued to purchase or carry New York
Fund shares is not deductible for New York personal income tax purposes to the
extent attributable to exempt-interest dividends. Persons who may be
"substantial users" (or "related persons" of substantial users) of facilities
financed by industrial development bonds or private activity bonds held by the
New York Fund should consult their tax advisors before purchasing New York Fund
shares.
OHIO. The State's economy is reliant in part on durable goods manufacturing,
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, economic activity in Ohio tends to be more
cyclical than in some other states and in the nation as a whole. The State's
1994-95 biennium ended June 30, 1995 with a General Revenue Fund balance of $928
million, of which $535.2 million has been transferred into the Budget
Stabilization Fund (a cash and budgetary management fund, which had a January 4,
1996 balance of over $828 million).
General obligations of Ohio are rated Aa and AA by S&P and Moody's, respectively
(except that highway obligations are rated Aaa by S&P). Fitch does not currently
rate the State's general obligations.
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund, Squire,
Sanders & Dempsey, under Ohio law, individuals who are otherwise subject to the
Ohio personal income tax will not be subject to such tax on dividends paid by
the Ohio Fund to the extent such dividends are properly attributable to interest
on obligations issued by or on behalf of the State of Ohio or its political
subdivisions or the agencies or instrumentalities thereof ("Ohio obligations").
Dividends paid by the Ohio Fund also will be excluded from the net income base
of the Ohio corporation franchise tax to the extent such dividends are excluded
from gross income for federal income tax purposes or are properly attributable
to interest on Ohio obligations. However, the Ohio Fund's shares will be
included in the tax base for purposes of computing the Ohio corporation
franchise tax on the net worth basis. These conclusions regarding Ohio taxation
are based on the assumption that the Ohio Fund will continue to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Ohio Fund will consist of Ohio
obligations or similar obligations of other states or their subdivisions
determined, to the extent the Ohio Fund invests in the Ohio Portfolio, by
treating the Ohio Fund as owning its proportionate share of the assets owned by
the Ohio Portfolio.
WEST VIRGINIA. The West Virginia economy is heavily dependent on the resource-
based industries, specifically coal, chemical and steel. Although the State's
economy has begun to rebound from the economic recession, the State unemployment
rate remains significantly above the national average. For August, 1995, the
State unemployment rate was 8.2% down from the August, 1994 level of 8.5%, but
well above the national average of 5.6%. The service and wood sectors and
tourism are expected to lead the improving State economy. The manufacturing
sector has contracted in past years, and mining employment is 16% below the
level which existed in 1990. Per capita income for the state is approximately
78% of the national average.
Despite attempts to make State government more efficient, the State continues to
experience revenue shortfalls. In addition, the State was faced with significant
unfunded liabilities in its Workers Compensation Fund, Teachers Retirement Fund
and certain other retirement systems in 1992. A Public Retirement Task Force was
established to examine the State's retirement systems and to make
recommendations to place the systems on a sound financial basis. The current
status of this situation was unavailable. In 1994, the State established a rainy
day reserve fund into which 50% of annual surplus general fund revenues will be
deposited until the reserve fund balance reaches 5% of general fund
appropriations. At June 30, 1995, the estimated balance in the Fund was $63.7
million or 2.8% of appropriations.
The West Virginia Supreme Court of Appeals recently declared a School Building
Authority to be unconstitutional. Although prior issuances were unaffected by
the ruling, the State cannot issue lease obligations going forward. There can be
no assurance as to the level of future debt borrowing and the possible
implications on the financial position of the State.
General obligations of West Virginia are currently rated A+, A1 and A+, by S&P,
Moody's and Fitch, respectively.
WEST VIRGINIA TAXES. In the opinion of Bowles, Rice, McDavid, Graff & Love,
special West Virginia tax counsel to the West Virginia Fund, under existing West
Virginia law, in 1991 the West Virginia Department of Tax and Revenue issued
Technical Assistance Advisory 91-002 which was declared to be of precedential
value. This Technical Assistance Advisory addresses liability for West Virginia
personal income tax on interest and dividend income received by investors in
regulated investment companies. Accordingly, under existing law, as long as the
West Virginia Fund qualifies as a separate "regulated investment company" under
the Code, that portion of exempt-interest dividends that represents interest
income received by the West Virginia Fund from obligations of the United States
and its possessions and interest or dividend income received by the West
Virginia Fund on obligations or securities of any authority commission or
instrumentality of the United States or of the State of West Virginia, which is
exempt from West Virginia State income tax by Federal or West Virginia law, is
exempt from West Virginia Personal Income Tax. This exemption does not apply to
any portion of interest income on obligations of any state other than West
Virginia, regardless of any exemption provided under Federal law. In the event
the West Virginia Fund fails to qualify as a separate "regulated investment
company", the foregoing exemption may be unavailable or substantially limited.
The Technical Assistance Advisory contains a more specific, although
nonexclusive, list of obligations and authorities which are exempt from
taxation. The Technical Assistance Advisory also confirms that interest on
indebtedness incurred (directly or indirectly) by a shareholder of the West
Virginia Fund to purchase or carry shares of the West Virginia Fund will not be
deductible for West Virginia income purposes.
PUERTO RICO. The economy of Puerto Rico is dominated by the manufacturing and
service sectors. Although the economy of Puerto Rico expanded significantly from
fiscal 1984 through fiscal 1990, the rate of this expansion slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Although
the Puerto Rico unemployment rate has declined substantially since 1985, the
seasonally adjusted unemployment rate for Nobember, 1995 was approximately
13.4%. The North American Free Trade Agreement (NAFTA), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico. The federal budget proposals currently being
considered by the U.S. Congress include the elimination of Section 936, a
federal tax credit program credited with encouraging development in Puerto Rico.
The fate of Section 936 cannot be determined at this time. There can be no
assurance that the elimination of the credit available under Section 936 will
not have a negative impact on Puerto Rico's economy and the credit quality (and
value) of Puerto Rican bonds.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P assigned
a stable outlook on Puerto Rico on April 26, 1994.
<PAGE>
[LOGO]
EATON VANCE
- -------------------
MUTUAL FUNDS
EV TRADITIONAL
MUNICIPAL
FUNDS
PROSPECTUS
FEBRUARY 1, 1996
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND
EV TRADITIONAL NEW YORK MUNICIPALS FUND
EV TRADITIONAL OHIO MUNICIPALS FUND
EV TRADITIONAL WEST 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-7TFC2/1P
<PAGE>
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO (THE "FUND") IS A NO-LOAD MUTUAL
FUND SEEKING TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX
AND MASSACHUSETTS STATE PERSONAL INCOME TAXES. THE FUND INVESTS ITS ASSETS IN
MASSACHUSETTS MUNICIPALS PORTFOLIO (THE "PORTFOLIO"), A NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN
BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH
HISTORICALLY STRUCTURED MUTUAL FUNDS. THE FUND IS A SERIES OF EATON VANCE
MUNICIPALS TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
Statement of Additional Information for the Fund dated February 1, 1996, as
supplemented from time to time, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's principal underwriter,
Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street,
Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's investment adviser
is Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Fund. The offices of the Investment
Adviser and the Administrator are located at 24 Federal Street, Boston, MA
02110.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
Shareholder and Fund Expenses............. 2 How to Buy Fund Shares.................... 13
The Fund's Financial Highlights........... 3 How to Redeem Fund Shares................. 14
The Fund's Investment Objective........... 4 Reports to Shareholders................... 16
How the Fund and the Portfolio The Lifetime Investing Account/
Invest their Assets...................... 4 Distribution Options................... 16
Organization of the Fund Eaton Vance Shareholder Services.......... 17
and the Portfolio........................ 9 Distributions and Taxes................... 18
Management of the Fund and the Portfolio.. 11 Performance Information................... 20
Valuing Fund Shares....................... 12
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1996
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
Investment Adviser Fee 0.46%
Other Expenses (after expense reduction) 0.17%
Total Operating Expenses (after reduction) 0.63%
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (a) 5% annual
return and (b) redemption at the end of each period: $6 $20 $35 $79
</TABLE>
Notes:
The table and Example summarize the aggregate expenses of the Fund and
the Portfolio and are designated to help investors understand the costs
and expenses they will bear, directly or indirectly, by investing in
the Fund. Information for the Fund is based on its expenses for the
most recent fiscal year. Absent an expense allocation to the
Administrator, Other Expenses would have been 0.42% and Total Operating
Expenses would have been 0.88% of the Fund's average daily net assets.
The Fund invests exclusively in the Portfolio. The Trustees believe the
aggregate per share expenses of the Fund and the 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 the Portfolio.
The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
Federal regulations require the Example to assume a 5% annual return,
but actual return may vary. For further information regarding the
expenses of both the Fund and the Portfolio see "The Fund's Financial
Highlights", "Organization of the Fund and the Portfolio" and
"Management of the Fund and the Portfolio".
The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in
the fee schedule on page 11.
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 Fund and the Portfolio".
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of the Fund is contained in the Fund's annual report
to shareholders which may be obtained without charge by contacting the Fund's
Principal Underwriter, Eaton Vance Distributors, Inc.
- --------------------------------------------------------------------------------
Year Ended September 30
------------------------------
1995 1994 1993*
------- ------- -------
NET ASSET VALUE, beginning of year $ 9.220 $10.260 $10.000
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.546 $ 0.548 $ 0.141
Net realized and unrealized gain
(loss) on investments 0.290 (1.026) 0.284
------- ------- -------
Total income (loss) from operations $ 0.836 $(0.478) $ 0.425
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.546) $(0.548) $(0.141)
In excess of net investment income(3) -- $(0.004) (0.024)
In excess of net realized gain on
investments(3) -- (0.010) --
------- ------- -------
Total distributions $(0.546) $(0.562) $(0.165)
------- ------- -------
NET ASSET VALUE, end of year $ 9.510 $ 9.220 $10.260
======= ======= =======
TOTAL RETURN(2) 9.37% (4.79%) 4.04%
RATIOS/SUPPLEMENTAL DATA(**)
Net assets, end of period (000 omitted) $ 7,186 $ 9,338 $ 5,063
Ratio of net expenses to average daily
net assets(1) 0.63% 0.60% 1.21%+
Ratio of net investment income to average
daily net assets 5.93% 5.65% 4.80%+
** For the years ended September 30, 1995 and 1994, the operating expenses of
the Fund reflect a reduction of expenses by the Administrator. Had such
action not been taken, net investment income per share and the ratios would
have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.523 $ 0.498
======= =======
RATIOS (As a percentage of average net assets):
Expenses(1) 0.88% 1.12%
Net investment income 5.68% 5.13%
* For the period from the start of business, June 17, 1993, to
September 30, 1993.
+ Annualized.
(1) Includes the Fund's share of Massachusetts Municipals 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 non-annualized basis.
(3) The Fund has followed the Statement of Position (SOP) 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. The SOP
requires that differences in the recognition or classification of income
between the financial statements and tax earnings and profits that result
in temporary over-distributions for financial statement purposes, are
classified as distributions in excess of net investment income or
accumulated net realized gains.
THE FUND'S INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX AND MASSACHUSETTS STATE PERSONAL INCOME TAXES. The Fund seeks
to meet its investment objective by investing its assets in the Massachusetts
Municipals Portfolio (the "Portfolio"), a separate registered investment company
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 Portfolio's
Investment Adviser.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
- --------------------------------------------------------------------------------
THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND MASSACHUSETTS STATE PERSONAL INCOME TAXES. The
foregoing policy is a fundamental policy of both the Fund and the Portfolio,
which may not be changed unless authorized by a vote of the shareholders of the
Fund or the investors in the Portfolio, as the case may be.
At least 70% of the Portfolio's net assets will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or by Fitch
Investors Service, Inc. ("Fitch")) or, if unrated, determined by the Investment
Adviser to be of at least investment grade quality. The balance of the
Portfolio's net assets may be invested in obligations rated below investment
grade (but not lower than B by Moody's, S&P or Fitch) and unrated obligations
considered to be of comparable quality by the Investment Adviser. 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". The Portfolio may retain an obligation whose rating drops below
B after its acquisition if such retention is considered desirable by the
Investment Adviser. See "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
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,
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, the Portfolio will invest at least 65% of its total assets in
obligations issued by the Commonwealth of Massachusetts or its political
subdivisions.
Interest income from certain municipal obligations may be subject to
the federal alternative minimum tax (the "AMT") for individual investors. As at
September 30, 1995, the Portfolio had 18.1% of its net assets in such
obligations. At September 30, 1995, the Portfolio limited its investment in
obligations subject to the AMT to not more than 20% of net assets. The Portfolio
is no longer subject to such limitation. Distributions to corporate investors of
certain interest income may also be subject to the AMT. The Fund may not be
suitable for investors subject to the AMT.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in municipal
obligations of the same type, including, without limitation, the following:
lease rental obligations of state and local authorities; obligations of state
and local housing finance authorities, municipal utilities systems or public
housing authorities; obligations 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 the
Portfolio more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuer. For example, health
care-related issuers are susceptible to medicaid reimbursement policies, and
national and State health care legislation. As the Portfolio's concentration
increases, so does the potential for fluctuation in the value of the Fund's
shares.
Because the Portfolio will normally invest at least 65% of its assets
in Massachusetts, it is susceptible to factors affecting Massachusetts. The
Portfolio may also invest up to 5% of its net assets in obligations issued by
the governments of Guam and the U.S. Virgin Islands and up to 35% of its assets
in obligations issued by the government of Puerto Rico. Set forth below is
certain economic and tax information concerning Massachusetts and Puerto Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there can
be no assurance that particular bond issues may not be adversely affected by
changes in economic, political or other conditions. Unless stated otherwise, the
ratings indicated are for obligations of Massachusetts. Massachusetts political
subdivisions may have different ratings which are unrelated to the ratings
assigned to municipal obligations.
In recent years, the Commonwealth has experienced a significant
economic slowdown, and has experienced shifts in employment from labor-intensive
manufacturing industries to technology and service- based industries. The
unemployment rate was 5.3% as of October, 1995, while the national unemployment
rate was 5.5%.
Effective July 1, 1990, limitations were placed on the amount of direct
bonds the Commonwealth could have outstanding in a fiscal year, and the amount
of the total appropriation in any fiscal year that may be expended for debt
service on general obligation debt of the Commonwealth (other than certain debt
incurred to pay the fiscal 1990 deficit, certain Medicaid reimbursement payments
for prior years and refunding bonds) was limited, for each subsequent fiscal
year, to 105% of the previous fiscal year's limit. In addition, the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of debt service, is limited. Property taxes are virtually
the only source of tax revenues available to cities and towns to meet local
costs. This limitation on cities and towns to generate revenues could create a
demand for increases in state-funded local aid. Fiscal 1995 expenditures for
direct Local Aid were $2.976 billion, which is an increase of approximately 9.1%
above the fiscal 1994 level. It is estimated that fiscal 1996 expenditures for
direct Local Aid will be $3.242 billion, which is an increase of approximately
8.9% above the fiscal 1995 level.
As of the date of this Prospectus, general obligations of the
Commonwealth of Massachusetts were rated A1, A+ and A+ by Moody's, S&P and
Fitch, respectively.
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 November, 1995 was approximately
13.4%. The North American Free Trade Agreement (NAFTA), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico. The federal budget proposals currently being
considered by the U.S. Congress include the elimination of Section 936, a
federal tax credit program credited with encouraging economic development in
Puerto Rico. The fate of Section 936 cannot be determined at this time. There
can be no assurance that the elimination of the credit available under Section
936 will not have a negative impact on Puerto Rico's economy and the credit
quality (and value) of Puerto Rican bonds.
S&P rates Puerto Rico general obligations debt A, while Moody's rates
it Baa1; these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a stable outlook on Puerto Rico on April 26, 1994.
NON-DIVERSIFIED STATUS. As a "non-diversified" investment company, the Portfolio
may invest, with respect to 50% of its assets, more than 5% (but not more than
25%) of its assets in the securities of any issuer. The Portfolio is likely to
invest a greater percentage of its assets in the securities of a single issuer
than would a diversified fund. Therefore, the Portfolio would be more
susceptible to any single adverse economic or political occurrence or
development affecting Massachusetts issuers.
OTHER INVESTMENT PRACTICES
The 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, the
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. The Portfolio may purchase securities on a "when-issued"
basis, which means that payments 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 deliver the securities may be worth more or
less than the Portfolio agreed to pay for them. The Portfolio may also purchase
instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. The 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 the Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
These securities tend to under perform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may
alter this tendency, however. Although volatile, inverse floaters typically
offer the potential for yields exceeding the yields available on fixed rate
bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising interest rates if exercised at an opportune time. Inverse
floaters are leveraged because they provide two or more dollars of bond market
exposure for every dollar invested.
FUTURES TRANSACTIONS. The Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. Futures contracts may be based on various debt securities (such
as U.S. Government securities and municipal obligations) and securities indices
(such as the Municipal Bond Index traded on the Chicago Board of Trade). Such
transactions involve a risk of loss or depreciation due to unanticipated adverse
changes in securities prices, which may exceed the Portfolio's initial
investment in these contracts. The 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 the Portfolio. Distributions by the Fund of any gains
realized on its corresponding Portfolio's transactions in futures and options on
futures will be taxable.
INSURED OBLIGATIONS. The Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of the Fund's shares.
ADDITIONAL RISKS CONSIDERATIONS
Many municipal obligations offering current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. The
Portfolio may invest up to 30% of its net assets in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which the Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations may
have some quality and protective characteristics, these characteristics can be
expected to be offset or outweighed by uncertainties or major risk exposures to
adverse conditions. Lower rated and comparable unrated municipal obligations are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to 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.
The Portfolio may retain defaulted obligations in its portfolio when
such retention is considered desirable by the Investment Adviser. In the case of
a defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by the Portfolio which
are rated below investment grade but which, subsequent to the assignment of such
rating, are backed by escrow accounts containing U.S. Government obligations may
be determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. The Portfolio's holdings of
obligations rated below investment grade generally will be less than 35% of its
net assets. In the event the rating of an obligation held by the Portfolio is
downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the foregoing
limitation.
The net asset value of shares of the Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by the Portfolio. When interest rates decline, the value of
securities held by the Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of the issuers of municipal
obligations held by the 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 interest may also affect the value
of the Portfolio's investments. The amount of information about he 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 share of the 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 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 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
Massachusetts (including issues which are privately placed with the Portfolio)
is less liquid than that for taxable debt obligations or other more widely
traded municipal obligations. The Portfolio will not 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 the Portfolio may invest. The market for
obligations rated below investment grade is also likely to be less liquid than
the market for higher rated obligations. 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 e able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
Some of the securities in which the 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 form face
value and pay interest only at maturity rather than at intervals during the life
of the security. The 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, the Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
The 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.
THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER VOTE
AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED RESTRICTIONS AND
AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT OBJECTIVE AND POLICIES
OF THE FUND AND THE PORTFOLIO ARE NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY
BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE
APPROVAL OF THE FUND'S SHAREHOLDERS OR THE INVESTORS IN THE PORTFOLIO, AS THE
CASE MAY BE. IF ANY CHANGES WERE MADE IN THE FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVES WHICH AN
INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN
THE FUND.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE 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 Fund
has one class of shares of beneficial interest, an unlimited number of which may
be issued. Each share represents an equal proportionate beneficial interest in
the Fund. When issued and outstanding, the shares are fully paid and
nonassessable by the Fund and redeemable as described under "How to Redeem Fund
Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares have no preemptive or
conversion rights and are freely transferable. In the event of the liquidation
of the Fund, shareholders are entitled to share pro rate in the net assets of
the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF
NEW YORK AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES.
The Portfolio, as well as the Trust, intends to comply with all applicable
federal and state securities laws. The Portfolio's Declaration of Trust provides
that the Fund and other entities permitted to invest in the Portfolio (e.g.,
other U.S. and foreign investment companies, and common and commingled trust
funds) will each be liable for all obligations of the Portfolio. However, the
risk of the Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio,
which is a separate investment company with an identical investment objective
(although the Fund may hold a de minimis amount of cash). Therefore, the Fund's
interest in the securities owned by the Portfolio is indirect. In addition to
selling an interest to the Fund, the Portfolio may sell interests to other
affiliated and non-affiliated mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions of the Portfolio, see "The
Fund's Investment Objective" and "How the Fund and the Portfolio Invest their
Assets". Further information regarding investment practices may be found in the
Statement of Additional Information.
The Trustees of the Trust have considered the advantages and
disadvantages of investing the assets of the Fund in the Portfolio, as will as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets of
the Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million.
The Fund may withdraw (completely redeem) all its assets from the
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio, as the case may
be. Any such change of the investment objective will be preceded by thirty days'
advance written notice to the shareholders of the Fund or the investors in the
Portfolio, as the case may be. In the event the Fund withdraws all of its assets
from the Portfolio, or the Board of Trustees of the Trust determines that the
investment objective of the Portfolio is no longer consistent with the
investment objective of the Fund, such Trustees would consider what action might
be taken, including investing the assets of the Fund in another pooled
investment entity or retaining an investment adviser to manage the Fund's assets
in accordance with its investment objective. The Fund's investment performance
may be affected by a withdrawal of all its assets from the Portfolio.
Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc. (the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110
(617) 482-8260. Smaller investors in the Portfolio may be adversely affected by
the actions of a larger investor in the Portfolio. For example, if a large
investor withdraws from the Portfolio, the remaining investors may experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may hold fewer securities, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured 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 Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio
will terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may be
determined by the Trustees of the Portfolio without investor approval), the Fund
will hold a meeting of Fund shareholders and will vote its interest in the
Portfolio for or against such matters proportionately to the instructions to
vote for or against such matters received from Fund shareholders. The Fund shall
vote shares for which it receives no voting instructions in the same proportion
as the shares for which it receives voting instructions. Other investors in the
Portfolio may alone or collectively acquire sufficient voting interests in the
Portfolio to control matters relating to the operation of the Portfolio, which
may require the Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of the Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between the Fund
and the Portfolio, and it is possible that the creation of separate Boards may
be considered. For further information concerning the Trustees and officers of
the Trust and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs and furnishes for
the use of the Portfolio office space and all necessary office facilities,
equipment and personnel for servicing the investments of the Portfolio. Under
its investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of:
(a) a daily asset based fee computed by applying the annual asset
rate applicable to that portion of the total daily net assets
in each Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income
rate applicable to that portion of the total daily gross
income (which portion shall bear the same relationship to the
total daily gross income on such day as that portion of the
total daily net assets in the same Category bears to the total
daily net assets on such day) in each Category as indicated
below:
ANNUAL DAILY
ASSET INCOME
CATEGORY DAILY NET ASSETS RATE 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%
As at September 30, 1995, the Portfolio had net assets of $302,170,247.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees equivalent to 0.46% of the Portfolio's average daily net assets.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES
AND VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
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, oil and gas operations, real estate investment, consulting and
management, and development of precious metals properties.
Robert B. MacIntosh has acted as the portfolio manager of the Portfolio
since it commenced operations. Mr. MacIntosh has been a Vice President of Eaton
Vance since 1991 and of BMR since its inception. Prior to joining Eaton Vance,
he was a portfolio manager at Fidelity Management & Research Company
(1986-1991).
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolio and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of firms to execute
portfolio transactions.
The Trust has retained the services of Eaton Vance to act as its
Administrator. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing its assets in the Portfolio. As Administrator, Eaton Vance provides
the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
The Portfolio and the Fund, 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.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Orders must be received by the Principal Underwriter prior to the close
of the Principal Underwriter's business day to receive that day's net asset
value per Fund share.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio), based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of the 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
Portfolio's assets, see "Determination of Net Asset Value" in the Statement of
Additional Information.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
The Trustees of the Trust have determined that shares of the Fund shall only be
available to employees of Eaton Vance Corp. (and its affiliates, including
subsidiaries), clients of Eaton Vance Corp. (and its affiliates, including
subsidiaries) and certain institutional investors.
Investors may purchase shares of the Fund without a sales charge at the
net asset value per share of the Fund next determined after an order is
effective as described under "Other Purchase Procedures" below. An initial
investment in the Fund must be at least $1,000. Once an account has been
established the investor may send investment of $50 or more at any time. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services". The Fund may suspend the offering of shares at any
time and may refuse an order for the purchase of shares.
PURCHASES BY WIRE: Investors may purchase shares by requesting their bank to
transmit immediately available funds (Federal funds) by wire to: ABA #011001438,
Federal Reserve Bank of Boston, A/C Investors Bank & Trust Company, Further
Credit Massachusetts Municipal Bond Portfolio, A/C #[Insert your account number
- - see below].
Upon making an initial investment by wire, you must first telephone the
Order Department of the Fund (800-225-6265, extension 3) to advise of your
action and to be assigned an account number. If you neglect to make the
telephone call, it may not be possible to process your order promptly. In
addition, the Account Application form which accompanies this Prospectus should
be promptly forwarded to First Data Investor Services Group, BOS725, P.O. Box
1559, Boston, MA 02104.
Additional investments may be made at any time through the wire
procedure described above. The Fund Order Department must be immediately advised
by telephone (800-225-6265, extension 3) of each transmission of funds by wire.
Purchases received by wire by 4:00 P.M. on any business day are
invested at the net asset value determined at 4:00 P.M. the same day.
PURCHASES BY MAIL: For an initial purchase by mail, the Account Application form
which accompanies this Prospectus should be completed, signed and mailed with a
check, Federal Reserve Draft, or other negotiable bank draft, drawn on a U.S.
bank and payable in U.S. dollars, to the order of Massachusetts Municipal Bond
Portfolio to: First Data Investor Services Group, BOS725, P.O. Box 1559, Boston,
MA 02104.
Additional purchases may be made at any time by mailing a check,
Federal Reserve Draft, or other negotiable bank draft, drawn on a U.S. bank and
payable in U.S. dollars, to the order of Massachusetts Municipal Bond Portfolio
at the above address. The account to which the subsequent purchase is to be
credited should be identified as to the name(s) of the registered owner(s) and
by account number.
PURCHASES IN EXCHANGE FOR SECURITIES: IBT, as escrow agent, will receive
securities acceptable to Eaton Vance, as Administrator, in exchange for Fund
shares at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold 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 current market price for
such securities but does not guarantee the best available price. Eaton Vance
will absorb any transaction costs, such as commissions, on the sale of the
securities.
Securities determined to be acceptable should be transferred via book
entry or physically delivered, in proper form for transfer, together with a
completed and signed Letter of Transmittal in approved form, as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C Massachusetts Municipal Bond Portfolio
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: Massachusetts Municipal Bond Portfolio
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of
the Fund, or their representatives, are advised to contact Eaton Vance to
determine whether the securities are acceptable before forwarding such
securities to IBT. Eaton Vance reserves the right to reject any securities.
Exchanging securities for Fund shares may create a taxable gain or loss. Each
investor should consult his or her tax adviser with respect to the particular
federal, state and local tax consequences of exchanging securities for Fund
shares.
OTHER PURCHASE PROCEDURES: The Fund intends at all times to be as fully invested
as is feasible in order to maximize its earnings. Accordingly, purchase orders
will be executed at the net asset value next determined after their receipt by
the Fund only if the Fund has received payment in cash or in federal funds. If
remitted in other than the foregoing manner, such as by money order or personal
check, purchase orders will be executed as of the close of business on the
second Boston business day after receipt. Information on how to procure a
Federal Reserve Draft or to transmit federal funds by wire is available at your
bank. The bank may charge for these services.
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO 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 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 Services Group, the Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the amount
of any federal income tax required to be withheld. Although the Fund normally
expects to make payment in cash for redeemed shares, the Trust, subject to
compliance with applicable regulations, has reserved the right to pay the
redemption price of shares of the Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn by the Fund from
the Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
REDEMPTIONS BY WIRE: Shareholders who have given authorization in advance may
request that redemption proceeds of $1,000 or more be wired directly to their
bank account. This request may generally be made by letter or telephone to the
Fund Order Department at 800-225-6265, extension 3. However, shareholders
holding certificates for shares in the Fund must return such certificates in
properly endorsed form requesting redemption prior to being eligible to have
redemption proceeds wired directly to their bank account. To use this service a
shareholder must designate his bank and bank account number on the Account
Application form used to open an account. The bank designated may be any bank in
the United States.
Redemption requests received will be processed at 4:00 P.M. and the
redemption proceeds will be wired on the next business day. The shareholder may
be required to pay any costs of such transaction; however, no such costs are
currently charged. The Fund will limit this method of paying redemptions to
shares purchased with cash, Federal Reserve Draft, by wire with federal funds,
or by other means when payment for shares purchased has been assured. The Fund
reserves the right at any time to suspend or terminate the expedited payment
procedure; however, the Fund would provide reasonable advance notice (in no
event less than 30 days) of its intention to suspend or terminate this
procedure. The Fund will process redemption instructions received by telephone
if the shareholder has authorized telephone redemptions when completing the
Account Application form. However, the Fund will not process redemption requests
by telephone if share certificates have been issued to such shareholders. The
responsibility for the authenticity of redemption instructions received by
telephone is discussed under "Eaton Vance Shareholder Services - Exchange
Privilege".
REDEMPTIONS BY CHECK: To sell shares by writing a check, shareholders holding
shares for which certificates have not been issued may appoint Boston Safe
Deposit and Trust Company ("Boston Safe") their agent and may request on the
Account Application form that Boston Safe provide them with special forms of
checks drawn on Boston Safe. These checks may be made payable by the shareholder
to the order of any person in any amount of $500 or more. When a check is
presented to Boston Safe for payment, the number of full and fractional shares
required to cover the amount of the check will be redeemed from the
shareholder's account by Boston Safe as the shareholder's agent. Through this
procedure the shareholder will continue to be entitled to distributions paid on
shares up to the time the check is presented to Boston Safe for payment. If the
amount of the check is greater than the value of the shares held in the
shareholder's account for which the Fund has collected payment, the check will
be returned and the shareholder may be subject to extra charges.
The shareholder will be required to execute signature cards and will be
subject to Boston Safe's rules and regulations governing such checking accounts.
There is no charge to shareholders for this service. This service may be
terminated or suspended at any time by the Fund or Boston Safe.
If shares were recently purchased, the proceeds of redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves
the right to redeem Fund accounts with balances of less than $1,000. Prior to
such a redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL REPORTS CONTAINING FINANCIAL
STATEMENTS. Financial statements included in annual reports are audited by the
Fund's independent certified public accountants. Shortly after the end of each
calendar year, the Fund will furnish all shareholders with information necessary
for preparing federal and State tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, FIRST DATA SERVICES GROUP, WILL SET UP A LIFETIME INVESTING ACCOUNT FOR
THE INVESTOR ON THE FUND'S RECORDS. This account is a complete record of all
transactions between the investor and the Fund which at all times shows the
balance of shares owned. The Fund will not issue share certificates except upon
request.
At least quarterly, shareholders will receive a statement showing
complete details of any transaction and the current share balance in the
account. THE LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE
ADDITIONAL INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to First Data Services
Group.
Any questions concerning a shareholder's account or services available
may also be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at
800-225-6265, extension 2, or in writing to First Data 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 Fund's dividend disbursing agent, First Data 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 at the then current net asset value. Furthermore,
the distribution option on the account will be automatically changed to the
Share Option until such time as the shareholder selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options
set forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a shareholder
should obtain a prospectus of the other Eaton Vance fund and consider its
objectives and policies carefully.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from the Principal Underwriter. The cost of
administering such services for the benefit of shareholders who participate in
them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL - FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
may be mailed directly to First Data Services Group, BOS725, P.O. Box 1559,
Boston, MA 02104 at any time - whether or not dividends are reinvested. The name
of the shareholder, the Fund and the account number should accompany each
investment.
BANK AUTOMATED INVESTING - FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A minimum
deposit of $5,000 in shares is required.
EXCHANGE PRIVILEGE: You may currently exchange your Fund shares for shares of
any of the following funds at their respective net asset value per share: Eaton
Vance Cash Management Fund, Eaton Vance Income Fund of Boston, Eaton Vance
Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves 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, the sales charge payable on the
shares being acquired). These offers are available only in States where shares
of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at
least $1,000. The exchange privilege may be changed or discontinued without
penalty. Shareholders will be given sixty (60) days notice prior to any
termination or material amendment of the exchange privilege. The Fund does not
permit the exchange to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
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 Services Group for
additional information concerning the exchange privilege. Applications and
prospectuses of the other funds are available from your financial service firm
or the Principal Underwriter. The prospectus for each fund describes its
investment objectives and policies, and shareholders should obtain a prospectus
and consider these objectives and policies carefully before requesting an
exchange.
Shares of certain other open-end funds for which Eaton Vance acts as
investment adviser or administrator may be exchanged for Fund shares at their
respective net asset value per share, but subject to any restrictions or
qualifications set forth in the current prospectus of any such fund.
Telephone exchanges are accepted by 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 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 Fund, the Principal Underwriter nor First Data 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.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid on the fifteenth day of each month or the next business
day thereafter. The Fund anticipates that for tax purposes the entire
distribution, whether taken in cash or reinvested in additional shares of the
Fund, will constitute tax-exempt income to shareholders for federal income tax
purposes, except for the proportionate part of the distribution that may be
considered taxable income if the Fund has taxable income during the calendar
year. Shareholders reinvesting the monthly distribution should treat the amount
of the entire distribution as the tax cost basis of the additional shares
acquired by reason of such reinvestment. Daily distribution crediting will
commence on the day that collected funds for the purchase of Fund shares are
available at the transfer agent. Shareholders of the Fund will receive timely
federal income tax information as to the tax-exempt or taxable status of all
distributions made by the Fund during the calendar year. The Fund's net realized
capital gains, if any, consist of the net realized capital gains allocated to
the Fund by the Portfolio for tax purposes, after taking into account any
available capital loss carryovers; the Fund's net realized capital gains, if
any, will be distributed at least once a year, usually in December.
In order to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), the Fund must satisfy
certain requirements relating to the sources of its income, the distribution of
its income, and the diversification of its assets. In satisfying these
requirements, the Fund will treat itself as owning its proportionate share of
each of the Portfolio's assets and as entitled to the income of the Portfolio
properly attribute to such share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO SHAREHOLDERS
ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN ACCORDANCE WITH THE
TIMING REQUIREMENTS IMPOSED BY THE CODE. AS A PARTNERSHIP UNDER THE CODE, THE
PORTFOLIO ALSO DOES NOT PAY FEDERAL INCOME OR EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a
tax preference item under the alternative minimum tax provisions applicable to
individuals and corporations. Distributions of taxable income (including a
portion of any original issue discount with respect to certain stripped
municipal obligations and stripped coupons and accretion of certain market
discount) and net short-term capital gains will be taxable to shareholders as
ordinary income. Distributions of long-term capital gains are taxable to
shareholders as such for federal income tax purposes, regardless of the length
of time Fund shares have been owned by the shareholder. Distributions are taxed
in the manner described above whether paid in cash or reinvested in additional
shares of the Fund. Tax-exempt distributions received from the Fund are
includable in the tax base for determining the taxability of social security and
railroad retirement benefits.
Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of the Fund is not deductible to the extent it is
deemed related to the Fund's distribution of tax-exempt interest. Further,
entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development or private
activity bonds should consult their tax advisers before purchasing shares of the
Fund. "Substantial user" is defined in applicable Treasury regulations to
include a "non-exempt person" who regularly uses in trade or business a part of
a facility financed from the proceeds of industrial development bonds and would
likely be interpreted to include private activity bonds issued to finance
similar facilities.
MASSACHUSETTS TAXES. The Portfolio has received a letter ruling (the "Ruling")
from the Department of Revenue of The Commonwealth of Massachusetts to the
effect that it will be classified as a partnership for Massachusetts tax
purposes. The Ruling provides that, consequently, interest income received by
the Portfolio on (1) debt obligations issued by The Commonwealth of
Massachusetts or its political subdivisions, including agencies or
instrumentalities thereof ("Massachusetts Obligations"), (2) the Governments of
Puerto Rico, Guam, or the United States Virgin Islands ("Possessions
Obligations"), or (3) the United States ("United States Obligations") will be
treated as if realized directly by investors in the Portfolio. The Ruling
concludes that, provided that an investor in the Portfolio qualifies as a
regulated investment company ("RIC") under the Code and satisfies certain notice
requirements of Massachusetts law, (1) dividends paid by such a RIC that are
treated as tax-exempt interest under the Code and that are directly attributable
to interest on Massachusetts Obligations (including the RIC's allocable share of
interest earned by the Portfolio on such obligations) and (2) dividends paid by
such a RIC that are directly attributable to interest on Possessions Obligations
or United States Obligations (including the RIC's allocable share of interest
earned by the Portfolio on such obligations) will, in each case, be excluded
from Massachusetts gross income. Because the Fund intends to continue to invest
in the Portfolio, qualify for treatment as a RIC under the Code, and satisfy the
applicable notice requirements, the Fund's distributions to its shareholders of
its allocable share of the interest received by the Portfolio that is
attributable to Massachusetts Obligations, Possessions Obligations or United
States Obligations should consequently be excluded from Massachusetts gross
income for individuals, estates and trusts that are subject to Massachusetts
taxation. The Fund has also been advised by its legal counsel that distributions
properly designated as capital gain dividends under the Code and attributable to
gains realized by the Portfolio and allocated to the Fund on the sale of certain
Massachusetts tax-exempt obligations issued pursuant to statutes that
specifically exempt such gains from Massachusetts taxation will also be exempt
from Massachusetts personal income tax. Other distributions from the Fund
included in a shareholder's federal gross income, including distributions
derived from net long-term capital gains not described in the preceding sentence
and net short-term capital gains, are generally not exempt from Massachusetts
personal income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. These new tax rates are,
however, being challenged in litigation. It is not clear what Massachusetts tax
rate will be applicable to capital gain dividends for taxable years beginning
after 1995.
Distributions from the Fund will be included in net income, and in the
case of intangible property corporations, shares of the Fund will be included in
net worth for purposes of determining the Massachusetts excise tax on
corporations subject to Massachusetts taxation.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
PERFORMANCE INFORMATION
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The current yield for the Fund will be calculated by dividing the net
investment income per share 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 one minus the tax
rate. The Fund's average annual total return is determined by computing the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (net asset value) for specified periods ending with the
most recent calendar quarter, assuming reinvestment of all distributions. The
total return calculation assumes a complete redemption of the investment. The
Fund may also publish annual and cumulative total return figures from time to
time.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's current yield or total
return for any prior period should not be considered a representation of what an
investment may earn or what an investor's yield or total return may be in any
future period. If the expenses of the Fund are paid by Eaton Vance, the Fund's
performance will be higher.
<PAGE>
INVESTMENT ADVISER OF MASSACHUSETTS MUNICIPAL
MASSACHUSETTS MUNICIPALS PORTFOLIO BOND PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF MASSACHUSETTS
MUNICIPAL BOND PORTFOLIO
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN PROSPECTUS
Investors Bank & Trust Company
89 South Street FEBRUARY 1, 1996
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
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
24 FEDERAL STREET
BOSTON, MA 02110
MMBP
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1996
EV CLASSIC MUNICIPAL FUNDS
EV CLASSIC CALIFORNIA MUNICIPALS FUND
EV CLASSIC FLORIDA MUNICIPALS FUND
EV CLASSIC NEW YORK MUNICIPALS FUND
EV CLASSIC RHODE ISLAND MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Fund's Part II (a "Part II") provides information
solely about a Fund and its corresponding Portfolio. Where appropriate Part I
includes cross-references to the relevant sections of Part II.
TABLE OF CONTENTS
PART I Page
Additional Information about Investment Policies ...... 1
Investment Restrictions ............................... 8
Trustees and Officers ................................. 9
Investment Adviser and Administrator .................. 10
Custodian ............................................. 13
Service for Withdrawal ................................ 13
Determination of Net Asset Value ...................... 14
Investment Performance ................................ 14
Taxes ................................................. 16
Principal Underwriter ................................. 17
Distribution Plan ..................................... 18
Portfolio Security Transactions ....................... 20
Other Information ..................................... 21
Independent Certified Public Accountants .............. 22
Financial Statements .................................. 22
Appendix .............................................. 23
PART II
EV Classic California Municipals Fund ................. a-1
EV Classic Florida Municipals Fund .................... b-1
EV Classic New York Municipals Fund ................... c-1
EV Classic Rhode Island Municipals Fund ............... d-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 FEBRUARY 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 not have original issue discount or (ii)
in the case of an obligation that does have original issue discount, the sum of
the issue price and any original issue discount that accrued before the
obligation was purchased, subject to a de minimis exclusion.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds, although nominally
issued by municipal authorities, are in most cases revenue bonds and are
generally not secured by the taxing power of the municipality, but are usually
secured by the revenues derived by the authority from payments of the industrial
user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of the Investment Adviser) to evaluate or protect
any real estate, facilities or other assets securing any such obligation or
acquired by the Portfolio as a result of any such event, and the Portfolio may
also manage (or engage other persons to manage) or otherwise deal with any real
estate, facilities or other assets so acquired. The Portfolio anticipates that
real estate consulting and management services may be required with respect to
properties securing various municipal obligations in its portfolio or
subsequently acquired by the Portfolio. The Portfolio will incur additional
expenditures in taking protective action with respect to portfolio obligations
in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of the municipal obligations which they undertake to rate. It should be
emphasized, however, that ratings are based on judgment and are not absolute
standards of quality. Consequently, municipal obligations with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield. In
addition, the market price of such obligations will normally fluctuate with
changes in interest rates, and therefore the net asset value of the Portfolio
will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations of a Particular State. For a discussion of the risks
associated with the Portfolio's policy of concentrating its investments in
particular State issuers of municipal obligations, see "Risks of Concentration"
in the Fund's Part II.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of the same type. In particular, investments in industrial revenue
bonds might involve (without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state 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
(the "Territories"). Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within the
Territories affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
The North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico. The November, 1995 unemployment rate was 13.4%.
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. A 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 changes in the tax treatment of Puerto Rico 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 to retain their Commonwealth status, become a state or
establish an independent nation. Puerto Ricans voted to retain Commonwealth
status, leaving intact the current relationship with the federal government.
There can be no assurance that the statehood issue will not be brought to a vote
in the future. A successful statehood vote in Puerto Rico would then require
ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas and St. John were hit by a hurricane and sustained extensive
damage. The longer term impact on the tourism industry is not yet known. There
can be no assurances that the market for USVI bonds will not be affected. In
general, hurricanes and civil unrest have and will continue to have an adverse
affect on the tourism industry.
An important component of the USVI revenue base is the federal excise tax on
rum exports. Tax revenues rebated by the federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI experienced a budget deficit in fiscal
years 1989 and in 1990: in 1989 due to wage settlements with the unionized
government employees and in 1990 as a result of Hurricane Hugo. The USVI
recorded a small surplus in fiscal year 1991. At the end of fiscal 1992, the
last year for which results are available, the USVI had an unreserved General
Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam is
expected to benefit from the closure of the Subic Bay Naval Base and the Clark
Air Force Base in the Philippines. The Naval Air Station, one of several U.S.
military facilities on the island, has been slated for closure by the Defense
Base Closure and Realignment Committee; however, the administration plans to use
these facilities to expand the island's commercial airport. Guam is also heavily
reliant on tourists, particularly the Japanese. For 1994, the financial position
of Guam was weakened as it incurred an unaudited General Fund operating deficit.
The administration has taken steps to improve its financial position; however,
there are no guarantees that an improvement will be realized. Guam's general
obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to these
arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Such arrangements are, therefore, subject to the risk that
the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this SAI with respect to any defaulted obligations held by the
Portfolio.
SHORT-TERM TRADING
The Portfolio may sell 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 and (ii) futures
contracts on securities indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or foreign
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
their 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 (39), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments --
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice President of
the Trust on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (33), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary on March
27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodubury was elected Assistant
Secretary on June 19, 1995.
For any additional officers of the Portfolio, see "Additional Officer
Information" in the Fund's Part II.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters relative
to accounting and auditing practices and procedures, accounting records,
internal accounting controls, and the functions performed by the custodian and
transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the Portfolio in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio to pay
any particular level of compensation to the Trustee. Neither the Portfolio nor
the Fund has a retirement plan for its Trustees.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of 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 31 long-term state portfolios, 3
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 Management and the
portfolio manager of single-state, tax-exempt funds in five states: Hawaii,
Louisiana, Massachusetts, New Jersey and North Carolina. He also serves as
economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part
II.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely so
long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of the
Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others 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 January
31, 1996, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders are
officers of the Trust and/or the Portfolio and are also members of the BMR,
Eaton Vance and EV organizations. BMR will receive the fees paid under the
Investment Advisory Agreement.
EVC owns all of the stock of Energex Energy Corporation, which engages in
oil and gas 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"), 89 South Street, Boston,
Massachusetts acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund, and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT charges
fees which are competitive within the industry. A portion of the fee relates to
custody, bookkeeping and valuation services and is based upon a percentage of
Fund and Portfolio net assets and a portion of the fee relates to activity
charges, primarily the number of portfolio transactions. These fees are then
reduced by a credit for cash balances of the particular investment company at
the custodian equal to 75% of the 91-day, U.S. Treasury Bill auction rate
applied to the particular investment company's average daily collected balances
for the week. Landon T. Clay, a Director of EVC and an officer, Trustee or
Director of other members of the Eaton Vance organization, owns approximately
13% of the 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 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
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 that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period and a complete
redemption of the investment and, if applicable, the deduction of the contingent
deferred sales charge at the end of the period. For further information
concerning the total return of the Fund, see "Performance Information" in the
Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing the net
investment income per share earned during a recent thirty-day period by the
maximum offering price (net asset value) per share on the last day of the period
and annualizing the resulting figure. Net investment income per share is
calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for the
period with the resulting number being divided by the average daily number of
Fund shares outstanding and entitled to receive dividends during the period.
This yield figure does not reflect the deduction of the contingent deferred
sales charge imposed on certain redemptions of shares within one year of their
purchase. See "How to Redeem Fund Shares" in the Prospectus. A
taxable-equivalent yield is computed by dividing the tax-exempt yield by 1 minus
a stated rate. For the yield and taxable-equivalent yield of the Fund, see
"Performance Information" in the Fund's Part II.
The Principal Underwriter may publish to Authorized Firms the Fund's
distribution rate and/or the effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current net asset value per share. The Fund's
effective distribution rate is computed by dividing the distribution rate by the
ratio (the days in a year divided by the accrual days of the monthly period)
used to annualize the most recent monthly distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investor's should note that the
Fund's yield is calculated using a standardized formula, the income component of
which is computed from the yields to maturity of all debt obligations held by
the Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month. See "Distributions and Taxes" in the Fund's
current Prospectus. For the Fund's distribution rate and effective distribution
rate, see "Performance Information" in the Fund's Part II.
The Fund's total return may be compared to relevant indicies, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
other investment companies.
The Fund may provide investors with information on municipal bond investing,
which may include comparative performance information, evaluations of Fund
performance, charts and/or illustrations prepared by independent sources (such
as Lipper Analytical Services Inc., CDA/Wiesenberger or Morningstar, Inc.). The
Fund may also refer in investor publications to Tax Freedom Day, as computed by
the Tax Foundation, Washington, DC 20005, to help illustrate the value of tax
free investing, as well as other tax-related information.
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 September 30,
1995 (see the Notes to the Financial Statements incorporated by reference in
this SAI). Because the Fund invests its assets in the Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements in order for the Fund to satisfy them. The Portfolio will allocate
at least annually among its investors, including the Fund, the Portfolio's net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deduction or credit. For purposes of
applying the requirements of the Code regarding qualification as a RIC, the Fund
will be deemed (i) to own its proportionate share of each of the assets of the
Portfolio and (ii) to be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a RIC
for federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular federal income tax. For purposes of
applying this 50% requirement, the Fund will be deemed to own its proportionate
share of each of the assets of the Portfolio, and the Portfolio currently
intends to invest its assets in a manner such that the Fund can meet this 50%
requirement. Interest on certain municipal obligations is treated as a tax
preference item for purposes of the federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
federal income tax returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) would be taxable to
shareholders of the Fund. However, it is expected that such amounts, if any,
would normally be insubstantial in relation to the tax exempt interest earned by
the Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will be
taxed to shareholders as if received on December 31 of the year in which they
are declared.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax purposes for 6 months or less (or such shorter period as may be
prescribed by Treasury regulations) will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares. In
addition, a loss realized on a redemption of Fund shares will be disallowed to
the extent the shareholder acquired other Fund shares within the period
beginning 30 days before the redemption of the loss shares and ending 30 days
after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to Authorized Firms or investors and other selling
literature and of advertising are borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under Federal and state securities laws
are borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the plan relating to such payments are included in
the Distribution Agreement. The Distribution Agreement is renewable annually by
the Trust's Board of Trustees (including a majority of its Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Fund's Distribution Plan or the Distribution
Agreement), may be terminated on sixty days' notice either by such Trustees or
by vote of a majority of the outstanding voting securities of the Fund or on six
months' notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Fund has authorized the Principal Underwriter to act as its
agent in repurchasing shares at the rate of $2.50 for each repurchase
transaction handled by the Principal Underwriter. The Principal Underwriter
estimates that the expenses incurred by it in acting as repurchase agent for the
Fund will exceed the amounts paid therefor by the Fund. For the amount paid by
the Fund to the Principal Underwriter for acting as repurchase agent, see "Fees
and Expenses" in the Fund's Part II.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the Fund and will accordingly reduce the Fund's
net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of such a liability under accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and will make no payments to the Principal Underwriter in respect of any
day on which there are no outstanding Uncovered Distribution Charges of the
Principal Underwriter. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid and
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges therefore paid or payable to the Principal Underwriter
will be subtracted from such distribution charges; if the result of such
subtraction is positive, a distribution fee (computed at 1% over the prime rate
then reported in The Wall Street Journal) will be computed on such amount and
added thereto, with the resulting sum constituting the amount of outstanding
Uncovered Distribution Charges with respect to such day. The amount of
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated on any day does not constitute a liability recorded on the financial
statements of the Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Classic Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan. (For shares sold prior to January 30, 1995,
Plan payments are as follows: the Principal Underwriter pays monthly sales
commissions and service fee payments to Authorized Firms equivalent to
approximately .75% and .20% (.25% for the California Fund), respectively,
annualized of the assets maintained in the Fund by their customers beginning at
the time of sale. No payments were made at the time of sale and there is no
contingent deferred sales charge.)
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal Underwriter
and service fees to the Principal Underwriter and Authorized Firms which may be
equivalent, on an aggregate basis during any fiscal year of the Fund, to .95%
(1.00% for the California Fund) of the Fund's average daily net assets for such
year. For the sales commission and service fee payments made by the Fund and the
outstanding Uncovered Distribution Charges of the Principal Underwriter, see
"Fees and Expenses -- Distribution Plan" in the Fund's Part II. The Fund
believes that the combined rate of all these payments may be higher than the
rate of payments made under distribution plans adopted by other investment
companies pursuant to Rule 12b-1. Although the Principal Underwriter will use
its own funds (which may be borrowed from banks) to pay sales commissions at the
time of sale, it is anticipated that the Eaton Vance organization will profit by
reason of the operation of the Plan through an increase in the Fund's assets
(thereby increasing the advisory fee payable to BMR by the Portfolio) resulting
from the sale of Fund shares and through the amounts paid to the Principal
Underwriter, including contingent deferred sales charges, pursuant to the Plan.
The Eaton Vance organization may be considered to have realized a profit under
the Plan if at any point in time the aggregate amounts therefore received by the
Principal Underwriter pursuant to the Plan and from contingent deferred sales
charges have exceeded the total expenses theretofore incurred by such
organization in distributing shares of the Fund. Total expenses for this purpose
will include an allocable portion of the overhead costs of such organization and
its branch offices, which costs will include without limitation leasing expense,
depreciation of building and equipment, utilities, communication and postage
expense, compensation and benefits of personnel, travel and promotional expense,
stationery and supplies, literature and sales aids, interest expense, data
processing fees, consulting and temporary help costs, insurance, taxes other
than income taxes, legal and auditing expense and other miscellaneous overhead
items. Overhead is calculated and allocated for such purpose by the Eaton Vance
organization in a manner deemed equitable to the Fund.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the Trustees of the Trust who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of
the Trustees then in office, and the Distribution Agreement contains a similar
provision. The Plan and Distribution Agreement may be terminated at any time by
a vote of a majority of the Rule 12b-1 Trustees or by a vote of a majority of
the outstanding voting securities of the Fund. The provisions of the Plan
relating to payments of sales commissions and distribution fees to the Principal
Underwriter are also included in the Distribution Agreement between the Trust on
behalf of the Fund and the Principal Underwriter. Under the Plan the President
or a Vice President of the Trust shall provide to the Trustees for their review,
and the Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund, and all material
amendments of the Plan must also be approved by the Trustees as required by Rule
12b-1. So long as the Plan is in effect, the selection and nomination of
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which have benefited and will continue to benefit the Fund and its
shareholders. Payments for sales commissions and distribution fees made to the
Principal Underwriter under the Plan will compensate the Principal Underwriter
for its services and expenses in distributing shares of the Fund. Service fee
payments made to the Principal Underwriter and Authorized Firms under the Plan
provide incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a detrimental
effect on the price or amount of the securities available to the Portfolio from
time to time, it is the opinion of the Trustees of the Trust and the Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the brokerage
commissions paid by the Portfolio on portfolio transactions, see "Fees and
Expenses" in the Fund's Part II.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" and "EV" in the Fund's name and may use the words "Eaton
Vance" and "EV" in other connections and for other purposes.
The Trust is organized as a Massachusetts business trust. As permitted by
Massachusetts law, there will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees of the Trust holding office have been elected by shareholders.
In such an event the Trustees then in office will call a shareholders' meeting
for the election of Trustees. Except for the foregoing circumstances and unless
removed by action of the shareholders in accordance with the Trust's By-laws,
the Trustees shall continue to hold office and may appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this SAI and have been so incorporated in reliance on the report of Deloitte &
Touche, LLP, independent certified public accountants, as experts in accounting
and auditing. A copy of the Fund's most recent Annual Report accompanies this
SAI.
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- --------------
+ 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.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus (+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a credit
within the rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC CALIFORNIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax in the form of an investment exempt from
California State personal income taxes. The Fund currently seeks to achieve its
investment objective by investing its assets in the California Municipals
Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain California considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in California 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
California issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Constitutional Limitations on Taxes and Appropriations
Limitation on Taxes. Certain California municipal obligations may be obligations
of issuers which rely in whole or in part, directly or indirectly, on ad valorem
property taxes as a source of revenue. The taxing powers of California local
governments and districts are limited by Article XIII A of the California
Constitution, enacted by the voters in 1978 and commonly known as "Proposition
13." Briefly, Article XIII A limits to 1% of full cash value the rate of ad
valorem property taxes on real property and generally restricts the reassessment
of property to 2% per year, except upon new construction or change of ownership
(subject to a number of exemptions). Taxing entities may, however, raise ad
valorem taxes above the 1% limit to pay debt service on certain voter-approved
bonded indebtedness.
Under Article XIII A, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This system
has resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13. The U.S. Supreme Court recently heard one of these
lawsuits, and on June 18, 1992 announced a decision upholding Proposition 13.
Article XIII A prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." A
California Supreme Court decision, however, allowed the levy, without voter
approval, of "general taxes" which were not dedicated to a specific use. In
response to these decisions, the voters of the State in 1986 adopted an
initiative statute which imposed significant new limits on the ability of local
entities to raise or levy general taxes, except by receiving majority local
voter approval. Significant elements of this initiative, "Proposition 62," have
been overturned in recent court cases. An initiative proposed to reenact the
provisions of Proposition 62 as a constitutional amendment was defeated by the
voters in November 1990, but such a proposal may be renewed in the future.
Appropriations Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIII B of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Proposition 98 and 111 in 1988 and 1990, respectively. Article XIII B prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIII B appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post-
1989 increases in gasoline taxes and vehicle weight fees, and (5) appropriations
made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized by Proposition 111 to follow more closely growth in the State's
economy. "Excess" revenues are measured over a two-year cycle. Local
governments, must return any excess to taxpayers by rate reductions. With more
liberal annual adjustment factors since 1988, and depressed revenues since 1990
because of the recession, few governments are currently operating near their
spending limits, but this condition may change over time. Local governments may
by voter approval exceed their spending limit for up to four years.
Because of the complex nature of Articles XIII A and XIII B of the
California Constitution, the ambiguities and possible inconsistencies in their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIII A or Article XIII B on California municipal obligations or on the
ability of the State or local governments to pay debt service on such
obligations. It is not presently possible to predict the outcome of any pending
litigation with respect to the ultimate scope, impact or constitutionality of
either Article XIII A or Article XIII B, or the impact of any such
determinations upon State agencies or local governments, or upon their ability
to pay debt service on their obligations. Future initiatives or legislative
changes in laws or the California Constitution may also affect the ability of
the State or local issuers to repay their obligations.
Obligations of the State of California
As of August 1, 1995, the State had approximately $19.0 billion of general
obligation bonds outstanding, and $1.1 billion remained authorized but unissued.
In addition, as of June 30, 1995, the State had lease-purchase obligations,
payable from the State's general fund, of approximately $6.0 billion with
authorized but unissued lease purchase debt of $1.3 billion. The State's
outstanding general obligation bond debt has gradually risen in recent years:
from approximately $15.9 billion in 1991-92 to approximately $19.2 billion in
1994-95. Of the State's outstanding general obligation debt, approximately 22%
is presently self-liquidating (for which program revenues are anticipated to be
sufficient to reimburse the general fund for debt service payments). Three
general obligation bond propositions, totalling $3.7 billion, were approved by
voters in 1992. The State has paid the principal of and interest on its general
obligation bonds, lease-purchase debt and short-term obligations when due.
As of the date of this Statement of Additional Information, general
obligation bonds issued by the State of California are rated A1, A, A by
Moody's, S&P and Fitch, respectively. Starting in 1991 and continuing through
the middle of 1994, there has been a relatively steady deterioration in the
State's general obligation bond rating. On July 15, 1994, all three of the
rating agencies rating the State's long-term debt lowered their ratings of the
State's general obligation bonds. Moody's lowered its rating from "AA" to "A1,"
S&P lowered its rating from "A+" to "A" and termed its outlook as "stable," and
Fitch lowered its rating from "AA" to "A." An explanation of such actions may be
obtained only from the respective rating agencies. Future deterioration in the
State's fiscal condition could result in additional downgrades by the rating
agencies.
Recent Financial Results
From the 1990-91 fiscal year through the 1994-95 fiscal year, the State
faced the worst economic, fiscal and budget conditions since the 1930s.
Construction, manufacturing (especially aerospace), exports and financial
services, among others, were all severely affected. Job losses were the worst of
any post-war recession and continued through the end of 1993. Following
Department of Finance projections that non-farm employment levels would be
stable in 1994, employment grew 3% between November 1993 and November 1994.
However, unemployment was well above the national average through 1994.
The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State has also been facing a structural imbalance in its
budget with the largest programs supported by the General Fund -- K-12 schools
and community colleges, health and welfare, and corrections -- growing at rates
higher than the growth rates for the principal revenue sources of the General
Fund. As a result, the State experienced recurring budget deficits. The State
Controller reports that expenditures exceeded revenues for four of the five
fiscal years ending with 1991-92, and were essentially equal in 1992- 93. By
June 30, 1993, according to the Department of Finance, the State's Special Fund
for Economic Uncertainties had a deficit, on a budget basis, of approximately
$2.8 billion. The 1993-94 Budget Act incorporated a Deficit Retirement Plan to
repay this deficit over two fiscal years. The original budget for 1993-94
reflected revenues which exceeded expenditures by approximately $2.0 billion. As
a result of the continuing recession, the excess of revenues over expenditures
for the fiscal year was only about $522 million. Thus, the accumulated budget
deficit at June 30, 1994 was approximately $2.0 billion, and the deficit will
not be retired by June 30, 1995 as planned.
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
reduction of available internal borrowable funds, have combined to significantly
deplete the State's cash resources to pay its ongoing expenses. In order to meet
its cash needs, the State has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year.
1994-95 Budget. The 1994-95 fiscal year represented the fourth consecutive
year the Governor and Legislature were faced with a very difficult budget
environment to produce a balanced budget. Many program cuts and budgetary
adjustments had already been made in the past three years. The budget recognized
that the accumulated deficit could not be repaid in one year, and proposed a
two-year solution. The budget projected operating surpluses for the budget for
both 1994-95 and 1995-96, and lead to the elimination of the accumulated budget
deficit, estimated at about $2.0 billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projected
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflects the Administration's forecast of an improving economy.
The Budget Act projected the effective receipt of about $770 million from the
federal government, $360 million of which is to reimburse the State's costs for
immigrant-related expenses and the balance is attributable to federal
subventions thus reducing State expenditures. Little or none of this money is
now expected to be received. The Legislature took no action on a proposal in the
January Governor's budget to undertake an expansion of the transfer of certain
programs to counties, which would also have transferred to counties 0.5% of the
State's current sales tax. The Budget Act projected Special Fund revenues of
$12.1 billion, a decrease of 2.4% from 1993-94 estimated revenues. The
Governor's 1995-96 budget proposal of January, 1995 included an upward revision
of General Fund revenues to $42.4 billion for the 1994-95 fiscal year.
The 1994-95 Budget Act projected General Fund expenditures of $40.9 billion,
an increase of $1.6 billion over 1993-94. The Budget Act also projected Special
Fund expenditures of $13.7 billion, a 5.4% increase over 1993-94 estimated
expenditures. Although, the 1994-95 Budget Act contains no tax increases, under
legislation enacted for the 1993-94 budget, the renters' tax credit was
suspended for two years (1993 and 1994). A ballot proposition to permanently
restore the renters' tax credit after this year failed at the June, 1994
election. The Legislature enacted a further one-year suspension of the renters'
tax credit, for 1995, saving about $390 million in the 1995-96 fiscal year. The
1994-95 budget assumes that the State will use a cash flow borrowing program in
1994-95 which combines one-year notes and certain warrants. Issuance of the
warrants allows the State to defer repayment of approximately $1.0 billion of
its accumulated budget deficit into the 1995-96 fiscal year. The Budget
Adjustment Law, enacted along with the 1994-95 Budget Act is designed to ensure
that the warrants will be repaid in the 1995-96 Fiscal Year. The State's severe
financial difficulties for the current budget year will result in continued
pressure upon almost all local governments, particularly school districts and
counties which depend on State aid. Despite efforts in recent years to increase
taxes and reduce governmental expenditures, there can be no assurance that the
State will not face budget gaps in the future.
1995-96 Budget. The 1995-96 Budget Act was signed by the Governor on August
3, 1995, 34 days after the start of the fiscal year. General Fund revenues and
transfers were budgeted at $44.1 billion, a 3.5% increase over 1994-95.
Expenditures were budgeted at $43.4 billion, a 4% increase. The accumulated
deficit is projected to be eliminated and a small surplus of $28 million is
expected to be available in the Special Fund for Economic Uncertainties. Through
November, 1995, General Fund revenues were $707 million, or 4.5%, above budgeted
amounts.
Legal Proceedings
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require the
State to make significant future expenditures or may substantially impair
revenues.
Economy
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 31 million represents 12.3%
of the total United States population and grew by 27% in the 1980s. Total
personal income in the State, at an estimated $683 billion in 1993, accounts for
about 13% of all personal income in the nation.
Reports issued by the State Department of Finance and the Commission on
State Finance indicate that the State's economy is recovering from its worst
recession since the 1930s. The largest job losses have been in Southern
California, led by declines in the aerospace and construction industries.
Weakness statewide occurred in manufacturing, construction, services and trade.
Additional military base closures will have further adverse effects on the
State's economy later in the decade. California's unemployment rate was 8.8% in
November, 1995, compared to the previous year's level of 7.7%.
Other Considerations
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9 of
the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments which caused a liquidity crisis for
the Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold bonds
of some of the governmental units that had money invested with the County; the
impact of the loss of access to these funds, the loss of expected investment
earnings and the potential loss of some of the principal invested is not known
at this point. There can be no assurances that these holdings will maintain
their current ratings and/or liquidity in the market.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to ensure
that school districts have sufficient funds to operate. Longer term, this
financial crisis could have an adverse impact on the economic recovery that has
only recently taken hold in Southern California.
In early June, 1995, Orange County filed a proposal with the bankruptcy
court that would require holders of the County's short-term notes to wait a year
before being repaid. The existence of this proposal and its adoption could
disrupt the market for short-term debt in California and possibly drive up the
State's borrowing costs.
The repayment of industrial development securities and other obligations
secured by real property may be affected by California laws limiting foreclosure
rights of creditors. Securities backed by healthcare and hospital revenues may
be affected by changes in State regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program), including
risks related to the policy of awarding exclusive contracts to certain
hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project area decline (e.g., because of a major
natural disaster such as an earthquake), or there is a deemphasis or
reallocation of property taxes by legislation or initiative, the tax increment
revenue may be insufficient to make principal and interest payments on these
bonds. Both Moody's and S&P suspended ratings on California tax allocation bonds
after the enactment of Articles XIII A and XIII B, and only resumed such ratings
on a selective basis.
Proposition 87, approved by California voters in 1988, required that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay the entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not presently possible to predict the extent to which any such legislation
will be enacted. Nor is it presently possible to determine the impact of any
such legislation on California municipal obligations in which the Portfolio may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California municipal obligations.
Certain California obligations may be payable solely from the revenues of
health care institutions. Such revenues may be negatively affected by efforts of
the state and of private health plans and insurers to contract with such
institutions for fixed, discounted payments for services to Medicaid and
insurance beneficiaries. Such California obligations may be insured by the
State. In the event of a default by the health care institution, the state has
the option of issuing replacement debentures payable from a reserve fund.
However, this reserve fund has been found to be underfunded in a study conducted
in 1986 and is subject to reappropriation by the California Legislature for
other purposes.
Certain California obligations may be secured by real estate mortgages or
deeds of trust. California has several statutory provisions that may limit the
remedies of secured creditors, such as issuers of California obligations. A
creditor's right to obtain a deficiency judgment is barred when a foreclosure is
accomplished through a nonjudicial trustee's sale. A secured creditor is also
required to exhaust its real property security by foreclosure before bringing a
personal action against the debtor. Any deficiency judgment following a judicial
sale of foreclosed property is limited to the excess of the outstanding debt
over the fair value of the property at the time of sale, even if the actual bids
at such sale were lower than such value. Finally, the debtor has the right to
redeem the foreclosed property from any judicial foreclosure sale that could
result in a deficiency judgment.
Due to certain limitations on a creditor's private powers of sale after
foreclosure, the effective minimum period for foreclosing on a mortgage could
exceed seven months after the initial default. Such delays in collections could
disrupt the flow of revenues to an issuer for the payment of debt service on
California obligations secured by real estate mortgages. In some cases, the
nonjudicial sale of property by an issuer could be precluded as a violation of
constitutional due process.
Under California's anti-deficiency law, there is no personal recourse
against a mortgagor of a single family residence purchased with a loan secured
by a mortgage. California law also limits the charges that may be imposed with
respect to voluntary mortgage prepayments. These provisions could affect the
flow of revenues available for debt service to the issuers of California
obligations secured by single family home mortgages.
Substantially all of California is within an active geologic region subject
to major seismic activity. Any California municipal obligation in the Portfolio
could be affected by an interruption of revenues because of damaged facilities,
or, consequently, income tax deduction for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage at
reasonable rates; (ii) an insurer to perform on its contracts of insurance in
the event of widespread losses; or (iii) the Federal or State government to
appropriate sufficient funds within their respective budget limitations.
On January 17, 1994, an earthquake struck Los Angeles causing significant
damage to public and private structures and facilities. Although some
individuals and businesses suffered losses totaling in the billions of dollars,
the overall effect of the earthquake on the regional and State economy is not
expected to be serious.
The State has shifted responsibility for certain health and welfare programs
and provided the counties with increased taxing powers to cover their costs.
While the State expects that the increased taxes will be sufficient to cover
increased costs, there can be no assurance that this will be the case. If the
increased costs are not covered by the increased taxes, the counties will be
responsible to fund the difference. Any added expenditures in excess of
increased revenues and subsequent adverse effect upon county finances would
likely have a negative impact upon individual county and local bond prices.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $410,670,138. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $2,121,262 (equivalent to 0.50% of the Portfolio's average daily net assets
for such year). For the six month period ended September 30, 1994, the Portfolio
paid BMR advisory fees of $1,141,013 (equivalent to 0.50% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, May 3, 1993, to the fiscal year ended March 31,
1994, the Portfolio paid BMR advisory fees of $2,149,273 (equivalent to 0.49%
(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 SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended September 30,
1995, the six month period ended September 30, 1994 and for the period from the
start of business, December 3, 1993, to the fiscal year ended March 31, 1994,
$39,199, $29,004 and $2,670, respectively, of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this SAI. Pursuant to Rule 12b-1, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, as required by Rule 12b-1. During the fiscal year ended September 30,
1995, the Principal Underwriter paid to Authorized Firms sales commissions of
$20,715 on sales of Fund shares. During the same period, the Fund paid sales
commission payments under the Plan to the Principal Underwriter aggregating
$21,336. Such payments reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $400 were
imposed on early redeeming shareholders and paid to the Principal Underwriter to
reduce Uncovered Distribution Charges. As at September 30, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $331,000 (which amount was equivalent to 12.0% of
the Fund's net assets on such date). During the fiscal year ended September 30,
1995, the Fund paid service fee payments under the Plan aggregating $7,029, of
which $6,837 was paid to Authorized Firms and the balance of which was retained
by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $110 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody fees
of $3,526 and the Portfolio incurred custody fees of $187,581, which were
reduced by fee credits of $47,611.
BROKERAGE
For the fiscal years ended September 30, 1995 and 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and of the funds in
the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ............. $0 $3,690(2) $135,000(4)
Samuel L. Hayes, III ......... 0 3,659(3) 150,000(5)
Norton H. Reamer ............. 0 3,633 135,000
John L. Thorndike ............ 0 3,748 140,000
Jack L. Treynor .............. 0 3,841 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $1,237 of deferred compensation.
(3) Includes $1,178 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 SAI, Cynthia J. Clemson (32) is a
Vice President of the Portfolio. Ms. Clemson has served as a Vice President of
the Portfolio since February 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 19, 1985 through
September 30, 1995 and for the five and one year periods ended September 30,
1995. The total return for the period prior to the Fund's commencement of
operations on December 3, 1993 reflects the Portfolio's total return (or that of
its predecessor) adjusted to reflect any applicable Fund contingent deferred
sales charge ("CDSC"). The total return for such prior period has not been
adjusted to reflect the Fund's distribution fees and certain other expenses. If
such an adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING DEDUCTING DEDUCTING THE CDSC DEDUCTING THE CDSC*
INVESTMENT INVESTMENT AMOUNT OF THE CDSC THE CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 12/19/85 $1,000 $1,833.06 $1,833.06 83.31% 6.39% 83.31% 6.39%
5 Years
Ended
9/30/95** 9/30/90 $1,000 $1,374.89 $1,374.89 37.49% 6.56% 37.49% 6.56%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,083.18 $1,073.18 8.32% 8.32% 7.32% 7.32%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 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 6.96%,
assuming a combined federal and State tax rate of 37.90%. 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 September 30, 1995 and based on
the Fund's monthly distribution paid September 22, 1995) was 4.95%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 5.06%. If a portion of the Fund's expenses had
not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 68.83% 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.
<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 1996 regular federal income tax
rates and California State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND CALIFORNIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- --------------------------- --------------------- CA STATE -----------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------- ----------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 58,151 - $121,300 $ 96,901 - $147,700 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$121,301 - $263,750 $147,701 - $263,750 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
Over - $263,750 Over - $263,750 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
<FN>
* Net amount subject to federal and California personal income tax after deductions and exemptions.
+ The combined tax brackets are calculated using the highest California State rate within the bracket. Taxpayers with taxable
income within each bracket may have a lower combined tax bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that California 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 tax bracket and 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 California State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations the interest from which is exempt from the
regular federal income tax and California 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 California personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC FLORIDA MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax in the form of an investment exempt from Florida
intangibles tax. The Fund currently seeks to achieve its investment objective by
investing its assets in the Florida Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Florida 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 Florida issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Florida is characterized by rapid population growth and substantial capital
needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a fiscal
biennium for its appropriations and expenditures and is constitutionally bound
to maintain a balanced budget. The State's financial operations are considerably
different than most other states because, under the State's constitution, there
is no state income tax on individuals. A constitutional amendment would
therefore be necessary to impose such an income tax. Only seven states currently
do not impose income taxes on individuals. The lack of an income tax on
individuals exposes total State tax collections to considerably more volatility
than would otherwise be the case and, in the event of an economic downswing,
could affect the State's ability to pay principal and interest in a timely
manner.
Florida has a proportionally greater number of persons of retirement age; a
factor that makes Florida's property and transfer payment taxes a relatively
more important source of State funding. Because transfer payments are typically
less sensitive to the business cycle than employment income, they may act as a
stabilizing force in weak economic periods.
In 1993, the Florida constitution was amended to limit the annual growth in
the assessed valuation of residential property, which, over time, could
constrain growth in property taxes, a major source of revenue for local
governments. In 1994, the Florida constitution was amended to limit State
revenue collections in any fiscal year to, subject to exception, that which was
allowed in the prior fiscal year plus a growth factor, to be determined by
reference to the average annual growth rate in Florida personal income over the
previous five years.
Florida tourism appears to be suffering the effects of negative publicity
regarding crime against tourists in the State, "product maturity," higher prices
and more aggressive marketing by competing vacation destinations. Although
Florida experienced a 4.0% drop in the number of tourists visiting the State in
the fiscal year 1993-94, the State anticipates an increase in the number of
visiting tourists in the current and succeeding fiscal years. The number of
visiting tourists is expected to increase by 0.1% and 4.3% during fiscal years
1995-96 and 1996-97, respectively. The total number of visiting tourists is
expected to reach 41.4 million and 43.2 million during fiscal years 1995-96 and
1996-97, respectively.
There has been a decline in Florida's dependency on highly cyclical
construction and construction-related manufacturing sectors. For example, the
total contract construction employment as a share of total non-farm employment
reached a peak of over 10% in 1973. In 1980, the share was roughly 7.5%, and in
1994, the share had edged downward to nearly 5%. This trend is expected to
continue as Florida's economy continues to diversify.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $712,203,136. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $3,433,489 (equivalent to 0.47% of the Portfolio's average daily net assets
for such year). For the fiscal year ended September 30, 1994, the Portfolio paid
BMR advisory fees of $3,644,215 (equivalent to 0.46% of the Portfolio's average
daily net assets for such year). 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 $2,024,390 (equivalent to 0.46% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and remains in
effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended September 30,
1995 and for the period from the start of business, December 3, 1993, to the
fiscal year ended September 30, 1994, $24,340 and $15,286, respectively, of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this SAI. Pursuant to Rule 12b-1, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, as required by Rule 12b-1. During the fiscal year ended September 30,
1995, the Principal Underwriter paid to Authorized Firms sales commissions of
$45,896 on sales of Fund shares. During the same period, the Fund paid sales
commission payments under the Plan to the Principal Underwriter aggregating
$46,646. Such payments reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $917 were
imposed on early redeeming shareholders and paid to the Principal Underwriter to
reduce Uncovered Distribution Charges. As at September 30, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $713,000 (which amount was equivalent to 13.6% of
the Fund's net assets on such date). During the fiscal year ended September 30,
1995, the Fund paid service fee payments under the Plan aggregating $12,466, of
which $12,152 was paid to Authorized Firms and the balance of which was retained
by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $180 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody fees
of $3,886, which were reduced by fee credits of $1,183 and the Portfolio
incurred custody fees of $231,473, which were reduced by fee credits of
$220,751.
BROKERAGE
For the fiscal years ended September 30, 1995 and 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and of the funds in
the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ............. $34 $4,291(2) $135,000(4)
Samuel L. Hayes, III ......... 32 4,239(3) 150,000(5)
Norton H. Reamer ............. 32 4,200 135,000
John L. Thorndike ............ 32 4,322 140,000
Jack L. Treynor .............. 35 4,464 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $1,439 of deferred compensation.
(3) Includes $1,333 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 August 28, 1990 through
September 30, 1995 and for the five- and one-year periods ended September 30,
1995. The total return for the period prior to the Fund's commencement of
operations on December 3, 1993 reflects the Portfolio's total return (or that of
its predecessor) adjusted to reflect any applicable Fund contingent deferred
sales charge ("CDSC"). The total return for such prior period has not been
adjusted to reflect the Fund's distribution fees and certain other expenses. If
such an adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING DEDUCTING DEDUCTING THE CDSC DEDUCTING THE CDSC*
INVESTMENT INVESTMENT AMOUNT OF THE CDSC THE CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 8/28/90 $1,000 $1,457.27 $1,457.27 45.73% 7.66% 45.73% 7.66%
5 Years
Ended
9/30/95** 9/30/90 $1,000 $1,458.76 $1,458.76 45.88% 7.83% 45.88% 7.83%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,097.21 $1,087.21 9.72% 9.72% 8.72% 8.72%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.40%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.40% would be 6.38%,
assuming a federal tax rate of 31%. 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 September 30, 1995 and based on
the Fund's monthly distribution paid September 22, 1995) was 4.87%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 4.98%. If a portion of the Fund's expenses had
not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 46.0% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
In addition, as of such date, National Financial Services Corporation for the
benefit of Lake Placid Holding Company, Lake Placid, FL was the record owner of
7.1% of the outstanding shares of the Fund. To the knowledge of the Trust, no
other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985, was
originally called Eaton Vance High Yield Municipals Trust. The Trust changed its
name to Eaton Vance Municipals Trust on January 7, 1991. The Fund changed its
name from EV Classic Florida Tax Free Fund to EV Classic Florida Municipals Fund
on December 8, 1995.
<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 the
Florida intangibles tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
You are in
If the taxable income on Or the taxable income this federal In your bracket, a tax-free yield of
your single return is* on your joint return is* bracket 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------------- ------------------------ ------------ ------------------------------------------------------
equals that of a taxable investment yielding
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,000 Up to $40,100 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 58,151-$121,300 $ 96,901-$147,700 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$121,301-$263,750 $147,701-$263,750 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $263,750 Over $263,750 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
If the taxable income on Or the taxable income In your bracket, a tax-free yield of
your single return is* on your joint return is* 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------------- ------------------------ ----------------------------------------------------------------
tax equivalent yield reflecting exemption from intangibles tax:**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,000 Up to $40,100 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 58,151-$121,300 $ 96,901-$147,700 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$121,301-$263,750 $147,701-$263,750 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $263,750 Over $263,750 6.97 7.80 8.62 9.45 10.28 11.10 11.93
<FN>
*Net amount subject to federal personal income tax after deductions and exemptions.
**A Florida intangibles tax on personal property of $2.00 per $1,000 is generally imposed after exemptions on the value of stocks,
bonds, other evidences of indebtedness and mutual fund shares. An example of the effect of the Florida intangibles tax on the tax
brackets of Florida taxpayers is as follows. A $10,000 investment subject to the tax would require payment of $20 annually in
intangibles taxes. If the investment yielded 5.5% annually or $550, the intangibles tax as a percentage of income would be
$20/$550 or 3.64%. If a taxpayer were in the 36% federal income tax bracket, assuming the intangibles taxes were deducted as an
itemized deduction on the federal return, the taxpayer would be on a combined federal and Florida State tax bracket of 38.33%
[36% + (1 - .36) X 3.64%] with respect to such investment. A Florida taxpayer whose intangible personal property is exempt or
partially exempt from tax due to the availability of exemptions will have a lower taxable equivalent yield than indicated above.
</TABLE>
Note: The federal income tax brackets do not take into account the effect of a
reduction in the deductibility of itemized deductions for taxpayers with
adjusted gross income in excess of $117,950. The tax brackets also do not show
the effects of phaseout of personal exemptions for single and joint filers with
adjusted gross incomes in excess of $117,950 and $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax, other income received by the Portfolio and allocated
to the Fund may be taxable. The table does not take into account the Florida
intangibles tax, state or local taxes, if any, payable on Fund distributions to
individuals who are not Florida residents, or intangibles taxes, if any, imposed
under the laws of other states. It should also be noted that the interest earned
on certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, is treated as a tax preference item which
could subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC NEW YORK MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and New York City and New York State personal income
taxes. The Fund currently seeks to achieve its investment objective by investing
its assets in the New York Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
New York issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
York issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been below
the national average primarily due to significant cutbacks in the computer,
manufacturing, defense and banking industries. New York's economy expanded
modestly during 1995 with a pronounced slow-down during the course of the year
and is expected to slow gradually during 1996. The unemployment rate for the
State for 1995 and 1996 is projected to be 6.5% and 6.9%, respectively, compared
to the projected national unemployment rate of 5.6% and 5.8% for 1995 and 1996,
respectively. New York City's unemployment rate was 8.0% in October 1995, down
from 8.2% a year earlier.
For the fiscal year 1991-92, the State incurred an operating deficit in the
General Fund of $575 million, which, after a $44 million withdrawal from the Tax
Stabilization Reserve Fund, was financed through the public issuance of $531
million of 1992 Deficit Notes on March 30, 1992.
In the 1992-1993 fiscal year, the State began the process of financial
reform closing the fiscal year with fund surpluses totalling $738 million. The
1992-1993 fiscal year marked the first time in four years that the State did not
have to issue deficit notes to close a budget gap.
The 1993-1994 fiscal year ended with combined fund balances of $1.539
billion due to an improving national economy, State employment growth, better
than projected tax collections and disbursements that were below projections.
The 1994-1995 fiscal year, which included tax reductions of $476 million,
closed with the General Fund in balance and positive fund balances of $157
million and $1 million in the Tax Stabilization Reserve Fund and the Contingency
Reserve Fund, respectively. The General Fund, however, suffered an operating
deficit of $1.426 billion primarily due to the use of $1.026 billion of the
1993-1994 fiscal year surplus in the 1994-1995 fiscal year. Tax revenues for the
fiscal year fell short of original projections by $1.16 billion, the shortfall
being offset by disbursements which were lower than projected and planned
spending reductions.
The 1995-1996 fiscal year budget, adopted in June 1995, includes a planned
three-year 20% reduction in the State's personal income tax and is the first
budget in over 50 years which projects a decline in General Fund disbursements
and spending on State operations. The 1995-1996 State Financial Plan, based on
the enacted budget, includes gap-closing actions to offset a previously
projected budget gap of $5 billion, the largest in the State's history. Such
gap-closing actions include, among others, substantial reductions in social and
medical entitlement programs, reductions in State services and capital programs
and increased lottery revenues. There can be no assurance that additional
gap-closing measures will not be required and there is no assurance that any
such measures will enable the State to achieve a balanced budget for its
1995-1996 fiscal year.
The Governor submitted his proposed budget for the 1996-1997 fiscal year
budget earlier than required by State law hoping the State legislature will
adopt the budget prior to the beginning of the fiscal year on April 1, 1996. The
Governor's proposed 1996-1997 budget identifies a potential budget gap of
approximately $3.9 billion and proposes significant expenditure reductions in
the State's health, welfare and educational programs and projects significant
increases in federal health aid to eliminate the potential budget gap. There can
be no assurances that the Governor's budget proposals will be adopted as
proposed, the expenditure reductions can be implemented as envisioned or that
increases in federal aid will materialize as expected.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7 billion
dollar cap, net of LGAC proceeds, on the seasonal borrowing program. As of June
1995, LGAC had issued bonds and notes to provide net proceeds of $4.7 billion
completing the program. This cap may be exceeded in cases where the Governor and
the legislature have certified the need for additional borrowing and have
devised a method for reducing it back to the cap no later than the fourth fiscal
year after the limit is exceeded. If this cap were to be exceeded, it could
result in action by the rating agencies which could adversely affect prices of
bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each of
the 1981 through 1995 fiscal years, the City achieved balanced operating results
as reported in accordance with generally accepted accounting principles.
Pursuant to the laws of the State, the City prepares a four-year annual
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City
implemented various actions to close budget gaps of $3.3 billion, $2.1 billion
and $3.5 billion for the 1992, 1994 and 1995 fiscal years, respectively. Such
actions included, among others, tax increases, service and personnel reductions,
productivity savings, debt refinancings, asset sales and cost savings related to
employee benefits. The City's financial plan for the 1996 fiscal year sets forth
gap-closing actions to close a previously projected budget gap of $3.1 billion
for the 1996 fiscal year. Such actions, include, among others, substantial
reductions in entitlement programs, service and personnel reductions and cost
saving initiatives related to labor and pension costs and increases in certain
lease and fee payments due the City. The City currently projects budget gaps of
$1.4 billion, $2.3 billion and $2.7 billion for its 1997, 1998 and 1999 fiscal
years, respectively. The City's gap-closing plans for the 1997 through 1999
fiscal years include reductions in City agency expenditures and cost saving
actions related to entitlement programs and procurement. There can be no
assurance that additional gap-closing measures will not be required, the
implementation of which could adversely affect the City's economic base, and
there is no assurance that such measures will enable the City to achieve a
balanced budget, as required by State law, for any of the 1996 through 1999
fiscal years. The fiscal health of New York City, which is the largest issuer of
municipal bonds in the country and a leading international commercial center,
exerts a significant influence upon the fiscal health and bond values of issues
throughout the State. Bond values of the Municipal Assistance Corporation, the
State of New York, the New York Local Government Assistance Corporation, the New
York State Dormitory Authority -- City University, the New York City Municipal
Water Finance Authority and The Metropolitan Transportation Authority would be
particularly affected by serious financial difficulties encountered by New York
City. The Portfolio could be expected to hold bonds issued by many, if not all
of these issuers, at any given time.
Moody's rates the City's general obligation bonds "Baa1" and Fitch rates
such bonds "A-". On July 10, 1995, S&P revised downward its rating on City
general obligation bonds from A- to BBB+. S&P stated that the downgrade was a
reflection of the City's inability to eliminate a structural budget imbalance
due to persistent softness in the City's economy, weak job growth, a trend of
using nonrecurring budget devices, optimistic projections of State and federal
aid and high levels of debt service. There is no assurance that such ratings
will continue for any given period of time or that they will not be revised
downward or withdrawn entirely. Any such downward revision or withdrawal could
have an adverse effect on obligations held by the Portfolio.
The State's economic and fiscal viability are mutually and intricately tied
to those of its authorities and localities, which make up the major portion of
State bond issuance. Any serious financial difficulties encountered by these
entities, including their inability to access capital markets, would have a
significant, adverse effect upon the value of bonds issued elsewhere within the
State and thus upon the value of the interests in the Portfolio. State plans to
reduce aid to local cities and towns may have a negative impact on municipal
finances and ratings throughout the State. Such ratings changes could erode the
value of their bonds and/or lead to defaults.
The State either guarantees or supports lease-purchase agreements or
contractual obligations, financing arrangements or through moral obligation
provisions, a large amount of Authority indebtedness. While debt service is
normally paid out of revenues generated by the projects of the Authorities, the
State has, from time to time, had to appropriate amounts to enable the
Authorities to meet their financial obligations and, in some cases, to prevent
default. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $652,736,309. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $3,031,508 (equivalent to 0.47% of the Portfolio's average daily net assets
for such year). For the fiscal year ended September 30, 1994, the Portfolio paid
BMR advisory fees of $3,073,565 (equivalent to 0.46% of the Portfolio's average
daily net assets for such year). For the period from the Portfolio's start of
business, February 1, 1993, to the fiscal year ended September 30, 1993, the
Portfolio paid BMR advisory fees of $1,755,148 (equivalent to 0.46% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and remains in
effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator receives no compensation for providing administrative
services to the Fund. For the fiscal year ended September 30, 1995, and for the
period from the start of business, December 6, 1993, to the fiscal year ended
September 30, 1994, $24,385 and $16,232, respectively, of the Fund's operating
expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this SAI. Pursuant to Rule 12b-1, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, as required by Rule 12b-1. During the fiscal year ended September 30,
1995, the Principal Underwriter paid to Authorized Firms sales commissions of
$39,375 on sales of Fund shares. During the same period, the Fund paid sales
commission payments under the Plan to the Principal Underwriter aggregating
$42,135. 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 September 30, 1995 the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $467,000 (which amount was equivalent to 8.6% of
the Fund's net assets on such date). During the fiscal year ended September 30,
1995, the Fund paid service fee payments under the Plan aggregating $11,259, of
which $10,360 was paid to Authorized Firms and the balance of which was retained
by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 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 September 30, 1995, the Fund incurred custody fees
of $3,321 which were reduced by fee credits of $2,868 and the Portfolio incurred
custody fees of $221,548 which were reduced by fee credits of $220,048.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $34 $4,093(2) $135,000(4)
Samuel L. Hayes, III ...... 32 4,048(3) 150,000(5)
Norton H. Reamer .......... 32 4,013 135,000
John L. Thorndike ......... 32 4,133 140,000
Jack L. Treynor ........... 35 4,257 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $1,373 of deferred compensation.
(3) Includes $1,302 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 SAI, Nicole Anderes (34) has served
as a Vice President of the Portfolio since June 19, 1995. Ms. Anderes has been a
Vice President of BMR and Eaton Vance since 1994, and is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Ms. Anderes was Vice President and portfolio manager, Lazard Freres Asset
Management (1992-1994) and Vice President and Manager -- Municipal Research,
Roosevelt & Cross (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from August 30, 1990 through
September 30, 1995 and for the one- and five-year periods ended September 30,
1995. The total return for the period prior to the Fund's commencement of
operations on December 6, 1993 reflects the Portfolio's total return (or that of
its predecessor) adjusted to reflect any applicable Fund contingent deferred
sales charge ("CDSC"). The total return for such prior period has not been
adjusted to reflect the Fund's distribution fees and certain other expenses. If
such an adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE BEFORE TOTAL RETURN BEFORE TOTAL RETURN AFTER
DE- VALUE AFTER DE- DEDUCTING CDSC DEDUCTING CDSC*
INVESTMENT INVESTMENT AMOUNT OF DUCTING CDSC DUCTING CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 8/30/90 $1,000 $1,499.06 $1,499.06 49.91% 8.28% 49.91% 8.28%
5 Years
Ended
9/30/95** 9/30/94 $1,000 $1,506.55 $1,506.55 50.66% 8.52% 50.66% 8.52%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,094.48 $1,084.48 9.45% 9.45% 8.45% 8.45%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current prospectus.
**If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.31%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.31% would be 7.10%,
assuming a combined federal and State tax rate of 39.32%. 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 September 30, 1995 and based on
the Fund's monthly distribution paid September 22, 1995) was 4.85%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 4.96%. If a portion of the Fund's expenses had
not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 30.1% 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.
In addition, as of the same date, the following shareholders owned of record the
percentages of outstanding shares indicated after their names: Design Tex
Fabrics Inc., Attn: Mark Gray, New York, NY 10014-4810 (9.8%), and Vector
Magnetics Inc., Ithaca, NY 14850 (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 New York Tax Free Fund to EV Classic New York Municipals
Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLES
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and New
York State and New York City income tax laws in effect for 1996.
<TABLE>
<CAPTION>
COMBINED
FEDERAL,
SINGLE RETURN JOINT RETURN NY STATE A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
- --------------------------- -------------------- AND NY CITY ----------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------------- ------------ ----------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 24.79% 5.32% 5.98% 6.65% 7.31% 7.98% 8.64% 9.31%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 36.30 6.28 7.06 7.85 8.63 9.42 10.20 10.99
$ 58,151 - $121,300 $ 96,901 - $147,700 38.99 6.56 7.38 8.20 9.02 9.83 10.65 11.47
$121,301 - $263,750 $147,701 - $263,750 43.41 7.07 7.95 8.84 9.72 10.60 11.49 12.37
Over $263,750 Over $263,750 46.60 7.49 8.43 9.36 10.30 11.24 12.17 13.11
<FN>
* Net amount subject to federal, New York State and New York City personal income tax (including New York City personal income tax
surcharges) after deductions and exemptions.
+ Thefirst two combined tax brackets are calculated using the highest State rate (7.125% effective annualized State tax rate based
on a rate of 7.5% for the first 3 months of the 1996 tax year and 7.0% for the remaining 9 months) and the highest City rate
(including surcharges) applicable at the upper portion of such bracket. Taxpayers with taxable income below the highest dollar
amount in the two lowest brackets may have a lower combined tax bracket and taxable equivalent yield than indicated above. The
applicable State and City rates are at their maximum (7.125% and 4.457%, respectively) throughout all other brackets.
</TABLE>
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and New
York State income tax laws in effect for 1996.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND NEW YORK STATE TAX EXEMPT YIELD OF:
- --------------------------- -------------------- NY STATE --------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------------- ------------ --------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 21.06% 5.07% 5.70% 6.33% 6.97% 7.60% 8.23% 8.87%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.13 5.98 6.73 7.48 8.22 8.97 9.72 10.47
$ 58,151 - $121,300 $ 96,901 - $147,700 35.92 6.24 7.02 7.80 8.58 9.36 10.14 10.92
$121,301 - $263,750 $147,701 - $263,750 40.56 6.73 7.57 8.41 9.25 10.09 10.94 11.78
Over $263,750 Over $263,750 43.90 7.13 8.02 8.91 9.80 10.70 11.59 12.48
<FN>
* Net amount subject to federal and New York State and personal income tax after deductions and exemptions.
+ Thefirst combined tax bracket is calculated using the highest State rate (7.125% effective annualized State tax rate based on a
rate of 7.5% for the first 3 months of the 1996 tax year and 7.0% for the remaining 9 months) within the bracket. Taxpayers with
taxable income below the highest dollar amount in the first bracket may have a lower combined tax bracket and taxable equivalent
yield than indicated above. The applicable State rate is the maximum rate, 7.125%, throughout all other brackets. The applicable
federal tax rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
</TABLE>
Note: Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that the Fund will
achieve any specific tax exempt yield. While it is expected that the Portfolio
will invest principally in obligations, the interest from which is exempt from
the regular federal income tax and New York State and New York City personal
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. The table does not take into account state or local taxes, if
any, payable on Fund distributions except for New York State and New York City
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 above-indicated combined federal and New York State/City income brackets
assume State and City taxes are itemized deductions and do not take into account
the effect of a reduction in the deductibility of itemized deductions (including
New York State and City Income Taxes) for taxpayers with adjusted gross income
in excess of $117,950, nor do they reflect phaseout of personal exemptions for
single and joint filers with adjusted gross income in excess of $117,950 and
$176,950, respectively. The effective combined tax brackets and equivalent
taxable yields of taxpayers who do not itemize or who are subject to such
limitations will be higher than those indicated above. In addition, investors
who do not itemize deductions on their federal income tax returns will have
higher combined brackets and equivalent taxable yields than indicated above.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC RHODE ISLAND MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Rhode Island State personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Rhode Island Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Rhode Island considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Rhode Island 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 Rhode
Island issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The economic slowdown beginning in 1989 resulted in significant State budget
constraints. Declining State revenues, combined with increased demand for
certain governmental services, such as public assistance, have occurred as a
result of the difficult general economic conditions. State law requires that the
State end each year with a balanced budget and does not permit a deficit to
continue into the next fiscal year. In response to this legal mandate and
overall budgetary pressures, the State has undertaken a variety of strong
financial management controls and initiatives, including reducing expenditures,
improving revenue estimating procedures and increasing taxes.
The 1993 fiscal year budget contained a number of revenue raising
components, including a temporary 32% "piggyback" personal income tax rate for
federal liability greater than $15,000, initiating video lottery games at two
existing gambling sites, levying new health care provider assessments on nursing
homes and certain outpatient care facilities (but not hospitals), and increasing
estimated "disproportionate share" reimbursements, a substantial portion of
which is expected to be one-time. In 1993, the State recorded an $8.4 million
operating surplus, boosting the undesignated general fund balance to $8.7
million. Audited expenditures in excess of revenues were $5.2 million drawing
down the General Fund balance to $3.5 million. The 1995 budget includes budgeted
reserves of $46.5 million (equal to 3% of fiscal 1995 expenditures).
The collapse of Rhode Island Share and Indemnity Corporation, a private
insurer ("RISDIC"), at the end of December 1990 precipitated the closure on
January 1, 1991 of financial institutions with total deposit liabilities of
approximately $1.7 billion. The resulting banking crisis presented risks of
short-term dislocation in many parts of the State which the State sought to
address through the creation of the Rhode Island Depositors Economic Protection
Corporation ("DEPCO"). Through DEPCO, the State's efforts to address the crisis
were directed at minimizing the larger economic risks as well as alleviating the
social costs from the potential loss of personal savings for many individual
depositors. By the end of 1992, substantially all of the frozen deposits had
been repaid or otherwise made available to the affected depositors through the
reopening, sale or liquidation of the closed institutions. Over the next 20
years, DEPCO is also obligated to pay former depositors approximately $54
million. The necessary steps to resolve the crisis, including the property
management and disposition programs to be conducted by DEPCO in its efforts to
meet the cash requirements for depositor repayments, are under way. DEPCO has
incurred approximately $494.2 million in outstanding debt. Receipts from .6% of
the State's sales and use tax rate are dedicated to a special revenue fund to be
used for repayment of the special obligation bonds.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to A1 by Moody's Investors Services, Inc. and AA- "with a stable
outlook" from Standard & Poor's Ratings Group.
Below the level of State government, Rhode Island is divided into 39 cities
and towns which exercise the functions of local general government. As provided
in the State Constitution, municipalities have the right of self government in
all local matters by adopting a "home rule" charter. Every city or town,
however, has the power to levy, assess and collect taxes, or borrow money, only
as specifically authorized by the General Assembly. Legislation enacted in 1985
limits tax levy or rate increases by municipalities to an increase no greater
than 5 1/2% over the previous year. However tax levy or rate increases of
greater than 5 1/2% are permitted in the event that debt service costs on
present and future general obligation debt increase at a rate greater than 5
1/2%. This limitation may also be exceeded in the event of loss of non-property
tax revenue, or when an emergency situation arises and is certified by the State
Auditor General. In addition, State statutes require every city and town to
adopt a balanced budget for each fiscal year. Local governments rely principally
upon general real and tangible personal property taxes and automobile excise
taxes for provision of revenue.
In recent years, Rhode Island has relieved its cities and towns from a
portion of the costs of major public expenditures through the assumption of
costs and services by the State. However, the economic downturn affecting the
State's revenue base necessitated a reduction in aid by the State in fiscal year
1991. Under the fiscal year 1995 budget, State aid to municipalities is slated
to be $469.6 million.
The largest category of State aid to cities and towns involves assistance
programs for school operations and school buildings. The general school aid
program, which amounted to $268.7 million in 1990 and $295.2 million in 1991,
reimburses communities on the basis of the relationship between the number of
students and the property wealth of the community and its personal income.
Communities are guaranteed a minimum reimbursement of 15 percent of eligible
expenditures of the second prior year for fiscal year 1993 and 9 percent
thereafter. The fiscal 1993 budget modified formulas related to the disbursement
of funds under the major education aid programs. Under the modifications,
greater aid would be distributed to those communities with less property wealth.
The Governor's fiscal year 1994 budget proposal would further modify the
allocation formula with the result that 21 communities would receive less State
assistance in fiscal year 1994 than they were allocated in fiscal year 1993. In
addition to school aid, the State provides a general revenue sharing program for
local governments which is intended for direct property tax relief and
incorporates a distribution formula based upon relative population, tax effort
and personal income of each municipality. In addition, the State provides
municipal aid programs which include reimbursement to local governments for
their cost of carrying out certain State mandates. For fiscal year 1992, $6.0
million was appropriated. No funds were appropriated for fiscal year 1993.
However, the 1991 General Assembly passed legislation that provides that
commencing in the fiscal year 1994, municipalities will receive 1% of total
State tax revenues. The formula for the 1995 education aid budget established a
Poverty Weight Fund (PWF). Of the $414.7 million budgeted for educational aid,
$46.1 million was distributed through the PWF. The Governor's recommended budget
for fiscal year 1996 increases school aid by $22.9 million (5.3%), including
$20.7 million in operations aid, which will be distributed through the PWF.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $42,905,967. For
the fiscal year ended September 30, 1995, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $100,476 (equivalent to 0.25% 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
$50,721. For the fiscal year ended September 30, 1994, absent a fee reduction,
the Portfolio would have paid BMR advisory fees of $63,773 (equivalent to 0.21%
of the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of the full amount of its advisory
fee. For the period from the Portfolio's start of business June 11, 1993, to the
fiscal year ended September 30, 1993, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $4,206 (equivalent to 0.15% (annualized) of
the Portfolio's average 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 expenses related to the operation of the Portfolio in the
amount of $3,373. The Portfolio's Investment Advisory Agreement with BMR is
dated June 7, 1993 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 SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator receives no compensation for providing administrative
services to the Fund. For fiscal year ended September 30, 1995 and for the
period from the start of business, December 7, 1993, to the fiscal year ended
September 30, 1994, $20,429 and $18,025, respectively, of the Fund's operating
expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this SAI. Pursuant to Rule 12b-1, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, as required by Rule 12b-1. During the fiscal year ended September 30,
1995, the Principal Underwriter paid to Authorized Firms sales commissions of
$24,223 on sales of Fund shares. During the same period, the Fund paid sales
commission payments under the Plan to the Principal Underwriter aggregating
$25,614. Such payments reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $186 were
imposed on early redeeming shareholders and paid to the Principal Underwriter to
reduce Uncovered Distribution Charges. As at September 30, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $340,000 (which amount was equivalent to 11.2% of
the Fund's net assets on such date). During the fiscal year ended September 30,
1995, the Fund paid service fee payments under the Plan aggregating $6,823, of
which $6,465 was paid to Authorized Firms and the balance of which was retained
by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $115.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody fees
of $3,503 which were reduced by fee credits of $561 and the Portfolio incurred
custody fees of $25,652 which were reduced by fee credits of $16,510.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994 and for the period from the start of business, June 11, 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and 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 $336(2) $135,000(4)
Samuel L. Hayes, III ....... 0 324(3) 150,000(5)
Norton H. Reamer ........... 0 316 135,000
John L. Thorndike .......... 0 321 140,000
Jack L. Treynor ............ 0 346 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this SAI, Nicole Anderes (34) has served
as a Vice President of the Portfolio since June 19, 1995. Ms. Anderes has been a
Vice President of BMR and Eaton Vance since 1994, and is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Ms. Anderes was Vice President and portfolio manager, Lazard Freres Asset
Management (1992-1994) and Vice President and Manager -- Municipal Research,
Roosevelt & Cross (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund from June 11, 1993 through
September 30, 1995 and for the one-year period ended September 30, 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 contingent deferred sales
charge ("CDSC"). The total return for such prior period has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING CDSC DEDUCTING CDSC*
INVESTMENT INVESTMENT AMOUNT OF DEDUCTING CDSC DEDUCTING CDSC* -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 6/11/93 $1,000 $1,057.34 $1,057.34 5.73% 2.44% 5.73% 2.44%
1 Year
Ended
9/30/95** 9/30/94 $1,000 $1,090.04 $1,080.04 9.00% 9.00% 8.00% 8.00%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
**If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.61%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.61% would be 7.30%,
assuming a combined Federal and State tax rate of 36.88%. 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 September 30, 1995 and based on
the Fund's monthly distribution paid September 22, 1995) was 4.82%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 4.93%. 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 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 72.1% 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 EV Classic Rhode Island Tax Free Fund to EV Classic Rhode Island
Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Rhode Island State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND RHODE ISLAND STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- RI STATE ------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------ --------------- -------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 18.51% 4.91% 5.52% 6.14% 6.75% 7.36% 7.98% 8.59%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.54 6.02 6.77 7.52 8.28 9.03 9.78 10.53
$ 58,151 - $121,300 $ 96,901 - $147,700 36.88 6.34 7.13 7.92 8.71 9.51 10.30 11.09
$121,301 - $263,750 $147,701 - $263,750 42.34 6.94 7.80 8.67 9.54 10.41 11.27 12.14
Over $263,750 Over $263,750 46.18 7.43 8.36 9.29 10.22 11.15 12.08 13.01
<FN>
* Net amount subject to federal and Rhode Island personal income tax after deductions and exemptions.
+ The combined tax rates assume a Rhode Island rate of 27.5% of federal income tax liability and that Rhode Island taxes are
itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their federal income tax return
will have a higher combined bracket and higher taxable equivalent yield than those indicated above. The applicable federal tax
rates within the brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
</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 Rhode Island State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Rhode Island 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 Rhode Island personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credit that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
[LOGO]
EV CLASSIC MUNICIPAL FUNDS
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1996
EV CLASSIC CALIFORNIA MUNICIPALS FUND
EV CLASSIC FLORIDA MUNICIPALS FUND
EV CLASSIC NEW YORK MUNICIPALS FUND
EV CLASSIC RHODE ISLAND MUNICIPALS FUND
EV CLASSIC
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, BOS725, P.O. Box 1559, Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
C-TFC2/1SAI
<PAGE>
EATON VANCE MUNICIPALS TRUST
FOR THE FUNDS:
- EV Classic California Municipals Fund
- EV Classic Florida Tax Free Fund
- EV Classic Massachusetts Tax Free Fund
- EV Classic Mississippi Tax Free Fund
- EV Classic New York Tax Free Fund
- EV Classic Ohio Tax Free Fund
- EV Classic Rhode Island Tax Free Fund
- EV Classic West Virginia Tax Free Fund
- --------------------------------------------------------------------------------
[GRAPHIC OF A DOOR]
- --------------------------------------------------------------------------------
ANNUAL SHAREHOLDER REPORT
SEPTEMBER 30, 1995
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
Year-end results, listed by state ...................................... 2
President's letter to shareholders ..................................... 3
Management Reports:
EV Classic California Municipals Fund ........................... 4
EV Classic Florida Tax Free Fund ................................. 5
EV Classic Massachusetts Tax Free Fund ........................... 6
EV Classic Mississippi Tax Free Fund ............................. 7
EV Classic New York Tax Free Fund ................................ 8
EV Classic Ohio Tax Free Fund .................................... 9
EV Classic Rhode Island Tax Free Fund ............................ 10
EV Classic West Virginia Tax Free Fund ........................... 11
Financial Results ............................................... 12
</TABLE>
INFORMATION ABOUT YOUR MUTUAL FUND INVESTMENT
<TABLE>
<CAPTION>
FINANCIAL DATA: TAX DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
RESULTS FOR THE YEAR Fund's The after-tax
ENDING SEPTEMBER 30, 1995 Dividends paid Fund's NAV distribution If your combined equivalent Federal
by Fund per share rate at Federal & State yield you income tax
during period at 9/30/95 9/30/95 tax rate is... would need is information*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EV Classic California $0.472 $9.32 4.95% [GRAPHIC OF 43.04% 8.64% 98.75
Municipals Fund CALIFORNIA]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic Florida $0.464 $9.35 4.87% [GRAPHIC OF 38.63% 7.88% 98.34
Tax Free Fund FLORIDA]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic Massachusetts $0.473 $9.26 5.00% [GRAPHIC OF 43.68% 8.83% 98.86
Tax Free Fund MASSACHUSETTS]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic Mississippi $0.438 $9.30 4.60% [GRAPHIC OF 39.20% 7.52% 98.50
Tax Free Fund MISSISSIPPI]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic New York $0.468 $9.42 4.85% [GRAPHIC OF 40.96% 8.16% 98.70
Tax Free Fund NEW YORK]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic Ohio $0.453 $9.32 4.75% [GRAPHIC OF 40.80% 8.01% 99.35
Tax Free Fund OHIO]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic Rhode Island $0.454 $9.21 4.82% [GRAPHIC OF 42.34% 8.34% 99.35
Tax Free Fund RHODE ISLAND]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic West Virginia $0.443 $9.35 4.63% [GRAPHIC OF 40.16% 7.74% 99.66
Tax Free Fund VIRGINIA]
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Percentages represent the amounts of the total dividends paid by the Funds from net investment income during the year ended
September 30, 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.
</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.
DESPITE TAX POLICY UNCERTAINTIES, TAX-EXEMPT BONDS YIELD MORE THAN 89% OF
TREASURY YIELDS
<TABLE>
<CAPTION>
<S> <C>
30-YR. AA GENERAL OBLIGATION (GO) BONDS* 5.90%
TAXABLE EQUIVALENT YIELD OF INVESTMENT
FOR COUPLE IN 36% TAX BRACKET 9.21%
30-YR TREASURY BONDS 6.50%
<FN>
Principal and interest payments of Treasury securities are guaranteed by the
U.S. government.
* 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 September 30, 1995.
Past Performance is no guarantee of future results.
Source: Bloomberg, L.P.
</TABLE>
However, for many reasons, we at Eaton Vance believe there is little chance of
major tax reform legislation being enacted. 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.+
Sincerely,
/s/ Thomas J. Fetter
--------------------
Thomas J. Fetter
President
November 3, 1995
+ A portion of the Portfolios' income could be subject to Federal alternative
minimum tax.
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 comprises bonds principally from your individual
state, the Index is composed of bonds from all 50 states and many jurisdictions.
The Index's total return does not reflect any commissions or expenses that would
be incurred if an investor individually purchased or sold the securities
represented in the Index.
3
<PAGE>
EV Classic California Municipals Fund
YOUR INVESTMENT AT WORK
Sacramento Cogeneration Authority
Cogeneration Project Bonds
These bonds are being used to build a gas-fired cogeneration plant that will
produce electricity for the Sacramento Municipal Utility District. The plant
also will produce steam for a nearby Procter & Gamble manufacturing facility. It
is located on a 10-acre parcel next to the Procter & Gamble property.
The project is part of the Municipal Utility District's plan to reduce its
purchases of electrical power from local electric utilities. It is scheduled to
begin operation in 1996 and will be the second of up to four cogeneration plants
to be constructed in the Sacramento area.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues.................................. 110
Average quality................................... A+
Investment grade.................................. 88.3
Effective maturity................................ 14.67 yrs.
Largest sectors:
Lease revenues/Certificates of
participation.................................. 22.6%
Escrowed to maturity........................... 16.2
Tax allocation................................. 9.0
Insured utilities.............................. 8.8*
Housing........................................ 8.6
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: California
California's economy is improving slowly. Gains in the northern part of the
state - in San Francisco and the Silicon Valley, for example - have been
partially offset by continued poor economic conditions in Orange and Los Angeles
Counties.
The Los Angeles County economy continues to lag, and the Orange County
government has been in bankruptcy since December, 1994, when losses in the
derivatives market drained nearly $1.7 billion from its investment pool. Both
counties are finding it necessary to cut back on government services; those
cutbacks have the effect of further dampening local economic activity.
While California's long-term economic outlook is positive, its current problems
are not likely to end soon, in part because of the magnitude of its outstanding
financial issues. The state, home to much import and export business with
Pacific Rim countries, has also been hurt by the depressed Japanese economy. It
could expect to recover more quickly if the Japanese economy were to improve.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC CALIFORNIA
MUNICIPALS FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 7.3% 1.5%
Without CDSC 8.3% 1.5%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.CALIFORNIA LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10159 10114
2/94 9920 9852
3/94 9494 9451
4/94 9498 9531
5/94 9544 9614
6/94 9444 9558
7/94 9612 9730
8/94 9648 9764
9/94 9497 9621
10/94 9294 9450
11/94 9054 9279
12/94 9207 9483
1/95 9548 9754
2/95 9856 10038
3/95 9958 10153
4/95 9949 10165
5/95 10279 10490
6/95 10082 10398
7/95 10126 10496
8/95 10211 10630
9/95 10287 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/3/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"California is such a large state that we have been able to choose credits for
the Portfolio very selectively. In general, we have avoided Los Angeles County
debt, though we do hold two relatively secure specialized bonds from the area
for yield purposes.
"Similarly, our holdings in Orange County are disproportionately low because of
the county's continuing financial problems. Over time, we have been able to
assess the full effect of those problems and can say with assurance that the
Portfolio's five credits located in the county have not been affected by the
county's financial problems."
- Robert B. MacIntosh
4
<PAGE>
EV Classic Florida Tax Free Fund
YOUR INVESTMENT AT WORK
Martin County Industrial
Development Authority
Indiantown Cogeneration Project
The proceeds of this $125 million bond issue were used to refund bonds issued in
1992 used to build a portion of this cogeneration project.
The power plant will burn coal and supply electricity to Florida Power & Light
Company and steam to Caulkins Indiantown Citrus Company. Construction began in
1992 and is expected to be completed next year.
The 1992 bond proceeds financed the costs of acquiring, building and equipping
facilities for treatment of solid wastes associated with operating the
coal-fired cogeneration plant.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues............................... 138
Average quality................................ AA-
Investment grade............................... 92.4%
Effective maturity............................. 16.83 yrs.
Largest sectors:
Utilities................................... 12.5%
Housing..................................... 10.6
Insured utilities........................... 8.5*
Insured special tax revenue................. 7.9*
General obligations......................... 7.5
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Florida
The Florida economy is relatively strong, helped by solid gains in the business
services sector, which is growing at a double-digit rate. Meanwhile, the
construction sector has been hampered by slower income and household growth.
State agencies project that Florida's population will grow at an annual rate of
nearly 2%, not as strong as the state had estimated earlier.
Tourism continues to be a cornerstone of the Florida economy. Tourism levels in
1995 have slightly exceeded the state's expectations.
It is estimated that Florida's unemployment rate through 1995 will be 6.1%, a
significant drop from 8.2% at the peak of the recession in 1992.
The 1995 legislative session ended with approval of budget appropriations which,
adjusted for inflation, represent the smallest increase in state spending in
more than 10 years. Despite the need for substantial expenditures to accommodate
continuing growth, Florida's level of debt is considered moderate and its
economy stable.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC FLORIDA TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.7% 1.5%
Without CDSC 9.7% 1.5%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.FLORIDA LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10148 10114
2/94 9848 9852
3/94 9332 9451
4/94 9375 9531
5/94 9410 9614
6/94 9329 9558
7/94 9516 9730
8/94 9520 9764
9/94 9326 9621
10/94 9081 9450
11/94 8853 9279
12/94 9144 9483
1/95 9461 9754
2/95 9819 10038
3/95 9888 10153
4/95 9888 10165
5/95 10162 10490
6/95 9977 10398
7/95 10031 10496
8/95 10125 10630
9/95 10233 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/3/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The Florida health care market has been somewhat in disarray because of health
care reform. As a result, we have exercised caution when looking at health care
or hospital bonds. Through our proprietary research, we have been able to buy
high-quality hospital bonds at very attractive prices.
"We have employed a two-pronged approach to the Portfolio, with an emphasis on
quality and also bonds that allow us to add to yield.
"We are still very constructive on the Florida economy, and we continue to look
for discount coupon bonds that add attractive characteristics to the Portfolio."
- Thomas J. Fetter
5
<PAGE>
EV Classic Massachusetts Tax Free Fund
YOUR INVESTMENT AT WORK
Plymouth County
Correctional Facility
These bonds were used to construct a new 1,140-bed prison to house federal,
state and county inmates in Plymouth. In addition to expanded housing
facilities, the project includes a modern medical facility.
The project was designed to provide partial relief for the Commonwealth's
correctional system, which has become seriously overcrowded in the past decade.
As a state-of-the-art, "direct supervision" facility, the project aims to
provide a more successful correctional environment while reducing costs. The new
facility is operated by the Plymouth County Sheriff's Department.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues............................... 95
Average quality................................ A+
Investment grade............................... 96.3%
Effective maturity (years)..................... 15.47
Largest sectors:
General obligations......................... 13.7%
Insured hospitals........................... 11.8*
Housing..................................... 11.4
Water and sewer............................. 9.8
Education................................... 9.8
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Massachusetts
Massachusetts' employment levels have climbed significantly in recent years,
recovering roughly 60% of the jobs lost in the last recession. Recent jobless
rates have remained at or below the national rate, and personal income growth
continues to accelerate. Growth has been especially impressive in the high
technology and financial sectors.
The Commonwealth has greatly improved its financial position. Debt levels, while
still too high, have nonetheless been reduced, while reserve levels have
increased to 3% of revenues. As a result, Massachusetts now enjoys enhanced
liquidity and more leeway with respect to operations, and should record a modest
surplus in the current fiscal year. As a reflection of the progress the
Commonwealth has made in recent years, its debt ratings have been upgraded to A1
and A+, considerably higher than they were at their lowest point in early 1991.
Looking ahead, the economy should continue to post modest growth. On the fiscal
front, the administration has recently initiated efforts to control social
spending. While opening a thorny political issue, the move could result in
further fiscal improvements in the future.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC
MASSACHUSETTS TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 7.4% 1.1%
Without CDSC 8.4% 1.1%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.MASS. LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10070 10114
2/94 9841 9852
3/94 9357 9451
4/94 9331 9531
5/94 9418 9614
6/94 9328 9558
7/94 9496 9730
8/94 9532 9764
9/94 9360 9621
10/94 9116 9450
11/94 8837 9279
12/94 9108 9483
1/95 9447 9754
2/95 9764 10038
3/95 9844 10153
4/95 9835 10165
5/95 10077 10490
6/95 9892 10398
7/95 9947 10496
8/95 10075 10630
9/95 10151 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/7/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The Portfolio's exposure to the hospital sector remains quite low. Health care
institutions around the country are under increasing pressure from competition.
This condition is especially true in Massachusetts, where there are too many
hospital beds for the commonwealth's population.
"As a result, we do extensive research before adding any hospital bonds to the
Portfolio, to ensure that the hospitals we choose will be among the survivors in
this increasingly competitive environment.
"In structuring the Portfolio, we've employed a two-pronged strategy in the
Portfolio, emphasizing quality on one hand and prudent yield enhancement on the
other."
- Robert B. MacIntosh
6
<PAGE>
EV Classic Mississippi Tax Free Fund
YOUR INVESTMENT AT WORK
Mississippi State University
Renovation Project
Bond proceeds were used to renovate and equip two buildings on the Mississippi
State University campus. The renovations included the conversion of former
dormitory buildings into classroom and office space.
The funds were also used to extend a chilled water loop on the campus in order
to improve the university's heating and cooling system.
The bonds were issued in 1995, with a maturity of 2015. The cost of the project
is estimated to be $3 million.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues....................... 36
Average quality........................ AA
Investment grade....................... 98.7%
Effective maturity..................... 15.55 yrs.
Largest sectors:
Insured hospitals................... 19.2%*
Utilities........................... 10.9
Industrial development revenue...... 10.0
Housing............................. 9.4
General obligations................. 7.8
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Mississippi
Mississippi's economy, traditionally reliant on cyclical manufacturing, has
shown significant growth in recent years.Expansion in the manufacturing and
service sectors allowed the state's unemployment rate to remain roughly the same
in 1994 as in 1993.
Much of the state's recent job growth came from gaming-related employment in the
early 1990s. It is estimated that some 50,000 jobs were created either directly
or indirectly by this industry. However, with more than 30 casinos now open in
the state, Mississippi is saturated with gambling. In addition, the industry now
faces strong competition from neighboring Louisiana, which is opening gambling
in New Orleans.
Although Mississippi's economy should continue to grow during the next few
years, expected changes in the gaming industry, combined with a slowdown in
other sectors, are likely to cause the pace of that growth to be slower than it
has been in recent years.
A positive for the state is its very conservative fiscal management.
Mississippi's debt level is one of the lowest in the country.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC MISSISSIPPI
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.5% 1.0%
Without CDSC 9.5% 1.0%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.MISSISSIPPI LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10109 10114
2/94 9798 9852
3/94 9180 9451
4/94 9253 9531
5/94 9336 9614
6/94 9254 9558
7/94 9428 9730
8/94 9430 9764
9/94 9256 9621
10/94 9030 9450
11/94 8790 9279
12/94 9016 9483
1/95 9361 9754
2/95 9715 10038
3/95 9793 10153
4/95 9770 10165
5/95 10061 10490
6/95 9907 10398
7/95 9969 10496
8/95 10071 10630
9/95 10132 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/7/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Mississippi is now in a period of economic strength. We have tried to take
advantage of that fact by moving the Portfolio into more state-backed general
obligation bonds.
"At the same time, we have somewhat reduced our exposure to the insured sector
because insured bonds are plentiful and are not as attractive as some other
Mississippi bonds.
"We continue to look to add industrial development bonds to the Portfolio, as
they offer an attractive combination of yield and security."
- Cynthia J. Clemson
7
<PAGE>
EV Classic New York Tax Free Fund
YOUR INVESTMENT AT WORK
New York State Power Authority
Historically, three of the top issuer names in New York have been "Ports" (Port
Authorities of New York and New Jersey), "Powers" (New York State Power
Authority) and "Tribes" (Triborough Bridge and Tunnel Authority). Bonds of these
three issuers are among the highest rated in the market.
Of the three, we see the most value in Power Authority bonds, especially as a
place to weather any coming storm in BBB-rated New York State-appropriated
bonds. The Triborough Bridge and Tunnel Authority will likely be under credit
pressure as it begins borrowing plans for the MTA subway system.Port Authority
bonds typically do not offer the attractive coupon structure available on some
Power Authority bonds.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues............................ 179
Average quality............................. A+
Investment grade............................ 98.0%
Effective maturity (years).................. 14.47
Largest sectors:
Health care.............................. 19.1%
Education................................ 12.7
Special tax revenue...................... 12.5
Lease/Certificate of
participation............................ 8.7
Escrowed................................. 7.6
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: New York
New York is at a crossroads, with its first new governor in 12 years. Governor
George Pataki's first real chance to make his mark comes with next year's
budget. The impact of his proposed income tax cuts will be felt much more deeply
in the budget for fiscal year 1996-97; it will garner much attention because tax
cuts must be accompanied by spending cuts. It has the potential to be Pataki's
first big step toward streamlining state government and fulfilling his election
promises.
Given the potential for next year's budget process to be especially contentious
and given that this year's budget was passed late, as often occurs, the Governor
plans an earlier unveiling of the fiscal 1996-97 budget. The goal of matching
spending commitments to ongoing revenue resources is positive for the state's
long-term credit standing but may produce near-term turmoil.
Of more immediate interest to New York tax-exempt investors is the November
voter referendum on state debt reform. New Yorkers will vote on whether to end
the state's entrenched process of "backdoor borrowing." If debt reform passes,
the state will revamp its borrowing process. Consequently, it currently plans to
issue an unusually heavy calendar of state-supported appropriation debt between
now and year-end.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC NEW YORK TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.5% 1.9%
Without CDSC 9.5% 1.9%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.NEW YORK LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10131 10114
2/94 9852 9852
3/94 9368 9451
4/94 9413 9531
5/94 9508 9614
6/94 9399 9558
7/94 9565 9730
8/94 9621 9764
9/94 9398 9621
10/94 9165 9450
11/94 8854 9279
12/94 9166 9483
1/95 9483 9754
2/95 9819 10038
3/95 9920 10153
4/95 9910 10165
5/95 10204 10490
6/95 10030 10398
7/95 10106 10496
8/95 10233 10630
9/95 10286 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/6/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Anticipating that state-appropriated debt will underperform in the face of a
heavy new issuance calendar, we have been reducing the Portfolio's exposure to
State appropriation debt and swapping into high-grade debt. Once this wave of
debt has come to market, state-appropriated debt should be attractively priced
and once again represent a buying opportunity.
"This past summer, during the second leg of the 1995 rally, discount coupon
bonds returned to favor. This was an opportunity to sell deep discounts in the
New York Portfolio and trade into more moderate discount coupon bonds that
should perform comparably to deep discounts in an up market and much better in a
down market."
- Nicole Anderes
8
<PAGE>
EV Classic Ohio Tax Free Fund
YOUR INVESTMENT AT WORK
Higher Educational Facility Comm.
University of Dayton
The proceeds of these bonds are being used for a variety of projects, the
largest of which is acquisition of land for the University of Dayton Law School.
The money also is being used to construct and equip the Law School and Library,
to complete the Phillips Center for the Humanities, to acquire and renovate
student residences, rebuild campus roads and to renovate a variety of other
buildings on campus.
The Law School and Library building will have floor space of more than 120,000
square feet and will be completely computer accessible. The university has more
than 10,000 students.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues....................... 139
Average quality........................ A+
Investment grade....................... 90.5%
Effective maturity..................... 13.42 yrs.
Largest sectors:
Hospitals........................... 19.3%
Insured hospitals................... 11.7*
General obligations................. 9.1
Industrial development/ Pollution
control revenue..................... 8.8
Education........................... 7.9
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Ohio
The Ohio economy continues to be diverse and strong. Overall, the state has
moved from heavy reliance on manufacturing jobs to a more balanced economy.
Ohio's financial position has improved during the last 12 months, allowing the
state to begin restoring its financial reserves.
The state's service sector has been a source of job growth during the past
several years.While the manufacturing sector grew during the second half of
1994, it is expected to recede somewhat during the last half of 1995.
Unemployment rates at the end of 1994 were considerably lower than the national
average.
The recent robust economic activity in Ohio has helped the state's balance
sheet. Tax receipts were greater than expected in the 1994 fiscal year and into
1995. For the same reason, Medicaid expenditures were somewhat lower than
anticipated.
Ohio benefits from relatively conservative management and a debt burden that is
low relative to that of other industrialized states.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC OHIO TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.6% 1.2%
Without CDSC 9.6% 1.2%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.OHIO LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10080 10114
2/94 9770 9852
3/94 9223 9451
4/94 9256 9531
5/94 9361 9614
6/94 9270 9558
7/94 9467 9730
8/94 9480 9764
9/94 9267 9621
10/94 9041 9450
11/94 8791 9279
12/94 9060 9483
1/95 9408 9754
2/95 9722 10038
3/95 9780 10153
4/95 9779 10165
5/95 10073 10490
6/95 9941 10398
7/95 10004 10496
8/95 10130 10630
9/95 10193 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/7/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The past year has proved to be volatile for the bond market, with a sharp
decline during most of 1994 and the strong bond market rally of 1995.
"In the Ohio Portfolio, the levels of new bond issuance have decreased
significantly. This creates a supply-and-demand situation that bodes well for
the inherent value of bonds.
"We remain highly selective in terms of the health care and hospital bonds that
we add to the Portfolio. This sector is extremely competitive nationwide, and it
is important to use thorough research to determine the most attractive
candidates for the Portfolio. These are often medical facilities that have
strengthened themselves through mergers or alliances with other facilities or
HMOs."
- Thomas J. Fetter
9
<PAGE>
EV Classic Rhode Island Tax Free Fund
YOUR INVESTMENT AT WORK
Rhode Island State Industrial
Facilities Corporation
Marine Terminal Bonds
The proceeds of these bonds were used to build the main Rhode Island terminal
and distribution facilities for Mobil Oil Refining in the mid-1980s. The company
transports oil in tanker ships through Narragansett Bay and distributes it to
the Rhode Island area through these facilities, which are located inEast
Providence.
These bonds carry the senior corporate debt ratings of Mobil Corp., Aa2/AA.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues........................ 48
Average quality......................... AA
Investment grade........................ 99.2%
Effective maturity...................... 17.10yrs.
Largest sectors:
Housing.............................. 16.7
Insured water and sewer.............. 16.6*
Insured college and university....... 9.8*
Special tax.......................... 6.7
Insured housing...................... 6.1*
<FN>
* Private insurance does not remove the risk of loss of principal due to changes in market
conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Rhode Island
Rhode Island's economy is softening after barely showing signs of recovery from
the recession of the late 1980s. Employment numbers for 1995 are running below
those of 1994; the state recently had to revise revenues down slightly to
reflect the weaker economy. Even the state's outlook for a "continued recovery
at a sluggish pace" may be too optimistic and the 1.2% annual employment growth
projected may have to be revised downward.
As sobering as this news is, our diversified portfolio of Rhode Island bonds
should not be directly affected by the state's budget and economic problems. For
example, portfolio holdings include tax-exempt debt backed by single-family
mortgage pools, by high-grade corporations and by the state's leading
universities and colleges.
Also, Providence appears to be a bright spot in the state's economic landscape
and may be more of a stabilizing influence than it has been historically.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC RHODE ISLAND
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.0% 0.6%
Without CDSC 9.0% 0.6%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.RHODE ISLAND LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10138 10114
2/94 9757 9852
3/94 9140 9451
4/94 9223 9531
5/94 9338 9614
6/94 9237 9558
7/94 9444 9730
8/94 9457 9764
9/94 9243 9621
10/94 8976 9450
11/94 8737 9279
12/94 9028 9483
1/95 9386 9754
2/95 9700 10038
3/95 9790 10153
4/95 9757 10165
5/95 9997 10490
6/95 9779 10398
7/95 9865 10496
8/95 10001 10630
9/95 10075 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/7/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Over the past year, the goal has been to restructure the Rhode Island Portfolio
to balance long discount holdings with more defensive, higher yielding bonds.
The relatively small Portfolio size makes rebalancing tricky; seemingly small
changes can have a large impact on performance.
"Housing bonds have offered the best opportunity to add yield and a defensive
sector to the Portfolio; holdings in this sector were increased from nearly 12%
in September 1994 to 17% by September 1995.Since housing bonds typically carry
AA or AAA ratings, added exposure to this sector has allowed us to take
advantage of our strong research capabilities by prudently adding higher
yielding BBBcredits while maintaining overall credit quality at an average AA
rating."
- Nicole Anderes
10
<PAGE>
EV Classic West Virginia Tax Free Fund
YOUR INVESTMENT AT WORK
Upshur County
TJ International Project
The proceeds of these bonds are being used to build a sewage and solid waste
disposal system for a lumber production plant in Upshur County. The facility
manufactures engineered lumber in the form of wood joists and related lumber
products.
The factory is owned by Trus Joist MacMillan.
The bonds were issued in 1995 and will mature in 2025.
The total cost of construction is estimated at about $22 million.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues............................ 39
Average quality............................. AA-
Investment grade............................ 95.6%
Effective maturity.......................... 16.42 yrs.
Largest sectors:
Insured hospitals........................ 15.7*
Insured electric utilities............... 13.5%*
Industrial development/pollution
control revenue.......................... 12.5
Electric utilities....................... 11.8
Insured water & sewer.................... 11.1*
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: West Virginia
West Virginia's economy suffers from a heavy reliance on the coal mining
industry and on employment in older metal and chemical factories.
The state economy recovered well in 1994 from the recession of the early 1990s,
in large part because of the end of the coal strike. That event brought a needed
boost to the state's employment and retail sales.
In 1995, the state's economy has continued to grow, though at a much slower pace
than in 1994. In fact, West Virginia has the slowest rate of growth of the
southeastern states and its unemployment levels still exceed the national
average. During the last year, however, the state experienced significant gains
in the construction, transportation and communications sectors. Increases in
tourism have helped the state's economy slightly, as has growth in Federal
employment.
The state's prospects for economic expansion are enhanced somewhat by the fact
that its population is now increasing.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC WEST
VIRGINIA TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.4% 1.2%
Without CDSC 9.4% 1.2%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. WEST VIRGINIA LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10139 10114
2/94 9857 9852
3/94 9291 9451
4/94 9283 9531
5/94 9387 9614
6/94 9254 9558
7/94 9470 9730
8/94 9493 9764
9/94 9309 9621
10/94 9074 9450
11/94 8803 9279
12/94 9060 9483
1/95 9385 9754
2/95 9728 10038
3/95 9827 10153
4/95 9815 10165
5/95 10118 10490
6/95 9932 10398
7/95 9994 10496
8/95 10140 10630
9/95 10180 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/13/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The West Virginia bond market is extremely sensitive to movements of supply and
demand. The challenge for a portfolio manager is to stay abreast of those
movements.
"We try to purchase issues when they are trading cheaply in the secondary market
and wait for supply to diminish, at which time we can offer them at a
significant profit.
"Our principal focus is on maintaining a 'barbell' structure in the Portfolio
that provides good performance in both up and down markets. We want to maintain
both yield and diversification, and to that end are committing a great deal of
effort to researching non-rated private placement issues to gain yield."
- Timothy T. Browse
11
<PAGE>
-------
EV Classic Tax Free Funds
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
---------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in Portfolio --
Identified cost $2,681,678 $5,310,943 $ 2,700,769 $2,237,833
Unrealized appreciation (depreciation) 36,002 (71,742) 47,677 74,290
---------- ---------- ---------- ----------
Total investment in Portfolio, at value (Note 1A) $2,717,680 $5,239,201 $ 2,748,446 $2,312,123
Receivable for Fund shares sold 158 -- -- --
Receivable from the Administrator (Note 4) 39,199 24,340 13,833 14,260
Deferred organization expenses (Note 1D) 8,988 4,825 6,375 7,274
---------- ---------- ---------- ----------
Total assets $2,766,025 $5,268,366 $ 2,768,654 $2,333,657
---------- ---------- ---------- ----------
LIABILITIES:
Dividends payable $ 2,993 $ 5,606 $ 3,045 $ 2,349
Payable to affiliates --
Trustees' fees -- 43 -- --
Custodian fee 584 584 584 584
Accrued expenses 2,349 1,518 1,099 962
---------- ---------- ---------- ----------
Total liabilities $ 5,926 $ 7,751 $ 4,728 $ 3,895
---------- ---------- ---------- ----------
NET ASSETS $2,760,099 $5,260,615 $ 2,763,926 $2,329,762
========== ========== ========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $2,921,227 $6,014,862 $ 3,034,389 $2,535,528
Accumulated net realized loss on investment and
financial futures transactions (computed on the basis
of identified cost) (204,111) (690,559) (318,562) (286,435)
Accumulated undistributed net investment income 6,981 8,054 422 6,379
Unrealized appreciation (depreciation) of investments
and financial futures contracts from Portfolio
(computed on the basis of identified cost) 36,002 (71,742) 47,677 74,290
---------- ---------- ---------- ----------
Total $2,760,099 $5,260,615 $ 2,763,926 $2,329,762
========== ========== ========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 296,153 562,364 298,594 250,630
========== ========== ========== ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (NOTE
6) PER SHARE (net assets / shares of beneficial interest
outstanding) $9.32 $9.35 $9.26 $9.30
========== ========== ========== ==========
</TABLE>
See notes to financial statements
12
<PAGE>
-------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in Portfolio --
Identified cost $5,285,125 $2,120,821 $3,143,159 $ 1,061,963
Unrealized appreciation (depreciation) 126,845 (20,561) (130,245) (36,491)
---------- ---------- ---------- ----------
Total investment in Portfolio, at value (Note 1A) $5,411,970 $2,100,260 $3,012,914 $ 1,025,472
Receivable for Fund shares sold 15,100 43,688 -- --
Receivable from the Administrator (Note 4) 24,385 20,605 20,429 16,838
Deferred organization expenses (Note 1D) 6,573 7,150 6,530 7,378
---------- ---------- ---------- ----------
Total assets $5,458,028 $2,171,703 $3,039,873 $ 1,049,688
---------- ---------- ---------- ----------
LIABILITIES:
Dividends payable $ 5,926 $ 2,278 $ 3,225 $ 1,063
Payable for Fund shares redeemed 470 -- 1,007 15,101
Payable to affiliates --
Trustees' fees 43 -- -- --
Custodian fee 584 584 151 559
Accrued expenses 1,623 927 1,206 677
---------- ---------- ---------- ----------
Total liabilities $ 8,646 $ 3,789 $ 5,589 $ 17,400
---------- ---------- ---------- ----------
NET ASSETS $5,449,382 $2,167,914 $3,034,284 $ 1,032,288
========== ========== ========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $5,512,810 $2,295,498 $3,415,734 $ 1,133,678
Accumulated net realized loss on investment and
financial futures transactions (computed on the basis
of identified cost) (199,204) (106,999) (257,942) (67,904)
Accumulated undistributed (distributions in excess of)
net investment income 8,931 (24) 6,737 3,005
Unrealized appreciation (depreciation) of investments
and financial futures contracts from Portfolio
(computed on the basis of identified cost) 126,845 (20,561) (130,245) (36,491)
---------- ---------- ---------- ----------
Total $5,449,382 $2,167,914 $3,034,284 $ 1,032,288
========== ========== ========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 578,363 232,722 329,629 110,431
========== ========== ========== ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (NOTE
6) PER SHARE (net assets / shares of beneficial interest
outstanding) $9.42 $9.32 $9.21 $9.35
========== ========== ========== ==========
</TABLE>
See notes to financial statements
13
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 188,661 $ 397,958 $ 186,481 $ 153,412
Expenses allocated from Portfolio (16,129) (32,077) (15,317) (5,882)
--------- --------- --------- ---------
Net investment income from Portfolio $ 172,532 $ 365,881 $ 171,164 $ 147,530
--------- --------- --------- ---------
Expenses --
Compensation of Trustees not members of the
Administrator's organization $ -- $ 122 $ -- $ --
Distribution costs (Note 5) 27,957 57,947 27,026 23,394
Custodian fee (Note 4) 3,526 3,886 3,543 3,130
Transfer and dividend disbursing agent fees 2,470 3,502 2,390 1,828
Printing and postage 17,250 10,554 -- 5,607
Legal and accounting services 6,265 6,650 5,006 5,615
Registration costs -- 1,112 1,049 941
Amortization of organization expenses (Note 1D) 2,967 1,518 2,009 2,296
Miscellaneous 9,043 2,052 493 1,025
--------- --------- --------- ---------
Total expenses $ 69,478 $ 87,343 $ 41,516 $ 43,836
--------- --------- --------- ---------
Deduct allocation of expenses to the Administrator
(Note 4) $ 39,199 $ 24,340 $ 13,833 $ 14,260
Deduct reduction of custodian fee (Note 4) -- 1,183 -- --
--------- --------- --------- ---------
Total $ 39,199 $ 25,523 $ 13,833 $ 14,260
--------- --------- --------- ---------
Net expenses $ 30,279 $ 61,820 $ 27,683 $ 29,576
--------- --------- --------- ---------
Net investment income $ 142,253 $ 304,061 $ 143,481 $ 117,954
--------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(113,634) $(363,457) $(186,609) $(188,597)
Financial futures contracts (24,662) (97,603) (31,485) (30,325)
--------- --------- --------- ---------
Net realized loss on investments $(138,296) $(461,060) $(218,094) $(218,922)
Change in unrealized appreciation (depreciation) of
investments 203,944 629,276 242,489 304,544
--------- --------- --------- ---------
Net realized and unrealized gain $ 65,648 $ 168,216 $ 24,395 $ 85,622
--------- --------- --------- ---------
Net increase in net assets from operations $ 207,901 $ 472,277 $ 167,876 $ 203,576
========= ========= ========= =========
</TABLE>
See notes to financial statements
14
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
---------- -------- ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 357,605 $127,727 $ 209,585 $ 90,067
Expenses allocated from Portfolio (28,168) (11,069) (8,578) (4,286)
---------- -------- --------- --------
Net investment income from Portfolio $ 329,437 $116,658 $ 201,007 $ 85,781
---------- -------- --------- --------
Expenses --
Compensation of Trustees not members of the
Administrator's organization $ 165 $ -- $ -- $ --
Distribution costs (Note 5) 52,724 19,276 31,974 13,957
Custodian fee (Note 4) 3,321 3,387 3,503 3,416
Transfer and dividend disbursing agent fees 3,458 1,888 3,085 1,471
Printing and postage 12,238 4,834 7,024 5,359
Legal and accounting services 6,021 5,864 4,860 4,611
Registration costs 380 1,156 -- --
Amortization of organization expenses (Note 1D) 2,099 2,081 2,051 2,314
Miscellaneous 1,059 2,280 1,427 965
---------- -------- --------- --------
Total expenses $ 81,465 $ 40,766 $ 53,924 $ 32,093
---------- -------- --------- --------
Deduct allocation of expenses to the Administrator
(Note 4) $ 24,385 $ 20,605 $ 20,429 $ 16,838
Deduct reduction of custodian fee (Note 4) 2,868 -- 561 --
---------- -------- --------- --------
Total $ 27,253 $ 20,605 $ 20,990 $ 16,838
---------- -------- --------- --------
Net expenses $ 54,212 $ 20,161 $ 32,934 $ 15,255
---------- -------- --------- --------
Net investment income $ 275,225 $ 96,497 $ 168,073 $ 70,526
---------- -------- --------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $ (78,176) $(67,704) $ (115,559) $ (26,782)
Financial futures contracts (63,649) (16,928) (56,902) (18,506)
---------- -------- --------- --------
Net realized loss on investments $(141,825) $(84,632) $ (172,461) $ (45,288)
Change in unrealized appreciation (depreciation) of
investments 381,603 161,713 261,324 99,940
---------- -------- --------- --------
Net realized and unrealized gain $ 239,778 $ 77,081 $ 88,863 $ 54,652
---------- -------- --------- --------
Net increase in net assets from operations $ 515,003 $173,578 $ 256,936 $ 125,178
========== ======== ========= ========
</TABLE>
See notes to financial statements
15
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 142,253 $ 304,061 $ 143,481 $ 117,954
Net realized loss on investments (138,296) (461,060) (218,094) (218,922)
Change in unrealized appreciation (depreciation)
of investments 203,944 629,276 242,489 304,544
----------- ----------- ------------- -----------
Net increase in net assets from operations $ 207,901 $ 472,277 $ 167,876 $ 203,576
----------- ----------- ------------- -----------
Distributions to shareholders (Note 2) --
From net investment income $ (142,253) $ (304,061) $ (143,481) $ (117,954)
In excess of net investment income (3,147) (13,024) (7,184) (3,078)
In excess of net realized gain on investments (5,291) -- -- --
----------- ----------- ------------- -----------
Total distributions to shareholders $ (150,691) $ (317,085) $ (150,665) $ (121,032)
----------- ----------- ------------- -----------
Transactions in shares of beneficial interest (Note
3) --
Proceeds from sales of shares $ 785,921 $ 899,398 $ 938,555 $ 747,475
Net asset value of shares issued to shareholders
in
payment of distributions declared 56,477 139,236 109,243 76,392
Cost of shares redeemed (1,032,948) (3,996,087) (2,043,937) (1,376,356)
----------- ----------- ------------- -----------
Decrease in net assets from Fund share
transactions $ (190,550) $(2,957,453) $ (996,139) $ (552,489)
----------- ----------- ------------- -----------
Net decrease in net assets $ (133,340) $(2,802,261) $ (978,928) $ (469,945)
NET ASSETS:
At beginning of year 2,893,439 8,062,876 3,742,854 2,799,707
----------- ----------- ------------- -----------
At end of year $ 2,760,099 $ 5,260,615 $ 2,763,926 $2,329,762
============ ============ ================ ===========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS AT END OF YEAR $ 6,981 $ 8,054 $ 422 $ 6,379
============ ============ ================ ===========
</TABLE>
See notes to financial statements
16
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 275,225 $ 96,497 $ 168,073 $ 70,526
Net realized loss on investments (141,825) (84,632) (172,461) (45,288)
Change in unrealized appreciation
(depreciation)
of investments 381,603 161,713 261,324 99,940
---------- ---------- ---------- ----------
Net increase in net assets from operations $ 515,003 $ 173,578 $ 256,936 $ 125,178
---------- ---------- ---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (275,225) $ (96,497) $ (168,073) $ (70,526)
In excess of net investment income (7,088) (5,422) (4,045) (2,437)
---------- ---------- ---------- ----------
Total distributions to shareholders $(282,313) $ (101,919) $ (172,118) $ (72,963)
---------- ---------- ---------- ----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $2,176,868 $ 522,879 $ 315,949 $ 48,967
Net asset value of shares issued to
shareholders in payment of distributions
declared 229,427 70,373 114,621 49,748
Cost of shares redeemed (2,326,154) (607,702) (1,399,657) (1,015,933)
---------- ---------- ---------- ----------
Increase (decrease) in net assets from Fund
share transactions $ 80,141 $ (14,450) $ (969,087) $ (917,218)
---------- ---------- ---------- ----------
Net increase (decrease) in net assets $ 312,831 $ 57,209 $ (884,269) $ (865,003)
NET ASSETS:
At beginning of year 5,136,551 2,110,705 3,918,553 1,897,291
---------- ---------- ---------- ----------
At end of year $5,449,382 $2,167,914 $3,034,284 $ 1,032,288
========== ========== ========== ==========
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS
OF) NET INVESTMENT INCOME INCLUDED IN NET ASSETS
AT END OF YEAR $ 8,931 $ (24) $ 6,737 $ 3,005
========== ========== ========== ==========
</TABLE>
See notes to financial statements
17
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CALIFORNIA FUND CLASSIC CLASSIC CLASSIC
-------------------------- FLORIDA MASSACHUSETTS MISSISSIPPI
YEAR ENDED YEAR ENDED FUND FUND FUND
SEPTEMBER 30, MARCH 31, ----------- ------------- -----------
1994** 1994* YEAR ENDED SEPTEMBER 30, 1994***
-------------- ---------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 61,773 $ 21,091 $ 268,997 $ 103,634 $ 83,964
Net realized gain (loss) on investments (62,402) 1,878 (229,499) (100,468) (67,513)
Change in unrealized depreciation of
investments (842) (167,100) (701,018) (194,812) (230,254)
---------- ---------- ---------- ---------- ----------
Net decrease in net assets from
operations $ (1,471) $(144,131) $ (661,520) $ (191,646) $ (213,803)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (61,773) $ (21,091) $ (268,997) $ (103,634) $ (83,964)
In excess of net investment income (9,885) (3,747) (48,427) (19,821) (14,125)
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders $ (71,658) $ (24,838) $ (317,424) $ (123,455) $ (98,089)
---------- ---------- ---------- ---------- ----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $1,431,747 $3,317,122 $11,658,622 $ 4,628,340 $3,787,256
Net asset value of shares issued to
shareholders in payment of distributions
declared 37,372 9,644 143,172 93,925 52,885
Cost of shares redeemed (597,281) (1,063,067) (2,759,974) (664,310) (728,542)
---------- ---------- ---------- ---------- ----------
Increase in net assets from Fund share
transactions $ 871,838 $2,263,699 $ 9,041,820 $ 4,057,955 $3,111,599
---------- ---------- ---------- ---------- ----------
Net increase in net assets $ 798,709 $2,094,730 $ 8,062,876 $ 3,742,854 $2,799,707
NET ASSETS:
At beginning of year 2,094,730 -- -- -- --
---------- ---------- ---------- ---------- ----------
At end of year $2,893,439 $2,094,730 $ 8,062,876 $ 3,742,854 $2,799,707
========== ========== ========== ========== ==========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT
END OF YEAR $ (357) $ -- $ (3,902) $ (3,008) $ --
========== ========== ========== ========== ==========
</TABLE>
* For the period from the start of business, December 3, 1993 to March 31,
1994.
** For the six months ended September 30, 1994 (Note 8).
*** For the Classic Florida, Classic Massachusetts and Classic Mississippi
Funds, the Statements of Changes in Net Assets are for the period from the
start of business, December 3, 1993, December 7, 1993 and December 7, 1993,
respectively, to September 30, 1994.
See notes to financial statements
18
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended September 30, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 110,149 $ 67,300 $ 131,218 $ 55,093
Net realized loss on investments (57,379) (22,367) (85,481) (22,616)
Change in unrealized depreciation of
investments (254,758) (182,274) (391,569) (136,431)
---------- ---------- ---------- ----------
Net decrease in net assets from operations $ (201,988) $ (137,341) $ (345,832) $ (103,954)
---------- ---------- ---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (110,149) $ (67,300) $ (131,218) $ (55,093)
In excess of net investment income (22,654) (13,207) (24,131) (10,215)
---------- ---------- ---------- ----------
Total distributions to shareholders $ (132,803) $ (80,507) $ (155,349) $ (65,308)
---------- ---------- ---------- ----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $6,440,708 $ 3,336,935 $5,314,659 $ 2,589,662
Net asset value of shares issued to
shareholders in payment of distributions
declared 94,263 59,809 100,358 45,910
Cost of shares redeemed (1,063,629) (1,068,191) (995,283) (569,019)
---------- ---------- ---------- ----------
Increase in net assets from Fund share
transactions $5,471,342 $ 2,328,553 $4,419,734 $ 2,066,553
---------- ---------- ---------- ----------
Net increase in net assets $5,136,551 $ 2,110,705 $3,918,553 $ 1,897,291
NET ASSETS:
At beginning of year -- -- -- --
---------- ---------- ---------- ----------
At end of year $5,136,551 $ 2,110,705 $3,918,553 $ 1,897,291
========== ========== ========== ==========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT END
OF YEAR $ (4,017) $ (1,905) $ (2,203) $ (814)
========== ========== ========== ==========
</TABLE>
* For the Classic New York, Classic Ohio, Classic Rhode Island and Classic West
Virginia Funds, the Statements of Changes in Net Assets are for the period
from the start of business December 6, 1993, December 7, 1993, December 7,
1993, and December 13, 1993, respectively, to September 30, 1994.
See notes to financial statements
19
<PAGE>
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
----------------------------- ----------------- ----------------- -----------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- --------- ----------------- ----------------- -----------------
1995 1994++ 1994*** 1995 1994* 1995 1994* 1995 1994*
------- ------- --------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.080 $ 9.340 $10.000 $ 8.970 $10.000 $ 9.000 $10.000 $ 8.920 $10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.460 $ 0.227 $ 0.140 $ 0.444 $ 0.351 $ 0.449 $ 0.350 $ 0.426 $ 0.338
Net realized and unrealized gain
(loss) on investments 0.267 (0.224) (0.635) 0.399 (0.967) 0.283 (0.933) 0.391 (1.024)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.727 $ 0.003 $(0.495) $ 0.843 $(0.616) $ 0.732 $(0.583) $ 0.817 $(0.686)
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.460) $(0.227) $(0.140) $(0.444) $(0.351) $(0.449) $(0.350) $(0.426) $(0.338)
In excess of net investment income (0.010) (0.036) (0.025) (0.019) (0.063) (0.023) (0.067) (0.011) (0.056)
In excess of net realized gain on
investments (0.017) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.487) $(0.263) $(0.165) $(0.463) $(0.414) $(0.472) $(0.417) $(0.437) $(0.394)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.320 $ 9.080 $ 9.340 $ 9.350 $ 8.970 $ 9.260 $ 9.000 $ 9.300 $ 8.920
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (2) 8.32% 0.03% (5.16%) 9.72% (6.36%) 8.45% (6.02%) 9.47% (6.96%)
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000
omitted) $ 2,761 $ 2,893 $ 2,095 $ 5,261 $ 8,063 $ 2,764 $ 3,743 $ 2,330 $ 2,800
Ratio of net expenses to average
daily net assets (1) 1.67% 1.73%+ 1.64%+ 1.59% 1.63%+ 1.53% 1.61%+ 1.48% 1.24%+
Ratio of net investment income to
average daily net assets 5.11% 4.89%+ 4.17%+ 4.99% 4.51%+ 5.05% 4.55%+ 4.79% 4.42%+
</TABLE>
** For the period from the start of business, December 3, 1993, to March 31,
1994, for the six months ended September 30, 1994, and for the year ended
September 30, 1995 (for Classic California Fund) and for the period from the
start of business, December 3, 1993, December 7, 1993 and December 7, 1993,
respectively, to September 30, 1994 and for the year ended September 30, 1995
(for Classic Florida, Classic Massachusetts and Classic Mississippi Funds,
respectively), 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> <C>
NET INVESTMENT INCOME PER SHARE $0.335 $0.120 $0.123 $0.408 $0.331 $0.405 $0.260 $0.364 $0.246
====== ====== ====== ====== ====== ====== ====== ====== ======
RATIOS (As a percentage of average
daily net
assets):
Expenses (1) 3.07% 4.03%+ 2.15%+ 1.99% 1.88%+ 2.02% 2.78%+ 2.18% 2.45%+
Net investment income 3.71% 2.59%+ 3.66%+ 4.59% 4.26%+ 4.56% 3.38%+ 4.09% 3.21%+
+ Annualized.
++ For the six months ended September 30, 1994 (Note 8).
(1) Includes each 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 non-annualized basis.
* For the Classic Florida, Classic Massachusetts and Classic Mississippi Funds, the Financial Highlights are for the
period from the start of business, December 3, 1993, December 7, 1993 and December 7, 1993, respectively, to
September 30, 1994.
*** For the period from the start of business, December 3, 1993, to March 31, 1994.
</TABLE>
See notes to financial statements
20
<PAGE>
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
----------------- ----------------- ----------------- -----------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- ----------------- ----------------- -----------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.060 $10.000 $ 8.940 $10.000 $ 8.890 $10.000 $ 8.980 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.454 $ 0.344 $ 0.428 $ 0.348 $ 0.442 $ 0.347 $ 0.427 $ 0.326
Net realized and unrealized gain (loss) on
investments 0.372 (0.869) 0.404 (0.992) 0.331 (1.046) 0.385 (0.959)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.826 $(0.525) $ 0.832 $(0.644) $ 0.773 $(0.699) $ 0.812 $(0.633)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.454) $(0.344) $(0.428) $(0.348) $(0.442) $(0.347) $(0.427) $(0.326)
In excess of net investment income (0.012) (0.071) (0.024) (0.068) (0.011) (0.064) (0.015) (0.061)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.466) $(0.415) $(0.452) $(0.416) $(0.453) $(0.411) $(0.442) $(0.387)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.420 $ 9.060 $ 9.320 $ 8.940 $ 9.210 $ 8.890 $ 9.350 $ 8.980
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (2) 9.45% (5.45%) 9.64% (6.75%) 9.00% (7.29%) 9.35% (6.53%)
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $ 5,449 $ 5,137 $ 2,168 $ 2,111 $ 3,034 $ 3,919 $ 1,032 $ 1,897
Ratio of net expenses to average daily net
assets (1) 1.57% 1.64%+ 1.56% 1.60%+ 1.29% 1.23%+ 1.35% 1.28%+
Ratio of net investment income to average
daily net assets 4.96% 4.41%+ 4.76% 4.42%+ 5.00% 4.50%+ 4.81% 4.53%+
</TABLE>
** For the period from the start of business, December 6, 1993, December 7,
1993, December 7, 1993 and December 13, 1993, respectively, to September 30,
1994, and for the year ended September 30, 1995 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 $0.414 $0.293 $0.336 $0.241 $0.377 $0.299 $0.318 $0.204
====== ====== ====== ====== ====== ====== ====== ======
RATIOS (As a percentage of average daily net
assets):
Expenses (1) 2.01% 2.29%+ 2.58% 2.96%+ 2.03% 1.85%+ 2.58% 2.66%+
Net investment income 4.52% 3.76%+ 3.74% 3.06%+ 4.26% 3.88%+ 3.58% 3.15%+
+ Annualized.
(1) Includes each 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 non-annualized basis.
* For the Classic New York, Classic Ohio, Classic Rhode Island and Classic West Virginia Funds, the Financial
Highlights are for the period from the start of business, December 6, 1993, December 7, 1993, December 7, 1993 and
December 13, 1993, respectively, to September 30, 1994.
</TABLE>
See notes to financial statements
21
<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 (1940 Act), as amended, as an open-end management investment
company. The Trust presently consists of sixty-six Funds, eight of which are
included in these financial statements. They include EV Classic California
Municipals Fund ("Classic California Fund") (formerly a series of Eaton Vance
Investment Trust), which is registered under the 1940 Act as a diversified
management investment company, EV Classic Florida Tax Free Fund ("Classic
Florida Fund"), EV Classic Massachusetts Tax Free Fund ("Classic Massachusetts
Fund"), EV Classic Mississippi Tax Free Fund ("Classic Mississippi Fund"), EV
Classic New York Tax Free Fund ("Classic New York Fund"), EV Classic Ohio Tax
Free Fund ("Classic Ohio Fund"), EV Classic Rhode Island Tax Free Fund ("Classic
Rhode Island Fund"), and EV Classic West Virginia Tax Free Fund ("Classic West
Virginia Fund"), each of which is registered under the 1940 Act as a
non-diversified management investment company. 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 California Fund invests its
assets in the California Tax Free Portfolio, the Classic Florida Fund invests
its assets in the Florida Tax Free Portfolio, the Classic Massachusetts Fund
invests its assets in the Massachusetts Tax Free Portfolio, the Classic
Mississippi Fund invests its assets in the Mississippi Tax Free Portfolio, the
Classic New York Fund invests its assets in the New York Tax Free Portfolio, the
Classic Ohio Fund invests its assets in the Ohio Tax Free Portfolio, the Classic
Rhode Island Fund invests its assets in the Rhode Island Tax Free Portfolio, and
the Classic West Virginia Fund invests its assets in the West 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
(0.7%, 0.7%, 0.9%, 8.0%, 0.8%, 0.7%, 0.7%, and 2.5% at September 30, 1995 for
the Classic California Fund, Classic Florida Fund, Classic Massachusetts Fund,
Classic Mississippi Fund, Classic New York Fund, Classic Ohio Fund, Classic
Rhode Island Fund and Classic West 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 September 30, 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 which would otherwise be necessary to relieve the
Funds of any liability for federal income or excise tax.
The amounts and expiration dates of the capital loss carryovers are as follows:
<TABLE>
<CAPTION>
FUND AMOUNT EXPIRES
- ------------------------------------------------------
<S> <C> <C>
Classic California Fund $ 4,833 September 30, 2003
59,053 September 30, 2002
Classic Florida Fund 19,484 September 30, 2003
166,878 September 30, 2002
Classic Massachusetts
Fund 14,863 September 30, 2003
85,630 September 30, 2002
Classic Mississippi
Fund 20,891 September 30, 2003
65,533 September 30, 2002
Classic New York Fund 16,076 September 30, 2003
46,131 September 30, 2002
Classic Ohio Fund 4,540 September 30, 2003
15,584 September 30, 2002
Classic Rhode Island
Fund 85,223 September 30, 2002
Classic West Virginia
Fund 4,513 September 30, 2003
20,474 September 30, 2002
</TABLE>
Additionally, at September 30, 1995, net capital losses of $141,249, $360,526,
$203,067, $203,526, $122,759, $73,189, $168,377 and $42,901 for the Classic
California Fund, Classic Florida Fund, Classic Massachusetts Fund, Classic
Mississippi Fund, Classic New York Fund, Classic Ohio Fund, Classic Rhode Island
Fund and Classic West 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 tax-exempt interest on 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
22
<PAGE>
-------
- --------------------------------------------------------------------------------
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.
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 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 statement
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital. During
the year ended September 30, 1995, $10,485, $24,980, $10,614, $9,457, $20,036,
$7,303, $12,985 and $6,256 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 California Fund,
Classic Florida Fund, Classic Massachusetts Fund, Classic Mississippi Fund,
Classic New York Fund, Classic Ohio Fund, Classic Rhode Island Fund and Classic
West Virginia Fund, respectively. Net investment income, net realized gains and
net assets were not affected by these reclassifications.
23
<PAGE>
-------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
(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 CLASSIC
CLASSIC CLASSIC MASSACHUSETTS MISSISSIPPI
CALIFORNIA FUND FLORIDA FUND FUND FUND
------------------------------ --------------- -------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- MARCH 31, --------------- -------------- --------------
1995 1994*** 1994** 1995 1994* 1995 1994* 1995 1994*
------- ------- ---------- ------ ------ ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 86,883 155,065 333,899 100,863 1,181,103 103,012 475,720 85,045 387,168
Issued to shareholders
electing to receive
payments of distributions
in Fund shares 6,267 4,043 990 15,557 15,396 12,218 10,132 8,505 5,724
Redemptions (115,522) (64,922) (110,549) (452,681) (297,874) (232,568) (69,920) (156,634) (79,178)
-------- -------- -------- -------- -------- -------- ------- -------- -------
Net increase (decrease) (22,372) 94,186 224,340 (336,261) 898,625 (117,338) 415,932 (63,084) 313,714
======== ======== ======== ======== ========= ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK FUND OHIO FUND RHODE ISLAND FUND WEST VIRGINIA FUND
------------------- ----------------- ------------------ ------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------- ----------------- ------------------ ------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
-------- -------- ------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 242,369 669,316 58,811 341,950 35,648 536,962 5,454 267,099
Issued to shareholders
electing to receive
payments of distributions
in Fund shares 25,207 10,092 7,852 6,461 12,896 10,899 5,559 4,960
Redemptions (255,881) (112,740) (70,065) (112,287) (159,886) (106,890) (111,885) (60,756)
-------- -------- ------- -------- -------- -------- -------- -------
Net increase (decrease) 11,695 566,668 (3,402) 236,124 (111,342) 440,971 (100,872) 11,303
======== ======== ======= ======== ======= ======== ======== =======
</TABLE>
* For the Classic Florida, Classic Massachusetts, Classic Mississippi, Classic
New York, Classic Ohio, Classic Rhode Island and Classic West Virginia
Funds, the transactions in Fund shares are for the period from the start of
business, December 3, 1993, December 7, 1993, December 7, 1993, December 6,
1993, December 7, 1993, December 7, 1993 and December 13, 1993,
respectively, to September 30, 1994.
** For the Classic California Fund, the transactions in Fund shares are for the
period from the start of business, December 3, 1993, to March 31, 1994.
*** For the Classic California Fund, the transactions in Fund shares are for the
six months ended September 30, 1994 (Note 8).
24
<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, $39,199,
$24,340, $13,833, $14,260, $24,385, $20,605, $20,429 and $16,838 of expenses
related to the operation of the Classic California Fund, Classic Florida Fund,
Classic Massachusetts Fund, Classic Mississippi Fund, Classic New York Fund,
Classic Ohio Fund, Classic Rhode Island Fund and Classic West 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. All significant credit balances are reported as a reduction
of expenses in the statement of operations. 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. 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 September
30, 1995, Classic California Fund, Classic Florida Fund, Classic Massachusetts
Fund, Classic Mississippi Fund, Classic New York Fund, Classic Ohio Fund,
Classic Rhode Island Fund, and Classic West Virginia Fund, paid or accrued
$20,968, $45,748, $21,336, $18,469, $41,624, $15,218, $25,243 and $11,019,
respectively, to or payable to EVD representing 0.75% (annualized) of average
daily net assets. At September 30, 1995, the amount of Uncovered Distribution
Charges of EVD calculated under the Plans for Classic California Fund, Classic
Florida Fund, Classic Massachusetts Fund, Classic Mississippi Fund, Classic New
York Fund, Classic Ohio Fund, Classic Rhode Island Fund and Classic West
Virginia Fund were approximately $331,000, $713,000, $310,000, $281,000,
$467,000, $240,000, $340,000 and $166,000, respectively.
In addition, the Plans permit the Funds to make monthly payments of service fees
to the Principal Underwriter, 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 monthly service fee
payments to the Principal Underwriter in amounts not expected to exceed 0.20%
(0.25% for the Classic California Fund) of each Fund's average daily net assets
for each fiscal year. For the year ended September 30, 1995, Classic California
Fund, Classic Florida Fund, Classic Massachusetts Fund, Classic Mississippi
Fund, Classic New York Fund, Classic Ohio Fund, Classic Rhode Island Fund and
Classic West Virginia Fund paid or accrued service fees to or payable to EVD in
the amount of $6,989, $12,199, $5,690, $4,925, $11,100, $4,058, $6,731 and
$2,938, 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% (0.25% for the Classic
California Fund) 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% (0.25%
for the Classic California Fund) 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.
25
<PAGE>
-------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
(6) CONTINGENT DEFERRED SALES CHARGES
For shares purchased on or after January 30, 1995, a contingent deferred sales
charge (CDSC) of 1% is imposed on any redemption of Fund shares made within one
year of purchase. Generally, the CDSC is based upon the lower of the net asset
value at date of redemption or date of purchase. No charge is levied on shares
acquired by reinvestment of dividends or capital gains distributions. No CDSC is
levied on shares which have been sold to EVD or its affiliates or to their
respective employees or clients. CDSC charges are paid to EVD to reduce the
amount of Uncovered Distribution Charges calculated under the Funds'
Distribution Plans. CDSC received when no Uncovered Distribution Charges exist
will be credited to the Funds. For the year ended September 30, 1995, EVD
received $400, $917, $1,445, $59, $97, $19 and $186, respectively of CDSC paid
by shareholders for the Classic California Fund, Classic Florida Fund, Classic
Massachusetts Fund, Classic Mississippi Fund, Classic New York Fund, Classic
Ohio Fund, and Classic Rhode Island Fund. EVD did not receive any CDSC from
shareholders of the Classic West Virginia Fund during the year ended September
30, 1995.
- --------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's
investment in its corresponding
Portfolio for the year ended September
30, 1995 were as follows:
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Increases $ 873,828 $ 989,913 $ 998,839 $ 827,116
Decreases 1,235,100 4,428,717 2,169,128 1,502,599
</TABLE>
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Increases $2,820,843 $ 524,994 $ 416,499 $ 80,818
Decreases 2,520,062 703,777 1,636,556 1,086,744
</TABLE>
- --------------------------------------------------------------------------------
(8) CHANGE IN FISCAL YEAR
The Classic California Fund changed its fiscal year end from March 31, to
September 30, effective September 30, 1994.
26
<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 California Municipals Fund, EV Classic Florida Tax Free Fund, EV Classic
Massachusetts Tax Free Fund, EV Classic Mississippi Tax Free Fund, EV Classic
New York Tax Free Fund, EV Classic Ohio Tax Free Fund, EV Classic Rhode Island
Tax Free Fund and EV Classic West Virginia Tax Free Fund (the Funds) (certain of
the series constituting Eaton Vance Municipals Trust) as of September 30, 1995,
the related statements of operations for the year then ended, and the statements
of changes in net assets and the financial highlights for each of the years in
the two-year period ended September 30, 1995 and for the EV Classic California
Municipals Fund for the period from the start of business, December 3, 1993 to
March 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 September 30,
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
OCTOBER 27, 1995
27
<PAGE>
-------
California Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 3.4%
NR BBB- $ 2,985 Central Valley Financing
Authority, Carson Ice-Gen
Project, 6.20%, 7/1/20 $ 2,914,584
NR BBB- 10,900 Sacramento Cogeneration
Authority, Procter &
Gamble Project, 6.50%,
7/1/21 10,987,636
-------------
$ 13,902,220
-------------
ESCROWED TO MATURITY - 16.2%
NR NR $ 130 City of Commerce Joint
Powers Financing
Authority, 8.00%, 3/1/22 $ 153,456
NR BBB 2,000 City of Rancho Mirage
Joint Powers Financing
Authority, Civic Center,
7.50%, 4/1/17 2,320,380
Aaa AAA 8,000 County of Sacramento,
SFMRB (GNMA), (AMT),
8.125%, 7/1/16 (2) 9,771,840
Aaa AAA 6,000 County of Sacramento,
SFMRB (GNMA), (AMT),
8.25%, 1/1/21 (2) 7,790,400
Aaa AAA 14,285 County of Sacramento,
SFMRB (GNMA), (AMT),
8.50%, 11/1/16 (2) 18,319,941
Aaa AAA 3,000 City and County of San
Francisco Sewer System
Secondary "RITES,"
(AMBAC), Variable, 10/1/21
(1) 3,604,680
Baa1 A- 2,375 City of San Luis Obispo,
Capital Improvement Board,
8.25%, 6/1/06 2,489,523
NR BBB 1,575 Fontana Public Financing
Authority, North Fontana
Redevelopment Project,
7.75%, 12/1/20 1,871,462
Aaa AAA 6,400 Port of Oakland, (BIGI),
0%, 11/1/05 3,784,960
NR NR 3,200 Oceanside California
Community Development
Commission, 8.40%, 6/1/18 3,357,408
NR NR 3,000 Poway Redevelopment
Agency, Paguay
Redevelopment Project,
7.75%, 12/15/21 3,567,420
NR BBB+ 1,000 City of Upland, Police
Building Construction,
8.20%, 8/1/16 1,054,870
NR NR 4,000 Huntington Beach Public
Financing Authority,
Huntington Beach
Redevelopment Projects,
8.375%, 5/1/18 4,472,080
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 2,975 Sacramento - Yolo Port
District Port Facilities,
8.30%, 12/1/03 3,286,125
-------------
$ 65,844,545
-------------
GENERAL OBLIGATIONS - 1.9%
Baa1 A $ 3,000 Puerto Rico, 6.50%, 7/1/23 $ 3,131,640
AA Aa 5,000 East Bay Municipal
Utilities District,
Wastewater System, 5.00%,
4/1/15 4,435,100
-------------
$ 7,566,740
-------------
HOSPITALS - 1.1%
NR BBB+ $ 2,700 City of Stockton, Dameron
Hospital Association,
8.30%, 12/1/14 $ 2,854,818
NR A 1,500 Woodland, Memorial
Hospital, 8.20%, 8/1/15 1,610,175
-------------
$ 4,464,993
-------------
HOUSING - 8.6%
Aa AA- $ 3,770 California Housing Finance
Agency (HFA), (AMT),
7.375%, 8/1/11 $ 3,923,288
Aa AA- 800 California HFA, 7.375%,
8/1/17 855,792
Aa AA- 5,000 California HFA, (AMT),
7.40%, 8/1/26 5,381,050
Aa AA- 3,875 California HFA, (AMT),
(FHA) 7.50%, 8/1/25 4,150,513
Aa AA- 8,185 California HFA, (AMT),
(FHA) 7.65%, 8/1/23 8,549,724
Aa AA- 2,500 California HFA, 8.10%,
8/1/16 2,571,800
Aa AA- 2,500 California HFA, 8.20%,
8/1/17 2,596,875
Aa AA- 1,325 California HFA, (AMT),
8.60%, 8/1/19 1,394,165
Aa3 NR 60 California HFA, 9.875%,
8/1/10 61,343
A NR 845 The Housing Authority of
the County of Los Angeles,
7.875%, 8/1/16 874,541
NR NR 2,000 The Housing Authority of
the County of Los Angeles,
10.50%, 12/1/29 2,061,700
NR A+ 2,050 City of Oakland, HFA,
7.10%, 1/1/10 2,086,716
NR AAA 495 County of Riverside,
California HFA (GNMA),
(AMT), 6.85%, 10/1/16 526,452
-------------
$ 35,033,959
-------------
</TABLE>
28
<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 - 1.0%
Aaa AAA $ 3,330 Regents of the University
of California, (MBIA),
4.75%, 9/1/21 $ 2,770,826
Aaa AAA 1,500 Regents of the University
of California, (AMBAC),
4.875%, 9/1/19 1,280,340
-------------
$ 4,051,166
-------------
INSURED GENERAL OBLIGATION - 0.3%
Aaa AAA $ 4,700 Roseville Unified High
School District, (FGIC),
0%, 6/1/20 $ 1,032,919
-------------
INSURED HOUSING - 0.2%
Aaa AAA $ 720 California HFA, (MBIA),
(AMT), 7.00%, 8/1/23 $ 752,177
-------------
INSURED HOSPITALS - 1.1%
Aaa AAA $ 5,250 Anaheim Memorial Hospital,
(AMBAC), 5.125%, 5/15/20 $ 4,547,813
-------------
INSURED LEASE
REVENUE/CERTIFICATE OF
PARTICIPATION - 4.3%
Aaa AAA $ 3,300 California Statewide
Communities Development
Authority, Motion Picture
and Television Fund,
(AMBAC), 5.68%, 1/1/24 $ 3,052,401
Aaa AAA 7,700 Moulton Niguel Water
District, (AMBAC), 4.80%,
9/1/17 6,548,003
Aaa AAA 4,350 Stockton, California
Wastewater Treatment
Plant, (FGIC), 6.80%,
9/1/24 4,701,350
Aaa AAA 13,985 Visalia Unified School
District, (MBIA), 0%,
12/1/17 3,206,201
-------------
$ 17,507,955
-------------
INSURED TAX
ALLOCATION - 1.0%
Aaa AAA $ 4,850 City of San Jose
Redevelopment Agency,
(MBIA), 4.75%, 8/1/24 $ 4,000,086
-------------
INSURED TRANSPORTATION - 3.1%
Aaa AAA $10,000 Port of Oakland, (AMT),
(BIGI), 0%, 11/1/19 $ 1,734,500
Aaa AAA 10,000 Airports Commission City
and County of San
Francisco, San Francisco
International Airport,
(MBIA), 6.75%, 5/1/13 10,807,200
-------------
$ 12,541,700
-------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED UTILITIES - 8.8%
Aaa AAA $ 5,700 Anaheim Public Financing
Authority, Anaheim
Electric Utility, (FGIC),
5.75%, 10/1/22 $ 5,444,754
Aaa AAA 8,000 Northern California Power
Agency "RIBS," (MBIA),
Variable, 9/2/25 (1) 8,640,960
Aaa AAA 3,500 Sacramento Municipal
Utilities District,
(MBIA), 6.375%, 8/15/22 3,627,820
Aaa AAA 4,000 Southern California Public
Power Authority, (FGIC),
Variable, 7/1/12 4,000,000
Aaa AAA 6,915 Southern California Public
Power Authority, (MBIA),
5.00%, 1/1/20 6,044,747
Aaa AAA 2,750 Southern California Public
Power Authority, (MBIA),
5.50%, 7/1/20 2,576,970
Aaa AAA 5,750 Southern California Public
Power Authority, (MBIA),
5.75%, 7/1/21 5,569,393
-------------
$ 35,904,644
-------------
INSURED WATER & SEWER - 2.7%
Aaa AAA $ 5,000 East Bay Municipal Utility
District "Yield Curve
Notes," (MBIA), Variable,
6/1/08 (1) $ 4,799,800
Aaa AAA 3,430 San Buenaventura Water
District, (AMBAC), 4.75%,
10/1/13 2,965,441
Aaa AAA 3,000 San Diego County Water
Authority, "RITES,"
(FGIC), Variable, 4/22/09
(1) 3,074,790
-------------
$ 10,840,031
-------------
LEASE REVENUE/CERTIFICATES
OF PARTICIPATION - 22.6%
A1 AA- $ 2,945 City of Beverly Hills,
6.75%, 6/1/19 $ 3,026,606
A1 A- 3,140 California State Public
Works Board, Various
Community College
Projects, 5.00%, 6/1/23 2,879,694
A1 A- 7,485 California State Public
Works Board, Various
University of California
Projects, 5.625%, 12/1/18 6,209,107
A1 A- 3,000 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/10 2,866,080
</TABLE>
29
<PAGE>
-------
CALIFORNIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
LEASE REVENUE/CERTIFICATES
OF PARTICIPATION - (CONTINUED)
A1 A- 8,000 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/14 7,376,800
A A- 2,800 California State Public
Works
Board, California State Prison -
Susanville, 5.375%, 6/1/12 2,586,500
A A- 3,500 California State Public
Works
Board, California State Prison -
Susanville, 5.375%, 6/1/18 3,107,965
A1 A- 5,000 California State Public
Works Board, Various
University of California
Projects, 5.25%, 6/1/20 4,369,250
A1 A- 14,025 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/19 12,717,029
NR A 4,150 California Statewide
Community Development
Authority, Eskaton Health
Facilities, 5.875%, 5/1/20 3,862,322
A BBB 2,750 City of Inglewood,
California, Civic Center
Improvement Project,
7.00%, 8/1/19 2,841,438
A A- 5,115 County of Los Angeles,
Disney Parking Project,
0%, 3/1/16 1,217,114
A A- 1,925 County of Los Angeles,
Disney Parking Project,
0%, 3/1/17 426,927
A A- 5,370 County of Los Angeles,
Disney Parking Project,
0%, 3/1/18 1,110,086
A A- 3,100 County of Los Angeles,
Disney Parking Project,
0%, 3/1/20 550,188
A A- 5,000 County of Los Angeles,
Disney Parking Project,
0%, 9/1/17 1,070,600
A A- 1,000 County of Los Angeles,
Disney Parking Project,
6.50%, 3/1/23 992,330
NR NR 14,000 County of Los Angeles,
Capital Asset Leasing
Corporation, Marina del
Rey, 6.50%, 7/1/08 13,725,460
Aa AA 4,305 County of Orange Water
District, 5.00%, 8/15/18 3,668,376
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
A1 A+ 4,000 Pasadena Parking Facility
Project, 6.25%, 1/1/18 4,111,480
NR A- 2,360 Richmond Joint Powers
Financing Authority,
7.00%, 5/15/07 2,532,091
Aa A+ 4,000 City of Sacramento
Financing Authority,
5.40%, 11/1/20 3,666,440
Aa NR 6,000 University of California
at Los Angeles
Chiller/Cogeneration
Project, 5.60%, 11/1/20 5,537,460
NR BBB 1,000 Watsonville Mammoth Lakes,
7.875%, 6/1/11 1,072,130
-------------
$ 91,523,473
-------------
NURSING HOMES - 0.8%
NR NR $ 3,250 Banning, San Georgonio
Pass Convalescent
Hospital, (AMT), 9.50%,
12/1/11 $ 3,381,365
-------------
SOLID WASTE - 0.6%
Baa1 NR $ 2,350 Mojave Desert and Mountain
Solid Waste Joint Powers
Authority, (AMT), 7.875%,
6/1/20 $ 2,569,396
-------------
SPECIAL TAX - 4.9%
NR NR $ 2,100 City of Fairfield, Green
Valley Road - Mangels
Boulevard Extension
Assessment District,
7.375%, 9/2/18 $ 2,147,880
NR NR 970 City of Fairfield, Green
Valley Road - Mangels
Boulevard Extension
Assessment District,
8.00%, 9/2/11 999,876
NR NR 3,000 Lincoln Unified School
District, 7.625%, 9/1/21 3,128,730
Baa NR 10,800 Pleasanton Joint Powers
Financing Authority,
6.15%, 9/2/12 10,654,200
NR NR 3,000 County of Riverside
Community Facilities
District, 7.55%, 9/1/17 3,053,790
-------------
$ 19,984,476
-------------
TAX ALLOCATION - 9.0%
NR NR $ 2,945 City of Commerce Joint
Powers Financing
Authority, 8.00%, 3/1/22 $ 3,110,951
NR BBB 5,000 County of Contra Costa
Public Financing
Authority, 7.10%, 8/1/22 5,134,300
</TABLE>
30
<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>
TAX ALLOCATION - (CONTINUED)
NR BBB 3,910 Fontana Public Financing
Authority, Downtown
Redevelopment Project
7.00%, 9/1/21 3,952,111
NR BBB 8,220 Fontana Redevelopment
Agency, Jurupa Hills
Redevelopment Project
Area, 7.00%, 10/1/14 8,351,191
NR BBB 2,500 City of Pittsburg
Redevelopment Agency,
7.40%, 8/15/20 2,614,900
NR BBB 600 City of Rancho Mirage
Joint Powers Financing
Authority, 7.50%, 4/1/17 632,592
NR BBB 2,500 County of Riverside
Redevelopment Agency,
7.50%, 10/1/26 2,619,025
NR BBB 5,605 San Carlos Redevelopment
Agency, 7.10%, 9/1/17 5,777,185
NR NR 1,400 City of Simi Valley
Community Development
Agency, 8.20%, 9/1/12 1,419,852
Baa1 BBB+ 3,000 Westminster Redevelopment
Agency, 7.30%, 8/1/21 3,107,820
-------------
$ 36,719,927
-------------
TRANSPORTATION - 5.8%
NR BBB $ 3,050 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 3,056,558
Aa AA- 2,000 City of Long Beach Harbor
Revenue Bonds, (AMT),
7.25%, 5/15/19 2,154,720
A1 A- 1,400 County of Orange,
California Airport Revenue
Bonds, 8.125%, 7/1/16 1,449,294
NR NR 12,000 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/14 3,481,440
NR NR 5,765 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/26 721,778
NR NR 35,975 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/27 4,205,117
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 4,940 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
7.00%, 1/1/30 5,074,368
Baa1 BBB 1,500 Stockton Port District,
7.95%, 1/1/05 1,598,940
Baa1 BBB 1,500 Stockton Port District,
8.10%, 1/1/14 1,611,510
-------------
$ 23,353,725
-------------
UTILITIES - 1.7%
Aa AA- $ 7,070 Southern California Public
Power Authority, 0%,
7/1/15 $ 2,109,829
Aa AA- 3,425 Southern California Public
Power Authority, 5.50%,
7/1/20 3,176,277
Aa AA 1,490 Southern California Public
Power Authority, 6.875%,
7/1/15 1,530,170
-------------
$ 6,816,276
-------------
WATER AND SEWER - 0.9%
NR BBB $ 3,190 Orange Cove Irrigation
District, 6.625%, 2/1/17 $ 3,232,904
Aa AA- 515 City of Pasadena, Water
Revenue Bonds, 5.00%,
7/1/18 449,760
-------------
$ 3,682,664
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $381,719,158) $ 406,022,251
=============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by California
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 September 30, 1995, 35.2% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution range from 0.1% to 13.0% of total investments.
See notes to financial statements
31
<PAGE>
-------
Florida Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 3.5%
Baa3 BBB- $ 7,275 Martin County, Indian Town
Project, (AMT), 7.875%,
12/15/25 $ 7,985,840
NR NR 4,000 Palm Beach County,
Okeelanta Power L.P.
Project (AMT), 6.85%,
2/15/21 3,942,760
NR NR 9,250 Palm Beach County, Osceola
Power L.P. Project (AMT),
6.95%, 1/1/22 9,226,413
NR NR 3,100 Palm Beach County, Osceola
Power L.P. Project (AMT),
6.85%, 1/1/14 3,077,246
-------------
$ 24,232,259
-------------
EDUCATION - 0.8%
NR AAA $ 5,500 Volusia County Educational
Facilities, Embry-Riddle
Aeronautical University
Project (CLEE), 6.625%,
10/15/22 $ 5,863,055
-------------
ESCROWED - 3.8%
NR A+ $ 2,100 Charlotte County, St.
Joseph's Hospital, 8.25%,
8/15/18 $ 2,359,497
Aaa AAA 9,225 Dade County, Baptist
Hospital of Miami Project,
5.75%, 5/1/21 9,163,377
Aaa AAA 5,000 Florida Municipal Power
Agency Stanton II Project
(AMBAC), Variable, 10/1/20
(1) 6,306,250
Aaa AAA 1,185 Jacksonville
Transportation Authority,
7.375%, 7/1/20 1,353,554
NR NR 1,675 Mid-Bay Bridge Authority,
6.875%, 10/1/22 1,881,879
Aaa AAA 2,000 Orlando & Orange County
Expressway Authority
(FGIC), 8.25%, 7/1/14 2,585,120
NR AAA 2,355 Pinellas County Health
Facilities Finance
Authority, Sun Coast
Health System, Series A,
8.50%, 3/1/20 2,773,695
-------------
$ 26,423,372
-------------
GENERAL OBLIGATIONS - 7.5%
Aa AA $ 1,000 Florida Board of
Education, 6.75%, 6/1/09 $ 1,113,690
Aa AA 16,100 Florida Board of
Education, 6.70%, 6/1/22 17,056,823
Aa AA 1,500 Florida Board of
Education, 5.20%, 6/1/23 1,351,890
Aa AA 8,000 Florida Board of General
Services, 6.60%, 7/1/17 8,454,960
NR BBB 4,675 Guam Government, 5.40%,
11/15/18 4,068,840
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
A A 7,255 Hillsborough County,
Museum of Science &
Industry, 6.45%, 1/1/22 7,410,692
Baa1 A 2,000 Puerto Rico, 6.50%, 7/1/23 2,087,760
Baa1 A 3,235 Puerto Rico Public
Building Authority, 5.50%,
7/1/21 2,988,137
Baa1 A 7,350 Puerto Rico Public
Building Authority, 5.70%,
7/1/09 7,335,374
-------------
$ 51,868,165
-------------
HEALTH CARE - 7.4%
NR AAA $ 5,075 Dade County Industrial
Development Authority,
Gramercy Park Nursing Care
Center, 6.60%, 8/1/23 $ 5,298,351
NR AAA 4,285 Dade County Industrial
Development Authority,
Florida Club Care Center
(GNMA), 6.60%, 1/20/18 4,333,849
NR BBB+ 3,600 Escambia County Health
Facilities Authority,
Baptist Hospital, Inc. and
The Baptist Manor, Inc.,
6.75%, 10/1/14 3,686,580
NR BBB+ 8,995 Escambia County Health
Facilities Authority,
Baptist Hospital, Inc.,
6.00%, 10/1/14 8,564,769
Baa1 NR 3,750 Jacksonville Health
Facilities Authority,
National Benevolent
Association, Cypress
Village Florida Project,
7.00%, 12/1/22 3,805,125
A NR 14,000 City of Venice Health
Facilities, 6.00%, 12/1/14 15,304,100
A NR 9,810 City of Venice Health
Facilities, 5.75%, 12/1/24 10,544,573
-------------
$ 51,537,347
-------------
HOSPITAL REVENUE - 1.4%
NR AA+ $ 4,750 Jacksonville Health
Facilities Finance
Authority, St. Luke's
Hospital Association
Project, 6.75%, 11/15/13 $ 5,070,008
A BBB+ 5,000 St. John's County
Industrial Development
Authority, Flagler
Hospital Project, 6.00%,
8/1/22 4,794,000
-------------
$ 9,864,008
-------------
HOUSING - 10.6%
NR AAA $ 630 Broward County HFA SFMR
(GNMA), (AMT), 7.35%,
3/1/23 $ 654,665
NR AAA 1,300 Clay County HFA MFMR
(GNMA), 7.40%, 12/1/25 1,382,043
</TABLE>
32
<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)
Aaa NR 2,750 Clay County HFA SFMR
(GNMA), (AMT), 6.55%,
3/1/28 2,785,035
Aaa NR 290 Dade County HFA SFMR
(GNMA), 7.10%, 3/1/17 304,068
Aaa NR 1,220 Dade County HFA SFMR
(GNMA), (AMT), 7.75%,
9/1/22 1,284,306
Aaa NR 1,160 Dade County HFA SFMR
(GNMA), (AMT), 7.25%,
9/1/23 1,209,718
Aaa NR 75 Dade County HFA SFMR
(GNMA), 7.00%, 3/1/24 77,795
NR AAA 5,100 Dade County HFA SFMR
(GNMA), (AMT), 6.55%,
10/1/27 5,149,113
NR AAA 5,850 Dade County HFA SFMR
(GNMA), (AMT), 6.70%,
4/1/28 6,019,943
Aaa NR 2,540 Escambia County HFA SFMR
(GNMA), (AMT), 7.40%,
10/1/23 2,646,401
Aaa NR 7,500 Escambia County HFA SFMR
(GNMA), (AMT), 6.85%,
10/1/17 7,655,325
Aaa NR 5,000 Escambia County HFA SFMR
(GNMA), (AMT), 6.90%,
10/1/21 5,143,800
Aaa NR 6,250 Escambia County HFA SFMR
(GNMA), (AMT), 6.95%,
10/1/27 6,444,500
NR AAA 1,125 Florida HFA (FHA), 6.35%,
6/1/14 1,142,719
Aaa NR 960 Hillsborough County HFA
SFMR (GNMA), (AMT),
7.875%, 5/1/23 1,025,040
NR NR 3,475 City of North Miami Health
Care Facilities, The
Imperial Club Project,
9.25%, 1/1/13 3,712,065
NR AAA 1,695 Orange County HFA SFMR
(GNMA), (AMT), 7.375%,
9/1/24 1,788,632
Aaa NR 12,000 Orange County HFA SFMR
(GNMA), (AMT), 6.85%,
10/1/27 (3) 12,421,440
NR AAA 8,000 Orange County HFA SFMR
(GNMA), (AMT), 6.60%,
4/1/28 8,057,520
Aaa NR 845 Palm Beach County HFA SFMR
(GNMA), 7.60%, 3/1/23 891,551
Aaa NR 1,455 Polk County HFA SFMR
(GNMA), 7.15%, 9/1/23 1,520,199
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Baa BBB 1,400 Puerto Rico Urban Renewal
& Housing Corp, 7.875%,
10/1/04 1,582,770
Aaa AAA 860 Puerto Rico Housing
Finance Corp SFMR (GNMA),
7.65%, 10/15/22 910,602
-------------
$ 73,809,250
-------------
INDUSTRIAL DEVELOPMENT
/POLLUTION CONTROL REVENUE
-2.3%
B1 BB+ $15,200 Polk County Industrial
Development Authority
(AMT), 7.525%, 1/1/15 $ 15,952,552
-------------
INSURED HEALTH CARE - 0.4%
Aaa AAA $ 500 Alachua County Health
Facility, Mental Health
Services Project (CGIC),
7.75%, 7/1/10 $ 565,260
Aaa AAA 2,050 Hillsborough County IDA,
Allegany Health Systems,
J. Knox Village (MBIA),
5.75%, 12/1/21 2,022,510
-------------
$ 2,587,770
-------------
INSURED HOSPITALS - 5.7%
Aaa AAA $ 8,000 Charlotte County Health
Care, Bon-Secours Health
System Project (FSA),
Variable, 8/30/27 (1) $ 8,026,880
Aaa AAA 23,355 Jacksonville FL Health
Authority, Daughters of
Charity (MBIA), 5.00%,
11/15/15 20,846,439
Aaa AAA 2,000 Lee County, Memorial
Hospital (MBIA), Variable,
4/1/20 (1) 2,161,080
Aaa AAA 5,290 Orange County Health
Facilities Finance
Authority, (FGIC), 7.875%,
12/1/25 5,614,753
Aaa AAA 3,000 Orange County Health
Facilities Authority
(MBIA), Variable, 10/29/21
(1) 3,199,950
-------------
$ 39,849,102
-------------
INSURED HOUSING - 2.3%
Aaa AAA $ 1,430 Brevard County HFA SFMR
(FSA), 7.00%, 3/1/13 $ 1,493,292
Aaa AAA 1,720 Duval County HFA SFMR
(FGIC), 7.35%, 7/1/24 1,811,900
Aaa AAA 6,530 FL HEFA, Maitland Club
Apartment Project (AMBAC)
(AMT), 6.875%, 8/1/26 6,776,377
</TABLE>
33
<PAGE>
-------
FLORIDA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOUSING -
(CONTINUED)
Aaa AAA 3,000 FL HFA, Brittany of
Rosemont Project (AMBAC)
(AMT), 6.875%, 8/1/26 3,113,190
Aaa AAA 2,675 Lee County SCA MFMR (FSA)
(AMT), 7.05%, 1/1/30 2,773,387
-------------
$ 15,968,146
-------------
INSURED INDUSTRIAL
DEVELOPMENT/POLLUTION
CONTROL REVENUE - 1.2%
Aaa AAA $ 8,200 Citrus County PCR (MBIA),
6.35%, 2/1/22 $ 8,558,996
-------------
INSURED MISCELLANEOUS - 0.4%
Aaa AAA $ 2,000 Escambia County (MBIA),
7.20%, 1/1/15 $ 2,150,300
Aaa AAA 799 Osceola County IDA
Community Provider Pooled
Loan Program, (CGIC),
7.75%, 7/1/10 854,251
-------------
$ 3,004,551
-------------
INSURED SOLID WASTE - 0.3%
Aaa AAA $ 1,500 St. John's County Solid
Waste Disposal (FGIC),
7.25%, 11/1/10 $ 1,685,850
-------------
INSURED SPECIAL TAX
REVENUE - 7.9%
Aaa AAA $ 5,630 FL Department of
Environmental Protection
(AMBAC), 4.75%, 7/1/06 $ 5,527,421
Aaa AAA 14,250 FL Department of
Environmental Protection
(MBIA), 4.75%, 7/1/09 13,318,905
Aaa AAA 9,675 FL Department of
Environmental Protection
(MBIA), 4.75%, 7/1/10 8,920,157
Aaa AAA 3,000 City of Jacksonville-River
City Renaissance Project
(FGIC), 5.375%, 10/1/18 2,799,570
Aaa AAA 1,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/10 426,230
Aaa AAA 1,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/11 396,450
Aaa AAA 2,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/12 739,720
Aaa AAA 2,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/13 691,600
Aaa AAA 2,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/14 645,980
Aaa AAA 1,500 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/15 452,085
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 1,185 City of Opa-Locka (FGIC),
7.00%, 1/1/14 1,327,449
Aaa AAA 2,500 Puerto Rico Highway &
Transportation Authority
(FSA), 5.50%, 7/1/17 2,389,900
Aaa AAA 7,650 Puerto Rico Highway &
Transportation Authority
(FSA), 5.25%, 7/1/21 7,032,951
Aaa AAA 5,000 St. Petersburg Excise Tax
(FGIC), 5.00%, 10/1/16 4,517,950
Aaa AAA 2,000 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/10 871,300
Aaa AAA 1,760 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/12 667,286
Aaa AAA 2,840 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/14 943,022
Aaa AAA 4,000 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/15 1,241,200
Aaa AAA 4,140 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/16 1,211,571
Aaa AAA 2,525 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/17 696,925
-------------
$ 54,817,672
-------------
INSURED TRANSPORTATION - 7.0%
Aaa AAA $ 4,000 Dade County Aviation
Facilities (MBIA) (AMT),
6.55%, 10/1/13 $ 4,219,320
Aaa AAA 8,455 FL State Turnpike
Authority (FGIC), 6.35%,
7/1/22 8,788,803
Aaa AAA 3,000 FL State Turnpike
Authority (FGIC), 5.00%,
7/1/19 2,667,660
Aaa AAA 8,600 Greater Orlando Aviation
Authority, Orlando Airport
Facilities (FGIC), (AMT),
6.375%, 10/1/21 8,869,696
Aaa AAA 14,000 Orlando & Orange County
Expressway Authority
(FGIC), Variable, 7/1/04
(1) 14,218,120
Aaa AAA 10,920 Orlando & Orange County
Expressway Authority
(FGIC), 5.125%, 7/1/20 9,798,734
-------------
$ 48,562,333
-------------
INSURED UTILITIES - 8.5%
Aaa AAA $41,465 FL Municipal Power Agency
Stanton II Project
(AMBAC), 4.50%, 10/1/27
(3) $ 33,007,384
Aaa AAA 7,770 FL Municipal Power Agency
Stanton II Project
(AMBAC), 4.50%, 10/1/16 6,511,338
Aaa AAA 8,000 FL Municipal Power Agency
Stanton II Project
(AMBAC), 5.10%, 10/1/25 7,064,080
Aaa AAA 4,000 Lakeland Electric & Water
(FGIC), 6.00%, 10/1/13 (2) 4,026,280
</TABLE>
34
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED UTILITIES - (CONTINUED)
Aaa AAA 1,540 Manatee County Public
Utility (FGIC), 0%,
10/1/12 580,980
Aaa AAA 1,750 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/02 (1) 1,939,315
Aaa AAA 2,200 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/03 (1) 2,462,284
Aaa AAA 3,500 Vero Beach Electric
(MBIA), 5.375%, 12/1/21 3,265,115
-------------
$ 58,856,776
-------------
INSURED WATER & SEWER - 5.4%
Aaa AAA $11,450 Broward County Water &
Sewer (AMBAC), 5.125%,
10/1/15 $ 10,529,535
Aaa AAA 9,500 Dade County Water and
Sewer System (FGIC),
5.00%, 10/1/13 8,717,580
Aaa AAA 2,000 City of Fort Myers Utility
(FGIC), 5.00%, 10/1/16 1,800,460
Aaa AAA 6,900 Palm Bay Utility Corp
Project (MBIA), 5.00%,
10/1/22 6,024,597
Aaa AAA 4,000 Sanford Water and Sewer
(AMBAC), 4.50%, 10/1/21 3,255,640
Aaa AAA 1,700 St. John's County Water &
Sewer (MBIA), 0%, 6/1/16 507,314
Aaa AAA 3,550 St. John's County Water &
Sewer (MBIA), 0%, 6/1/17 999,148
Aaa AAA 5,600 St. Lucie County Utility
System (FGIC), 6.00%,
10/1/20 5,672,632
-------------
$ 37,506,906
-------------
LIFE CARE - 1.0%
NR NR $ 6,895 Atlantic Beach, Fleet
Landing Project, 8.00%,
10/1/24 $ 7,208,860
-------------
LEASE/CERTIFICATES OF
PARTICIPATION - 0.4%
A1 A+ $ 2,280 Florida State Department
of General Services,
7.00%, 9/1/20 $ 2,465,273
-------------
NURSING HOMES - 1.1%
NR NR $ 300 Broward County Industrial
Development Authority,
Beverly Enterprises -
Florida, Inc. Project,
9.80%, 11/1/10 $ 335,520
NR NR 475 Charlotte County
Industrial Development
Authority, Beverly
Enterprises, 10.00%,
6/1/11 542,279
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 4,000 Citrus County Industrial
Development Authority,
Beverly Enterprises,
7.25%, 4/1/03 4,012,040
NR NR 700 Highlands County
Industrial Development
Authority, Beverly
Enterprises - Florida,
Inc. Project, 9.25%,
7/1/07 775,817
NR NR 410 Okaloosa County, Beverly
Enterprises, 10.75%,
10/1/03 448,200
NR NR 700 Orange County Industrial
Development Authority,
Beverly Enterprises,
9.25%, 8/1/10 776,475
NR NR 1,000 Winter Garden, Beverly
Enterprises, 8.75%, 7/1/12 1,092,750
-------------
$ 7,983,081
-------------
SOLID WASTE - 0.6%
A A $ 3,870 Broward County Waste
Energy Company, L.P. North
Project, 7.95%, 12/1/08 $ 4,296,590
-------------
SPECIAL TAX REVENUE - 6.2%
A1 A+ $10,620 Orange County, 5.375%,
1/1/24 $ 9,654,111
A1 NR 3,000 City of Orlando, 6.00%,
10/1/22 2,941,050
Baa1 A 7,410 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/19 6,908,047
Baa1 A 6,310 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/20 5,636,281
Baa1 A 10,135 Puerto Rico Highway &
Transportation Authority,
5.00%, 7/1/22 8,684,682
Baa1 A 10,560 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/21 9,413,290
-------------
$ 43,237,461
-------------
TRANSPORTATION - 1.4%
NR NR $10,140 Mid-Bay Bridge Authority,
6.125%, 10/1/22 $ 9,634,318
-------------
UTILITIES - 12.5%
NR BBB $32,325 Guam Power Authority,
5.25%, 10/1/23 $ 27,848,634
Aa1 AA 42,005 Jacksonville Electric
Authority, Bulk Power
Supply System, Scherer 4
Project, 5.25%, 10/1/21
(3) 38,294,278
Aa1 AA 2,850 Orlando Utilities
Commission Water and
Electric, 5.125%, 10/1/19 2,554,940
</TABLE>
35
<PAGE>
-------
FLORIDA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES - (CONTINUED)
Aa AA 1,750 Orlando Utilities
Commission Water and
Electric, 5.25%, 10/1/23 1,588,400
Baa1 A- 185 Puerto Rico Electric Power
Authority, 7.125%, 7/1/14 201,743
Baa1 A- 10,000 Puerto Rico Electric Power
Authority, 7.00%, 7/1/21 11,379,200
A2 A+ 2,515 St. Lucie County Solid
Waste Disposal, Florida
Power & Light Company
(AMT), 6.70%, 5/1/27 2,631,520
NR NR 2,000 Virgin Islands Water &
Power Authority, 7.40%,
7/1/11 2,100,420
-------------
$ 86,599,134
-------------
WATER & SEWER - 0.4%
Baa1 BBB+ $ 2,500 Hillsborough County
Utility, 6.625%, 8/1/11 $ 2,637,625
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $661,202,447) $ 695,010,453
=============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) When-issued security.
(3) Security has been segregated to cover open when-issued securities.
The Portfolio invests primarily in debt securities issued by Florida
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 September 30, 1995, 50.8% of the securities in the portfolio of
investments are backed by bond insurance of various financial guaranty assurance
agencies. The aggregate percentage by financial institution ranges from 0.2% to
12.8% of total investments.
See notes to financial statements
36
<PAGE>
-------
Massachusetts Tax Free Portfolio
Portfolio of Investments - September 30, 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 - 9.8%
Aa1 AA+ $ 1,625 Massachusetts Health and
Educational Facilities
Authority, (HEFA) Amherst
College, 6.80%, 11/1/21 $ 1,740,440
A1 A+ 250 Massachusetts HEFA, Tufts
University, 7.75%, 8/1/13 271,052
NR BBB- 3,700 Massachusetts HEFA,
Merrimack College, 7.125%,
7/1/12 3,882,003
NR AAA 2,900 Massachusetts HEFA,
Wentworth Institute,
(Connie Lee), 5.50%,
10/1/23 2,675,047
NR BBB- 6,855 Massachusetts HEFA, Smith
College, 5.75%, 7/1/24 6,694,182
Aaa AAA 5,180 Massachusetts HEFA,
Harvard University,
5.625%, 11/1/28 5,114,577
Aa1 AA 4,690 Massachusetts Industrial
Finance Agency, Phillips
Academy, 5.375%, 9/1/23 4,385,056
A1 NR 2,000 The New England Education
Loan Marketing
Corporation, (AMT), 6.90%,
11/1/09 2,157,440
NR BBB- 1,300 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Control Authority,
Polytechnic University,
5.50%, 8/1/24 1,128,491
NR BBB- 1,000 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Control Authority,
Polytechnic University,
6.50%, 8/1/24 990,870
-------------
$ 29,039,158
-------------
GENERAL OBLIGATIONS -13.7%
Baa1 NR $ 1,000 City of Lowell, 6.375%,
8/15/01 $ 1,067,490
A1 A+ 3,900 Commonwealth of
Massachusetts, 5.00%,
1/1/12 3,609,060
A1 A+ 875 Commonwealth of
Massachusetts, 5.00%,
1/1/14 795,839
A1 A+ 4,750 Massachusetts Bay
Transportation Authority
(MBTA), 5.50%, 3/1/21 4,525,135
A1 A+ 2,500 MBTA, 5.75%, 3/1/18 2,465,775
A1 A+ 14,000 MBTA, 5.75%, 3/1/25 13,593,440
A1 A+ 1,000 MBTA, 5.90%, 3/1/12 1,014,690
NR BBB 1,175 Government of Guam, 5.40%,
11/15/18 1,022,650
A NR 3,375 Town of Nantucket, 6.80%,
12/1/11 3,634,875
Baa1 A 100 Puerto Rico Public
Buildings Authority,
5.50%, 7/1/21 92,369
Baa1 A 1,900 Puerto Rico Aqueduct and
Sewer Authority, 7.00%,
7/1/19 2,037,313
<CAPTION>
RATINGS (UNAUDITED)
- -------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A A 2,500 University of
Massachusetts Building
Authority, 6.875%, 5/1/14 2,839,950
A A 250 University of
Massachusetts Building
Authority, 7.20%, 5/1/04 287,396
NR NR 3,350 Virgin Islands Public
Finance Authority, 7.25%,
10/1/18 3,528,321
-------------
$ 40,514,303
-------------
HOSPITALS - 8.4%
A A- $ 3,000 Massachusetts HEFA,
Charlton Memorial
Hospital, 7.25%, 7/1/13 $ 3,147,750
A1 A 530 Massachusetts HEFA,
Spaulding Rehabilitation
Hospital, 7.625%, 7/1/21 568,632
Baa1 BBB+ 2,000 Massachusetts HEFA, New
England Baptist Hospital,
7.35%, 7/1/17 2,067,480
Aa NR 3,100 Massachusetts HEFA,
Daughters of Charity
Health System, 6.10%,
7/1/14 3,143,524
A1 A+ 1,000 Massachusetts HEFA, Dana-
Farber Cancer Institute,
6.65%, 12/1/15 1,020,340
A A 4,250 Massachusetts HEFA, The
Medical Center of Central
Massachusetts, 7.10%,
7/1/21 4,394,755
Baa BBB 1,825 Massachusetts HEFA,
Sisters of Providence
Health System, 6.50%,
11/15/08 1,877,870
NR A- 1,470 Massachusetts HEFA, Jordan
Hospital, 6.875%, 10/1/15 1,052,722
NR A- 1,470 Massachusetts HEFA, Jordan
Hospital, 6.875%, 10/1/22 1,507,073
NR AAA 2,625 Massachusetts HEFA,
Winchester Hospital
(Connie Lee), 5.75% 7/1/14 2,557,223
NR AAA 3,650 Massachusetts HEFA,
Winchester Hospital
(Connie Lee), 5.75% 7/1/24 3,486,917
-------------
$ 24,824,286
-------------
HOUSING - 11.4%
NR AAA $ 2,750 Framingham Housing
Authority, (GNMA), 6.65%,
2/20/32 $ 2,783,275
A1 A+ 6,000 Massachusetts Housing
Finance Agency (HFA),
6.375%, 4/1/21 5,973,720
Aa A+ 7,250 Massachusetts HFA, (AMT),
6.60%, 12/1/26 7,328,952
Aa A+ 6,400 Massachusetts HFA, (AMT),
6.60%, 12/1/26 6,469,696
Aaa AAA 1,000 Massachusetts HFA, (FNMA),
6.875%, 11/15/11 1,063,630
</TABLE>
37
<PAGE>
-------
MASSACHUSETTS TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
- -----------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - (CONTINUED)
Aaa AAA 2,750 Massachusetts HFA, (FNMA),
6.90%, 11/15/21 2,882,330
Aa A+ 2,795 Massachusetts HFA, (AMT),
7.125%, 6/1/25 2,908,924
Aa A+ 400 Massachusetts HFA, 7.35%,
12/1/16 425,408
Aa A+ 2,265 Massachusetts HFA, (AMT),
8.10%, 6/1/20 2,369,734
Aa A+ 1,500 Massachusetts HFA, (AMT),
8.10%, 12/1/21 1,576,035
-------------
$ 33,781,704
-------------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL - 7.0%
Baa1 BBB $14,185 City of Boston Harbor
Electric Energy Company
Project, (AMT), 7.30%,
5/15/15 $ 15,178,942
NR NR 9,000 Massachusetts Industrial
Finance Agency,
Massachusetts Biomedical
Research Corporation, 0%,
8/1/19 3,817,800
Aa3 AA 1,550 Puerto Rico Industrial,
Medical and Environmental
Pollution Control
Authority, The Upjohn
Company, 7.50%, 12/1/23 1,697,235
-------------
$ 20,693,977
-------------
INSURED EDUCATION - 2.1%
Aaa AAA $ 335 Massachusetts Educational
Finance Authority, (MBIA),
(AMT), 7.25%, 1/1/09 $ 350,460
Aaa AAA 2,000 Massachusetts Educational
Finance Authority,
(AMBAC), (AMT), 7.30%,
1/1/12 2,096,840
Aaa AAA 250 Massachusetts HEFA,
Northeastern University,
(AMBAC), 7.50%, 10/1/08 273,820
Aaa AAA 400 Massachusetts HEFA, Boston
University "RIBS", (MBIA),
Variable, 10/1/31 (1) 439,464
Aaa AAA 3,000 Massachusetts HEFA, Tufts
University, (FGIC), 5.95%,
8/15/18 3,032,640
-------------
$ 6,193,224
-------------
INSURED GENERAL OBLIGATION - 1.7%
Aaa AAA $ 1,795 City of Boston, (FSA),
4.875%, 9/1/09 $ 1,686,833
Aaa AAA 1,000 Commonwealth of Puerto
Rico "RIBS", (AMBAC),
Variable, 7/1/15 (1) 1,009,940
Aaa AAA 600 Town of Tyngsborough,
(AMBAC), 6.90%, 5/15/08 663,798
Aaa AAA 1,770 MBTA, (MBIA), 5.50%,
3/1/21 1,663,995
-------------
$ 5,024,566
-------------
<CAPTION>
RATINGS (UNAUDITED)
- -----------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITALS - 11.8%
Aaa AAA $ 300 Massachusetts HEFA,
Berkshire Health Systems,
(MBIA), 7.60%, 10/1/14 $ 332,346
Aaa AAA 1,250 Massachusetts HEFA, Beth
Israel Hospital, Inverse
Floaters, (AMBAC),
Variable, 7/1/25 (1) 1,253,675
Aaa AAA 1,500 Massachusetts HEFA,
Capital Asset Program,
(MBIA), 7.20%, 7/1/09 1,649,085
AAA AAA 2,050 Massachusetts HEFA, Fallon
Healthcare System (CGIG),
6.75%, 6/1/20 (2) 2,171,442
AAA AAA 4,500 Massachusetts HEFA, Fallon
Healthcare System (CGIG),
6.875%, 6/1/11 4,881,465
Aaa AAA 2,040 Massachusetts HEFA,
Beverly Hospital, (MBIA),
7.30%, 7/1/13 2,219,581
Aaa AAA 1,000 Massachusetts HEFA,
Baystate Medical Center,
(FGIC), 5.00%, 7/1/20 883,550
Aaa AAA 3,000 Massachusetts HEFA, The
Medical Center of Central
Massachusetts, (AMBAC),
"CARS", Variable, 6/23/22
(1) 3,330,090
Aaa AAA 2,000 Massachusetts HEFA, St.
Elizabeth Hospital Issue,
"LEVRRS", (FSA), Variable,
8/15/21 (1) 2,196,960
Aaa AAA 2,600 Massachusetts HEFA, Saint
Luke's Hospital, "Yield
Curve Notes", (MBIA),
Variable, 8/15/13 (1) 2,556,970
Aaa AAA 1,200 Massachusetts HEFA,
University Hospital,
(MBIA), 7.25%, 7/1/19 1,323,552
Aaa AAA 6,950 Massachusetts HEFA, Lahey
Clinic, (MBIA), 5.375%,
7/1/23 6,454,118
Aaa AAA 5,000 Massachusetts HEFA, New
England Medical Center,
(MBIA), 5.375%, 7/1/24 4,664,350
Aaa AAA 1,000 Massachusetts HEFA, New
England Medical Center,
(FGIC), 6.50%, 7/1/12 1,052,960
-------------
$ 34,970,144
-------------
INSURED HOUSING - 0.7%
Aaa AAA $ 2,000 Massachusetts Housing
Finance Agency, (AMBAC),
6.45%, 1/1/36 $ 2,027,680
-------------
</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 TRANSPORTATION - 2.2%
Aaa AAA $ 5,860 Massachusetts Port
Authority, (AMT), (FGIC),
7.50%, 7/1/20 $ 6,490,243
-------------
LEASE/CERTIFICATE OF
PARTICIPATION - 2.9%
NR A $ 7,800 Plymouth County,
Massachusetts Correctional
Facility Project, 7.00%,
4/1/22 $ 8,363,862
-------------
NURSING HOMES - 0.5%
NR AA $ 1,495 Massachusetts HEFA,
Deutches Altenheim,
Incorporated, (FHA),
7.70%, 11/1/31(2) $ 1,613,195
-------------
SOLID WASTE - 2.6%
Baa1 BBB $ 5,970 Massachusetts Industrial
Finance Agency,
Massachusetts Refusetech,
Inc. Project, 6.30%,
7/1/05 $ 6,242,531
NR NR 1,340 City of Pittsfield, Vicon
Recovery Associates
Project, 7.95%, 11/1/04 1,409,425
-------------
$ 7,651,956
-------------
SPECIAL TAX - 4.2%
A1 A+ $ 5,695 Commonwealth of
Massachusetts, Special
Obligation Revenue Bonds,
6.00%, 6/1/13 $ 5,747,223
A1 A+ 4,560 Commonwealth of
Massachusetts, Special
Obligation Revenue Bonds,
5.80%, 6/1/14 4,518,550
Baa1 A 2,000 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/18 2,099,080
-------------
$ 12,364,853
-------------
TRANSPORTATION - 5.2%
NR BBB $ 7,950 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 7,967,093
Aa AA- 7,300 Massachusetts Port
Authority, 6.00%, 7/1/23 7,260,069
-------------
$ 15,227,162
-------------
UTILITY - 6.0%
NR BBB $ 2,765 Guam Power Authority,
5.25%, 10/1/23 $ 2,382,103
A BBB+ 2,610 Massachusetts Municipal
Wholesale Electric
Company, 6.00%, 7/1/18 2,555,843
A BBB+ 5,560 Massachusetts Municipal
Wholesale Electric
Company, 6.625%, 7/1/18 5,747,205
<CAPTION>
RATINGS (UNAUDITED)
- -----------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A BBB+ 3,500 Massachusetts Municipal
Wholesale Electric
Company, 6.75%, 7/1/11 3,664,010
Baa1 A- 1,850 Puerto Rico Electric Power
Authority, 5.50%, 7/1/13 1,755,447
Baa1 A- 150 Puerto Rico Electric Power
Authority, 5.50%, 7/1/20 138,746
NR NR 1,500 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 1,575,314
-------------
$ 17,818,668
-------------
WATER & SEWER - 9.8%
NR NR $ 2,075 Massachusetts Industrial
Finance Authority,
American Hingham Water,
6.60%, 12/1/15 $ 2,095,480
A A 18,620 Massachusetts Water
Resources Authority
(MWRA), 4.75%, 12/1/23 15,364,479
A A 5,000 MWRA, 5.00%, 3/1/22 4,323,500
A A 1,500 MWRA, 5.25%, 3/1/13 1,390,095
A A 3,915 MWRA, 5.25%, 12/1/15 3,608,260
NR NR 2,000 Virgin Islands Water and
Power Authority, 7.60%,
1/1/12 2,122,760
-------------
$ 28,904,574
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $277,979,560) $ 295,503,555
=============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Massachusetts
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 September 30, 1995, 21.2% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.5% to 7.3% of total investments.
See notes to financial statements
39
<PAGE>
-------
Mississippi Tax Free Portfolio
Portfolio of Investments - September 30, 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>
ESCROWED - 1.6%
Aaa NR $1,500 Mississippi Housing Finance
Corporation, SFMR, (AMT),
(ETM), 0%, 6/1/15 $ 447,360
------------
GENERAL OBLIGATIONS - 7.8%
NR A- $1,000 Mississippi Development
Bank, Golden Triangle Solid
Waste, 6.00%, 7/1/15 $ 972,850
Aa AA- 200 Mississippi State, 5.10%,
11/15/12 188,648
Aa AA- 500 Mississippi State, 5.75%,
6/1/14 500,965
Aa AA- 500 Mississippi State, 6.75%,
12/1/14 536,265
------------
$ 2,198,728
------------
HOSPITAL REVENUE - 3.2%
A NR $1,000 Mississippi Hospital
Equipment & Facilities
Authority, Rankin Medical
Center Project, 5.60%,
3/1/19 $ 919,410
------------
HOUSING - 9.4%
Aa NR $ 500 Hinds County Urban Renewal,
Woodridge Apartments,
(FHA), 6.25%, 11/1/27 $ 495,860
NR NR 200 City of Ridgeland Urban
Renewal, The Orchard, LTD.,
7.75%, 12/1/15 197,958
Aaa NR 300 Vicksburg Leased Housing
Corporation, MFMR, Magnolia
Manor Apartments, (FHA),
5.95%, 8/15/22 294,063
Aaa NR 500 Mississippi Home
Corporation, SFMR, Access
Program, (AMT), 8.10%,
12/1/24 554,725
Aaa NR 1,020 Mississippi Home
Corporation, SFMR, Access
Program, (AMT), 8.125%,
12/1/24 1,131,914
------------
$ 2,674,520
------------
INDUSTRIAL DEVELOPMENT
REVENUE - 10.0%
NR A- $ 600 Jackson County,
International Paper Company
Project, (AMT), 5.55%,
10/1/17 $ 564,468
A2 A 1,000 Lowndes County,
Weyerhaeuser Company
Project, 6.80%, 4/1/22 1,106,900
A3 A- 600 Warren County,
International Paper Company
Project, (AMT), 6.60%,
3/1/19 608,592
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR AA 500 Port of Gulfport, E.I. du
Pont de Nemours and Company
Project, (AMT), 7.15%,
5/1/16 (2) 544,390
------------
$ 2,824,350
------------
INSURED EDUCATION - 3.7%
Aaa AAA $1,000 Mississippi Educational
Facilities Authority,
Milsaps College Project,
(MBIA) 6.50%, 11/1/19 $ 1,041,610
------------
INSURED GENERAL OBLIGATION - 5.0%
Aaa AAA $ 500 Hinds County, (MBIA) 6.25%,
3/1/11 $ 535,360
Aaa AAA 1,000 Desoto County School
District, (MBIA) 4.75%,
2/1/13 883,120
------------
$ 1,418,480
------------
INSURED HOSPITALS - 19.2%
Aaa AAA $1,000 Alcorn County, Magnolia
Regional Health Center,
(AMBAC) 5.75%, 10/1/13 $ 967,370
Aaa AAA 1,000 Gulfport Mississippi
Hospital Facilities
Authority, Memorial
Hospital of Gulfport,
(MBIA) 6.20%, 7/1/18 1,020,310
Aaa AAA 1,275 Hinds County, Mississippi
Methodist Hospital and
Rehabilitation Center,
(AMBAC) 5.60%, 5/1/12 1,256,003
Aaa AAA 1,250 Mississippi Hospital
Equipment and Facilities
Authority, Methodist Health
Systems, (MBIA) 5.50%,
8/15/13 1,189,850
Aaa AAA 1,000 Mississippi Hospital
Equipment and Facilities
Authority, Mississippi
Baptist Medical Center,
(MBIA) 6.00%, 5/1/13 1,009,080
------------
$ 5,442,613
------------
INSURED HOUSING - 1.8%
Aaa NR $ 500 Mississippi Home
Corporation, SFMR, (GNMA),
(AMT), 6.625%, 4/1/27 $ 511,910
------------
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 5.2%
Aaa AAA $1,500 Medical Center Building
Corporation, University of
Mississippi Medical Center
Project, (MBIA) 5.80%,
12/1/14 $ 1,476,015
------------
</TABLE>
40
<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 UTILITIES - 7.0%
Aaa AAA $1,600 Jackson County, Gautier
Utility District, (MBIA)
6.375%, 3/1/12 $ 1,661,504
Aaa AAA 300 Puerto Rico Electric Power
Authority, (FSA), Variable,
7/1/03 (1) 335,766
------------
$ 1,997,270
------------
INSURED WATER & SEWER - 5.2%
Aaa AAA $1,000 Jackson County, Water and
Sewer Bonds, (MBIA) 5.40%,
9/1/09 $ 980,790
Aaa AAA 500 City of Natchez, Combined
Water and Sewer System,
(MBIA) 5.70%, 8/1/17 485,380
------------
$ 1,466,170
------------
NURSING HOMES - 1.7%
NR NR $ 500 Mississippi Business
Finance Corporation,
Magnolia Healthcare, 7.99%,
7/1/25 (2) $ 472,415
------------
LEASE/CERTIFICATE OF
PARTICIPATION - 3.6%
A NR $1,000 Mississippi University
Educational Building Corp.,
Facilities Renovation,
6.15%, 6/15/15 $ 1,009,330
------------
SPECIAL TAX - 4.7%
Baa1 A $ 500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 $ 446,615
Baa1 A 1,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/21 891,410
------------
$ 1,338,025
------------
<CAPTION>
RATINGS (UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES - 10.9%
NR BBB $ 810 Guam Power Authority,
6.625%, 10/1/14 $ 829,999
Aa3 A+ 1,310 Lamar County, South
Mississippi Electric Power
Association Project, 4.85%,
12/1/06 1,237,505
Baa3 NR 1,000 Warren County, Mississippi
Power & Light Company
Project, 7.00%, 4/1/22 1,038,360
------------
$ 3,105,864
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $27,181,386) $ 28,344,069
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Mississippi
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 September 30, 1995, 49.9% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.2% to 36.3% of total investments.
See notes to financial statements
41
<PAGE>
-------
New York Tax Free Portfolio
Portfolio of Investments - September 30, 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>
ASSISTED LIVING - 0.3%
NR NR $ 1,970 Village of North Syracuse
Housing Authority, (AJM
Senior Housing, Inc. Janus
Park Project), 8.00%,
6/1/24 $ 1,922,168
-------------
EDUCATION - 12.7%
A NR $ 1,000 Dutchess County IDA, Bard
College, 7.00%, 11/1/17 $ 1,084,310
A1 NR 6,295 Monroe County IDA,
University of Rochester,
7.25%, 12/1/16 6,646,324
NR BBB- 1,660 City of New Rochelle IDA
Civic Facilities, College
of New Rochelle, 6.75%,
7/1/22 1,704,920
Baa1 BBB+ 6,895 Dormitory Authority, State
University Educational
Facilities, 4.75%, 7/1/14 6,124,208
Baa1 BBB+ 2,500 Dormitory Authority, State
University Educational
Facilities, 5.00%, 5/15/18 2,118,800
Baa1 BBB+ 11,500 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/13 10,464,310
Baa1 BBB+ 7,600 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/15 6,850,260
Baa1 BBB+ 7,605 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/19 6,714,759
Baa1 BBB+ 6,805 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/21 6,043,657
Baa1 BBB+ 3,130 Dormitory Authority, State
University Educational
Facilities, 5.50%, 5/15/08 3,041,139
Baa1 BBB+ 28,250 Dormitory Authority, State
University Educational
Facilities, 5.50%, 5/15/13 26,375,613
Baa1 BBB+ 415 Dormitory Authority, State
University Educational
Facilities, 7.375%,
5/15/14 450,279
Baa1 BBB+ 1,300 Dormitory Authority, State
University Educational
Facilities, 7.50%, 5/15/11 1,497,184
NR AA 1,300 Dormitory Authority, New
York Medical College
(Asset Guaranty), 6.875%,
7/1/21 1,391,845
A1 A+ 950 Dormitory Authority,
University of Rochester,
5.625%, 7/1/12 927,276
-------------
$ 81,434,884
-------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ELECTRIC UTILITIES - 4.9%
A1 A $ 2,500 New York State Energy
Resource & Development
Authority, Brooklyn Union
Gas (RIBS)(AMT), Variable,
7/1/26 (1) $ 2,918,350
Aa3 A+ 500 New York State Energy
Resource & Development
Authority, Consolidated
Edison (AMT), 7.75%,
1/1/24 538,345
Aa3 A+ 2,365 New York State Energy
Resource & Development
Authority, Consolidated
Edison (AMT), 7.50%,
7/1/25 2,563,684
Aa3 A+ 1,000 New York State Energy
Resource & Development
Authority, Consolidated
Edison (AMT), 7.50%,
1/1/26 1,098,470
Aa AA- 18,000 Power Authority of the
State of New York, 5.25%,
1/1/18 16,447,500
Baa1 A- 11,500 Puerto Rico Electric Power
Authority, 0%, 7/1/17 3,023,350
Baa1 A- 2,250 Puerto Rico Electric Power
Authority, 5.50%, 7/1/20 2,081,183
NR NR 3,000 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 3,150,630
-------------
$ 31,821,512
-------------
ESCROWED - 7.6%
Aaa AAA $ 725 Albany Municipal Water
(MBIA), 7.50%, 12/1/17 $ 806,592
Aaa BBB 1,000 Dormitory Authority, City
University, 7.625%, 7/1/20 1,152,840
Aaa BBB+ 1,530 Dormitory Authority, State
University Educational
Facilities, 7.70%, 5/15/12 1,763,677
NR BBB 1,000 Dormitory Authority, City
University, 8.125%, 7/1/08 1,116,170
Baa1 BBB- 2,250 Dormitory Authority,
Upstate Community College,
7.20%, 7/1/21 2,582,842
Baa1 NR 2,000 Dormitory Authority,
Upstate Community College,
7.30%, 7/1/21 2,305,860
Aaa AAA 500 Erie County Water
Authority, Water Works
System, 6.00%, 12/1/08 528,920
Aaa AAA 500 Metropolitan
Transportation Authority
Commuter Facilities Bonds,
7.50%, 7/1/19 571,735
Aaa AAA 1,000 New York Local Government
Assistance Corporation
(LGAC), 7.00%, 4/1/16 1,136,100
</TABLE>
42
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESCROWED - (CONTINUED)
Aaa AAA 5,500 New York LGAC, 6.75%,
4/1/21 6,238,980
Aaa BBB 1,000 New York State Housing
Finance Agency Service
Contracts, 7.80%, 9/15/11 1,173,510
Aaa AAA 1,775 New York State Housing
Finance Agency Service
Contracts, 7.375%, 9/15/21 2,073,520
Aaa BBB+ 90 New York State Medical
Care Facilities Finance
Agency, Mental Health
Services Facilities,
7.75%, 8/15/10 103,334
Aaa AAA 450 New York State Medical
Care Facilities Finance
Agency, Mental Health
Services Facilities,
7.875%, 8/15/08 525,047
Aaa AAA 3,320 New York State Medical
Care Facilities Finance
Agency, Mental Health
Services Facilities,
7.50%, 2/15/21 3,842,004
Aaa NR 8,100 New York State Urban
Development Corporation
Correctional Facilities,
6.50%, 1/1/21 8,848,197
Baa1 BBB 4,750 New York State Thruway
Authority, Local Highway
and Bridge Service
Contract Bonds, 7.25%,
1/1/10 (2) 5,404,740
Baa1 BBB 5,350 New York State UDC,
Onondaga Co. Convention
Center, 7.875% 1/1/10 6,241,577
NR AA- 500 Power Authority of the
State of New York, 8.00%,
1/1/17 548,960
NR A 1,760 Puerto Rico Highway &
Transportation Authority,
6.625%, 7/1/18 1,989,310
-------------
$ 48,953,915
-------------
GENERAL OBLIGATIONS - 1.6%
Baa1 A- $ 120 New York City, 8.25%,
11/15/16 $ 136,942
Baa1 A- 4,000 New York City, 7.50%,
2/1/18 4,399,280
Aa AA 1,700 Onondaga County, 5.875%,
2/15/11 1,758,259
Aa AA 1,600 Onondaga County, 5.875%,
2/15/12 1,641,424
Baa1 A 2,175 Puerto Rico Public
Building Authority, Public
Education and Health
Facilities, 5.75%, 7/1/15 2,102,594
-------------
$ 10,038,499
-------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE - 19.1%
NR AAA $ 6,705 Dormitory Authority,
United Health Services
(FHA), 7.35%, 8/1/29 $ 7,225,509
Aa AAA 4,785 New York State Medical
Care Facilities Finance
Agency (MCFFA), Hospital
Insured Mortgage (FHA),
5.25%, 8/15/14 4,443,782
NR AA 2,670 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.10%, 8/15/15 2,663,645
NR AAA 3,710 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.125%, 2/15/14 3,902,994
Aa AA 1,000 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.55%, 8/15/12 1,043,570
Aa AA 3,800 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.65%, 8/15/32 3,946,338
NR AA 9,000 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.70%, 8/15/23 9,446,220
Aa AA 1,050 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.75%, 2/15/12 1,107,446
Aa AA 1,500 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.95%, 2/15/32 1,586,430
Aa AA 2,190 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
7.00%, 8/15/32 2,326,262
Aa AA 6,600 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
7.25%, 2/15/31 7,124,634
Aa AA 750 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
7.35%, 2/15/29 819,128
Aa AA 2,425 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 2/15/10 2,484,607
Aa AA 3,500 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 8/15/14 3,591,490
</TABLE>
43
<PAGE>
-------
NEW YORK TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE - (CONTINUED)
Aa AA 5,625 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 8/15/15 5,723,775
Aa AA 6,550 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.25%, 8/15/15 6,661,285
Aa AA 2,500 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.50%, 2/15/35 2,552,300
Aa AA 950 New York State MCFFA,
Insured Mortgage Project
(FHA), 7.45%, 8/15/31 1,030,095
Baa1 BBB+ 10,205 New York State MCFFA,
Mental Health Services
Facilities, 5.25%, 2/15/19 9,320,737
Baa1 BBB+ 11,500 New York State MCFFA,
Mental Health Services
Facilities, 5.25%, 8/15/23 9,895,865
Baa1 BBB+ 6,625 New York State MCFFA,
Mental Health Services
Facilities, Series 1994 A,
5.25%, 8/15/23 5,700,879
Baa1 BBB+ 1,230 New York State MCFFA,
Mental Health Services
Facilities, 7.50%, 2/15/21 1,372,754
Baa1 BBB+ 1,610 New York State MCFFA,
Mental Health Services
Facilities, 7.625%,
8/15/17 1,777,150
Baa1 BBB+ 145 New York State MCFFA,
Mental Health Services
Facilities, 7.75%, 8/15/10 161,153
Baa1 BBB+ 495 New York State MCFFA,
Mental Health Services
Facilities, 7.875%,
8/15/08 558,469
Baa BBB 19,700 New York State MCFFA,
Secured Hospital
(Brookdale), 6.80%,
8/15/12 20,263,223
Baa BBB 5,540 New York State MCFFA,
Secured Hospital, 7.35%,
8/15/11 5,881,652
-------------
$ 122,611,392
-------------
HOSPITALS - 0.7%
Aa AAA $ 1,500 Dormitory Authority, Long
Island Jewish Medical
Center (FHA), 7.75%,
8/15/27 $ 1,629,735
NR AAA 1,000 Dormitory Authority,
St. Francis Hospital
(FHA), 7.65%, 8/1/30 1,119,780
Baa1 BBB+ 1,800 Syracuse Industrial
Development Agency (IDA),
St. Joseph's Hospital
Health Center, 7.50%,
6/1/18 1,914,804
-------------
$ 4,664,319
-------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - 5.5%
NR NR $ 4,744 New York City Housing
Development Corporation
(HDC), Allerville Project,
6.50%, 11/15/18 $ 4,772,297
Baa A 4,750 New York City HDC, General
Housing, 6.50%, 5/1/22 4,797,690
NR NR 2,080 New York City HDC, Dayton
Project, 6.50% 11/15/18 2,092,643
NR AAA 2,550 New York City HDC, Multi-
Unit Management, 7.35%,
6/1/19 2,702,439
Aa A+ 235 New York State Housing
Finance Agency, Baytown,
7.10%, 8/15/35 248,280
Aa NR 250 New York State Mortgage
Agency, 6.90%, 4/1/03 263,523
Aa NR 8,750 New York State Mortgage
Agency, 6.90%, 4/1/15 9,220,313
Aa NR 1,000 New York State Mortgage
Agency, 7.50%, 4/1/15 1,082,280
Aa NR 295 New York State Mortgage
Agency, 7.65%, 4/1/19 311,963
Aa NR 625 New York State Mortgage
Agency, 7.70%, 10/1/12 676,644
Aa NR 270 New York State Mortgage
Agency, 8.00%, 10/1/17 287,312
Aa NR 6,350 New York State Mortgage
Agency (AMT), 6.40%,
10/1/20 6,318,568
Aa NR 1,600 New York State Mortgage
Agency (AMT), 7.95%,
10/1/21 1,727,808
Baa BBB 350 Puerto Rico Commonwealth
Urban Renewal & Housing
Corporation, 7.875%,
10/1/04 395,693
Aaa AAA 410 Puerto Rico Housing
Financial Corporation
Single-Family (GNMA),
7.65%, 10/15/22 434,124
-------------
$ 35,331,577
-------------
INSURED COLLEGE &
UNIVERSITY - 1.8%
Aaa AAA $ 6,950 Dormitory Authority,
Marist College (MBIA),
6.00%, 7/1/22 $ 6,958,549
Aaa AAA 5,000 Dormitory Authority, New
York University (MBIA),
5.00%, 7/1/11 4,698,350
-------------
$ 11,656,899
-------------
</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>
INSURED GENERAL
OBLIGATIONS - 1.0%
Aaa AAA $ 1,035 Erie County Water
Authority (AMBAC), 0%,
12/1/17 $ 211,295
Aaa AAA 3,900 New York City Trust for
Cultural Resources, Museum
of Modern Art (AMBAC),
5.40%, 1/1/12 3,764,748
Aaa AAA 2,480 New York State
Environmental Facilities
Corporation (EFC), Jamaica
Water Supply Company (AMT)
(AMBAC), 7.625%, 4/1/29 2,677,334
-------------
$ 6,653,377
-------------
INSURED GENERAL
OBLIGATIONS LOCAL - 1.8%
Aaa AAA $ 520 Chautauqua County
Unlimited Tax (FGIC),
6.40%, 9/15/08 $ 574,621
Aaa AAA 770 Chautauqua County
Unlimited Tax (FGIC),
6.40%, 9/15/09 847,123
Aaa AAA 465 Chautauqua County
Unlimited Tax (FGIC),
7.30%, 4/1/07 547,793
Aaa AAA 725 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/07 838,521
Aaa AAA 600 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/08 693,852
Aaa AAA 675 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/13 789,278
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/09 814,891
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/10 816,739
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/11 817,929
Aaa AAA 675 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/12 789,271
Aaa AAA 515 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/14 601,808
Aaa AAA 2,000 New York City (AMBAC),
7.00%, 8/1/17 2,201,300
Aaa AAA 500 Oyster Bay (FGIC), 6.60%,
2/15/12 533,400
Aaa AAA 450 Oyster Bay (FGIC), 6.60%,
2/15/13 480,060
-------------
$ 11,346,586
-------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL
OBLIGATIONS SCHOOL
DISTRICT - 0.2%
Aaa AAA $ 700 Bethlehem Central School
District (AMBAC), 7.10%,
11/1/08 $ 819,903
Aaa AAA 700 Bethlehem Central School
District (AMBAC), 7.10%,
11/1/09 814,716
-------------
$ 1,634,619
-------------
INSURED GENERAL
OBLIGATIONS TERRITORY -
0.7%
Aaa AAA $ 4,500 Commonwealth of Puerto
Rico Public Improvement
Residual Interest Tax
Exempt Securities (FSA),
Variable, 7/1/22 (1) $ 4,616,865
-------------
INSURED HEALTH CARE - 4.4%
Aaa AAA $ 1,500 New York State MCFFA, Long
Term Health Care (CGIC),
6.80%, 11/1/14 $ 1,588,695
Aaa AAA 1,300 New York State MCFFA, New
York Hospital (FHA)
(AMBAC), 6.60%, 2/15/11 1,409,226
Aaa AAA 5,400 New York State MCFFA, New
York Hospital (FHA)
(AMBAC), 6.75%, 8/15/14 5,794,146
Aaa AAA 20,525 New York State MCFFA,
Mental Health Services
Facilities (MBIA), 5.375%,
2/15/14 19,280,980
-------------
$ 28,073,047
-------------
INSURED HOUSING - 0.1%
Aaa AAA $ 500 New York City HDC, Charter
Oaks (MBIA), 7.375% 4/1/17 $ 524,525
-------------
INSURED MISCELLANEOUS - 0.1%
Aaa AAA $ 500 New York City IDA, (USTA
National Tennis Center
Incorporated Project)
(FSA), 6.375%, 11/15/14 $ 522,020
-------------
</TABLE>
45
<PAGE>
-------
NEW YORK TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED SOLID WASTE - 1.6%
Aaa AAA $ 1,650 Dutchess County Resource
Recovery Solid Waste
(FGIC), 7.50%, 1/1/09 $ 1,814,505
Aaa AAA 6,795 Islip Resource Recovery
Agency (MBIA), 6.50%,
7/1/09 7,272,960
Aaa AAA 1,000 Montgomery, Otesgo,
Schoharie Solid Waste
Management Authority
(MBIA), 5.25%, 1/1/14 936,350
-------------
$ 10,023,815
-------------
INSURED TOLL & TURNPIKE - 1.0%
Aaa AAA $ 3,000 Triborough Bridge & Tunnel
Authority Residual
Interest Securities
(MBIA), Variable, 1/1/19
(1) $ 3,033,030
Aaa AAA 3,000 Triborough Bridge & Tunnel
Authority Residual
Interest Securities
(MBIA), Variable, 1/1/12
(1) 3,229,230
-------------
$ 6,262,260
-------------
INSURED WATER & SEWER - 0.1%
Aaa AAA $ 275 Albany Municipal Water
Financial Authority
(MBIA), 7.50%, 12/1/17 $ 298,944
-------------
LEASE/CERTIFICATE OF
PARTICIPATION - 8.7%
Baa1 BBB $ 1,955 Dormitory Authority, City
University, 5.75%, 7/1/13 $ 1,869,000
Baa1 BBB 17,815 Dormitory Authority, City
University, 5.75%, 7/1/13 17,031,318
Baa1 BBB 250 Dormitory Authority, City
University, 6.375%, 7/1/08 256,618
Baa1 BBB 5,100 Dormitory Authority, City
University, 7.00%, 7/1/09 5,653,044
Baa1 BBB 4,325 Dormitory Authority, City
University, 7.50%, 7/1/10 4,967,133
Baa1 BBB 6,125 New York State HFA Service
Contract, 5.375%, 9/15/11 5,635,000
NR BBB 5,865 New York State Thruway
Authority, 0%, 1/1/01 4,438,046
Baa1 BBB 5,775 New York State Urban
Development Corporation
(UDC) Correctional
Facilities, 5.50%, 1/1/14 5,342,337
Baa1 BBB 7,670 New York State UDC
Correctional Facilities,
5.25%, 1/1/13 6,896,557
Baa1 BBB 500 New York State UDC, Alfred
Technology, 7.875%, 1/1/20 549,070
<CAPTION>
RATINGS (UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Baa1 BBB 750 New York State UDC,
Clarkson Center for
Advanced Materials, 7.80%,
1/1/20 821,512
Baa1 BBB 750 New York State UDC,
Clarkson Center for
Advanced Materials, 8.00%,
1/1/20 839,737
Baa1 A 1,825 Syracuse-Hancock
International Airport
Certificates of
Participation, 6.625%,
1/1/12 1,921,105
-------------
$ 56,220,477
-------------
MISCELLANEOUS - 1.6%
Aa AA- $ 200 City of New York Municipal
Assistance Corporation,
7.50%, 7/1/08 $ 218,888
Aa AA- 485 City of New York Municipal
Assistance Corporation,
7.625%, 7/1/08 530,896
Aa AA- 635 City of New York Municipal
Assistance Corporation,
7.625%, 7/1/08 714,724
NR NR 1,300 New York City IDA,
(YMCA of Greater New
York), 8.00%, 8/1/16 1,394,536
Aaa AAA 7,000 VRDC-IVRC Trust, Variable
Rate, 6/26/02 (1) 7,214,340
-------------
$ 10,073,384
-------------
SOLID WASTE - 2.0%
Baa1 A- $ 2,665 Hempstead IDA Resource
Recovery, American
Refunding Fuel Co., 7.40%,
12/1/10 $ 2,782,473
Baa NR 9,530 New York State EFC
Resource Recovery,
Huntington Project, 7.50%,
10/1/12 10,056,056
-------------
$ 12,838,529
-------------
SPECIAL TAX REVENUE - 12.5%
A A $12,160 New York State LGAC,
5.00%, 4/1/21 $ 10,582,240
A A 5,000 New York State LGAC,
5.00%, 4/1/21 4,368,900
A A 8,750 New York State LGAC,
5.00%, 4/1/23 7,526,313
A A 4,750 New York State LGAC,
5.25%, 4/1/16 4,406,908
A A 2,500 New York State LGAC,
5.25%, 4/1/19 2,265,400
A A 4,500 New York State LGAC,
5.375%, 4/1/16 4,221,180
A A 5,225 New York State LGAC,
5.50%, 4/1/17 4,960,040
</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>
SPECIAL TAX REVENUE - (CONTINUED)
A A 12,420 New York State LGAC,
5.50%, 4/1/18 11,731,808
A A 13,000 New York State LGAC,
5.50%, 4/1/21 12,140,570
NR BBB+ 2,630 New York State Municipal
Bond Bank Agency, 6.875%,
3/15/06 2,866,095
Baa1 BBB 3,100 New York State Thruway
Authority Contract, Local
& Highway Building, 5.25%,
4/1/13 2,800,478
Baa1 A 2,000 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 1,902,740
Baa1 A 2,500 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 2,378,425
Baa1 A 4,840 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/18 5,079,774
Baa1 BBB 3,335 Triborough Bridge & Tunnel
Authority, Convention
Center, 6.00%, 1/1/11 3,318,158
-------------
$ 80,549,029
-------------
TRANSPORTATION - 6.2%
Baa1 BBB $ 4,025 MTA Transit Facilities
Service Contract, 4.75%,
7/1/19 $ 3,261,417
Baa1 BBB 3,670 MTA Transit Facilities
Service Contract, 4.75%,
7/1/19 2,973,764
Baa1 BBB 2,000 MTA Transit Facilities
Service Contract, 5.75%,
7/1/13 1,928,740
Baa1 BBB 725 MTA Transit Facilities
Service Contract, 5.75%,
7/1/13 699,168
NR BBB 2,350 New York State Thruway
Authority, Cross
Westchester Expressway
Project, 0%, 1/1/03 1,587,566
Ba1 BB 6,500 Port Authority of New York
and New Jersey, 5.75%,
6/15/30 6,254,170
Ba1 BB 2,800 Port Authority of New York
and New Jersey, Delta
Airlines LaGuardia
Airport, 6.95%, 6/1/08 2,969,512
A1 AA- 1,500 Port Authority of New York
and New Jersey (AMT),
Variable, 1/15/27 (1) 1,553,730
<CAPTION>
RATINGS (UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa A+ 5,330 Triborough Bridge and
Tunnel Authority (TBTA)
General Purpose, 5.00%,
1/1/12 4,869,062
Aa A+ 11,580 TBTA General Purpose,
5.50%, 1/1/17 11,048,941
Aa A+ 2,500 TBTA General Purpose,
6.125%, 1/1/21 2,583,100
-------------
$ 39,729,170
-------------
WATER & SEWER REVENUE - 3.8%
Aa A $11,050 New York State EFC, State
Water Pollution Control,
6.875%, 6/15/10 $ 12,110,568
Aa A+ 4,545 New York State EFC, State
Water Pollution Control,
7.20%, 3/15/11 5,052,540
Aa A 2,750 New York State EFC, State
Water Pollution Control,
7.00%, 6/15/12 3,053,738
Aa A 150 New York State EFC, State
Water Pollution Control,
7.50%, 6/15/12 169,304
Baa1 A 3,750 Puerto Rico Aqueduct &
Sewer Authority, 7.875%,
7/1/17 4,160,625
-------------
$ 24,546,775
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $610,645,613) $ 642,348,587
=============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by New York
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 September 30, 1995, 23.7% 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 0.1% to 11.0% of total investment.
See notes to financial statements
47
<PAGE>
-------
Ohio Tax Free Portfolio
Portfolio of Investments - September 30, 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 - 7.9%
A A+ $ 1,000 University of Cincinnati,
6.50%, 12/1/11 $ 1,035,190
A1 AA- 650 University of Cincinnati,
6.50%, 6/1/11 684,314
Aa AA- 550 Ohio State Higher
Educational Facilities,
Case Western University,
6.50%, 10/1/20 604,335
NR AA 1,000 Ohio State Higher
Educational Facilities,
Oberlin College, 5.375%,
10/1/15 942,190
NR AAA 2,100 Ohio Higher Educational
Facilities, Ohio Northern
University (CLEE), 5.60%,
5/1/13 2,069,886
NR AAA 2,750 Ohio Higher Educational
Facilities, Ohio Northern
University (CLEE), 5.65%,
5/1/18 2,688,153
A1 A+ 1,300 Ohio State Higher
Educational Facilities,
Public Facilities, 5.50%,
12/1/07 1,319,513
A1 NR 7,000 Ohio State Student Loan
Funding Corp (AMT),
6.10%, 8/1/07 7,165,200
A1 NR 7,000 Ohio State Student Loan
Funding Corp (AMT),
6.10%, 8/1/08 7,121,100
A1 AA- 1,500 Ohio State University
Revenue, 5.75%, 12/1/09 1,523,325
-------------
$ 25,153,206
-------------
ESCROWED - 0.2%
A1 NR $ 500 Gahanna, Ohio General
Obligation, 7.00%, 6/1/12 $ 566,875
-------------
GENERAL OBLIGATIONS -
9.1%
NR NR $ 3,035 Belmont County, 7.30%,
12/1/17 $ 3,190,392
A NR 600 City of Brunswick,
Various Purpose, 6.30%,
12/1/12 617,586
NR NR 2,450 Cleveland City School
District, 7.25%, 6/15/98 2,498,069
Aaa AAA 1,035 City of Columbus, 5.50%,
11/1/12 1,025,902
A1 NR 1,360 Copley-Fairlawn City
School District, 6.25%,
12/1/15 1,403,180
NR BBB 3,500 Guam Government, 5.375%,
11/15/13 3,104,535
A1 NR 3,340 Hilliard City School
District, 6.30%, 12/1/14 3,462,344
A1 NR 500 Huber Heights, Ohio,
6.75%, 12/1/11 534,185
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A NR 1,200 Mansfield Ohio Waterworks
Improvement, 5.60%,
12/1/13 1,162,692
A1 NR 725 City of Medina, Ohio Fire
Station Improvement,
3.00%, 12/1/10 527,445
Aa AA 1,500 Ohio State Infrastructure
Improvement, 0%, 8/1/11 632,685
Baa1 NR 1,000 Scioto County, Ohio Human
Services Building, 7.15%,
8/1/11 1,136,590
NR NR 1,000 Tuscarawas Public Library
Improvement, 6.90%,
12/1/11 1,055,300
Baa NR 1,000 Youngstown, Ohio, 7.55%,
12/1/11 1,080,240
NR NR 6,855 Youngstown, Ohio, 7.35%,
6/15/05 7,413,614
-------------
$ 28,844,759
-------------
HEALTH CARE - 2.4%
NR AAA $ 1,000 Allen County Ohio, LIMA
Convalescent Home
Foundation (GNMA), 6.40%,
1/1/21 $ 1,022,330
Aa2 NR 1,600 Hamilton County,
Episcopal Retirement
Homes, 6.80%, 1/1/08 1,745,504
NR BBB- 1,800 Marion County, United
Church Homes, 6.30%,
11/15/15 1,734,354
Baa BBB 2,925 Puerto Rico Urban Renewal
& Housing Corporation,
0%, 10/1/99 2,364,570
Aa2 NR 600 Warren County, Otterbein
Home Project, 7.20%,
7/1/11 662,418
-------------
$ 7,529,176
-------------
HOSPITALS - 19.3%
Baa BBB- $ 1,000 Butler County, Hamilton-
Hughe Hospital, 7.50%,
1/1/10 $ 1,032,270
NR BBB 1,000 Cambridge Ohio, Guernsey
Memorial Hospital, 8.00%,
12/1/11 1,068,500
A1 A 2,100 Cuyahoga County, Fairview
General Hospital, 6.25%,
8/15/10 2,152,101
A1 A 2,370 Cuyahoga County, Meridia
Health System, 7.00%,
8/15/23 2,505,967
A1 A 2,000 Cuyahoga County, Meridia
Health System, 6.50%,
8/15/12 2,052,600
</TABLE>
48
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - (CONTINUED)
Aa AA 750 Cuyahoga County,
University Hospitals
Health System, 6.50%,
1/15/19 778,560
Aa AA 4,450 Cuyahoga County,
University Hospitals
Health System, 6.00%,
1/15/22 4,487,024
NR BBB 4,500 Defiance Hospital, Inc.,
7.625%, 11/1/03 4,641,075
Baa BBB- 665 East Liverpool City
Hospital-Series A, 8.00%,
10/1/21 696,893
Baa BBB- 1,000 East Liverpool City
Hospital-Series B, 8.00%,
10/1/21 1,044,880
A A- 4,000 Erie County, Firelands
Community Hospital,
6.75%, 1/1/08 4,237,640
Aa NR 3,000 Franklin County,
Children's Hospital,
6.60%, 5/1/13 3,167,310
Aa NR 1,900 Franklin County,
Riverside United
Methodist Hospital,
5.75%, 5/15/20 1,804,088
A A 1,015 City of Garfield Heights,
Marymount Hospital,
6.65%, 11/15/11 1,052,058
A A 1,000 City of Garfield Heights,
Marymount Hospital,
6.70%, 11/15/15 1,040,670
Aa2 NR 1,000 Hamilton County, Wesley
Hall Project, 6.50%,
3/1/15 1,022,560
A1 A 4,000 Hamilton County, Bethesda
Hospital, Inc., 6.25%,
1/1/12 4,027,400
A1 A+ 1,095 Lorain County, Humility
of Mary Health Care
Corp., 7.125%, 12/15/06 1,199,266
A1 A+ 5,900 Lorain County, Humility
of Mary Health Care
Corp., 5.90%, 12/15/08 6,048,208
A1 A+ 1,000 Lorain County, Humility
of Mary Health Care
Corp., 7.20%, 12/15/11 1,081,030
NR A+ 1,750 Lorain County, Lakeland
Community Hospital, Inc.,
6.50%, 11/15/12 1,794,538
NR BBB+ 1,000 Lucas County, Flowers
Hospital, 6.125%, 12/1/13 939,000
A A 2,760 City of Middleburg
Heights, Southwest
General Hospital Project,
6.75%, 8/15/21 2,880,971
NR NR 10,000 Mt Vernon, Knox Community
Hospital, 7.875%, 6/1/12 10,358,900
-------------
$ 61,113,509
-------------
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - 7.1%
Aa NR $ 1,300 City of Clermont, Laurels
Project (FHA), 6.00%,
9/1/20 $ 1,285,011
Aa NR 1,000 Franklin County, Hamilton
Creek Apartments (FHA),
(AMT), 5.80%, 7/1/14 942,190
Aa NR 3,660 Franklin County, Hamilton
Creek Apartments (FHA),
(AMT), 5.55%, 7/1/24 3,239,905
NR AAA 3,490 Ohio HFA, (GNMA), (AMT),
6.375%, 3/1/25 3,523,853
NR AAA 4,735 Ohio HFA, (GNMA), (AMT),
6.70%, 3/1/25 4,844,899
NR AAA 835 Ohio HFA, SFMR (GNMA),
7.60%, 9/1/16 871,723
NR AAA 1,250 Ohio HFA, MFMR-Asbury
Woods (FHA), 7.00%,
10/1/24 1,279,350
Aa NR 2,850 Ohio HFA, Oakleaf Village
Project, (FHA), 5.70%,
9/1/26 2,643,746
Aa NR 1,000 Ohio HFA, Aristocrat
South Board & Care
Project (FHA), (AMT),
7.30%, 8/1/31 1,037,330
Aaa AAA 1,085 Ohio HFA SFMR, (GNMA)
(AMT), Variable, 3/31/31
(1) 1,162,317
NR BBB+ 1,020 Ohio Economic
Development, KMART Corp.,
6.75%, 5/15/07 1,034,810
A1 A+ 500 Ohio Building Authority
Juvenile Correctional
Building, 5.80%, 10/1/07 515,125
-------------
$ 22,380,259
-------------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL
REVENUE - 8.8%
NR BBB $510.... Madison County, IDR,
KMART Corp., 6.75%,
9/15/06 $ 523,734
Baa1 NR 3,750 Ohio Air Quality
Development Authority,
Ashland Oil Inc, 6.85%,
4/1/10 3,991,163
NR A- 595 Ohio IDR, Enterprise Bond
Fund, Burrows Paper Corp.
(AMT), 7.625%, 6/1/11 659,546
NR A- 310 Ohio IDR, Enterprise Bond
Fund, Cheryl & Co.,
(AMT), 5.50%, 12/1/04 307,774
NR A- 530 Ohio IDR, Enterprise Bond
Fund, Cheryl & Co.,
(AMT), 5.90%, 12/1/09 530,806
</TABLE>
49
<PAGE>
-------
OHIO TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL
REVENUE - (CONTINUED)
NR A- 1,815 Ohio IDR, Enterprise Bond
Fund, Consolidated
Biscuit, (AMT), 7.00%,
12/1/09 2,014,051
NR A- 3,425 Ohio IDR, Enterprise Bond
Fund, J J & W LP Project
(AMT), 6.70%, 12/1/14 3,536,826
NR A- 750 Ohio IDR, Enterprise Bond
Fund, Luigino's Inc.
(AMT), 6.85%, 6/1/01 772,388
NR A- 1,000 Ohio IDR, Enterprise Bond
Fund, Progress Plastic
Products, (AMT), 6.80%,
12/1/01 1,086,040
NR A- 1,525 Ohio IDR, Enterprise Bond
Fund, Progress Plastic
Products, (AMT), 7.80%,
12/1/09 1,772,660
NR A- 680 Ohio IDR, Enterprise Bond
Fund, Royal Appliance
Manufacturing Co., Series
1991 #9 (AMT), 7.625%,
12/1/11 758,234
NR A- 1,000 Ohio IDR, Enterprise Bond
Fund, Royal Appliance
Manufacturing Co., Series
1991 #5 (AMT), 7.625%,
12/1/11 1,115,050
NR A- 1,800 Ohio IDR, Enterprise Bond
Fund, Speco Corp. (AMT),
6.60%, 6/1/04 1,857,186
NR A- 170 Ohio IDR, Enterprise Bond
Fund, Speco Corp. (AMT),
6.25%, 6/1/00 173,553
NR A- 880 Ohio IDR, Enterprise Bond
Fund, VSM Corp., (AMT),
7.375%, 12/1/11 969,936
NR AA- 1,000 Ohio Pollution Control,
Standard Oil Company,
6.75%, 12/1/15 1,167,220
Baa2 BBB 4,065 Ohio Water Development
Authority, Union Carbide
Corp. Project, 5.50%,
1/15/07 3,935,245
Ba2 NR 1,500 Portage County, Kroger
Corporation, 7.25%,
7/1/99 1,592,175
Ba2 NR 1,000 Summit County, Kroger
Corporation, 6.85%,
7/1/99 1,050,140
-------------
$ 27,813,727
-------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED EDUCATION - 1.1%
Aaa AAA $ 1,000 Adams & Highland County
Local School District
(MBIA), 5.25%, 12/1/21 $ 923,810
Aaa AAA 1,500 Delaware County, Buckeye
Valley Local School
District (MBIA), 5.25%,
12/1/20 1,402,665
Aaa AAA 1,000 Ohio Higher Education,
University of Dayton
Project (FGIC), 5.80%,
12/1/14 1,000,720
-------------
$ 3,327,195
--------------
INSURED GENERAL
OBLIGATIONS - 1.5%
Aaa AAA $ 1,700 Puerto Rico (AMBAC),
Variable, 7/1/15 (1) $ 1,716,898
Aaa AAA 3,000 Puerto Rico (FSA),
Variable, 7/1/22 (1) 3,077,910
-------------
$ 4,794,808
-------------
INSURED HEALTH CARE -
2.4%
Aaa AAA $ 1,945 Hamilton County, Sisters
of Charity Health Care
System (MBIA), 5.25%,
5/15/13 $ 1,819,645
Aa AA- 5,925 Montgomery County,
Sisters of Charity Health
Care System (MBIA),
5.25%, 5/15/11 5,563,871
-------------
$ 7,383,516
-------------
INSURED HOSPITALS - 11.7%
Aaa AAA $ 2,500 Akron, Bath and Copley
Townships Children's
Hospital Medical Center
of Akron, (AMBAC), 5.25%,
11/15/20 $ 2,276,175
Aaa AAA 1,000 Clermont County, Mercy
Health System (AMBAC),
Variable, 10/5/21 (1) 1,128,810
Aaa AAA 1,500 Cuyahoga County, Fairview
Hospital, (MBIA), 5.50%,
8/15/19 1,389,270
Aaa AAA 5,885 Franklin County,
Riverside United
Methodist (AMBAC), 5.75%,
5/15/12 5,797,961
Aaa AAA 10,500 Franklin County,
Riverside United
Methodist (AMBAC), 5.75%,
5/15/20 10,085,565
Aaa AAA 1,455 Hamilton County, The
Christ Hospital (FGIC),
5.50%, 1/1/08 1,472,169
Aaa AAA 1,500 Hamilton County,
Children's Hospital
Medical Center, (FGIC),
5.00%, 5/15/13 1,370,130
Aaa AAA 2,750 Mansfield General
Hospital (AMBAC), 6.70%,
12/1/09 2,970,028
</TABLE>
50
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITALS -
(CONTINUED)
Aaa AAA 1,000 Montgomery County, Ohio
Miami Valley Hospital,
(AMBAC), 6.25%, 11/15/16 1,030,000
Aaa AAA 6,565 Portage County, Robinson
Memorial Hospital,
(MBIA), 5.80%, 11/15/15 6,272,201
Aaa AAA 3,500 Stark County, Timken
Mercy Medical, (MBIA),
5.00%, 12/1/19 3,113,320
-------------
$ 36,905,629
-------------
INSURED HOUSING - 0.6%
Aaa AAA $ 990 Ohio Capital Corporation
FHA Insured Mortgage
Loans, (MBIA), 7.25%,
7/1/24 $ 1,032,649
Aaa AAA 750 Ohio Capital Corporation
FHA Insured Mortgage
Loans, (MBIA), 6.50%,
1/1/25 763,965
-------------
$ 1,796,614
-------------
INSURED INDUSTRIAL DEVELOPMENT
REVENUE - 2.3%
Aaa AAA $ 7,000 Ohio Air Quality
Development Authority,
JMG Funding, L.P.
Project, (AMBAC), (AMT),
6.375%, 1/1/29 $ 7,180,670
-------------
INSURED LEASE - 2.6%
Aaa AAA $ 1,000 Ohio Higher Education,
University of Dayton,
(FGIC), 0%, 12/1/06 $ 560,870
Aaa AAA 8,000 Ohio State Public
Building
Authority-Workers Comp
Facilities (MBIA),
4.50%, 4/1/04 7,785,200
-------------
$ 8,346,070
-------------
INSURED SPECIAL TAX
REVENUE - 4.9%
Aaa AAA $ 2,110 Hudson Local School
District, (FGIC), 0%,
12/15/09 $ 976,656
Aaa AAA 2,115 Hudson Local School
District, (FGIC), 0%,
12/15/10 920,427
Aaa AAA 2,000 North Canton City School
District (AMBAC), 5.90%,
12/1/14 2,024,260
Aaa AAA 1,400 Pickerington Local School
District, (AMBAC), 0%,
12/1/11 562,800
Aaa AAA 2,000 Puerto Rico Highway &
Transportation Authority
(FSA), 5.50%, 7/1/17 1,911,920
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 7,000 Puerto Rico Highway &
Transportation Authority
(FSA), 5.25%, 7/1/21 6,435,380
Aaa AAA 3,000 Puerto Rico Highway &
Transportation Authority
(FSA), 5.25%, 7/1/20 2,762,220
-------------
$ 15,593,663
-------------
INSURED UTILITIES - 2.4%
Aaa AAA $ 1,650 Cleveland Public Power
System, (MBIA), 7.00%,
11/15/17 $ 1,809,605
Aaa AAA 2,000 Cuyahoga County Medical
Center Utility System
(AMT) (MBIA), 6.10%,
8/15/15 2,001,480
Aaa AAA 1,380 OH Municipal Electric
Generation Agency
(AMBAC), 5.375%, 2/15/24 1,289,665
Aaa AAA 2,300 Puerto Rico Electric
Power Authority, (FSA),
Variable, 7/1/02 (1) 2,548,814
-------------
$ 7,649,564
-------------
LEASE/COPS - 1.1%
A NR $ 1,000 University of Akron COP,
West Campus Parking Deck,
5.50%, 1/1/14 $ 974,080
Baa1 A 2,500 Puerto Rico Public
Building Authority,
6.00%, 7/1/12 2,504,675
-------------
$ 3,478,755
-------------
LIFE CARE - 0.6%
Aa NR $ 2,000 Franklin County,
Kensington Place Project,
6.75%, 1/1/34 ()2 $ 2,046,600
-------------
SPECIAL TAX REVENUE -
4.2%
Baa1 A $ 3,000 Puerto Rico Highway &
Transportation Authority,
6.625%, 7/1/12 $ 3,168,450
Baa1 A 1,500 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/15 1,427,055
Baa1 A 5,000 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/20 4,466,150
Baa1 A 4,995 Puerto Rico Highway &
Transportation Authority,
5.00%, 7/1/22 4,280,216
-------------
$ 13,341,871
-------------
</TABLE>
51
<PAGE>
-------
OHIO TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION - 1.7%
NR BBB $ 2,750 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 2,755,913
A1 AA- 2,830 Ohio Turnpike Commission,
5.75%, 2/15/24 2,771,617
-------------
$ 5,527,530
-------------
UTILITIES - 7.2%
NR BBB $ 5,500 Guam Power Authority,
5.25%, 10/1/13 $ 4,960,170
NR BBB 5,000 Guam Power Authority,
5.25%, 10/1/23 4,307,600
Baa1 A- 3,000 Puerto Rico Electric
Power Authority, 5.00%,
7/1/12 2,709,060
Baa1 A- 360 Puerto Rico Electric
Power Authority, 7.125%,
7/1/14 392,580
Baa1 A- 4,000 Puerto Rico Electric
Power Authority, 6.00%,
7/1/14 3,968,440
Baa1 A- 20,165 Puerto Rico Electric
Power Authority, 0%,
7/1/17 5,301,379
NR NR 1,000 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 1,050,210
-------------
$ 22,689,439
-------------
WATER & SEWER REVENUE -
0.9%
NR NR $ 800 The Mahoning Valley
Sanitary District, 7.80%,
12/15/08 $ 855,392
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 950 The Mahoning Valley
Sanitary District, 7.80%,
12/15/09 1,013,099
NR NR 1,000 City of Vermilion, Ohio
Water System, 7.25%,
8/15/15 1,066,720
-------------
$ 2,935,211
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $304,406,955)
$ 316,398,646
===============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by Ohio
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 September 30, 1995, 36.3% 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 2.0% to 11.4% of total investments.
See notes to financial statements
52
<PAGE>
-------
Rhode Island Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 5.1%
Aa AA $1,500 Rhode Island Health and
Educational Building
Corporation, Brown
University, 5.375%, 9/1/23 $ 1,410,315
A NR 750 Rhode Island Student Loan
Authority, 5.60%, 12/1/12 703,560
-----------
$ 2,113,875
-----------
ELECTRIC UTILITY - 3.7%
Baa1 A- $ 710 Puerto Rico Electric Power
Authority, 5.00%, 7/1/12 $ 641,144
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 5.50%, 7/1/25 912,910
-----------
$ 1,554,054
-----------
GENERAL OBLIGATIONS (LOCAL)
-0.8%
Ba NR $ 310 West Warwick, 6.80%,
7/15/98 $ 315,670
-----------
GENERAL OBLIGATIONS
(TERRITORY) - 3.9%
Baa1 A $ 500 Puerto Rico Public
Improvement, 5.50%, 7/1/13 $ 477,075
Baa1 A 500 Puerto Rico Public Building
Authority, 5.75%, 7/1/15 483,355
NR BBB 750 Government of Guam, 5.40%,
11/15/18 652,755
-----------
$ 1,613,185
-----------
HOSPITALS - 5.7%
NR AA $1,500 Rhode Island Health and
Educational Building
Corporation, Landmark
Medical Center, 5.875%,
10/1/19 $ 1,432,335
NR A 1,015 Rhode Island Health and
Educational Building
Corporation, Butler
Hospital, 5.125%, 1/1/08 957,135
-----------
$ 2,389,470
-----------
HOUSING - 16.7%
Aa AA+ $1,500 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 6.60%,
10/1/25 $ 1,502,370
Aa AA 100 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 6.70%,
10/1/12 101,929
Aa AA 270 Rhode Island Housing and
Mortgage Finance
Corporation, 6.70%, 10/1/14 280,930
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA+ 875 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 6.80%,
10/1/25 (2) 893,034
Aa AA+ 1,000 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 7.10%,
10/1/23 1,033,790
Aa AA+ 2,000 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 7.55%,
10/1/22 2,137,460
NR A 35 Rhode Island Housing and
Mortgage Finance
Corporation, 7.875%,
10/1/22 36,217
Baa BBB 1,025 Puerto Rico Housing Bank
and Finance Agency, 5.125%,
12/1/05 994,527
-----------
$ 6,980,257
-----------
INDUSTRIAL DEVELOPMENT
REVENUE - 3.6%
Baa3 BB+ $ 500 Puerto Rico Port Authority,
American Airlines, Inc.
(AMT), 6.30%, 6/1/23 $ 493,499
Aa2 AA 1,000 Rhode Island Industrial
Facilities Corp., Mobil
Corp., 6.00%, 11/1/14 995,440
-----------
$ 1,488,939
-----------
INSURED COLLEGE AND
UNIVERSITY - 9.8%
Aaa AAA $1,000 Rhode Island Health and
Educational Building,
Providence College Issue
(MBIA), 5.60%, 11/1/15 $ 954,740
Aaa AAA 730 Rhode Island Health and
Educational Building,
Providence College Issue
(MBIA), 5.60%, 11/1/22 687,397
Aaa AAA 500 Rhode Island Health and
Educational Building,
University of Rhode Island
(MBIA), 5.50%, 9/15/13 478,550
Aaa AAA 2,200 Rhode Island Health and
Educational Building,
University of Rhode Island
(MBIA), 5.25%, 9/15/23 1,966,712
-----------
$ 4,087,399
-----------
</TABLE>
53
<PAGE>
-------
RHODE ISLAND TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL OBLIGATIONS
- 7.9%
Aaa AAA $ 750 Rhode Island Depositors
Economic Protection
Corporation (MBIA), 5.25%,
8/1/21 $ 677,453
Aaa AAA 1,980 Rhode Island Port Authority
and Economic Development
Corporation Airport, (FSA),
5.25%, 7/1/23 1,734,539
Aaa AAA 900 Rhode Island Public
Buildings Authority
(AMBAC), 5.25%, 2/1/10 866,601
-----------
$ 3,278,593
-----------
INSURED GENERAL OBLIGATIONS
(LOCAL) - 4.7%
Aaa AAA $1,000 Burrellville, (MBIA),
5.75%, 10/15/17 $ 993,800
Aaa AAA 500 Town of West Warwick,
(MBIA), 5.90%, 1/1/05 534,925
Aaa AAA 480 City of Woonsocket, Water
Bonds (MBIA), 5.125%,
3/1/13 454,824
-----------
$ 1,983,549
-----------
INSURED GENERAL OBLIGATIONS
(STATE) - 2.4%
Aaa AAA $1,000 State of Rhode Island and
Providence Plantations,
Consolidated Capital
Development (FGIC), 5.50%,
7/15/12 $ 999,900
-----------
INSURED GENERAL OBLIGATION
(TERRITORY) - 0.6%
Aaa AAA $ 250 Puerto Rico, Public
Improvement Bonds of 1992,
Yield Curve Notes (AMBAC),
Variable, 7/1/15 (1) $ 252,485
-----------
INSURED HOUSING - 6.1%
Aaa AAA $ 890 Providence Housing
Development Corporation
Mortgage, (Barbara Jordan
Apartments) (MBIA), 6.50%,
7/1/09 $ 917,643
Aaa AAA 1,075 Villa Excelsior Housing
Development Corporation
Mortgage (MBIA), 6.75%,
1/1/19 1,103,756
Aaa AAA 500 Villa Excelsior Housing
Development Corporation
Mortgage (MBIA), 6.85%,
1/1/24 515,260
-----------
$ 2,536,659
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 4.6%
Aaa AAA $ 800 City of Pawtucket, Public
Building Authority (CGIC),
5.75%, 3/15/14 $ 796,368
Aaa AAA 590 Providence Rhode Island
Public Building Authority,
Feinstein School (MBIA),
5.25%, 12/15/13 551,249
Aaa AAA 630 Providence Rhode Island
Public Building Authority,
Feinstein School (MBIA),
5.25%, 12/15/14 583,947
-----------
$ 1,931,564
-----------
INSURED WATER & SEWER - 16.6%
Aaa AAA $1,500 Kent County Water Authority
General Revenue Bonds, 1994
Series A (MBIA), 6.35%,
7/15/14 $ 1,560,390
Aaa AAA 1,000 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.80%, 10/1/09 1,030,650
Aaa AAA 1,000 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.80%, 8/1/12 1,003,100
Aaa AAA 500 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.85%, 10/1/09 515,120
Aaa AAA 2,000 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.875%, 10/1/15 1,996,480
Aaa AAA 750 Rhode Island Clean Water,
Safe Drinking Water (MBIA),
6.70%, 1/1/15 800,610
-----------
$ 6,906,350
-----------
MISCELLANEOUS - 1.1%
Baa1 A- $ 500 Rhode Island Depositors
Economic Protection
Corporation, 5.75%, 8/1/21 $ 476,090
-----------
SPECIAL TAX - 6.7%
Baa BBB- $1,500 City of Providence, Rhode
Island, Special Obligation
Tax Increment Bonds, 7.65%,
6/1/16 $ 1,631,490
Baa1 A 750 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/17 701,258
</TABLE>
54
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
SPECIAL TAX - (CONTINUED)
Baa1 A 500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 446,615
-----------
$ 2,779,363
-----------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $41,635,939) $ 41,687,402
===========
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Rhode Island
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 September 30, 1995, 52.7% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.9% to 37.4% of total investments.
See notes to financial statements
55
<PAGE>
-------
West Virginia Tax Free Portfolio
Portfolio of Investments - September 30, 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%
NR BBB- $1,490 Puerto Rico IM&E
(Polytechnic University of
Puerto Rico), 5.50%, 8/1/24 $ 1,293,424
------------
ELECTRIC UTILITIES - 11.8%
NR BBB $ 750 Guam Power Authority,
5.25%, 10/1/13 $ 676,388
NR BBB 500 Guam Power Authority,
5.25%, 10/1/23 430,760
NR BBB 450 Guam Power Authority,
6.625%, 10/1/14 461,111
A2 A 2,000 Harrison, West Virginia PCR
(Monongahela Power Company
Harrison Station), 6.75%,
8/1/24 2,087,160
A3 BBB+ 1,000 Mason, West Virginia PCR
(Appalacian Power Co.),
6.85%, 6/1/22 1,050,440
------------
$ 4,705,859
------------
ESCROWED - 1.7%
Aaa AAA $2,500 Kanawha-Putnam, West
Virginia Single Family
Mortgage (AMBAC), 0%,
12/1/16 672,925
------------
HEALTH CARE - 1.9%
NR NR $ 745 Kanawha, West Virginia IDR
(Beverly Enterprises),
7.25%, 11/1/04 $ 751,102
------------
HOSPITALS - 9.9%
NR BBB+ $1,750 Berkeley, West Virginia
Building Commission (City
Hospital), 6.50%, 11/1/22 $ 1,747,655
A1 NR 1,000 West Virginia HFA
(Charleston Area Medical
Center), 6.50%, 9/1/23 1,028,530
A1 NR 1,125 West Virginia HFA
(Charleston Area Medical
Center), 6.50%, 9/1/16 1,160,303
------------
$ 3,936,488
------------
HOUSING - 4.6%
Aa1 AA+ $1,000 West Virginia Housing
Development Finance, 5.45%,
11/1/21 $ 907,180
Aa1 AA+ 1,000 West Virginia Housing
Development Finance, 5.55%,
5/1/17 932,170
------------
$ 1,839,350
------------
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL REVENUE -
12.5%
NR A- $1,375 Jefferson, West Virginia
IDR (Royal Venders,
Incorporated) (AMT), 5.90%,
8/1/04 $ 1,402,321
Baa2 BBB 300 Kanawha, West Virginia IDR
(Union Carbide Chemicals
and Plastics Company)
(AMT), 8.00%, 8/1/20 328,362
A2 NR 1,500 Puerto Rico IM&E (American
Home Products Corporation),
5.10%, 12/1/18 1,321,875
Baa3 BB+ 925 Puerto Rico Port Authority
(American Airlines) (AMT),
6.30%, 6/1/23 923,696
NR NR 1,000 Upshur, West Virginia Solid
Waste (TJI Project) (AMT),
7.00%, 7/15/25 1,017,510
------------
$ 4,993,764
------------
INSURED EDUCATION - 4.5%
Aaa AAA $1,150 West Virginia State College
System (AMBAC), 6.00%,
4/1/12 (2) $ 1,164,088
Aaa AAA 650 West Virginia State
University System (AMBAC),
6.00%, 4/1/12 660,329
------------
$ 1,824,417
------------
INSURED ELECTRIC UTILITIES - 13.5%
Aaa AAA $2,500 Marshall County PCR (Ohio
Power Kammer Plant) (MBIA),
5.45%, 7/1/14 $ 2,386,825
Aaa AAA 1,500 Mason County PCR (Ohio
Power Company) (AMBAC),
5.45%, 12/1/16 1,425,840
Aaa AAA 250 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/03 (1) 279,805
Aaa AAA 1,400 Putnam County PCR
(Appalachian Power Company)
(AMBAC), 5.45%, 6/1/19 1,304,898
------------
$ 5,397,368
------------
INSURED GENERAL OBLIGATIONS - 2.5%
Aaa AAA $1,000 West Virginia School
Building Authority (MBIA),
6.00%, 7/1/12 $ 1,009,250
------------
INSURED HOSPITALS - 15.7%
Aaa AAA $1,000 West Virginia HFA (Linked
Bulls & Bears) (MBIA),
6.10%, 1/1/18 $ 1,007,600
</TABLE>
56
<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 HOSPITALS -
(CONTINUED)
Aaa AAA 200 West Virginia HFA
(University Hospital)
(MBIA), 5.00%, 6/1/13 179,592
Aaa AAA 2,000 West Virginia HFA
(University Hospital)
(MBIA), 5.00%, 6/1/16 1,756,180
Aaa AAA 2,300 West Virginia HFA (Cabell
Huntington Hospital)
(AMBAC), 6.25%, 1/1/19 2,346,782
Aaa AAA 1,000 West Virginia HFA
(Charleston Area Medical
Center) (MBIA), 5.75%,
9/1/13 972,720
------------
$ 6,262,874
------------
INSURED TRANSPORTATION -
2.0%
Aaa AAA $1,250 West Virginia Parkways
Economic Development and
Tourism Authority (FGIC),
0%, 5/15/04 $ 793,888
------------
INSURED WATER & SEWER -
11.1%
Aaa AAA $1,500 Huntington City Sewerage
System (FSA), 5.375%,
11/1/23 $ 1,412,085
Aaa AAA 1,000 Parkersburg City Waterworks
(MBIA), 6.375%, 9/1/19 1,036,110
Aaa AAA 500 West Virginia Water
Development (Loan Program
II) (FSA), 5.75%, 11/1/19 485,395
Aaa AAA 810 West Virginia Water
Development (Loan Program
II) (FSA), 5.50%, 11/1/23 751,162
Aaa AAA 750 West Virginia Water
Development (Loan Program
II) (FSA), 6.00%, 11/1/14 754,170
------------
$ 4,438,922
------------
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOLID WASTE - 2.6%
A2 A $1,000 Braxton, West Virginia
Solid Waste (Weyerhaeuser)
(AMT), 6.50%, 4/1/25 $ 1,022,740
------------
SPECIAL TAX REVENUE - 2.3%
Baa1 A $ 500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 $ 446,615
Baa1 A 500 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 475,681
------------
$ 922,294
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $40,032,289) $ 39,864,667
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by West 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 September 30, 1995, 49.5% 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 2.0% to 48.8% total investments.
See notes to financial statements
57
<PAGE>
- --------------------------------------------------------------------------------
Tax Free Portfolios
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $381,719,158 $661,202,447 $277,979,560 $27,181,386
Unrealized appreciation 24,303,093 33,808,006 17,523,995 1,162,683
------------ ------------ ------------ -----------
Total investments, at value (Note 1A) $406,022,251 $695,010,453 $295,503,555 $28,344,069
Cash 589 5,917,921 6,632 38
Receivable for investments sold 50,000 45,000 13,030,253 1,555,677
Interest receivable 6,743,380 15,155,609 5,219,546 492,405
Deferred organization expenses (Note 1D) 14,563 21,095 12,432 1,700
------------ ------------ ------------ -----------
Total assets $412,830,783 $716,150,078 $313,772,418 $30,393,889
------------ ------------ ------------ -----------
LIABILITIES:
Demand note payable (Note 5) $ 2,032,000 $ -- $ 2,018,000 $ 405,000
Payable for investments purchased -- -- 9,507,914 975,907
Payable for when-issued securities (Note 1F) -- 3,936,280 -- --
Payable for daily variation margin on open financial
futures contracts (Note 1E) 103,125 -- 61,875 16,500
Payable to affiliates --
Trustees' fees 4,638 5,150 4,126 426
Custodian fee 8,667 1,879 4,381 1,946
Accrued expenses 12,215 3,633 5,875 1,150
------------ ------------ ------------ -----------
Total liabilities $ 2,160,645 $ 3,946,942 $ 11,602,171 $ 1,400,929
------------ ------------ ------------ -----------
NET ASSETS applicable to investors' interest in
Portfolio $410,670,138 $712,203,136 $302,170,247 $28,992,960
============ ============ ============ ===========
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $386,540,544 $678,395,130 $284,750,352 $27,858,037
Unrealized appreciation of investments and financial
futures contracts (computed on the basis of
identified cost) 24,129,594 33,808,006 17,419,895 1,134,923
------------ ------------ ------------ -----------
Total $410,670,138 $712,203,136 $302,170,247 $28,992,960
============ ============ ============ ===========
</TABLE>
See notes to financial statements
58
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $610,645,613 $304,406,955 $41,635,939 $40,032,289
Unrealized appreciation (depreciation) 31,702,974 11,991,691 51,463 (167,622)
------------ ------------ ----------- -----------
Total investments, at value (Note 1A) $642,348,587 $316,398,646 $41,687,402 $39,864,667
Cash 696 522 999,953 122
Receivable for investments sold 17,612,917 998,095 -- 1,251,526
Interest receivable 10,635,275 5,490,518 771,453 698,045
Deferred organization expenses (Note 1D) 14,921 9,316 1,744 1,738
------------ ------------ ----------- -----------
Total assets $670,612,396 $322,897,097 $43,460,552 $41,816,098
------------ ------------ ----------- -----------
LIABILITIES:
Demand note payable (Note 5) $ 476,000 $ 3,860,000 $ -- $ 970,000
Payable for investments purchased 16,908,493 -- 504,263 --
Payable for daily variation margin on open
financial futures contracts (Note 1E) 477,125 -- 48,125 7,313
Payable to affiliates --
Trustees' fees 5,150 4,126 426 427
Custodian fee 1,500 6,183 1,500 1,500
Accrued expenses 7,819 10,140 271 1,797
------------ ------------ ----------- -----------
Total liabilities $ 17,876,087 $ 3,880,449 $ 554,585 $ 981,037
------------ ------------ ----------- -----------
NET ASSETS applicable to investors' interest in
Portfolio $652,736,309 $319,016,648 $42,905,967 $40,835,061
============ ============ =========== ===========
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $621,396,197 $307,024,957 $42,891,975 $41,009,996
Unrealized appreciation (depreciation) of
investments and financial futures contracts
(computed on the basis of identified cost) 31,340,112 11,991,691 13,992 (174,935)
------------ ------------ ----------- -----------
Total $652,736,309 $319,016,648 $42,905,967 $40,835,061
============ ============ =========== ===========
</TABLE>
See notes to financial statements
59
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 28,624,042 $ 47,432,310 $ 19,516,946 $1,829,920
------------ ------------ ------------ ----------
Expenses --
Investment adviser fee (Note 2) $ 2,121,262 $ 3,433,489 $ 1,383,407 $ 65,442
Compensation of Trustees not members of
the Investment Adviser's organization (Note 2) 18,570 21,513 16,111 1,642
Custodian fee (Note 2) 187,581 231,473 135,884 20,589
Interest expense (Note 5) -- 267,593 -- --
Legal and accounting services 42,258 37,372 30,407 15,822
Amortization of organization expenses (Note 1D) 5,625 8,830 5,209 620
Miscellaneous 120,219 36,943 91,575 11,551
------------ ------------ ------------ ----------
Total expenses $ 2,495,515 $ 4,037,213 $ 1,662,593 $ 115,666
------------ ------------ ------------ ----------
Deduct reduction of investment adviser fee
(Note 2) $ -- $ -- $ -- $ 36,759
Deduct reduction of custodian fee (Note 2) 47,611 220,751 61,501 10,910
------------ ------------ ------------ ----------
Total $ 47,611 $ 220,751 $ 61,501 $ 47,669
------------ ------------ ------------ ----------
Net expenses $ 2,447,904 $ 3,816,462 $ 1,601,092 $ 67,997
------------ ------------ ------------ ----------
Net investment income $ 26,176,138 $ 43,615,848 $ 17,915,854 $1,761,923
------------ ------------ ------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(19,076,355) $(10,100,669) $(12,310,806) $(1,606,974)
Financial futures contracts (3,974,440) (12,765,513) (3,356,628) (429,946)
------------ ------------ ------------ ----------
Net realized loss on investments $(23,050,795) $(22,866,182) $(15,667,434) $(2,036,920)
------------ ------------ ------------ ----------
Change in unrealized appreciation (depreciation) --
Investments $ 34,125,832 $ 54,420,669 $ 24,470,289 $3,291,986
Financial futures contracts (650,309) -- (482,875) (49,109)
------------ ------------ ------------ ----------
Net unrealized appreciation of investments $ 33,475,523 $ 54,420,669 $ 23,987,414 $3,242,877
------------ ------------ ------------ ----------
Net realized and unrealized gain on
investments $ 10,424,728 $ 31,554,487 $ 8,319,980 $1,205,957
------------ ------------ ------------ ----------
Net increase in net assets from operations $ 36,600,866 $ 75,170,335 $ 26,235,834 $2,967,880
============ ============ ============ ==========
</TABLE>
See notes to financial statements
60
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 41,798,094 $20,219,008 $ 2,510,499 $ 2,448,706
------------ ------------ ----------- -----------
Expenses --
Investment adviser fee (Note 2) $ 3,031,508 $ 1,463,895 $ 100,476 $ 98,033
Compensation of Trustees not members of
the Investment Adviser's organization (Note
2) 20,640 19,598 1,642 1,614
Custodian fee (Note 2) 221,548 157,716 25,652 19,975
Interest expense (Note 5) -- 114,074 9,944 --
Legal and accounting services 37,661 30,478 19,975 22,425
Amortization of organization expenses (Note 1D) 6,278 3,960 633 631
Miscellaneous 193,968 31,370 8,450 14,013
------------ ------------ ----------- -----------
Total expenses $ 3,511,603 $ 1,821,091 $ 166,772 $ 156,691
------------ ------------ ----------- -----------
Deduct reduction of investment adviser fee
(Note 2) $ -- $ -- $ 50,721 $ 32,526
Deduct reduction of custodian fee (Note 2) 220,048 67,412 16,510 8,102
------------ ------------ ----------- -----------
Total $ 220,048 $ 67,412 $ 67,231 $ 40,628
------------ ------------ ----------- -----------
Net expenses $ 3,291,555 $ 1,753,679 $ 99,541 $ 116,063
------------ ------------ ----------- -----------
Net investment income $ 38,506,539 $18,465,329 $ 2,410,958 $ 2,332,643
------------ ------------ ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(12,293,704) $(4,554,010) $ (674,421) $ (534,437)
Financial futures contracts (6,983,956) (2,677,416) (717,584) (623,660)
------------ ------------ ----------- -----------
Net realized loss on investments $(19,277,660) $(7,231,426) $(1,392,005) $(1,158,097)
------------ ------------ ----------- -----------
Change in unrealized appreciation
(depreciation) --
Investments $ 43,541,560 $20,963,434 $ 2,912,214 $ 2,862,911
Financial futures contracts (498,006) -- (37,471) (52,368)
------------ ------------ ----------- -----------
Net unrealized appreciation of investments $ 43,043,554 $20,963,434 $ 2,874,743 $ 2,810,543
------------ ------------ ----------- -----------
Net realized and unrealized gain on
investments $ 23,765,894 $13,732,008 $ 1,482,738 $ 1,652,446
------------ ------------ ----------- -----------
Net increase in net assets from
operations $ 62,272,433 $32,197,337 $ 3,893,696 $ 3,985,089
============ ============ =========== ===========
</TABLE>
See notes to financial statements
61
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 26,176,138 $ 43,615,848 $ 17,915,854 $ 1,761,923
Net realized loss on investments (23,050,795) (22,866,182) (15,667,434) (2,036,920)
Change in unrealized appreciation of investments 33,475,523 54,420,669 23,987,414 3,242,877
------------- ------------- ------------ -----------
Net increase in net assets from operations $ 36,600,866 $ 75,170,335 $ 26,235,834 $ 2,967,880
------------- ------------- ------------ -----------
Capital transactions --
Contributions $ 39,676,667 $ 64,327,943 $ 27,917,577 $ 4,982,661
Withdrawals (110,738,796) (199,418,295) (60,522,944) (8,434,232)
------------- ------------- ------------ -----------
Decrease in net assets resulting from capital
transactions $ (71,062,129) $(135,090,352) $(32,605,367) $(3,451,571)
------------- ------------- ------------ -----------
Total decrease in net assets $ (34,461,263) $ (59,920,017) $ (6,369,533) $ (483,691)
NET ASSETS:
At beginning of year 445,131,401 772,123,153 308,539,780 29,476,651
------------- ------------- ------------ -----------
At end of year $ 410,670,138 $ 712,203,136 $302,170,247 $28,992,960
============= ============= ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 38,506,539 $ 18,465,329 $ 2,410,958 $ 2,332,643
Net realized loss on investments (19,277,660) (7,231,426) (1,392,005) (1,158,097)
Change in unrealized appreciation of
investments 43,043,554 20,963,434 2,874,743 2,810,543
------------- ------------ ----------- -----------
Net increase in net assets from operations $ 62,272,433 $ 32,197,337 $ 3,893,696 $ 3,985,089
------------- ------------ ----------- -----------
Capital transactions --
Contributions $ 61,423,633 $ 24,237,228 $ 9,514,698 $ 3,302,492
Withdrawals (126,606,533) (61,829,470) (8,622,345) (6,925,830)
------------- ------------ ----------- -----------
Increase (decrease) in net assets resulting
from capital transactions $ (65,182,900) $(37,592,242) $ 892,353 $(3,623,338)
------------- ------------ ----------- -----------
Total increase (decrease) in net assets $ (2,910,467) $ (5,394,905) $ 4,786,049 $ 361,751
NET ASSETS:
At beginning of year 655,646,776 324,411,553 38,119,918 40,473,310
------------- ------------ ----------- -----------
At end of year $ 652,736,309 $319,016,648 $42,905,967 $40,835,061
============= ============ =========== ===========
</TABLE>
See notes to financial statements
62
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA PORTFOLIO
-----------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31, FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -----------
YEAR ENDED
1994** 1994* SEPTEMBER 30, 1994
------------- ------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 13,943,369 $ 25,183,098 $ 45,081,235 $ 17,598,654 $ 1,360,681
Net realized gain (loss) on
investment transactions (10,624,666) 10,976,521 (5,816,054) (5,575,616) (648,050)
Change in unrealized
depreciation of investments (942,071) (34,132,327) (84,917,438) (26,955,377) (2,341,025)
------------ ------------ ------------- ------------ -----------
Net increase (decrease) in net
assets from operations $ 2,376,632 $ 2,027,292 $ (45,652,257) $(14,932,339) $(1,628,394)
------------ ------------ ------------- ------------ -----------
Capital transactions --
Contributions $ 24,605,354 $553,867,973 $ 174,248,758 $ 73,999,994 $22,605,600
Withdrawals (49,109,598) (88,736,272) (128,894,901) (41,140,572) (2,733,129)
------------ ------------ ------------- ------------ -----------
Increase (decrease) in net
assets resulting from
capital transactions $(24,504,244) $465,131,701 $ 45,353,857 $ 32,859,422 $19,872,471
------------ ------------ ------------- ------------ -----------
Total increase (decrease)
in net assets $(22,127,612) $467,158,993 $ (298,400) $ 17,927,083 $18,244,077
NET ASSETS:
At beginning of year 467,259,013 100,020 772,421,553 290,612,697 11,232,574
------------ ------------ ------------- ------------ -----------
At end of year $445,131,401 $467,259,013 $ 772,123,153 $308,539,780 $29,476,651
============ ============ ============= ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
YEAR ENDED SEPTEMBER 30, 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 38,006,256 $ 18,012,641 $ 1,702,520 $ 1,998,183
Net realized loss on investment transactions (2,555,481) (413,084) (572,496) (467,540)
Change in unrealized depreciation of
investments (67,884,728) (32,855,282) (3,287,877) (3,500,185)
------------- ------------- ------------ -----------
Net decrease in net assets from operations $(32,433,953) $(15,255,725) $(2,157,853) $(1,969,542)
------------- ------------- ------------ -----------
Capital transactions --
Contributions $135,102,754 $ 78,699,031 $26,648,655 $21,082,434
Withdrawals (95,828,619) (37,123,714) (3,352,183) (3,399,808)
------------- ------------- ------------ -----------
Increase in net assets resulting from capital
transactions $ 39,274,135 $ 41,575,317 $23,296,472 $17,682,626
------------- ------------- ------------ -----------
Total increase in net assets $ 6,840,182 $ 26,319,592 $21,138,619 $15,713,084
NET ASSETS:
At beginning of year 648,806,594 298,091,961 16,981,299 24,760,226
------------- ------------- ------------ -----------
At end of year $655,646,776 $324,411,553 $38,119,918 $40,473,310
============ ============ =========== ===========
</TABLE>
See notes to financial statements
63
<PAGE>
- --------------------------------------------------------------------------------
* For the period from the start of business, May 3, 1993 to March 31, 1994.
** For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
64
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA PORTFOLIO FLORIDA PORTFOLIO
-------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED
-------------------------------- ----------------------------------
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
------------------- -------- ----------------------------------
1995 1994**** 1994*** 1995 1994 1993*
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets):
Expenses 0.59% 0.57% + 0.55% + 0.55% 0.48% 0.47%+
Net investment income 6.22% 6.09% + 5.72% + 5.94% 5.65% 5.53%+
Net assets, end of year (000 omitted) $410,763 $445,131 $467,259 $712,203 $772,123 $772,422
PORTFOLIO TURNOVER 58% 40% 91% 61% 57% 55%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MASSACHUSETTS PORTFOLIO MISSISSIPPI PORTFOLIO
------------------------------ -------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 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 0.56% 0.51% 0.49%+ 0.27% 0.05% 0.00%+
Net investment income 6.00% 5.74% 5.72%+ 5.97% 5.67% 4.49%+
Net assets, end of year (000 omitted) $302,170 $308,540 $290,613 $28,993 $29,477 $11,233
PORTFOLIO TURNOVER 87% 53% 38% 52% 38% 11%
</TABLE>
++The operating expenses of the Mississippi Portfolio 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> <C>
RATIOS (As a percentage of average daily net
assets):
Expenses 0.39% 0.32% 0.25%+
Net investment income 5.85% 5.40% 4.24%+
</TABLE>
+ Annualized.
* For the period from the start of business, February 1, 1993, to September
30, 1993.
** For the period from the start of business, June 11, 1993, to September 30,
1993.
*** For the period from the start of business, May 3, 1993 to March 31, 1994.
**** For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
65
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO OHIO PORTFOLIO
---------------------------------- ----------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
---------------------------------- ----------------------------------
1995 1994 1993* 1995 1994 1993*
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets):
Expenses 0.54% 0.48% 0.48%+ 0.57% 0.51% 0.49%+
Net investment income 5.97% 5.70% 5.64%+ 5.80% 5.61% 5.61%+
Net assets, end of year (000 omitted) $652,736 $655,647 $648,807 $319,017 $324,412 $298,092
PORTFOLIO TURNOVER 55% 47% 37% 51% 31% 24%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RHODE ISLAND PORTFOLIO WEST VIRGINIA PORTFOLIO
--------------------------------- ---------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 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 0.29% 0.12% 0.00%+ 0.31% 0.10% 0.00%+
Net investment income 5.96% 5.64% 4.86%+ 5.81% 5.52% 4.50%+
Net assets, end of year (000 omitted) $42,906 $38,120 $16,981 $40,835 $40,473 $24,760
PORTFOLIO TURNOVER 42% 42% 23% 19% 39% 19%
</TABLE>
++ The operating expenses of the Rhode Island and West Virginia 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> <C>
RATIOS (As a percentage of average daily
net assets):
Expenses 0.41% 0.33% 0.26%+ 0.39% 0.33% 0.21%+
Net investment income 5.80% 5.43% 4.60%+ 5.73% 5.29% 4.30%+
</TABLE>
+ Annualized.
* For the period from the start of business, February 1, 1993, to September 30,
1993.
** For the period from the start of business, June 11, 1993, to September 30,
1993.
See notes to financial statements
66
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
California Tax Free Portfolio (California Portfolio) is registered under the
Investment Company Act of 1940 as a diversified open-end Management Investment
Company. Florida Tax Free Portfolio (Florida Portfolio), Massachusetts Tax Free
Portfolio (Massachusetts Portfolio), Mississippi Tax Free Portfolio (Mississippi
Portfolio), New York Tax Free Portfolio (New York Portfolio), Ohio Tax Free
Portfolio (Ohio Portfolio), Rhode Island Tax Free Portfolio (Rhode Island
Portfolio) and West Virginia Tax Free Portfolio (West Virginia Portfolio),
collectively the Portfolios, are registered under the Investment Company Act of
1940 as non-diversified open-end management investment companies. The Portfolios
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
consistently followed by the Portfolios in the preparation of their financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS--Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B. INCOME--Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES--The Portfolios are treated as partnerships for Federal tax
purposes. No provision is made by the Portfolios for federal or state taxes on
any taxable income of the Portfolios because each investor in the Portfolios is
ultimately responsible for the payment of any taxes. Since some of the
Portfolios' investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolios, the Portfolios normally
must satisfy the applicable source of income and diversification requirements
(under the Internal Revenue Code) in order for their respective investors to
satisfy them. The Portfolios will allocate at least annually among their
respective investors each investor's distributive share of the Portfolios' net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deductions or credit. Interest income
received by the Portfolios on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will retain its
status as income exempt from federal income tax when allocated to each
Portfolio's investors. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax preference
item for investors.
D. DEFERRED ORGANIZATIONAL EXPENSES--Costs incurred by a Portfolio in connection
with its organization are being amortized on the straight-line basis over five
years.
E. FINANCIAL FUTURES CONTRACTS--Upon the entering of a financial futures
contract, a Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by a Portfolio ("margin maintenance") each day, dependent on the daily
fluctuations in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by a Portfolio. A Portfolio's investment
in financial futures contracts is designed only to hedge against anticipated
future changes in interest rates. Should interest rates move unexpectedly, the
Portfolios may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-- The Portfolios may engage in
when-issued and delayed delivery transactions. The Portfolio records when-issued
securities on trade date and maintains security positions such that sufficient
liquid assets will be available to make payments for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are
marked-to-market daily and begin earning interest on settlement date.
G. OTHER -- Investment transactions are accounted for on a trade date basis.
67
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(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 September 30, 1995, each Portfolio paid advisory fees as follows:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT EFFECTIVE RATE*
- ------------------ ---------- ----------------
<S> <C> <C>
California $2,121,262 0.50%
Florida 3,433,489 0.47%
Massachusetts 1,383,407 0.46%
Mississippi 65,442 0.22%
New York 3,031,508 0.47%
Ohio 1,463,895 0.46%
Rhode Island 100,476 0.25%
West Virginia 98,033 0.24%
</TABLE>
* Advisory fees paid as a percentage of average daily net assets.
To enhance the net income of the Mississippi Portfolio, Rhode Island Portfolio
and West Virginia Portfolio, BMR made a reduction in its fee in the amount of
$36,759, $50,721 and $32,526, respectively, for the year ended September 30,
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. All significant credit balances are reported as a
reduction of expenses in the statement of operations.
Certain of the officers and Trustees of the Portfolios are officers and
directors/trustees of the above organizations. Trustees of the Portfolio that
are not affiliated with the Investment Adviser may elect to defer receipt of all
or a percentage of their annual fees in accordance with the terms of the
Trustees Deferred Compensation Plan. For the year ended September 30, 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 fiscal year ended September 30, 1995, were as
follows:
<TABLE>
<CAPTION>
CALIFORNIA
PORTFOLIO FLORIDA PORTFOLIO MASSACHUSETTS PORTFOLIO MISSISSIPPI PORTFOLIO
------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Purchases $ 240,733,525 $442,070,821 $256,567,304 $ 15,055,910
Sales 289,176,459 538,413,651 272,646,745 17,241,107
</TABLE>
<TABLE>
<CAPTION>
NEW YORK RHODE ISLAND WEST VIRGINIA
PORTFOLIO OHIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Purchases $ 355,016,997 $159,675,006 $ 18,875,194 $ 7,550,158
Sales 397,804,899 188,427,313 16,667,230 10,130,261
</TABLE>
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investments
owned by each Portfolio at September 30, 1995, as computed on a federal income
tax basis, are as follows:
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Aggregate Cost $381,719,158 $661,202,447 $277,979,560 $27,181,386
============ ============ ============= ==============
Gross unrealized appreciation $ 24,714,474 $ 37,104,327 $17,673,126 $ 1,233,400
Gross unrealized depreciation 411,381 3,296,321 149,131 70,717
------------ ------------ ------------ -------------
Net unrealized appreciation $ 24,303,093 $ 33,808,006 $17,523,995 $ 1,162,683
============ ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Aggregate Cost $610,645,613 $304,406,955 $41,635,939 $40,032,289
============ ============ ============ =============
Gross unrealized appreciation $ 34,539,991 $ 13,447,996 $ 809,990 $ 586,957
Gross unrealized depreciation 2,837,017 1,456,305 758,527 754,579
------------ ------------ ------------ -------------
Net unrealized appreciation (depreciation) $ 31,702,974 $ 11,991,691 $ 51,463 $ (167,622)
============ ============ ============ =============
</TABLE>
- --------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolios participate with other portfolios and funds managed by BMR and
EVM in a $120 million unsecured line of credit agreement with a bank. The line
of credit consists of a $20 million committed facility and a $100 million
discretionary facility. Each Portfolio may temporarily borrow up to 5% of its
total assets to satisfy redemption requests or settle securities transactions.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above either the bank's adjusted certificate of deposit rate, a variable
adjusted certificate of deposit rate, or a federal funds effective rate. In
addition, a fee computed at an annual rate of 1/4 of 1% on the $20 million
committed facility and on the daily unused portion of the $100 million
discretionary facility is allocated among the participating funds and portfolios
at the end of each quarter. At September 30, 1995, the California Portfolio,
Massachusetts Portfolio, Mississippi Portfolio, New York Portfolio, Ohio
Portfolio and West Virginia Portfolio had loan balances outstanding pursuant to
this line of credit of $2,032,000, $2,018,000, $405,000, $476,000, $3,860,000
and $970,000, respectively.
For the year ended September 30, 1995, the average daily balance outstanding
pursuant to this line of credit, the average interest rate and the maximum
outstanding month end balance were as follows:
<TABLE>
<CAPTION>
MAXIMUM
OUTSTANDING
AVERAGE AVERAGE MONTH END
PORTFOLIO DAILY BALANCE INTEREST RATE BALANCE
- ------------- ------------- ------------- -----------
<S> <C> <C> <C>
Florida $ 9,287,587 7.28% $26,664,000
Ohio 2,928,000 7.27% 9,776,000
Rhode Island 747,882 7.26% 1,370,000
</TABLE>
The California, Massachusetts, Mississippi, New York, and West Virginia
Portfolios did not have any significant borrowings or allocated fees during the
year end September 30, 1995.
69
<PAGE>
- --------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolios regularly trade in financial instruments with off-balance sheet
risk in the normal course of their investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options and futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment a Portfolio has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at September 30,
1995, were as follows:
<TABLE>
<CAPTION>
FUTURES
CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
- -------------- ---------------- ------------------------- -------- --------------
<S> <C> <C> <C> <C>
California 12/95 75 U.S. Treasury Bonds Short $173,499
Massachusetts 12/95 45 U.S. Treasury Bonds Short 104,100
Mississippi 12/95 12 U.S. Treasury Bonds Short 27,760
New York 12/95 347 U.S. Treasury Bonds Short 362,862
Rhode Island 12/95 35 U.S. Treasury Bonds Short 37,471
West Virginia 12/95 10 U.S. Treasury Bonds Short 7,313
</TABLE>
At September 30, 1995, each Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts. The Florida Portfolio and
Ohio Portfolio did not have any open obligations under these financial
instruments at September 30, 1995.
- --------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The California Portfolio changed it fiscal year end from March 31 to September
30, effective September 30, 1994.
70
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF:
CALIFORNIA TAX FREE PORTFOLIO
FLORIDA TAX FREE PORTFOLIO
MASSACHUSETTS TAX FREE PORTFOLIO
MISSISSIPPI TAX FREE PORTFOLIO
NEW YORK TAX FREE PORTFOLIO
OHIO TAX FREE PORTFOLIO
RHODE ISLAND TAX FREE PORTFOLIO
WEST VIRGINIA TAX FREE PORTFOLIO
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of California Tax Free Portfolio, Florida Tax
Free Portfolio, Massachusetts Tax Free Portfolio, Mississippi Tax Free
Portfolio, New York Tax Free Portfolio, Ohio Tax Free Portfolio, Rhode Island
Tax Free Portfolio and West Virginia Tax Free Portfolio as of September 30,
1995, the related statements of operations for the year then ended, the
statements of changes in net assets for the years ended September 30, 1995 and
1994, and for the California Tax Free Portfolio, the year ended March 31, 1994,
and the supplementary data for each of the years in the three-year period ended
September 30, 1995. These financial statements and supplementary data are the
responsibility of each 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 audits 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
September 30, 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 California Tax Free
Portfolio, Florida Tax Free Portfolio, Massachusetts Tax Free Portfolio,
Mississippi Tax Free Portfolio, New York Tax Free Portfolio, Ohio Tax Free
Portfolio, Rhode Island Tax Free Portfolio and West Virginia Tax Free Portfolio
at September 30, 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
October 27, 1995
71
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Investment Management
- --------------------------------------------------------------------------------
FUNDS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspaper of New
England, Inc.
JAMES B. HAWKES
Vice President, Trustee SAMUEL L. HAYES, III
Jacob H. Schiff Professor of
Investment
ROBERT B. MACINTOSH Banking, Harvard University
Vice President Graduate School of
Business Administration
JAMES L. O'CONNOR
Treasurer
NORTON H. REAMER
THOMAS OTIS President and Director,
Secretary United Asset Management
Corporation
JOHN L. THORNDIKE
Director,
Fiduciary Company Incorporated
JACK L. TREYNOR
Investment Adviser
and Consultant
- --------------------------------------------------------------------------------
PORTFOLIOS OFFICERS JAMES L. O'CONNOR
Treasurer
THOMAS J. FETTER
President and Portfolio
Manager of Florida THOMAS OTIS
and Ohio Tax Free Secretary
Portfolios
JAMES B. HAWKES
Vice President, Trustee INDEPENDENT TRUSTEES
DONALD R. DWIGHT
ROBERT B. MACINTOSH President, Dwight Partners, Inc.
Vice President and Chairman, Newspaper of New
Portfolio England, Inc.
Manager of California and
Massachusetts
Tax Free Portfolios SAMUEL L. HAYES, III
Jacob H. Schiff Professor of
Investment Banking,
NICOLE ANDERES Harvard University
Vice President and Graduate School of
Portfolio Business Administration
Manager of New York and
Rhode Island
Tax Free Portfolios
NORTON H. REAMER
TIMOTHY T. BROWSE President and Director,
Vice President and United Asset Management
Portfolio Corporation
Manager of West Virginia
Tax Free Portfolio JOHN L. THORNDIKE
Director,
Fiduciary Company Incorporated
CYNTHIA J. CLEMSON
Vice President and
Portfolio
Manager of Mississippi JACK L. TREYNOR
Tax Free Portfolio Investment Adviser
and Consultant
<PAGE>
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PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
73
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THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS WHICH
CONTAINS MORE COMPLETE INFORMATION ON THE FUND, INCLUDING ITS DISTRIBUTION PLAN,
SALES CHARGES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
EATON VANCE
MUNICIPALS TRUST
24 FEDERAL STREET
BOSTON, MA 02110
C-8TFCSRC
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1996
EV MARATHON MUNICIPAL FUNDS
<TABLE>
<S> <C>
EV MARATHON CALIFORNIA MUNICIPALS FUND EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND EV MARATHON WEST 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 Fund's Part II (a "Part II") provides
information solely about a Fund and its corresponding Portfolio. Where
appropriate Part I includes cross-references to the relevant sections of Part
II.
<TABLE>
TABLE OF CONTENTS
<S> <C> <C> <C>
PART I Page PART II Page
Additional Information about Investment Policies ..... 1 EV Marathon California Municipals Fund ............... a-1
Investment Restrictions .............................. 7 EV Marathon Florida Municipals Fund .................. b-1
Trustees and Officers ................................ 9 EV Marathon Massachusetts Municipals Fund ............ c-1
Investment Adviser and Administrator ................. 10 EV Marathon Mississippi Municipals Fund .............. d-1
Custodian ............................................ 13 EV Marathon New York Municipals Fund ................. e-1
Service for Withdrawal ............................... 13 EV Marathon Ohio Municipals Fund ..................... f-1
Determination of Net Asset Value ..................... 13 EV Marathon Rhode Island Municipals Fund ............. g-1
Investment Performance ............................... 14 EV Marathon West Virginia Municipals Fund ............ h-1
Taxes ................................................ 15
Principal Underwriter ................................ 17
Distribution Plan .................................... 18
Portfolio Security Transactions ...................... 19
Other Information .................................... 21
Independent Certified Public Accountants ............. 22
Financial Statements ................................. 22
Appendix ............................................. 23
</TABLE>
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 FEBRUARY 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 not have original
issue discount or (ii) in the case of an obligation that does have original
issue discount, the sum of the issue price and any original issue discount
that accrued before the obligation was purchased, subject to a de minimis
exclusion.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to
fund a wide range of public projects including the construction or improvement
of schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the
issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source.
Revenue bonds have been issued to fund a wide variety of capital projects
including: electric, gas, water, sewer and solid waste disposal systems;
highways, bridges and tunnels; port, airport and parking facilities;
transportation systems; housing facilities, colleges and universities and
hospitals. Although the principal security behind these bonds varies widely,
many provide additional security in the form of a debt service reserve fund
whose monies may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of
security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without legal obligation)
to make up deficiencies in the debt service reserve fund. Lease rental revenue
bonds issued by a state or local authority for capital projects are normally
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Such payments are usually subject to annual appropriations by the state or
locality.
Industrial development and pollution control bonds are in most cases
revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants
or similar rights covering equity securities. Such warrants or rights may be
held indefinitely, but if exercised, the Portfolio anticipates that it would,
under normal circumstances, dispose of any equity securities so acquired
within a reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but
rather make a single payment at maturity representing both principal and
interest. Bonds may be issued or subsequently offered with interest coupons
materially greater or less than those then prevailing, with price adjustments
reflecting such deviation.
The obligations of any person or entity to pay the principal of and
interest on a municipal obligation are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of any person or entity to
pay when due principal of and interest on a municipal obligation may be
materially affected. There have been recent instances of defaults and
bankruptcies involving municipal obligations which were not foreseen by the
financial and investment communities. The Portfolio will take whatever action
it considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of
the underlying source of funds for debt service. Such action may include
retaining the services of various persons or firms (including affiliates of
the Investment Adviser) to evaluate or protect any real estate, facilities or
other assets securing any such obligation or acquired by the Portfolio as a
result of any such event, and the Portfolio may also manage (or engage other
persons to manage) or otherwise deal with any real estate, facilities or other
assets so acquired. The Portfolio anticipates that real estate consulting and
management services may be required with respect to properties securing
various municipal obligations in its portfolio or subsequently acquired by the
Portfolio. The Portfolio will incur additional expenditures in taking
protective action with respect to portfolio obligations in default and assets
securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating
of the issue. The ratings of Moody's, S&P and Fitch represent their opinions
as to the quality of the municipal obligations which they undertake to rate.
It should be emphasized, however, that ratings are based on judgment and are
not absolute standards of quality. Consequently, municipal obligations with
the same maturity, coupon and rating may have different yields while
obligations of the same maturity and coupon with different ratings may have
the same yield. In addition, the market price of such obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations of a Particular State. For a discussion of the risks
associated with the Portfolio's policy of concentrating its investments in
particular State issuers of municipal obligations, see "Risks of
Concentration" in the Fund's Part II.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or
more of its total assets in municipal obligations of the same type. There
could be economic, business or political developments which might affect all
municipal obligations of the same type. In particular, investments in
industrial revenue bonds might involve (without limitation) the following
risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of
increase of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices, and in
achieving timely and adequate rate relief from regulatory commissions, effects
of energy conservation and limitations on the capacity of the capital market
to absorb utility debt.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state 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
(the "Territories"). Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within the
Territories affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five
years. The North American Free Trade Agreement ("NAFTA"), which became
effective January 1, 1994, could lead to the loss of Puerto Rico's lower
salaried or labor intensive jobs to Mexico. The November, 1995 unemployment
rate was 13.4%.
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. A 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 changes in the tax treatment of Puerto
Rico 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 to retain their Commonwealth status, become a state or
establish an independent nation. Puerto Ricans voted to retain Commonwealth
status, leaving intact the current relationship with the federal government.
There can be no assurance that the statehood issue will not be brought to a
vote in the future. A successful statehood vote in Puerto Rico would then
require ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas and St. John were hit by a hurricane and sustained extensive
damage. The longer term impact on the tourism industry is not yet known. There
can be no assurances that the market for USVI bonds will not be affected. In
general, hurricanes and civil unrest have and will continue to have an adverse
affect on the tourism industry.
An important component of the USVI revenue base is the federal excise tax
on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI experienced a budget
deficit in fiscal years 1989 and in 1990: in 1989 due to wage settlements with
the unionized government employees and in 1990 as a result of Hurricane Hugo.
The USVI recorded a small surplus in fiscal year 1991. At the end of fiscal
1992, the last year for which results are available, the USVI had an
unreserved General Fund deficit of approximately $8.31 million, or
approximately 2.1% of expenditures. In order to close a forecasted fiscal 1994
revenue gap of $45.6 million, the Department of Finance has proposed several
tax increases and fund transfers. There is currently no rated, unenhanced
Virgin Islands debt outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast
of Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam
is expected to benefit from the closure of the Subic Bay Naval Base and the
Clark Air Force Base in the Philippines. The Naval Air Station, one of several
U.S. military facilities on the island, has been slated for closure by the
Defense Base Closure and Realignment Committee; however, the administration
plans to use these facilities to expand the island's commercial airport. Guam
is also heavily reliant on tourists, particularly the Japanese. For 1994, the
financial position of Guam was weakened as it incurred an unaudited General
Fund operating deficit. The administration has taken steps to improve its
financial position; however, there are no guarantees that an improvement will
be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which
is issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to
these arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. Such arrangements are, therefore, subject to the risk
that the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities
for the purpose of such limitation. In determining the liquidity of municipal
lease obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease
obligations affecting the marketability thereof. These include the general
creditworthiness of the municipality, the importance of the property covered
by the lease to the municipality, and the likelihood that the marketability of
the obligation will be maintained throughout the time the obligation is held
by the Portfolio. In the event the Portfolio acquires an unrated municipal
lease obligation, the Investment Adviser will be responsible for determining
the credit quality of such obligation on an on-going basis, including an
assessment of the likelihood that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue
and compound over the period until maturity at a rate of interest reflecting
the market rate of the security at the time of issuance. Zero coupon bonds
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be
insured as to their scheduled payment of principal and interest under either
(i) an insurance policy obtained by the issuer or underwriter of the
obligation at the time of its original issuance or (ii) an insurance policy
obtained by the Portfolio or a third party subsequent to the obligation's
original issuance (which may not be reflected in the obligation's market
value). In either event, such insurance may provide that in the event of non-
payment of interest or principal when due with respect to an insured
obligation, the insurer is not required to make such payment until a specified
time has lapsed (which may be 30 days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In
evaluating the credit quality of a particular issue, whether rated or unrated,
the Investment Adviser will normally take into consideration, among other
things, the financial resources of the issuer (or, as appropriate, of the
underlying source of funds for debt service), its sensitivity to economic
conditions and trends, any operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters. The Investment Adviser will attempt to reduce the risks of
investing in the lowest investment grade, below investment grade and
comparable unrated obligations through active portfolio management, credit
analysis and attention to current developments and trends in the economy and
the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated
by reference into this SAI with respect to any defaulted obligations held by
the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell 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 and (ii)
futures contracts on securities indices. All futures contracts entered into by
the Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or
foreign 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 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 their 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 (39), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments --
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice President of
the Trust on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (33), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management
& Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary on
March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate
attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer of various
investment companies managed by Eaton Vance or BMR. Mr. Woodbury was elected
Assistant Secretary on June 19, 1995.
For any additional officers of the Portfolio (if any), see "Additional
Officer Information" in the Fund's Part II.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees
who are not members of the Eaton Vance organization, and making
recommendations to the Trustees regarding candidates to fill vacancies, as and
when they occur, in the ranks of those Trustees who are not "interested
persons" of the Trust, the Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
with such accountants and the Treasurer of the Trust and of the Portfolio
matters relative to accounting and auditing practices and procedures,
accounting records, internal accounting controls, and the functions performed
by the custodian and transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred
fees invested by the Portfolio in the shares of one or more funds in the Eaton
Vance Family of Funds, and the amount paid to the Trustees under the Plan will
be determined based upon the performance of such investments. Deferral of
Trustees' fees in accordance with the Plan will have a negligible effect on
the Portfolio's assets, liabilities, and net income per share, and will not
obligate the Portfolio to retain the services of any Trustee or obligate the
Portfolio to pay any particular level of compensation to the Trustee. Neither
the Portfolio nor the Fund has a retirement plan for its Trustees.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of 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 31 long-term state portfolios, 3
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 Management and the
portfolio manager of single-state, tax-exempt funds in five states: Hawaii,
Louisiana, Massachusetts, New Jersey and North Carolina. He also serves as
economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio investment research, advice and supervision, furnishes an investment
program and determines what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Investment Advisory Agreement requires BMR to pay the salaries
and fees of all officers and Trustees of the Portfolio who are members of the
BMR organization and all personnel of BMR performing services relating to
research and investment activities. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. For
additional information about the Investment Advisory Agreement, including the
net assets of the Portfolio and the investment advisory fees that the
Portfolio paid BMR under the Investment Advisory Agreement, see "Fees and
Expenses" in the Fund's Part II.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely
so long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of
the Portfolio or of BMR cast in person at a meeting specifically called for
the purpose of voting on such approval and (ii) by the Board of Trustees of
the Portfolio or by vote of a majority of the outstanding voting securities of
the Portfolio. The Agreement may be terminated at any time without penalty on
sixty (60) days' written notice by the Board of Trustees of either party, or
by vote of the majority of the outstanding voting securities of the Portfolio,
and the Agreement will terminate automatically in the event of its assignment.
The Agreement provides that BMR may render services to others 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 January
31, 1996, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders,
are officers of the Trust and/or the Portfolio and are also members of the
BMR, Eaton Vance and EV organizations. BMR will receive the fees paid under
the Investment Advisory Agreement.
EVC owns all of the stock of Energex Energy Corporation, which engages in
oil and gas 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"), 89 South Street, Boston,
Massachusetts acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT
charges fees which are competitive within the industry. A portion of the fee
relates to custody, bookkeeping and valuation services and is based upon a
percentage of Fund and Portfolio net assets and a portion of the fee relates
to activity charges, primarily the number of portfolio transactions. These
fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day, U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. Landon T. Clay, a Director of EVC and an
officer, Trustee or Director of other members of the Eaton Vance organization,
owns approximately 13% of the 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 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 further information concerning the total return of the
Fund, see "Performance Information" in the Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing its net
investment income per share earned during a recent thirty-day period by the
maximum offering price (net asset value) per share on the last day of the
period and annualizing the resulting figure. Net investment income per share
is calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for
the period with the resulting number being divided by the average daily number
of Fund shares outstanding and entitled to receive 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 Principal Underwiter may publish to Authorized Firms the Fund's
distribution rate and/or the effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current net asset value per share. The Fund's
effective distribution rate is computed by dividing the distribution rate by
the ratio (the days in a year divided by the accrual days of the monthly
period) used to annualize the most recent monthly distribution and reinvesting
the resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investor's should note that
the Fund's yield is calculated using a standardized formula, the income
component of which is computed from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is
based on the Fund's last monthly distribution which tends to be relatively
stable and may be more or less than the amount of net investment income and
short-term capital gain actually earned by the Fund during the month. See
"Distributions and Taxes" in the Fund's current Prospectus. For the Fund's
distribution rate and effective distribution rate, see "Performance
Information" in the Fund's Part II.
The Fund's total return may be compared to relevant indicies, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio,
including other investment companies.
The Fund may provide investors with information on municipal bond
investing, which may include comparative performance information, evaluations
of Fund performance, charts and/or illustrations prepared by independent
sources (such as Lipper Analytical Services Inc., CDA/Wiesenberger or
Morningstar, Inc.). The Fund may also refer in investor publications to Tax
Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to help
illustrate the value of tax free investing, as well as other tax-related
information.
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 September 30, 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, 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% (1.00% for the California Fund) of the Fund's average daily net
assets for such year. For the sales commission and service fee payments made
by the Fund and the outstanding Uncovered Distribution Charges of the
Principal Underwriter, see "Fees and Expenses -- Distribution Plan" in the
Fund's Part II. The Fund believes that the combined rate of all these payments
may be higher than the rate of payments made under distribution plans adopted
by other investment companies pursuant to Rule 12b-1. Although the Principal
Underwriter will use its own funds (which may be borrowed from banks) to pay
sales commissions at the time of sale, it is anticipated that the Eaton Vance
organization will profit by reason of the operation of the Plan through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from 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.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" and "EV" in the Fund's name and may use the words
"Eaton Vance" and "EV" in other connections and for other purposes.
The Trust is organized as a Massachusetts business trust. As permitted by
Massachusetts law, there will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a
majority of the Trustees of the Trust holding office have been elected by
shareholders. In such an event the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's By-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The By-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes as do not have a materially adverse effect on the financial
interests of shareholders or if they deem it necessary to conform it to
applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed
from office either by declaration in writing filed with the custodian of the
assets of the Trust or by votes cast in person or by proxy at a meeting called
for the purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action
of the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any
emergency as determined by the Commission which makes it impracticable for the
Portfolio to dispose of its securities or value its assets, or during any
other period permitted by order of the Commission for the protection of
investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this SAI and have been so incorporated in reliance on the report of
Deloitte & Touche LLP, independent certified public accountants, as experts in
accounting and auditing. A copy of the Fund's most recent Annual Report
accompanies this SAI.
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Deposit Insurance Corp. and interest is adequately
collateralized. In the case of certificates of deposit, the letter "L"
indicates that the deposit, combined with other deposits being held in the
same right and capacity, will be honored for principal and accrued pre-default
interest up to the federal insurance limits within 30 days after closing of
the insured institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus
(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a credit
within the rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse change could cause these securities to be rated
below investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
- ----------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON CALIFORNIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax in the form of an investment exempt from
California State personal income taxes. The Fund currently seeks to achieve its
investment objective by investing its assets in the California Municipals
Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain California considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in California 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
California issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Constitutional Limitations on Taxes and Appropriations
Limitation on Taxes. Certain California municipal obligations may be obligations
of issuers which rely in whole or in part, directly or indirectly, on ad valorem
property taxes as a source of revenue. The taxing powers of California local
governments and districts are limited by Article XIII A of the California
Constitution, enacted by the voters in 1978 and commonly known as "Proposition
13." Briefly, Article XIII A limits to 1% of full cash value the rate of ad
valorem property taxes on real property and generally restricts the reassessment
of property to 2% per year, except upon new construction or change of ownership
(subject to a number of exemptions). Taxing entities may, however, raise ad
valorem taxes above the 1% limit to pay debt service on certain voter-approved
bonded indebtedness.
Under Article XIII A, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This system
has resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13. The U.S. Supreme Court recently heard one of these
lawsuits, and on June 18, 1992 announced a decision upholding Proposition 13.
Article XIII A prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." A
California Supreme Court decision, however, allowed the levy, without voter
approval, of "general taxes" which were not dedicated to a specific use. In
response to these decisions, the voters of the State in 1986 adopted an
initiative statute which imposed significant new limits on the ability of local
entities to raise or levy general taxes, except by receiving majority local
voter approval. Significant elements of this initiative, "Proposition 62," have
been overturned in recent court cases. An initiative proposed to reenact the
provisions of Proposition 62 as a constitutional amendment was defeated by the
voters in November 1990, but such a proposal may be renewed in the future.
Appropriations Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIII B of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Proposition 98 and 111 in 1988 and 1990, respectively. Article XIII B prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIII B appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post-
1989 increases in gasoline taxes and vehicle weight fees, and (5) appropriations
made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized by Proposition 111 to follow more closely growth in the State's
economy. "Excess" revenues are measured over a two-year cycle. Local
governments, must return any excess to taxpayers by rate reductions. With more
liberal annual adjustment factors since 1988, and depressed revenues since 1990
because of the recession, few governments are currently operating near their
spending limits, but this condition may change over time. Local governments may
by voter approval exceed their spending limit for up to four years.
Because of the complex nature of Articles XIII A and XIII B of the
California Constitution, the ambiguities and possible inconsistencies in their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIII A or Article XIII B on California municipal obligations or on the
ability of the State or local governments to pay debt service on such
obligations. It is not presently possible to predict the outcome of any pending
litigation with respect to the ultimate scope, impact or constitutionality of
either Article XIII A or Article XIII B, or the impact of any such
determinations upon State agencies or local governments, or upon their ability
to pay debt service on their obligations. Future initiatives or legislative
changes in laws or the California Constitution may also affect the ability of
the State or local issuers to repay their obligations.
Obligations of the State of California
As of August 1, 1995, the State had approximately $19.0 billion of general
obligation bonds outstanding, and $1.1 billion remained authorized but unissued.
In addition, as of June 30, 1995, the State had lease-purchase obligations,
payable from the State's general fund, of approximately $6.0 billion with
authorized but unissued lease purchase debt of $1.3 billion. The State's
outstanding general obligation bond debt has gradually risen in recent years:
from approximately $15.9 billion in 1991-92 to approximately $19.2 billion in
1994-95. Of the State's outstanding general obligation debt, approximately 22%
is presently self-liquidating (for which program revenues are anticipated to be
sufficient to reimburse the general fund for debt service payments). Three
general obligation bond propositions, totalling $3.7 billion, were approved by
voters in 1992. The State has paid the principal of and interest on its general
obligation bonds, lease-purchase debt and short-term obligations when due.
As of the date of this Statement of Additional Information, general
obligation bonds issued by the State of California are rated A1, A, A by
Moody's, S&P and Fitch, respectively. Starting in 1991 and continuing through
the middle of 1994, there has been a relatively steady deterioration in the
State's general obligation bond rating. On July 15, 1994, all three of the
rating agencies rating the State's long-term debt lowered their ratings of the
State's general obligation bonds. Moody's lowered its rating from "AA" to "A1,"
S&P lowered its rating from "A(p)" to "A" and termed its outlook as "stable,"
and Fitch lowered its rating from "AA" to "A." An explanation of such actions
may be obtained only from the respective rating agencies. Future deterioration
in the State's fiscal condition could result in additional downgrades by the
rating agencies.
Recent Financial Results
From the 1990-91 fiscal year through the 1994-95 fiscal year, the State
faced the worst economic, fiscal and budget conditions since the 1930s.
Construction, manufacturing (especially aerospace), exports and financial
services, among others, were all severely affected. Job losses were the worst of
any post-war recession and continued through the end of 1993. Following
Department of Finance projections that non-farm employment levels would be
stable in 1994, employment grew 3% between November 1993 and November 1994.
However, unemployment was well above the national average through 1994.
The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State has also been facing a structural imbalance in its
budget with the largest programs supported by the General Fund -- K-12 schools
and community colleges, health and welfare, and corrections -- growing at rates
higher than the growth rates for the principal revenue sources of the General
Fund. As a result, the State experienced recurring budget deficits. The State
Controller reports that expenditures exceeded revenues for four of the five
fiscal years ending with 1991-92, and were essentially equal in 1992- 93. By
June 30, 1993, according to the Department of Finance, the State's Special Fund
for Economic Uncertainties had a deficit, on a budget basis, of approximately
$2.8 billion. The 1993-94 Budget Act incorporated a Deficit Retirement Plan to
repay this deficit over two fiscal years. The original budget for 1993-94
reflected revenues which exceeded expenditures by approximately $2.0 billion. As
a result of the continuing recession, the excess of revenues over expenditures
for the fiscal year was only about $522 million. Thus, the accumulated budget
deficit at June 30, 1994 was approximately $2.0 billion, and the deficit will
not be retired by June 30, 1995 as planned.
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
reduction of available internal borrowable funds, have combined to significantly
deplete the State's cash resources to pay its ongoing expenses. In order to meet
its cash needs, the State has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year.
1994-95 Budget. The 1994-95 fiscal year represented the fourth consecutive
year the Governor and Legislature were faced with a very difficult budget
environment to produce a balanced budget. Many program cuts and budgetary
adjustments had already been made in the past three years. The budget recognized
that the accumulated deficit could not be repaid in one year, and proposed a
two-year solution. The budget projected operating surpluses for the budget for
both 1994-95 and 1995-96, and lead to the elimination of the accumulated budget
deficit, estimated at about $2.0 billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projected
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflects the Administration's forecast of an improving economy.
The Budget Act projected the effective receipt of about $770 million from the
federal government, $360 million of which is to reimburse the State's costs for
immigrant-related expenses and the balance is attributable to federal
subventions thus reducing State expenditures. Little or none of this money is
now expected to be received. The Legislature took no action on a proposal in the
January Governor's budget to undertake an expansion of the transfer of certain
programs to counties, which would also have transferred to counties 0.5% of the
State's current sales tax. The Budget Act projected Special Fund revenues of
$12.1 billion, a decrease of 2.4% from 1993-94 estimated revenues. The
Governor's 1995-96 budget proposal of January, 1995 included an upward revision
of General Fund revenues to $42.4 billion for the 1994-95 fiscal year.
The 1994-95 Budget Act projected General Fund expenditures of $40.9 billion,
an increase of $1.6 billion over 1993-94. The Budget Act also projected Special
Fund expenditures of $13.7 billion, a 5.4% increase over 1993-94 estimated
expenditures. Although, the 1994-95 Budget Act contains no tax increases, under
legislation enacted for the 1993-94 budget, the renters' tax credit was
suspended for two years (1993 and 1994). A ballot proposition to permanently
restore the renters' tax credit after this year failed at the June, 1994
election. The Legislature enacted a further one-year suspension of the renters'
tax credit, for 1995, saving about $390 million in the 1995-96 fiscal year. The
1994-95 budget assumes that the State will use a cash flow borrowing program in
1994-95 which combines one-year notes and certain warrants. Issuance of the
warrants allows the State to defer repayment of approximately $1.0 billion of
its accumulated budget deficit into the 1995-96 fiscal year. The Budget
Adjustment Law, enacted along with the 1994-95 Budget Act is designed to ensure
that the warrants will be repaid in the 1995-96 fiscal year. The State's severe
financial difficulties for the current budget year will result in continued
pressure upon almost all local governments, particularly school districts and
counties which depend on State aid. Despite efforts in recent years to increase
taxes and reduce governmental expenditures, there can be no assurance that the
State will not face budget gaps in the future.
1995-96 Budget. The 1995-96 Budget Act was signed by the Governor on August
3, 1995, 34 days after the start of the fiscal year. General Fund revenues and
transfers were budgeted at $44.1 billion, a 3.5% increase over 1994-95.
Expenditures were budgeted at $43.4 billion, a 4% increase. The accumulated
deficit is projected to be eliminated and a small surplus of $28 million is
expected to be available in the Special Fund for Economic Uncertainties. Through
November, 1995, General Fund revenues were $707 million, or 4.5%, above budgeted
amounts.
Legal Proceedings
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require the
State to make significant future expenditures or may substantially impair
revenues.
Economy
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 31 million represents 12.3%
of the total United States population and grew by 27% in the 1980s. Total
personal income in the State, at an estimated $683 billion in 1993, accounts for
about 13% of all personal income in the nation.
Reports issued by the State Department of Finance and the Commission on
State Finance indicate that the State's economy is recovering from its worst
recession since the 1930s. The largest job losses have been in Southern
California, led by declines in the aerospace and construction industries.
Weakness statewide occurred in manufacturing, construction, services and trade.
Additional military base closures will have further adverse effects on the
State's economy later in the decade. California's unemployment rate was 8.8% in
November, 1995, compared to the previous year's level of 7.7%.
Other Considerations
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9 of
the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments which caused a liquidity crisis for
the Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold bonds
of some of the governmental units that had money invested with the County; the
impact of the loss of access to these funds, the loss of expected investment
earnings and the potential loss of some of the principal invested is not known
at this point. There can be no assurances that these holdings will maintain
their current ratings and/or liquidity in the market.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to ensure
that school districts have sufficient funds to operate. Longer term, this
financial crisis could have an adverse impact on the economic recovery that has
only recently taken hold in Southern California.
In early June, 1995, Orange County filed a proposal with the bankruptcy
court that would require holders of the County's short-term notes to wait a year
before being repaid. The existence of this proposal and its adoption could
disrupt the market for short-term debt in California and possibly drive up the
State's borrowing costs.
The repayment of industrial development securities and other obligations
secured by real property may be affected by California laws limiting foreclosure
rights of creditors. Securities backed by healthcare and hospital revenues may
be affected by changes in State regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program), including
risks related to the policy of awarding exclusive contracts to certain
hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project area decline (e.g., because of a major
natural disaster such as an earthquake), or there is a deemphasis or
reallocation of property taxes by legislation or initiative, the tax increment
revenue may be insufficient to make principal and interest payments on these
bonds. Both Moody's and S&P suspended ratings on California tax allocation bonds
after the enactment of Articles XIII A and XIII B, and only resumed such ratings
on a selective basis.
Proposition 87, approved by California voters in 1988, required that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay the entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not presently possible to predict the extent to which any such legislation
will be enacted. Nor is it presently possible to determine the impact of any
such legislation on California municipal obligations in which the Portfolio may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California municipal obligations.
Certain California obligations may be payable solely from the revenues of
health care institutions. Such revenues may be negatively affected by efforts of
the state and of private health plans and insurers to contract with such
institutions for fixed, discounted payments for services to Medicaid and
insurance beneficiaries. Such California obligations may be insured by the
State. In the event of a default by the health care institution, the state has
the option of issuing replacement debentures payable from a reserve fund.
However, this reserve fund has been found to be underfunded in a study conducted
in 1986 and is subject to reappropriation by the California Legislature for
other purposes.
Certain California obligations may be secured by real estate mortgages or
deeds of trust. California has several statutory provisions that may limit the
remedies of secured creditors, such as issuers of California obligations. A
creditor's right to obtain a deficiency judgment is barred when a foreclosure is
accomplished through a nonjudicial trustee's sale. A secured creditor is also
required to exhaust its real property security by foreclosure before bringing a
personal action against the debtor. Any deficiency judgment following a judicial
sale of foreclosed property is limited to the excess of the outstanding debt
over the fair value of the property at the time of sale, even if the actual bids
at such sale were lower than such value. Finally, the debtor has the right to
redeem the foreclosed property from any judicial foreclosure sale that could
result in a deficiency judgment.
Due to certain limitations on a creditor's private powers of sale after
foreclosure, the effective minimum period for foreclosing on a mortgage could
exceed seven months after the initial default. Such delays in collections could
disrupt the flow of revenues to an issuer for the payment of debt service on
California obligations secured by real estate mortgages. In some cases, the
nonjudicial sale of property by an issuer could be precluded as a violation of
constitutional due process.
Under California's anti-deficiency law, there is no personal recourse
against a mortgagor of a single family residence purchased with a loan secured
by a mortgage. California law also limits the charges that may be imposed with
respect to voluntary mortgage prepayments. These provisions could affect the
flow of revenues available for debt service to the issuers of California
obligations secured by single family home mortgages.
Substantially all of California is within an active geologic region subject
to major seismic activity. Any California municipal obligation in the Portfolio
could be affected by an interruption of revenues because of damaged facilities,
or, consequently, income tax deduction for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage at
reasonable rates; (ii) an insurer to perform on its contracts of insurance in
the event of widespread losses; or (iii) the Federal or State government to
appropriate sufficient funds within their respective budget limitations.
On January 17, 1994, an earthquake struck Los Angeles causing significant
damage to public and private structures and facilities. Although some
individuals and businesses suffered losses totaling in the billions of dollars,
the overall effect of the earthquake on the regional and State economy is not
expected to be serious.
The State has shifted responsibility for certain health and welfare programs
and provided the counties with increased taxing powers to cover their costs.
While the State expects that the increased taxes will be sufficient to cover
increased costs, there can be no assurance that this will be the case. If the
increased costs are not covered by the increased taxes, the counties will be
responsible to fund the difference. Any added expenditures in excess of
increased revenues and subsequent adverse effect upon county finances would
likely have a negative impact upon individual county and local bond prices.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $410,670,138. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $2,121,262 (equivalent to 0.50% of the Portfolio's average daily net assets
for such year). For the six month period ended September 30, 1994, the Portfolio
paid BMR advisory fees of $1,141,013 (equivalent to 0.50% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, May 3, 1993, to the fiscal year ended March 31,
1994, the Portfolio paid BMR advisory fees of $2,149,273 (equivalent to 0.49%
(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 SAI.
Prior to May 3, 1993 (when the Fund transferred substantially all of 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 April 1,
1993 to May 3, 1993, the Fund paid Eaton Vance advisory fees of $193,804
(equivalent to 0.49% (annualized) of the Fund's average daily net assets for
such period). For the fiscal year ended March 31, 1993, and the six months ended
March 31, 1992 the Fund paid Eaton Vance advisory fees of $2,012,374 and
$926,017, respectively (equivalent to 0.51% (annualized) and 0.515% (annualized)
of the Fund's average daily net assets for such periods, respectively).
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 SAI. 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 September 30, 1995, the Principal
Underwriter paid sales commissions of $694,877 to Authorized Firms on sales of
Fund shares. During the same period, the Fund made sales commission payments
under the Plan to the Principal Underwriter aggregating $3,089,717, which amount
reduced Uncovered Distribution Charges. During such period, contingent deferred
sales charges aggregating approximately $1,296,000 were imposed on early
redeeming shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $7,452,000 (which amount was equivalent to 1.9% of the
Fund's net assets on such date). During the fiscal year ended September 30,
1995, the Fund paid service fee payments under the Plan aggregating $784,766, of
which $777,417 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $4,017.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody fees
of $25,540 and the Portfolio incurred custody fees of $187,581, which were
reduced by fee credits of $47,611.
BROKERAGE
For the fiscal years ended September 30, 1995 and 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and of the funds in
the Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight ........................ $672 $3,690(2) $135,000(4)
Samuel L. Hayes, III .................... 648 3,659(3) 150,000(5)
Norton H. Reamer ........................ 632 3,633 135,000
John L. Thorndike ....................... 641 3,748 140,000
Jack L. Treynor ......................... 693 3,841 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $1,237 of deferred compensation.
(3) Includes $1,178 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
</TABLE>
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 SAI, Cynthia J. Clemson (32) is a
Vice President of the Portfolio. Ms. Clemson has served as a Vice President of
the Portfolio since February 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 covering the life of the Fund
from December 19, 1985 through September 30, 1995 and for the five- and one-year
periods ended September 30, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE AFTER
VALUE BEFORE DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING DEDUCTING
THE CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE** --------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- -------------- --------------- -------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 12/19/85* $1,000 $1,825.16 $1,825.16 82.52% 6.34% 82.52% 6.34%
5 Years
Ended
9/30/95*** 9/30/90 $1,000 $1,369.11 $1,349.44 36.91% 6.47% 34.94% 6.16%
1 Year
Ended
9/30/95 9/30/94 $1,000 $1,082.97 $1,032.97 8.30% 8.30% 3.30% 3.30%
</TABLE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or less
than their original cost.
- ----------
* Investment operations began on December 19, 1985.
** 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 September 30, 1995, the yield of the Fund
was 4.61%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.61% would be 7.42%,
assuming a combined federal and State tax rate of 37.90%.
The Fund's distribution rate (calculated on September 30, 1995 and based on
the Fund's monthly distribution paid September 15, 1995) was 4.99%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 5.11%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 13.14% 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.
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 1996 regular federal income tax
rates and California State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND CALIFORNIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- --------------------- CA 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 $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 58,151 - $121,300 $ 96,901 - $147,700 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$121,301 - $263,750 $147,701 - $263,750 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
Over - $263,750 Over - $263,750 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
<FN>
<F1> Net amount subject to federal and California personal income tax after deductions and exemptions.
<F2> The combined tax brackets are calculated using the highest California State rate within the bracket. Taxpayers with taxable
income within each bracket may have a lower combined tax bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that California 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 tax bracket and 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 California State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations the interest from which is exempt from the
regular federal income tax and California 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 California personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON FLORIDA MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax in the form of an investment exempt from Florida
intangibles tax. The Fund currently seeks to achieve its investment objective by
investing its assets in the Florida Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Florida 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 Florida issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Florida is characterized by rapid population growth and substantial capital
needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a fiscal
biennium for its appropriations and expenditures and is constitutionally bound
to maintain a balanced budget. The State's financial operations are considerably
different than most other states because, under the State's constitution, there
is no state income tax on individuals. A constitutional amendment would
therefore be necessary to impose such an income tax. Only seven states currently
do not impose income taxes on individuals. The lack of an income tax on
individuals exposes total State tax collections to considerably more volatility
than would otherwise be the case and, in the event of an economic downswing,
could affect the State's ability to pay principal and interest in a timely
manner.
Florida has a proportionally greater number of persons of retirement age; a
factor that makes Florida's property and transfer payment taxes a relatively
more important source of state funding. Because transfer payments are typically
less sensitive to the business cycle than employment income, they may act as a
stabilizing force in weak economic periods.
In 1993, the Florida constitution was amended to limit the annual growth in
the assessed valuation of residential property, which, over time, could
constrain growth in property taxes, a major source of revenue for local
governments. In 1994, the Florida constitution was amended to limit State
revenue collections in any fiscal year to, subject to exception, that which was
allowed in the prior fiscal year plus a growth factor, to be determined by
reference to the average annual growth rate in Florida personal income over the
previous five years.
Florida tourism appears to be suffering the effects of negative publicity
regarding crime against tourists in the State,"product maturity," higher prices
and more aggressive marketing by competing vacation destinations. Although
Florida experienced a 4.0% drop in the number of tourists visiting the State in
the fiscal year 1993-94, the State anticipates an increase in the number of
visiting tourists in the current and succeeding fiscal years. The number of
visiting tourists is expected to increase by 0.1% and 4.3% during fiscal years
1995-96 and 1996-97, respectively. The total number of visiting tourists is
expected to reach 41.4 million and 43.2 million during fiscal years 1995-96 and
1996-97, respectively.
There has been a decline in Florida's dependency on highly cyclical
construction and construction-related manufacturing sectors. For example, the
total contract construction employment as a share of total non-farm employment
reached a peak of over 10% in 1973. In 1980, the share was roughly 7.5%, and in
1994, the share had edged downward to nearly 5%. This trend is expected to
continue as Florida's economy continues to diversify.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $712,203,136. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $3,433,489 (equivalent to 0.47% of the Portfolio's average daily net assets
for such year). For the fiscal year ended September 30, 1994, the Portfolio paid
BMR advisory fees of $3,644,215 (equivalent to 0.46% of the Portfolio's average
daily net assets for such year). 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 $2,024,390 (equivalent to 0.46% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and remains in
effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this SAI.
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 $792,392 (equivalent to
0.47% (annualized) of the Fund's average net assets for the period). For the
fiscal year ended September 30, 1992, the Fund paid Eaton Vance advisory fees of
$1,581,742 (equivalent to 0.47% of the Fund's average net assets for such fiscal
year).
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 SAI. 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 September 30, 1995, the Principal
Underwriter paid sales commissions of $1,145,098 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 $5,426,132, which amount
reduced Uncovered Distribution Charges. During such period, contingent deferred
sales charges aggregating approximately $3,811,000 were imposed on early
redeeming shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $22,542,000 (which amount was equivalent to 3.2% of
the Fund's net assets on such date). During the fiscal year ended September 30,
1995, the Fund paid service fee payments under the Plan aggregating $1,003,129,
of which $996,641 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $6,832.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid no fee to IBT
and the Portfolio incurred custody fees of $231,473, which were reduced by fee
credits of $220,751.
BROKERAGE
For the fiscal years ended September 30, 1995 and 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and 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 ......... $672 $4,291(2) $135,000(4)
Samuel L. Hayes, III ..... 648 4,239(3) 150,000(5)
Norton H. Reamer ......... 632 4,200 135,000
John L. Thorndike ........ 641 4,322 140,000
Jack L. Treynor .......... 693 4,464 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,439 of deferred compensation.
(3) Includes $1,333 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 August 28, 1990 through September 30, 1995 and for the five- and one-year
periods ended September 30, 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 SALES SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 8/28/90* $1,000 $1,478.92 $1,468.92 47.89% 7.97% 46.89% 7.83%
5 Years
Ended
9/30/95*** 9/30/90 $1,000 $1,480.39 $1,460.39 48.04% 8.15% 46.04% 7.85%
1 Year
Ended
9/30/95 9/30/94 $1,000 $1,098.98 $1,048.98 9.90% 9.90% 4.90% 4.90%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on August 28, 1990.
** 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 September 30, 1995, the yield of the Fund
was 4.49%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.49% would be 6.51%,
assuming a federal tax rate of 31%.
The Fund's distribution rate (calculated on September 30, 1995 and based on
the Fund's monthly distribution paid September 15, 1995) was 4.80%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 4.91%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 16.3% 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 Florida Tax Free Fund to EV Marathon Florida Tax Free Fund
on February 1, 1994 and to EV Marathon Florida Municipals Fund on December 8,
1995.
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 the
Florida intangibles tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
YOU ARE IN
IF THE TAXABLE INCOME OR THE TAXABLE INCOME ON THIS FEDERAL IN YOUR BRACKET, A TAX-FREE YIELD OF
ON YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ------------------------ ----------- -----------------------------------------------------
EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,000 Up to $40,100 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 58,151-$121,300 $ 96,901-$147,700 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$121,301-$263,750 $147,701-$263,750 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $263,750 Over $263,750 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
IF THE TAXABLE INCOME OR THE TAXABLE INCOME ON
ON YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ------------------------ -----------------------------------------------------
TAX EQUIVALENT YIELD REFLECTING
EXEMPTION FROM INTANGIBLES TAX:**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,000 Up to $40,100 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 58,151-$121,300 $ 96,901-$147,700 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$121,301-$263,750 $147,701-$263,750 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $263,750 Over $263,750 6.97 7.80 8.62 9.45 10.28 11.10 11.93
</TABLE>
*Net amount subject to federal personal income tax after deductions and
exemptions.
**A Florida intangibles tax on personal property of $2.00 per $1,000 is
generally imposed after exemptions on the value of stocks, bonds, other
evidences of indebtedness and mutual fund shares. An example of the effect of
the Florida intangibles tax on the tax brackets of Florida taxpayers is as
follows. A $10,000 investment subject to the tax would require payment of $20
annually in intangibles taxes. If the investment yielded 5.5% annually or
$550, the intangibles tax as a percentage of income would be $20/$550 or
3.64%. If a taxpayer were in the 36% federal income tax bracket, assuming the
intangibles taxes were deducted as an itemized deduction on the federal
return, the taxpayer would be on a combined federal and Florida state tax
bracket of 38.33% [36% + (1 - .36) X 3.64%] with respect to such investment. A
Florida taxpayer whose intangible personal property is exempt or partially
exempt from tax due to the availability of exemptions will have a lower
taxable equivalent yield than indicated above.
Note: The federal income tax brackets do not take into account the effect of a
reduction in the deductibility of itemized deductions for taxpayers with
adjusted gross income in excess of $117,950. The tax brackets also do not show
the effects of phaseout of personal exemptions for single and joint filers with
adjusted gross incomes in excess of $117,950 and $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax, other income received by the Portfolio and allocated
to the Fund may be taxable. The table does not take into account the Florida
intangibles tax, state or local taxes, if any, payable on Fund distributions to
individuals who are not Florida residents, or intangibles taxes, if any, imposed
under the laws of other states. It should also be noted that the interest earned
on certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, is treated as a tax preference item which
could subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MASSACHUSETTS MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Massachusetts state personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Massachusetts Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Massachusetts considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Massachusetts 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 Massachusetts issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Beginning in 1989, the Commonwealth's economy slowed significantly. Most of
the employment growth during this period was experienced in the services and
trade sectors of the economy, while the manufacturing sector continues to suffer
employment losses. Like most other industrial states, Massachusetts has seen a
shift in employment from manufacturing to more technology and service-based
industries. Between 1993 and 1994, per capita personal income in Massachusetts
increased 3.6%, as compared to 1.7% for the nation as a whole. The unemployment
rate for the Commonwealth fell from 6.4% in October 1994 to 5.3% for October
1995. The national unemployment rate for October 1995 was 5.5%.
The Commonwealth has closed its fiscal 1995 financial records and published
its audited financial information. Fiscal 1995 tax revenue collections were
approximately $11.163 billion, approximately $12 million above the Department of
Revenue's revised fiscal year 1995 tax revenue estimate of $11.151 billion,
approximately $556 million, or 5.2%, above fiscal 1994 tax revenues of $10.607
billion. Budgeted revenues and other sources, including non-tax revenues,
collected in fiscal 1995 were approximately $16.387 billion, approximately $837
million, or 5.4%, above fiscal 1994 budgeted revenues of $15.550 billion.
Budgeted expenditures and other uses of funds fiscal 1995 were approximately
$16.251 billion, approximately $728 million, or $4.7%, above fiscal 1994
budgeted expenditures and uses of $15.523 billion. The Commonwealth ended fiscal
1995 with an operating gain of $137 million and an ending fund balance of $726
million.
Budgeted revenues and other sources to be collected in fiscal 1996 are
estimated by the Executive Office for Administration and Finance to be
approximately $16.778 billion. This amount includes estimated fiscal 1996 tax
revenues of $11.653 billion, which is approximately $490 million, or 4.3%,
higher than fiscal 1995 tax revenues.
In connection with his proposal to reorganize state government, the Governor
also announced on November 1, 1995 that he would propose to reduce the personal
income tax rate on earned income from 5.95% to 5.45%. Legislation to effectuate
such tax reduction is expected to be filed by the Governor in January, 1996 in
conjunction with the filing of his budget recommendations for fiscal 1997. The
cost to the Commonwealth of the proposed tax reduction has been estimated to be
approximately $500 million per year.
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base spending
of $1.288 billion of approximately $175 million in fiscal 1994. The Executive
office for Administration and Finance expects annual increases in expenditures
above the fiscal 1993 base spending of $1.288 billion (after the expenditure of
approximately $37 million in fiscal 1995) of $629 million in fiscal 1996 and
approximately $872 million in fiscal 1997. Additional annual increases are also
expected in later fiscal years.
Major infrastructure projects are anticipated over the next decade. It is
currently anticipated that the federal government will assume responsibility for
approximately 90% of the estimated $7.7 billion cost of projects which consist
of the depression of the central artery which traverses the City of Boston and
the construction of a third harbor tunnel linking downtown Boston to Logan
Airport.
The Massachusetts Water Resources Authority is undertaking capital projects
for the construction and rehabilitation of sewage collection and treatment
facilities in order to bring wastewater discharges into Boston Harbor into
compliance with federal and state pollution control requirements. The harbor
cleanup project is estimated to cost $3.5 billion in 1994 dollars. Work on the
project began in 1988 and is expected to be completed in 1999, with the most
significant expenditures occurring between 1990 and 1999. The majority of the
project's expenditures will be paid for by local communities, in the form of
user fees, with federal and state sources making up the difference.
The fiscal viability of the Commonwealth's authorities and municipalities is
inextricably linked to that of the Commonwealth. The Commonwealth guarantees the
debt of several authorities, most notably the Massachusetts Bay Transportation
Authority and the University of Massachusetts Building Authority. Their ratings
are based on this guarantee and can be expected to move in tandem. Several other
authorities are funded in part or in whole by the Commonwealth and their debt
ratings may be adversely affected by a negative change in those of the
Commonwealth.
Massachusetts' municipal governments are constrained in their ability to
increase local revenues by an initiative passed in 1980, "Proposition 2 1/2".
Proposition 2 1/2 limits the amount of property taxes that can be levied in a
fiscal year to the lower of 2.5% of fair value or 102.5% of the previous year's
levy, unless overridden by a majority of local voters. Proposition 2 1/ 2 also
limits the amount the municipality can be charged by certain government entities
such as counties. While Proposition 2 1/2 is not a constitutional question and
can therefore be amended or abolished by the legislature, it should be noted
that no significant challenge has been raised since it took effect. Any fiscal
problems encountered by the state amplify the economic and fiscal problems
encountered by cities and towns throughout the Commonwealth. Any Commonwealth
fiscal problems which result in local aid reductions could, in the absence of
overrides, result in payment defaults by local cities and towns and/or ratings
downgrades resulting in an erosion of their market value.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1995, the Portfolio had net assets of $302,170,247. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $1,383,407 (equivalent to 0.46% of the Portfolio's average daily net assets
for such year). For the fiscal year ended September 30, 1994, the Portfolio paid
BMR advisory fees of $1,397,963 (equivalent to 0.46% of the Portfolio's average
daily net assets for such year). 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 $735,829 (equivalent to 0.45% (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 SAI.
Prior to February 1, 1993 (when the Fund transferred substantially all of
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
$267,752 (equivalent to 0.44% (annualized) of the Fund's average net assets for
such period). For the fiscal year ended September 30, 1992, the Fund paid Eaton
Vance advisory fees of $394,889 (equivalent to 0.40% (annualized) of the Fund's
average net assets for such fiscal year).
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 SAI. 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 September 30, 1995, the Principal
Underwriter paid sales commissions of $562,459 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 $2,151,557, which amount
reduced Uncovered Distribution Charges. During such period, contingent deferred
sales charges aggregating approximately $1,108,000 were imposed on early
redeeming shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $9,990,000 (which amount was equivalent to 3.4% of the
Fund's net assets on such date). During the fiscal year ended September 30,
1995, the Fund paid service fee payments under the Plan aggregating $405,201, of
which $403,162 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $3,157.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody fees
of $22,931 and the Portfolio incurred custody fees of $135,884, which were
reduced by fee credits of $61,501.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and 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 .......... $672 $3,188(2) $135,000(4)
Samuel L. Hayes, III ...... 648 3,172(3) 150,000(5)
Norton H. Reamer .......... 632 3,160 135,000
John L. Thorndike ......... 641 3,268 140,000
Jack L. Treynor ........... 693 3,325 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $1,069 of deferred compensation.
(3) Includes $962 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from April 18, 1991 through September 30, 1995 and for the one year period ended
September 30, 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 SALES SALES CHARGE SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 4/18/91* $1,000 $1,346.76 $1,326.76 34.68% 6.90% 32.68% 6.54%
1 Year
Ended
9/30/95 9/30/94 $1,000 $1,083.80 $1,033.80 8.38% 8.38% 3.38% 3.38%
</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 April 18, 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 September 30, 1995, the yield of the Fund
was 4.78%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.78% would be 7.87%,
assuming a combined federal and State tax rate of 39.28%.
The Fund's distribution rate (calculated on September 30, 1995 and based on
the Fund's monthly distribution paid September 15, 1995) was 4.87%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 4.98%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 9.88 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 Massachusetts Tax Free Fund to EV Marathon Massachusetts
Tax Free Fund on February 1, 1994. The Fund changed its name from EV Marathon
Massachusetts Tax Free Fund to EV Marathon Massachusetts Municipals Fund on
December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Massachusetts state income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND MASSACHUSETTS STATE
TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------- ----------------- MA STATE -----------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------ ------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 24,001- 58,150 $ 40,101- 96,900 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 58,151- 121,300 $ 96,901- 147,700 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$121,301- 263,750 $147,701- 263,750 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $263,750 Over $263,750 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
</TABLE>
*Net amount subject to federal and Massachusetts personal income tax after
deductions and exemptions.
+ The combined tax rates include a Massachusetts tax rate of 12% applicable to
taxable bond interest and dividends, and assume that Massachusetts taxes are
itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets are 15%, 28%, 31%,
36%, and 39.6%, over the same ranges of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Massachusetts state income
taxes) for taxpayers with Adjusted Gross Income in excess of $117,950. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with Adjusted Gross Income in excess of $117,950 and joint filers
with Adjusted Gross Income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Massachusetts 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 Massachusetts personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" Massachusetts
obligations issued after August 7, 1986, while exempt from the regular federal
income tax, is treated as a tax preference item which could subject the
recipient to the federal alternative minimum tax. The illustrations assume that
the federal alternative minimum tax is not applicable and do not take into
account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MISSISSIPPI MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Mississippi State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Mississippi Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Mississippi considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Mississippi 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
Mississippi issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Funding of the various State operations is derived principally from the
General Fund revenues and Special Fund receipts. For the fiscal year ending June
30, 1995, $4.78 billion in revenue was collected by the Special Fund. The major
sources of such revenue being $2.17 billion from Federal grants-in-aid,
including $1.18 billion for public health and welfare and $381.2 million for
public education. Funding for the General Fund is derived principally from
revenues generated by income, corporate, excise and sales taxes as well as
profits from the wholesale sales of alcoholic beverages, interest earned on
investments, proceeds from sales of various supplies and services, and licensing
fees. As of fiscal year ending June 30, 1995, the State derived 40.5% of total
revenue from sales taxes, 26.1% from individual income taxes and 10.0% from
corporate income taxes. Sales taxes, the largest source of revenue for the
General Fund, can be adversely affected by downturns in the economy. In an
effort to increase sales tax collections, the Legislature has increased the
State sales tax from 6% to 7% effective June 1, 1992. The General Fund had an
ending fund balance of $86.5 million for 1995. In the event revenues fall below
the amounts projected during the budgeting phase, the Department of Finance
Administration has the authority to reduce allocations to agencies and restrict
a particular agency's monthly allotment if it appears that that agency may
deplete its appropriations prior to the close of the fiscal year. Even with
budgetary controls in place, the State has experienced cash flow problems in
prior years.
The following cases which have been reviewed by the Attorney General's
office purport to be a representative sampling of the most significant cases in
which the State is the defendant and wherein the State's financial resources may
be materially adversely affected: (1) an action against the State and certain
public officials challenging the constitutionality of the statewide system of
higher education; (2) An action against the State regarding the conditions in
its penal institutions; and (3) A suit against the Mississippi State Tax
Commission alleging improper taxation against multi-state corporations.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $28,992,960. For
the fiscal year ended September 30, 1995, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $65,442 (equivalent to 0.22% 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
$36,759. For the fiscal year ended September 30, 1994, absent a fee reduction,
the Portfolio would have paid BMR advisory fees of $45,841 (equivalent to 0.19%
of the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of the full amount of its advisory
fee and BMR was allocated a portion of expenses related to the operation of the
Portfolio in the amount of $19,780. For the period from the Portfolio's start of
business, June 11, 1993, to the fiscal year ended September 30, 1993, absent a
fee reduction, the Portfolio would have paid BMR advisory fees of $2,303
(equivalent to 0.14% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee and BMR was allocated a portion
of the expenses related to the operation of the Portfolio in the amount of
$1,810. The Portfolio's Investment Advisory Agreement with BMR is dated June 7,
1993 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 SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended September 30,
1994, $42,290 of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this SAI. Pursuant to Rule 12b-1, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, as required by Rule 12b-1. During the fiscal year ended September 30,
1995, the Principal Underwriter paid sales commissions of $125,233 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
$201,593, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $152,000
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at September 30, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $1,215,000 (which amount was
equivalent to 4.5% of the Fund's net assets on such date). During the fiscal
year ended September 30, 1995, the Fund paid service fee payments under the Plan
aggregating $29,072, of which $29,044 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $320 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,707 and
the Portfolio incurred custody fees of $20,589, which were reduced by fee
credits of $10,910.
BROKERAGE
For the fiscal years ended September 30, 1995 and 1994, and for the period
from the start of business, June 11, 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and of the funds in
the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight .......... $34 $336(2) $135,000(4)
Samuel L. Hayes, III ...... 32 324(3) 150,000(5)
Norton H. Reamer .......... 32 316 135,000
John L. Thorndike ......... 32 321 140,000
Jack L. Treynor ........... 35 346 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this SAI, 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 June 11, 1993 through September 30, 1995 and for the one year period ended
September 30, 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 9/30/95 ON 8/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund*** 6/11/93* $1,000 $1,065.75 $1,027.83 6.58% 2.79% 2.78% 1.20%
1 Year
Ended
9/30/95*** 9/30/94 $1,000 $1,094.02 $1,044.02 9.40% 9.40% 4.40% 4.40%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ----------
* Investment operations began on June 11, 1993.
** 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 September 30, 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 7.19%,
assuming a combined federal and State tax rate of 34.45%. If a portion of the
Portfolio's expenses had not been allocated to the Investment Adviser, the Fund
would have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based on
the Fund's monthly distribution paid September 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%. 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 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 28.5% 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 Mississippi Tax Free Fund to EV Marathon Mississippi Tax
Free Fund on December 21, 1993 and to EV Marathon Mississippi Municipals Fund on
December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Mississippi State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND MISSISSIPPI STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MS STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
--------------------------------------- TAX BRACKET+ -----------------------------------------------------------------
(TAXABLE INCOME*) IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 31.60 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 58,151 - $121,300 $ 96,901 - $147,700 34.45 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$121,301 - $263,750 $147,701 - $263,750 39.20 6.58 7.49 8.22 9.05 9.87 10.69 11.51
Over $263,750 Over $263,750 42.62 6.97 7.84 8.71 9.59 10.46 11.33 12.20
</TABLE>
*Net amount subject to federal and Mississippi personal income tax after
deductions and exemptions.
+ The first combined tax bracket is calculated using the highest Mississippi tax
rate within the bracket. Taxpayers with taxable income within this bracket may
have a lower combined bracket and taxable equivalent yield than indicated
above. The combined tax brackets assume that Mississippi taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above. The
applicable federal tax rates within the brackets are 15%, 28%, 31%, 36% and
39.6%, over the same ranges of income. The assumed Mississippi 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 Mississippi State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phase out of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Mississippi 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 Mississippi personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NEW YORK MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New York City and New York State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the New York Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
New York issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
York issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been below
the national average primarily due to significant cutbacks in the computer,
manufacturing, defense and banking industries. New York's economy expanded
modestly during 1995 with a pronounced slow-down during the course of the year
and is expected to slow gradually during 1996. The unemployment rate for the
State for 1995 and 1996 is projected to be 6.5% and 6.9%, respectively, compared
to the projected national unemployment rate of 5.6% and 5.8% for 1995 and 1996,
respectively. New York City's unemployment rate was 8.0% in October 1995, down
from 8.2% a year earlier.
For the fiscal year 1991-92, the State incurred an operating deficit in the
General Fund of $575 million, which, after a $44 million withdrawal from the Tax
Stabilization Reserve Fund, was financed through the public issuance of $531
million of 1992 Deficit Notes on March 30, 1992.
In the 1992-1993 fiscal year, the State began the process of financial
reform closing the fiscal year with fund surpluses totalling $738 million. The
1992-1993 fiscal year marked the first time in four years that the State did not
have to issue deficit notes to close a budget gap.
The 1993-1994 fiscal year ended with combined fund balances of $1.539
billion due to an improving national economy, State employment growth, better
than projected tax collections and disbursements that were below projections.
The 1994-1995 fiscal year, which included tax reductions of $476 million,
closed with the General Fund in balance and positive fund balances of $157
million and $1 million in the Tax Stabilization Reserve Fund and the Contingency
Reserve Fund, respectively. The General Fund, however, suffered an operating
deficit of $1.426 billion primarily due to the use of $1,026 billion of the
1993-1994 fiscal year surplus in the 1994-1995 fiscal year. Tax revenues for the
fiscal year fell short of original projections by $1.16 billion, the shortfall
being offset by disbursements which were lower than projected and planned
spending reductions.
The 1995-1996 fiscal year budget, adopted in June 1995, includes a planned
three-year 20% reduction in the State's personal income tax and is the first
budget in over 50 years which projects a decline in General Fund disbursements
and spending on State operations. The 1995-1996 State Financial Plan, based on
the enacted budget, includes gap-closing actions to offset a previously
projected budget gap of $5 billion, the largest in the State's history. Such
gap-closing actions include, among others, substantial reductions in social and
medical entitlement programs, reductions in State services and capital programs
and increased lottery revenues. There can be no assurance that additional
gap-closing measures will not be required and there is no assurance that any
such measures will enable the State to achieve a balanced budget for its
1995-1996 fiscal year.
The Governor submitted his proposed budget for the 1996-1997 fiscal year
budget earlier than required by State law hoping the State legislature will
adopt the budget prior to the beginning of the fiscal year on April 1, 1996. The
Governor's proposed 1996-1997 budget identifies a potential budget gap of
approximately $3.9 billion and proposes significant expenditure reductions in
the State's health, welfare and educational programs and projects significant
increases in federal health aid to eliminate the potential budget gap. There can
be no assurances that the Governor's budget proposals will be adopted as
proposed, the expenditure reductions can be implemented as envisioned or that
increases in federal aid will materialize as expected.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7 billion
dollar cap, net of LGAC proceeds, on the seasonal borrowing program. As of June
1995, LGAC had issued bonds and notes to provide net proceeds of $4.7 billion
completing the program. This cap may be exceeded in cases where the Governor and
the legislature have certified the need for additional borrowing and have
devised a method for reducing it back to the cap no later than the fourth fiscal
year after the limit is exceeded. If this cap were to be exceeded, it could
result in action by the rating agencies which could adversely affect prices of
bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each of
the 1981 through 1995 fiscal years, the City achieved balanced operating results
as reported in accordance with generally accepted accounting principles.
Pursuant to the laws of the State, the City prepares a four-year annual
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City
implemented various actions to close budget gaps of $3.3 billion, $2.1 billion
and $3.5 billion for the 1992, 1994 and 1995 fiscal years, respectively. Such
actions included, among others, tax increases, service and personnel reductions,
productivity savings, debt refinancings, asset sales and cost savings related to
employee benefits. The City's financial plan for the 1996 fiscal year sets forth
gap-closing actions to close a previously projected budget gap of $3.1 billion
for the 1996 fiscal year. Such actions include, among others, substantial
reductions in entitlement programs, service and personnel reductions and cost
saving initiatives related to labor and pension costs. The City currently
projects budget gaps of $1.4 billion, $2.3 billion and $2.7 billion for its
1997, 1998 and 1999 fiscal years, respectively. The City's gap-closing plans for
the 1997 through 1999 fiscal years include reductions in City agency
expenditures and cost saving actions related to entitlement programs and
procurement. There can be no assurance that additional gap-closing measures will
not be required, the implementation of which could adversely affect the City's
economic base, and there is no assurance that such measures will enable the City
to achieve a balanced budget, as required by State law, for any of the 1996
through 1999 fiscal years. The fiscal health of New York City, which is the
largest issuer of municipal bonds in the country and a leading international
commercial center, exerts a significant influence upon the fiscal health and
bond values of issues throughout the State. Bond values of the Municipal
Assistance Corporation, the State of New York, the New York Local Government
Assistance Corporation, the New York State Dormitory Authority -- City
University, the New York City Municipal Water Finance Authority and The
Metropolitan Transportation Authority would be particularly affected by serious
financial difficulties encountered by New York City. The Portfolio could be
expected to hold bonds issued by many, if not all of these issuers, at any given
time.
Moody's rates the City's general obligation bonds "Baa1" and Fitch rates
such bonds "A-". On July 10, 1995, S&P revised downward its rating on City
general obligation bonds from A- to BBB+. S&P stated that the downgrade was a
reflection of the City's inability to eliminate a structural budget imbalance
due to persistent softness in the City's economy, weak job growth, a trend of
using nonrecurring budget devices, optimistic projections of State and federal
aid and high levels of debt service. There is no assurance that such ratings
will continue for any given period of time or that they will not be revised
downward or withdrawn entirely. Any such downward revision or withdrawal could
have an adverse effect on obligations held by the Portfolio.
The State's economic and fiscal viability are mutually and intricately tied
to those of its authorities and localities, which make up the major portion of
State bond issuance. Any serious financial difficulties encountered by these
entities, including their inability to access capital markets, would have a
significant, adverse effect upon the value of bonds issued elsewhere within the
State and thus upon the value of the interests in the Portfolio. State plans to
reduce aid to local cities and towns may have a negative impact on municipal
finances and ratings throughout the State. Such ratings changes could erode the
value of their bonds and/or lead to defaults.
The State either guarantees or supports lease-purchase agreements or
contractual obligations, financing arrangements or through moral obligation
provisions, a large amount of Authority indebtedness. While debt service is
normally paid out of revenues generated by the projects of the Authorities, the
State has, from time to time, had to appropriate amounts to enable the
Authorities to meet their financial obligations and, in some cases, to prevent
default. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $652,736,309. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $3,031,508 (equivalent to 0.47% of the Portfolio's average daily net assets
for such year). For the fiscal year ended September 30, 1994, the Portfolio paid
BMR advisory fees of $3,073,565 (equivalent to 0.46% of the Portfolio's average
daily net assets for such year). For the period from the Portfolio's start of
business, February 1, 1993, to the fiscal year ended September 30, 1993, the
Portfolio paid BMR advisory fees of $1,755,148 (equivalent to 0.46% (annualized)
of the Portfolio's average daily net assets for such period). The Portfolio's
Investment Advisory Agreement with BMR is dated October 13, 1992 and remains in
effect until February 28, 1996. The Agreement may be continued as described
under "Investment Adviser and Administrator" in Part I of this SAI.
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 $703,166 (equivalent to
0.47% (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 SAI. 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 September 30, 1995, the Principal
Underwriter paid sales commissions of $1,368,182 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 $4,758,869, which amount
reduced Uncovered Distribution Charges. During such period, contingent deferred
sales charges aggregating approximately $2,387,000 were imposed on early
redeeming shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $19,700,000 (which amount was equivalent to 3.0% of
the Fund's net assets on such date). During the fiscal year ended September 30,
1995, the Fund paid service fee payments under the Plan aggregating $912,719, of
which $910,803 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $5,045.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody fees
of $500 and the Portfolio incurred custody fees of $221,548, which were reduced
by fee credits of $220,048.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and 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 ......... $672 $4,093(2) $135,000(4)
Samuel L. Hayes, III ..... 648 4,048(3) 150,000(5)
Norton H. Reamer ......... 632 4,013 135,000
John L. Thorndike ........ 641 4,133 140,000
Jack L. Treynor .......... 693 4,257 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,373 of deferred compensation.
(3) Includes $1,302 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 SAI, Nicole Anderes (34) has served
as a Vice President of the Portfolio since June 19, 1995. Ms. Anderes has been a
Vice President of BMR and Eaton Vance since 1994, and is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Ms. Anderes was Vice President and portfolio manager, Lazard Freres Asset
Management (1992-1994) and Vice President and Manager -- Municipal Research,
Roosevelt & Cross (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average total return on a
hypothetical investment of $1,000 in the Fund covering the life of the Fund from
August 30, 1990 through September 30, 1995 and for the one- and five-year
periods ended September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN TOTAL RETURN
MENT BEFORE DE- MENT 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 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 8/30/90* $1,000 $1,499.10 $1,489.10 49.91% 8.28% 48.91% 8.14%
5 Years
Ended
9/30/95 9/30/90 $1,000 $1,506.65 $1,486.65 50.67% 8.53% 48.67% 8.24%
1 Year
Ended
9/30/95 9/30/94 $1,000 $1,092.30 $1,042.30 9.23% 9.23% 4.23% 4.23%
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 August 30, 1990.
** 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 September 30, 1995, the yield of the Fund
was 4.42%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.42% would be 7.28%,
assuming a combined Federal and State tax rate of 39.32%.
The Fund's distribution rate (calculated on September 30, 1995 and based on
the Fund's monthly distribution paid September 15, 1995) was 4.87%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 4.98%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 13.5% 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 New York Tax Free Fund to EV Marathon New York Tax Free
Fund on February 1, 1994 and to EV Marathon New York Municipals Fund on December
8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLES
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and New
York State and New York City income tax laws in effect for 1996.
<TABLE>
<CAPTION>
COMBINED
FEDERAL, A FEDERAL, NEW YORK STAE AND NEW YORK CITY
SINGLE RETURN JOINT RETURN NY STATE TAX EXEMPT YIELD OF:
- ----------------- ---------------- AND NY CITY -----------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------- ------------ -----------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 24.79% 5.32% 5.98% 6.65% 7.31% 7.98% 8.64% 9.31%
$ 24,001- 58,150 $ 40,101- 96,900 36.30 6.28 7.06 7.85 8.63 9.42 10.20 10.99
$ 58,151- 121,300 $ 96,901- 147,700 38.99 6.56 7.38 8.20 9.02 9.83 10.65 11.47
$121,301- 263,750 $147,701- 263,750 43.41 7.07 7.95 8.84 9.72 10.60 11.49 12.37
Over $263,750 Over $263,750 46.60 7.49 8.43 9.36 10.30 11.24 12.17 13.11
<FN>
- -----------
* Net amount subject to federal, New York State and New York City personal income tax (including New York City personal income tax
surcharges) after deductions and exemptions.
+ The first two combined tax brackets are calculated using the highest State rate (7.125% effective annualized State tax rate
based on a rate of 7.5% for the first 3 months of the 1996 tax year and 7.0% for the remaining 9 months) and the highest City
rate (including surcharges) applicable at the upper portion of such bracket. Taxpayers with taxable income below the highest
dollar amount in the two lowest brackets may have a lower combined tax bracket and taxable equivalent yield than indicated
above. The applicable State and City rates are at their maximum (7.125% and 4.457%, respectively) throughout all other brackets.
</TABLE>
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and New
York State income tax laws in effect for 1996.
<TABLE>
<CAPTION>
COMBINED
FEDERAL
SINGLE RETURN JOINT RETURN AND A FEDERAL AND NEW YORK STATE TAX EXEMPT YIELD OF:
- ----------------- ---------------- NY STATE ---------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------- ------------ -----------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 24.79% 5.32% 5.98% 6.65% 7.31% 7.98% 8.64% 9.31%
$ 24,001- 58,150 $ 40,101- 96,900 36.30 6.28 7.06 7.85 8.63 9.42 10.20 10.99
$ 58,151- 121,300 $ 96,901- 147,700 38.99 6.56 7.38 8.20 9.02 9.83 10.65 11.47
$121,301- 263,750 $147,701- 263,750 43.41 7.07 7.95 8.84 9.72 10.60 11.49 12.37
Over $263,750 Over $263,750 46.60 7.49 8.43 9.36 10.30 11.24 12.17 13.11
<FN>
- ------------
* Net amount subject to federal and New York State and personal income tax after deductions and exemptions.
+ The first combined tax bracket is calculated using the highest State rate (7.125% effective annualized State tax rate based on a
rate of 7.5% for the first 3 months of the 1996 tax year and 7.0% for the remaining 9 months) within the bracket. Taxpayers with
taxable income below the highest dollar amount in the first bracket may have a lower combined tax bracket and taxable equivalent
yield than indicated above. The applicable State rate is the maximum rate, 7.125%, throughout all other brackets. The applicable
federal tax rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
</TABLE>
Note: Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that the Fund will
achieve any specific tax exempt yield. While it is expected that the Portfolio
will invest principally in obligations, the interest from which is exempt from
the regular federal income tax and New York State and New York City personal
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. The table does not take into account state or local taxes, if
any, payable on Fund distributions except for New York State and New York City
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 above-indicated combined federal and New York State/City income brackets
assume State and City taxes are itemized deductions and do not take into account
the effect of a reduction in the deductibility of itemized deductions (including
New York State and City Income Taxes) for taxpayers with adjusted gross income
in excess of $117,950, nor do they reflect phaseout of personal exemptions for
single and joint filers with adjusted gross income in excess of $117,950 and
$176,950, respectively. The effective combined tax brackets and equivalent
taxable yields of taxpayers who do not itemize or who are subject to such
limitations will be higher than those indicated above. In addition, investors
who do not itemize deductions on their federal income tax returns will have
higher combined brackets and equivalent taxable yields than indicated above.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON OHIO MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Ohio State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Ohio Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Ohio considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Ohio 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 Ohio issuers. Neither
the Trust nor the Portfolio has independently verified this information.
The State of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. The State is effectively prohibited by law from
ending a fiscal year or a biennium in a deficit position. The Governor has the
power to order State agencies to operate within the State's means. The State
carries out most of its operations through the General Revenue Fund ("GRF")
which receives general State revenues not otherwise dedicated. GRF revenues are
derived mainly from personal income and sales taxes and corporate franchise
taxes. State GRF figures generally show a pattern related to national economic
conditions, evident in growth and depletion of its GRF ending fund balances,
with the June 30 (end of fiscal year) GRF fund balance reduced during less
favorable national economic periods and increased during more favorable economic
periods.
The general appropriations act for the 1994-95 biennium was signed by the
Governor on July 1, 1993. This act appropriated $30.7 billion for GRF purposes.
Appropriations for the first fiscal year of the biennium were approximately 9.2%
above those for fiscal year 1993 while those for the second year were
approximately 6.6% higher than those for fiscal year 1994. These additional
appropriations were mainly for increased costs in most State financed programs
such as education, Medicaid, mental health and corrections. During the 1992-1993
biennium, the national economic downturn required a $200 million transfer from
the Budget Stabilization Fund ("BSF") to the GRF (the BSF has been replenished,
and has a current balance of over $828 million). As fiscal year 1992 progressed,
reduced tax collections led to a revenue shortfall. This, in combination with
additional expenditures produced a projected budget deficit. The State addressed
this deficit through a combination of budget cuts, tax payment accelerations and
a depletion of the BSF. A projected fiscal year 1993 gap of $520 million was
covered through a combination of tax increases and a reduction in
appropriations. The 1994-1995 biennial budget was balanced, and the State's GRF
had an ending fund balance of $928 million.
Local school districts in Ohio receive a major portion of their operating
monies from State subsidies, but are dependent upon local taxes for significant
portions of their budgets. School districts may submit for voter approval income
taxes on the district income of individuals and estates. To date, this income
tax has been approved in 117 of the State's 600+ local school districts. A small
number of local school districts have in any year required emergency loan
approval from the State in order to avoid year-end deficits. Forty-four school
districts borrowed $68.6 million in fiscal year 1992 and 27 districts borrowed
$94.5 million in 1993, including Cleveland which borrowed $75 million.
Twenty-eight districts borrowed $41.1 million in fiscal year 1994 and 29
borrowed $71 million in fiscal year 1995 (including $29.5 million for the
Cleveland District).
Litigation, similar to that in other states is pending questioning the
constitutionality of Ohio's system of school funding. A trial court concluded
that aspects of the system (including basic operating assistance) are
unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State appealed and a court of appeals
reversed the trial court's findings for plaintiff districts. The plaintiff
coalition has filed an appeal of the court of appeals decision to the Ohio
Supreme Court. At this time, it is not possible to determine either the outcome
or the financial burden which an unfavorable decision would have on either the
State's or the local school districts' financial health.
The electors approved in November 1995 a constitutional amendment that
extends the local infrastructure bond program (authorizing an additional $1.2
billion of State full faith and credit obligations to be issued over 10 years
for the purpose), and authorizes additional highway bonds (expected to be
payable from highway use receipts). The latter supersedes the prior $500 million
highway obligation authorization, and authorizes not more than $1.2 billion to
be outstanding at any time and not more than $220 million to be issued in a
fiscal year.
Common resolutions are pending in both houses of the General Assembly that
would submit a consitutional amendment relating to certain other aspects of
State debt. The proposal would authorize, among other things, the issuance of
State general obligation debt for a variety of purposes, with debt service on
all State general obligation debt and GRF-supported obligations not to exceed 5%
of the preceding fiscal year's GRF expenditures. It cannot be predicted whether
the proposal will in fact be submitted, or, if submitted, approved by the
electors.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $319,016,648. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $1,463,895 (equivalent to 0.46% of the Portfolio's average daily net assets
for such year). For the fiscal year ended September 30, 1994, the Portfolio paid
BMR advisory fees of $1,454,208 (equivalent to 0.45% of the Portfolio's average
daily net assets for such year). 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 $750,672 (equivalent to 0.44% (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 SAI.
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 $265,268 (equivalent to
0.43% (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 SAI. 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 September 30, 1995, the Principal
Underwriter paid sales commissions of $605,459 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 $2,361,964, which amount
reduced Uncovered Distribution Charges. During such period, contingent deferred
sales charges aggregating approximately $1,200,000 were imposed on early
redeeming shareholders and paid to the Principal Underwriter to reduce Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $10,953,000 (which amount was equivalent to 3.5% of
the Fund's net assets on such date). During the fiscal year ended September 30,
1995, the Fund made service fee payments under the Plan aggregating $439,292, of
which $436,243 was paid to Authorized Firms and the balance of which was
retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $3,410.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody fees
of $20,136 and the Portfolio incurred custody fees of $157,716 which were
reduced by fee credits of $67,412.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and 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 ......... $672 $3,287(2) $135,000(4)
Samuel L. Hayes, III ..... 648 3,270(3) 150,000(5)
Norton H. Reamer ......... 632 3,254 135,000
John L. Thorndike ........ 641 3,364 140,000
Jack L. Treynor .......... 693 3,426 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,102 of deferred compensation.
(3) Includes $1,054 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 April 18, 1991 through September 30, 1995 and for the one-year period ended
September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN TOTAL RETURN
MENT BEFORE DE- MENT 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 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 4/18/91* $1,000 $1,363.98 $1,343.98 36.40% 7.21% 34.40% 6.85%
1 Year
Ended
9/30/95 9/30/94 $1,000 $1,097.39 $1,047.39 9.74% 9.74% 4.74% 4.74%
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 April 18, 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 September 30, 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 7.05%,
assuming a combined federal and State tax rate of 35.76%.
The Fund's distribution rate (calculated on September 30, 1995 and based on
the Fund's monthly distribution paid September 15, 1995) was 4.61%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 4.71%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 20.9% 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.
TAXES
In the opinion of special tax counsel to the Fund, Squire, Sanders &
Dempsey, under Ohio law, provided that the Fund continues to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Fund consists of obligations issued by
or on behalf of Ohio, political subdivisions thereof or agencies or
instrumentalities of Ohio or its political subdivisions ("Ohio Obligations"), or
similar obligations of other states or their subdivisions (a fund satisfying
such requirements being referred to herein as an "Ohio fund"), (i) dividends
paid by the Fund will be exempt from the Ohio personal income tax and any
municipal or school district income taxes in Ohio to the extent such dividends
are properly attributable to interest on Ohio Obligations, and (2) distributions
of "capital gain dividends," as defined in the Internal Revenue Code, which are
properly attributable to the Fund's capital gains on the sale or other
disposition of Ohio Obligations, will not be subject to the Ohio personal income
tax or municipal or school district income taxes in Ohio. Other distributions
from the Fund will generally not be exempt from the Ohio personal income tax or
municipal or school district income taxes in Ohio.
Provided the Fund qualifies as an Ohio fund, (1) distributions from the Fund
will be excluded from the net income base of the Ohio corporation franchise tax
to the extent that such distributions are excludable from gross income for
Federal income tax purposes or are properly attributable to interest on Ohio
Obligations, and (2) distributions which are derived from the Fund's capital
gains on the sale or other disposition of Ohio Obligations, also will be
excluded from the net income base of the Ohio corporation franchise tax.
However, shares of the Fund will not be excluded from the tax base for purposes
of computing such tax on the net worth basis.
Distributions by the Fund properly attributable to interest on obligations
of the United States or the governments of Puerto Rico, the Virgin Islands or
Guam or their authorities or municipalities are exempt from the Ohio personal
income tax and municipal and school district income taxes in Ohio, and are
excluded from the net income base of the Ohio corporate franchise tax to the
same extent that such interest would be so exempt or excluded if the obligations
were held directly by the shareholders.
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 Ohio Tax Free Fund to EV Marathon Ohio Tax Free Fund on
February 1, 1994 and to EV Marathon Ohio Municipals Fund on December 8, 1995.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Ohio State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED
FEDERAL
SINGLE RETURN JOINT RETURN AND OHIO A FEDERAL AND OHIO STATE TAX EXEMPT YIELD OF:
- ---------------------------------------------- STATE TAX --------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ---------------------------------------------- --------- --------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 19.42% 4.96% 5.58% 6.21% 6.83% 7.45% 8.07% 8.69%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.28 5.91 6.64 7.38 8.12 8.86 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,700 35.76 6.23 7.01 7.78 8.56 9.34 10.12 10.90
$121,301 - $263,750 $147,701 - $263,750 40.80 6.76 7.60 8.45 9.29 10.14 10.98 11.82
Over $263,750 Over $263,750 44.13 7.16 8.05 8.95 9.84 10.74 11.63 12.53
</TABLE>
*Net amount subject to federal and Ohio personal income tax after deductions and
exemptions.
+ The combined tax brackets are calculated using the highest Ohio State rate
within the bracket. The combined tax brackets assume that Ohio taxes are
itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within each of these combined brackets
are 15%, 28%, 31%, 36% and 39.6% 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 Ohio State income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Ohio 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 Ohio personal income taxes. It should also be noted that the interest
earned on certain "private activity bonds" issued after August 7, 1986, while
exempt from the regular federal income tax, is treated as a tax preference item
which could subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON RHODE ISLAND MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Rhode Island State personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Rhode Island Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Rhode Island considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Rhode Island 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 Rhode
Island issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The economic slowdown beginning in 1989 resulted in significant State budget
constraints. Declining State revenues, combined with increased demand for
certain governmental services, such as public assistance, have occurred as a
result of the difficult general economic conditions. State law requires that the
State end each year with a balanced budget and does not permit a deficit to
continue into the next fiscal year. In response to this legal mandate and
overall budgetary pressures, the State has undertaken a variety of strong
financial management controls and initiatives, including reducing expenditures,
improving revenue estimating procedures and increasing taxes.
The 1993 fiscal year budget contained a number of revenue raising
components, including a temporary 32% "piggyback" personal income tax rate for
federal liability greater than $15,000, initiating video lottery games at two
existing gambling sites, levying new health care provider assessments on nursing
homes and certain outpatient care facilities (but not hospitals), and increasing
estimated "disproportionate share" reimbursements, a substantial portion of
which is expected to be one-time. In 1993, the State recorded an $8.4 million
operating surplus, boosting the undesignated General Fund balance to $8.7
million. Audited expenditures in excess of revenues were $5.2 million drawing
down the General Fund balance to $3.5 million. The 1995 budget includes budgeted
reserves of $46.5 million (equal to 3% of fiscal 1995 expenditures).
The collapse of Rhode Island Share and Indemnity Corporation, a private
insurer ("RISDIC"), at the end of December 1990 precipitated the closure on
January 1, 1991 of financial institutions with total deposit liabilities of
approximately $1.7 billion. The resulting banking crisis presented risks of
short-term dislocation in many parts of the State which the State sought to
address through the creation of the Rhode Island Depositors Economic Protection
Corporation ("DEPCO"). Through DEPCO, the State's efforts to address the crisis
were directed at minimizing the larger economic risks as well as alleviating the
social costs from the potential loss of personal savings for many individual
depositors. By the end of 1992, substantially all of the frozen deposits had
been repaid or otherwise made available to the affected depositors through the
reopening, sale or liquidation of the closed institutions. Over the next 20
years, DEPCO is also obligated to pay former depositors approximately $54
million. The necessary steps to resolve the crisis, including the property
management and disposition programs to be conducted by DEPCO in its efforts to
meet the cash requirements for depositor repayments, are under way. DEPCO has
incurred approximately $494.2 million in outstanding debt. Receipts from .6% of
the State's sales and use tax rate are dedicated to a special revenue fund to be
used for repayment of the special obligation bonds.
The State's budget difficulties, together with the banking crisis and the
issuance of the DEPCO debt, contributed to a lowering of the State's credit
rating in 1992 to A1 by Moody's Investors Services, Inc. and AA- "with a stable
outlook" from Standard & Poor's Ratings Group.
Below the level of State government, Rhode Island is divided into 39 cities
and towns which exercise the functions of local general government. As provided
in the State Constitution, municipalities have the right of self government in
all local matters by adopting a "home rule" charter. Every city or town,
however, has the power to levy, assess and collect taxes, or borrow money, only
as specifically authorized by the General Assembly. Legislation enacted in 1985
limits tax levy or rate increases by municipalities to an increase no greater
than 5 1/2% over the previous year. However tax levy or rate increases of
greater than 5 1/2% are permitted in the event that debt service costs on
present and future general obligation debt increase at a rate greater than 5
1/2%. This limitation may also be exceeded in the event of loss of non-property
tax revenue, or when an emergency situation arises and is certified by the State
Auditor General. In addition, State statutes require every city and town to
adopt a balanced budget for each fiscal year. Local governments rely principally
upon general real and tangible personal property taxes and automobile excise
taxes for provision of revenue.
In recent years, Rhode Island has relieved its cities and towns from a
portion of the costs of major public expenditures through the assumption of
costs and services by the State. However, the economic downturn affecting the
State's revenue base necessitated a reduction in aid by the State in fiscal year
1991. Under the fiscal year 1995 budget, State aid to municipalities is slated
to be $469.6 million.
The largest category of State aid to cities and towns involves assistance
programs for school operations and school buildings. The general school aid
program, which amounted to $268.7 million in 1990 and $295.2 million in 1991,
reimburses communities on the basis of the relationship between the number of
students and the property wealth of the community and its personal income.
Communities are guaranteed a minimum reimbursement of 15 percent of eligible
expenditures of the second prior year for fiscal year 1993 and 9 percent
thereafter. The fiscal 1993 budget modified formulas related to the disbursement
of funds under the major education aid programs. Under the modifications,
greater aid would be distributed to those communities with less property wealth.
The Governor's fiscal year 1994 budget proposal would further modify the
allocation formula with the result that 21 communities would receive less State
assistance in fiscal year 1994 than they were allocated in fiscal year 1993. In
addition to school aid, the State provides a general revenue sharing program for
local governments which is intended for direct property tax relief and
incorporates a distribution formula based upon relative population, tax effort
and personal income of each municipality. In addition, the State provides
municipal aid programs which include reimbursement to local governments for
their cost of carrying out certain State mandates. For fiscal year 1992, $6.0
million was appropriated. No funds were appropriated for fiscal year 1993.
However, the 1991 General Assembly passed legislation that provides that
commencing in the fiscal year 1994, municipalities will receive 1% of total
State tax revenues. The formula for the 1995 education aid budget established a
Poverty Weight Fund (PWF). Of the $414.7 million budgeted for educational aid,
$46.1 million was distributed through the PWF. The Governor's recommended budget
for fiscal year 1996 increases school aid by $22.9 million (5.3%), including
$20.7 million in operations aid, which will be distributed through the PWF.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $42,905,967. For
the fiscal year ended September 30, 1995, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $100,476 (equivalent to 0.25% 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
$50,721. For the fiscal year ended September 30, 1994, absent a fee reduction,
the Portfolio would have paid BMR advisory fees of $63,773 (equivalent to 0.21%
of the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of the full amount of its advisory
fee. For the period from the Portfolio's start of business, June 11, 1993, to
the fiscal year ended September 30, 1993, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $4,206 (equivalent to 0.15% (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 expenses related to the operation of the Portfolio in
the amount of $3,373. The Portfolio's Investment Advisory Agreement with BMR is
dated June 7, 1993 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 SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended September 30,
1994 and for the period from the start of business, June 11, 1993, to the fiscal
year ended September 30, 1993, $44,682 and $9,554, respectively, of the Fund's
operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this SAI. Pursuant to Rule 12b-1, the Plan has been approved by the
Fund's initial shareholder (Eaton Vance) and by the Board of Trustees of the
Trust, as required by Rule 12b-1. During the fiscal year ended September 30,
1995, the Principal Underwriter paid sales commissions of $272,735 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
$277,108, which amount reduced Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $101,000
were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at September 30, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $1,772,000 (which amount was
equivalent to 4.4% of the Fund's net assets on such date). During the fiscal
year ended September 30, 1995, the Fund made service fee payments under the Plan
aggregating $31,227, of which $31,117 was paid to Authorized Firms and the
balance of which was paid by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $392.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody fees
of $2,812 and the Portfolio incurred custody fees of $25,652 which were reduced
by fee credits of $16,510.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994 and for the period from the start of business, June 11, 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight ......... $34 $336(2) $135,000(4)
Samuel L. Hayes, III ..... 32 324(3) 150,000(5)
Norton H. Reamer ......... 32 316 135,000
John L. Thorndike ........ 32 321 140,000
Jack L. Treynor .......... 35 346 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this SAI, Nicole Anderes (34) has served
as a Vice President of the Portfolio since June 19, 1995. Ms. Anderes has been a
Vice President of BMR and Eaton Vance since 1994, and is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Ms. Anderes was Vice President and portfolio manager, Lazard Freres Asset
Management (1992-1994) and Vice President and Manager -- Municipal Research,
Roosevelt & Cross (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from June 11, 1993 through September 30, 1995 and for the one-year period ended
September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN TOTAL RETURN
MENT BEFORE DE- MENT 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 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 6/11/93* $1,000 $1,060.02 $1,022.42 6.00% 2.56% 2.24% 0.96%
1 Year
Ended
9/30/95*** 9/30/94 $1,000 $1,089.35 $1,039.35 8.94% 8.94% 3.94% 3.94%
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 June 11, 1993.
** 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 September 30, 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 7.22%,
assuming a combined federal and State tax rate of 36.88%. 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 September 30, 1995 and based on
the Fund's monthly distribution paid September 15, 1995) was 4.91%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 5.03%. 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 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 26.5% 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 Rhode Island Tax Free Fund to EV Marathon Rhode Island Tax
Free Fund on December 21, 1993 and to EV Marathon Rhode Island Municipals Fund
on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Rhode Island State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND RHODE ISLAND STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN RI STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------------------- TAX -----------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 18.51% 4.91% 5.52% 6.14% 6.75% 7.36% 7.98% 8.59%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.54 6.02 6.77 7.52 8.28 9.03 9.78 10.53
$ 58,151 - $121,300 $ 96,901 - $147,700 36.88 6.34 7.13 7.92 8.71 9.51 10.30 11.09
$121,301 - $263,750 $147,701 - $263,750 42.34 6.94 7.80 8.67 9.54 10.41 11.27 12.14
Over $263,750 Over $263,750 46.18 7.43 8.36 9.29 10.22 11.15 12.08 13.01
<FN>
* Net amount subject to federal and Rhode Island personal income tax after deductions and exemptions.
+ The combined tax rates assume a Rhode Island rate of 27.5% of federal income tax liability and that Rhode Island taxes are
itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their federal income tax return
will have a higher combined bracket and higher taxable equivalent yield than those indicated above. The applicable federal tax
rates within the brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
</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 Rhode Island State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above. Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that the Fund will
achieve any specific tax exempt yield. While it is expected that the Portfolio
will invest principally in obligations, the interest from which is exempt from
the regular federal income tax and Rhode Island 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 Rhode Island personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON WEST VIRGINIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and West Virginia state personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the West Virginia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain West Virginia considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in West 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 West Virginia issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The economy of the State is based primarily on manufacturing, mining and
tourism. Major manufacturing sectors include chemicals and primary metals. The
State is the second leading coal producing state and the leading coal exporting
state in the nation. The State is also one of the leading oil and gas producing
states east of the Mississippi. Technological advancements have reduced the size
of employment in the coal industry. The majority of the job creation in the
State has occurred in the service sector. The State has taken steps to foster
growth in this sector as well as other non-resource related industries.
Based on a 1990 task force report indicating potential fiscal problems for
the State, the State took a number of actions designed to eliminate the
projected deficit, including revenue enhancement measures, such as changes to
the Consumer Sales and Service tax, and reductions in State spending. The 1994
General Revenue Fund balance was $135 million. Unfunded trust liabilities and a
possible reduction of federal aid may have a negative impact on the State's
financial position.
The Business and Occupation Tax, the Personal Income Tax, the Consumer Sales
and Service Tax, the Severance Tax, the Corporate Net Income Tax and the
Business Franchise Tax together provided over 80% of the revenue for the General
Revenue Fund in the fiscal year ended June 30, 1994. The amounts collected
pursuant to the business registration, cigarette, insurance, telecommunications,
inheritance, other taxes, liquor profits and racing fees constitute the
remainder of the General Revenue Fund, but individually did not account for more
than 2.9% of total revenues.
The federal programs administered in West Virginia are a substantial part of
the operation of State government. Historically, federal grants have either been
part of an ongoing program, limited to a specific project or structured to
institute immediate state action. In all cases, they become due either
temporarily or permanently and are a significant feature of State services and
the budget process.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1995, the Portfolio had net assets of $40,835,061. For
the fiscal year ended September 30, 1995, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $98,033 (equivalent to 0.24% 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
$32,526. For the fiscal year ended September 30, 1994, BMR would have earned,
absent a fee reduction, advisory fees of $82,158 (equivalent to 0.23% 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.
For the period from the Portfolio's start of business, June 11, 1993, to the
fiscal year ended September 30, 1993, the Portfolio would have paid BMR, absent
a fee reduction, advisory fees of $6,768 (equivalent to 0.15% (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 $6,768, and BMR was allocated a portion of the expenses related to the
operation of the Portfolio in the amount of $2,559. The Portfolio's Investment
Advisory Agreement with BMR is dated June 7, 1993 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 SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended September 30,
1994, $49,009 of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, as required by Rule 12b-1. During the fiscal year ended September
30, 1995, the Principal Underwriter paid sales commissions of $110,291 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 $288,509, which amount reduced Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating approximately
$130,000 were imposed on early redeeming shareholders and paid to the Principal
Underwriter to reduce Uncovered Distribution Charges. As at September 30, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $1,690,000 (which amount was
equivalent to 4.3% of the Fund's net assets on such date). During the fiscal
year ended September 30, 1995, the Fund paid service fee payments under the Plan
aggregating $47,846, of which $47,826 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $407.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody fees
of $4,580. and the Portfolio incurred custody fees of $19,975, which were
reduced by fee credits of $8,102.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994, and for the period from the start of business, June 11,
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 September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- -----------------
Donald R. Dwight ......... $34 $336(2) $135,000(4)
Samuel L. Hayes, III ..... 32 324(3) 150,000(5)
Norton H. Reamer ......... 32 316 135,000
John L. Thorndike ........ 32 321 140,000
Jack L. Treynor .......... 35 346 140,000
- ------------
(1)The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this SAI, Timothy T. Browse (36) has
served as a Vice President of the Portfolio since it commenced operations. 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 June 11, 1993 through September 30, 1995 and for the one year period ended
September 30, 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 9/30/95 ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------ ---------- ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund*** 6/11/93* $1,000 $1,067.76 $1,029.76 6.78% 2.88% 2.98% 1.28%
1 Year
Ended
9/30/95*** 9/30/94 $1,000 $1,093.90 $1,043.90 9.39% 9.39% 4.39% 4.39%
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 June 11, 1993.
** No contingent deferred sales charge is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Portfolio's and the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.61%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.61% would be 7.15%,
assuming a combined federal and State tax rate of 35.49%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based on
the Fund's monthly distribution paid September 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%. If a portion of the Portfolio's and the
Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, the Fund would have had a lower distribution rate and effective
distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 19.99% 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 West Virginia Tax Free Fund to EV Marathon West Virginia
Tax Free Fund on December 21, 1993. The Fund changed its name from EV Marathon
West Virginia Tax Free Fund to EV Marathon West Virginia Municipals Fund on
December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
West Virginia state income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND WEST VIRGINIA STATE
FEDERAL TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN AND WV 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ------------------- STATE TAX --------------------------------------------------------------------
(TAXABLE INCOME*) 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 18.83% 4.93% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.68 5.94 6.68 7.43 8.17 8.91 9.66 10.40
$ 56,551 - $117,950 $ 94,251 - $143,600 35.49 6.20 6.98 7.75 8.53 9.30 10.08 10.85
$117,951 - $256,500 $143,601 - $256,500 40.16 6.68 7.52 8.36 9.19 10.03 10.86 11.70
Over $256,500 Over $256,500 43.53 7.08 7.97 8.85 9.74 10.62 11.51 12.40
<FN>
* Net amount subject to federal and West Virginia personal income tax after deductions and exemptions.
+ The combined tax rate for the two lowest federal income brackets are calculated using the highest West Virginia 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 West 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 state rate is at its maximum (6.5%) throughout all other
brackets. The applicable federal tax rates within the brackets 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 West 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 the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and West 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 West 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 the West
Virginia personal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax and the West
Virginia minimum tax. The illustrations assume that the federal alternative
minimum tax and the West Virginia minimum tax are not applicable and do not take
into account any tax credit that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
[LOGO]
EV MARATHON MUNICIPAL FUNDS
- -------------------------------------------------------------------------------
STATEMENT OF
ADDITIONAL INFORMATION
FEBRUARY 1, 1996
EV MARATHON CALIFORNIA MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND
EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON WEST 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-TFC2/1SAI
<PAGE>
EATON VANCE MUNICIPALS TRUST
FOR THE FUNDS:
* EV Marathon California Municipals Fund
* EV Marathon Florida Tax Free Fund
* EV Marathon Massachusetts Tax Free Fund
* EV Marathon Mississippi Tax Free Fund
* EV Marathon New York Tax Free Fund
* EV Marathon Ohio Tax Free Fund
* EV Marathon Rhode Island Tax Free Fund
* EV Marathon West Virginia Tax Free Fund
- --------------------------------------------------------------------------------
[GRAPHIC OF A DOOR]
- --------------------------------------------------------------------------------
Annual Shareholder Report
September 30, 1995
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
Year-end results, listed by state ....................................... 2
President's letter to shareholders ...................................... 3
Management Reports:
EV Marathon California Municipals Fund .......................... 4
EV Marathon Florida Tax Free Fund ............................... 5
EV Marathon Massachusetts Tax Free Fund ......................... 6
EV Marathon Mississippi Tax Free Fund ........................... 7
EV Marathon New York Tax Free Fund .............................. 8
EV Marathon Ohio Tax Free Fund .................................. 9
EV Marathon Rhode Island Tax Free Fund .......................... 10
EV Marathon West Virginia Tax Free Fund ........................ 11
Financial Results ............................................... 12
</TABLE>
<TABLE>
INFORMATION ABOUT YOUR MUTUAL FUND INVESTMENT
<CAPTION>
FINANCIAL DATA: TAX DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
RESULTS FOR THE YEAR Fund's The after-tax
ENDING SEPTEMBER 30, 1995. Dividends Fund's NAV distribution If your combined equivalent Federal
paid by Fund per share rate at Federal & state yield you income tax
during period at 9/30/95 9/30/95 tax rate is... would need is... information*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ev Marathon CALIFORNIA [GRAPHIC OF
Municipals Fund $0.495 $9.41 4.99% CALIFORNIA] 43.04% 8.72% 98.75
EV Marathon FLORIDA [GRAPHIC OF
Tax Free Fund $0.536 $10.72 4.80% FLORIDA] 38.67% 7.78% 98.31
EV Marathon MASSACHUSETTS [GRAPHIC OF
Tax Free Fund $0.530 $10.27 4.87% MASSACHUSETTS] 43.68% 8.60% 98.81
EV Marathon MISSISSIPPI [GRAPHIC OF
Tax Free Fund $0.461 $9.48 4.70% MISSISSIPPI] 39.20% 7.69% 98.46
EV Marathon NEW YORK [GRAPHIC OF
Tax Free Fund $0.553 $10.83 4.87% NEW YORK] 40.86% 8.18% 98.71
EV Marathon OHIO [GRAPHIC OF
Tax Free Fund $0.511 $10.51 4.61% OHIO] 40.80% 7.77% 99.35
EV Marathon RHODE ISLAND [GRAPHIC OF
Tax Free Fund $0.477 $9.40 4.91% RHODE ISLAND] 42.34% 8.50% 99.32
EV Marathon WEST VIRGINIA [GRAPHIC OF
Tax Free Fund $0.462 $9.50 4.75% WEST VIRGINIA] 40.16% 7.92% 99.66
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Percentages represent the amounts of the total dividends paid by the Funds from net investment income during the year ended
September 30, 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.
</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.
DESPITE TAX POLICY UNCERTAINTIES, TAX-EXEMPT BONDS YIELD MORE THAN
89% OF TREASURY YIELDS.
<TABLE>
<S> <C>
30-YR. AA GENERAL OBLIGATION (GO) BONDS* 5.90%
TAXABLE EQUIVALENT YIELD OF INVESTMENT
FOR COUPLE IN 36% TAX BRACKET 9.21%
30-YR TREASURY BONDS 6.50%
<FN>
Principal and interest payments of Treasury securities are guaranteed by the
U.S. government.
* 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 September 30, 1995.
Past performance is no guarantee of future results.
Source: Bloomberg, L.P.
</TABLE>
However, for many reasons, we at Eaton Vance believe there is little chance of
major tax reform legislation being enacted. 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.+
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.
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 comprises bonds principally from your individual
state, the Index is composed of bonds from all 50 states and many jurisdictions.
The Index's total return does not reflect any commissions or expenses that would
be incurred if an investor individually purchased or sold the securities
represented in the Index.
3
<PAGE>
EV Marathon California Municipals Fund
YOUR INVESTMENT AT WORK
Sacramento Cogeneration Authority
Cogeneration Project Bonds
These bonds are being used to build a gas-fired cogeneration plant that will
produce electricity for the Sacramento Municipal Utility District. The plant
also will produce steam for a nearby Procter & Gamble manufacturing facility. It
is located on a 10-acre parcel next to the Procter & Gamble property.
The project is part of the Municipal Utility District's plan to reduce its
purchases of electrical power from local electric utilities. It is scheduled to
begin operation in 1996 and will be the second of up to four cogeneration plants
to be constructed in the Sacramento area.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues.............................. 110
Average quality............................... A+
Investment grade.............................. 88.3
Effective maturity............................ 14.67 yrs.
Largest sectors:
Lease revenues/Certificates of
participation.............................. 22.6%
Escrowed to maturity....................... 16.2
Tax allocation............................. 9.0
Insured utilities.......................... 8.8*
Housing.................................... 8.6
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: California
California's economy is improving slowly. Gains in the northern part of the
state - in San Francisco and the Silicon Valley, for example - have been
partially offset by continued poor economic conditions in Orange and Los Angeles
Counties.
The Los Angeles County economy continues to lag, and the Orange County
government has been in bankruptcy since December, 1994, when losses in the
derivatives market drained nearly $1.7 billion from its investment pool. Both
counties are finding it necessary to cut back on government services; those
cutbacks have the effect of further dampening local economic activity.
While California's long-term economic outlook is positive, its current problems
are not likely to end soon, in part because of the magnitude of its outstanding
financial issues. The state, home to much import and export business with
Pacific Rim countries, has also been hurt by the depressed Japanese economy. It
could expect to recover more quickly if the Japanese economy were to improve.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON CALIFORNIA
MUNICIPALS FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1985, through September 30, 1995
<TABLE>
<CAPTION>
AVG. ANNUAL 1 5 Life of
RETURNS Year Year Fund*
<S> <C> <C> <C>
With CDSC 3.3% 6.2% 6.3%
Without CDSC 8.3% 6.5% 6.3%
</TABLE>
EV MARATHON CALIFORNIA MUNICIPALS FUND: $18,252
Lehman Brothers Municipal Bond Index: $23,243
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE M. CALIFORNIA LEHMAN BROS.
<S> <C> <C>
12/85+ 10000 10000
1/86 10220 10589
2/86 10551 11009
3/86 10634 11012
4/86 10630 11021
5/86 10381 10841
6/86 10517 10945
7/86 10603 11011
8/86 11112 11504
9/86 11080 11533
10/86 11284 11732
11/86 11464 11965
12/86 11493 11932
1/87 11722 12291
2/87 11794 12351
3/87 11752 12221
4/87 11039 11607
5/87 10899 11550
6/87 11168 11889
7/87 11265 12010
8/87 11257 12037
9/87 10755 11593
10/87 10550 11634
11/87 10904 11938
12/87 11140 12111
1/88 11654 12543
2/88 11799 12675
3/88 11567 12528
4/88 11600 12623
5/88 11480 12586
6/88 11653 12770
7/88 11685 12854
8/88 11766 12865
9/88 11933 13098
10/88 12140 13329
11/88 11961 13207
12/88 12128 13342
1/89 12363 13618
2/89 12308 13463
3/89 12271 13431
4/89 12512 13749
5/89 12756 14035
6/89 12879 14226
7/89 13045 14419
8/89 12868 14278
9/89 12863 14235
10/89 12962 14410
11/89 13152 14662
12/89 13224 14782
1/90 13086 14712
2/90 13241 14843
3/90 13229 14848
4/90 13050 14740
5/90 13366 15062
6/90 13483 15194
7/90 13712 15418
8/90 13358 15195
9/90 13330 15203
10/90 13555 15479
11/90 13859 15790
12/90 13884 15859
1/91 14072 16072
2/91 14122 16212
3/91 14079 16217
4/91 14274 16434
5/91 14379 16580
6/91 14317 16564
7/91 14491 16765
8/91 14644 16986
9/91 14875 17208
10/91 15010 17362
11/91 14939 17411
12/91 15185 17784
1/92 15111 17825
2/92 15154 17831
3/92 15117 17837
4/92 15257 17996
5/92 15428 18208
6/92 15697 18513
7/92 16152 19068
8/92 15879 18883
9/92 15926 19006
10/92 15484 18819
11/92 15874 19156
12/92 16112 19352
1/93 16311 19577
2/93 17004 20285
3/93 16753 20071
4/93 16936 20273
5/93 16991 20387
6/93 17237 20728
7/93 17201 20754
8/93 17642 21187
9/93 17824 21428
10/93 17819 21469
11/93 17613 21280
12/93 17957 21729
1/94 18150 21978
2/94 17667 21408
3/94 16844 20536
4/94 16838 20711
5/94 16922 20890
6/94 16751 20768
7/94 17047 21143
8/94 17113 21216
9/94 16854 20905
10/94 16467 20534
11/94 16037 20162
12/94 16325 20606
1/95 16909 21195
2/95 17472 21812
3/95 17674 22062
4/95 17642 22088
5/95 18226 22793
6/95 17865 22594
7/95 17965 22808
8/95 18098 23097
9/95 18252 23243
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/19/85. +Index information is available
only at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"California is such a large state that we have been able to choose credits for
the Portfolio very selectively. In general, we have avoided Los Angeles County
debt, though we do hold two relatively secure specialized bonds from the area
for yield purposes. "Similarly, our holdings in Orange County are
disproportionately low because of the county's continuing financial problems.
Over time, we have been able to assess the full effect of those problems and can
say with assurance that the Portfolio's five credits located in the county have
not been affected by the county's financial problems."
- Robert B. MacIntosh
4
<PAGE>
EV Marathon Florida Tax Free Fund
YOUR INVESTMENT AT WORK
Martin County Industrial
Development Authority
Indiantown Cogeneration Project
The proceeds of this $125 million bond issue were used to refund bonds issued in
1992 used to build a portion of this cogeneration project.
The power plant will burn coal and supply electricity to Florida Power & Light
Company and steam to Caulkins Indiantown Citrus Company. Construction began in
1992 and is expected to be completed next year.
The 1992 bond proceeds financed the costs of acquiring, building and equipping
facilities for treatment of solid wastes associated with operating the
coal-fired cogeneration plant.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues..................................... 138
Average quality...................................... AA-
Investment grade..................................... 92.4%
Effective maturity................................... 16.83 yrs.
Largest sectors:
Utilities......................................... 12.5%
Housing........................................... 10.6
Insured utilities................................. 8.5*
Insured special tax revenue....................... 7.9*
General obligations............................... 7.5
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Florida
The Florida economy is relatively strong, helped by solid gains in the business
services sector, which is growing at a double-digit rate. Meanwhile, the
construction sector has been hampered by slower income and household growth.
State agencies project that Florida's population will grow at an annual rate of
nearly 2%, not as strong as the state had estimated earlier.
Tourism continues to be a cornerstone of the Florida economy. Tourism levels in
1995 have slightly exceeded the state's expectations.
It is estimated that Florida's unemployment rate through 1995 will be 6.1%, a
significant drop from 8.2% at the peak of the recession in 1992.
The 1995 legislative session ended with approval of budget appropriations which,
adjusted for inflation, represent the smallest increase in state spending in
more than 10 years. Despite the need for substantial expenditures to accommodate
continuing growth, Florida's level of debt is considered moderate and its
economy stable.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON FLORIDA TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From August 31, 1990, through September 30, 1995
<TABLE>
<CAPTION>
AVG. ANN. 1 5 Life of Value of
RETURN Year Year Fund* Investment at 9/30
<S> <C> <C> <C> <C>
With CDSC 4.9% 7.9% 7.8% $14,689
Without CDSC 9.9% 8.2% 8.0% $14,789
</TABLE>
EV MARATHON FLORIDA TAX FREE FUND: $14,789
Lehman Brothers Municipal Bond Index: $15,297
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE M. FLORIDA LEHMAN BROS.
<S> <C> <C>
8/90+ 10000 10000
9/90 9990 10006
10/90 10127 10187
11/90 10429 10392
12/90 10482 10437
1/91 10622 10577
2/91 10704 10669
3/91 10698 10673
4/91 10864 10816
5/91 10988 10912
6/91 10899 10901
7/91 11094 11034
8/91 11241 11179
9/91 11434 11325
10/91 11536 11427
11/91 11522 11459
12/91 11886 11704
1/92 11814 11731
2/92 11817 11735
3/92 11784 11739
4/92 11911 11844
5/92 12117 11983
6/92 12360 12184
7/92 12816 12550
8/92 12497 12427
9/92 12510 12509
10/92 12204 12385
11/92 12661 12607
12/92 12843 12736
1/93 12967 12884
2/93 13604 13350
3/93 13352 13209
4/93 13536 13342
5/93 13627 13417
6/93 13870 13642
7/93 13860 13659
8/93 14183 13944
9/93 14368 14103
10/93 14380 14130
11/93 14122 14005
12/93 14494 14301
1/94 14688 14464
2/94 14191 14089
3/94 13423 13516
4/94 13487 13630
5/94 13565 13748
6/94 13446 13668
7/94 13717 13915
8/94 13718 13963
9/94 13457 13758
10/94 13091 13514
11/94 12772 13269
12/94 13186 13561
1/95 13647 13949
2/95 14160 14355
3/95 14267 14520
4/95 14276 14537
5/95 14655 15001
6/95 14389 14870
7/95 14479 15010
8/95 14605 15201
9/95 14789 15297
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Tower Data Systems,
Bethesda, MD.
*Investment operations commenced 8/28/90. (+) Index information is available
only at month-end, therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The Florida health care market has been somewhat in disarray because of health
care reform. As a result, we have exercised caution when looking at health care
or hospital bonds. Through our proprietary research, we have been able to buy
high-quality hospital bonds at very attractive prices.
"We have employed a two-pronged approach to the Portfolio, with an emphasis
on quality and also bonds that allow us to add to yield.
"We are still very constructive on the Florida economy, and we continue to
look for discount coupon bonds that add attractive characteristics to the
Portfolio."
- Thomas J. Fetter
5
<PAGE>
EV Marathon Massachusetts Tax Free Fund
YOUR INVESTMENT AT WORK
Plymouth County
Correctional Facility
These bonds were used to construct a new 1,140-bed prison to house federal,
state and county inmates in Plymouth. In addition to expanded housing
facilities, the project includes a modern medical facility.
The project was designed to provide partial relief for the Commonwealth's
correctional system, which has become seriously overcrowded in the past decade.
As a state-of-the-art, "direct supervision" facility, the project aims to
provide a more successful correctional environment while reducing costs. The new
facility is operated by the Plymouth County Sheriff's Department.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues....................................... 95
Average quality........................................ A+
Investment grade....................................... 96.3%
Effective maturity (years)............................. 15.47
Largest sectors:
General obligations................................. 13.7%
Insured hospitals................................... 11.8*
Housing............................................. 11.4
Water and sewer..................................... 9.8
Education........................................... 9.8
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Massachusetts
Massachusetts' employment levels have climbed significantly
in recent years, recovering roughly 60% of the jobs lost in the last recession.
Recent jobless rates have remained at or below the national rate, and personal
income growth continues to accelerate. Growth has been especially impressive in
the high technology and financial sectors.
The Commonwealth has greatly improved its financial position. Debt levels, while
still too high, have nonetheless been reduced, while reserve levels have
increased to 3% of revenues. As a result, Massachusetts now enjoys enhanced
liquidity and more leeway with respect to operations, and should record a modest
surplus in the current fiscal year. As a reflection of the progress the
Commonwealth has made in recent years, its debt ratings have been upgraded to A1
and A+, considerably higher than they were at their lowest point in early 1991.
Looking ahead, the economy should continue to post modest growth. On the fiscal
front, the administration has recently initiated efforts to control social
spending. While opening a thorny political issue, the move could result in
further fiscal improvements in the future.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON
MASSACHUSETTS TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From April 30, 1991, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life of Value of
Year Fund* Investment at 9/30
<S> <C> <C> <C>
With CDSC 3.4% 6.5% $13,281
Without CDSC 8.4% 6.9% $13,481
</TABLE>
EV MARATHON MASSACHUSETTS TAX FREE FUND: $13,481
Lehman Brothers Municipal Bond Index: $14,143
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE M. MASS LEHMAN BROS.
<S> <C> <C>
4/91+ 10000 10000
5/91 10040 10089
6/91 10063 10079
7/91 10248 10202
8/91 10410 10336
9/91 10544 10471
10/91 10662 10565
11/91 10669 10594
12/91 10985 10822
1/92 11011 10846
2/92 11025 10850
3/92 11004 10854
4/92 11095 10951
5/92 11250 11079
6/92 11483 11265
7/92 11889 11603
8/92 11657 11490
9/92 11690 11565
10/92 11417 11451
11/92 11744 11657
12/92 11877 11776
1/93 12005 11913
2/93 12487 12343
3/93 12325 12213
4/93 12488 12336
5/93 12562 12405
6/93 12757 12613
7/93 12736 12629
8/93 13020 12892
9/93 13172 13039
10/93 13183 13064
11/93 13031 12949
12/93 13308 13222
1/94 13444 13373
2/94 13115 13027
3/94 12445 12496
4/94 12409 12602
5/94 12519 12711
6/94 12406 12637
7/94 12625 12866
8/94 12675 12910
9/94 12439 12721
10/94 12116 12495
11/94 11736 12269
12/94 12092 12539
1/95 12542 12897
2/95 12940 13272
3/95 13054 13425
4/95 13037 13441
5/95 13384 13870
6/95 13143 13748
7/95 13215 13878
8/95 13387 14055
9/95 13481 14143
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 4/18/91. +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.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The Portfolio's exposure to the hospital sector remains quite low. Health care
institutions around the country are under increasing pressure from competition.
This condition is especially true in Massachusetts, where there are too many
hospital beds for the commonwealth's population.
"As a result, we do extensive research before adding any hospital bonds to the
Portfolio, to ensure that the hospitals we choose will be among the survivors in
this increasingly competitive environment.
"In structuring the Portfolio, we've employed a two-pronged strategy in the
Portfolio, emphasizing quality on one hand and prudent yield enhancement on the
other."
- Robert B. MacIntosh
6
<PAGE>
EV Marathon Mississippi Tax Free Fund
YOUR INVESTMENT AT WORK
Mississippi State University
Renovation Project
Bond proceeds were used to renovate and equip two buildings on the Mississippi
State University campus. The renovations included the conversion of former
dormitory buildings into classroom and office space.
The funds were also used to extend a chilled water loop on the campus in order
to improve the university's heating and cooling system.
The bonds were issued in 1995, with a maturity of 2015. The cost of the project
is estimated to be $3 million.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues.................................. 36
Average quality................................... AA
Investment grade.................................. 98.7%
Effective maturity................................ 15.55 yrs.
Largest sectors:
Insured hospitals.............................. 19.2%*
Utilities...................................... 10.9
Industrial development revenue................. 10.0
Housing........................................ 9.4
General obligations............................ 7.8
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Mississippi
Mississippi's economy, traditionally reliant on cyclical manufacturing, has
shown significant growth in recent years. Expansion in the manufacturing and
service sectors allowed the state's unemployment rate to remain roughly the same
in 1994 as in 1993.
Much of the state's recent job growth came from gaming-related employment in the
early 1990s. It is estimated that some 50,000 jobs were created either directly
or indirectly by this industry. However, with more than 30 casinos now open in
the state, Mississippi is saturated with gambling. In addition, the industry now
faces strong competition from neighboring Louisiana, which is opening gambling
in New Orleans.
Mississippi's economy should continue to grow during the next few years, but
expected changes in the gaming industry, combined with a slowdown in other
sectors, are likely to cause the pace of that growth to be slower than it has
been in recent years.
A positive for the state is its very conservative fiscal management.
Mississippi's debt level is one of the lowest in the country.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON MISSISSIPPI
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From June 30, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE 1 Life of Value of
ANNUAL RETURN Year Fund* Investment at 9/30
<S> <C> <C> <C>
With CDSC 4.4% 1.2% $10,279
Without CDSC 9.4% 2.8% $10,658
</TABLE>
EV MARATHON MISSISSIPPI TAX FREE FUND: $10,658
Lehman Brothers Municipal Bond Index: $11,214
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE M. MISSISSIPPI LEHMAN BROS.
<S> <C> <C>
6/93+ 10000 10000
7/93 9950 10013
8/93 10249 10221
9/93 10385 10338
10/93 10369 10358
11/93 10244 10266
12/93 10522 10483
1/94 10644 10603
2/94 10295 10328
3/94 9640 9908
4/94 9717 9992
5/94 9816 10078
6/94 9733 10020
7/94 9925 10200
8/94 9919 10236
9/94 9741 10086
10/94 9500 9907
11/94 9254 9727
12/94 9477 9941
1/95 9835 10226
2/95 10214 10523
3/95 10296 10644
4/95 10274 10656
5/95 10577 10996
6/95 10408 10900
7/95 10474 11003
8/95 10593 11143
9/95 10658 11214
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 6/11/93. +Index information is available
only at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Mississippi is now in a period of economic strength. We have tried to take
advantage of that fact by moving the Portfolio into more state-backed general
obligation bonds.
"At the same time, we have somewhat reduced our exposure to the insured sector
because insured bonds are plentiful and are not as attractive as some other
Mississippi bonds.
"We continue to look to add industrial development bonds to the Portfolio
because they offer an attractive combination of yield and security."
- Cynthia J. Clemson
7
<PAGE>
EV Marathon New York Tax Free Fund
YOUR INVESTMENT AT WORK
New York State Power Authority
Historically, three of the top issuer names in New York have been "Ports" (Port
Authorities of New York and New Jersey), "Powers" (New York State Power
Authority) and "Tribes" (Triborough Bridge and Tunnel Authority). Bonds of these
three issuers are among the highest rated in the market.
Of the three, we see the most value in Power Authority bonds, especially as a
place to weather any coming storm in BBB-rated New York State-appropriated
bonds. The Triborough Bridge and Tunnel Authority will likely be under credit
pressure as it begins borrowing plans for the MTA subway system. Port Authority
bonds typically do not offer the attractive coupon structure available on some
Power Authority bonds.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues ............................... 179
Average quality ................................ A+
Investment grade ............................... 98.0%
Effective maturity (years) ..................... 14.47
Largest sectors:
Health care ................................. 19.1%
Education ................................... 12.7
Special tax revenue ......................... 12.5
Lease/Certificates of participation ......... 8.7
Escrowed .................................... 7.6
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: New York
New York is at a crossroads, with its first new governor in 12 years. Governor
George Pataki's first real chance to make his mark comes with next year's
budget. The impact of his proposed income tax cuts will be felt much more deeply
in the budget for fiscal year 1996-97; it will garner much attention because tax
cuts must be accompanied by spending cuts. It has the potential to be Pataki's
first big step toward streamlining state government and fulfilling his election
promises.
Given the potential for next year's budget process to be especially contentious
and given that this year's budget was passed late, as often occurs, the Governor
plans an earlier unveiling of the fiscal 1996-97 budget. The goal of matching
spending commitments to ongoing revenue resources is positive for the state's
long-term credit standing but may produce near-term turmoil.
Of more immediate interest to New York tax-exempt investors is the November
voter referendum on state debt reform. New Yorkers will vote on whether to end
the state's entrenched process of "backdoor borrowing." If debt reform passes,
the state will revamp its borrowing process. Consequently, it currently plans to
issue an unusually heavy calendar of state-supported appropriation debt between
now and year-end.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON NEW YORK
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From August 31, 1990, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 5 Life of Value of
Year Year Fund* Investment at 9/30
<S> <C> <C> <C> <C>
With CDSC 4.2% 8.2% 8.1% $14,689
Without CDSC 9.2% 8.5% 8.3% $14,789
</TABLE>
EV MARATHON NEW YORK TAX FREE FUND: $14,991
Lehman Brothers Municipal Bond Index: $15,297
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE M.NEW YORK LEHMAN BROS.
<S> <C> <C>
8/90+ 10000 10000
9/90 9950 10006
10/90 10075 10187
11/90 10337 10392
12/90 10369 10437
1/91 10519 10577
2/91 10560 10669
3/91 10605 10673
4/91 10792 10816
5/91 10863 10912
6/91 10837 10901
7/91 11073 11034
8/91 11274 11179
9/91 11500 11325
10/91 11634 11427
11/91 11611 11459
12/91 11883 11704
1/92 11682 11731
2/92 11742 11735
3/92 11777 11739
4/92 11951 11844
5/92 12148 11983
6/92 12450 12184
7/92 12978 12550
8/92 12683 12427
9/92 12697 12509
10/92 12392 12385
11/92 12805 12607
12/92 12977 12736
1/93 13149 12884
2/93 13762 13350
3/93 13559 13209
4/93 13720 13342
5/93 13836 13417
6/93 14066 13642
7/93 14069 13659
8/93 14381 13944
9/93 14542 14103
10/93 14556 14130
11/93 14363 14005
12/93 14732 14301
1/94 14866 14464
2/94 14420 14089
3/94 13678 13516
4/94 13732 13630
5/94 13877 13748
6/94 13721 13668
7/94 13968 13915
8/94 14036 13963
9/94 13725 13758
10/94 13360 13514
11/94 12897 13269
12/94 13354 13561
1/95 13805 13949
2/95 14294 14355
3/95 14444 14520
4/95 14441 14537
5/95 14864 15001
6/95 14613 14870
7/95 14732 15010
8/95 14916 15201
9/95 14991 15297
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 8/30/90. +Index information is available
only at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Anticipating that state-appropriated debt will underperform in the face of a
heavy new issuance calendar, we have been reducing the Portfolio's exposure to
State appropriation debt and swapping into high-grade debt. Once this wave of
debt has come to market, state-appropriated debt should be attractively priced
and once again represent a buying opportunity.
"This past summer, during the second leg of the 1995 rally, discount coupon
bonds returned to favor. This was an opportunity to sell deep discounts in the
New York Portfolio and trade into more moderate discount coupon bonds that
should perform comparably to deep discounts in an up market and much better in a
down market."
- Nicole Anderes
8
<PAGE>
EV Marathon Ohio Tax Free Fund
YOUR INVESTMENT AT WORK
Higher Educational Facility Comm.
University of Dayton
The proceeds of these bonds are being used for a variety of projects, the
largest of which is acquisition of land for the University of Dayton Law School.
The money also is being used to construct and equip the Law School and Library,
to complete the Phillips Center for the Humanities, to acquire and renovate
student residences, rebuild campus roads and to renovate a variety of other
buildings on campus.
The Law School and Library building will have floor space of more than 120,000
square feet and will be completely computer accessible. The university has more
than 10,000 students.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues............................... 139
Average quality................................ A+
Investment grade............................... 90.5%
Effective maturity............................. 13.42 yrs.
Largest sectors:
Hospitals .................................. 19.3%
Insured hospitals........................... 11.7*
General obligations......................... 9.1
Industrial development/pollution
control revenue............................. 8.8
Education................................... 7.9
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Ohio
The Ohio economy continues to be diverse and strong. Overall, the state has
moved from heavy reliance on manufacturing jobs to a more balanced economy.
Ohio's financial position has improved during the last 12 months, allowing the
state to begin restoring its financial reserves.
The state's service sector has been a source of job growth during the past
several years. While the manufacturing sector grew during the second half of
1994, it is expected to recede somewhat during the last half of 1995.
Unemployment rates at the end of 1994 were considerably lower than the national
average.
The recent robust economic activity in Ohio has helped the state's balance
sheet. Tax receipts were greater than expected in the 1994 fiscal year and
into 1995. For the same reason, Medicaid expenditures were somewhat lower
than anticipated.
Ohio benefits from relatively conservative management and a debt burden that is
low relative to that of other industrialized states.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON OHIO TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From April 30, 1991, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life of Value of
Year Fund* Investment at 9/30
<S> <C> <C> <C>
With CDSC 4.7% 6.9% $13,439
Without CDSC 9.7% 7.2% $13,639
</TABLE>
EV MARATHON OHIO TAX FREE FUND: $13,439
Lehman Brothers Municipal Bond Index: $14,143
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE M.OHIO LEHMAN BROS.
<S> <C> <C>
4/91+ 10000 10000
5/91 10030 10089
6/91 10007 10079
7/91 10200 10202
8/91 10337 10336
9/91 10488 10471
10/91 10592 10565
11/91 10597 10594
12/91 10872 10822
1/92 10875 10846
2/92 10886 10850
3/92 10852 10854
4/92 10940 10951
5/92 11103 11079
6/92 11313 11265
7/92 11716 11603
8/92 11506 11490
9/92 11550 11565
10/92 11266 11451
11/92 11625 11657
12/92 11773 11776
1/93 11910 11913
2/93 12388 12343
3/93 12214 12213
4/93 12363 12336
5/93 12469 12405
6/93 12685 12613
7/93 12672 12629
8/93 12976 12892
9/93 13137 13039
10/93 13147 13064
11/93 12984 12949
12/93 13294 13222
1/94 13440 13373
2/94 13042 13027
3/94 12327 12496
4/94 12385 12602
5/94 12517 12711
6/94 12403 12637
7/94 12655 12866
8/94 12678 12910
9/94 12429 12721
10/94 12082 12495
11/94 11741 12269
12/94 12104 12539
1/95 12561 12897
2/95 12990 13272
3/95 13089 13425
4/95 13082 13441
5/95 13487 13870
6/95 13298 13748
7/95 13380 13878
8/95 13548 14055
9/95 13639 14143
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 4/18/91. +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.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The past year has proved to be volatile for the bond market, with a sharp
decline during most of 1994 and the strong bond market rally of 1995.
"In the Ohio Portfolio, the levels of new bond issuance have decreased
significantly. This creates a supply-and-demand situation that bodes well for
the inherent value of bonds.
"We remain highly selective in terms of the health care and hospital bonds that
we add to the Portfolio. This sector is extremely competitive nationwide, and it
is important to use thorough research to determine the most attractive
candidates for the Portfolio. These are often medical facilities that have
strengthened themselves through mergers or alliances with other facilities or
HMOs."
- Thomas J. Fetter
9
<PAGE>
EV Marathon Rhode Island Tax Free Fund
YOUR INVESTMENT AT WORK
Rhode Island State Industrial
Facilities Corporation
Marine Terminal Bonds
The proceeds of these bonds were used to build the main Rhode Island terminal
and distribution facilities for Mobil Oil Refining in the mid-1980s. The company
transports oil in tanker ships through Narragansett Bay and distributes it to
the Rhode Island area through these facilities, which are located in East
Providence.
These bonds carry the senior corporate debt ratings of Mobil Oil, Aa2/AA.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues................................ 48
Average quality................................. AA
Investment grade................................ 99.2%
Effective maturity.............................. 17.10 yrs.
Largest sectors:
Housing...................................... 16.7%
Insured water and sewer...................... 16.6*
Insured colleges and university............... 9.8*
Insured housing............................... 6.1*
Special tax.................................. 6.7
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Rhode Island
Rhode Island's economy is softening after barely showing signs of recovery from
the recession of the late 1980s. Employment numbers for 1995 are running below
those of 1994; the state recently had to revise revenues down slightly to
reflect the weaker economy. Even the state's outlook for a "continued recovery
at a sluggish pace" may be too optimistic and the 1.2% annual employment growth
projected may have to be revised downward.
As sobering as this news is, our diversified portfolio of Rhode Island bonds
should not be directly affected by the state's budget and economic problems. For
example, portfolio holdings include tax-exempt debt backed by single-family
mortgage pools, by high-grade corporations and by the state's leading
universities and colleges.
Also, Providence appears to be a bright spot in the state's economic landscape
and may be more of a stabilizing influence than it has been historically.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON RHODE
ISLAND TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL
BOND INDEX
From June 30, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE 1 Life of Value of
ANNUAL RETURN Year Fund* Investment at 9/30
<S> <C> <C> <C>
With CDSC 3.9% 1.0% $10,224
Without CDSC 8.9% 2.6% $10,600
</TABLE>
EV MARATHON RHODE ISLAND TAX FREE FUND: $10,600
Lehman Brothers Municipal Bond Index: $11,214
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE M. RHODE ISLAND LEHMAN BROS.
<S> <C> <C>
6/93+ 10000 10000
7/93 9970 10013
8/93 10328 10221
9/93 10453 10338
10/93 10406 10358
11/93 10259 10266
12/93 10587 10483
1/94 10729 10603
2/94 10297 10328
3/94 9643 9908
4/94 9711 9992
5/94 9832 10078
6/94 9740 10020
7/94 9944 10200
8/94 9961 10236
9/94 9731 10086
10/94 9458 9907
11/94 9202 9727
12/94 9503 9941
1/95 9885 10226
2/95 10200 10523
3/95 10305 10644
4/95 10274 10656
5/95 10513 10996
6/95 10290 10900
7/95 10380 11003
8/95 10523 11143
9/95 10600 11214
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 6/11/93. +Index information is available
only at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Over the past year, the goal has been to restructure the Rhode Island Portfolio
to balance long discount holdings with more defensive, higher yielding bonds.
The relatively small Portfolio size makes rebalancing tricky; seemingly small
changes can have a large impact on performance.
"Housing bonds have offered the best opportunity to add yield and a defensive
sector to the Portfolio; holdings in this sector were increased from nearly 12%
in September 1994 to 17% by September 1995. Since housing bonds typically carry
AA or AAA ratings, added exposure to this sector has allowed us to take
advantage of our strong research capabilities by prudently adding higher
yielding BBB credits while maintaining overall credit quality at an average AA
rating."
- Nicole Anderes
10
<PAGE>
EV Marathon West Virginia Tax Free Fund
YOUR INVESTMENT AT WORK
Upshur County
TJ International Project
The proceeds of these bonds are being used to build a sewage and solid waste
disposal system for a lumber production plant in Upshur County. The facility
manufactures engineered lumber in the form of wood joists and related lumber
products.
The factory is owned by Trus Joist MacMillan.
The bonds were issued this year and will mature in 2025. The total cost of
construction is estimated at about $22 million.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues..................................... 39
Average quality...................................... AA-
Investment grade..................................... 95.6%
Effective maturity................................... 16.42 yrs.
Largest sectors:
Insured hospitals................................. 15.7%*
Insured electric utilities........................ 13.5*
Industrial development/pollution
control revenue................................... 12.5
Electric utilities................................ 11.8
Insured water & sewer............................. 11.1*
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: West Virginia
West Virginia's economy suffers from a heavy reliance on the coal mining
industry and on employment in older metal and chemical factories.
The state economy recovered well in 1994 from the recession of the early 1990s,
in large part because of the end of the coal strike. That event brought a needed
boost to the state's employment and retail sales.
In 1995, the state's economy has continued to grow, though at a much slower pace
than in 1994. In fact, West Virginia has the slowest rate of growth of the
southeastern states and its unemployment levels still exceed the national
average. During the last year, however, the state experienced significant gains
in the construction, transportation and communications sectors. Increases in
tourism have helped the state's economy slightly, as has growth in Federal
employment.
The state's prospects for economic expansion are enhanced somewhat by the fact
that its population is now increasing.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV MARATHON WEST
VIRGINIA TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From June 30, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life of Value of
Year Fund* Investment at 9/30
<S> <C> <C> <C>
With CDSC 4.4% 1.3% $10,298
Without CDSC 9.4% 2.9% $10,678
</TABLE>
EV MARATHON WEST VIRGINIA TAX FREE FUND: $10,678
Lehman Brothers Municipal Bond Index: $11,214
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE M. WEST VIRGINIA LEHMAN BROS.
<S> <C> <C>
6/93+ 10000 10000
7/93 9910 10013
8/93 10201 10221
9/93 10347 10338
10/93 10321 10358
11/93 10184 10266
12/93 10483 10483
1/94 10614 10603
2/94 10294 10328
3/94 9691 9908
4/94 9726 9992
5/94 9835 10078
6/94 9710 10020
7/94 9935 10200
8/94 9949 10236
9/94 9761 10086
10/94 9519 9907
11/94 9231 9727
12/94 9508 9941
1/95 9844 10226
2/95 10212 10523
3/95 10304 10644
4/95 10305 10656
5/95 10607 10996
6/95 10417 10900
7/95 10483 11003
8/95 10624 11143
9/95 10678 11214
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 6/11/93. +Index information is available
only at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The West Virginia bond market is extremely sensitive to movements of supply and
demand. The challenge for a portfolio manager is to stay abreast of those
movements.
"We try to purchase issues when they are trading cheaply in the secondary market
and wait for supply to diminish, at which time we can offer them at a
significant profit.
"Our principal focus is on maintaining a `barbell' structure in the Portfolio
that provides good performance in both up and down markets. We want to maintain
both yield and diversification, and to that end are committing a great deal of
effort to researching non-rated private placement issues to gain yield."
- Timothy T. Browse
11
<PAGE>
- --------------------------------------------------------------------------------
EV Marathon Tax Free Funds
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in Portfolio --
Identified cost $379,605,766 $669,767,277 $274,852,824 $25,519,179
Unrealized appreciation 23,842,552 33,763,315 17,250,338 1,052,889
------------ ------------ ------------ -----------
Total investment in Portfolio, at value (Note 1A) $403,448,318 $703,530,592 $292,103,162 $26,572,068
Receivable for Fund shares sold 216,213 396,350 61,114 236,439
Deferred organization expenses (Note 1D) -- -- 4,042 10,096
------------ ------------ ------------ -----------
Total assets $403,664,531 $703,926,942 $292,168,318 $26,818,603
------------ ------------ ------------ -----------
LIABILITIES:
Dividends payable $ 828,682 $ 1,389,908 $ 585,168 $ 51,497
Payable for Fund shares redeemed 938,806 639,225 332,894 --
Payable to affiliates --
Trustees' fees 853 853 853 43
Custodian fee 1,500 -- 1,414 611
Accrued expenses 243,738 331,967 134,241 10,310
------------ ------------ ------------ -----------
Total liabilities $ 2,013,579 $ 2,361,953 $ 1,054,570 $ 62,461
------------ ------------ ------------ -----------
NET ASSETS $401,650,952 $701,564,989 $291,113,748 $26,756,142
============ ============ ============ ===========
SOURCES OF NET ASSETS:
Paid-in capital $415,696,914 $697,657,135 $295,067,039 $28,024,543
Accumulated net realized loss on investment and
financial futures transactions (computed on the
basis of identified cost) (37,655,434) (29,455,787) (20,765,546) (2,388,352)
Accumulated undistributed (distributions in excess
of) net investment income (233,080) (399,674) (438,083) 67,062
Unrealized appreciation of investments and financial
futures contracts from Portfolio (computed on the
basis of identified cost) 23,842,552 33,763,315 17,250,338 1,052,889
------------ ------------ ------------ -----------
Total $401,650,952 $701,564,989 $291,113,748 $26,756,142
============ ============ ============ ===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 42,704,845 65,474,803 28,348,811 2,823,724
============ ============ ============ ===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
(NOTE 6) PER SHARE (net assets divided by shares of
beneficial interest outstanding) $9.41 $10.72 $10.27 $9.48
===== ====== ====== =====
</TABLE>
See notes to financial statements
12
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in Portfolio --
Identified cost $611,546,021 $304,543,996 $39,640,293 $39,839,133
Unrealized appreciation (depreciation) 31,054,017 11,999,809 144,122 (138,482)
------------ ------------ ----------- -----------
Total investment in Portfolio, at value (Note 1A) $642,600,038 $316,543,805 $39,784,415 $39,700,651
Receivable for Fund shares sold 461,096 242,105 190,451 3,243
Deferred organization expenses (Note 1D) -- 4,568 7,100 7,163
------------ ------------ ----------- -----------
Total assets $643,061,134 $316,790,478 $39,981,966 $39,711,057
------------ ------------ ----------- -----------
LIABILITIES:
Dividends payable $ 1,282,727 $ 600,085 $ 80,141 $ 77,278
Payable for Fund shares redeemed 857,931 148,028 22,633 49,035
Payable to affiliates --
Trustees' fees 853 853 43 43
Custodian fee 500 1,470 500 500
Accrued expenses 314,558 149,144 15,093 15,140
------------ ------------ ----------- -----------
Total liabilities $ 2,456,569 $ 899,580 $ 118,410 $ 141,996
------------ ------------ ----------- -----------
NET ASSETS $640,604,565 $315,890,898 $39,863,556 $39,569,061
============ ============ =========== ===========
SOURCES OF NET ASSETS:
Paid-in capital $633,742,482 $312,212,892 $41,405,886 $41,232,910
Accumulated net realized loss on investment and
financial futures transactions (computed on
the basis of identified cost) (23,355,791) (8,166,521) (1,701,909) (1,554,393)
Accumulated undistributed (distributions in
excess of) net investment income (836,143) (155,282) 15,457 29,026
Unrealized appreciation (depreciation) of
investments and financial futures contracts
from Portfolio (computed on the basis of
identified cost) 31,054,017 11,999,809 144,122 (138,482)
------------ ------------ ----------- -----------
Total $640,604,565 $315,890,898 $39,863,556 $39,569,061
============ ============ =========== ===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 59,157,753 30,070,502 4,239,998 4,167,206
============ ============ =========== ===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE (NOTE 6) PER SHARE (net assets / shares of
beneficial interest outstanding) $10.83 $10.51 $9.40 $9.50
====== ====== ====== ======
</TABLE>
See notes to financial statements
13
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 28,133,148 $ 46,901,697 $ 18,852,814 $ 1,670,153
Expenses allocated from Portfolio (2,405,930) (3,773,791) (1,546,346) (61,880)
----------- ----------- ----------- -----------
Net investment income from Portfolio $ 25,727,218 $ 43,127,906 $ 17,306,468 $ 1,608,273
----------- ----------- ----------- -----------
Expenses --
Compensation of Trustees not members of the
Administrator's organization $ 2,458 $ 3,286 $ 3,286 $ 165
Distribution costs (Note 5) 3,862,901 6,465,955 2,571,399 234,665
Custodian fee (Note 4) 25,540 -- 22,931 3,707
Transfer and dividend disbursing agent fees 311,241 435,351 196,494 19,794
Printing and postage 94,900 93,320 76,228 15,078
Legal and accounting services 23,391 17,174 13,595 11,193
Registration costs 2,625 22,432 10,621 656
Amortization of organization expenses (Note 1D) -- 13,286 7,444 5,829
Miscellaneous 34,885 131,819 26,856 3,753
----------- ----------- ----------- -----------
Total expenses $ 4,357,941 $ 7,182,623 $ 2,928,854 $ 294,840
----------- ----------- ----------- -----------
Net investment income $ 21,369,277 $ 35,945,283 $ 14,377,614 $ 1,313,433
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(18,982,550) $ (9,741,283) $(11,614,591) $(1,413,716)
Financial futures contracts (3,909,123) (12,627,848) (3,252,096) (394,684)
----------- ----------- ----------- -----------
Net realized loss on investments $(22,891,673) $(22,369,131) $(14,866,687) $(1,808,400)
Change in unrealized appreciation of investments 33,006,120 53,649,034 23,022,471 2,924,484
----------- ----------- ----------- -----------
Net realized and unrealized gain $ 10,114,447 $ 31,279,903 $ 8,155,784 $ 1,116,084
----------- ----------- ----------- -----------
Net increase in net assets from operations $ 31,483,724 $ 67,225,186 $ 22,533,398 $ 2,429,517
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
14
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 41,246,419 $20,078,313 $ 2,294,542 $ 2,352,378
Expenses allocated from Portfolio (3,248,301) (1,741,504) (90,709) (111,482)
------------ ----------- ------------ -------------
Net investment income from Portfolio $ 37,998,118 $18,336,809 $ 2,203,833 $ 2,240,896
------------ ----------- ------------ -------------
Expenses --
Compensation of Trustees not members of the
Administrator's organization $ 3,286 $ 4,557 $ 184 $ 165
Distribution costs (Note 5) 5,704,516 2,821,424 314,708 343,122
Custodian fee (Note 4) 500 20,136 2,812 4,580
Transfer and dividend disbursing agent fees 399,114 220,036 28,154 26,940
Printing and postage 155,241 40,677 16,022 19,374
Legal and accounting services 24,193 14,654 9,881 9,787
Registration costs 16,529 5,390 -- 1,303
Amortization of organization expenses (Note 1D) 16,602 8,460 4,614 3,811
Miscellaneous 41,842 75,018 9,851 8,839
------------ ----------- ------------ -------------
Total expenses $ 6,361,823 $ 3,210,352 $ 386,226 $ 417,921
------------ ----------- ------------ -------------
Net investment income $ 31,636,295 $15,126,457 $ 1,817,607 $ 1,822,975
------------ ----------- ------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(12,235,294) $(4,489,076) $ (557,354) $ (506,446)
Financial futures contracts (6,875,251) (2,657,893) (658,878) (603,528)
------------ ----------- ------------ -------------
Net realized loss on investments $(19,110,545) $(7,146,969) $(1,216,232) $(1,109,974)
Change in unrealized appreciation of investments 42,472,710 20,789,278 2,606,308 2,703,423
------------ ----------- ------------ -------------
Net realized and unrealized gain $ 23,362,165 $13,642,309 $ 1,390,076 $ 1,593,449
------------ ----------- ------------ -------------
Net increase in net assets from
operations $ 54,998,460 $28,768,766 $ 3,207,683 $ 3,416,424
============= =========== =========== ============
</TABLE>
See notes to financial statements
15
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
------------ ------------- -------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 21,369,277 $ 35,945,283 $ 14,377,614 $ 1,313,433
Net realized loss on investments (22,891,673) (22,369,131) (14,866,687) (1,808,400)
Change in unrealized appreciation of
investments 33,006,120 53,649,034 23,022,471 2,924,484
------------ ------------ ------------ ------------
Net increase in net assets from operations $ 31,483,724 $ 67,225,186 $ 22,533,398 $ 2,429,517
------------ ------------ ------------ ------------
Distributions to shareholders (Note 2) --
From net investment income $(21,369,277) $ (35,945,283) $(14,377,614) $(1,313,433)
In excess of net investment income (681,676) (1,308,141) (782,428) (26,919)
In excess of net realized gain on investments (5,310,924) -- -- --
------------ ------------ ------------ ------------
Total distributions to shareholders $(27,361,877) $ (37,253,424) $(15,160,042) $(1,340,352)
------------ ------------ ------------ ------------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $ 31,953,914 $ 58,630,115 $ 24,105,023 $ 3,997,670
Net asset value of shares issued to
shareholders in payment of distributions
declared 11,558,278 12,826,713 7,571,220 720,817
Cost of shares redeemed (85,573,814) (160,730,616) (42,946,842) (5,822,919)
------------ ------------ ------------ ------------
Decrease in net assets from Fund share
transactions $(42,061,622) $ (89,273,788) $(11,270,599) $(1,104,432)
------------ ------------ ------------ ------------
Net decrease in net assets $(37,939,775) $ (59,302,026) $ (3,897,243) $ (15,267)
NET ASSETS:
At beginning of year 439,590,727 760,867,015 295,010,991 26,771,409
------------ ------------ ------------ ------------
At end of year $401,650,952 $ 701,564,989 $291,113,748 $26,756,142
============ ============ ============ ============
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS
OF) NET INVESTMENT INCOME INCLUDED IN NET ASSETS
AT END OF YEAR $ (233,080) $ (399,674) $ (483,083) $ 67,062
============ ============ ============ ============
</TABLE>
See notes to financial statements
16
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 31,636,295 $ 15,126,457 $ 1,817,607 $ 1,822,975
Net realized loss on investments (19,110,545) (7,146,969) (1,216,232) (1,109,974)
Change in unrealized appreciation of
investments 42,472,710 20,789,278 2,606,308 2,703,423
------------ ------------ ------------ -------------
Net increase in net assets from operations $ 54,998,460 $ 28,768,766 $ 3,207,683 $ 3,416,424
------------ ------------ ------------ -------------
Distributions to shareholders (Note 2) --
From net investment income $(31,636,295) $(15,126,457) $(1,817,607) $(1,822,975)
In excess of net investment income (1,601,605) (648,308) (91,415) (94,123)
------------ ------------ ------------ -------------
Total distributions to shareholders $(33,237,900) $(15,774,765) $(1,909,022) $(1,917,098)
------------ ------------ ------------ -------------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $ 52,161,842 $ 21,347,938 $ 8,679,039 $ 2,943,218
Net asset value of shares issued to
shareholders in payment of distributions
declared 18,178,003 8,621,125 1,088,603 974,647
Cost of shares redeemed (99,820,704) (48,649,678) (5,463,453) (4,324,044)
------------ ------------ ------------ -------------
Increase (decrease) in net assets from Fund
share transactions $(29,480,859) $(18,680,615) $ 4,304,189 $ (406,179)
------------ ------------ ------------ -------------
Net increase (decrease) in net assets $ (7,720,299) $ (5,686,614) $ 5,602,850 $ 1,093,147
NET ASSETS:
At beginning of year 648,324,864 321,577,512 34,260,706 38,475,914
------------ ------------ ------------ -------------
At end of year $640,604,565 $315,890,898 $39,863,556 $39,569,061
============ ============ ============ =============
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS
OF) NET INVESTMENT INCOME INCLUDED IN NET
ASSETS AT END OF YEAR $ (836,143) $ (155,282) $ 15,457 $ 29,026
============= ============= ============ ============
</TABLE>
See notes to financial statements
17
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON CALIFORNIA FUND MARATHON MARATHON MARATHON
------------------------------ FLORIDA MASSACHUSETTS MISSISSIPPI
YEAR ENDED YEAR ENDED FUND FUND FUND
SEPTEMBER 30, SEPTEMBER 30, ------------ ------------- -----------
1994* 1994 YEAR ENDED SEPTEMBER 30, 1994
------------- ------------ --------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 11,467,925 $22,194,951 $ 37,146,116 $ 14,045,651 $ 1,037,060
Net realized gain (loss) on
investments (10,559,752) 11,329,857 (5,585,565) (5,174,237) (578,183)
Change in unrealized
depreciation of investments (926,810) (31,672,678) (84,190,493) (26,104,295) (2,101,545)
------------- ------------ ------------ ------------- -----------
Net increase (decrease) in net
assets from operations $ (18,637) $ 1,852,130 $(52,629,942) $(17,232,881) $(1,642,668)
------------- ------------ ------------ ------------- -----------
Distributions to shareholders
(Note 2) --
From net investment income $(11,467,925) $(22,194,951) $(37,146,116) $(14,045,651) $(1,037,060)
In excess of net investment
income (1,709,784) (4,240,070) (5,923,920) (2,420,814) (162,442)
From net realized gain on
investment transactions -- (7,255,117) -- -- --
In excess of net realized gain
on investment transactions -- -- (8,370,510) (1,725,588) (13,073)
------------- ------------ ------------ ------------- -----------
Total distributions to
shareholders $(13,177,709) $(33,690,138) $(51,440,546) $(18,192,053) $(1,212,575)
------------- ------------ ------------ ------------- -----------
Transactions in shares of
beneficial interest (Note 3) --
Proceeds from sales of shares $ 20,853,736 $98,716,094 $153,932,684 $ 59,289,679 $18,133,515
Net asset value of shares issued
to shareholders in payment of
distributions declared 5,336,955 14,550,970 18,856,605 9,556,751 609,193
Cost of shares redeemed (36,817,405) (56,953,570) (84,707,846) (25,211,957) (926,317)
------------- ------------ ------------ ------------- -----------
Increase (decrease) in net
assets from Fund share
transactions $(10,626,714) $56,313,494 $ 88,081,443 $ 43,634,473 $17,816,391
------------- ------------ ------------ ------------- -----------
Net increase (decrease) in
net assets $(23,823,060) $24,475,486 $(15,989,045) $ 8,209,539 $14,961,148
NET ASSETS:
At beginning of year 463,413,787 438,938,301 776,856,060 286,801,452 11,810,261
------------- ------------ ------------ ------------- -----------
At end of year $439,590,727 $463,413,787 $760,867,015 $295,010,991 $26,771,409
================= ============== ============== ================ ============
ACCUMULATED DISTRIBUTIONS IN EXCESS
OF NET INVESTMENT INCOME INCLUDED
IN NET ASSETS AT END OF YEAR $ (1,177,662) $(1,168,443) $ (1,645,348) $ (818,222) $ (4,476)
============ ========== ============= ============ ===========
<FN>
* For the six months ended September 30, 1994 (Note 8).
</TABLE>
See notes to financial statements
18
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended September 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 31,362,315 $ 14,753,437 $ 1,282,185 $ 1,623,697
Net realized loss on investments (2,498,812) (390,717) (485,677) (443,884)
Change in unrealized depreciation of
investments (67,599,978) (32,673,008) (2,885,537) (3,353,971)
------------ ------------ ------------ -------------
Net decrease in net assets from
operations $(38,736,475) $(18,310,288) $(2,089,029) $(2,174,158)
------------ ------------ ------------ -------------
Distributions to shareholders (Note 2) --
From net investment income $(31,362,315) $(14,753,437) $(1,282,185) $(1,623,697)
In excess of net investment income (5,309,872) (2,498,763) (220,052) (248,529)
In excess of net realized gain on
investment transactions (10,190,903) (1,825,463) (37,389) (30,031)
------------ ------------ ------------ -------------
Total distributions to shareholders $(46,863,090) $(19,077,663) $(1,539,626) $(1,902,257)
------------ ------------ ------------ -------------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $122,904,958 $ 71,989,063 $20,376,923 $17,161,407
Net asset value of shares issued to
shareholders in payment of distributions
declared 27,218,142 10,680,047 832,719 973,430
Cost of shares redeemed (66,559,661) (23,034,920) (1,000,495) (1,299,607)
------------ ------------ ------------ -------------
Increase in net assets from Fund share
transactions $ 83,563,439 $ 59,634,190 $20,209,147 $16,835,230
------------ ------------ ------------ -------------
Net increase (decrease) in net assets $ (2,036,126) $ 22,246,239 $16,580,492 $12,758,815
NET ASSETS:
At beginning of year 650,360,990 299,331,273 17,680,214 25,717,099
------------ ------------ ------------ -------------
At end of year $648,324,864 $321,577,512 $34,260,706 $38,475,914
============== ============== ================ ================
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT
END
OF YEAR $ (1,739,154) $ (645,333) $ (22,113) $ (16,678)
============== ============== ================ ================
</TABLE>
See notes to financial statements
19
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON CALIFORNIA FUND
-----------------------------------------------------------------------------
YEAR ENDED
-----------------------------------------------------------------------------
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
------------------- ------------------------------ ---------------------
1995 1994* 1994 1993 1992** 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year $ 9.290 $ 9.560 $ 10.200 $ 9.850 $ 10.000 $ 9.570 $ 9.880
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.475 $ 0.240 $ 0.480 $ 0.509 $ 0.264 $ 0.533 $ 0.558
Net realized and unrealized
gain (loss) on
investments 0.253 (0.234) (0.395) 0.524 (0.100) 0.544 (0.203)
-------- -------- -------- -------- -------- -------- --------
Total income (loss)
from operations $ 0.728 $ 0.006 $ 0.085 $ 1.033 $ 0.164 $ 1.077 $ 0.355
-------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.475) $ (0.240) $ (0.480) $ (0.509) $ (0.264) $ (0.533) $ (0.558)
In excess of net investment
income (0.016) (0.036) (0.092) (0.115) (0.050) (0.114) (0.107)
From net realized gain on
investment transactions -- -- (0.153) (0.059) -- -- --
In excess of net realized
gain on investment
transactions (0.117) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total distributions $ (0.608) $ (0.276) $ (0.725) $ (0.683) $ (0.314) $ (0.647) $ (0.665)
-------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, end of year $ 9.410 $ 9.290 $ 9.560 $ 10.200 $ 9.850 $ 10.000 $ 9.570
========= ========= ========= ========= ========= ========= =========
TOTAL RETURN (3) 8.30% 0.06% 0.55% 10.82% 3.29% 11.59% 3.63%
RATIOS/SUPPLEMENTAL DATA***:
Net assets, end of year
(000 omitted) $401,742 $439,591 $463,414 $438,938 $362,597 $353,990 $281,723
Ratio of net expenses to
average daily net assets
(1) 1.65% 1.63%+ 1.67% 1.84% 1.87%+ 1.90% 1.95%
Ratio of net investment
income to average daily
net assets 5.19% 5.06%+ 4.64% 5.05% 5.28%+ 5.42% 5.65%
PORTFOLIO TURNOVER (2) -- -- 5% 139% 65% 36% 13%
<CAPTION>
MARATHON FLORIDA FUND
-----------------------------------------------------
YEAR ENDED
-----------------------------------------------------
SEPTEMBER 30,
-----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year $ 10.270 $ 11.700 $ 10.940 $ 10.690 $ 9.990
-------- -------- -------- -------- --------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.514 $ 0.514 $ 0.516 $ 0.541 $ 0.573
Net realized and unrealized
gain (loss) on
investments 0.469 (1.228) 1.040 0.434 0.838
-------- -------- -------- -------- --------
Total income (loss)
from operations $ 0.983 $ (0.714) $ 1.556 $ 0.975 $ 1.411
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.514) $ (0.514) $ (0.516) $ (0.541) $ (0.573)
In excess of net investment
income (0.019) (0.082) (0.121) (0.127) (0.138)
From net realized gain on
investment transactions -- -- (0.159) (0.057) --
In excess of net realized
gain on investment
transactions -- (0.120) -- -- --
-------- -------- -------- -------- --------
Total distributions $ (0.533) $ (0.716) $ (0.796) $ (0.725) $ (0.711)
-------- -------- -------- -------- --------
NET ASSET VALUE, end of year $ 10.720 $ 10.270 $ 11.700 $ 10.940 $ 10.690
========= ========= ========= ========= =========
TOTAL RETURN (3) 9.90% (6.34)% 14.85% 9.41% 14.45%
RATIOS/SUPPLEMENTAL DATA***:
Net assets, end of year
(000 omitted) $701,565 $760,867 $776,856 $463,279 $233,021
Ratio of net expenses to
average daily net assets
(1) 1.54% 1.44% 1.53% 1.64% 1.56%
Ratio of net investment
income to average daily
net assets 4.97% 4.70% 4.54% 4.91% 5.33%
PORTFOLIO TURNOVER (2) -- -- 9% 95% 72%
<FN>
*** For the year ended September 30, 1991 (for Marathon Florida Fund), the
operating expenses of the Fund and the Portfolio 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>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE RATIOS
(As a percentage of average daily net assets):
Expenses (1)
Net investment income
<CAPTION>
NET INVESTMENT INCOME PER SHARE RATIOS $0.561
=====
(As a percentage of average daily net assets):
<S> <C> <C> <C>
Expenses (1) 1.67%
Net investment income 5.22%
<FN>
* For the six months ended September 30, 1994 (Note 8).
** For the six months ended March 31, 1992. The Fund changed its fiscal year end from September 30, to March 31, effective March
31, 1992.
+ Annualized.
(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 non-annualized basis.
</TABLE>
See notes to financial statements
20
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON MASSACHUSETTS FUND
-------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1995 1994 1993 1992 1991++
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.990 $ 11.250 $ 10.640 $ 10.250 $10.000
-------- -------- -------- -------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.499 $ 0.505 $ 0.514 $ 0.526 $ 0.245
Net realized and unrealized gain (loss) on
investments 0.307 (1.108) 0.784 0.556 0.305+++
-------- -------- -------- -------- -------
Total income (loss) from operations $ 0.806 $ (0.603) $ 1.298 $ 1.082 $ 0.550
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
From net investment income $ (0.499) $ (0.505) $ (0.514) $ (0.526) $(0.245)
In excess of net investment income (0.027) (0.087) (0.116) (0.142) (0.055)
From net realized gain on investment
transactions -- -- (0.058) (0.024) --
In excess of net realized gain on
investment transactions -- (0.065) -- -- --
-------- -------- -------- -------- -------
Total distributions $ (0.526) $ (0.657) $ (0.688) $ (0.692) $(0.300)
-------- -------- -------- -------- -------
NET ASSET VALUE, end of year $ 10.270 $ 9.990 $ 11.250 $ 10.640 $10.250
========= ========= ========= ========= ========
TOTAL RETURN (3) 8.38% (5.57)% 12.67% 10.88% 5.33%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $291,114 $295,011 $286,801 $165,964 $35,532
Ratio of net expenses to average daily
net assets (1) 1.58% 1.50% 1.58% 1.64% 1.28%+
Ratio of net investment income to average
daily net assets 5.00% 4.75% 4.69% 4.85% 5.15%+
PORTFOLIO TURNOVER (2) -- -- 27% 72% 21%
<CAPTION>
MARATHON MISSISSIPPI FUND
------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------
1995 1994 1993*
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.110 $10.260 $10.000
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.449 $ 0.453 $ 0.106
Net realized and unrealized gain (loss)
on investments 0.379 (1.072) 0.300
------- ------- -------
Total income (loss) from operations $ 0.828 $(0.619) $ 0.406
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.449) $(0.453) $(0.106)
In excess of net investment income (0.009) (0.071) (0.040)
From net realized gain on investment
transactions -- -- --
In excess of net realized gain on
investment transactions -- (0.007) --
------- ------- -------
Total distributions $(0.458) $(0.531) $(0.146)
------- ------- -------
NET ASSET VALUE, end of year $ 9.480 $ 9.110 $10.260
======== ======== ========
TOTAL RETURN (3) 9.40% (6.20)% 3.85%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $26,756 $26,771 $11,810
Ratio of net expenses to average daily
net assets (1) 1.36% 0.99% 0.75%+
Ratio of net investment income to average
daily net assets 4.89% 4.63% 3.50%+
PORTFOLIO TURNOVER (2) -- -- --
<FN>
** For the period from the start of business, April 18, 1991, to September 30,
1991, (for Marathon Massachusetts Fund) and for the years ended September 30,
1995 and 1994 and for the period from the start of business June 11, 1993, to
September 30, 1993, (for Marathon Mississippi 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>
<TABLE>
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $0.226
======
RATIOS (As a percentage of average
daily net assets):
Expenses (1) 1.68%+
Net investment income 4.75%+
<S> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $0.437 $0.407 $0.085
====== ====== ======
RATIOS (As a percentage of average
daily net assets):
Expenses (1) 1.49% 1.45% 1.44%+
Net investment income 4.76% 4.17% 2.81%+
<FN>
* For the period from the start of business, June 11, 1993, to September 30, 1993.
+ Annualized.
++ For the period from the start of business, April 18, 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 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 non-annualized basis.
</TABLE>
See notes to financial statements
21
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON NEW YORK FUND
----------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 10.450 $ 11.880 $ 11.070 $ 10.740 $ 9.950
-------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.523 $ 0.528 $ 0.535 $ 0.553 $ 0.563
Net realized and unrealized gain (loss)
on investments 0.406 (1.165) 1.014 0.524 0.929
-------- -------- -------- -------- --------
Total income (loss) from operations $ 0.929 $ (0.637) $ 1.549 $ 1.077 $ 1.492
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.523) $ (0.528) $ (0.535) $ (0.553) $ (0.563)
In excess of net investment income (0.026) (0.089) (0.120) (0.135) (0.139)
From net realized gain on investment
transactions -- -- (0.084) (0.059) --
In excess of net realized gain on
investment transactions -- (0.176) -- -- --
-------- -------- -------- -------- --------
Total distributions $ (0.549) $ (0.793) $ (0.739) $ (0.747) $ (0.702)
-------- -------- -------- -------- --------
NET ASSET VALUE, end of year $ 10.830 $ 10.450 $ 11.880 $ 11.070 $ 10.740
========= ========= ========= ========= =========
TOTAL RETURN (3) 9.23% (5.62)% 14.53% 10.41% 15.58%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $640,605 $648,325 $650,361 $415,144 $161,037
Ratio of net expenses to average daily
net assets (1) 1.55% 1.46% 1.55% 1.65% 1.62%
Ratio of net investment income to
average daily net assets 4.99% 4.72% 4.68% 4.99% 5.28%
PORTFOLIO TURNOVER (2) -- -- 11% 57% 50%
<CAPTION>
MARATHON OHIO FUND
--------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1995 1994 1993 1992 1991*
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 10.070 $ 11.300 $ 10.550 $ 10.210 $ 10.000
-------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.487 $ 0.494 $ 0.499 $ 0.509 $ 0.245
Net realized and unrealized gain (loss)
on investments 0.461 (1.081) 0.901 0.495 0.261++
-------- -------- -------- -------- --------
Total income (loss) from operations $ 0.948 $ (0.587) $ 1.400 $ 1.004 $ 0.506
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.487) $ (0.494) $ (0.499) $ (0.509) $ (0.245)
In excess of net investment income (0.021) (0.084) (0.118) (0.137) (0.051)
From net realized gain on investment
transactions -- -- (0.033) (0.018) --
In excess of net realized gain on
investment transactions -- (0.065) -- -- --
-------- -------- -------- -------- --------
Total distributions $ (0.508) $ (0.643) $ (0.650) $ (0.664) $ (0.296)
-------- -------- -------- -------- --------
NET ASSET VALUE, end of year $ 10.510 $ 10.070 $ 11.300 $ 10.550 $ 10.210
========= ========= ========= ========= =========
TOTAL RETURN (3) 9.74% (5.39)% 13.74% 10.13% 4.88%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $315,891 $321,578 $299,331 $164,400 $ 51,215
Ratio of net expenses to average daily
net assets (1) 1.59% 1.50% 1.58% 1.65% 1.47%+
Ratio of net investment income to
average daily net assets 4.80% 4.62% 4.57% 4.87% 5.04%+
PORTFOLIO TURNOVER (2) -- -- 12% 40% 11%
<FN>
** For the year ended September 30, 1991 (for Marathon New York Fund) and for
the period from the start of business, April 18, 1991 to September 30, 1991,
(for Marathon Ohio 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>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $0.556
=====
RATIOS (As a percentage of average
daily net assets):
Expenses (1) 1.69%
Net investment income 5.21%
NET INVESTMENT INCOME PER SHARE $0.243
======
RATIOS (As a percentage of average
daily net assets):
Expenses (1) 1.52%+
Net investment income 4.99%+
<FN>
* For the period from the start of business, April 18, 1991, to September 30, 1991.
+ Annualized.
++ The per share amount is not in accord with the net realized and unrealized gain for the period because of the timing of sales
of Fund shares and the amount of 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 non-annualized basis.
</TABLE>
See notes to financial statements
22
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARATHON RHODE ISLAND FUND MARATHON WEST VIRGINIA FUND
----------------------------------- -----------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
----------------------------------- -----------------------------------
1995 1994 1993* 1995 1994 1993*
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.090 $10.330 $10.000 $ 9.130 $10.220 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.452 $ 0.454 $ 0.113 $ 0.436 $ 0.450 $ 0.103
Net realized and unrealized gain (loss) on
investments 0.332 (1.146) 0.361 0.393 (1.011) 0.262
------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.784 $(0.692) $ 0.474 $ 0.829 $(0.561) $ 0.365
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.452) $(0.454) $(0.113) $(0.436) $(0.450) $(0.103)
In excess of net investment income (0.022) (0.078) (0.008) (0.023) (0.069) (0.042)
From net realized gain on investment
transactions -- -- (0.023) -- -- --
In excess of net realized gain on investment
transactions -- (0.016) -- -- (0.010) --
------- ------- ------- ------- ------- -------
Total distributions $(0.474) $(0.548) $(0.144) $(0.459) $(0.529) $(0.145)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.400 $ 9.090 $10.330 $ 9.500 $ 9.130 $10.220
======== ======== ======== ======== ======== ========
TOTAL RETURN (2) 8.94% (6.91)% 4.53% 9.39% (5.66)% 3.47%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $39,864 $34,261 $17,680 $39,569 $38,476 $25,717
Ratio of net expenses to average daily net
assets (1) 1.33% 1.02% 0.75%+ 1.40% 0.95% 0.75%+
Ratio of net investment income to average
daily net assets 4.92% 4.65% 3.70%+ 4.74% 4.62% 3.40%+
<FN>
** For the period from the start of business, June 11, 1993 to September 30,
1993, and for the years ended September 30, 1994 and 1995, 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>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $0.440 $0.418 $0.096 $0.429 $0.414 $0.090
====== ====== ====== ====== ====== ======
----- ----- ----- -----
RATIOS (As a percentage of average daily net
assets):
Expenses (1) 1.46% 1.38% 1.30%+ 1.48% 1.32% 1.19%+
Net investment income 4.79% 4.29% 3.15%+ 4.66% 4.25% 2.96%+
<FN>
* For the period from the start of business, June 11, 1993, to September 30, 1993.
+ Annualized.
(1) Includes each Fund's share of its corresponding Portfolio's allocated expenses.
(2) 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 non-annualized basis.
</TABLE>
See notes to financial statements
23
<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 (1940 Act), as amended, as an open-end management investment
company. The Trust presently consists of sixty-six Funds, eight of which are
included in these financial statements. They include EV Marathon California
Municipals Fund ("Marathon California Fund") (formerly a series of the Eaton
Vance Investment Trust), which is registered under the 1940 Act as a diversified
management investment company, EV Marathon Florida Tax Free Fund ("Marathon
Florida Fund"), EV Marathon Massachusetts Tax Free Fund ("Marathon Massachusetts
Fund"), EV Marathon Mississippi Tax Free Fund ("Marathon Mississippi Fund"), EV
Marathon New York Tax Free Fund ("Marathon New York Fund"), EV Marathon Ohio Tax
Free Fund ("Marathon Ohio Fund"), EV Marathon Rhode Island Tax Free Fund
("Marathon Rhode Island Fund"), and EV Marathon West Virginia Tax Free Fund
("Marathon West Virginia Fund"), each of which is registered under the 1940 Act
as a non-diversifed management investment company. 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 California Fund invests its
assets in the California Tax Free Portfolio, the Marathon Florida Fund invests
its assets in the Florida Tax Free Portfolio, the Marathon Massachusetts Fund
invests its assets in the Massachusetts Tax Free Portfolio, the Marathon
Mississippi Fund invests its assets in the Mississippi Tax Free Portfolio, the
Marathon New York Fund invests its assets in the New York Tax Free Portfolio,
the Marathon Ohio Fund invests its assets in the Ohio Tax Free Portfolio, the
Marathon Rhode Island Fund invests its assets in the Rhode Island Tax Free
Portfolio, and the Marathon West Virginia Fund invests its assets in the West
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 (98.2%, 98.8%, 96.7%, 91.7%, 98.4%, 99.2%, 92.7%, 97.2%
at September 30, 1995 for the Marathon California Fund, Marathon Florida Fund,
Marathon Massachusetts Fund, Marathon Mississippi Fund, Marathon New York Fund,
Marathon Ohio Fund, Marathon Rhode Island Fund and Marathon West 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
consistantly 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 September 30, 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 which would otherwise be necessary to relieve the
Funds of any liability for federal income or excise tax.
The amounts and expiration dates of the capital loss carryovers are as follows:
<TABLE>
<CAPTION>
FUND AMOUNT EXPIRES
- --------------------- ----------- -------------------
<S> <C> <C>
Marathon California $11,121,204 September 30, 2003
Fund 11,262,006 September 30, 2002
Marathon Florida Fund 8,281,796 September 30, 2003
24,692 September 30, 2002
Marathon 6,416,286 September 30, 2003
Massachusetts Fund 285,596 September 30, 2002
Marathon Mississippi 734,285 September 30, 2003
Fund 5,775 September 30, 2002
Marathon New York 5,962,872 September 30, 2003
Fund
Marathon Ohio Fund 1,133,301 September 30, 2003
50,474 September 30, 2002
Marathon Rhode Island 485,900 September 30, 2003
Fund
Marathon West 485,831 September 30, 2003
Virginia
Fund
</TABLE>
Additionally, at September 30, 1995, net capital losses of $22,903,178,
$20,916,825, $13,836,423, $1,675,253, $16,853,801, $6,634,524, $1,257,400 and
$1,075,297 for the
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Marathon California Fund, Marathon Florida Fund, Marathon Massachusetts Fund,
Marathon Mississippi Fund, Marathon New York Fund, Marathon Ohio Fund, Marathon
Rhode Island Fund and Marathon West 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 tax-exempt interest on 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.
E. DISTRIBUTION COSTS--For book purposes, commissions paid on the sale of Fund
shares and other distribution costs are charged to operations. As a result of a
recent Internal Revenue Service ruling, the Funds changed their tax accounting
for commissions paid from charging the expenses to paid-in capital to charging
the expenses to operations. The change had no effect on either the Fund's
current yield or total return (Notes 2 and 5).
F. OTHER--Investment transactions are accounted for on a trade date basis.
G. RECLASSIFICATION--Certain prior year amounts have been reclassified to
conform to the current year presentation.
- --------------------------------------------------------------------------------
(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. In addition, each Fund declares each day an amount equal to
the excess of tax basis net income over book net income, which amount is
reported for financial statement purposes as a distribution in excess of net
investment income. Distributions are paid monthly. Distributions of allocated
realized capital gains, if any, are made at least annually. Shareholders may
reinvest capital gain distributions in additional shares of a Fund at the net
asset value as of the ex-dividend date. Distributions are paid in the form of
additional shares or, at the election of the 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 are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting are reclassified to paid-in capital. During the year ended September
30, 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
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
INCREASE/(DECREASE) FUND FUND FUND FUND
- --------------------------------------------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Accumulated net realized loss on investment
and financial futures transactions $(363,329 ) $(296,555 ) $ (28,486) $ 191
Accumulated distributions in excess of net
investment income 1,626,258 2,553,815 1,162,567 98,457
Paid-in capital (1,262,929) (2,850,370) (1,134,081) (98,648)
</TABLE>
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
INCREASE/(DECREASE) FUND FUND FUND FUND
- --------------------------------------------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Accumulated net realized loss on investment
and financial futures transactions $ 140,781 $ 22,577 $ 1,234 $ --
Accumulated distributions in excess of net
investment income 2,504,616 1,138,359 128,985 139,827
Paid-in capital (2,645,397) (1,160,936) (130,219) (139,827)
</TABLE>
Net investment income, net realized gains and net assets were not affected by
these reclassifications.
25
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(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 CALIFORNIA MARATHON FLORIDA
FUND FUND
------------------------------------------- ----------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
YEAR ENDED
--------------------------- MARCH 31, ----------------------------
1995 1994* 1993 1995 1994
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Sales 3,478,892 2,200,594 9,570,563 5,797,384 13,788,871
Issued to shareholders electing to
receive payments of distributions in
Fund shares 1,273,209 563,552 1,410,063 1,236,930 1,708,042
Redemptions (9,381,175) (3,985,080) (5,535,688) (15,643,446) (7,809,417)
---------- ---------- ---------- ----------- ----------
Net increase (decrease) (4,629,074) (1,130,934) 5,444,938 (8,609,132) 7,687,496
=========== =========== ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
MARATHON MARATHON
MASSACHUSETTS FUND MISSISSIPPI FUND
----------------------------- ------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
----------------------------- ------------------------------
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales 2,418,632 5,528,311 439,994 1,821,690
Issued to shareholders electing to
receive payments of distributions
in Fund shares 756,878 896,470 78,375 63,452
Redemptions (4,355,177) (2,383,179) (633,453) (97,358)
---------- ---------- ----------- ----------
Net increase (decrease) (1,179,667) 4,041,602 (115,084) 1,787,784
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
MARATHON MARATHON
NEW YORK FUND OHIO FUND
----------------------------- ------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
----------------------------- ------------------------------
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales 5,005,648 10,896,766 2,118,269 6,637,086
Issued to shareholders electing to
receive payments of distributions
in Fund shares 1,732,283 2,422,361 849,588 996,804
Redemptions (9,610,242) (6,037,129) (4,831,591) (2,182,158)
---------- ---------- ----------- ----------
Net increase (decrease) (2,872,311) 7,281,998 (1,863,734) 5,451,732
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
MARATHON MARATHON
RHODE ISLAND FUND WEST VIRGINIA FUND
----------------------------- ------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
----------------------------- ------------------------------
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales 961,602 2,074,790 322,690 1,736,093
Issued to shareholders electing to
receive payments of distributions
in Fund shares 118,812 86,515 105,808 100,925
Redemptions (608,786) (103,902) (475,261) (138,457)
---------- ---------- ----------- ----------
Net increase (decrease) 471,628 2,057,403 (46,763) 1,698,561
=========== =========== ============ ===========
<FN>
* For the six months ended September 30, 1994 (Note 8).
</TABLE>
26
<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. All significant credit balances are reported as a reduction of expenses in
the statement of operations. 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 September 30, 1995, Marathon
California Fund, Marathon Florida Fund, Marathon Massachusetts Fund, Marathon
Mississippi Fund, Marathon New York Fund, Marathon Ohio Fund, Marathon Rhode
Island Fund, and Marathon West Virginia Fund, paid or accrued $3,089,717,
$5,426,132, $2,151,557, $201,593, $4,758,869, $2,361,964, $277,108 and $288,509,
respectively, to or payable to EVD, representing 0.75% of average daily net
assets. At September 30, 1995, the amount of Uncovered Distribution Charges of
EVD calculated under the Plans for Marathon California Fund, Marathon Florida
Fund, Marathon Massachusetts Fund, Marathon Mississippi Fund, Marathon New York
Fund, Marathon Ohio Fund, Marathon Rhode Island Fund, and Marathon West Virginia
Fund were approximately $7,452,000, $22,542,000, $9,990,000, $1,215,000,
$19,716,000, $10,953,000, $1,772,000 and $1,690,000, 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% (0.25% for the Marathon California Fund)
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 September 30, 1995, Marathon California Fund, Marathon Florida
Fund, Marathon Massachusetts Fund, Marathon Mississippi Fund, Marathon New York
Fund, Marathon Ohio Fund, Marathon Rhode Island Fund and Marathon West Virginia
Fund paid or accrued service fees to or payable to EVD in the amount of
$773,184, $1,039,823, $419,842, $33,072, $945,647, $459,460, $37,600 and
$54,613, 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.
27
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(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 $1,296,000, $3,811,000, $1,108,000, $152,000,
$2,387,000, $1,200,000, $101,000 and $130,000, respectively, of CDSC paid by
shareholders of Marathon California Fund, Marathon Florida Fund, Marathon
Massachusetts Fund, Marathon Mississippi Fund, Marathon New York Fund, Marathon
Ohio Fund, Marathon Rhode Island Fund and Marathon West Virginia Fund,
respectively, for the year ended September 30, 1995.
- --------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's investment in its corresponding Portfolio
for the year ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Increases $ 33,899,902 $ 61,003,044 $25,306,843 $ 4,155,546
Decreases 107,125,330 194,669,635 54,171,604 6,931,633
</TABLE>
<TABLE>
<CAPTION>
MARATHON MARATHON MARATHON MARATHON
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Increases $ 54,895,424 $ 23,259,220 $ 9,098,199 $ 3,221,674
Decreases 123,460,287 61,020,781 6,985,789 5,839,086
</TABLE>
- --------------------------------------------------------------------------------
(8) CHANGE IN FISCAL YEAR
The Marathon California Fund changed its fiscal year end from March 31, to
September 30, effective September 30, 1994.
28
<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 California Municipals Fund, EV Marathon Florida Tax Free Fund, EV
Marathon Massachusetts Tax Free Fund, EV Marathon Mississippi Tax Free Fund, EV
Marathon New York Tax Free Fund, EV Marathon Ohio Tax Free Fund, EV Marathon
Rhode Island Tax Free Fund and EV Marathon West Virginia Tax Free Fund (the
Funds) (certain of the series constituting Eaton Vance Municipals Trust) as of
September 30, 1995, the related statements of operations for the year then
ended, the statements of changes in net assets for the years ended September 30,
1995 and 1994 and for the EV Marathon California Municipals Fund, for the year
ended March 31, 1994, and the financial highlights for each of the years in the
five-year period ended September 30, 1995. (For the EV Marathon California
Municipals Fund the financial highlights is for the year ended September 30,
1995, the six months ended September 30, 1994, each of the years in the
three-year period ended March 31, 1994 and the years ended September 30, 1991
and 1990). 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 September 30, 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
OCTOBER 27, 1995
29
<PAGE>
- --------------------------------------------------------------------------------
California Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 3.4%
NR BBB- $ 2,985 Central Valley Financing
Authority, Carson Ice-Gen
Project, 6.20%, 7/1/20 $ 2,914,584
NR BBB- 10,900 Sacramento Cogeneration
Authority, Procter &
Gamble Project, 6.50%,
7/1/21 10,987,636
-------------
$ 13,902,220
-------------
ESCROWED TO MATURITY - 16.2%
NR NR $ 130 City of Commerce Joint
Powers Financing
Authority, 8.00%, 3/1/22 $ 153,456
NR BBB 2,000 City of Rancho Mirage
Joint Powers Financing
Authority, Civic Center,
7.50%, 4/1/17 2,320,380
Aaa AAA 8,000 County of Sacramento,
SFMRB (GNMA), (AMT),
8.125%, 7/1/16 (2) 9,771,840
Aaa AAA 6,000 County of Sacramento,
SFMRB (GNMA), (AMT),
8.25%, 1/1/21 (2) 7,790,400
Aaa AAA 14,285 County of Sacramento,
SFMRB (GNMA), (AMT),
8.50%, 11/1/16 (2) 18,319,941
Aaa AAA 3,000 City and County of San
Francisco Sewer System
Secondary "RITES,"
(AMBAC), Variable, 10/1/21
(1) 3,604,680
Baa1 A- 2,375 City of San Luis Obispo,
Capital Improvement Board,
8.25%, 6/1/06 2,489,523
NR BBB 1,575 Fontana Public Financing
Authority, North Fontana
Redevelopment Project,
7.75%, 12/1/20 1,871,462
Aaa AAA 6,400 Port of Oakland, (BIGI),
0%, 11/1/05 3,784,960
NR NR 3,200 Oceanside California
Community Development
Commission, 8.40%, 6/1/18 3,357,408
NR NR 3,000 Poway Redevelopment
Agency, Paguay
Redevelopment Project,
7.75%, 12/15/21 3,567,420
NR BBB+ 1,000 City of Upland, Police
Building Construction,
8.20%, 8/1/16 1,054,870
NR NR 4,000 Huntington Beach Public
Financing Authority,
Huntington Beach
Redevelopment Projects,
8.375%, 5/1/18 4,472,080
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 2,975 Sacramento - Yolo Port
District Port Facilities,
8.30%, 12/1/03 3,286,125
-------------
$ 65,844,545
-------------
GENERAL OBLIGATIONS - 1.9%
Baa1 A $ 3,000 Puerto Rico, 6.50%, 7/1/23 $ 3,131,640
AA Aa 5,000 East Bay Municipal
Utilities District,
Wastewater System, 5.00%,
4/1/15 4,435,100
-------------
$ 7,566,740
-------------
HOSPITALS - 1.1%
NR BBB+ $ 2,700 City of Stockton, Dameron
Hospital Association,
8.30%, 12/1/14 $ 2,854,818
NR A 1,500 Woodland, Memorial
Hospital, 8.20%, 8/1/15 1,610,175
-------------
$ 4,464,993
-------------
HOUSING - 8.6%
Aa AA- $ 3,770 California Housing Finance
Agency (HFA), (AMT),
7.375%, 8/1/11 $ 3,923,288
Aa AA- 800 California HFA, 7.375%,
8/1/17 855,792
Aa AA- 5,000 California HFA, (AMT),
7.40%, 8/1/26 5,381,050
Aa AA- 3,875 California HFA, (AMT),
(FHA) 7.50%, 8/1/25 4,150,513
Aa AA- 8,185 California HFA, (AMT),
(FHA) 7.65%, 8/1/23 8,549,724
Aa AA- 2,500 California HFA, 8.10%,
8/1/16 2,571,800
Aa AA- 2,500 California HFA, 8.20%,
8/1/17 2,596,875
Aa AA- 1,325 California HFA, (AMT),
8.60%, 8/1/19 1,394,165
Aa3 NR 60 California HFA, 9.875%,
8/1/10 61,343
A NR 845 The Housing Authority of
the County of Los Angeles,
7.875%, 8/1/16 874,541
NR NR 2,000 The Housing Authority of
the County of Los Angeles,
10.50%, 12/1/29 2,061,700
NR A+ 2,050 City of Oakland, HFA,
7.10%, 1/1/10 2,086,716
NR AAA 495 County of Riverside,
California HFA (GNMA),
(AMT), 6.85%, 10/1/16 526,452
-------------
$ 35,033,959
-------------
</TABLE>
30
<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 - 1.0%
Aaa AAA $ 3,330 Regents of the University
of California, (MBIA),
4.75%, 9/1/21 $ 2,770,826
Aaa AAA 1,500 Regents of the University
of California, (AMBAC),
4.875%, 9/1/19 1,280,340
-------------
$ 4,051,166
-------------
INSURED GENERAL OBLIGATION - 0.3%
Aaa AAA $ 4,700 Roseville Unified High
School District, (FGIC),
0%, 6/1/20 $ 1,032,919
-------------
INSURED HOUSING - 0.2%
Aaa AAA $ 720 California HFA, (MBIA),
(AMT), 7.00%, 8/1/23 $ 752,177
-------------
INSURED HOSPITALS - 1.1%
Aaa AAA $ 5,250 Anaheim Memorial Hospital,
(AMBAC), 5.125%, 5/15/20 $ 4,547,813
-------------
INSURED LEASE
REVENUE/CERTIFICATE OF
PARTICIPATION - 4.3%
Aaa AAA $ 3,300 California Statewide
Communities Development
Authority, Motion Picture
and Television Fund,
(AMBAC), 5.68%, 1/1/24 $ 3,052,401
Aaa AAA 7,700 Moulton Niguel Water
District, (AMBAC), 4.80%,
9/1/17 6,548,003
Aaa AAA 4,350 Stockton, California
Wastewater Treatment
Plant, (FGIC), 6.80%,
9/1/24 4,701,350
Aaa AAA 13,985 Visalia Unified School
District, (MBIA), 0%,
12/1/17 3,206,201
-------------
$ 17,507,955
-------------
INSURED TAX
ALLOCATION - 1.0%
Aaa AAA $ 4,850 City of San Jose
Redevelopment Agency,
(MBIA), 4.75%, 8/1/24 $ 4,000,086
-------------
INSURED TRANSPORTATION - 3.1%
Aaa AAA $10,000 Port of Oakland, (AMT),
(BIGI), 0%, 11/1/19 $ 1,734,500
Aaa AAA 10,000 Airports Commission City
and County of San
Francisco, San Francisco
International Airport,
(MBIA), 6.75%, 5/1/13 10,807,200
-------------
$ 12,541,700
-------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED UTILITIES - 8.8%
Aaa AAA $ 5,700 Anaheim Public Financing
Authority, Anaheim
Electric Utility, (FGIC),
5.75%, 10/1/22 $ 5,444,754
Aaa AAA 8,000 Northern California Power
Agency "RIBS," (MBIA),
Variable, 9/2/25 (1) 8,640,960
Aaa AAA 3,500 Sacramento Municipal
Utilities District,
(MBIA), 6.375%, 8/15/22 3,627,820
Aaa AAA 4,000 Southern California Public
Power Authority, (FGIC),
Variable, 7/1/12 4,000,000
Aaa AAA 6,915 Southern California Public
Power Authority, (MBIA),
5.00%, 1/1/20 6,044,747
Aaa AAA 2,750 Southern California Public
Power Authority, (MBIA),
5.50%, 7/1/20 2,576,970
Aaa AAA 5,750 Southern California Public
Power Authority, (MBIA),
5.75%, 7/1/21 5,569,393
-------------
$ 35,904,644
-------------
INSURED WATER & SEWER - 2.7%
Aaa AAA $ 5,000 East Bay Municipal Utility
District "Yield Curve
Notes," (MBIA), Variable,
6/1/08 (1) $ 4,799,800
Aaa AAA 3,430 San Buenaventura Water
District, (AMBAC), 4.75%,
10/1/13 2,965,441
Aaa AAA 3,000 San Diego County Water
Authority, "RITES,"
(FGIC), Variable, 4/22/09
(1) 3,074,790
-------------
$ 10,840,031
-------------
LEASE REVENUE/CERTIFICATES
OF PARTICIPATION - 22.6%
A1 AA- $ 2,945 City of Beverly Hills,
6.75%, 6/1/19 $ 3,026,606
A1 A- 3,140 California State Public
Works Board, Various
Community College
Projects, 5.00%, 6/1/23 2,879,694
A1 A- 7,485 California State Public
Works Board, Various
University of California
Projects, 5.625%, 12/1/18 6,209,107
A1 A- 3,000 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/10 2,866,080
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
CALIFORNIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEASE REVENUE/CERTIFICATES
OF PARTICIPATION - (CONTINUED)
A1 A- 8,000 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/14 7,376,800
A A- 2,800 California State Public
Works
Board, California State Prison -
Susanville, 5.375%, 6/1/12 2,586,500
A A- 3,500 California State Public
Works
Board, California State Prison -
Susanville, 5.375%, 6/1/18 3,107,965
A1 A- 5,000 California State Public
Works Board, Various
University of California
Projects, 5.25%, 6/1/20 4,369,250
A1 A- 14,025 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/19 12,717,029
NR A 4,150 California Statewide
Community Development
Authority, Eskaton Health
Facilities, 5.875%, 5/1/20 3,862,322
A BBB 2,750 City of Inglewood,
California, Civic Center
Improvement Project,
7.00%, 8/1/19 2,841,438
A A- 5,115 County of Los Angeles,
Disney Parking Project,
0%, 3/1/16 1,217,114
A A- 1,925 County of Los Angeles,
Disney Parking Project,
0%, 3/1/17 426,927
A A- 5,370 County of Los Angeles,
Disney Parking Project,
0%, 3/1/18 1,110,086
A A- 3,100 County of Los Angeles,
Disney Parking Project,
0%, 3/1/20 550,188
A A- 5,000 County of Los Angeles,
Disney Parking Project,
0%, 9/1/17 1,070,600
A A- 1,000 County of Los Angeles,
Disney Parking Project,
6.50%, 3/1/23 992,330
NR NR 14,000 County of Los Angeles,
Capital Asset Leasing
Corporation, Marina del
Rey, 6.50%, 7/1/08 13,725,460
Aa AA 4,305 County of Orange Water
District, 5.00%, 8/15/18 3,668,376
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A1 A+ 4,000 Pasadena Parking Facility
Project, 6.25%, 1/1/18 4,111,480
NR A- 2,360 Richmond Joint Powers
Financing Authority,
7.00%, 5/15/07 2,532,091
Aa A+ 4,000 City of Sacramento
Financing Authority,
5.40%, 11/1/20 3,666,440
Aa NR 6,000 University of California
at Los Angeles
Chiller/Cogeneration
Project, 5.60%, 11/1/20 5,537,460
NR BBB 1,000 Watsonville Mammoth Lakes,
7.875%, 6/1/11 1,072,130
-------------
$ 91,523,473
-------------
NURSING HOMES - 0.8%
NR NR $ 3,250 Banning, San Georgonio
Pass Convalescent
Hospital, (AMT), 9.50%,
12/1/11 $ 3,381,365
-------------
SOLID WASTE - 0.6%
Baa1 NR $ 2,350 Mojave Desert and Mountain
Solid Waste Joint Powers
Authority, (AMT), 7.875%,
6/1/20 $ 2,569,396
-------------
SPECIAL TAX - 4.9%
NR NR $ 2,100 City of Fairfield, Green
Valley Road - Mangels
Boulevard Extension
Assessment District,
7.375%, 9/2/18 $ 2,147,880
NR NR 970 City of Fairfield, Green
Valley Road - Mangels
Boulevard Extension
Assessment District,
8.00%, 9/2/11 999,876
NR NR 3,000 Lincoln Unified School
District, 7.625%, 9/1/21 3,128,730
Baa NR 10,800 Pleasanton Joint Powers
Financing Authority,
6.15%, 9/2/12 10,654,200
NR NR 3,000 County of Riverside
Community Facilities
District, 7.55%, 9/1/17 3,053,790
-------------
$ 19,984,476
-------------
TAX ALLOCATION - 9.0%
NR NR $ 2,945 City of Commerce Joint
Powers Financing
Authority, 8.00%, 3/1/22 $ 3,110,951
NR BBB 5,000 County of Contra Costa
Public Financing
Authority, 7.10%, 8/1/22 5,134,300
</TABLE>
32
<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>
TAX ALLOCATION - (CONTINUED)
NR BBB 3,910 Fontana Public Financing
Authority, Downtown
Redevelopment Project
7.00%, 9/1/21 3,952,111
NR BBB 8,220 Fontana Redevelopment
Agency, Jurupa Hills
Redevelopment Project
Area, 7.00%, 10/1/14 8,351,191
NR BBB 2,500 City of Pittsburg
Redevelopment Agency,
7.40%, 8/15/20 2,614,900
NR BBB 600 City of Rancho Mirage
Joint Powers Financing
Authority, 7.50%, 4/1/17 632,592
NR BBB 2,500 County of Riverside
Redevelopment Agency,
7.50%, 10/1/26 2,619,025
NR BBB 5,605 San Carlos Redevelopment
Agency, 7.10%, 9/1/17 5,777,185
NR NR 1,400 City of Simi Valley
Community Development
Agency, 8.20%, 9/1/12 1,419,852
Baa1 BBB+ 3,000 Westminster Redevelopment
Agency, 7.30%, 8/1/21 3,107,820
-------------
$ 36,719,927
-------------
TRANSPORTATION - 5.8%
NR BBB $ 3,050 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 3,056,558
Aa AA- 2,000 City of Long Beach Harbor
Revenue Bonds, (AMT),
7.25%, 5/15/19 2,154,720
A1 A- 1,400 County of Orange,
California Airport Revenue
Bonds, 8.125%, 7/1/16 1,449,294
NR NR 12,000 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/14 3,481,440
NR NR 5,765 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/26 721,778
NR NR 35,975 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/27 4,205,117
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 4,940 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
7.00%, 1/1/30 5,074,368
Baa1 BBB 1,500 Stockton Port District,
7.95%, 1/1/05 1,598,940
Baa1 BBB 1,500 Stockton Port District,
8.10%, 1/1/14 1,611,510
-------------
$ 23,353,725
-------------
UTILITIES - 1.7%
Aa AA- $ 7,070 Southern California Public
Power Authority, 0%,
7/1/15 $ 2,109,829
Aa AA- 3,425 Southern California Public
Power Authority, 5.50%,
7/1/20 3,176,277
Aa AA 1,490 Southern California Public
Power Authority, 6.875%,
7/1/15 1,530,170
-------------
$ 6,816,276
-------------
WATER AND SEWER - 0.9%
NR BBB $ 3,190 Orange Cove Irrigation
District, 6.625%, 2/1/17 $ 3,232,904
Aa AA- 515 City of Pasadena, Water
Revenue Bonds, 5.00%,
7/1/18 449,760
-------------
$ 3,682,664
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $381,719,158) $ 406,022,251
=============
<FN>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
</TABLE>
The Portfolio invests primarily in debt securities issued by California
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 September 30, 1995, 35.2% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution range from 0.1% to 13.0% of total investments.
See notes to financial statements
33
<PAGE>
- --------------------------------------------------------------------------------
Florida Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 3.5%
Baa3 BBB- $ 7,275 Martin County, Indian Town
Project, (AMT), 7.875%,
12/15/25 $ 7,985,840
NR NR 4,000 Palm Beach County,
Okeelanta Power L.P.
Project (AMT), 6.85%,
2/15/21 3,942,760
NR NR 9,250 Palm Beach County, Osceola
Power L.P. Project (AMT),
6.95%, 1/1/22 9,226,413
NR NR 3,100 Palm Beach County, Osceola
Power L.P. Project (AMT),
6.85%, 1/1/14 3,077,246
-------------
$ 24,232,259
-------------
EDUCATION - 0.8%
NR AAA $ 5,500 Volusia County Educational
Facilities, Embry-Riddle
Aeronautical University
Project (CLEE), 6.625%,
10/15/22 $ 5,863,055
-------------
ESCROWED - 3.8%
NR A+ $ 2,100 Charlotte County, St.
Joseph's Hospital, 8.25%,
8/15/18 $ 2,359,497
Aaa AAA 9,225 Dade County, Baptist
Hospital of Miami Project,
5.75%, 5/1/21 9,163,377
Aaa AAA 5,000 Florida Municipal Power
Agency Stanton II Project
(AMBAC), Variable, 10/1/20
(1) 6,306,250
Aaa AAA 1,185 Jacksonville
Transportation Authority,
7.375%, 7/1/20 1,353,554
NR NR 1,675 Mid-Bay Bridge Authority,
6.875%, 10/1/22 1,881,879
Aaa AAA 2,000 Orlando & Orange County
Expressway Authority
(FGIC), 8.25%, 7/1/14 2,585,120
NR AAA 2,355 Pinellas County Health
Facilities Finance
Authority, Sun Coast
Health System, Series A,
8.50%, 3/1/20 2,773,695
-------------
$ 26,423,372
-------------
GENERAL OBLIGATIONS - 7.5%
Aa AA $ 1,000 Florida Board of
Education, 6.75%, 6/1/09 $ 1,113,690
Aa AA 16,100 Florida Board of
Education, 6.70%, 6/1/22 17,056,823
Aa AA 1,500 Florida Board of
Education, 5.20%, 6/1/23 1,351,890
Aa AA 8,000 Florida Board of General
Services, 6.60%, 7/1/17 8,454,960
NR BBB 4,675 Guam Government, 5.40%,
11/15/18 4,068,840
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
A A 7,255 Hillsborough County,
Museum of Science &
Industry, 6.45%, 1/1/22 7,410,692
Baa1 A 2,000 Puerto Rico, 6.50%, 7/1/23 2,087,760
Baa1 A 3,235 Puerto Rico Public
Building Authority, 5.50%,
7/1/21 2,988,137
Baa1 A 7,350 Puerto Rico Public
Building Authority, 5.70%,
7/1/09 7,335,374
-------------
$ 51,868,165
-------------
HEALTH CARE - 7.4%
NR AAA $ 5,075 Dade County Industrial
Development Authority,
Gramercy Park Nursing Care
Center, 6.60%, 8/1/23 $ 5,298,351
NR AAA 4,285 Dade County Industrial
Development Authority,
Florida Club Care Center
(GNMA), 6.60%, 1/20/18 4,333,849
NR BBB+ 3,600 Escambia County Health
Facilities Authority,
Baptist Hospital, Inc. and
The Baptist Manor, Inc.,
6.75%, 10/1/14 3,686,580
NR BBB+ 8,995 Escambia County Health
Facilities Authority,
Baptist Hospital, Inc.,
6.00%, 10/1/14 8,564,769
Baa1 NR 3,750 Jacksonville Health
Facilities Authority,
National Benevolent
Association, Cypress
Village Florida Project,
7.00%, 12/1/22 3,805,125
A NR 14,000 City of Venice Health
Facilities, 6.00%, 12/1/14 15,304,100
A NR 9,810 City of Venice Health
Facilities, 5.75%, 12/1/24 10,544,573
-------------
$ 51,537,347
-------------
HOSPITAL REVENUE - 1.4%
NR AA+ $ 4,750 Jacksonville Health
Facilities Finance
Authority, St. Luke's
Hospital Association
Project, 6.75%, 11/15/13 $ 5,070,008
A BBB+ 5,000 St. John's County
Industrial Development
Authority, Flagler
Hospital Project, 6.00%,
8/1/22 4,794,000
-------------
$ 9,864,008
-------------
HOUSING - 10.6%
NR AAA $ 630 Broward County HFA SFMR
(GNMA), (AMT), 7.35%,
3/1/23 $ 654,665
NR AAA 1,300 Clay County HFA MFMR
(GNMA), 7.40%, 12/1/25 1,382,043
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - (CONTINUED)
Aaa NR 2,750 Clay County HFA SFMR
(GNMA), (AMT), 6.55%,
3/1/28 2,785,035
Aaa NR 290 Dade County HFA SFMR
(GNMA), 7.10%, 3/1/17 304,068
Aaa NR 1,220 Dade County HFA SFMR
(GNMA), (AMT), 7.75%,
9/1/22 1,284,306
Aaa NR 1,160 Dade County HFA SFMR
(GNMA), (AMT), 7.25%,
9/1/23 1,209,718
Aaa NR 75 Dade County HFA SFMR
(GNMA), 7.00%, 3/1/24 77,795
NR AAA 5,100 Dade County HFA SFMR
(GNMA), (AMT), 6.55%,
10/1/27 5,149,113
NR AAA 5,850 Dade County HFA SFMR
(GNMA), (AMT), 6.70%,
4/1/28 6,019,943
Aaa NR 2,540 Escambia County HFA SFMR
(GNMA), (AMT), 7.40%,
10/1/23 2,646,401
Aaa NR 7,500 Escambia County HFA SFMR
(GNMA), (AMT), 6.85%,
10/1/17 7,655,325
Aaa NR 5,000 Escambia County HFA SFMR
(GNMA), (AMT), 6.90%,
10/1/21 5,143,800
Aaa NR 6,250 Escambia County HFA SFMR
(GNMA), (AMT), 6.95%,
10/1/27 6,444,500
NR AAA 1,125 Florida HFA (FHA), 6.35%,
6/1/14 1,142,719
Aaa NR 960 Hillsborough County HFA
SFMR (GNMA), (AMT),
7.875%, 5/1/23 1,025,040
NR NR 3,475 City of North Miami Health
Care Facilities, The
Imperial Club Project,
9.25%, 1/1/13 3,712,065
NR AAA 1,695 Orange County HFA SFMR
(GNMA), (AMT), 7.375%,
9/1/24 1,788,632
Aaa NR 12,000 Orange County HFA SFMR
(GNMA), (AMT), 6.85%,
10/1/27 (3) 12,421,440
NR AAA 8,000 Orange County HFA SFMR
(GNMA), (AMT), 6.60%,
4/1/28 8,057,520
Aaa NR 845 Palm Beach County HFA SFMR
(GNMA), 7.60%, 3/1/23 891,551
Aaa NR 1,455 Polk County HFA SFMR
(GNMA), 7.15%, 9/1/23 1,520,199
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Baa BBB 1,400 Puerto Rico Urban Renewal
& Housing Corp, 7.875%,
10/1/04 1,582,770
Aaa AAA 860 Puerto Rico Housing
Finance Corp SFMR (GNMA),
7.65%, 10/15/22 910,602
-------------
$ 73,809,250
-------------
INDUSTRIAL DEVELOPMENT
/POLLUTION CONTROL REVENUE
-2.3%
B1 BB+ $15,200 Polk County Industrial
Development Authority
(AMT), 7.525%, 1/1/15 $ 15,952,552
-------------
INSURED HEALTH CARE - 0.4%
Aaa AAA $ 500 Alachua County Health
Facility, Mental Health
Services Project (CGIC),
7.75%, 7/1/10 $ 565,260
Aaa AAA 2,050 Hillsborough County IDA,
Allegany Health Systems,
J. Knox Village (MBIA),
5.75%, 12/1/21 2,022,510
-------------
$ 2,587,770
-------------
INSURED HOSPITALS - 5.7%
Aaa AAA $ 8,000 Charlotte County Health
Care, Bon-Secours Health
System Project (FSA),
Variable, 8/30/27 (1) $ 8,026,880
Aaa AAA 23,355 Jacksonville FL Health
Authority, Daughters of
Charity (MBIA), 5.00%,
11/15/15 20,846,439
Aaa AAA 2,000 Lee County, Memorial
Hospital (MBIA), Variable,
4/1/20 (1) 2,161,080
Aaa AAA 5,290 Orange County Health
Facilities Finance
Authority, (FGIC), 7.875%,
12/1/25 5,614,753
Aaa AAA 3,000 Orange County Health
Facilities Authority
(MBIA), Variable, 10/29/21
(1) 3,199,950
-------------
$ 39,849,102
-------------
INSURED HOUSING - 2.3%
Aaa AAA $ 1,430 Brevard County HFA SFMR
(FSA), 7.00%, 3/1/13 $ 1,493,292
Aaa AAA 1,720 Duval County HFA SFMR
(FGIC), 7.35%, 7/1/24 1,811,900
Aaa AAA 6,530 FL HEFA, Maitland Club
Apartment Project (AMBAC)
(AMT), 6.875%, 8/1/26 6,776,377
</TABLE>
35
<PAGE>
- --------------------------------------------------------------------------------
FLORIDA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOUSING -
(CONTINUED)
Aaa AAA 3,000 FL HFA, Brittany of
Rosemont Project (AMBAC)
(AMT), 6.875%, 8/1/26 3,113,190
Aaa AAA 2,675 Lee County SCA MFMR (FSA)
(AMT), 7.05%, 1/1/30 2,773,387
-------------
$ 15,968,146
-------------
INSURED INDUSTRIAL
DEVELOPMENT/POLLUTION
CONTROL REVENUE - 1.2%
Aaa AAA $ 8,200 Citrus County PCR (MBIA),
6.35%, 2/1/22 $ 8,558,996
-------------
INSURED MISCELLANEOUS - 0.4%
Aaa AAA $ 2,000 Escambia County (MBIA),
7.20%, 1/1/15 $ 2,150,300
Aaa AAA 799 Osceola County IDA
Community Provider Pooled
Loan Program, (CGIC),
7.75%, 7/1/10 854,251
-------------
$ 3,004,551
-------------
INSURED SOLID WASTE - 0.3%
Aaa AAA $ 1,500 St. John's County Solid
Waste Disposal (FGIC),
7.25%, 11/1/10 $ 1,685,850
-------------
INSURED SPECIAL TAX
REVENUE - 7.9%
Aaa AAA $ 5,630 FL Department of
Environmental Protection
(AMBAC), 4.75%, 7/1/06 $ 5,527,421
Aaa AAA 14,250 FL Department of
Environmental Protection
(MBIA), 4.75%, 7/1/09 13,318,905
Aaa AAA 9,675 FL Department of
Environmental Protection
(MBIA), 4.75%, 7/1/10 8,920,157
Aaa AAA 3,000 City of Jacksonville-River
City Renaissance Project
(FGIC), 5.375%, 10/1/18 2,799,570
Aaa AAA 1,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/10 426,230
Aaa AAA 1,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/11 396,450
Aaa AAA 2,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/12 739,720
Aaa AAA 2,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/13 691,600
Aaa AAA 2,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/14 645,980
Aaa AAA 1,500 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/15 452,085
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 1,185 City of Opa-Locka (FGIC),
7.00%, 1/1/14 1,327,449
Aaa AAA 2,500 Puerto Rico Highway &
Transportation Authority
(FSA), 5.50%, 7/1/17 2,389,900
Aaa AAA 7,650 Puerto Rico Highway &
Transportation Authority
(FSA), 5.25%, 7/1/21 7,032,951
Aaa AAA 5,000 St. Petersburg Excise Tax
(FGIC), 5.00%, 10/1/16 4,517,950
Aaa AAA 2,000 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/10 871,300
Aaa AAA 1,760 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/12 667,286
Aaa AAA 2,840 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/14 943,022
Aaa AAA 4,000 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/15 1,241,200
Aaa AAA 4,140 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/16 1,211,571
Aaa AAA 2,525 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/17 696,925
-------------
$ 54,817,672
-------------
INSURED TRANSPORTATION - 7.0%
Aaa AAA $ 4,000 Dade County Aviation
Facilities (MBIA) (AMT),
6.55%, 10/1/13 $ 4,219,320
Aaa AAA 8,455 FL State Turnpike
Authority (FGIC), 6.35%,
7/1/22 8,788,803
Aaa AAA 3,000 FL State Turnpike
Authority (FGIC), 5.00%,
7/1/19 2,667,660
Aaa AAA 8,600 Greater Orlando Aviation
Authority, Orlando Airport
Facilities (FGIC), (AMT),
6.375%, 10/1/21 8,869,696
Aaa AAA 14,000 Orlando & Orange County
Expressway Authority
(FGIC), Variable, 7/1/04
(1) 14,218,120
Aaa AAA 10,920 Orlando & Orange County
Expressway Authority
(FGIC), 5.125%, 7/1/20 9,798,734
-------------
$ 48,562,333
-------------
INSURED UTILITIES - 8.5%
Aaa AAA $41,465 FL Municipal Power Agency
Stanton II Project
(AMBAC), 4.50%, 10/1/27
(3) $ 33,007,384
Aaa AAA 7,770 FL Municipal Power Agency
Stanton II Project
(AMBAC), 4.50%, 10/1/16 6,511,338
Aaa AAA 8,000 FL Municipal Power Agency
Stanton II Project
(AMBAC), 5.10%, 10/1/25 7,064,080
Aaa AAA 4,000 Lakeland Electric & Water
(FGIC), 6.00%, 10/1/13 (2) 4,026,280
</TABLE>
36
<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 UTILITIES - (CONTINUED)
Aaa AAA 1,540 Manatee County Public
Utility (FGIC), 0%,
10/1/12 580,980
Aaa AAA 1,750 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/02 (1) 1,939,315
Aaa AAA 2,200 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/03 (1) 2,462,284
Aaa AAA 3,500 Vero Beach Electric
(MBIA), 5.375%, 12/1/21 3,265,115
-------------
$ 58,856,776
-------------
INSURED WATER & SEWER - 5.4%
Aaa AAA $11,450 Broward County Water &
Sewer (AMBAC), 5.125%,
10/1/15 $ 10,529,535
Aaa AAA 9,500 Dade County Water and
Sewer System (FGIC),
5.00%, 10/1/13 8,717,580
Aaa AAA 2,000 City of Fort Myers Utility
(FGIC), 5.00%, 10/1/16 1,800,460
Aaa AAA 6,900 Palm Bay Utility Corp
Project (MBIA), 5.00%,
10/1/22 6,024,597
Aaa AAA 4,000 Sanford Water and Sewer
(AMBAC), 4.50%, 10/1/21 3,255,640
Aaa AAA 1,700 St. John's County Water &
Sewer (MBIA), 0%, 6/1/16 507,314
Aaa AAA 3,550 St. John's County Water &
Sewer (MBIA), 0%, 6/1/17 999,148
Aaa AAA 5,600 St. Lucie County Utility
System (FGIC), 6.00%,
10/1/20 5,672,632
-------------
$ 37,506,906
-------------
LIFE CARE - 1.0%
NR NR $ 6,895 Atlantic Beach, Fleet
Landing Project, 8.00%,
10/1/24 $ 7,208,860
-------------
LEASE/CERTIFICATES OF
PARTICIPATION - 0.4%
A1 A+ $ 2,280 Florida State Department
of General Services,
7.00%, 9/1/20 $ 2,465,273
-------------
NURSING HOMES - 1.1%
NR NR $ 300 Broward County Industrial
Development Authority,
Beverly Enterprises -
Florida, Inc. Project,
9.80%, 11/1/10 $ 335,520
NR NR 475 Charlotte County
Industrial Development
Authority, Beverly
Enterprises, 10.00%,
6/1/11 542,279
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 4,000 Citrus County Industrial
Development Authority,
Beverly Enterprises,
7.25%, 4/1/03 4,012,040
NR NR 700 Highlands County
Industrial Development
Authority, Beverly
Enterprises - Florida,
Inc. Project, 9.25%,
7/1/07 775,817
NR NR 410 Okaloosa County, Beverly
Enterprises, 10.75%,
10/1/03 448,200
NR NR 700 Orange County Industrial
Development Authority,
Beverly Enterprises,
9.25%, 8/1/10 776,475
NR NR 1,000 Winter Garden, Beverly
Enterprises, 8.75%, 7/1/12 1,092,750
-------------
$ 7,983,081
-------------
SOLID WASTE - 0.6%
A A $ 3,870 Broward County Waste
Energy Company, L.P. North
Project, 7.95%, 12/1/08 $ 4,296,590
-------------
SPECIAL TAX REVENUE - 6.2%
A1 A+ $10,620 Orange County, 5.375%,
1/1/24 $ 9,654,111
A1 NR 3,000 City of Orlando, 6.00%,
10/1/22 2,941,050
Baa1 A 7,410 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/19 6,908,047
Baa1 A 6,310 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/20 5,636,281
Baa1 A 10,135 Puerto Rico Highway &
Transportation Authority,
5.00%, 7/1/22 8,684,682
Baa1 A 10,560 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/21 9,413,290
-------------
$ 43,237,461
-------------
TRANSPORTATION - 1.4%
NR NR $10,140 Mid-Bay Bridge Authority,
6.125%, 10/1/22 $ 9,634,318
-------------
UTILITIES - 12.5%
NR BBB $32,325 Guam Power Authority,
5.25%, 10/1/23 $ 27,848,634
Aa1 AA 42,005 Jacksonville Electric
Authority, Bulk Power
Supply System, Scherer 4
Project, 5.25%, 10/1/21
(3) 38,294,278
Aa1 AA 2,850 Orlando Utilities
Commission Water and
Electric, 5.125%, 10/1/19 2,554,940
</TABLE>
37
<PAGE>
- --------------------------------------------------------------------------------
FLORIDA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES - (CONTINUED)
Aa AA 1,750 Orlando Utilities
Commission Water and
Electric, 5.25%, 10/1/23 1,588,400
Baa1 A- 185 Puerto Rico Electric Power
Authority, 7.125%, 7/1/14 201,743
Baa1 A- 10,000 Puerto Rico Electric Power
Authority, 7.00%, 7/1/21 11,379,200
A2 A+ 2,515 St. Lucie County Solid
Waste Disposal, Florida
Power & Light Company
(AMT), 6.70%, 5/1/27 2,631,520
NR NR 2,000 Virgin Islands Water &
Power Authority, 7.40%,
7/1/11 2,100,420
-------------
$ 86,599,134
-------------
WATER & SEWER - 0.4%
Baa1 BBB+ $ 2,500 Hillsborough County
Utility, 6.625%, 8/1/11 $ 2,637,625
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $661,202,447) $ 695,010,453
=============
<FN>
(1) The above designated securities have been issued as inverse floater bonds.
(2) When-issued security.
(3) Security has been segregated to cover open when-issued securities.
</TABLE>
The Portfolio invests primarily in debt securities issued by Florida
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 September 30, 1995, 50.8% of the securities in the portfolio of
investments are backed by bond insurance of various financial guaranty assurance
agencies. The aggregate percentage by financial institution ranges from 0.2% to
12.8% of total investments.
See notes to financial statements
38
<PAGE>
- --------------------------------------------------------------------------------
Massachusetts Tax Free Portfolio
Portfolio of Investments - September 30, 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 - 9.8%
Aa1 AA+ $ 1,625 Massachusetts Health and
Educational Facilities
Authority, (HEFA) Amherst
College, 6.80%, 11/1/21 $ 1,740,440
A1 A+ 250 Massachusetts HEFA, Tufts
University, 7.75%, 8/1/13 271,052
NR BBB- 3,700 Massachusetts HEFA,
Merrimack College, 7.125%,
7/1/12 3,882,003
NR AAA 2,900 Massachusetts HEFA,
Wentworth Institute,
(Connie Lee), 5.50%,
10/1/23 2,675,047
NR BBB- 6,855 Massachusetts HEFA, Smith
College, 5.75%, 7/1/24 6,694,182
Aaa AAA 5,180 Massachusetts HEFA,
Harvard University,
5.625%, 11/1/28 5,114,577
Aa1 AA 4,690 Massachusetts Industrial
Finance Agency, Phillips
Academy, 5.375%, 9/1/23 4,385,056
A1 NR 2,000 The New England Education
Loan Marketing
Corporation, (AMT), 6.90%,
11/1/09 2,157,440
NR BBB- 1,300 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Control Authority,
Polytechnic University,
5.50%, 8/1/24 1,128,491
NR BBB- 1,000 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Control Authority,
Polytechnic University,
6.50%, 8/1/24 990,870
-------------
$ 29,039,158
-------------
GENERAL OBLIGATIONS -13.7%
Baa1 NR $ 1,000 City of Lowell, 6.375%,
8/15/01 $ 1,067,490
A1 A+ 3,900 Commonwealth of
Massachusetts, 5.00%,
1/1/12 3,609,060
A1 A+ 875 Commonwealth of
Massachusetts, 5.00%,
1/1/14 795,839
A1 A+ 4,750 Massachusetts Bay
Transportation Authority
(MBTA), 5.50%, 3/1/21 4,525,135
A1 A+ 2,500 MBTA, 5.75%, 3/1/18 2,465,775
A1 A+ 14,000 MBTA, 5.75%, 3/1/25 13,593,440
A1 A+ 1,000 MBTA, 5.90%, 3/1/12 1,014,690
NR BBB 1,175 Government of Guam, 5.40%,
11/15/18 1,022,650
A NR 3,375 Town of Nantucket, 6.80%,
12/1/11 3,634,875
Baa1 A 100 Puerto Rico Public
Buildings Authority,
5.50%, 7/1/21 92,369
Baa1 A 1,900 Puerto Rico Aqueduct and
Sewer Authority, 7.00%,
7/1/19 2,037,313
<CAPTION>
RATINGS
(UNAUDITED)
- -------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
A A 2,500 University of
Massachusetts Building
Authority, 6.875%, 5/1/14 2,839,950
A A 250 University of
Massachusetts Building
Authority, 7.20%, 5/1/04 287,396
NR NR 3,350 Virgin Islands Public
Finance Authority, 7.25%,
10/1/18 3,528,321
-------------
$ 40,514,303
-------------
HOSPITALS - 8.4%
A A- $ 3,000 Massachusetts HEFA,
Charlton Memorial
Hospital, 7.25%, 7/1/13 $ 3,147,750
A1 A 530 Massachusetts HEFA,
Spaulding Rehabilitation
Hospital, 7.625%, 7/1/21 568,632
Baa1 BBB+ 2,000 Massachusetts HEFA, New
England Baptist Hospital,
7.35%, 7/1/17 2,067,480
Aa NR 3,100 Massachusetts HEFA,
Daughters of Charity
Health System, 6.10%,
7/1/14 3,143,524
A1 A+ 1,000 Massachusetts HEFA, Dana-
Farber Cancer Institute,
6.65%, 12/1/15 1,020,340
A A 4,250 Massachusetts HEFA, The
Medical Center of Central
Massachusetts, 7.10%,
7/1/21 4,394,755
Baa BBB 1,825 Massachusetts HEFA,
Sisters of Providence
Health System, 6.50%,
11/15/08 1,877,870
NR A- 1,470 Massachusetts HEFA, Jordan
Hospital, 6.875%, 10/1/15 1,052,722
NR A- 1,470 Massachusetts HEFA, Jordan
Hospital, 6.875%, 10/1/22 1,507,073
NR AAA 2,625 Massachusetts HEFA,
Winchester Hospital
(Connie Lee), 5.75% 7/1/14 2,557,223
NR AAA 3,650 Massachusetts HEFA,
Winchester Hospital
(Connie Lee), 5.75% 7/1/24 3,486,917
-------------
$ 24,824,286
-------------
HOUSING - 11.4%
NR AAA $ 2,750 Framingham Housing
Authority, (GNMA), 6.65%,
2/20/32 $ 2,783,275
A1 A+ 6,000 Massachusetts Housing
Finance Agency (HFA),
6.375%, 4/1/21 5,973,720
Aa A+ 7,250 Massachusetts HFA, (AMT),
6.60%, 12/1/26 7,328,952
Aa A+ 6,400 Massachusetts HFA, (AMT),
6.60%, 12/1/26 6,469,696
Aaa AAA 1,000 Massachusetts HFA, (FNMA),
6.875%, 11/15/11 1,063,630
</TABLE>
39
<PAGE>
- --------------------------------------------------------------------------------
MASSACHUSETTS TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- -------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - (CONTINUED)
Aaa AAA 2,750 Massachusetts HFA, (FNMA),
6.90%, 11/15/21 2,882,330
Aa A+ 2,795 Massachusetts HFA, (AMT),
7.125%, 6/1/25 2,908,924
Aa A+ 400 Massachusetts HFA, 7.35%,
12/1/16 425,408
Aa A+ 2,265 Massachusetts HFA, (AMT),
8.10%, 6/1/20 2,369,734
Aa A+ 1,500 Massachusetts HFA, (AMT),
8.10%, 12/1/21 1,576,035
-------------
$ 33,781,704
-------------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL - 7.0%
Baa1 BBB $14,185 City of Boston Harbor
Electric Energy Company
Project, (AMT), 7.30%,
5/15/15 $ 15,178,942
NR NR 9,000 Massachusetts Industrial
Finance Agency,
Massachusetts Biomedical
Research Corporation, 0%,
8/1/19 3,817,800
Aa3 AA 1,550 Puerto Rico Industrial,
Medical and Environmental
Pollution Control
Authority, The Upjohn
Company, 7.50%, 12/1/23 1,697,235
-------------
$ 20,693,977
-------------
INSURED EDUCATION - 2.1%
Aaa AAA $ 335 Massachusetts Educational
Finance Authority, (MBIA),
(AMT), 7.25%, 1/1/09 $ 350,460
Aaa AAA 2,000 Massachusetts Educational
Finance Authority,
(AMBAC), (AMT), 7.30%,
1/1/12 2,096,840
Aaa AAA 250 Massachusetts HEFA,
Northeastern University,
(AMBAC), 7.50%, 10/1/08 273,820
Aaa AAA 400 Massachusetts HEFA, Boston
University "RIBS", (MBIA),
Variable, 10/1/31 (1) 439,464
Aaa AAA 3,000 Massachusetts HEFA, Tufts
University, (FGIC), 5.95%,
8/15/18 3,032,640
-------------
$ 6,193,224
-------------
INSURED GENERAL OBLIGATION - 1.7%
Aaa AAA $ 1,795 City of Boston, (FSA),
4.875%, 9/1/09 $ 1,686,833
Aaa AAA 1,000 Commonwealth of Puerto
Rico "RIBS", (AMBAC),
Variable, 7/1/15 (1) 1,009,940
Aaa AAA 600 Town of Tyngsborough,
(AMBAC), 6.90%, 5/15/08 663,798
Aaa AAA 1,770 MBTA, (MBIA), 5.50%,
3/1/21 1,663,995
-------------
$ 5,024,566
-------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITALS - 11.8%
Aaa AAA $ 300 Massachusetts HEFA,
Berkshire Health Systems,
(MBIA), 7.60%, 10/1/14 $ 332,346
Aaa AAA 1,250 Massachusetts HEFA, Beth
Israel Hospital, Inverse
Floaters, (AMBAC),
Variable, 7/1/25 (1) 1,253,675
Aaa AAA 1,500 Massachusetts HEFA,
Capital Asset Program,
(MBIA), 7.20%, 7/1/09 1,649,085
AAA AAA 2,050 Massachusetts HEFA, Fallon
Healthcare System (CGIG),
6.75%, 6/1/20 (2) 2,171,442
AAA AAA 4,500 Massachusetts HEFA, Fallon
Healthcare System (CGIG),
6.875%, 6/1/11 4,881,465
Aaa AAA 2,040 Massachusetts HEFA,
Beverly Hospital, (MBIA),
7.30%, 7/1/13 2,219,581
Aaa AAA 1,000 Massachusetts HEFA,
Baystate Medical Center,
(FGIC), 5.00%, 7/1/20 883,550
Aaa AAA 3,000 Massachusetts HEFA, The
Medical Center of Central
Massachusetts, (AMBAC),
"CARS", Variable, 6/23/22 (1) 3,330,090
Aaa AAA 2,000 Massachusetts HEFA, St.
Elizabeth Hospital Issue,
"LEVRRS", (FSA), Variable,
8/15/21 (1) 2,196,960
Aaa AAA 2,600 Massachusetts HEFA, Saint
Luke's Hospital, "Yield
Curve Notes", (MBIA),
Variable, 8/15/13 (1) 2,556,970
Aaa AAA 1,200 Massachusetts HEFA,
University Hospital,
(MBIA), 7.25%, 7/1/19 1,323,552
Aaa AAA 6,950 Massachusetts HEFA, Lahey
Clinic, (MBIA), 5.375%,
7/1/23 6,454,118
Aaa AAA 5,000 Massachusetts HEFA, New
England Medical Center,
(MBIA), 5.375%, 7/1/24 4,664,350
Aaa AAA 1,000 Massachusetts HEFA, New
England Medical Center,
(FGIC), 6.50%, 7/1/12 1,052,960
-------------
$ 34,970,144
-------------
INSURED HOUSING - 0.7%
Aaa AAA $ 2,000 Massachusetts Housing
Finance Agency, (AMBAC),
6.45%, 1/1/36 $ 2,027,680
-------------
</TABLE>
40
<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 - 2.2%
Aaa AAA $ 5,860 Massachusetts Port
Authority, (AMT), (FGIC),
7.50%, 7/1/20 $ 6,490,243
-------------
LEASE/CERTIFICATE OF
PARTICIPATION - 2.9%
NR A $ 7,800 Plymouth County,
Massachusetts Correctional
Facility Project, 7.00%,
4/1/22 $ 8,363,862
-------------
NURSING HOMES - 0.5%
NR AA $ 1,495 Massachusetts HEFA,
Deutches Altenheim,
Incorporated, (FHA),
7.70%, 11/1/31(2) $ 1,613,195
-------------
SOLID WASTE - 2.6%
Baa1 BBB $ 5,970 Massachusetts Industrial
Finance Agency,
Massachusetts Refusetech,
Inc. Project, 6.30%,
7/1/05 $ 6,242,531
NR NR 1,340 City of Pittsfield, Vicon
Recovery Associates
Project, 7.95%, 11/1/04 1,409,425
-------------
$ 7,651,956
-------------
SPECIAL TAX - 4.2%
A1 A+ $ 5,695 Commonwealth of
Massachusetts, Special
Obligation Revenue Bonds,
6.00%, 6/1/13 $ 5,747,223
A1 A+ 4,560 Commonwealth of
Massachusetts, Special
Obligation Revenue Bonds,
5.80%, 6/1/14 4,518,550
Baa1 A 2,000 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/18 2,099,080
-------------
$ 12,364,853
-------------
TRANSPORTATION - 5.2%
NR BBB $ 7,950 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 7,967,093
Aa AA- 7,300 Massachusetts Port
Authority, 6.00%, 7/1/23 7,260,069
-------------
$ 15,227,162
-------------
UTILITY - 6.0%
NR BBB $ 2,765 Guam Power Authority,
5.25%, 10/1/23 $ 2,382,103
A BBB+ 2,610 Massachusetts Municipal
Wholesale Electric
Company, 6.00%, 7/1/18 2,555,843
A BBB+ 5,560 Massachusetts Municipal
Wholesale Electric
Company, 6.625%, 7/1/18 5,747,205
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
A BBB+ 3,500 Massachusetts Municipal
Wholesale Electric
Company, 6.75%, 7/1/11 3,664,010
Baa1 A- 1,850 Puerto Rico Electric Power
Authority, 5.50%, 7/1/13 1,755,447
Baa1 A- 150 Puerto Rico Electric Power
Authority, 5.50%, 7/1/20 138,746
NR NR 1,500 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 1,575,314
-------------
$ 17,818,668
-------------
WATER & SEWER - 9.8%
NR NR $ 2,075 Massachusetts Industrial
Finance Authority,
American Hingham Water,
6.60%, 12/1/15 $ 2,095,480
A A 18,620 Massachusetts Water
Resources Authority
(MWRA), 4.75%, 12/1/23 15,364,479
A A 5,000 MWRA, 5.00%, 3/1/22 4,323,500
A A 1,500 MWRA, 5.25%, 3/1/13 1,390,095
A A 3,915 MWRA, 5.25%, 12/1/15 3,608,260
NR NR 2,000 Virgin Islands Water and
Power Authority, 7.60%,
1/1/12 2,122,760
-------------
$ 28,904,574
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $277,979,560) $ 295,503,555
===============
<FN>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
</TABLE>
The Portfolio invests primarily in debt securities issued by Massachusetts
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 September 30, 1995, 21.2% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.5% to 7.3% of total investments.
See notes to financial statements
41
<PAGE>
- --------------------------------------------------------------------------------
Mississippi Tax Free Portfolio
Portfolio of Investments - September 30, 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>
ESCROWED - 1.6%
Aaa NR $1,500 Mississippi Housing Finance
Corporation, SFMR, (AMT),
(ETM), 0%, 6/1/15 $ 447,360
------------
GENERAL OBLIGATIONS - 7.8%
NR A- $1,000 Mississippi Development
Bank, Golden Triangle Solid
Waste, 6.00%, 7/1/15 $ 972,850
Aa AA- 200 Mississippi State, 5.10%,
11/15/12 188,648
Aa AA- 500 Mississippi State, 5.75%,
6/1/14 500,965
Aa AA- 500 Mississippi State, 6.75%, 536,265
12/1/14 ------------
$ 2,198,728
------------
HOSPITAL REVENUE - 3.2%
A NR $1,000 Mississippi Hospital
Equipment & Facilities
Authority, Rankin Medical
Center Project, 5.60%,
3/1/19 $ 919,410
------------
HOUSING - 9.4%
Aa NR $ 500 Hinds County Urban Renewal,
Woodridge Apartments,
(FHA), 6.25%, 11/1/27 $ 495,860
NR NR 200 City of Ridgeland Urban
Renewal, The Orchard, LTD.,
7.75%, 12/1/15 197,958
Aaa NR 300 Vicksburg Leased Housing
Corporation, MFMR, Magnolia
Manor Apartments, (FHA),
5.95%, 8/15/22 294,063
Aaa NR 500 Mississippi Home
Corporation, SFMR, Access
Program, (AMT), 8.10%,
12/1/24 554,725
Aaa NR 1,020 Mississippi Home
Corporation, SFMR, Access
Program, (AMT), 8.125%,
12/1/24 1,131,914
------------
$ 2,674,520
------------
INDUSTRIAL DEVELOPMENT
REVENUE - 10.0%
NR A- $ 600 Jackson County,
International Paper Company
Project, (AMT), 5.55%,
10/1/17 $ 564,468
A2 A 1,000 Lowndes County,
Weyerhaeuser Company
Project, 6.80%, 4/1/22 1,106,900
A3 A- 600 Warren County,
International Paper Company
Project, (AMT), 6.60%,
3/1/19 608,592
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR AA 500 Port of Gulfport, E.I. du
Pont de Nemours and Company
Project, (AMT), 7.15%,
5/1/16 (2) 544,390
------------
$ 2,824,350
------------
INSURED EDUCATION - 3.7%
Aaa AAA $1,000 Mississippi Educational
Facilities Authority,
Milsaps College Project,
(MBIA) 6.50%, 11/1/19 $ 1,041,610
------------
INSURED GENERAL OBLIGATION - 5.0%
Aaa AAA $ 500 Hinds County, (MBIA) 6.25%,
3/1/11 $ 535,360
Aaa AAA 1,000 Desoto County School
District, (MBIA) 4.75%,
2/1/13 883,120
------------
$ 1,418,480
------------
INSURED HOSPITALS - 19.2%
Aaa AAA $1,000 Alcorn County, Magnolia
Regional Health Center,
(AMBAC) 5.75%, 10/1/13 $ 967,370
Aaa AAA 1,000 Gulfport Mississippi
Hospital Facilities
Authority, Memorial
Hospital of Gulfport,
(MBIA) 6.20%, 7/1/18 1,020,310
Aaa AAA 1,275 Hinds County, Mississippi
Methodist Hospital and
Rehabilitation Center,
(AMBAC) 5.60%, 5/1/12 1,256,003
Aaa AAA 1,250 Mississippi Hospital
Equipment and Facilities
Authority, Methodist Health
Systems, (MBIA) 5.50%,
8/15/13 1,189,850
Aaa AAA 1,000 Mississippi Hospital
Equipment and Facilities
Authority, Mississippi
Baptist Medical Center,
(MBIA) 6.00%, 5/1/13 1,009,080
------------
$ 5,442,613
------------
INSURED HOUSING - 1.8%
Aaa NR $ 500 Mississippi Home
Corporation, SFMR, (GNMA),
(AMT), 6.625%, 4/1/27 $ 511,910
------------
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 5.2%
Aaa AAA $1,500 Medical Center Building
Corporation, University of
Mississippi Medical Center
Project, (MBIA) 5.80%,
12/1/14 $ 1,476,015
------------
</TABLE>
42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED UTILITIES - 7.0%
Aaa AAA $1,600 Jackson County, Gautier
Utility District, (MBIA)
6.375%, 3/1/12 $ 1,661,504
Aaa AAA 300 Puerto Rico Electric Power
Authority, (FSA), Variable,
7/1/03 (1) 335,766
------------
$ 1,997,270
------------
INSURED WATER & SEWER - 5.2%
Aaa AAA $1,000 Jackson County, Water and
Sewer Bonds, (MBIA) 5.40%,
9/1/09 $ 980,790
Aaa AAA 500 City of Natchez, Combined
Water and Sewer System,
(MBIA) 5.70%, 8/1/17 485,380
------------
$ 1,466,170
------------
NURSING HOMES - 1.7%
NR NR $ 500 Mississippi Business
Finance Corporation,
Magnolia Healthcare, 7.99%,
7/1/25 (2) $ 472,415
------------
LEASE/CERTIFICATE OF
PARTICIPATION - 3.6%
A NR $1,000 Mississippi University
Educational Building Corp.,
Facilities Renovation,
6.15%, 6/15/15 $ 1,009,330
------------
SPECIAL TAX - 4.7%
Baa1 A $ 500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 $ 446,615
Baa1 A 1,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/21 891,410
------------
$ 1,338,025
------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES - 10.9%
NR BBB $ 810 Guam Power Authority,
6.625%, 10/1/14 $ 829,999
Aa3 A+ 1,310 Lamar County, South
Mississippi Electric Power
Association Project, 4.85%,
12/1/06 1,237,505
Baa3 NR 1,000 Warren County, Mississippi
Power & Light Company
Project, 7.00%, 4/1/22 1,038,360
------------
$ 3,105,864
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $27,181,386) $ 28,344,069
============
<FN>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
</TABLE>
The Portfolio invests primarily in debt securities issued by Mississippi
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 September 30, 1995, 49.9% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.2% to 36.3% of total investments.
See notes to financial statements
43
<PAGE>
- --------------------------------------------------------------------------------
New York Tax Free Portfolio
Portfolio of Investments - September 30, 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>
ASSISTED LIVING - 0.3%
NR NR $ 1,970 Village of North Syracuse
Housing Authority, (AJM
Senior Housing, Inc. Janus
Park Project), 8.00%,
6/1/24 $ 1,922,168
-------------
EDUCATION - 12.7%
A NR $ 1,000 Dutchess County IDA, Bard
College, 7.00%, 11/1/17 $ 1,084,310
A1 NR 6,295 Monroe County IDA,
University of Rochester,
7.25%, 12/1/16 6,646,324
NR BBB- 1,660 City of New Rochelle IDA
Civic Facilities, College
of New Rochelle, 6.75%,
7/1/22 1,704,920
Baa1 BBB+ 6,895 Dormitory Authority, State
University Educational
Facilities, 4.75%, 7/1/14 6,124,208
Baa1 BBB+ 2,500 Dormitory Authority, State
University Educational
Facilities, 5.00%, 5/15/18 2,118,800
Baa1 BBB+ 11,500 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/13 10,464,310
Baa1 BBB+ 7,600 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/15 6,850,260
Baa1 BBB+ 7,605 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/19 6,714,759
Baa1 BBB+ 6,805 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/21 6,043,657
Baa1 BBB+ 3,130 Dormitory Authority, State
University Educational
Facilities, 5.50%, 5/15/08 3,041,139
Baa1 BBB+ 28,250 Dormitory Authority, State
University Educational
Facilities, 5.50%, 5/15/13 26,375,613
Baa1 BBB+ 415 Dormitory Authority, State
University Educational
Facilities, 7.375%,
5/15/14 450,279
Baa1 BBB+ 1,300 Dormitory Authority, State
University Educational
Facilities, 7.50%, 5/15/11 1,497,184
NR AA 1,300 Dormitory Authority, New
York Medical College
(Asset Guaranty), 6.875%,
7/1/21 1,391,845
A1 A+ 950 Dormitory Authority,
University of Rochester,
5.625%, 7/1/12 927,276
-------------
$ 81,434,884
-------------
<CAPTION>
RATINGS
(UNAUDITED) PRINCIPAL
- ----------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ELECTRIC UTILITIES - 4.9%
A1 A $ 2,500 New York State Energy
Resource & Development
Authority, Brooklyn Union
Gas (RIBS)(AMT), Variable,
7/1/26 (1) $ 2,918,350
Aa3 A+ 500 New York State Energy
Resource & Development
Authority, Consolidated
Edison (AMT), 7.75%,
1/1/24 538,345
Aa3 A+ 2,365 New York State Energy
Resource & Development
Authority, Consolidated
Edison (AMT), 7.50%,
7/1/25 2,563,684
Aa3 A+ 1,000 New York State Energy
Resource & Development
Authority, Consolidated
Edison (AMT), 7.50%,
1/1/26 1,098,470
Aa AA- 18,000 Power Authority of the
State of New York, 5.25%,
1/1/18 16,447,500
Baa1 A- 11,500 Puerto Rico Electric Power
Authority, 0%, 7/1/17 3,023,350
Baa1 A- 2,250 Puerto Rico Electric Power
Authority, 5.50%, 7/1/20 2,081,183
NR NR 3,000 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 3,150,630
-------------
$ 31,821,512
-------------
ESCROWED - 7.6%
Aaa AAA $ 725 Albany Municipal Water
(MBIA), 7.50%, 12/1/17 $ 806,592
Aaa BBB 1,000 Dormitory Authority, City
University, 7.625%, 7/1/20 1,152,840
Aaa BBB+ 1,530 Dormitory Authority, State
University Educational
Facilities, 7.70%, 5/15/12 1,763,677
NR BBB 1,000 Dormitory Authority, City
University, 8.125%, 7/1/08 1,116,170
Baa1 BBB- 2,250 Dormitory Authority,
Upstate Community College,
7.20%, 7/1/21 2,582,842
Baa1 NR 2,000 Dormitory Authority,
Upstate Community College,
7.30%, 7/1/21 2,305,860
Aaa AAA 500 Erie County Water
Authority, Water Works
System, 6.00%, 12/1/08 528,920
Aaa AAA 500 Metropolitan
Transportation Authority
Commuter Facilities Bonds,
7.50%, 7/1/19 571,735
Aaa AAA 1,000 New York Local Government
Assistance Corporation
(LGAC), 7.00%, 4/1/16 1,136,100
</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>
ESCROWED - (CONTINUED)
Aaa AAA 5,500 New York LGAC, 6.75%,
4/1/21 6,238,980
Aaa BBB 1,000 New York State Housing
Finance Agency Service
Contracts, 7.80%, 9/15/11 1,173,510
Aaa AAA 1,775 New York State Housing
Finance Agency Service
Contracts, 7.375%, 9/15/21 2,073,520
Aaa BBB+ 90 New York State Medical
Care Facilities Finance
Agency, Mental Health
Services Facilities,
7.75%, 8/15/10 103,334
Aaa AAA 450 New York State Medical
Care Facilities Finance
Agency, Mental Health
Services Facilities,
7.875%, 8/15/08 525,047
Aaa AAA 3,320 New York State Medical
Care Facilities Finance
Agency, Mental Health
Services Facilities,
7.50%, 2/15/21 3,842,004
Aaa NR 8,100 New York State Urban
Development Corporation
Correctional Facilities,
6.50%, 1/1/21 8,848,197
Baa1 BBB 4,750 New York State Thruway
Authority, Local Highway
and Bridge Service
Contract Bonds, 7.25%,
1/1/10 (2) 5,404,740
Baa1 BBB 5,350 New York State UDC,
Onondaga Co. Convention
Center, 7.875% 1/1/10 6,241,577
NR AA- 500 Power Authority of the
State of New York, 8.00%,
1/1/17 548,960
NR A 1,760 Puerto Rico Highway &
Transportation Authority,
6.625%, 7/1/18 1,989,310
-------------
$ 48,953,915
-------------
GENERAL OBLIGATIONS - 1.6%
Baa1 A- $ 120 New York City, 8.25%,
11/15/16 $ 136,942
Baa1 A- 4,000 New York City, 7.50%,
2/1/18 4,399,280
Aa AA 1,700 Onondaga County, 5.875%,
2/15/11 1,758,259
Aa AA 1,600 Onondaga County, 5.875%,
2/15/12 1,641,424
Baa1 A 2,175 Puerto Rico Public
Building Authority, Public
Education and Health
Facilities, 5.75%, 7/1/15 2,102,594
-------------
$ 10,038,499
-------------
<CAPTION>
RATINGS
(UNAUDITED) PRINCIPAL
- ----------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE - 19.1%
NR AAA $ 6,705 Dormitory Authority,
United Health Services
(FHA), 7.35%, 8/1/29 $ 7,225,509
Aa AAA 4,785 New York State Medical
Care Facilities Finance
Agency (MCFFA), Hospital
Insured Mortgage (FHA),
5.25%, 8/15/14 4,443,782
NR AA 2,670 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.10%, 8/15/15 2,663,645
NR AAA 3,710 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.125%, 2/15/14 3,902,994
Aa AA 1,000 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.55%, 8/15/12 1,043,570
Aa AA 3,800 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.65%, 8/15/32 3,946,338
NR AA 9,000 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.70%, 8/15/23 9,446,220
Aa AA 1,050 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.75%, 2/15/12 1,107,446
Aa AA 1,500 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.95%, 2/15/32 1,586,430
Aa AA 2,190 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
7.00%, 8/15/32 2,326,262
Aa AA 6,600 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
7.25%, 2/15/31 7,124,634
Aa AA 750 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
7.35%, 2/15/29 819,128
Aa AA 2,425 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 2/15/10 2,484,607
Aa AA 3,500 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 8/15/14 3,591,490
</TABLE>
45
<PAGE>
- --------------------------------------------------------------------------------
NEW YORK TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED) PRINCIPAL
- ----------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE - (CONTINUED)
Aa AA 5,625 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 8/15/15 5,723,775
Aa AA 6,550 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.25%, 8/15/15 6,661,285
Aa AA 2,500 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.50%, 2/15/35 2,552,300
Aa AA 950 New York State MCFFA,
Insured Mortgage Project
(FHA), 7.45%, 8/15/31 1,030,095
Baa1 BBB+ 10,205 New York State MCFFA,
Mental Health Services
Facilities, 5.25%, 2/15/19 9,320,737
Baa1 BBB+ 11,500 New York State MCFFA,
Mental Health Services
Facilities, 5.25%, 8/15/23 9,895,865
Baa1 BBB+ 6,625 New York State MCFFA,
Mental Health Services
Facilities, Series 1994 A,
5.25%, 8/15/23 5,700,879
Baa1 BBB+ 1,230 New York State MCFFA,
Mental Health Services
Facilities, 7.50%, 2/15/21 1,372,754
Baa1 BBB+ 1,610 New York State MCFFA,
Mental Health Services
Facilities, 7.625%,
8/15/17 1,777,150
Baa1 BBB+ 145 New York State MCFFA,
Mental Health Services
Facilities, 7.75%, 8/15/10 161,153
Baa1 BBB+ 495 New York State MCFFA,
Mental Health Services
Facilities, 7.875%,
8/15/08 558,469
Baa BBB 19,700 New York State MCFFA,
Secured Hospital
(Brookdale), 6.80%,
8/15/12 20,263,223
Baa BBB 5,540 New York State MCFFA,
Secured Hospital, 7.35%,
8/15/11 5,881,652
-------------
$ 122,611,392
-------------
HOSPITALS - 0.7%
Aa AAA $ 1,500 Dormitory Authority, Long
Island Jewish Medical
Center (FHA), 7.75%,
8/15/27 $ 1,629,735
NR AAA 1,000 Dormitory Authority,
St. Francis Hospital
(FHA), 7.65%, 8/1/30 1,119,780
Baa1 BBB+ 1,800 Syracuse Industrial
Development Agency (IDA),
St. Joseph's Hospital
Health Center, 7.50%,
6/1/18 1,914,804
-------------
$ 4,664,319
-------------
<CAPTION>
RATINGS
(UNAUDITED) PRINCIPAL
- ----------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - 5.5%
NR NR $ 4,744 New York City Housing
Development Corporation
(HDC), Allerville Project,
6.50%, 11/15/18 $ 4,772,297
Baa A 4,750 New York City HDC, General
Housing, 6.50%, 5/1/22 4,797,690
NR NR 2,080 New York City HDC, Dayton
Project, 6.50% 11/15/18 2,092,643
NR AAA 2,550 New York City HDC, Multi-
Unit Management, 7.35%,
6/1/19 2,702,439
Aa A+ 235 New York State Housing
Finance Agency, Baytown,
7.10%, 8/15/35 248,280
Aa NR 250 New York State Mortgage
Agency, 6.90%, 4/1/03 263,523
Aa NR 8,750 New York State Mortgage
Agency, 6.90%, 4/1/15 9,220,313
Aa NR 1,000 New York State Mortgage
Agency, 7.50%, 4/1/15 1,082,280
Aa NR 295 New York State Mortgage
Agency, 7.65%, 4/1/19 311,963
Aa NR 625 New York State Mortgage
Agency, 7.70%, 10/1/12 676,644
Aa NR 270 New York State Mortgage
Agency, 8.00%, 10/1/17 287,312
Aa NR 6,350 New York State Mortgage
Agency (AMT), 6.40%,
10/1/20 6,318,568
Aa NR 1,600 New York State Mortgage
Agency (AMT), 7.95%,
10/1/21 1,727,808
Baa BBB 350 Puerto Rico Commonwealth
Urban Renewal & Housing
Corporation, 7.875%,
10/1/04 395,693
Aaa AAA 410 Puerto Rico Housing
Financial Corporation
Single-Family (GNMA),
7.65%, 10/15/22 434,124
-------------
$ 35,331,577
-------------
INSURED COLLEGE &
UNIVERSITY - 1.8%
Aaa AAA $ 6,950 Dormitory Authority,
Marist College (MBIA),
6.00%, 7/1/22 $ 6,958,549
Aaa AAA 5,000 Dormitory Authority, New
York University (MBIA),
5.00%, 7/1/11 4,698,350
-------------
$ 11,656,899
-------------
</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
OBLIGATIONS - 1.0%
Aaa AAA $ 1,035 Erie County Water
Authority (AMBAC), 0%,
12/1/17 $ 211,295
Aaa AAA 3,900 New York City Trust for
Cultural Resources, Museum
of Modern Art (AMBAC),
5.40%, 1/1/12 3,764,748
Aaa AAA 2,480 New York State
Environmental Facilities
Corporation (EFC), Jamaica
Water Supply Company (AMT)
(AMBAC), 7.625%, 4/1/29 2,677,334
-------------
$ 6,653,377
-------------
INSURED GENERAL
OBLIGATIONS LOCAL - 1.8%
Aaa AAA $ 520 Chautauqua County
Unlimited Tax (FGIC),
6.40%, 9/15/08 $ 574,621
Aaa AAA 770 Chautauqua County
Unlimited Tax (FGIC),
6.40%, 9/15/09 847,123
Aaa AAA 465 Chautauqua County
Unlimited Tax (FGIC),
7.30%, 4/1/07 547,793
Aaa AAA 725 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/07 838,521
Aaa AAA 600 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/08 693,852
Aaa AAA 675 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/13 789,278
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/09 814,891
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/10 816,739
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/11 817,929
Aaa AAA 675 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/12 789,271
Aaa AAA 515 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/14 601,808
Aaa AAA 2,000 New York City (AMBAC),
7.00%, 8/1/17 2,201,300
Aaa AAA 500 Oyster Bay (FGIC), 6.60%,
2/15/12 533,400
Aaa AAA 450 Oyster Bay (FGIC), 6.60%,
2/15/13 480,060
-------------
$ 11,346,586
-------------
<CAPTION>
RATINGS
(UNAUDITED) PRINCIPAL
- ----------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL
OBLIGATIONS SCHOOL
DISTRICT - 0.2%
Aaa AAA $ 700 Bethlehem Central School
District (AMBAC), 7.10%,
11/1/08 $ 819,903
Aaa AAA 700 Bethlehem Central School
District (AMBAC), 7.10%,
11/1/09 814,716
-------------
$ 1,634,619
-------------
INSURED GENERAL
OBLIGATIONS TERRITORY -
0.7%
Aaa AAA $ 4,500 Commonwealth of Puerto
Rico Public Improvement
Residual Interest Tax
Exempt Securities (FSA),
Variable, 7/1/22 (1) $ 4,616,865
-------------
INSURED HEALTH CARE - 4.4%
Aaa AAA $ 1,500 New York State MCFFA, Long
Term Health Care (CGIC),
6.80%, 11/1/14 $ 1,588,695
Aaa AAA 1,300 New York State MCFFA, New
York Hospital (FHA)
(AMBAC), 6.60%, 2/15/11 1,409,226
Aaa AAA 5,400 New York State MCFFA, New
York Hospital (FHA)
(AMBAC), 6.75%, 8/15/14 5,794,146
Aaa AAA 20,525 New York State MCFFA,
Mental Health Services
Facilities (MBIA), 5.375%,
2/15/14 19,280,980
-------------
$ 28,073,047
-------------
INSURED HOUSING - 0.1%
Aaa AAA $ 500 New York City HDC, Charter
Oaks (MBIA), 7.375% 4/1/17 $ 524,525
-------------
INSURED MISCELLANEOUS - 0.1%
Aaa AAA $ 500 New York City IDA, (USTA
National Tennis Center
Incorporated Project)
(FSA), 6.375%, 11/15/14 $ 522,020
-------------
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
NEW YORK TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED) PRINCIPAL
- ----------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED SOLID WASTE - 1.6%
Aaa AAA $ 1,650 Dutchess County Resource
Recovery Solid Waste
(FGIC), 7.50%, 1/1/09 $ 1,814,505
Aaa AAA 6,795 Islip Resource Recovery
Agency (MBIA), 6.50%,
7/1/09 7,272,960
Aaa AAA 1,000 Montgomery, Otesgo,
Schoharie Solid Waste
Management Authority
(MBIA), 5.25%, 1/1/14 936,350
-------------
$ 10,023,815
-------------
INSURED TOLL & TURNPIKE - 1.0%
Aaa AAA $ 3,000 Triborough Bridge & Tunnel
Authority Residual
Interest Securities
(MBIA), Variable, 1/1/19
(1) $ 3,033,030
Aaa AAA 3,000 Triborough Bridge & Tunnel
Authority Residual
Interest Securities
(MBIA), Variable, 1/1/12
(1) 3,229,230
-------------
$ 6,262,260
-------------
INSURED WATER & SEWER - 0.1%
Aaa AAA $ 275 Albany Municipal Water
Financial Authority
(MBIA), 7.50%, 12/1/17 $ 298,944
-------------
LEASE/CERTIFICATE OF
PARTICIPATION - 8.7%
Baa1 BBB $ 1,955 Dormitory Authority, City
University, 5.75%, 7/1/13 $ 1,869,000
Baa1 BBB 17,815 Dormitory Authority, City
University, 5.75%, 7/1/13 17,031,318
Baa1 BBB 250 Dormitory Authority, City
University, 6.375%, 7/1/08 256,618
Baa1 BBB 5,100 Dormitory Authority, City
University, 7.00%, 7/1/09 5,653,044
Baa1 BBB 4,325 Dormitory Authority, City
University, 7.50%, 7/1/10 4,967,133
Baa1 BBB 6,125 New York State HFA Service
Contract, 5.375%, 9/15/11 5,635,000
NR BBB 5,865 New York State Thruway
Authority, 0%, 1/1/01 4,438,046
Baa1 BBB 5,775 New York State Urban
Development Corporation
(UDC) Correctional
Facilities, 5.50%, 1/1/14 5,342,337
Baa1 BBB 7,670 New York State UDC
Correctional Facilities,
5.25%, 1/1/13 6,896,557
Baa1 BBB 500 New York State UDC, Alfred
Technology, 7.875%, 1/1/20 549,070
<CAPTION>
RATINGS
(UNAUDITED) PRINCIPAL
- ----------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Baa1 BBB 750 New York State UDC,
Clarkson Center for
Advanced Materials, 7.80%,
1/1/20 821,512
Baa1 BBB 750 New York State UDC,
Clarkson Center for
Advanced Materials, 8.00%,
1/1/20 839,737
Baa1 A 1,825 Syracuse-Hancock
International Airport
Certificates of
Participation, 6.625%,
1/1/12 1,921,105
-------------
$ 56,220,477
-------------
MISCELLANEOUS - 1.6%
Aa AA- $ 200 City of New York Municipal
Assistance Corporation,
7.50%, 7/1/08 $ 218,888
Aa AA- 485 City of New York Municipal
Assistance Corporation,
7.625%, 7/1/08 530,896
Aa AA- 635 City of New York Municipal
Assistance Corporation,
7.625%, 7/1/08 714,724
NR NR 1,300 New York City IDA,
(YMCA of Greater New
York), 8.00%, 8/1/16 1,394,536
Aaa AAA 7,000 VRDC-IVRC Trust, Variable
Rate, 6/26/02 (1) 7,214,340
-------------
$ 10,073,384
-------------
SOLID WASTE - 2.0%
Baa1 A- $ 2,665 Hempstead IDA Resource
Recovery, American
Refunding Fuel Co., 7.40%,
12/1/10 $ 2,782,473
Baa NR 9,530 New York State EFC
Resource Recovery,
Huntington Project, 7.50%,
10/1/12 10,056,056
-------------
$ 12,838,529
-------------
SPECIAL TAX REVENUE - 12.5%
A A $12,160 New York State LGAC,
5.00%, 4/1/21 $ 10,582,240
A A 5,000 New York State LGAC,
5.00%, 4/1/21 4,368,900
A A 8,750 New York State LGAC,
5.00%, 4/1/23 7,526,313
A A 4,750 New York State LGAC,
5.25%, 4/1/16 4,406,908
A A 2,500 New York State LGAC,
5.25%, 4/1/19 2,265,400
A A 4,500 New York State LGAC,
5.375%, 4/1/16 4,221,180
A A 5,225 New York State LGAC,
5.50%, 4/1/17 4,960,040
</TABLE>
48
<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>
SPECIAL TAX REVENUE - (CONTINUED)
A A 12,420 New York State LGAC,
5.50%, 4/1/18 11,731,808
A A 13,000 New York State LGAC,
5.50%, 4/1/21 12,140,570
NR BBB+ 2,630 New York State Municipal
Bond Bank Agency, 6.875%,
3/15/06 2,866,095
Baa1 BBB 3,100 New York State Thruway
Authority Contract, Local
& Highway Building, 5.25%,
4/1/13 2,800,478
Baa1 A 2,000 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 1,902,740
Baa1 A 2,500 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 2,378,425
Baa1 A 4,840 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/18 5,079,774
Baa1 BBB 3,335 Triborough Bridge & Tunnel
Authority, Convention
Center, 6.00%, 1/1/11 3,318,158
-------------
$ 80,549,029
-------------
TRANSPORTATION - 6.2%
Baa1 BBB $ 4,025 MTA Transit Facilities
Service Contract, 4.75%,
7/1/19 $ 3,261,417
Baa1 BBB 3,670 MTA Transit Facilities
Service Contract, 4.75%,
7/1/19 2,973,764
Baa1 BBB 2,000 MTA Transit Facilities
Service Contract, 5.75%,
7/1/13 1,928,740
Baa1 BBB 725 MTA Transit Facilities
Service Contract, 5.75%,
7/1/13 699,168
NR BBB 2,350 New York State Thruway
Authority, Cross
Westchester Expressway
Project, 0%, 1/1/03 1,587,566
Ba1 BB 6,500 Port Authority of New York
and New Jersey, 5.75%,
6/15/30 6,254,170
Ba1 BB 2,800 Port Authority of New York
and New Jersey, Delta
Airlines LaGuardia
Airport, 6.95%, 6/1/08 2,969,512
A1 AA- 1,500 Port Authority of New York
and New Jersey (AMT),
Variable, 1/15/27 (1) 1,553,730
<CAPTION>
RATINGS
(UNAUDITED) PRINCIPAL
- ----------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa A+ 5,330 Triborough Bridge and
Tunnel Authority (TBTA)
General Purpose, 5.00%,
1/1/12 4,869,062
Aa A+ 11,580 TBTA General Purpose,
5.50%, 1/1/17 11,048,941
Aa A+ 2,500 TBTA General Purpose,
6.125%, 1/1/21 2,583,100
-------------
$ 39,729,170
-------------
WATER & SEWER REVENUE - 3.8%
Aa A $11,050 New York State EFC, State
Water Pollution Control,
6.875%, 6/15/10 $ 12,110,568
Aa A+ 4,545 New York State EFC, State
Water Pollution Control,
7.20%, 3/15/11 5,052,540
Aa A 2,750 New York State EFC, State
Water Pollution Control,
7.00%, 6/15/12 3,053,738
Aa A 150 New York State EFC, State
Water Pollution Control,
7.50%, 6/15/12 169,304
Baa1 A 3,750 Puerto Rico Aqueduct &
Sewer Authority, 7.875%,
7/1/17 4,160,625
-------------
$ 24,546,775
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $610,645,613) $ 642,348,587
=============
<FN>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
</TABLE>
The Portfolio invests primarily in debt securities issued by New York
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 September 30, 1995, 23.7% 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 0.1% to 11.0% of total investment.
See notes to financial statements
49
<PAGE>
- --------------------------------------------------------------------------------
Ohio Tax Free Portfolio
Portfolio of Investments - September 30, 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 - 7.9%
A A+ $ 1,000 University of Cincinnati,
6.50%, 12/1/11 $ 1,035,190
A1 AA- 650 University of Cincinnati,
6.50%, 6/1/11 684,314
Aa AA- 550 Ohio State Higher
Educational Facilities,
Case Western University,
6.50%, 10/1/20 604,335
NR AA 1,000 Ohio State Higher
Educational Facilities,
Oberlin College, 5.375%,
10/1/15 942,190
NR AAA 2,100 Ohio Higher Educational
Facilities, Ohio Northern
University (CLEE), 5.60%,
5/1/13 2,069,886
NR AAA 2,750 Ohio Higher Educational
Facilities, Ohio Northern
University (CLEE), 5.65%,
5/1/18 2,688,153
A1 A+ 1,300 Ohio State Higher
Educational Facilities,
Public Facilities, 5.50%,
12/1/07 1,319,513
A1 NR 7,000 Ohio State Student Loan
Funding Corp (AMT),
6.10%, 8/1/07 7,165,200
A1 NR 7,000 Ohio State Student Loan
Funding Corp (AMT),
6.10%, 8/1/08 7,121,100
A1 AA- 1,500 Ohio State University
Revenue, 5.75%, 12/1/09 1,523,325
-------------
$ 25,153,206
-------------
ESCROWED - 0.2%
A1 NR $ 500 Gahanna, Ohio General
Obligation, 7.00%, 6/1/12 $ 566,875
-------------
GENERAL OBLIGATIONS -
9.1%
NR NR $ 3,035 Belmont County, 7.30%,
12/1/17 $ 3,190,392
A NR 600 City of Brunswick,
Various Purpose, 6.30%,
12/1/12 617,586
NR NR 2,450 Cleveland City School
District, 7.25%, 6/15/98 2,498,069
Aaa AAA 1,035 City of Columbus, 5.50%,
11/1/12 1,025,902
A1 NR 1,360 Copley-Fairlawn City
School District, 6.25%,
12/1/15 1,403,180
NR BBB 3,500 Guam Government, 5.375%,
11/15/13 3,104,535
A1 NR 3,340 Hilliard City School
District, 6.30%, 12/1/14 3,462,344
A1 NR 500 Huber Heights, Ohio,
6.75%, 12/1/11 534,185
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
A NR 1,200 Mansfield Ohio Waterworks
Improvement, 5.60%,
12/1/13 1,162,692
A1 NR 725 City of Medina, Ohio Fire
Station Improvement,
3.00%, 12/1/10 527,445
Aa AA 1,500 Ohio State Infrastructure
Improvement, 0%, 8/1/11 632,685
Baa1 NR 1,000 Scioto County, Ohio Human
Services Building, 7.15%,
8/1/11 1,136,590
NR NR 1,000 Tuscarawas Public Library
Improvement, 6.90%,
12/1/11 1,055,300
Baa NR 1,000 Youngstown, Ohio, 7.55%,
12/1/11 1,080,240
NR NR 6,855 Youngstown, Ohio, 7.35%,
6/15/05 7,413,614
-------------
$ 28,844,759
-------------
HEALTH CARE - 2.4%
NR AAA $ 1,000 Allen County Ohio, LIMA
Convalescent Home
Foundation (GNMA), 6.40%,
1/1/21 $ 1,022,330
Aa2 NR 1,600 Hamilton County,
Episcopal Retirement
Homes, 6.80%, 1/1/08 1,745,504
NR BBB- 1,800 Marion County, United
Church Homes, 6.30%,
11/15/15 1,734,354
Baa BBB 2,925 Puerto Rico Urban Renewal
& Housing Corporation,
0%, 10/1/99 2,364,570
Aa2 NR 600 Warren County, Otterbein
Home Project, 7.20%,
7/1/11 662,418
-------------
$ 7,529,176
-------------
HOSPITALS - 19.3%
Baa BBB- $ 1,000 Butler County, Hamilton-
Hughe Hospital, 7.50%,
1/1/10 $ 1,032,270
NR BBB 1,000 Cambridge Ohio, Guernsey
Memorial Hospital, 8.00%,
12/1/11 1,068,500
A1 A 2,100 Cuyahoga County, Fairview
General Hospital, 6.25%,
8/15/10 2,152,101
A1 A 2,370 Cuyahoga County, Meridia
Health System, 7.00%,
8/15/23 2,505,967
A1 A 2,000 Cuyahoga County, Meridia
Health System, 6.50%,
8/15/12 2,052,600
</TABLE>
50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - (CONTINUED)
Aa AA 750 Cuyahoga County,
University Hospitals
Health System, 6.50%,
1/15/19 778,560
Aa AA 4,450 Cuyahoga County,
University Hospitals
Health System, 6.00%,
1/15/22 4,487,024
NR BBB 4,500 Defiance Hospital, Inc.,
7.625%, 11/1/03 4,641,075
Baa BBB- 665 East Liverpool City
Hospital-Series A, 8.00%,
10/1/21 696,893
Baa BBB- 1,000 East Liverpool City
Hospital-Series B, 8.00%,
10/1/21 1,044,880
A A- 4,000 Erie County, Firelands
Community Hospital,
6.75%, 1/1/08 4,237,640
Aa NR 3,000 Franklin County,
Children's Hospital,
6.60%, 5/1/13 3,167,310
Aa NR 1,900 Franklin County,
Riverside United
Methodist Hospital,
5.75%, 5/15/20 1,804,088
A A 1,015 City of Garfield Heights,
Marymount Hospital,
6.65%, 11/15/11 1,052,058
A A 1,000 City of Garfield Heights,
Marymount Hospital,
6.70%, 11/15/15 1,040,670
Aa2 NR 1,000 Hamilton County, Wesley
Hall Project, 6.50%,
3/1/15 1,022,560
A1 A 4,000 Hamilton County, Bethesda
Hospital, Inc., 6.25%,
1/1/12 4,027,400
A1 A+ 1,095 Lorain County, Humility
of Mary Health Care
Corp., 7.125%, 12/15/06 1,199,266
A1 A+ 5,900 Lorain County, Humility
of Mary Health Care
Corp., 5.90%, 12/15/08 6,048,208
A1 A+ 1,000 Lorain County, Humility
of Mary Health Care
Corp., 7.20%, 12/15/11 1,081,030
NR A+ 1,750 Lorain County, Lakeland
Community Hospital, Inc.,
6.50%, 11/15/12 1,794,538
NR BBB+ 1,000 Lucas County, Flowers
Hospital, 6.125%, 12/1/13 939,000
A A 2,760 City of Middleburg
Heights, Southwest
General Hospital Project,
6.75%, 8/15/21 2,880,971
NR NR 10,000 Mt Vernon, Knox Community
Hospital, 7.875%, 6/1/12 10,358,900
-------------
$ 61,113,509
-------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - 7.1%
Aa NR $ 1,300 City of Clermont, Laurels
Project (FHA), 6.00%,
9/1/20 $ 1,285,011
Aa NR 1,000 Franklin County, Hamilton
Creek Apartments (FHA),
(AMT), 5.80%, 7/1/14 942,190
Aa NR 3,660 Franklin County, Hamilton
Creek Apartments (FHA),
(AMT), 5.55%, 7/1/24 3,239,905
NR AAA 3,490 Ohio HFA, (GNMA), (AMT),
6.375%, 3/1/25 3,523,853
NR AAA 4,735 Ohio HFA, (GNMA), (AMT),
6.70%, 3/1/25 4,844,899
NR AAA 835 Ohio HFA, SFMR (GNMA),
7.60%, 9/1/16 871,723
NR AAA 1,250 Ohio HFA, MFMR-Asbury
Woods (FHA), 7.00%,
10/1/24 1,279,350
Aa NR 2,850 Ohio HFA, Oakleaf Village
Project, (FHA), 5.70%,
9/1/26 2,643,746
Aa NR 1,000 Ohio HFA, Aristocrat
South Board & Care
Project (FHA), (AMT),
7.30%, 8/1/31 1,037,330
Aaa AAA 1,085 Ohio HFA SFMR, (GNMA)
(AMT), Variable, 3/31/31
(1) 1,162,317
NR BBB+ 1,020 Ohio Economic
Development, KMART Corp.,
6.75%, 5/15/07 1,034,810
A1 A+ 500 Ohio Building Authority
Juvenile Correctional
Building, 5.80%, 10/1/07 515,125
-------------
$ 22,380,259
-------------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL
REVENUE - 8.8%
NR BBB $510.... Madison County, IDR,
KMART Corp., 6.75%,
9/15/06 $ 523,734
Baa1 NR 3,750 Ohio Air Quality
Development Authority,
Ashland Oil Inc, 6.85%,
4/1/10 3,991,163
NR A- 595 Ohio IDR, Enterprise Bond
Fund, Burrows Paper Corp.
(AMT), 7.625%, 6/1/11 659,546
NR A- 310 Ohio IDR, Enterprise Bond
Fund, Cheryl & Co.,
(AMT), 5.50%, 12/1/04 307,774
NR A- 530 Ohio IDR, Enterprise Bond
Fund, Cheryl & Co.,
(AMT), 5.90%, 12/1/09 530,806
</TABLE>
51
<PAGE>
- --------------------------------------------------------------------------------
OHIO TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT/ POLLUTION
CONTROL REVENUE - (CONTINUED)
NR A- 1,815 Ohio IDR, Enterprise Bond
Fund, Consolidated
Biscuit, (AMT), 7.00%,
12/1/09 2,014,051
NR A- 3,425 Ohio IDR, Enterprise Bond
Fund, J J & W LP Project
(AMT), 6.70%, 12/1/14 3,536,826
NR A- 750 Ohio IDR, Enterprise Bond
Fund, Luigino's Inc.
(AMT), 6.85%, 6/1/01 772,388
NR A- 1,000 Ohio IDR, Enterprise Bond
Fund, Progress Plastic
Products, (AMT), 6.80%,
12/1/01 1,086,040
NR A- 1,525 Ohio IDR, Enterprise Bond
Fund, Progress Plastic
Products, (AMT), 7.80%,
12/1/09 1,772,660
NR A- 680 Ohio IDR, Enterprise Bond
Fund, Royal Appliance
Manufacturing Co., Series
1991 #9 (AMT), 7.625%,
12/1/11 758,234
NR A- 1,000 Ohio IDR, Enterprise Bond
Fund, Royal Appliance
Manufacturing Co., Series
1991 #5 (AMT), 7.625%,
12/1/11 1,115,050
NR A- 1,800 Ohio IDR, Enterprise Bond
Fund, Speco Corp. (AMT),
6.60%, 6/1/04 1,857,186
NR A- 170 Ohio IDR, Enterprise Bond
Fund, Speco Corp. (AMT),
6.25%, 6/1/00 173,553
NR A- 880 Ohio IDR, Enterprise Bond
Fund, VSM Corp., (AMT),
7.375%, 12/1/11 969,936
NR AA- 1,000 Ohio Pollution Control,
Standard Oil Company,
6.75%, 12/1/15 1,167,220
Baa2 BBB 4,065 Ohio Water Development
Authority, Union Carbide
Corp. Project, 5.50%,
1/15/07 3,935,245
Ba2 NR 1,500 Portage County, Kroger
Corporation, 7.25%,
7/1/99 1,592,175
Ba2 NR 1,000 Summit County, Kroger
Corporation, 6.85%,
7/1/99 1,050,140
-------------
$ 27,813,727
-------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED EDUCATION - 1.1%
Aaa AAA $ 1,000 Adams & Highland County
Local School District
(MBIA), 5.25%, 12/1/21 $ 923,810
Aaa AAA 1,500 Delaware County, Buckeye
Valley Local School
District (MBIA), 5.25%,
12/1/20 1,402,665
Aaa AAA 1,000 Ohio Higher Education,
University of Dayton
Project (FGIC), 5.80%,
12/1/14 1,000,720
-------------
$ 3,327,195
-------------
INSURED GENERAL OBLIGATIONS - 1.5%
Aaa AAA $ 1,700 Puerto Rico (AMBAC),
Variable, 7/1/15 (1) $ 1,716,898
Aaa AAA 3,000 Puerto Rico (FSA),
Variable, 7/1/22 (1) 3,077,910
-------------
$ 4,794,808
-------------
INSURED HEALTH CARE - 2.4%
Aaa AAA $ 1,945 Hamilton County, Sisters
of Charity Health Care
System (MBIA), 5.25%,
5/15/13 $ 1,819,645
Aa AA- 5,925 Montgomery County,
Sisters of Charity Health
Care System (MBIA),
5.25%, 5/15/11 5,563,871
-------------
$ 7,383,516
-------------
INSURED HOSPITALS - 11.7%
Aaa AAA $ 2,500 Akron, Bath and Copley
Townships Children's
Hospital Medical Center
of Akron, (AMBAC), 5.25%,
11/15/20 $ 2,276,175
Aaa AAA 1,000 Clermont County, Mercy
Health System (AMBAC),
Variable, 10/5/21 (1) 1,128,810
Aaa AAA 1,500 Cuyahoga County, Fairview
Hospital, (MBIA), 5.50%,
8/15/19 1,389,270
Aaa AAA 5,885 Franklin County,
Riverside United
Methodist (AMBAC), 5.75%,
5/15/12 5,797,961
Aaa AAA 10,500 Franklin County,
Riverside United
Methodist (AMBAC), 5.75%,
5/15/20 10,085,565
Aaa AAA 1,455 Hamilton County, The
Christ Hospital (FGIC),
5.50%, 1/1/08 1,472,169
Aaa AAA 1,500 Hamilton County,
Children's Hospital
Medical Center, (FGIC),
5.00%, 5/15/13 1,370,130
Aaa AAA 2,750 Mansfield General
Hospital (AMBAC), 6.70%,
12/1/09 2,970,028
</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 HOSPITALS -
(CONTINUED)
Aaa AAA 1,000 Montgomery County, Ohio
Miami Valley Hospital,
(AMBAC), 6.25%, 11/15/16 1,030,000
Aaa AAA 6,565 Portage County, Robinson
Memorial Hospital,
(MBIA), 5.80%, 11/15/15 6,272,201
Aaa AAA 3,500 Stark County, Timken
Mercy Medical, (MBIA),
5.00%, 12/1/19 3,113,320
-------------
$ 36,905,629
-------------
INSURED HOUSING - 0.6%
Aaa AAA $ 990 Ohio Capital Corporation
FHA Insured Mortgage
Loans, (MBIA), 7.25%,
7/1/24 $ 1,032,649
Aaa AAA 750 Ohio Capital Corporation
FHA Insured Mortgage
Loans, (MBIA), 6.50%,
1/1/25 763,965
-------------
$ 1,796,614
-------------
INSURED INDUSTRIAL
DEVELOPMENT REVENUE -2.3%
Aaa AAA $ 7,000 Ohio Air Quality
Development Authority,
JMG Funding, L.P.
Project, (AMBAC), (AMT),
6.375%, 1/1/29 $ 7,180,670
-------------
INSURED LEASE - 2.6%
Aaa AAA $ 1,000 Ohio Higher Education,
University of Dayton,
(FGIC), 0%, 12/1/06 $ 560,870
Aaa AAA 8,000 Ohio State Public
Building
Authority-Workers Comp
Facilities (MBIA), 4.50%,
4/1/04 7,785,200
-------------
$ 8,346,070
-------------
INSURED SPECIAL TAX REVENUE - 4.9%
Aaa AAA $ 2,110 Hudson Local School
District, (FGIC), 0%,
12/15/09 $ 976,656
Aaa AAA 2,115 Hudson Local School
District, (FGIC), 0%,
12/15/10 920,427
Aaa AAA 2,000 North Canton City School
District (AMBAC), 5.90%,
12/1/14 2,024,260
Aaa AAA 1,400 Pickerington Local School
District, (AMBAC), 0%,
12/1/11 562,800
Aaa AAA 2,000 Puerto Rico Highway &
Transportation Authority
(FSA), 5.50%, 7/1/17 1,911,920
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 7,000 Puerto Rico Highway &
Transportation Authority
(FSA), 5.25%, 7/1/21 6,435,380
Aaa AAA 3,000 Puerto Rico Highway &
Transportation Authority
(FSA), 5.25%, 7/1/20 2,762,220
-------------
$ 15,593,663
-------------
INSURED UTILITIES - 2.4%
Aaa AAA $ 1,650 Cleveland Public Power
System, (MBIA), 7.00%,
11/15/17 $ 1,809,605
Aaa AAA 2,000 Cuyahoga County Medical
Center Utility System
(AMT) (MBIA), 6.10%,
8/15/15 2,001,480
Aaa AAA 1,380 OH Municipal Electric
Generation Agency
(AMBAC), 5.375%, 2/15/24 1,289,665
Aaa AAA 2,300 Puerto Rico Electric
Power Authority, (FSA),
Variable, 7/1/02 (1) 2,548,814
-------------
$ 7,649,564
-------------
LEASE/COPS - 1.1%
A NR $ 1,000 University of Akron COP,
West Campus Parking Deck,
5.50%, 1/1/14 $ 974,080
Baa1 A 2,500 Puerto Rico Public
Building Authority,
6.00%, 7/1/12 2,504,675
-------------
$ 3,478,755
-------------
LIFE CARE - 0.6%
Aa NR $ 2,000 Franklin County,
Kensington Place Project,
6.75%, 1/1/34 $ 2,046,600
-------------
SPECIAL TAX REVENUE - 4.2%
Baa1 A $ 3,000 Puerto Rico Highway &
Transportation Authority,
6.625%, 7/1/12 $ 3,168,450
Baa1 A 1,500 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/15 1,427,055
Baa1 A 5,000 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/20 4,466,150
Baa1 A 4,995 Puerto Rico Highway &
Transportation Authority,
5.00%, 7/1/22 4,280,216
-------------
$ 13,341,871
-------------
</TABLE>
53
<PAGE>
- --------------------------------------------------------------------------------
OHIO TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION - 1.7%
NR BBB $ 2,750 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 2,755,913
A1 AA- 2,830 Ohio Turnpike Commission,
5.75%, 2/15/24 2,771,617
-------------
$ 5,527,530
-------------
UTILITIES - 7.2%
NR BBB $ 5,500 Guam Power Authority,
5.25%, 10/1/13 $ 4,960,170
NR BBB 5,000 Guam Power Authority,
5.25%, 10/1/23 4,307,600
Baa1 A- 3,000 Puerto Rico Electric
Power Authority, 5.00%,
7/1/12 2,709,060
Baa1 A- 360 Puerto Rico Electric
Power Authority, 7.125%,
7/1/14 392,580
Baa1 A- 4,000 Puerto Rico Electric
Power Authority, 6.00%,
7/1/14 3,968,440
Baa1 A- 20,165 Puerto Rico Electric
Power Authority, 0%,
7/1/17 5,301,379
NR NR 1,000 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 1,050,210
-------------
$ 22,689,439
-------------
WATER & SEWER REVENUE - 0.9%
NR NR $ 800 The Mahoning Valley
Sanitary District, 7.80%,
12/15/08 $ 855,392
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 950 The Mahoning Valley
Sanitary District, 7.80%,
12/15/09 1,013,099
NR NR 1,000 City of Vermilion, Ohio
Water System, 7.25%,
8/15/15 1,066,720
-------------
$ 2,935,211
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $304,406,955)
$ 316,398,646
===============
<FN>
(1) The above designated securities have been issued as inverse floater bonds.
</TABLE>
The Portfolio invests primarily in debt securities issued by Ohio
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 September 30, 1995, 36.3% 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 2.0% to 11.4% of total investments.
See notes to financial statements
54
<PAGE>
- --------------------------------------------------------------------------------
Rhode Island Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 5.1%
Aa AA $1,500 Rhode Island Health and
Educational Building
Corporation, Brown
University, 5.375%, 9/1/23 $ 1,410,315
A NR 750 Rhode Island Student Loan
Authority, 5.60%, 12/1/12 703,560
-----------
$ 2,113,875
-----------
ELECTRIC UTILITY - 3.7%
Baa1 A- $ 710 Puerto Rico Electric Power
Authority, 5.00%, 7/1/12 $ 641,144
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 5.50%, 7/1/25 912,910
-----------
$ 1,554,054
-----------
GENERAL OBLIGATIONS (LOCAL)
-0.8%
Ba NR $ 310 West Warwick, 6.80%,
7/15/98 $ 315,670
-----------
GENERAL OBLIGATIONS
(TERRITORY) - 3.9%
Baa1 A $ 500 Puerto Rico Public
Improvement, 5.50%, 7/1/13 $ 477,075
Baa1 A 500 Puerto Rico Public Building
Authority, 5.75%, 7/1/15 483,355
NR BBB 750 Government of Guam, 5.40%,
11/15/18 652,755
-----------
$ 1,613,185
-----------
HOSPITALS - 5.7%
NR AA $1,500 Rhode Island Health and
Educational Building
Corporation, Landmark
Medical Center, 5.875%,
10/1/19 $ 1,432,335
NR A 1,015 Rhode Island Health and
Educational Building
Corporation, Butler
Hospital, 5.125%, 1/1/08 957,135
-----------
$ 2,389,470
-----------
HOUSING - 16.7%
Aa AA+ $1,500 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 6.60%,
10/1/25 $ 1,502,370
Aa AA 100 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 6.70%,
10/1/12 101,929
Aa AA 270 Rhode Island Housing and
Mortgage Finance
Corporation, 6.70%, 10/1/14 280,930
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA+ 875 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 6.80%,
10/1/25 (2) 893,034
Aa AA+ 1,000 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 7.10%,
10/1/23 1,033,790
Aa AA+ 2,000 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 7.55%,
10/1/22 2,137,460
NR A 35 Rhode Island Housing and
Mortgage Finance
Corporation, 7.875%,
10/1/22 36,217
Baa BBB 1,025 Puerto Rico Housing Bank
and Finance Agency, 5.125%,
12/1/05 994,527
-----------
$ 6,980,257
-----------
INDUSTRIAL DEVELOPMENT
REVENUE - 3.6%
Baa3 BB+ $ 500 Puerto Rico Port Authority,
American Airlines, Inc.
(AMT), 6.30%, 6/1/23 $ 493,499
Aa2 AA 1,000 Rhode Island Industrial
Facilities Corp., Mobil
Corp., 6.00%, 11/1/14 995,440
-----------
$ 1,488,939
-----------
INSURED COLLEGE AND
UNIVERSITY - 9.8%
Aaa AAA $1,000 Rhode Island Health and
Educational Building,
Providence College Issue
(MBIA), 5.60%, 11/1/15 $ 954,740
Aaa AAA 730 Rhode Island Health and
Educational Building,
Providence College Issue
(MBIA), 5.60%, 11/1/22 687,397
Aaa AAA 500 Rhode Island Health and
Educational Building,
University of Rhode Island
(MBIA), 5.50%, 9/15/13 478,550
Aaa AAA 2,200 Rhode Island Health and
Educational Building,
University of Rhode Island
(MBIA), 5.25%, 9/15/23 1,966,712
-----------
$ 4,087,399
-----------
</TABLE>
55
<PAGE>
- --------------------------------------------------------------------------------
RHODE ISLAND TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL OBLIGATIONS - 7.9%
Aaa AAA $ 750 Rhode Island Depositors
Economic Protection
Corporation (MBIA), 5.25%,
8/1/21 $ 677,453
Aaa AAA 1,980 Rhode Island Port Authority
and Economic Development
Corporation Airport, (FSA),
5.25%, 7/1/23 1,734,539
Aaa AAA 900 Rhode Island Public
Buildings Authority
(AMBAC), 5.25%, 2/1/10 866,601
-----------
$ 3,278,593
-----------
INSURED GENERAL OBLIGATIONS
(LOCAL) - 4.7%
Aaa AAA $1,000 Burrellville, (MBIA),
5.75%, 10/15/17 $ 993,800
Aaa AAA 500 Town of West Warwick,
(MBIA), 5.90%, 1/1/05 534,925
Aaa AAA 480 City of Woonsocket, Water
Bonds (MBIA), 5.125%,
3/1/13 454,824
-----------
$ 1,983,549
-----------
INSURED GENERAL OBLIGATIONS
(STATE) - 2.4%
Aaa AAA $1,000 State of Rhode Island and
Providence Plantations,
Consolidated Capital
Development (FGIC), 5.50%,
7/15/12 $ 999,900
-----------
INSURED GENERAL OBLIGATION
(TERRITORY) - 0.6%
Aaa AAA $ 250 Puerto Rico, Public
Improvement Bonds of 1992,
Yield Curve Notes (AMBAC),
Variable, 7/1/15 (1) $ 252,485
-----------
INSURED HOUSING - 6.1%
Aaa AAA $ 890 Providence Housing
Development Corporation
Mortgage, (Barbara Jordan
Apartments) (MBIA), 6.50%,
7/1/09 $ 917,643
Aaa AAA 1,075 Villa Excelsior Housing
Development Corporation
Mortgage (MBIA), 6.75%,
1/1/19 1,103,756
Aaa AAA 500 Villa Excelsior Housing
Development Corporation
Mortgage (MBIA), 6.85%,
1/1/24 515,260
-----------
$ 2,536,659
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 4.6%
Aaa AAA $ 800 City of Pawtucket, Public
Building Authority (CGIC),
5.75%, 3/15/14 $ 796,368
Aaa AAA 590 Providence Rhode Island
Public Building Authority,
Feinstein School (MBIA),
5.25%, 12/15/13 551,249
Aaa AAA 630 Providence Rhode Island
Public Building Authority,
Feinstein School (MBIA),
5.25%, 12/15/14 583,947
-----------
$ 1,931,564
-----------
INSURED WATER & SEWER - 16.6%
Aaa AAA $1,500 Kent County Water Authority
General Revenue Bonds, 1994
Series A (MBIA), 6.35%,
7/15/14 $ 1,560,390
Aaa AAA 1,000 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.80%, 10/1/09 1,030,650
Aaa AAA 1,000 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.80%, 8/1/12 1,003,100
Aaa AAA 500 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.85%, 10/1/09 515,120
Aaa AAA 2,000 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.875%, 10/1/15 1,996,480
Aaa AAA 750 Rhode Island Clean Water,
Safe Drinking Water (MBIA),
6.70%, 1/1/15 800,610
-----------
$ 6,906,350
-----------
MISCELLANEOUS - 1.1%
Baa1 A- $ 500 Rhode Island Depositors
Economic Protection
Corporation, 5.75%, 8/1/21 $ 476,090
-----------
SPECIAL TAX - 6.7%
Baa BBB- $1,500 City of Providence, Rhode
Island, Special Obligation
Tax Increment Bonds, 7.65%,
6/1/16 $ 1,631,490
Baa1 A 750 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/17 701,258
</TABLE>
56
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SPECIAL TAX - (CONTINUED)
Baa1 A 500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 446,615
-----------
$ 2,779,363
-----------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $41,635,939) $ 41,687,402
===========
<FN>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
</TABLE>
The Portfolio invests primarily in debt securities issued by Rhode Island
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 September 30, 1995, 52.7% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.9% to 37.4% of total investments.
See notes to financial statements
57
<PAGE>
- --------------------------------------------------------------------------------
West Virginia Tax Free Portfolio
Portfolio of Investments - September 30, 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%
NR BBB- $1,490 Puerto Rico IM&E
(Polytechnic University of
Puerto Rico), 5.50%, 8/1/24 $ 1,293,424
------------
ELECTRIC UTILITIES - 11.8%
NR BBB $ 750 Guam Power Authority,
5.25%, 10/1/13 $ 676,388
NR BBB 500 Guam Power Authority,
5.25%, 10/1/23 430,760
NR BBB 450 Guam Power Authority,
6.625%, 10/1/14 461,111
A2 A 2,000 Harrison, West Virginia PCR
(Monongahela Power Company
Harrison Station), 6.75%,
8/1/24 2,087,160
A3 BBB+ 1,000 Mason, West Virginia PCR
(Appalacian Power Co.),
6.85%, 6/1/22 1,050,440
------------
$ 4,705,859
------------
ESCROWED - 1.7%
Aaa AAA $2,500 Kanawha-Putnam, West
Virginia Single Family
Mortgage (AMBAC), 0%,
12/1/16 $ 672,925
------------
HEALTH CARE - 1.9%
NR NR $ 745 Kanawha, West Virginia IDR
(Beverly Enterprises),
7.25%, 11/1/04 $ 751,102
------------
HOSPITALS - 9.9%
NR BBB+ $1,750 Berkeley, West Virginia
Building Commission (City
Hospital), 6.50%, 11/1/22 $ 1,747,655
A1 NR 1,000 West Virginia HFA
(Charleston Area Medical
Center), 6.50%, 9/1/23 1,028,530
A1 NR 1,125 West Virginia HFA
(Charleston Area Medical
Center), 6.50%, 9/1/16 1,160,303
------------
$ 3,936,488
------------
HOUSING - 4.6%
Aa1 AA+ $1,000 West Virginia Housing
Development Finance, 5.45%,
11/1/21 $ 907,180
Aa1 AA+ 1,000 West Virginia Housing
Development Finance, 5.55%,
5/1/17 932,170
------------
$ 1,839,350
------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL REVENUE - 12.5%
NR A- $1,375 Jefferson, West Virginia
IDR (Royal Venders,
Incorporated) (AMT), 5.90%,
8/1/04 $ 1,402,321
Baa2 BBB 300 Kanawha, West Virginia IDR
(Union Carbide Chemicals
and Plastics Company)
(AMT), 8.00%, 8/1/20 328,362
A2 NR 1,500 Puerto Rico IM&E (American
Home Products Corporation),
5.10%, 12/1/18 1,321,875
Baa3 BB+ 925 Puerto Rico Port Authority
(American Airlines) (AMT),
6.30%, 6/1/23 923,696
NR NR 1,000 Upshur, West Virginia Solid
Waste (TJI Project) (AMT),
7.00%, 7/15/25 1,017,510
------------
$ 4,993,764
------------
INSURED EDUCATION - 4.5%
Aaa AAA $1,150 West Virginia State College
System (AMBAC), 6.00%,
4/1/12 (2) $ 1,164,088
Aaa AAA 650 West Virginia State
University System (AMBAC),
6.00%, 4/1/12 660,329
------------
$ 1,824,417
------------
INSURED ELECTRIC UTILITIES - 13.5%
Aaa AAA $2,500 Marshall County PCR (Ohio
Power Kammer Plant) (MBIA),
5.45%, 7/1/14 $ 2,386,825
Aaa AAA 1,500 Mason County PCR (Ohio
Power Company) (AMBAC),
5.45%, 12/1/16 1,425,840
Aaa AAA 250 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/03 (1) 279,805
Aaa AAA 1,400 Putnam County PCR
(Appalachian Power Company)
(AMBAC), 5.45%, 6/1/19 1,304,898
------------
$ 5,397,368
------------
INSURED GENERAL OBLIGATIONS - 2.5%
Aaa AAA $1,000 West Virginia School
Building Authority (MBIA),
6.00%, 7/1/12 $ 1,009,250
------------
INSURED HOSPITALS - 15.7%
Aaa AAA $1,000 West Virginia HFA (Linked
Bulls & Bears) (MBIA),
6.10%, 1/1/18 $ 1,007,600
</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>
INSURED HOSPITALS -
(CONTINUED)
Aaa AAA 200 West Virginia HFA
(University Hospital)
(MBIA), 5.00%, 6/1/13 179,592
Aaa AAA 2,000 West Virginia HFA
(University Hospital)
(MBIA), 5.00%, 6/1/16 1,756,180
Aaa AAA 2,300 West Virginia HFA (Cabell
Huntington Hospital)
(AMBAC), 6.25%, 1/1/19 2,346,782
Aaa AAA 1,000 West Virginia HFA
(Charleston Area Medical
Center) (MBIA), 5.75%,
9/1/13 972,720
------------
$ 6,262,874
------------
INSURED TRANSPORTATION - 2.0%
Aaa AAA $1,250 West Virginia Parkways
Economic Development and
Tourism Authority (FGIC),
0%, 5/15/04 $ 793,888
------------
INSURED WATER & SEWER - 11.1%
Aaa AAA $1,500 Huntington City Sewerage
System (FSA), 5.375%,
11/1/23 $ 1,412,085
Aaa AAA 1,000 Parkersburg City Waterworks
(MBIA), 6.375%, 9/1/19 1,036,110
Aaa AAA 500 West Virginia Water
Development (Loan Program
II) (FSA), 5.75%, 11/1/19 485,395
Aaa AAA 810 West Virginia Water
Development (Loan Program
II) (FSA), 5.50%, 11/1/23 751,162
Aaa AAA 750 West Virginia Water
Development (Loan Program
II) (FSA), 6.00%, 11/1/14 754,170
------------
$ 4,438,922
------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOLID WASTE - 2.6%
A2 A $1,000 Braxton, West Virginia
Solid Waste (Weyerhaeuser)
(AMT), 6.50%, 4/1/25 $ 1,022,740
------------
SPECIAL TAX REVENUE - 2.3%
Baa1 A $ 500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 $ 446,615
Baa1 A 500 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 475,681
------------
$ 922,294
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $40,032,289) $ 39,864,667
=============
<FN>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
</TABLE>
The Portfolio invests primarily in debt securities issued by West 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 September 30, 1995, 49.3% 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 2.0% to 20.9% total investments.
See notes to financial statements
59
<PAGE>
- --------------------------------------------------------------------------------
Tax Free Portfolios
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $381,719,158 $661,202,447 $277,979,560 $27,181,386
Unrealized appreciation 24,303,093 33,808,006 17,523,995 1,162,683
------------ ------------ ------------ -----------
Total investments, at value (Note 1A) $406,022,251 $695,010,453 $295,503,555 $28,344,069
Cash 589 5,917,921 6,632 38
Receivable for investments sold 50,000 45,000 13,030,253 1,555,677
Interest receivable 6,743,380 15,155,609 5,219,546 492,405
Deferred organization expenses (Note 1D) 14,563 21,095 12,432 1,700
------------ ------------ ------------ -----------
Total assets $412,830,783 $716,150,078 $313,772,418 $30,393,889
------------ ------------ ------------ -----------
LIABILITIES:
Demand note payable (Note 5) $ 2,032,000 $ -- $ 2,018,000 $ 405,000
Payable for investments purchased -- -- 9,507,914 975,907
Payable for when-issued securities (Note 1F) -- 3,936,280 -- --
Payable for daily variation margin on open financial
futures contracts (Note 1E) 103,125 -- 61,875 16,500
Payable to affiliates --
Trustees' fees 4,638 5,150 4,126 426
Custodian fee 8,667 1,879 4,381 1,946
Accrued expenses 12,215 3,633 5,875 1,150
------------ ------------ ------------ -----------
Total liabilities $ 2,160,645 $ 3,946,942 $ 11,602,171 $ 1,400,929
------------ ------------ ------------ -----------
NET ASSETS applicable to investors' interest in
Portfolio $410,670,138 $712,203,136 $302,170,247 $28,992,960
============ ============ ============ ===========
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $386,540,544 $678,395,130 $284,750,352 $27,858,037
Unrealized appreciation of investments and financial
futures contracts (computed on the basis of
identified cost) 24,129,594 33,808,006 17,419,895 1,134,923
------------ ------------ ------------ -----------
Total $410,670,138 $712,203,136 $302,170,247 $28,992,960
============ ============ ============ ===========
</TABLE>
See notes to financial statements
60
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $610,645,613 $304,406,955 $41,635,939 $40,032,289
Unrealized appreciation (depreciation) 31,702,974 11,991,691 51,463 (167,622)
------------ ------------ ----------- -----------
Total investments, at value (Note 1A) $642,348,587 $316,398,646 $41,687,402 $39,864,667
Cash 696 522 999,953 122
Receivable for investments sold 17,612,917 998,095 -- 1,251,526
Interest receivable 10,635,275 5,490,518 771,453 698,045
Deferred organization expenses (Note 1D) 14,921 9,316 1,744 1,738
------------ ------------ ----------- -----------
Total assets $670,612,396 $322,897,097 $43,460,552 $41,816,098
------------ ------------ ----------- -----------
LIABILITIES:
Demand note payable (Note 5) $ 476,000 $ 3,860,000 $ -- $ 970,000
Payable for investments purchased 16,908,493 -- 504,263 --
Payable for daily variation margin on open
financial futures contracts (Note 1E) 477,125 -- 48,125 7,313
Payable to affiliates --
Trustees' fees 5,150 4,126 426 427
Custodian fee 1,500 6,183 1,500 1,500
Accrued expenses 7,819 10,140 271 1,797
------------ ------------ ----------- -----------
Total liabilities $ 17,876,087 $ 3,880,449 $ 554,585 $ 981,037
------------ ------------ ----------- -----------
NET ASSETS applicable to investors' interest in
Portfolio $652,736,309 $319,016,648 $42,905,967 $40,835,061
============ ============ =========== ===========
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $621,396,197 $307,024,957 $42,891,975 $41,009,996
Unrealized appreciation (depreciation) of
investments and financial futures contracts
(computed on the basis of identified cost) 31,340,112 11,991,691 13,992 (174,935)
------------ ------------ ----------- -----------
Total $652,736,309 $319,016,648 $42,905,967 $40,835,061
============ ============ =========== ===========
</TABLE>
See notes to financial statements
61
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 28,624,042 $ 47,432,310 $ 19,516,946 $1,829,920
------------ ------------ ------------ -----------
Expenses --
Investment adviser fee (Note 2) $ 2,121,262 $ 3,433,489 $ 1,383,407 $ 65,442
Compensation of Trustees not members of
the Investment Adviser's organization (Note 2) 18,570 21,513 16,111 1,642
Custodian fee (Note 2) 187,581 231,473 135,884 20,589
Interest expense (Note 5) -- 267,593 -- --
Legal and accounting services 42,258 37,372 30,407 15,822
Amortization of organization expenses (Note 1D) 5,625 8,830 5,209 620
Miscellaneous 120,219 36,943 91,575 11,551
------------ ------------ ------------ ----------
Total expenses $ 2,495,515 $ 4,037,213 $ 1,662,593 $ 115,666
------------ ------------ ------------ ----------
Deduct reduction of investment adviser fee (Note
2) $ -- $ -- $ -- $ 36,759
Deduct reduction of custodian fee (Note 2) 47,611 220,751 61,501 10,910
------------ ------------ ------------ ----------
Total $ 47,611 $ 220,751 $ 61,501 $ 47,669
------------ ------------ ------------ ----------
Net expenses $ 2,447,904 $ 3,816,462 $ 1,601,092 $ 67,997
------------ ------------ ------------- ----------
Net investment income $ 26,176,138 $ 43,615,848 $ 17,915,854 $1,761,923
------------ ------------ ------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(19,076,355) $(10,100,669) $(12,310,806) $(1,606,974)
Financial futures contracts (3,974,440) (12,765,513) (3,356,628) (429,946)
------------ ------------ ------------ -----------
Net realized loss on investments $(23,050,795) $(22,866,182) $(15,667,434) $(2,036,920)
------------ ------------ ------------ -----------
Change in unrealized appreciation (depreciation) --
Investments $ 34,125,832 $ 54,420,669 $ 24,470,289 $3,291,986
Financial futures contracts (650,309) -- (482,875) (49,109)
------------ ------------ ------------ ----------
Net unrealized appreciation of investments $ 33,475,523 $ 54,420,669 $ 23,987,414 $3,242,877
------------ ------------ ------------ ----------
Net realized and unrealized gain on
investments $ 10,424,728 $ 31,554,487 $ 8,319,980 $1,205,957
------------ ------------ ------------ ----------
Net increase in net assets from operations $ 36,600,866 $ 75,170,335 $ 26,235,834 $2,967,880
============= ============= ============= ==========
</TABLE>
See notes to financial statements
62
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 41,798,094 $20,219,008 $ 2,510,499 $ 2,448,706
------------ ------------ ----------- -----------
Expenses --
Investment adviser fee (Note 2) $ 3,031,508 $ 1,463,895 $ 100,476 $ 98,033
Compensation of Trustees not members of
the Investment Adviser's organization (Note
2) 20,640 19,598 1,642 1,614
Custodian fee (Note 2) 221,548 157,716 25,652 19,975
Interest expense (Note 5) -- 114,074 9,944 --
Legal and accounting services 37,661 30,478 19,975 22,425
Amortization of organization expenses (Note 1D) 6,278 3,960 633 631
Miscellaneous 193,968 31,370 8,450 14,013
------------ ------------ ----------- -----------
Total expenses $ 3,511,603 $ 1,821,091 $ 166,772 $ 156,691
------------ ------------ ----------- -----------
Deduct reduction of investment adviser fee
(Note 2) $ -- $ -- $ 50,721 $ 32,526
Deduct reduction of custodian fee (Note 2) 220,048 67,412 16,510 8,102
------------ ------------ ----------- -----------
Total $ 220,048 $ 67,412 $ 67,231 $ 40,628
------------ ------------ ----------- -----------
Net expenses $ 3,291,555 $ 1,753,679 $ 99,541 $ 116,063
------------ ------------ ----------- -----------
Net investment income $ 38,506,539 $18,465,329 $ 2,410,958 $ 2,332,643
------------ ------------ ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(12,293,704) $(4,554,010) $ (674,421 ) $ (534,437)
Financial futures contracts (6,983,956) (2,677,416) (717,584 ) (623,660)
------------ ------------ ----------- -----------
Net realized loss on investments $(19,277,660) $(7,231,426) $(1,392,005 ) $(1,158,097)
------------ ------------ ----------- -----------
Change in unrealized appreciation
(depreciation) --
Investments $ 43,541,560 $20,963,434 $ 2,912,214 $ 2,862,911
Financial futures contracts (498,006) -- (37,471 ) (52,368)
------------ ------------ ----------- -----------
Net unrealized appreciation of investments $ 43,043,554 $20,963,434 $ 2,874,743 $ 2,810,543
------------ ------------ ----------- -----------
Net realized and unrealized gain on
investments $ 23,765,894 $13,732,008 $ 1,482,738 $ 1,652,446
------------ ------------ ----------- -----------
Net increase in net assets from
operations $ 62,272,433 $32,197,337 $ 3,893,696 $ 3,985,089
============ ============ =========== ===========
</TABLE>
See notes to financial statements
63
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 26,176,138 $ 43,615,848 $ 17,915,854 $ 1,761,923
Net realized loss on investments (23,050,795) (22,866,182) (15,667,434) (2,036,920)
Change in unrealized appreciation of investments 33,475,523 54,420,669 23,987,414 3,242,877
-------------- -------------- ------------ -----------
Net increase in net assets from operations $ 36,600,866 $ 75,170,335 $ 26,235,834 $ 2,967,880
-------------- -------------- ------------ -----------
Capital transactions --
Contributions $ 39,676,667 $ 64,327,943 $ 27,917,577 $ 4,982,661
Withdrawals (110,738,796) (199,418,295) (60,522,944) (8,434,232)
-------------- -------------- ------------ -----------
Decrease in net assets resulting from capital
transactions $ (71,062,129) $(135,090,352) $(32,605,367) $(3,451,571)
-------------- -------------- ------------ ------------
Total decrease in net assets $ (34,461,263) $ (59,920,017) $ (6,369,533) $ (483,691)
NET ASSETS:
At beginning of year 445,131,401 772,123,153 308,539,780 29,476,651
-------------- -------------- ------------ ------------
At end of year $ 410,670,138 $ 712,203,136 $302,170,247 $28,992,960
============== ============== ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 38,506,539 $ 18,465,329 $ 2,410,958 $ 2,332,643
Net realized loss on investments (19,277,660) (7,231,426) (1,392,005) (1,158,097)
Change in unrealized appreciation of
investments 43,043,554 20,963,434 2,874,743 2,810,543
------------- ------------ ------------ -------------
Net increase in net assets from operations $ 62,272,433 $ 32,197,337 $ 3,893,696 $ 3,985,089
------------- ------------ ------------ -------------
Capital transactions --
Contributions $ 61,423,633 $ 24,237,228 $ 9,514,698 $ 3,302,492
Withdrawals (126,606,533) (61,829,470) (8,622,345) (6,925,830)
------------- ------------ ------------ -------------
Increase (decrease) in net assets resulting
from
capital transactions $ (65,182,900) $(37,592,242) $ 892,353 $(3,623,338)
------------- ------------ ------------ -------------
Total increase (decrease) in net assets $ (2,910,467) $ (5,394,905) $ 4,786,049 $ 361,751
NET ASSETS:
At beginning of year 655,646,776 324,411,553 38,119,918 40,473,310
------------- ------------ ------------ -------------
At end of year $ 652,736,309 $319,016,648 $42,905,967 $40,835,061
============== ============== =========== ============
</TABLE>
See notes to financial statements
64
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION> FLORIDA
CALIFORNIA PORTFOLIO PORTFOLIO MASSACHUSETTS MISSISSIPPI
----------------------------- --------- PORTFOLIO PORTFOLIO
YEAR ENDED YEAR ENDED ------------- ------------
SEPTEMBER 30, MARCH 31, YEAR ENDED
1994** 1994* SEPTEMBER 30, 1994
------------- ------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 13,943,369 $ 25,183,098 $ 45,081,235 $ 17,598,654 $ 1,360,681
Net realized gain (loss) on
investment transactions (10,624,666) 10,976,521 (5,816,054) (5,575,616) (648,050)
Change in unrealized
depreciation of investments (942,071) (34,132,327) (84,917,438) (26,955,377) (2,341,025)
------------- ------------- -------------- ------------- ------------
Net increase (decrease) in net
assets from operations $ 2,376,632 $ 2,027,292 $ (45,652,257) $(14,932,339) $(1,628,394)
------------- ------------- ------------- ------------- ------------
Capital transactions --
Contributions $ 24,605,354 $553,867,973 $ 174,248,758 $ 73,999,994 $22,605,600
Withdrawals (49,109,598) (88,736,272) (128,894,901) (41,140,572) (2,733,129)
------------- ------------- ------------- ------------- ------------
Increase (decrease) in net
assets resulting from
capital transactions $(24,504,244) $465,131,701 $ 45,353,857 $ 32,859,422 $19,872,471
------------- ------------- ------------- ------------- ------------
Total increase (decrease)
in net assets $(22,127,612) $467,158,993 $ (298,400) $ 17,927,083 $18,244,077
NET ASSETS:
At beginning of year 467,259,013 100,020 772,421,553 290,612,697 11,232,574
------------- ------------- ------------- ------------- ------------
At end of year $445,131,401 $467,259,013 $ 772,123,153 $308,539,780 $29,476,651
============== ============== ============== ============== ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
YEAR ENDED SEPTEMBER 30, 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 38,006,256 $ 18,012,641 $ 1,702,520 $ 1,998,183
Net realized loss on investment transactions (2,555,481) (413,084) (572,496) (467,540)
Change in unrealized depreciation of
investments (67,884,728) (32,855,282) (3,287,877) (3,500,185)
------------- ------------- ------------ ------------
Net decrease in net assets from operations $(32,433,953) $(15,255,725) $(2,157,853) $(1,969,542)
------------- ------------- ------------ ------------
Capital transactions --
Contributions $135,102,754 $ 78,699,031 $26,648,655 $21,082,434
Withdrawals (95,828,619) (37,123,714) (3,352,183) (3,399,808)
------------ ------------- ------------ ------------
Increase in net assets resulting from capital
transactions $ 39,274,135 $ 41,575,317 $23,296,472 $17,682,626
------------ ------------ ---------- - ------------
Total increase in net assets $ 6,840,182 $ 26,319,592 $21,138,619 $15,713,084
NET ASSETS:
At beginning of year 648,806,594 298,091,961 16,981,299 24,760,226
------------ ------------ ----------- ------------
At end of year $655,646,776 $324,411,553 $38,119,918 $40,473,310
============ ============ =========== ============
- ------------
<FN>
* For the period from the start of business, May 3, 1993 to March 31, 1994.
** For the six months ended September 30, 1994 (Note 7).
</TABLE>
See notes to financial statements
65
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA PORTFOLIO FLORIDA PORTFOLIO
-------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED
-------------------------------- ----------------------------------
MARCH
SEPTEMBER 30, 31, SEPTEMBER 30,
------------------- -------- ----------------------------------
1995 1994**** 1994*** 1995 1994 1993*
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets):
Expenses 0.59% 0.57% + 0.55% + 0.55% 0.48% 0.47%+
Net investment income 6.22% 6.09% + 5.72% + 5.94% 5.65% 5.53%+
Net assets, end of year (000 omitted) $410,763 $445,131 $467,259 $712,203 $772,123 $772,422
PORTFOLIO TURNOVER 58% 40% 91% 61% 57% 55%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MASSACHUSETTS PORTFOLIO MISSISSIPPI PORTFOLIO
------------------------------ -------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 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 0.56% 0.51% 0.49%+ 0.27% 0.05% 0.00%+
Net investment income 6.00% 5.74% 5.72%+ 5.97% 5.67% 4.49%+
Net assets, end of year (000 omitted) $302,170 $308,540 $290,613 $28,993 $29,477 $11,233
PORTFOLIO TURNOVER 87% 53% 38% 52% 38% 11%
<FN>
++The operating expenses of the Mississippi Portfolio 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>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average daily net
assets):
Expenses 0.39% 0.32% 0.25%+
Net investment income 5.85% 5.40% 4.24%+
<FN>
+ Annualized.
* For the period from the start of business, February 1, 1993, to September
30, 1993.
** For the period from the start of business, June 11, 1993, to September 30,
1993.
*** For the period from the start of business, May 3, 1993 to March 31, 1994.
**** For the six months ended September 30, 1994 (Note 7).
</TABLE>
See notes to financial statements
66
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO OHIO PORTFOLIO
---------------------------------- ----------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
---------------------------------- ----------------------------------
1995 1994 1993* 1995 1994 1993*
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets):
Expenses 0.54% 0.48% 0.48%+ 0.57% 0.51% 0.49%+
Net investment income 5.97% 5.70% 5.64%+ 5.80% 5.61% 5.61%+
Net assets, end of year (000 omitted) $652,736 $655,647 $648,807 $319,017 $324,412 $298,092
PORTFOLIO TURNOVER 55% 47% 37% 51% 31% 24%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RHODE ISLAND PORTFOLIO WEST VIRGINIA PORTFOLIO
--------------------------------- ---------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 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 0.29% 0.12% 0.00%+ 0.31% 0.10% 0.00%+
Net investment income 5.96% 5.64% 4.86%+ 5.81% 5.52% 4.50%+
Net assets, end of year (000 omitted) $42,906 $38,120 $16,981 $40,835 $40,473 $24,760
PORTFOLIO TURNOVER 42% 42% 23% 19% 39% 19%
<FN>
++ The operating expenses of the Rhode Island and West Virginia 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>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average daily
net assets):
Expenses 0.41% 0.33% 0.26%+ 0.39% 0.33% 0.21%+
Net investment income 5.80% 5.43% 4.60%+ 5.73% 5.29% 4.30%+
<FN>
+ Annualized.
* For the period from the start of business, February 1, 1993, to September 30,
1993.
** For the period from the start of business, June 11, 1993, to September 30,
1993.
</TABLE>
See notes to financial statements
67
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
California Tax Free Portfolio (California Portfolio) is registered under the
Investment Company Act of 1940 as a diversified open-end Management Investment
Company. Florida Tax Free Portfolio (Florida Portfolio), Massachusetts Tax Free
Portfolio (Massachusetts Portfolio), Mississippi Tax Free Portfolio (Mississippi
Portfolio), New York Tax Free Portfolio (New York Portfolio), Ohio Tax Free
Portfolio (Ohio Portfolio), Rhode Island Tax Free Portfolio (Rhode Island
Portfolio) and West Virginia Tax Free Portfolio (West Virginia Portfolio),
collectively the Portfolios, are registered under the Investment Company Act of
1940 as non-diversified open-end management investment companies. The Portfolios
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
consistently followed by the Portfolios in the preparation of their financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS--Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of
the Trustees.
B. INCOME--Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES--The Portfolios are treated as partnerships for Federal tax
purposes. No provision is made by the Portfolios for federal or state taxes on
any taxable income of the Portfolios because each investor in the Portfolios is
ultimately responsible for the payment of any taxes. Since some of the
Portfolios' investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolios, the Portfolios normally
must satisfy the applicable source of income and diversification requirements
(under the Internal Revenue Code) in order for their respective investors to
satisfy them. The Portfolios will allocate at least annually among their
respective investors each investor's distributive share of the Portfolios' net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deductions or credit. Interest income
received by the Portfolios on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will retain its
status as income exempt from federal income tax when allocated to each
Portfolio's investors. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax preference
item for investors.
D. DEFERRED ORGANIZATIONAL EXPENSES--Costs incurred by a Portfolio in connection
with its organization are being amortized on the straight-line basis over five
years.
E. FINANCIAL FUTURES CONTRACTS--Upon the entering of a financial futures
contract, a Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by a Portfolio ("margin maintenance") each day, dependent on the daily
fluctuations in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by a Portfolio. A Portfolio's investment
in financial futures contracts is designed only to hedge against anticipated
future changes in interest rates. Should interest rates move unexpectedly, the
Portfolios may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-- The Portfolios may engage in
when-issued and delayed delivery transactions. The Portfolio records when-issued
securities on trade date and maintains security positions such that sufficient
liquid assets will be available to make payments for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are
marked-to-market daily and begin earning interest on settlement date.
G. OTHER -- Investment transactions are accounted for on a trade date basis.
68
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(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 September 30, 1995, each Portfolio paid advisory fees as follows:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT EFFECTIVE RATE*
- ------------------ ---------- ----------------
<S> <C> <C>
California $2,121,262 0.50%
Florida 3,433,489 0.47%
Massachusetts 1,383,407 0.46%
Mississippi 65,442 0.22%
New York 3,031,508 0.47%
Ohio 1,463,895 0.46%
Rhode Island 100,476 0.25%
West Virginia 98,033 0.24%
<FN>
* Advisory fees paid as a percentage of average daily net assets.
</TABLE>
To enhance the net income of the Mississippi Portfolio, Rhode Island Portfolio
and West Virginia Portfolio, BMR made a reduction in its fee in the amount of
$36,759, $50,721 and $32,526, respectively, for the year ended September 30,
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. All significant credit balances are reported as a
reduction of expenses in the statement of operations.
Certain of the officers and Trustees of the Portfolios are officers and
directors/trustees of the above organizations. Trustees of the Portfolio that
are not affiliated with the Investment Adviser may elect to defer receipt of all
or a percentage of their annual fees in accordance with the terms of the
Trustees Deferred Compensation Plan. For the year ended September 30, 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 fiscal year ended September 30, 1995, were as
follows:
<TABLE>
<CAPTION>
CALIFORNIA
PORTFOLIO FLORIDA PORTFOLIO MASSACHUSETTS PORTFOLIO MISSISSIPPI PORTFOLIO
------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Purchases $ 240,733,525 $442,070,821 $256,567,304 $ 15,055,910
Sales 289,176,459 538,413,651 272,646,745 17,241,107
</TABLE>
<TABLE>
<CAPTION>
NEW YORK RHODE ISLAND WEST VIRGINIA
PORTFOLIO OHIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Purchases $ 355,016,997 $159,675,006 $ 18,875,194 $ 7,550,158
Sales 397,804,899 188,427,313 16,667,230 10,130,261
</TABLE>
69
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investments
owned by each Portfolio at September 30, 1995, as computed on a federal income
tax basis, are as follows:
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Aggregate Cost $381,719,158 $661,202,447 $277,979,560 $27,181,386
============ ============ =========== =============
Gross unrealized appreciation $ 24,714,474 $ 37,104,327 $17,673,126 $ 1,233,400
Gross unrealized depreciation 411,381 3,296,321 149,131 70,717
------------ ------------ ----------- -------------
Net unrealized appreciation $ 24,303,093 $ 33,808,006 $17,523,995 $ 1,162,683
============ ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Aggregate Cost $610,645,613 $304,406,955 $41,635,939 $40,032,289
============ ============ =========== =============
Gross unrealized appreciation $ 34,539,991 $ 13,447,996 $ 809,990 $ 586,957
Gross unrealized depreciation 2,837,017 1,456,305 758,527 754,579
------------ ------------ ----------- -------------
Net unrealized appreciation (depreciation) $ 31,702,974 $ 11,991,691 $ 51,463 $ (167,622)
============ ============ =========== =============
</TABLE>
- --------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolios participate with other portfolios and funds managed by BMR and
EVM in a $120 million unsecured line of credit agreement with a bank. The line
of credit consists of a $20 million committed facility and a $100 million
discretionary facility. Each Portfolio may temporarily borrow up to 5% of its
total assets to satisfy redemption requests or settle securities transactions.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above either the bank's adjusted certificate of deposit rate, a variable
adjusted certificate of deposit rate, or a federal funds effective rate. In
addition, a fee computed at an annual rate of 1/4 of 1% on the $20 million
committed facility and on the daily unused portion of the $100 million
discretionary facility is allocated among the participating funds and portfolios
at the end of each quarter. At September 30, 1995, the California Portfolio,
Massachusetts Portfolio, Mississippi Portfolio, New York Portfolio, Ohio
Portfolio and West Virginia Portfolio had loan balances outstanding pursuant to
this line of credit of $2,032,000, $2,018,000, $405,000, $476,000, $3,860,000
and $970,000, respectively.
For the year ended September 30, 1995, the average daily balance outstanding
pursuant to this line of credit, the average interest rate and the maximum
outstanding month end balance were as follows:
<TABLE>
<CAPTION>
MAXIMUM
OUTSTANDING
AVERAGE AVERAGE MONTH END
PORTFOLIO DAILY BALANCE INTEREST RATE BALANCE
- ------------- ------------- ------------- -----------
<S> <C> <C> <C>
Florida $ 9,287,587 7.28% $26,664,000
Ohio 2,928,000 7.27% 9,776,000
Rhode Island 747,882 7.26% 1,370,000
</TABLE>
The California, Massachusetts, Mississippi, New York, and West Virginia
Portfolios did not have any significant borrowings or allocated fees during the
year end September 30, 1995.
70
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(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 September 30,
1995, were as follows:
<TABLE>
<CAPTION>
FUTURES
CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
- -------------- ---------------- ------------------------- -------- --------------
<S> <C> <C> <C> <C>
California 12/95 75 U.S. Treasury Bonds Short $173,499
Massachusetts 12/95 45 U.S. Treasury Bonds Short 104,100
Mississippi 12/95 12 U.S. Treasury Bonds Short 27,760
New York 12/95 347 U.S. Treasury Bonds Short 362,862
Rhode Island 12/95 35 U.S. Treasury Bonds Short 37,471
West Virginia 12/95 10 U.S. Treasury Bonds Short 7,313
</TABLE>
At September 30, 1995, each Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts. The Florida Portfolio and
Ohio Portfolio did not have any open obligations under these financial
instruments at September 30, 1995.
- --------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The California Portfolio changed it fiscal year end from March 31 to September
30, effective September 30, 1994.
71
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF:
CALIFORNIA TAX FREE PORTFOLIO
FLORIDA TAX FREE PORTFOLIO
MASSACHUSETTS TAX FREE PORTFOLIO
MISSISSIPPI TAX FREE PORTFOLIO
NEW YORK TAX FREE PORTFOLIO
OHIO TAX FREE PORTFOLIO
RHODE ISLAND TAX FREE PORTFOLIO
WEST VIRGINIA TAX FREE PORTFOLIO
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of California Tax Free Portfolio, Florida Tax
Free Portfolio, Massachusetts Tax Free Portfolio, Mississippi Tax Free
Portfolio, New York Tax Free Portfolio, Ohio Tax Free Portfolio, Rhode Island
Tax Free Portfolio and West Virginia Tax Free Portfolio as of September 30,
1995, the related statements of operations for the year then ended, the
statements of changes in net assets for the years ended September 30, 1995 and
1994, and for the California Tax Free Portfolio, the year ended March 31, 1994,
and the supplementary data for each of the years in the three-year period ended
September 30, 1995. These financial statements and supplementary data are the
responsibility of each 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 audits 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
September 30, 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 California Tax Free
Portfolio, Florida Tax Free Portfolio, Massachusetts Tax Free Portfolio,
Mississippi Tax Free Portfolio, New York Tax Free Portfolio, Ohio Tax Free
Portfolio, Rhode Island Tax Free Portfolio and West Virginia Tax Free Portfolio
at September 30, 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
October 27, 1995
72
<PAGE>
- --------------------------------------------------------------------------------
Investment Management
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FUNDS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspaper 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
JAMES L. O'CONNOR Banking, Harvard University
Treasurer Graduate School of
Business 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 and Portfolio President, Dwight Partners, Inc.
Manager of Florida Chairman, Newspaper of New
and Ohio Tax Free England, Inc.
Portfolios
SAMUEL L. HAYES, III
JAMES B. HAWKES Jacob H. Schiff Professor of
Vice President, Trustee Investment Banking, Harvard
University
ROBERT B. MACINTOSH Graduate School of
Vice President and Business Administration
Portfolio
Manager of California and NORTON H. REAMER
Massachusetts President and Director,
Tax Free Portfolios United Asset Management
Corporation
NICOLE ANDERES
Vice President and JOHN L. THORNDIKE
Portfolio Manager of New Director,
York and Rhode Island Fiduciary Company Incorporated
Tax Free Portfolios
JACK L. TREYNOR
TIMOTHY T. BROWSE Investment Adviser
Vice President and and Consultant
Portfolio Manager of
West Virginia Tax Free
Portfolios
CYNTHIA J. CLEMSON
Vice President and
Portfolio Manager of
Mississippi Tax Free
Portfolios
JAMES L. O'CONNOR
Treasurer
THOMAS OTIS
Secretary
73
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
74
<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 fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EATON VANCE
MUNICIPALS TRUST
24 FEDERAL STREET
BOSTON, MA 02110
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1996
EV TRADITIONAL MUNICIPAL FUNDS
<TABLE>
<S> <C>
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND EV TRADITIONAL NEW YORK MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND EV TRADITIONAL OHIO MUNICIPALS FUND
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND
</TABLE>
24 Federal Street
Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Municipals Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Fund's Part II (a "Part II") provides information
solely about a Fund and its corresponding Portfolio. Where appropriate Part I
includes cross-references to the relevant sections of Part II.
TABLE OF CONTENTS Page
PART I
Additional Information about Investment Policies ............ 1
Investment Restrictions ..................................... 8
Trustees and Officers ....................................... 9
Investment Adviser and Administrator ........................ 10
Custodian ................................................... 13
Services for Accumulation ................................... 13
Service for Withdrawal ...................................... 14
Determination of Net Asset Value ............................ 14
Investment Performance ...................................... 15
Taxes ....................................................... 16
Principal Underwriter ....................................... 18
Service Plan ................................................ 19
Portfolio Security Transactions ............................. 20
Other Information ........................................... 21
Independent Certified Public Accountants .................... 22
Financial Statements ........................................ 22
Appendix .................................................... 23
PART II
EV Traditional California Municipals Fund ................... a-1
EV Traditional Florida Municipals Fund ...................... b-1
EV Traditional Massachusetts Municipals Fund ................ c-1
EV Traditional Mississippi Municipals Fund .................. d-1
EV Traditional New York Municipals Fund ..................... e-1
EV Traditional Ohio Municipals Fund ......................... f-1
EV Traditional West Virginia Municipals Fund ................ g-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 FUND'S PROSPECTUS DATED FEBRUARY 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 information relates generally to the Fund, certain other
series of the Trust and the Portfolio. Capitalized terms used in this SAI and
not otherwise defined have the meanings given them in the Fund's Prospectus. The
Fund is subject to the same investment policies as those of the Portfolio. The
Fund currently seeks to achieve its objective by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations the interest on
which is exempt from federal income taxes and is not a tax preference item for
purposes of the federal alternative minimum tax: (i) certain "public purpose"
obligations (whenever issued), which include obligations issued directly by
state and local governments or their agencies to fulfill essential governmental
functions; (ii) certain obligations issued before August 8, 1986 for the benefit
of non-governmental persons or entities; and (iii) certain "private activity
bonds" issued after August 7, 1986 which include "qualified Section 501(c)(3)
bonds" or refundings of certain obligations included in the second category. In
assessing the federal income tax treatment of interest on any municipal
obligation, the Portfolio will generally rely on an opinion of the issuer's
counsel (when available) and will not undertake any independent verification of
the basis for the opinion. The two principal classifications of municipal bonds
are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does not have original issue discount or (ii)
in the case of an obligation that does have original issue discount, the sum of
the issue price and any original issue discount that accrued before the
obligation was purchased, subject to a de minimis exclusion.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds are in most cases revenue
bonds and are generally not secured by the taxing power of the municipality, but
are usually secured by the revenues derived by the authority from payments of
the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of the Investment Adviser) to evaluate or protect
any real estate, facilities or other assets securing any such obligation or
acquired by the Portfolio as a result of any such event, and the Portfolio may
also manage (or engage other persons to manage) or otherwise deal with any real
estate, facilities or other assets so acquired. The Portfolio anticipates that
real estate consulting and management services may be required with respect to
properties securing various municipal obligations in its portfolio or
subsequently acquired by the Portfolio. The Portfolio will incur additional
expenditures in taking protective action with respect to portfolio obligations
in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of the municipal obligations which they undertake to rate. It should be
emphasized, however, that ratings are based on judgment and are not absolute
standards of quality. Consequently, municipal obligations with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield. In
addition, the market price of such obligations will normally fluctuate with
changes in interest rates, and therefore the net asset value of the Portfolio
will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations of a Particular State. For a discussion of the risks
associated with the Portfolio's policy of concentrating its investments in
particular state issuers of municipal obligations, see "Risks of Concentration"
in the Fund's Part II.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of the same type. In particular, investments in industrial revenue
bonds might involve (without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state and local authorities. Since
the bonds are normally secured only by the revenues of each facility and not by
state or local government tax payments, they are subject to a wide variety of
risks. Primarily, the projects must maintain adequate occupancy levels to be
able to provide revenues sufficient to meet debt service payments. Moreover,
since a portion of housing, medical care and other services may be financed by
an initial deposit, it is important that the facility maintain adequate
financial reserves to secure estimated actuarial liabilities. The ability of
management to accurately forecast inflationary cost pressures is an important
factor in this process. The facilities may also be affected adversely by
regulatory cost restrictions applied to health care delivery in general,
particularly state regulations or changes in Medicare and Medicaid payments or
qualifications, or restrictions imposed by medical insurance companies. They may
also face competition from alternative health care or conventional housing
facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam
(the "Territories"). Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within the
Territories affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. The three largest sectors of the economy (as a percentage of
employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
The North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico. The November, 1995 unemployment rate was 13.4%.
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. A 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 changes in the tax treatment of Puerto Rico 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 to retain their Commonwealth status, become a state or
establish an independent nation. Puerto Ricans voted to retain Commonwealth
status, leaving intact the current relationship with the federal government.
There can be no assurance that the statehood issue will not be brought to a vote
in the future. A successful statehood vote in Puerto Rico would then require
ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas and St. John were hit by a hurricane and sustained extensive
damage. The longer term impact on the tourism industry is not yet known. There
can be no assurances that the market for USVI bonds will not be affected. In
general, hurricanes and civil unrest have and will continue to have an adverse
affect on the tourism industry.
An important component of the USVI revenue base is the federal excise tax on
rum exports. Tax revenues rebated by the federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI experienced a budget deficit in fiscal
years 1989 and in 1990: in 1989 due to wage settlements with the unionized
government employees and in 1990 as a result of Hurricane Hugo. The USVI
recorded a small surplus in fiscal year 1991. At the end of fiscal 1992, the
last year for which results are available, the USVI had an unreserved General
Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. Guam is
expected to benefit from the closure of the Subic Bay Naval Base and the Clark
Air Force Base in the Philippines. The Naval Air Station, one of several U.S.
military facilities on the island, has been slated for closure by the Defense
Base Closure and Realignment Committee; however, the administration plans to use
these facilities to expand the island's commercial airport. Guam is also heavily
reliant on tourists, particularly the Japanese. For 1994, the financial position
of Guam was weakened as it incurred an unaudited General Fund operating deficit.
The administration has taken steps to improve its financial position; however,
there are no guarantees that an improvement will be realized. Guam's general
obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to these
arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Such arrangements are, therefore, subject to the risk that
the governmental issuer will not appropriate funds for lease payments.
Certain muncipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this SAI with respect to any defaulted obligations held by the
Portfolio.
SHORT-TERM TRADING
The Portfolio may sell securities 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 and (ii) futures
contracts on securities indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or foreign
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
their 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 (39), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust on March
22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (33), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary on March
27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads and Gaston & Snow. Officer of
various investment companies managed by Eaton Vance or BMR. Mr. Woodubury
was elected Assistant Secretary on June 19, 1995.
For any additional officers of the Portfolio, see "Additional Officer
Information" in the Fund's Part II.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Fund's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters relative
to accounting and auditing practices and procedures, accounting records,
internal accounting controls, and the functions performed by the custodian and
transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred fees
invested by the Portfolio in the shares of one or more funds in the Eaton Vance
Family of Funds, and the amount paid to the Trustees under the Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Plan will have a negligible effect on the
Portfolio's assets, liabilities, and net income per share, and will not obligate
the Portfolio to retain the services of any Trustee or obligate the Portfolio to
pay any particular level of compensation to the Trustee. Neither the Portfolio
nor the Fund has a retirement plan for its Trustees.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of 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 31 long-term state portfolios, 3
national portfolios and 12 limited maturity portfolios. A staff of 32 is
responsible for the day-to-day management of over 3,500 issues in 46 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The following persons manage one or more of the Eaton Vance
tax-free portfolios. For the identity of the Portfolio's portfolio manager, see
the Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a vice President of Eaton Vance Management and the
portfolio manager of single-state, tax-exempt funds in five states: Hawaii,
Louisiana, Massachusetts, New Jersey and North Carolina. He also serves as
economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly, a
Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part
II.
A commitment may be made to a state securities authority that Eaton Vance
will take certain actions, if necessary, so that the Fund's expenses will not
exceed expense limitation requirements of such state. The commitment may be
amended or rescinded by Eaton Vance in response to changes in the requirements
of the state or for other reasons.
The Investment Advisory Agreement with BMR may be continued indefinitely so
long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of the
Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others 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 January
31, 1996, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Browse, Fetter, MacIntosh, Metzold, Murphy,
O'Connor, Reilly and Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders,
are officers of the Trust and/or the Portfolio and are also members of the
BMR, Eaton Vance and EV organizations. BMR will receive the fees paid under
the Investment Advisory Agreement.
EVC owns all of the stock of Energex Energy Corporation, which engages in
oil and gas 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"), 89 South Street, Boston,
Massachusetts acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT charges
custody fees which are competitive within the industry. A portion of the fee
relates to custody, bookkeeping and valuation services and is based upon a
percentage of Fund and Portfolio net assets and a portion of the fee relates to
activity charges, primarily the number of portfolio transactions. These fees are
then reduced by a credit for cash balances of the particular investment company
at the custodian equal to 75% of the 91-day U.S. Treasury Bill auction rate
applied to the particular investment company's average daily collected balances
for the week. Landon T. Clay, a Director of EVC and an officer, Trustee or
Director of other members of the Eaton Vance organization, owns approximately
13% of the 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.
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge, other than
the sales charge included in the offering price, and may be changed or
discontinued without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is anticipated
that $50,000 or more of Fund shares and shares of the other continuously offered
open-end funds listed under "The Eaton Vance Exchange Privilege" in the current
Prospectus of the Fund will be purchased within a 13-month period, a Statement
of Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum. Shares
held under Right of Accumulation (see below) as of the date of the Statement
will be included toward the completion of the Statement. The Statement
authorizes the Transfer Agent to hold in escrow sufficient shares (5% of the
dollar amount specified in the Statement) which can be redeemed to make up any
difference in sales charge on the amount intended to be invested and the amount
actually invested. Execution of a Statement does not obligate the shareholder to
purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. For sales
charges and other information on quantity purchases, see "How to Buy Fund
Shares" in the Fund's current Prospectus. Any investor considering signing a
Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable sales
charge level for the purchase of Fund shares is calculated by taking the dollar
amount of the current purchase and adding it to the value (calculated at the
maximum current offering price) of the shares the shareholder owns in his
account(s) in the Fund and in the other continuously offered open-end funds
listed under "The Eaton Vance Exchange Privilege" in the current Prospectus of
the Fund for which Eaton Vance acts as investment adviser or administrator at
the time of purchase. The sales charge on the shares being purchased will then
be at the rate applicable to the aggregate. For example, if the shareholder
owned shares valued at $30,000 in EV Traditional California Municipals Fund, and
purchased an additional $20,000 of Fund shares, the sales charge for the $20,000
purchase would be at the rate of 2.75% of the offering price (2.83% of the net
amount invested) which is the rate applicable to single transactions of $50,000.
For sales charges on quantity purchases, see "How to Buy Fund Shares" in the
Fund's current Prospectus. Shares purchased (i) by an individual, his or her
spouse and their children under the age of twenty-one, and (ii) by a trustee,
guardian or other fiduciary of a single trust estate or a single fiduciary
account, will be combined for the purpose of determining whether a purchase will
qualify for the Right of Accumulation and if qualifying, the applicable sales
charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her financial service firm ("Authorized Firm") must provide
Eaton Vance Distributors, Inc. (the "Principal Underwriter") (in the case of a
purchase made through an Authorized Firm) or the Transfer Agent (in the case of
an investment made by mail) with sufficient information to permit verification
that the purchase order qualifies for the accumulation privilege. Confirmation
of the order is subject to such verification. The Right of Accumulation
privilege may be amended or terminated at any time as to purchases occurring
thereafter.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Fund's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services Withdrawal
Plan" in the Fund's current Prospectus) based upon the value of the shares held.
The checks will be drawn from share redemptions and hence, are a return of
principal. Income dividends and capital gain distributions in connection with
withdrawal plan accounts will be credited at net asset value as of the record
date for each distribution. Continued withdrawals in excess of current income
will eventually use up principal, particularly in a period of declining market
prices.
To use this service, at least $5,000 in cash or shares at the public
offering price, (i.e., net asset value plus the applicable sales charge) will
have to be deposited with the Transfer Agent. The maintenance of a withdrawal
plan concurrently with purchases of additional Fund shares would be
disadvantageous because of the sales charge included in such purchases. A
shareholder may not have a withdrawal plan in effect at the same time he or she
has authorized Bank Automated Investing or is otherwise making regular purchases
of Fund shares. The shareholder, the Transfer Agent or the Principal Underwriter
will be able to terminate the withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current Prospectus. The net asset value of the Portfolio
is also computed by IBT (as agent and custodian for the Portfolio) by
subtracting the liabilities of the Portfolio from the value of its total assets.
Inasmuch as the market for municipal obligations is a dealer market with no
central trading location or continuous quotation system, it is not feasible to
obtain last transaction prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchased on a when- issued
basis, will normally be valued on the basis of valuations furnished by a pricing
service. The pricing service uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities, various relationships between securities, and yield to maturity in
determining value. Taxable obligations for which price quotations are readily
available normally will be valued at the mean between the latest available bid
and asked prices. Open futures positions on debt securities are valued at the
most recent settlement prices, unless such price does not reflect the fair value
of the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by the Trustees of the Portfolio.
The Fund and the Portfolio will be closed for business and will not price their
respective shares or interests on the following business holidays: New Year's
Day, Presidents' Day, Good Friday (a New York Stock Exchange holiday), Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. The investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the results. The
calculation assumes the maximum sales charge is deducted from the initial $1,000
purchase order and that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. For further information
concerning the total return of the Fund, see "Performance Information" in the
Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing its net
investment income per share earned during a recent thirty-day period by the
maximum offering price (which includes the maximum sales charge) per share on
the last day of the period and annualizing the resulting figure. Net investment
income per share is calculated from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods, reduced by
accrued Fund expenses for the period, with the resulting number being divided by
the average daily number of Fund shares outstanding and entitled to receive
dividends during the period. Yield calculations assume a maximum sales charge
equal to 3.75% of the public offering price. Actual yield may be affected by
variations in sales charges on investments. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by 1 minus a stated
rate. For the yield and taxable equivalent yield of the Fund, see "Performance
Information" in the Fund's Part II.
The Principal Underwriter may publish to Authorized Firms the Fund's
distribution rate and/or its effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current maximum offering price per share. The
Fund's effective distribution rate is computed by dividing the distribution rate
by the ratio (the days in a year divided by the accrual days of the monthly
period) used to annualize the most recent monthly distribution and reinvesting
the resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investors should note that the
Fund's yield is calculated using a standardized formula, the income component of
which is computed from the yields to maturity of all debt obligations held by
the Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month (see "Distributions and Taxes" in the Fund's
current Prospectus). For the Fund's distribution rate and effective distribution
rate, see "Performance Information" in the Fund's Part II.
The Fund's total return may be compared to relevant indices, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
the other investment companies.
The Fund may provide investors with information on municipal bond investing,
which may include comparative performance information, evaluations of Fund
performance, charts and/or illustrations prepared by independent sources (such
as Lipper Analytical Services Inc., CDA/Wiesenberger or Morningstar, Inc.). The
Fund may also refer in investor publications to Tax Freedom Day, as computed by
the Tax Foundation, Washington, DC 20005, to help illustrate the value of tax
free investing, as well as other tax-related information.
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 (after reduction by any available capital
loss carryforwards) in accordance with the timing requirements imposed by the
Code, so as to avoid any federal income or excise tax on the Fund. The Fund so
qualified for its fiscal year ended September 30, 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, each investor's distributive share of the
Portfolio's net taxable (if any) and tax-exempt investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or credit.
For purposes of applying the requirements of the Code regarding qualification as
a RIC, the Fund will be deemed (i) to own its proportionate share of each of the
assets of the Portfolio and (ii) to be entitled to the gross income of the
Portfolio attributable to such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a RIC
for federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular federal income tax. For purposes of
applying this 50% requirement, the Fund will be deemed to own its proportionate
share of each of the assets of the Portfolio, and the Portfolio currently
intends to invest its assets in a manner such that the Fund can meet this 50%
requirement. Interest on certain municipal obligations is treated as a tax
preference item for purposes of the federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
federal income tax returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when- issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) would be taxable to
shareholders of the Fund. However, it is expected that such amounts, if any,
would normally be insubstantial in relation to the tax exempt interest earned by
the Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will be
taxed to shareholders as if received on December 31 of the year in which they
are declared.
The Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character of
Fund distributions to shareholders. For example, certain positions held by the
Portfolio on the last business day of each taxable year will be marked to market
(i.e., treated as if closed out on such day), and any resulting gain or loss
will generally be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax purposes for 6 months or less (or such shorter period as may be
prescribed by Treasury regulations) will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares. In
addition, a loss realized on a redemption of Fund shares will be disallowed to
the extent the shareholder acquired other Fund shares within the period
beginning 30 days before the redemption of the loss shares and ending 30 days
after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through certain Authorized Firms which have agreements with the Principal
Underwriter. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
The public offering price is the net asset value next computed after receipt
of the order, plus, where applicable, a variable percentage (sales charge)
depending upon the amount of purchase as indicated by the sales charge table set
forth in the Fund's current Prospectus (see "How to Buy Fund Shares"). Such
table is applicable to purchases of the Fund alone or in combination with
purchases of the other funds offered by the Principal Underwriter, made at a
single time by (i) an individual, or an individual, his spouse and their
children under the age of twenty-one, purchasing shares for his or their own
account, and (ii) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account.
The table is also presently applicable to (1) purchases of Fund shares,
alone or in combination with purchases of any of the other funds offered by the
Principal Underwriter, through one dealer aggregating $50,000 or more made by
any of the persons enumerated above within a thirteen-month period starting with
the first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of the
Fund pursuant to the Right of Accumulation and declared as such at the time of
purchase.
Subject to the applicable provisions of the 1940 Act, the Fund may issue
shares at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is merged
or consolidated with or acquired by the Fund. Normally no sales charges will be
paid in connection with an exchange of Fund shares for the assets of such
investment company. Shares may be sold at net asset value to any officer,
director, trustee, general partner or employee of the Fund, the Portfolio or any
investment company for which Eaton Vance or BMR acts as investment adviser, any
investment advisory, agency, custodial or trust account managed or administered
by Eaton Vance or by any parent, subsidiary or other affiliate of Eaton Vance,
or any officer, director or employee of any parent, subsidiary or other
affiliate of Eaton Vance. The terms "officer," "director," "trustee," "general
partner" or "employee" as used in this paragraph include any such person's
spouse and minor children, and also retired officers, directors, trustees,
general partners and employees and their spouses and minor chilldren. Shares of
the Fund may also be sold at net asset value to registered representatives and
employees of Authorized Firms and to the spouses and children under the age of
21 and beneficial accounts of such persons.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to Authorized
Firms or investors and other selling literature and of advertising are borne by
the Principal Underwriter. The fees and expenses of qualifying and registering
and maintaining qualifications and registrations of the Fund and its shares
under federal and state securities laws are borne by the Fund. The Distribution
Agreement is renewable annually by the Board of Trustees of the Trust (including
a majority of its Trustees who are not interested persons of the Principal
Underwriter or the Trust), may be terminated on six months' notice by either
party and is automatically terminated upon assignment. The Principal Underwriter
distributes Fund shares on a "best efforts" basis under which it is required to
take and pay for only such shares as may be sold. The Principal Underwriter
allows Authorized Firms discounts from the applicable public offering price
which are alike for all Authorized Firms. The Principal Underwriter may allow,
upon notice to all Authorized Firms with whom it has agreements, discounts up to
the full sales charge during the periods specified in the notice. See "How to
Buy Fund Shares" for the discount allowed to Authorized Firms on the sale of
Fund shares. During periods when the discount includes the full sales charge,
such Authorized Firms may be deemed to be underwriters as that term is defined
in the Securities Act of 1933. For the amount of sales charges for sales of Fund
shares paid to the Principal Underwriter (and Authorized Firms), see "Fees and
Expenses" in the Fund's Part II.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
the Fund's Part II of this Statement of Additional Information.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet the service fee requirements of the revised sales charge rule
of the National Association of Securities Dealers, Inc. (Management believes
service fee payments are not distribution expenses governed by Rule 12b-1 under
the 1940 Act, but has chosen to have the Plan approved as if that Rule were
applicable.) The following supplements the discussion of the Plan contained in
the Fund's Prospectus.
The Plan remains in effect through April 28, 1996, and from year to year
thereafter, provided such continuance is approved by a vote of both a majority
of (i) those Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Noninterested Trustees") and (ii) all of the
Trustees then in office, cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan. The Plan may be terminated any time by vote
of the Noninterested Trustees or by a vote of a majority of the outstanding
voting securities of the Fund. The Plan has been approved by the Fund's initial
sole shareholder (Eaton Vance) and by the Board of Trustees of the Trust,
including the Noninterested Trustees.
Under the Plan, the President or a Vice President of the Trust shall provide
to the Trustees for their review, and the Trustees shall review at least
quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. The Plan may not be amended to
increase materially the payments described herein without approval of the
shareholders of the Fund, and all material amendments of the Plan must also be
approved by the Trustees of the Trust as prescribed by the Rule. So long as the
Plan is in effect, the selection and nomination of Trustees who are not
interested persons of the Trust shall be committed to the discretion of the
Trustees who are not such interested persons. The Trustees have determined that
in their judgment there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders. For the service fees paid by the Fund under the
Plan, see "Fees and Expenses" in the Fund's Part II.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a detrimental
effect on the price or amount of the securities available to the Portfolio from
time to time, it is the opinion of the Trustees of the Trust and the Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the brokerage
commissions paid by the Portfolio on portfolio transactions, see "Fees and
Expenses" in the Fund's Part II.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" and "EV" in the Fund's name and may use the words "Eaton
Vance" and "EV" in other connections and for other purposes.
The Trust is organized as a Massachusetts business trust. As permitted by
Massachusetts law, there will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees of the Trust holding office have been elected by shareholders.
In such an event the Trustees then in office will call a shareholders' meeting
for the election of Trustees. Except for the foregoing circumstances and unless
removed by action of the shareholders in accordance with the Trust's By-laws,
the Trustees shall continue to hold office and may appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this SAI and have been so incorporated in reliance on the report of Deloitte &
Touche LLP, independent certified public accountants, as experts in accounting
and auditing. A copy of the Fund's most recent Annual Report accompanies this
SAI.
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F- 1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
- ----------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL CALIFORNIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax in the form of an investment exempt from
California State personal income taxes. The Fund currently seeks to meet its
investment objective by investing its assets in the California Municipals
Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain California considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in California 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
California issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Constitutional Limitations on Taxes and Appropriations
Limitation on Taxes. Certain California municipal obligations may be obligations
of issuers which rely in whole or in part, directly or indirectly, on ad valorem
property taxes as a source of revenue. The taxing powers of California local
governments and districts are limited by Article XIII A of the California
Constitution, enacted by the voters in 1978 and commonly known as "Proposition
13." Briefly, Article XIII A limits to 1% of full cash value the rate of ad
valorem property taxes on real property and generally restricts the reassessment
of property to 2% per year, except upon new construction or change of ownership
(subject to a number of exemptions). Taxing entities may, however, raise ad
valorem taxes above the 1% limit to pay debt service on certain voter-approved
bonded indebtedness.
Under Article XIII A, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This system
has resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13. The U.S. Supreme Court recently heard one of these
lawsuits, and on June 18, 1992 announced a decision upholding Proposition 13.
Article XIII A prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." A
California Supreme Court decision, however, allowed the levy, without voter
approval, of "general taxes" which were not dedicated to a specific use. In
response to these decisions, the voters of the State in 1986 adopted an
initiative statute which imposed significant new limits on the ability of local
entities to raise or levy general taxes, except by receiving majority local
voter approval. Significant elements of this initiative, "Proposition 62," have
been overturned in recent court cases. An initiative proposed to reenact the
provisions of Proposition 62 as a constitutional amendment was defeated by the
voters in November 1990, but such a proposal may be renewed in the future.
Appropriations Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIII B of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Proposition 98 and 111 in 1988 and 1990, respectively. Article XIII B prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIII B appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post-
1989 increases in gasoline taxes and vehicle weight fees, and (5) appropriations
made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized by Proposition 111 to follow more closely growth in the State's
economy. "Excess" revenues are measured over a two-year cycle. Local
governments, must return any excess to taxpayers by rate reductions. With more
liberal annual adjustment factors since 1988, and depressed revenues since 1990
because of the recession, few governments are currently operating near their
spending limits, but this condition may change over time. Local governments may
by voter approval exceed their spending limit for up to four years.
Because of the complex nature of Articles XIII A and XIII B of the
California Constitution, the ambiguities and possible inconsistencies in their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIII A or Article XIII B on California municipal obligations or on the
ability of the State or local governments to pay debt service on such
obligations. It is not presently possible to predict the outcome of any pending
litigation with respect to the ultimate scope, impact or constitutionality of
either Article XIII A or Article XIII B, or the impact of any such
determinations upon State agencies or local governments, or upon their ability
to pay debt service on their obligations. Future initiatives or legislative
changes in laws or the California Constitution may also affect the ability of
the State or local issuers to repay their obligations.
Obligations of the State of California
As of August 1, 1995, the State had approximately $19.0 billion of general
obligation bonds outstanding, and $1.1 billion remained authorized but unissued.
In addition, as of June 30, 1995, the State had lease-purchase obligations,
payable from the State's general fund, of approximately $6.0 billion with
authorized but unissued lease purchase debt of $1.3 billion. The State's
outstanding general obligation bond debt has gradually risen in recent years:
from approximately $15.9 billion in 1991-92 to approximately $19.2 billion in
1994-95. Of the State's outstanding general obligation debt, approximately 22%
is presently self-liquidating (for which program revenues are anticipated to be
sufficient to reimburse the general fund for debt service payments). Three
general obligation bond propositions, totalling $3.7 billion, were approved by
voters in 1992. The State has paid the principal of and interest on its general
obligation bonds, lease-purchase debt and short-term obligations when due.
As of the date of this Statement of Additional Information, general
obligation bonds issued by the State of California are rated A1, A, A by
Moody's, S&P and Fitch, respectively. Starting in 1991 and continuing through
the middle of 1994, there has been a relatively steady deterioration in the
State's general obligation bond rating. On July 15, 1994, all three of the
rating agencies rating the State's long-term debt lowered their ratings of the
State's general obligation bonds. Moody's lowered its rating from "AA" to "A1,"
S&P lowered its rating from "A+" to "A" and termed its outlook as "stable," and
Fitch lowered its rating from "AA" to "A." An explanation of such actions may be
obtained only from the respective rating agencies. Future deterioration in the
State's fiscal condition could result in additional downgrades by the rating
agencies.
Recent Financial Results
From the 1990-91 fiscal year through the 1994-95 fiscal year, the State
faced the worst economic, fiscal and budget conditions since the 1930s.
Construction, manufacturing (especially aerospace), exports and financial
services, among others, were all severely affected. Job losses were the worst of
any post-war recession and continued through the end of 1993. Following
Department of Finance projections that non-farm employment levels would be
stable in 1994, employment grew 3% between November 1993 and November 1994.
However, unemployment was well above the national average through 1994.
The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State has also been facing a structural imbalance in its
budget with the largest programs supported by the General Fund -- K-12 schools
and community colleges, health and welfare, and corrections -- growing at rates
higher than the growth rates for the principal revenue sources of the General
Fund. As a result, the State experienced recurring budget deficits. The State
Controller reports that expenditures exceeded revenues for four of the five
fiscal years ending with 1991-92, and were essentially equal in 1992- 93. By
June 30, 1993, according to the Department of Finance, the State's Special Fund
for Economic Uncertainties had a deficit, on a budget basis, of approximately
$2.8 billion. The 1993-94 Budget Act incorporated a Deficit Retirement Plan to
repay this deficit over two fiscal years. The original budget for 1993-94
reflected revenues which exceeded expenditures by approximately $2.0 billion. As
a result of the continuing recession, the excess of revenues over expenditures
for the fiscal year was only about $522 million. Thus,the accumulated budget
deficit at June 30, 1994 was approximately $2.0 billion, and the deficit will
not be retired by June 30, 1995 as planned.
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
reduction of available internal borrowable funds, have combined to significantly
deplete the State's cash resources to pay its ongoing expenses. In order to meet
its cash needs, the State has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year.
1994-95 Budget. The 1994-95 fiscal year represented the fourth consecutive
year the Governor and Legislature were faced with a very difficult budget
environment to produce a balanced budget. Many program cuts and budgetary
adjustments had already been made in the past three years. The budget recognized
that the accumulated deficit could not be repaid in one year, and proposed a
two-year solution. The budget projected operating surpluses for the budget for
both 1994-95 and 1995-96, and lead to the elimination of the accumulated budget
deficit, estimated at about $2.0 billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projected
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflects the Administration's forecast of an improving economy.
The Budget Act projected the effective receipt of about $770 million from the
federal government, $360 million of which is to reimburse the State's costs for
immigrant-related expenses and the balance is attributable to federal
subventions thus reducing State expenditures. Little or none of this money is
now expected to be received. The Legislature took no action on a proposal in the
January Governor's budget to undertake an expansion of the transfer of certain
programs to counties, which would also have transferred to counties 0.5% of the
State's current sales tax. The Budget Act projected Special Fund revenues of
$12.1 billion, a decrease of 2.4% from 1993-94 estimated revenues. The
Governor's 1995-96 budget proposal of January, 1995 included an upward revision
of General Fund revenues to $42.4 billion for the 1994-95 fiscal year.
The 1994-95 Budget Act projected General Fund expenditures of $40.9 billion,
an increase of $1.6 billion over 1993-94. The Budget Act also projected Special
Fund expenditures of $13.7 billion, a 5.4% increase over 1993-94 estimated
expenditures. Although, the 1994-95 Budget Act contains no tax increases, under
legislation enacted for the 1993-94 budget, the renters' tax credit was
suspended for two years (1993 and 1994). A ballot proposition to permanently
restore the renters' tax credit after this year failed at the June, 1994
election. The Legislature enacted a further one-year suspension of the renters'
tax credit, for 1995, saving about $390 million in the 1995-96 fiscal year. The
1994-95 budget assumes that the State will use a cash flow borrowing program in
1994-95 which combines one-year notes and certain warrants. Issuance of the
warrants allows the State to defer repayment of approximately $1.0 billion of
its accumulated budget deficit into the 1995-96 fiscal year. The Budget
Adjustment Law, enacted along with the 1994-95 Budget Act is designed to ensure
that the warrants will be repaid in the 1995-96 fiscal year. The State's severe
financial difficulties for the current budget year will result in continued
pressure upon almost all local governments, particularly school districts and
counties which depend on State aid. Despite efforts in recent years to increase
taxes and reduce governmental expenditures, there can be no assurance that the
State will not face budget gaps in the future.
1995-96 Budget. The 1995-96 Budget Act was signed by the Governor on August
3, 1995, 34 days after the start of the fiscal year. General Fund revenues and
transfers were budgeted at $44.1 billion, a 3.5% increase over 1994-95.
Expenditures were budgeted at $43.3 billion, a 4% increase. The accumulated
deficit is projected to be eliminated and a small surplus of $28 million is
expected to be available in the Special Fund for Economic Uncertainties. Through
November, 1995, General Fund revenues were $707 million, or 4.5%, above budgeted
amounts.
Legal Proceedings
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require the
State to make significant future expenditures or may substantially impair
revenues.
Economy
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 31 million represents 12.3%
of the total United States population and grew by 27% in the 1980s. Total
personal income in the State, at an estimated $683 billion in 1993, accounts for
about 13% of all personal income in the nation.
Reports issued by the State Department of Finance and the Commission on
State Finance indicate that the State's economy is recovering from its worst
recession since the 1930s. The largest job losses have been in Southern
California, led by declines in the aerospace and construction industries.
Weakness statewide occurred in manufacturing, construction, services and trade.
Additional military base closures will have further adverse effects on the
State's economy later in the decade. California's unemployment rate was 8.8% in
November, 1995, compared to the previous year's level of 7.7%.
Other Considerations
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9 of
the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments which caused a liquidity crisis for
the Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold bonds
of some of the governmental units that had money invested with the County; the
impact of the loss of access to these funds, the loss of expected investment
earnings and the potential loss of some of the principal invested is not known
at this point. There can be no assurances that these holdings will maintain
their current ratings and/or liquidity in the market.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to ensure
that school districts have sufficient funds to operate. Longer term, this
financial crisis could have an adverse impact on the economic recovery that has
only recently taken hold in Southern California.
In early June, 1995, Orange County filed a proposal with the bankruptcy
court that would require holders of the County's short-term notes to wait a year
before being repaid. The existence of this proposal and its adoption could
disrupt the market for short-term debt in California and possibly drive up the
State's borrowing costs.
The repayment of industrial development securities and other obligations
secured by real property may be affected by California laws limiting foreclosure
rights of creditors. Securities backed by healthcare and hospital revenues may
be affected by changes in State regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program), including
risks related to the policy of awarding exclusive contracts to certain
hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project area decline (e.g., because of a major
natural disaster such as an earthquake), or there is a deemphasis or
reallocation of property taxes by legislation or initiative, the tax increment
revenue may be insufficient to make principal and interest payments on these
bonds. Both Moody's and S&P suspended ratings on California tax allocation bonds
after the enactment of Articles XIII A and XIII B, and only resumed such ratings
on a selective basis.
Proposition 87, approved by California voters in 1988, required that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay the entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not presently possible to predict the extent to which any such legislation
will be enacted. Nor is it presently possible to determine the impact of any
such legislation on California municipal obligations in which the Portfolio may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California municipal obligations.
Certain California obligations may be payable solely from the revenues of
health care institutions. Such revenues may be negatively affected by efforts of
the state and of private health plans and insurers to contract with such
institutions for fixed, discounted payments for services to Medicaid and
insurance beneficiaries. Such California obligations may be insured by the
State. In the event of a default by the health care institution, the state has
the option of issuing replacement debentures payable from a reserve fund.
However, this reserve fund has been found to be underfunded in a study conducted
in 1986 and is subject to reappropriation by the California Legislature for
other purposes.
Certain California obligations may be secured by real estate mortgages or
deeds of trust. California has several statutory provisions that may limit the
remedies of secured creditors, such as issuers of California obligations. A
creditor's right to obtain a deficiency judgment is barred when a foreclosure is
accomplished through a nonjudicial trustee's sale. A secured creditor is also
required to exhaust its real property security by foreclosure before bringing a
personal action against the debtor. Any deficiency judgment following a judicial
sale of foreclosed property is limited to the excess of the outstanding debt
over the fair value of the property at the time of sale, even if the actual bids
at such sale were lower than such value. Finally, the debtor has the right to
redeem the foreclosed property from any judicial foreclosure sale that could
result in a deficiency judgment.
Due to certain limitations on a creditor's private powers of sale after
foreclosure, the effective minimum period for foreclosing on a mortgage could
exceed seven months after the initial default. Such delays in collections could
disrupt the flow of revenues to an issuer for the payment of debt service on
California obligations secured by real estate mortgages. In some cases, the
nonjudicial sale of property by an issuer could be precluded as a violation of
constitutional due process.
Under California's anti-deficiency law, there is no personal recourse
against a mortgagor of a single family residence purchased with a loan secured
by a mortgage. California law also limits the charges that may be imposed with
respect to voluntary mortgage prepayments. These provisions could affect the
flow of revenues available for debt service to the issuers of California
obligations secured by single family home mortgages.
Substantially all of California is within an active geologic region subject
to major seismic activity. Any California municipal obligation in the Portfolio
could be affected by an interruption of revenues because of damaged facilities,
or, consequently, income tax deduction for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage at
reasonable rates; (ii) an insurer to perform on its contracts of insurance in
the event of widespread losses; or (iii) the Federal or State government to
appropriate sufficient funds within their respective budget limitations.
On January 17, 1994, an earthquake struck Los Angeles causing significant
damage to public and private structures and facilities. Although some
individuals and businesses suffered losses totaling in the billions of dollars,
the overall effect of the earthquake on the regional and State economy is not
expected to be serious.
The State has shifted responsibility for certain health and welfare programs
and provided the counties with increased taxing powers to cover their costs.
While the State expects that the increased taxes will be sufficient to cover
increased costs, there can be no assurance that this will be the case. If the
increased costs are not covered by the increased taxes, the counties will be
responsible to fund the difference. Any added expenditures in excess of
increased revenues and subsequent adverse effect upon county finances would
likely have a negative impact upon individual county and local bond prices.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $410,670,138. For
the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory fees
of $2,121,262 (equivalent to 0.50% of the Portfolio's average daily net assets
for such year). For the six month period ended September 30, 1994, the Portfolio
paid BMR advisory fees of $1,141,013 (equivalent to 0.50% (annualized) of the
Portfolio's average daily net assets for such period). For the period from the
Portfolio's start of business, May 3, 1993, to the fiscal year ended March 31,
1994, the Portfolio paid BMR advisory fees of $2,149,273 (equivalent to 0.49%
(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 SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended September 30,
1995 and for the period from the start of business, May 3, 1993, to the fiscal
year ended September 30, 1994, $35,928 and $4,429, respectively, of the Fund's
operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be continued
as described under "Service Plan" in Part I of this SAI. The Trustees have
initially implemented the Plan by authorizing the Fund to make quarterly service
fee payments to the Principal Underwriter and Authorized Firms in amounts not
expected to exceed .25% of the Fund's average daily net assets for any fiscal
year based on the value of Fund shares sold by such persons and remaining
outstanding for at least twelve months. During the fiscal year ended September
30, 1995, the Fund paid or accrued $145 of service fees under the Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the fiscal year
ended September 30, 1995 was $48,718, all of which was paid to Authorized Firms.
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $7.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody fees
of $3,417 and the Portfolio incurred custody fees of $187,581, which were
reduced by fee credits of $47,611.
BROKERAGE
For the fiscal years ended September 30, 1995 and 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 September 30, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and of the funds in
the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $3,690(2) $135,000(4)
Samuel L. Hayes, III ...... 0 3,659(3) 150,000(5)
Norton H. Reamer .......... 0 3,633 135,000
John L. Thorndike ......... 0 3,748 140,000
Jack L. Treynor ........... 0 3,841 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment companies
or series thereof.
(2) Includes $1,237 of deferred compensation.
(3) Includes $1,178 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 SAI , Cynthia J. Clemson (32) is a
Vice President of the Portfolio. Ms. Clemson has served as a Vice President of
the Portfolio since February 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 19, 1985 through
September 30, 1995 and for the five and one year periods ended September 30,
1995. The total return for the period prior to the Fund's commencement of
operations on April 5, 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
distribution fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT -------------------------- --------------------------
PERIOD DATE INVESTMENT<F1> ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ---------- -------------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 12/19/85 $962.68 $1,803.67 87.36% 6.62% 80.37% 6.21%
5 Years Ended 9/30/95<F2> 9/30/90 $962.79 $1,353.21 40.54% 7.03% 35.32% 6.22%
1 Year Ended 9/30/95<F2> 9/30/94 $962.81 $1,058.55 9.94% 9.94% 5.86% 5.86%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Initial investment less the current maximum sales charge of 3.75%.
<F2> If a portion of the 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 September 30, 1995, the yield of the Fund
was 5.47%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.47% would be 8.81%,
assuming a combined federal and State tax rate of 37.90%. 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 September 30, 1995 and based on
the Fund's monthly distribution paid September 29, 1995) was 5.72%, and the
Fund's effective distribution rate (calculated on the same date and based on the
same monthly distribution) was 5.87%. If a portion of the Fund's expenses had
not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 30.48% 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 percentage of outstanding shares of the Fund indicated after their
name: Wheat First Securities Inc., Glen Allen, VA (25.07%) and Liz Thompson,
Healdsburg, CA (8.49%). 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.
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 1996 regular federal income tax
rates and California State income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND CALIFORNIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- --------------------- CA 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 $ 24,000 Up to $ 40,100 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 58,151 - $121,300 $ 96,901 - $147,700 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$121,301 - $263,750 $147,701 - $263,750 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
Over - $263,750 Over - $263,750 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
<FN>
<F1> Net amount subject to federal and California personal income tax after deductions and exemptions.
<F2> The combined tax brackets are calculated using the highest California State rate within the bracket. Taxpayers with taxable
income within each bracket may have a lower combined tax bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that California 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 tax bracket and 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 California State income taxes)
for taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations the interest from which is exempt from the
regular federal income tax and California 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 California personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL FLORIDA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax in the form of an investment exempt from
Florida intangibles tax. The Fund currently seeks to meet its investment
objective by investing its assets in the Florida Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Florida 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
Florida issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Florida is characterized by rapid population growth and substantial
capital needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a
fiscal biennium for its appropriations and expenditures and is
constitutionally bound to maintain a balanced budget. The State's financial
operations are considerably different than most other states because, under
the State's constitution, there is no state income tax on individuals. A
constitutional amendment would therefore be necessary to impose such an income
tax. Only seven states currently do not impose income taxes on individuals.
The lack of an income tax on individuals exposes total State tax collections
to considerably more volatility than would otherwise be the case and, in the
event of an economic downswing, could affect the State's ability to pay
principal and interest in a timely manner.
Florida has a proportionally greater number of persons of retirement age;
a factor that makes Florida's property and transfer payment taxes a relatively
more important source of state funding. Because transfer payments are
typically less sensitive to the business cycle than employment income, they
may act as a stabilizing force in weak economic periods.
In 1993, the Florida constitution was amended to limit the annual growth
in the assessed valuation of residential property, which, over time, could
constrain growth in property taxes, a major source of revenue for local
governments. In 1994, the Florida constitution was amended to limit State
revenue collections in any fiscal year to, subject to exception, that which
was allowed in the prior fiscal year plus a growth factor, to be determined by
reference to the average annual growth rate in Florida personal income over
the previous five years.
Florida tourism appears to be suffering the effects of negative publicity
regarding crime against tourists in the State,''product maturity,'' higher
prices and more aggressive marketing by competing vacation destinations.
Although Florida experienced a 4.0% drop in the number of tourists visiting
the State in the fiscal year 1993-94, the State anticipates an increase in the
number of visiting tourists in the current and succeeding fiscal years. The
number of visiting tourists is expected to increase by 0.1% and 4.3% during
fiscal years 1995-96 and 1996-97, respectively. The total number of visiting
tourists is expected to reach 41.4 million and 43.2 million during fiscal
years 1995-96 and 1996-97, respectively.
There has been a decline in Florida's dependency on highly cyclical
construction and construction-related manufacturing sectors. For example, the
total contract construction employment as a share of total non-farm employment
reached a peak of over 10% in 1973. In 1980, the share was roughly 7.5%, and
in 1994, the share had edged downward to nearly 5%. This trend is expected to
continue as Florida's economy continues to diversify.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $712,203,136.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $3,433,489 (equivalent to 0.47% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $3,644,215 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). 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 $2,024,390
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this SAi.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended September 30,
1995 and for the period from the start of business, April 5, 1994, to the
fiscal year ended September 30, 1994, $18,478 and $5,625, respectively, of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I of this SAI. The
Trustees have initially implemented the Plan by authorizing the Fund to make
quarterly service fee payments to the Principal Underwriter and Authorized
Firms in amounts not expected to exceed .20% of the Fund's average daily net
assets for any fiscal year based on the value of Fund shares sold by such
persons and remaining outstanding for at least twelve months. During the
fiscal year ended September 30, 1995, the Fund made no service fee payments
under the Plan. The Fund began accruing for its service fee payments during
the quarter ended June 30, 1995.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the fiscal year
ended September 30, 1995 was $71,781, all of which was paid to Authorized
Firms.
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $17.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody
fees of $3,366, which were reduced by fee credits of $418 and the Portfolio
incurred custody fees of $231,473, which were reduced by fee credits of
$220,751.
BROKERAGE
For the fiscal years ended September 30, 1995 and 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 September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
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 $4,291(2) $135,000(4)
Samuel L. Hayes, III ...... 0 4,239(3) 150,000(5)
Norton H. Reamer .......... 0 4,200 135,000
John L. Thorndike ......... 0 4,322 140,000
Jack L. Treynor ........... 0 4,464 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,439 of deferred compensation.
(3) Includes $1,333 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 August 28, 1990
through September 30, 1995 and for the five and one year periods ended
September 30, 1995. The total return for the period prior to the Fund's
commencement of operations on April 5, 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 distribution fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT -------------------------- --------------------------
PERIOD DATE INVESTMENT<F1> ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ----------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 8/28/90 $962.16 $1,434.64 49.11% 8.15% 43.46% 7.33%
5 Years Ended 9/30/95<F2> 9/30/90 $962.15 $1,436.07 49.26% 8.32% 43.61% 7.49%
1 Year Ended 9/30/95<F2> 9/30/94 $962.53 $1,064.12 10.59% 10.59% 6.44% 6.44%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
<FN>
<F1> Initial investment less the current maximum sales charge of 3.75%.
<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 September 30, 1995, the yield of the Fund
was 4.90%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.90% would be 7.10%,
assuming a federal tax rate of 31%. 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 September 30, 1995 and based
on the Fund's monthly distribution paid September 29, 1995) was 5.48%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 5.62%. 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, BHC Securities, Inc., Philadelphia, PA and Smith
Barney, Inc., New York, NY, were the record owners of approximately 7.0% and
6.4%, respectively, of the outstanding shares which were held on behalf of
their customers who are beneficial owners of such shares, and as to which they
have voting power under certain limited circumstances. To the knowledge of the
Trust, no other person owned of record or beneficially 5% or more of the
Fund's outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Traditional Florida Tax Free Fund to EV Traditional
Florida Municipals Fund on December 8, 1995.
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 the Florida intangibles tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
You are in
If the taxable income on Or the taxable income on this federal In your bracket, a tax-free yield of
your single return is<F1> your joint return is<F1> bracket 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ -------------------------- ---------------- ---------------------------------------------------------
equals that of a taxable investment yielding
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,000 Up to $40,100 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 58,151-$121,300 $ 96,901-$147,700 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$121,301-$263,750 $147,701-$263,750 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $263,750 Over $263,750 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
If the taxable income on Or the taxable income on
your single return is<F1> your joint return is<F1> 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ -------------------------- -----------------------------------------------------------
tax equivalent yield reflecting exemption from intangibles
tax:<F2>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,000 Up to $40,100 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 58,151-$121,300 $ 96,901-$147,700 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$121,301-$263,750 $147,701-$263,750 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $263,750 Over $263,750 6.97 7.80 8.62 9.45 10.28 11.10 11.93
<FN>
<F1> Net amount subject to federal personal income tax after deductions and exemptions.
<F2> A Florida intangibles tax on personal property of $2.00 per $1,000 is generally imposed after exemptions on the value of
stocks, bonds, other evidences of indebtedness and mutual fund shares. An example of the effect of the Florida intangibles
tax on the tax brackets of Florida taxpayers is as follows. A $10,000 investment subject to the tax would require payment of
$20 annually in intangibles taxes. If the investment yielded 5.5% annually or $550, the intangibles tax as a percentage of
income would be $20/$500 or 3.64%. If a taxpayer were in the 36% federal income tax bracket, assuming the intangibles taxes
were deducted as an itemized deduction on the federal return, the taxpayer would be on a combined federal and Florida State
tax bracket of 38.33% [36% + (1 - .36) X 3.64%] with respect to such investment. A Florida taxpayer whose intangible personal
property is exempt or partially exempt from tax due to the availability of exemptions will have a lower taxable equivalent
yield than indicated above.
</TABLE>
Note: The federal income tax brackets do not take into account the effect of a
reduction in the deductibility of itemized deductions for taxpayers with
adjusted gross income in excess of $117,950. The tax brackets also do not show
the effects of phaseout of personal exemptions for single and joint filers
with adjusted gross incomes in excess of $117,950 and $176,950. The effective
tax brackets and equivalent taxable yields of such taxpayers will be higher
than those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account
the Florida intangibles tax, state or local taxes, if any, payable on Fund
distributions to individuals who are not Florida residents, or intangibles
taxes, if any, imposed under the laws of other states. It should also be noted
that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits
that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL MASSACHUSETTS
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Massachusetts state personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Massachusetts Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Massachusetts considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Massachusetts 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 Massachusetts issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Beginning in 1989, the Commonwealth's economy slowed significantly. Most
of the employment growth during this period was experienced in the services
and trade sectors of the economy, while the manufacturing sector continues to
suffer employment losses. Like most other industrial states, Massachusetts has
seen a shift in employment from manufacturing to more technology and service-
based industries. Between 1993 and 1994, per capita personal income in
Massachusetts increased 3.6%, as compared to 1.7% for the nation as a whole.
The unemployment rate for the Commonwealth fell from 6.4% in October 1994 to
5.3% for October 1995. The national unemployment rate for October 1995 was
5.5%.
The Commonwealth has closed its fiscal 1995 financial records and
published its audited financial information. Fiscal 1995 tax revenue
collections were approximately $11.163 billion, approximately $12 million
above the Department of Revenue's revised fiscal year 1995 tax revenue
estimate of $11.151 billion, approximately $556 million, or 5.2%, above fiscal
1994 tax revenues of $10.607 billion. Budgeted revenues and other sources,
including non-tax revenues, collected in fiscal 1995 were approximately
$16.387 billion, approximately $837 million, or 5.4%, above fiscal 1994
budgeted revenues of $15.550 billion. Budgeted expenditures and other uses of
funds fiscal 1995 were approximately $16.251 billion, approximately $728
million, or $4.7%, above fiscal 1994 budgeted expenditures and uses of $15.523
billion. The Commonwealth ended fiscal 1995 with an operating gain of $137
million and an ending fund balance of $726 million.
Budgeted revenues and other sources to be collected in fiscal 1996 are
estimated by the Executive Office for Administration and Finance to be
approximately $16.778 billion. This amount includes estimated fiscal 1996 tax
revenues of $11.653 billion, which is approximately $490 million, or 4.3%,
higher than fiscal 1995 tax revenues.
In connection with his proposal to reorganize state government, the
Governor also announced on November 1, 1995 that he would propose to reduce
the personal income tax rate on earned income from 5.95% to 5.45%. Legislation
to effectuate such tax reduction is expected to be filed by the Governor in
January, 1996 in conjunction with the filing of his budget recommendations for
fiscal 1997. The cost to the Commonwealth of the proposed tax reduction has
been estimated to be approximately $500 million per year.
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base
spending of $1.288 billion of approximately $175 million in fiscal 1994. The
Executive office for Administration and Finance expects annual increases in
expenditures above the fiscal 1993 base spending of $1.288 billion (after the
expenditure of approximately $37 million in fiscal 1995) of $629 million in
fiscal 1996 and approximately $872 million in fiscal 1997. Additional annual
increases are also expected in later fiscal years.
Major infrastructure projects are anticipated over the next decade. It is
currently anticipated that the federal government will assume responsibility
for approximately 90% of the estimated $7.7 billion cost of projects which
consist of the depression of the central artery which traverses the City of
Boston and the construction of a third harbor tunnel linking downtown Boston
to Logan Airport.
The Massachusetts Water Resources Authority is undertaking capital
projects for the construction and rehabilitation of sewage collection and
treatment facilities in order to bring wastewater discharges into Boston
Harbor into compliance with federal and state pollution control requirements.
The harbor cleanup project is estimated to cost $3.5 billion in 1994 dollars.
Work on the project began in 1988 and is expected to be completed in 1999,
with the most significant expenditures occurring between 1990 and 1999. The
majority of the project's expenditures will be paid for by local communities,
in the form of user fees, with federal and state sources making up the
difference.
The fiscal viability of the Commonwealth's authorities and municipalities
is inextricably linked to that of the Commonwealth. The Commonwealth
guarantees the debt of several authorities, most notably the Massachusetts Bay
Transportation Authority and the University of Massachusetts Building
Authority. Their ratings are based on this guarantee and can be expected to
move in tandem. Several other authorities are funded in part or in whole by
the Commonwealth and their debt ratings may be adversely affected by a
negative change in those of the Commonwealth.
Massachusetts' municipal governments are constrained in their ability to
increase local revenues by an initiative passed in 1980, "Proposition 2 1/2".
Proposition 2 1/2 limits the amount of property taxes that can be levied in a
fiscal year to the lower of 2.5% of fair value or 102.5% of the previous
year's levy, unless overridden by a majority of local voters. Proposition 2 1/
2 also limits the amount the municipality can be charged by certain government
entities such as counties. While Proposition 2 1/2 is not a constitutional
question and can therefore be amended or abolished by the legislature, it
should be noted that no significant challenge has been raised since it took
effect. Any fiscal problems encountered by the state amplify the economic and
fiscal problems encountered by cities and towns throughout the Commonwealth.
Any Commonwealth fiscal problems which result in local aid reductions could,
in the absence of overrides, result in payment defaults by local cities and
towns and/or ratings downgrades resulting in an erosion of their market value.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1995, the Portfolio had net assets of $302,170,247.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $1,383,407 (equivalent to 0.46% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $1,397,963 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). 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 $735,829
(equivalent to 0.45% (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 SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended September 30,
1995 and for the period from the start of business, December 7, 1993, to the
fiscal year ended September 30, 1994, $13,833 and $26,572, respectively, of
the Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I of this SAI. Prior to
February 1, 1996, the Fund made sales commission, distribution fee and service
fee payments pursuant to a Distribution Plan. During the fiscal year ended
September 30, 1995, the Principal Underwriter paid to Authorized Firms sales
commissions of $19,884 under that Plan on sales of Fund shares. During the
same period, the Fund paid sales commission payments under that Plan to the
Principal Underwriter aggregating $21,745. During such period, contingent
deferred sales charges ("CDSCs") aggregating approximately $1,445 were imposed
on early redeeming shareholders and paid to the Principal Underwriter. The
CDSCs and sales commissions paid to the Principal Underwriter reduced
Uncovered Distribution Charges. As at September 30, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under
the Distribution Plan amounted to approximately $310,000 (which amount was
equivalent to 11.2% of the Fund's net assets on such date). During the fiscal
year ended September 30, 1995, the Fund paid service fee payments under the
Distribution Plan aggregating $5,800, of which $5,305 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $162.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody
fees of $3,543 and the Portfolio incurred custody fees of $135,884, which were
reduced by fee credits of $61,501.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 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 September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $3,188(2) $135,000(4)
Samuel L. Hayes, III ...... 0 3,172(3) 150,000(5)
Norton H. Reamer .......... 0 3,160 135,000
John L. Thorndike ......... 0 3,268 140,000
Jack L. Treynor ........... 0 3,325 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,069 of deferred compensation.
(3) Includes $962 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 April 19, 1991 through
September 30, 1995 and for the one-year period ended September 30, 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 Fund's
sales charge effective February 1, 1996.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ------------------------------ ------------------------------
PERIOD DATE INVESTMENT* ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------------ -------------- ------------ ----------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 4/19/91 $962.53 $1,293.16 34.35% 6.84% 29.31% 5.94%
1 Year
Ended
9/30/95** 9/30/94 $962.57 $1,043.86 8.45% 8.45% 4.38% 4.38%
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.
<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 purchase are subject to a CDSC 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 September 30, 1995, the yield of the Fund
was 4.49%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.49% would be 7.39%,
assuming a combined federal and State tax rate of 39.28%. 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 September 30, 1995 and based
on the Fund's monthly distribution paid September 22, 1995) was 4.81%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.92%. 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 rate and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 35.67% 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: Wilkins Management, Inc., NFSC FEBO #CL5-368962, Cambridge,
MA (15.62%) and Maurice Lasden & Ann Lasden JTWROS, Canton, MA. 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 Massachusetts Tax Free Fund to EV Classic
Massachusetts Municipals Fund on December 8, 1995 and to EV Traditional
Massachusetts 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 Massachusetts state income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND MASSACHUSETTS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- --------------------- MA STATE ---------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------ ---------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 58,151-$121,300 $ 96,901-$147,700 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$121,301-$263,750 $147,701-$263,750 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $263,750 Over $263,750 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
<FN>
* Net amount subject to federal and Massachusetts personal income tax after deductions and exemptions.
+ The combined tax rates include a Massachusetts tax rate of 12% applicable to taxable bond interest and dividends, and assume
that Massachusetts taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36%, and 39.6%, over the same ranges of income.
</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 Massachusetts state income
taxes) for taxpayers with Adjusted Gross Income in excess of $117,950. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with Adjusted Gross Income in excess of $117,950 and joint
filers with Adjusted Gross Income in excess of $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Massachusetts 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 Massachusetts personal income taxes. It should also
be noted that the interest earned on certain "private activity bonds"
Massachusetts obligations issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL MISSISSIPPI
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Mississippi State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Mississippi Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Mississippi considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Mississippi 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 Mississippi issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Funding of the various State operations is derived principally from the
General Fund revenues and Special Fund receipts. For the fiscal year ending
June 30, 1995, $4.78 billion in revenue was collected by the Special Fund. The
major sources of such revenue being $2.17 billion from Federal grants-in-aid,
including $1.18 billion for public health and welfare and $381.2 million for
public education. Funding for the General Fund is derived principally from
revenues generated by income, corporate, excise and sales taxes as well as
profits from the wholesale sales of alcoholic beverages, interest earned on
investments, proceeds from sales of various supplies and services, and
licensing fees. As of fiscal year ending June 30, 1995, the State derived
40.5% of total revenue from sales taxes, 26.1% from individual income taxes
and 10.0% from corporate income taxes. Sales taxes, the largest source of
revenue for the General Fund, can be adversely affected by downturns in the
economy. In an effort to increase sales tax collections, the Legislature has
increased the State sales tax from 6% to 7% effective June 1, 1992. The
General Fund had an ending fund balance of $86.5 million for 1995. In the
event revenues fall below the amounts projected during the budgeting phase,
the Department of Finance Administration has the authority to reduce
allocations to agencies and restrict a particular agency's monthly allotment
if it appears that that agency may deplete its appropriations prior to the
close of the fiscal year. Even with budgetary controls in place, the State has
experienced cash flow problems in prior years.
The following cases which have been reviewed by the Attorney General's
office purport to be a representative sampling of the most significant cases
in which the State is the defendant and wherein the State's financial
resources may be materially adversely affected: (1) an action against the
State and certain public officials challenging the constitutionality of the
statewide system of higher education; (2) an action against the State
regarding the conditions in its penal institutions; and (3) a suit against the
Mississippi State Tax Commission alleging improper taxation against multi-
state corporations.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $28,992,960. For
the fiscal year ended September 30, 1995, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $65,442 (equivalent to 0.22% 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 $36,759. For the fiscal year ended September 30, 1994, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $45,841
(equivalent to 0.19% of the Portfolio's average daily net assets for such
year). To enhance the net income of the Portfolio, BMR made a reduction of the
full amount of its advisory fee and BMR was allocated a portion of expenses
related to the operation of the Portfolio in the amount of $19,780. For the
period from the Portfolio's start of business, June 11, 1993, to the fiscal
year ended September 30, 1993, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $2,303 (equivalent to 0.14% (annualized) of the
Portfolio's average daily net assets for such period). To enhance the net
income of the Portfolio, BMR made a reduction of the full amount of its
advisory fee and BMR was allocated a portion of the expenses related to the
operation of the Portfolio in the amount of $1,810. The Portfolio's Investment
Advisory Agreement with BMR is dated June 7, 1993 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 SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended September 30,
1995 and for the period from the start of business, December 7, 1993, to the
fiscal year ended September 30, 1994, $14,260 and $19,179, respectively, of
the Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I of this SAI. Prior to
February 1, 1996, the Fund made sales commission, distribution fee and service
fee payments pursuant to a Distribution Plan. During the fiscal year ended
September 30, 1995, the Principal Underwriter paid to Authorized Firms sales
commissions of $17,628 under that Plan on sales of Fund shares. During the
same period, the Fund paid sales commission payments under that Plan to the
Principal Underwriter aggregating $18,730. During such period, contingent
deferred sales charges ("CDSCs") aggregating approximately $59 were imposed on
early redeeming shareholders and paid to the Principal Underwriter. The CDSCs
and sales commissions paid to the Principal Underwriter reduced Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $281,000 (which amount was
equivalent to 12.1% of the Fund's net assets on such date). During the fiscal
year ended September 30, 1995, the Fund paid service fee payments under the
Distribution Plan aggregating $5,039, of which $4,679 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $92.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund paid IBT $3,130 and
the Portfolio incurred custody fees of $20,589, which were reduced by fee
credits of $10,910.
BROKERAGE
For the fiscal years ended September 30, 1995 and 1994, and for the period
from the start of business, June 11, 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 September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
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 $336(2) $135,000(4)
Samuel L. Hayes, III ...... 0 324(3) 150,000(5)
Norton H. Reamer .......... 0 316 135,000
John L. Thorndike ......... 0 321 140,000
Jack L. Treynor ........... 0 346 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this SAI, 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 June 11, 1993 through
September 30, 1995 and for the one year period ended September 30, 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 Fund's
sales charge effective February 1, 1996.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------- ----------------------------
PERIOD DATE INVESTMENT* ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------------------- ------------- ------------ --------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/11/93 $962.49 $1,020.00 5.98% 2.54% 2.00% 0.86%
1 Year Ended
9/30/95** 9/30/94 $962.25 $1,053.35 9.47% 9.47% 5.36% 5.36%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
* 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 September 30, 1995, the yield of the Fund
was 3.97%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 3.97% would be 6.06%,
assuming a combined federal and State tax rate of 34.45%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, respectively, the Fund would have had a lower
yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 22, 1995) was 4.43%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.52%. 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 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 32.1% 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. In addition, as of such date, the following
shareholders owned beneficially and of record the percentage of outstanding
shares of the Fund indicated after their name: Shirley Pickich Delcambre,
Biloxi, MS (14.6%); George J. Higginbotham, Biloxi, MS (11.8%) and Denis J.
Damiens Sr., Madison, MS (7.5%). To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more of the Fund's outstanding
shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Classic Mississippi Tax Free Fund to EV Classic
Mississippi Municipals Fund on December 8, 1995 and to EV Traditional
Mississippi 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 Mississippi State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND MISSISSIPPI STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- --------------------- MS STATE ---------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------ ---------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 24,001-$ 58,150 $ 40,101-$ 96,900 31.60 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 58,151-$121,300 $ 96,901-$147,700 34.45 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$121,301-$263,750 $147,701-$263,750 39.20 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $263,750 Over $263,750 42.62 6.97 7.84 8.71 9.59 10.46 11.33 12.20
<FN>
* Net amount subject to federal and Mississippi personal income tax after deductions and exemptions.
+ The first combined tax bracket is calculated using the highest Mississippi tax rate within the bracket. Taxpayers with taxable
income within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
brackets assume that Mississippi 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 Mississippi 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 Mississippi State income
taxes) for taxpayers with adjusted gross income in excess of $117,950. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with adjusted gross income in excess of $117,950 and joint
filers with adjusted gross income in excess of $176,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Mississippi 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 Mississippi personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL NEW YORK MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New York State and New York City personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the New York Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in New York issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
York issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been
below the national average primarily due to significant cutbacks in the
computer, manufacturing, defense and banking industries. New York's economy
expanded modestly during 1995 with a pronounced slow-down during the course of
the year and is expected to slow gradually during 1996. The unemployment rate
for the State for 1995 and 1996 is projected to be 6.5% and 6.9%,
respectively, compared to the projected national unemployment rate of 5.6% and
5.8% for 1995 and 1996, respectively. New York City's unemployment rate was
8.0% in October 1995, down from 8.2% a year earlier.
For the fiscal year 1991-92, the State incurred an operating deficit in
the General Fund of $575 million, which, after a $44 million withdrawal from
the Tax Stabilization Reserve Fund, was financed through the public issuance
of $531 million of 1992 Deficit Notes on March 30, 1992.
In the 1992-1993 fiscal year, the State began the process of financial
reform closing the fiscal year with fund surpluses totalling $738 million. The
1992-1993 fiscal year marked the first time in four years that the State did
not have to issue deficit notes to close a budget gap.
The 1993-1994 fiscal year ended with combined fund balances of $1.539
billion due to an improving national economy, State employment growth, better
than projected tax collections and disbursements that were below projections.
The 1994-1995 fiscal year, which included tax reductions of $476 million,
closed with the General Fund in balance and positive fund balances of $157
million and $1 million in the Tax Stabilization Reserve Fund and the
Contingency Reserve Fund, respectively. The General Fund, however, suffered an
operating deficit of $1.426 billion primarily due to the use of $1.026 billion
of the 1993-1994 fiscal year surplus in the 1994-1995 fiscal year. Tax
revenues for the fiscal year fell short of original projections by $1.16
billion, the shortfall being offset by disbursements which were lower than
projected and planned spending reductions.
The 1995-1996 fiscal year budget, adopted in June 1995, includes a planned
three-year 20% reduction in the State's personal income tax and is the first
budget in over 50 years which projects a decline in General Fund disbursements
and spending on State operations. The 1995-1996 State Financial Plan, based on
the enacted budget, includes gap-closing actions to offset a previously
projected budget gap of $5 billion, the largest in the State's history. Such
gap-closing actions include, among others, substantial reductions in social
and medical entitlement programs, reductions in State services and capital
programs and increased lottery revenues. There can be no assurance that
additional gap-closing measures will not be required and there is no assurance
that any such measures will enable the State to achieve a balanced budget for
its 1995-1996 fiscal year.
The Governor submitted his proposed budget for the 1996-1997 fiscal year
budget earlier than required by State law hoping the State legislature will
adopt the budget prior to the beginning of the fiscal year on April 1, 1996.
The Governor's proposed 1996-1997 budget identifies a potential budget gap of
approximately $3.9 billion and proposes significant expenditure reductions in
the State's health, welfare and educational programs and projects significant
increases in federal health aid to eliminate the potential budget gap. There
can be no assurances that the Governor's budget proposals will be adopted as
proposed, the expenditure reductions can be implemented as envisioned or that
increases in federal aid will materialize as expected.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7
billion dollar cap, net of LGAC proceeds, on the seasonal borrowing program.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion completing the program. This cap may be exceeded in cases where
the Governor and the legislature have certified the need for additional
borrowing and have devised a method for reducing it back to the cap no later
than the fourth fiscal year after the limit is exceeded. If this cap were to
be exceeded, it could result in action by the rating agencies which could
adversely affect prices of bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each
of the 1981 through 1995 fiscal years, the City achieved balanced operating
results as reported in accordance with generally accepted accounting
principles. Pursuant to the laws of the State, the City prepares a four-year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City implemented various actions to close budget gaps of $3.3 billion,
$2.1 billion and $3.5 billion for the 1992, 1994 and 1995 fiscal years,
respectively. Such actions included, among others, tax increases, service and
personnel reductions, productivity savings, debt refinancings, asset sales and
cost savings related to employee benefits. The City's financial plan for the
1996 fiscal year sets forth gap-closing actions to close a previously
projected budget gap of $3.1 billion for the 1996 fiscal year. Such actions
include, among others, substantial reductions in entitlement programs, service
and personnel reductions and cost saving initiatives related to labor and
pension costs. The City currently projects budget gaps of $1.4 billion, $2.3
billion and $2.7 billion for its 1997, 1998 and 1999 fiscal years,
respectively. The City's gap-closing plans for the 1997 through 1999 fiscal
years include reductions in City agency expenditures and cost saving actions
related to entitlement programs and procurement. There can be no assurance
that additional gap-closing measures will not be required, the implementation
of which could adversely affect the City's economic base, and there is no
assurance that such measures will enable the City to achieve a balanced
budget, as required by State law, for any of the 1996 through 1999 fiscal
years. The fiscal health of New York City, which is the largest issuer of
municipal bonds in the country and a leading international commercial center,
exerts a significant influence upon the fiscal health and bond values of
issues throughout the State. Bond values of the Municipal Assistance
Corporation, the State of New York, the New York Local Government Assistance
Corporation, the New York State Dormitory Authority -- City University, the
New York City Municipal Water Finance Authority and The Metropolitan
Transportation Authority would be particularly affected by serious financial
difficulties encountered by New York City. The Portfolio could be expected to
hold bonds issued by many, if not all of these issuers, at any given time.
Moody's rates the City's general obligation bonds "Baa1" and Fitch rates
such bonds "A-". On July 10, 1995, S&P revised downward its rating on City
general obligation bonds from A- to BBB+. S&P stated that the downgrade was a
reflection of the City's inability to eliminate a structural budget imbalance
due to persistent softness in the City's economy, weak job growth, a trend of
using nonrecurring budget devices, optimistic projections of State and federal
aid and high levels of debt service. There is no assurance that such ratings
will continue for any given period of time or that they will not be revised
downward or withdrawn entirely. Any such downward revision or withdrawal could
have an adverse effect on obligations held by the Portfolio.
The State's economic and fiscal viability are mutually and intricately
tied to those of its authorities and localities, which make up the major
portion of State bond issuance. Any serious financial difficulties encountered
by these entities, including their inability to access capital markets, would
have a significant, adverse effect upon the value of bonds issued elsewhere
within the State and thus upon the value of the interests in the Portfolio.
State plans to reduce aid to local cities and towns may have a negative impact
on municipal finances and ratings throughout the State. Such ratings changes
could erode the value of their bonds and/or lead to defaults.
The State either guarantees or supports lease-purchase agreements or
contractual obligations, financing arrangements or through moral obligation
provisions, a large amount of Authority indebtedness. While debt service is
normally paid out of revenues generated by the projects of the Authorities,
the State has, from time to time, had to appropriate amounts to enable the
Authorities to meet their financial obligations and, in some cases, to prevent
default. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $652,736,309.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $3,031,508 (equivalent to 0.47% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $3,073,565 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). For the period from the
Portfolio's start of business, February 1, 1993, to the fiscal year ended
September 30, 1993, the Portfolio paid BMR advisory fees of $1,755,148
(equivalent to 0.46% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator receives no compensation for providing administrative
services to the Fund. For the fiscal year ended September 30, 1995 and for the
period from the start of business, April 15, 1994, to the fiscal year ended
September 30, 1994, $20,316 and $5,466, respectively, of the Fund's operating
expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I of this SAI. During the
fiscal year ended September 30, 1995, the Fund made no service fee payments
under the Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the fiscal year
ended September 30, 1995 was $115,728, all of which was received by Authorized
Firms.
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $47.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody
fees of $3,210 which were reduced by fee credits of $1,701 and the Portfolio
incurred custody fees of $221,548 which were reduced by fee credits of
$220,048.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 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 September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
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 $4,093(2) $135,000(4)
Samuel L. Hayes, III ......... 0 4,048(3) 150,000(5)
Norton H. Reamer ............. 0 4,013 135,000
John L. Thorndike ............ 0 4,133 140,000
Jack L. Treynor .............. 0 4,257 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,373 of deferred compensation.
(3) Includes $1,302 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 SAI, Nicole Anderes (34) has served
as a Vice President of the Portfolio since June 19, 1995. Ms. Anderes has been
a Vice President of BMR and Eaton Vance since 1994, and is an officer of
various investment companies managed by Eaton Vance or BMR. Prior to joining
Eaton Vance, Ms. Anderes was Vice President and portfolio manager, Lazard
Freres Asset Management (1992-1994) and Vice President and Manager --
Municipal Research, Roosevelt & Cross (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from August 30, 1990
through September 30, 1995 and for the one- and five-year periods ended
September 30, 1995. The total return for the period prior to the Fund's
commencement of operations on April 15, 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.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ------------------------------ -----------------------------
PERIOD DATE INVESTMENT* ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------------- ---------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 8/30/90 $962.59 $1,459.27 51.59% 8.52% 45.93% 7.71%
5 Years
Ended
9/30/95** 9/30/90 $962.73 $1,466.78 52.35% 8.77% 46.68% 7.95%
1 Year
Ended
9/30/95** 9/30/94 $962.60 $1,061.91 10.32% 10.32% 6.19% 6.19%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
*Initial investment less the maximum sales charge of 3.75%.
**If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 5.17%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.17% would be 8.52%,
assuming a combined federal and State tax rate of 39.32%. 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 September 30, 1995 and based
on the Fund's monthly distribution paid September 30, 1995) was 5.69%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 5.84%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL, was the record owner of approximately 6.3% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of the same date the following
shareholders owned of record the percentages of outstanding shares of the Fund
indicated after their names: BHC Securities, Inc., Trade House Account,
Philadelphia, PA 19103 (13.9%); and Prudential Securities FBO Sylvia DeBettini
Sichel, New York, NY 10028-0809 (6.9%). To the knowledge of the Trust, no
other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
OTHER INFORMATION
The Trust, which is a Massachusetts business trust established in 1985,
was originally called Eaton Vance High Yield Municipals Trust. The Trust
changed its name to Eaton Vance Municipals Trust on January 7, 1991. The Fund
changed its name from EV Traditional New York Tax Free Fund to EV Traditional
New York Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLES
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and New York State and New York City income tax laws in effect for 1996.
<TABLE>
<CAPTION>
COMBINED
FEDERAL,
SINGLE RETURN JOINT RETURN NY STATE A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
- ---------------------- -------------------- AND NY CITY --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------------------------- --------------- --------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 24.79% 5.32% 5.98% 6.65% 7.31% 7.98% 8.64% 9.31%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 36.30 6.28 7.06 7.85 8.63 9.42 10.20 10.99
$ 58,151 - $121,300 $ 96,901 - $147,700 38.99 6.56 7.38 8.20 9.02 9.83 10.65 11.47
$121,301 - $263,750 $147,701 - $263,750 43.41 7.07 7.95 8.84 9.72 10.60 11.49 12.37
Over $263,750 Over $263,750 46.60 7.49 8.43 9.36 10.30 11.24 12.17 13.11
<FN>
* Net amount subject to federal, New York State and New York City personal income tax (including New York City personal income tax
surcharges) after deductions and exemptions.
+ The first two combined tax brackets are calculated using the highest State rate (7.125% effective annualized State tax rate
based on a rate of 7.5% for the first 3 months of the 1996 tax year and 7.0% for the remaining 9 months) and the highest City
rate (including surcharges) applicable at the upper portion of such bracket. Taxpayers with taxable income below the highest
dollar amount in the two lowest brackets may have a lower combined tax bracket and taxable equivalent yield than indicated
above. The applicable State and City rates are at their maximum (7.125% and 4.457%, respectively) throughout all other brackets.
</TABLE>
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and New York State income tax laws in effect for 1996.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND NEW YORK STATE TAX EXEMPT YIELD OF:
- ---------------------- -------------------- NY STATE --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -------------------------------------------- --------------- --------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 21.06% 5.07% 5.70% 6.33% 6.97% 7.60% 8.23% 8.87%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 33.13 5.98 6.73 7.48 8.22 8.97 9.72 10.47
$ 58,151 - $121,300 $ 96,901 - $147,700 35.92 6.24 7.02 7.80 8.58 9.36 10.14 10.92
$121,301 - $263,750 $147,701 - $263,750 40.56 6.73 7.57 8.41 9.25 10.09 10.94 11.78
Over $263,750 Over $263,750 43.90 7.13 8.02 8.91 9.80 10.70 11.59 12.48
<FN>
* Net amount subject to federal and New York State and personal income tax after deductions and exemptions.
+ The first combined tax bracket is calculated using the highest State rate (7.125% effective annualized State tax rate based on a
rate of 7.5% for the first 3 months of the 1996 tax year and 7.0% for the remaining 9 months) within the bracket. Taxpayers with
taxable income below the highest dollar amount in the first bracket may have a lower combined tax bracket and taxable equivalent
yield than indicated above. The applicable State rate is the maximum rate, 7.125%, throughout all other brackets. The applicable
federal tax rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
</TABLE>
Note: Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that the Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and New York State and New York
City personal income taxes, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for New
York State and New York City 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 above-indicated combined federal and New York State/City income brackets
assume State and City taxes are itemized deductions and do not take into
account the effect of a reduction in the deductibility of itemized deductions
(including New York State and City Income Taxes) for taxpayers with adjusted
gross income in excess of $117,950, nor do they reflect phaseout of personal
exemptions for single and joint filers with adjusted gross income in excess of
$117,950 and $176,950, respectively. The effective combined tax brackets and
equivalent taxable yields of taxpayers who do not itemize or who are subject
to such limitations will be higher than those indicated above. In addition,
investors who do not itemize deductions on their federal income tax returns
will have higher combined brackets and equivalent taxable yields than
indicated above.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL OHIO MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Ohio State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Ohio Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Ohio considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Ohio 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 Ohio
issuers. Neither the Trust nor the Portfolio has independently verified this
information.
The State of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. The State is effectively prohibited by law
from ending a fiscal year or a biennium in a deficit position. The Governor
has the power to order State agencies to operate within the State's means. The
State carries out most of its operations through the General Revenue Fund
("GRF") which receives general State revenues not otherwise dedicated. GRF
revenues are derived mainly from personal income and sales taxes and corporate
franchise taxes. State GRF figures generally show a pattern related to
national economic conditions, evident in growth and depletion of its GRF
ending fund balances, with the June 30 (end of fiscal year) GRF fund balance
reduced during less favorable national economic periods and increased during
more favorable economic periods.
The general appropriations act for the 1994-95 biennium was signed by the
Governor on July 1, 1993. This act appropriated $30.7 billion for GRF
purposes. Appropriations for the first fiscal year of the biennium were
approximately 9.2% above those for fiscal year 1993 while those for the second
year were approximately 6.6% higher than those for fiscal year 1994. These
additional appropriations were mainly for increased costs in most State
financed programs such as education, Medicaid, mental health and corrections.
During the 1992-1993 biennium, the national economic downturn required a $200
million transfer from the Budget Stabilization Fund ("BSF") to the GRF (the
BSF has been replenished, and has a current balance of over $828 million). As
fiscal year 1992 progressed, reduced tax collections led to a revenue
shortfall. This, in combination with additional expenditures produced a
projected budget deficit. The State addressed this deficit through a
combination of budget cuts, tax payment accelerations and a depletion of the
BSF. A projected fiscal year 1993 gap of $520 million was covered through a
combination of tax increases and a reduction in appropriations. The 1994-1995
biennial budget was balanced, and the State's GRF had an ending fund balance
of $928 million.
Local school districts in Ohio receive a major portion of their operating
monies from State subsidies, but are dependent upon local taxes for
significant portions of their budgets. School districts may submit for voter
approval income taxes on the district income of individuals and estates. To
date, this income tax has been approved in 117 of the State's 600+ local
school districts. A small number of local school districts have in any year
required emergency loan approval from the State in order to avoid year-end
deficits. Forty-four school districts borrowed $68.6 million in fiscal year
1992 and 27 districts borrowed $94.5 million in 1993, including Cleveland
which borrowed $75 million. Twenty-eight districts borrowed $41.1 million in
fiscal year 1994 and 29 borrowed $71 million in fiscal year 1995 (including
$29.5 million for the Cleveland District).
Litigation, similar to that in other states, is pending questioning the
constitutionality of Ohio's system of school funding. A trial court concluded
that aspects of the system (including basic operating assistance) are
unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State appealed and a court of
appeals reversed the trial court's findings for plaintiff districts. The
plaintiff coalition has filed an appeal of the court of appeals decision to
the Ohio Supreme Court. At this time, it is not possible to determine either
the outcome or the financial burden which an unfavorable decision would have
on either the State's or the local school districts' financial health.
The electors approved in November 1995 a constitutional amendment that
extends the local infrastructure bond program (authorizing an additional $1.2
billion of State full faith and credit obligations to be issued over 10 years
for the purpose), and authorizes additional highway bonds (expected to be
payable primarily from highway use receipts). The latter supersedes the prior
$500 million highway obligation authorization, and authorizes not more than
$1.2 billion to be outstanding at any time and not more than $220 million to
be issued in a fiscal year.
Common resolutions are pending in both houses of the General Assembly that
would submit a constitutional amendment relating to certain other aspects of
State debt. The proposal would authorize, among other things, the issuance of
State general obligation debt for a variety of purposes, with debt service on
all State general obligation debt and GRF-supported obligations not to exceed
5% of the preceding fiscal year's GRF expenditures. It cannot be predicted
whether the proposal will in fact be submitted, or, if submitted, approved by
the electors.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1995, the Portfolio had net assets of $319,016,648.
For the fiscal year ended September 30, 1995, the Portfolio paid BMR advisory
fees of $1,463,895 (equivalent to 0.46% of the Portfolio's average daily net
assets for such year). For the fiscal year ended September 30, 1994, the
Portfolio paid BMR advisory fees of $1,454,208 (equivalent to 0.45% of the
Portfolio's average daily net assets for such year). 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 $750,672
(equivalent to 0.44% (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 SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator receives no compensation for providing administrative
services to the Fund. For the fiscal year ended September 30, 1995 and for the
period from the start of business, December 7, 1993, to the fiscal year ended
September 30, 1994, $20,605 and $20,643, respectively, of the Fund's operating
expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I of this SAI. Prior to
February 1, 1996, the Fund made sales commission, distribution fee and service
fee payments pursuant to a Distribution Plan. During the fiscal year ended
September 30, 1995, the Principal Underwriter paid to Authorized Firms sales
commissions of $14,797 under that Plan on sales of Fund shares. During the
same period, the Fund paid sales commission payments under that Plan to the
Principal Underwriter aggregating $15,306. During such period, contingent
deferred sales charges ("CDSCs") aggregating approximately $19 were imposed on
early redeeming shareholders and paid to the Principal Underwriter. The CDSCs
and sales commissions paid to the Principal Underwriter reduced Uncovered
Distribution Charges. As at September 30, 1995 the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $240,000 (which amount was
equivalent to 11.1% of the Fund's net assets on such date). During the fiscal
year ended September 30, 1995, the Fund paid service fee payments under the
Distribution Plan aggregating $4,163, of which $3,946 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $77.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody
fees of $3,387 and the Portfolio incurred custody fees of $157,716 which were
reduced by fee credits of $67,412.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 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 September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ............. $0 $3,287(2) $135,000(4)
Samuel L. Hayes, III ......... 0 3,270(3) 150,000(5)
Norton H. Reamer ............. 0 3,254 135,000
John L. Thorndike ............ 0 3,364 140,000
Jack L. Treynor .............. 0 3,426 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,102 of deferred compensation.
(3) Includes $1,054 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 April 18, 1991 through
September 30, 1995 and for the one-year period ended September 30, 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 Fund's
sales charge effective February 1, 1996.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ----------------------- -----------------------
PERIOD DATE INVESTMENT* ON 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
-------------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/18/91 $962.46 $1,296.07 34.66% 6.90% 29.61% 6.00%
1 Year Ended
9/30/95** 9/30/94 $962.33 $1,055.08 9.64% 9.64% 5.53% 5.53%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when redeemed,
may be worth more or less than their original cost.
<FN>
- ------------
* Initial investment less the maximum sales charge of 3.75%. This sales charge is effective February 1, 1996. Prior thereto, Fund
shares redeemed within one year of their purchase are subject to a CDSC of 1%.
**If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1995, the yield of the Fund
was 4.40%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.40% would be 6.85%,
assuming a combined federal and State tax rate of 35.76%. 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 September 30, 1995 and based
on the Fund's monthly distribution paid September 22, 1995) was 4.58%, and the
Fund's effective distribution rate (calculated on the same date and based on
the same monthly distribution) was 4.67%. If a portion of the Fund's expenses
had not been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 37.9% 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 the same date, the following
shareholders owned of record the percentages of outstanding shares indicated
after their names: NFSC FEBO # OGD-521515, Ellis Brothers Inc., Mt. Vernon, OH
43050 (7.9%); and Paine Webber FBO Mary Alice Wilson, Lucasville, OH 45648-
9806 (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.
TAXES
In the opinion of special tax counsel to the Fund, Squire, Sanders &
Dempsey, under Ohio law, provided that the Fund continues to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Fund consists of obligations issued by
or on behalf of Ohio, political subdivisions thereof or agencies or
instrumentalities of Ohio or its political subdivisions ("Ohio Obligations"),
or similar obligations of other states or their subdivisions (a fund
satisfying such requirements being referred to herein as an "Ohio fund"), (i)
dividends paid by the Fund will be exempt from the Ohio personal income tax
and any municipal or school district income taxes in Ohio to the extent such
dividends are properly attributable to interest on Ohio Obligations, and (2)
distributions of "capital gain dividends," as defined in the Internal Revenue
Code, which are properly attributable to the Fund's capital gains on the sale
or other disposition of Ohio Obligations, will not be subject to the Ohio
personal income tax or municipal or school district income taxes in Ohio.
Other distributions from the Fund will generally not be exempt from the Ohio
personal income tax or municipal or school district income taxes in Ohio.
Provided the Fund qualifies as an Ohio fund, (1) distributions from the
Fund will be excluded from the net income base of the Ohio corporation
franchise tax to the extent that such distributions are excludable from gross
income for Federal income tax purposes or are properly attributable to
interest on Ohio Obligations, and (2) distributions which are derived from the
Fund's capital gains on the sale or other disposition of Ohio Obligations,
also will be excluded from the net income base of the Ohio corporation
franchise tax. However, shares of the Fund will not be excluded from the tax
base for purposes of computing such tax on the net worth basis.
Distributions by the Fund properly attributable to interest on obligations
of the United States or the governments of Puerto Rico, the Virgin Islands or
Guam or their authorities or municipalities are exempt from the Ohio personal
income tax and municipal and school district income taxes in Ohio, and are
excluded from the net income base of the Ohio corporate franchise tax to the
same extent that such interest would be so exempt or excluded if the
obligations were held directly by the shareholders.
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 Ohio Tax Free Fund to EV Classic Ohio
Municipals Fund on December 8, 1995 and to EV Traditional Ohio 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 Ohio State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND OHIO STATE TAX EXEMPT YIELD OF:
- ------------------------- --------------------- OHIO STATE ---------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------------ ---------------- ---------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,000 Up to $ 40,100 19.42% 4.96% 5.58% 6.21% 6.83% 7.45% 8.07% 8.69%
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 32.28 5.91 6.64 7.38 8.12 8.86 9.60 10.34
$ 58,151 - $121,300 $ 96,901 - $147,700 35.76 6.23 7.01 7.78 8.56 9.34 10.12 10.90
$121,301 - $263,750 $147,701 - $263,750 40.80 6.76 7.60 8.45 9.29 10.14 10.98 11.82
Over $263,750 Over $263,750 44.13 7.16 8.05 8.95 9.84 10.74 11.63 12.53
<FN>
* Net amount subject to federal and Ohio personal income tax after deductions and exemptions.
+ The combined tax brackets are calculated using the highest Ohio State rate within the bracket. The combined tax brackets assume
that Ohio taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated above.
The applicable federal tax rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6% 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 Ohio State income taxes) for
taxpayers with adjusted gross income in excess of $117,950. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with adjusted gross income in excess of $117,950 and joint filers with
adjusted gross income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those
indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Ohio 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 Ohio 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 with their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL WEST VIRGINIA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and West Virginia state personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the West Virginia Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain West Virginia considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in West 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 West Virginia issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The economy of the State is based primarily on manufacturing, mining and
tourism. Major manufacturing sectors include chemicals and primary metals. The
State is the second leading coal producing state and the leading coal
exporting state in the nation. The State is also one of the leading oil and
gas producing states east of the Mississippi. Technological advancements have
reduced the size of employment in the coal industry. The majority of the job
creation in the State has occurred in the service sector. The State has taken
steps to foster growth in this sector as well as other non-resource related
industries.
Based on a 1990 task force report indicating potential fiscal problems for
the State, the State took a number of actions designed to eliminate the
projected deficit, including revenue enhancement measures, such as changes to
the Consumer Sales and Service tax, and reductions in State spending. The 1994
General Revenue Fund balance was $135 million. Unfunded trust liabilities and
a possible reduction of federal aid may have a negative impact on the State's
financial position.
The Business and Occupation Tax, the Personal Income Tax, the Consumer
Sales and Service Tax, the Severance Tax, the Corporate Net Income Tax and the
Business Franchise Tax together provided over 80% of the revenue for the
General Revenue Fund in the fiscal year ended June 30, 1994. The amounts
collected pursuant to the business registration, cigarette, insurance,
telecommunications, inheritance, other taxes, liquor profits and racing fees
constitute the remainder of the General Revenue Fund, but individually did not
account for more than 2.9% of total revenues.
The federal programs administered in West Virginia are a substantial part
of the operation of State government. Historically, federal grants have either
been part of an ongoing program, limited to a specific project or structured
to institute immediate state action. In all cases, they become due either
temporarily or permanently and are a significant feature of State services and
the budget process.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1995, the Portfolio had net assets of $40,835,061. For
the fiscal year ended September 30, 1995, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $98,033 (equivalent to 0.24% 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 $32,526. For the fiscal year ended September 30, 1994, BMR would
have earned, absent a fee reduction, advisory fees of $82,158 (equivalent to
0.23% 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. For the period from the Portfolio's start of business, June
11, 1993, to the fiscal year ended September 30, 1993, the Portfolio would
have paid BMR, absent a fee reduction, advisory fees of $6,768 (equivalent to
0.15% (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 $6,768, and BMR was allocated a portion of
the expenses related to the operation of the Portfolio in the amount of
$2,559. The Portfolio's Investment Advisory Agreement with BMR is dated June
7, 1993 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 SAI.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
SAI, the Administrator currently receives no compensation for providing
administrative services to the Fund. For the fiscal year ended September 30,
1995 and for the period from the start of business, December 13, 1993, to the
fiscal year ended September 30, 1994, $16,838 and $17,812, respectively, of
the Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I of this SAI. Prior to
February 1, 1996, the Fund made sales commission, distribution fee and service
fee payments pursuant to a Distribution Plan. During the fiscal year ended
September 30, 1995, the Principal Underwriter paid to Authorized Firms sales
commissions of $11,015 under that Plan on sales of Fund shares. During the
same period, the Fund paid sales commission payments under that Plan to the
Principal Underwriter aggregating $11,217. During such period, no contingent
deferred sales charges ("CDSCs") were paid to the Principal Underwriter. The
sales commissions paid to the Principal Underwriter reduced Uncovered
Distribution Charges. As at September 30, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $166,000 (which amount was
equivalent to 16.1% of the Fund's net assets on such date). During the fiscal
year ended September 30, 1995, the Fund paid service fee payments under the
Distribution Plan aggregating $3,019, of which $2,937 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $102.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended September 30, 1995, the Fund incurred custody
fees of $3,416 and the Portfolio incurred custody fees of $19,975, which were
reduced by fee credits of $8,102.
BROKERAGE
For the fiscal year ended September 30, 1995, the fiscal year ended
September 30, 1994, and for the period from the start of business, June 11,
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 September 30, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
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 $336(2) $135,000(4)
Samuel L. Hayes, III ...... 0 324(3) 150,000(5)
Norton H. Reamer .......... 0 316 135,000
John L. Thorndike ......... 0 321 140,000
Jack L. Treynor ........... 0 346 140,000
- ----------
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $113 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I of this SAI, Timothy T. Browse (36) has
served as a Vice President of the Portfolio since it commenced operations. 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 June 11, 1993 through
September 30, 1995 and for the one-year period ended September 30, 1995. The
total return for the period prior to the Fund's commencement of operations on
December 13, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. 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 Fund's
sales charge effective February 1, 1996.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF VALUE ON ---------------------------- ----------------------------
PERIOD DATE INVESTMENT* 9/30/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------------------ ------------- ------------ ---------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/11/93 $962.50 $1,019.86 5.96% 2.54% 1.99% 0.86%
1 Year Ended
9/30/95** 9/30/94 $962.49 $1,052.51 9.35% 9.35% 5.25% 5.25%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
<FN>
- ----------
* 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 purchase are subject to a CDSC 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 September 30, 1995, the yield of the Fund
was 4.52%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.52% would be 7.01%,
assuming a combined federal and State tax rate of 35.49%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on September 30, 1995 and based
on the Fund's monthly distribution paid September 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 Portfolio's and
the Fund's expenses had not been allocated to the Investment Adviser and 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 rate and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 25.84% 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 beneficially and of record the percentages of outstanding
shares of the Fund indicated after their names: Joseph Beam and Betty S. Beam,
Belle, WV (9.08%); William S. Gallagher and Joan P. Gallagher JTWROS, Weirton,
WV (19.63%); William D. Strauch & Elaine B. Strauch JTWROS, Wheeling, WV
(5.3%) and Joseph M. Sanders, Jr., Bluefield, WV (9.13%). 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 West Virginia Tax Free Fund to EV Classic
West Virginia Municipals Fund on December 8, 1995 and to EV Traditional West
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 West Virginia state income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
A FEDERAL AND WEST VIRGINIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ------------------- WV STATE ---------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------ ---------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.83% 4.93% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.68 5.94 6.68 7.43 8.17 8.91 9.66 10.40
$ 56,551 - $117,950 $ 94,251 - $143,600 35.49 6.20 6.98 7.75 8.53 9.30 10.08 10.85
$117,951 - $256,500 $143,601 - $256,500 40.16 6.68 7.52 8.36 9.19 10.03 10.86 11.70
Over $256,500 Over $256,500 43.53 7.08 7.97 8.85 9.74 10.62 11.51 12.40
<FN>
* Net amount subject to federal and West Virginia personal income tax after deductions and exemptions.
+ The combined tax rate for the two lowest federal income tax brackets are calculated using the highest West Virginia 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 West 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 state rate is at its maximum (6.5%) throughout all other
brackets. The applicable federal tax rates within the brackets 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 West 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 the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and West 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 West 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 the
West Virginia personal income tax, is treated as a tax preference item which
could subject the recipient to the federal alternative minimum tax and the
West Virginia minimum tax. The illustrations assume that the federal
alternative minimum tax and the West Virginia minimum tax are not applicable
and do not take into account any tax credit that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult with their tax adviser for additional information.
<PAGE>
[LOGO]
EV TRADITIONAL
MUNICIPAL
FUNDS
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1996
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND
EV TRADITIONAL NEW YORK MUNICIPALS FUND
EV TRADITIONAL OHIO MUNICIPALS FUND
EV TRADITIONAL WEST 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-TFC2/1SAI
<PAGE>
EATON VANCE MUNICIPALS TRUST
FOR THE FUNDS:
* EV Traditional California Municipals Fund
* EV Traditional Florida Tax Free Fund
* EV Traditional New York Tax Free Fund
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
ANNUAL SHAREHOLDER REPORT
SEPTEMBER 30, 1995
<PAGE>
<TABLE>
Table of Contents
<CAPTION>
ITEM PAGE
<S> <C>
Year-end results, listed by state........................................................... 2
President's letter to shareholders.......................................................... 3
Management Reports:
EV Traditional California Municipals Fund ....................................... 4
EV Traditional Florida Tax Free Fund............................................. 5
EV Traditional New York Tax Free Fund .......................................... 6
</TABLE>
<TABLE>
INFORMATION ABOUT YOUR MUTUAL FUND INVESTMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FINANCIAL DATA: TAX DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
RESULTS FOR THE YEAR Dividends paid Fund's NAV Fund's If your combined The after-tax Federal
ENDED SEPTEMBER 30, 1995. by Fund during per share distribution Federal & state yield you would income tax
period at 9/30/95 rate at 9/30/95 tax rate is... need is... information*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EV Traditional CALIFORNIA
Municipals Fund $0.605 $10.18 5.94% [STATE MAP] 43.04% 9.98% 98.74%
- ------------------------------------------------------------------------------------------------------------------------------------
EV Traditional FLORIDA
Tax Free Fund $0.595 $10.45 5.69% [STATE MAP] 38.25% 9.16% 98.16%
- ------------------------------------------------------------------------------------------------------------------------------------
EV Traditional NEW YORK
Tax Free Fund $0.600 $10.15 5.91% [STATE MAP] 40.86% 9.94% 98.67%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Percentages represent the amounts of the total dividends paid by the Funds from net investment income during the year ended
September 30, 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.
</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.
- --------------------------------------------------------------------------------
DESPITE TAX POLICY UNCERTAINTIES, TAX-EXEMPT BONDS YIELD MORE THAN 89% OF
TREASURY YIELDS
BAR CHART DEPICTING:
5.90% 30-YR. AA GENERAL OBLIGATION (GO) BONDS*
9.21% TAXABLE EQUIPMENT YIELD OF INVESTMENT FOR COUPLE IN 36% TAX
BRACKET
6.50% 30-YR. TREASURY BONDS
Principal and interest payments of Treasury securities are guaranteed by the
U.S. government.
* 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 September 30, 1995.
Past Performance is no guaranteee of future results.
Source: Bloomberg, L.P.
- --------------------------------------------------------------------------------
However, for many reasons, we at Eaton Vance believe there is little chance
of major tax reform legislation being enacted. 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.+
[PICTURE OF THOMAS J. FETTER] Sincerely,
/S/ Thomas J. Fetter
Thomas J. Fetter
President
November 3, 1995
+ A portion of the Portfolios' income could be subject to Federal alternative
minimum tax.
- --------------------------------------------------------------------------------
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 comprises bonds
principally from your individual state, the Index is composed of bonds from
all 50 states and many jurisdictions. The Index's total return does not
reflect any commissions or expenses that would be incurred if an investor
individually purchased or sold the securities represented in the Index.
- --------------------------------------------------------------------------------
3
<PAGE>
EV Traditional California Municipals Fund
YOUR INVESTMENT AT WORK
Sacramento Cogeneration Authority [GRAPHIC]
Cogeneration Project Bonds
These bonds are being used to build a gas-fired cogeneration plant that will
produce electricity for the Sacramento Municipal Utility District. The plant
also will produce steam for a nearby Procter & Gamble manufacturing facility.
It is located on a 10-acre parcel next to the Procter & Gamble property.
The project is part of the Municipal Utility District's plan to reduce its
purchases of electrical power from local electric utilities. It is scheduled
to begin operation in 1996 and will be the second of up to four cogeneration
plants to be constructed in the Sacramento area.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
[STATE MAP] PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
Number of issues............................ 110
Average quality............................. A+
Investment grade............................ 88.3
Effective maturity.......................... 14.67 yrs.
Largest sectors:
Lease revenues/Certificates of
participation....................................... 22.6%
Escrowed to maturity................................ 16.2
Tax allocation...................................... 9.0
Insured utilities................................... 8.8*
Housing............................................. 8.6
<FN>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
THE STATE OF THE STATE: California
California's economy is improving slowly. Gains in the northern part of the
state -- in San Francisco and the Silicon Valley, for example -- have been
partially offset by continued poor economic conditions in Orange and Los
Angeles Counties.
The Los Angeles County economy continues to lag, and the Orange County
government has been in bankruptcy since December 1994, when losses in the
derivatives market drained nearly $1.7 billion from its investment pool. Both
counties are finding it necessary to cut back on government services; those
cutbacks have the effect of further dampening local economic activity.
While California's long-term economic outlook is positive, its current
problems are not likely to end soon, in part because of the magnitude of its
outstanding financial issues. The state, home to much import and export
business with Pacific Rim countries, has also been hurt by the depressed
Japanese economy. It could expect to recover more quickly if the Japanese
economy were to improve.
- -------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV TRADITONAL
MUNICIPALS FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
<TABLE>
From May 31, 1994, through September 30, 1995
<CAPTION>
---------------------------------------------------------------------
AVERAGE ANNUAL RETURN 1 Year Life of Fund*
---------------------------------------------------------------------
<S> <C> <C>
With 4.75% sales charge 5.9% 4.7%
---------------------------------------------------------------------
Without sales charge 9.9% 7.7%
---------------------------------------------------------------------
</TABLE>
<TABLE>
Line Chart depicting the following:
<CAPTION>
EV TRADITIONAL
EV TRADITIONAL CALIFORNIA LEHMAN BROTHERS
CALIFORNIA MUNICIPALS FUND MUNICIPAL
DATE MUNICIPALS FUND W/ MAX. SALES CHARGE: BOND INDEX
<S> <C> <C> <C>
5/94+ 10,000 9,624 10,000
6/94 10,008 9,631 9,942
7/94 10,181 9,798 10,121
8/94 10,223 9,838 10,156
9/94 10,080 9,700 10,007
10/94 9,907 9,534 9,830
11/94 9,670 9,306 9,652
12/94 9,848 9,477 9,864
1/95 10,213 9,829 10,146
2/95 10,544 10,147 10,441
3/95 10,683 10,280 10,561
4/95 10,672 10,270 10,574
5/95 11,034 10,619 10,911
6/95 10,820 10,413 10,816
7/95 10,886 10,476 10,918
8/95 10,985 10,571 11,057
9/95 11,082 10,665 11,126
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 5/27/94. + 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.
- -------------------------------------------------------------------------------
</TABLE>
FROM THE PORTFOLIO MANAGER: [PICTURE OF ROBERT B. MACINTOSH]
"California is such a large state that we have been able to choose credits
for the Portfolio very selectively. In general, we have avoided Los Angeles
County debt, though we do hold two relatively secure specialized bonds from
the area for yield purposes.
"Similarly, our holdings in Orange County are disproportionately low because
of the county's continuing financial problems. Over time,
we have been able to assess the full effect of those problems and can say
with assurance that the Portfolio's five credits located in the county have
not been affected by the county's financial problems."
- Robert B. MacIntosh
4
<PAGE>
EV Traditional Florida Tax Free Fund
YOUR INVESTMENT AT WORK [GRAPHIC]
Martin County Industrial
Development Authority
Indiantown Cogeneration Project
The proceeds of this $125 million bond issue were used to refund bonds issued
in 1992 used to build a portion of this cogeneration project.
The power plant will burn coal and will supply electricity to Florida Power &
Light Company and steam to Caulkins Indiantown Citrus Company. Construction
began in 1992 and is expected to be completed next year.
The 1992 bond proceeds financed the costs of acquiring, building and
equipping facilities for treatment of solid wastes associated with operating
the coal-fired cogeneration plant.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
[STATE MAP] PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
Number of issues................................... 138
Average quality.................................... AA-
Investment grade................................................... 92.4%
Effective maturity................................................. 16.83 yrs.
Largest sectors:
Utilities...................................................... 12.5%
Housing........................................................ 10.6
Insured utilities.............................................. 8.5*
Insured special tax revenue.................................... 7.9*
General obligations............................................ 7.5
<FN>
* Private insurance does not remove the risk of loss of principal due to
changes in market conditions that is associated with these investments.
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
THE STATE OF THE STATE: Florida
The Florida economy is relatively strong, helped by solid gains in the business
services sector, which is growing at a double-digit rate. Meanwhile, the
construction sector has been hampered by slower income and household growth.
State agencies project that Florida's population will grow at an annual rate of
nearly 2%, not as strong as the state had estimated earlier.
Tourism continues to be a cornerstone of the Florida economy. Tourism levels
in 1995 have slightly exceeded the state's expectations.
It is estimated that Florida's unemployment rate through 1995 will be 6.1%, a
significant drop from 8.2% at the peak of the recession in 1992.
The 1995 legislative session ended with approval of budget appropriations
which, adjusted for inflation, represent the smallest increase in state
spending in more than 10 years. Despite the need for substantial expenditures
to accommodate continuing growth, Florida's level of debt is considered
moderate and its economy stable.
- -------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV TRADITONAL
FLORIDA TAX-FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
<TABLE>
From April 30, 1994, through September 30, 1995
<CAPTION>
---------------------------------------------------------------------
AVERAGE ANNUAL RETURN 1 Year Life of Fund*
---------------------------------------------------------------------
<S> <C> <C>
With 4.75% sales charge 6.4% 6.4%
---------------------------------------------------------------------
Without sales charge 10.6% 9.2%
---------------------------------------------------------------------
</TABLE>
<TABLE>
Line Chart depicting the following:
<CAPTION>
EV TRADITIONAL
EV TRADITIONAL FLORIDA LEHMAN BROTHERS
FLORIDA TAX FREE FUND MUNICIPAL
DATE TAX FREE FUND W/ MAX. SALES CHARGE: BOND INDEX
<S> <C> <C> <C>
4/94+ 10,000 9,626 10,000
5/94 10,061 9,685 10,087
6/94 10,001 9,627 10,028
7/94 10,179 9,798 10,209
8/94 10,189 9,808 10,244
9/94 10,009 9,635 10,094
10/94 9,760 9,395 9,915
11/94 9,518 9,162 9,735
12/94 9,831 9,464 9,949
1/95 10,177 9,797 10,234
2/95 10,550 10,155 10,532
3/95 10,632 10,235 10,653
4/95 10,641 10,244 10,665
5/95 11,942 10,533 11,005
6/95 10,764 10,362 10,909
7/95 10,827 10,423 11,012
8/95 10,933 10,524 11,152
9/95 11,069 10,655 11,223
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 4/5/94. + 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.
- -------------------------------------------------------------------------------
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The Florida health care market has been somewhat in disarray because of
health care reform. As a result, we have exercised caution when looking at
health care or hospital bonds. Through our proprietary research, we have been
able to buy high-quality hospital bonds at very attractive prices.
"We have employed a two-pronged approach to the Portfolio, with an emphasis
on quality and also bonds that allow us to add to yield.
"We are still very constructive on the Florida economy, and we continue to
look for discount coupon bonds that add attractive characteristics to the
Portfolio."
- Thomas J. Fetter
5
<PAGE>
EV Traditional New York Tax Free Fund
YOUR INVESTMENT AT WORK [GRAPHIC]
New York State Power Authority
Historically, three of the top issuer names in New York have been "Ports"
(Port Authorities of New York and New Jersey), "Powers" (New York State Power
Authority) and "Tribes" (Triborough Bridge and Tunnel Authority). Bonds of
these three issuers are among the highest rated in the market.
Of the three, we see the most value in Power Authority bonds, especially as a
place to weather any coming storm in BBB-rated New York State-appropriated
bonds. The Triborough Bridge and Tunnel Authority will likely be under credit
pressure as it begins borrowing plans for the MTA subway system.Port
Authority bonds typically do not offer the attractive coupon structure
available on some Power Authority bonds.
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
[STATE MAP] PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
Number of issues............................... 179
Average quality................................ A+
Investment grade............................................... 98.0%
Effective maturity (years)..................................... 14.47
Largest sectors:
Health care................................................ 19.1%
Education.................................................. 12.7
Special tax revenue........................................ 12.5
Lease/Certificates of
participation.............................................. 8.7
Escrowed................................................... 7.6
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
THE STATE OF THE STATE: New York
New York is at a crossroads, with its first new governor in 12 years. Governor
George Pataki's first real chance to make his mark comes with next year's
budget. The impact of his proposed income tax cuts will be felt much more
deeply in the budget for fiscal year 1996-97; it will garner much attention
because tax cuts must be accompanied by spending cuts. It has the potential to
be Pataki's first big step toward streamlining state government and fulfilling
his election promises.
Given the potential for next year's budget process to be especially contentious
and given that this year's budget was passed late, as often occurs, the Governor
plans an earlier unveiling of the fiscal 1996-97 budget. The goal of matching
spending commitments to ongoing revenue resources is positive for the state's
long-term credit standing but may produce near-term turmoil.
Of more immediate interest to New York tax-exempt investors is the November
voter referendum on state debt reform. New Yorkers will vote on whether to
end the state's entrenched process of "backdoor borrowing." If debt reform
passes, the state will revamp its borrowing process. Consequently, it
currently plans to issue an unusually heavy calendar of state-supported
appropriation debt between now and year-end.
- -------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV TRADITONAL
NEW YORK TAX-FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
<TABLE>
From April 30, 1994, through September 30, 1995
<CAPTION>
---------------------------------------------------------------------
AVERAGE ANNUAL RETURN 1 Year Life of Fund*
---------------------------------------------------------------------
<S> <C> <C>
With 4.75% sales charge 6.2% 4.6%
---------------------------------------------------------------------
Without sales charge 10.3% 7.4%
---------------------------------------------------------------------
</TABLE>
<TABLE>
Line Chart depicting the following:
<CAPTION>
EV TRADITIONAL
EV TRADITIONAL NEW YORK LEHMAN BROTHERS
NEW YORK TAX FREE FUND MUNICIPAL
DATE TAX FREE FUND W/ MAX. SALES CHARGE: BOND INDEX
<S> <C> <C> <C>
4/94+ 10,000 9,624 10,000
5/94 10,148 9,766 10,087
6/94 10,056 9,677 10,028
7/94 10,240 9,854 10,209
8/94 10,302 9,914 10,244
9/94 10,086 9,706 10,094
10/94 9,870 9,499 9,915
11/94 9,527 9,169 9,735
12/94 9,852 9,481 9,949
1/95 10,198 9,815 10,234
2/95 10,552 10,155 10,532
3/95 10,670 10,268 10,653
4/95 10,683 10,281 10,665
5/95 11,994 10,580 11,005
6/95 10,832 10,425 10,909
7/95 10,909 10,498 11,012
8/95 11,062 10,646 11,152
9/95 11,127 10,708 11,223
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
* Investment operations commenced 4/5/94. + 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.
- -------------------------------------------------------------------------------
</TABLE>
FROM THE PORTFOLIO MANAGER: [PICTURE OF NICOLE ANDERES]
"Anticipating that state-appropriated debt will underperform in the face of a
heavy new issuance calendar, we have been reducing the Portfolio's exposure
to State appropriation debt and swapping into high-grade debt. Once this wave
of debt has come to market, state-appropriated debt should be attractively
priced and once again represent a buying opportunity.
"This past summer, during the second leg of the 1995 rally, discount coupon
bonds returned to favor. This was an opportunity to sell deep discounts in the
New York Portfolio and trade into more moderate discount coupon bonds that
should perform comparably to deep discounts in an up market and much better in a
down market."
- Nicole Anderes
6
<PAGE>
EV Traditional Tax Free Funds
Financial Statements
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1995
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CALIFORNIA FLORIDA NEW YORK
FUND FUND FUND
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS:
Investment in Portfolio -
Identified cost $3,903,533 $3,316,910 $4,204,426
Unrealized appreciation 162,553 116,433 145,278
---------- ---------- ----------
Total investment in Portfolio, at value (Note 1A) $4,066,086 $3,433,343 $4,349,704
Receivable for Fund shares sold -- 101,897 58,238
Receivable from the Administrator (Note 4) 35,928 18,478 20,316
Deferred organization expenses (Note 1D) 7,023 5,417 11,424
---------- ---------- ----------
Total assets $4,109,037 $3,559,135 $4,439,682
---------- ---------- ----------
LIABILITIES:
Dividends payable $ 15,025 $ 9,161 $ 10,743
Payable to affiliate -
Custodian fee 584 584 584
Accrued expenses 976 1,709 1,218
---------- ---------- ----------
Total liabilities $ 16,585 $ 11,454 $ 12,545
---------- ---------- ----------
NET ASSETS $4,092,452 $3,547,681 $4,427,137
========== ========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $3,982,257 $3,469,904 $4,311,501
Accumulated net realized loss on investment and
financial futures transactions (computed on the basis
of identified cost) (54,302) (36,980) (24,399)
Accumulated undistributed (distributions in excess of)
net investment income 1,944 (1,676) (5,243)
Unrealized appreciation of investments and
financial futures contracts from Portfolio
(computed on the basis of identified cost) 162,553 116,433 145,278
---------- ---------- ----------
Total $4,092,452 $3,547,681 $4,427,137
========== ========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 402,063 339,331 436,349
========== ========== ==========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(net assets / shares of beneficial interest outstanding) $10.18 $10.45 $10.15
========== ========== ==========
COMPUTATION OF OFFERING PRICE PER SHARE
(100/96.25 of net asset value per share) $10.58 $10.86 $10.55
========== ========== ==========
<FN>
On sales of $50,000 or more, the offering price is reduced.
</TABLE>
See notes to financial statements
7
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1995
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CALIFORNIA FLORIDA NEW YORK
FUND FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $248,846 $132,655 $180,433
Expenses allocated from Portfolio (21,267) (10,594) (14,041)
-------- -------- --------
Net investment income from Portfolio $227,579 $122,061 $166,392
-------- -------- --------
Expenses -
Service fees (Note 5) $ 145 $ 265 $ 275
Custodian fee (Note 4) 3,417 3,366 3,210
Transfer and dividend disbursing agent fees 2,672 1,405 1,914
Printing and postage 23,552 10,293 11,430
Legal and accounting services 5,227 2,866 2,660
Registration costs -- 514 179
Amortization of organization expenses (Note 1D) 1,100 1,638 2,386
Miscellaneous 1,649 808 238
-------- -------- --------
Total expenses $ 37,762 $ 21,155 $ 22,292
-------- -------- --------
Deduct allocation of expenses to the Administrator (Note 4) $ 35,928 $ 18,478 $ 20,316
Deduct reduction of custodian fee (Note 4) -- 418 1,701
-------- -------- --------
Total $ 35,928 $ 18,896 $ 22,017
-------- -------- --------
Net expenses $ 1,834 $ 2,259 $ 275
-------- -------- --------
Net investment income $225,745 $119,802 $166,117
-------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from Portfolio -
Investment transactions (identified cost basis) $(10,920) $ 4,072 $ 16,313
Financial futures contracts (40,870) (40,062) (40,444)
-------- -------- --------
Net realized loss on investments $(51,790) $(35,990) $(24,131)
Change in unrealized appreciation of investments 176,972 142,361 175,270
-------- -------- --------
Net realized and unrealized gain $125,182 $106,371 $151,139
-------- -------- --------
Net increase in net assets from operations $350,927 $226,173 $317,256
======== ======== ========
</TABLE>
See notes to financial statements
8
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1995
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CALIFORNIA FLORIDA NEW YORK
FUND FUND FUND
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 225,745 $ 119,802 $ 166,117
Net realized loss on investments (51,790) (35,990) (24,131)
Change in unrealized appreciation of investments 176,972 142,361 175,270
---------- ---------- -------------
Net increase in net assets from operations $ 350,927 $ 226,173 $ 317,256
---------- ---------- -------------
Distributions to shareholders (Note 2) -
From net investment income $ (223,651) $ (119,802) $ (166,117)
In excess of net investment income - (1,539) (4,961)
In excess of net realized gain on investments - - 98
---------- ---------- -------------
Total distributions to shareholders $ (223,651) $ (121,341) $ (172,056)
---------- ---------- -------------
Transactions in shares of beneficial interest (Note 3) -
Proceeds from sales of shares $1,624,592 $2,378,925 $ 3,317,793
Net asset value of shares issued to shareholders in payment
of distributions declared 51,798 47,959 79,744
Cost of shares redeemed (812,635) (229,728) (497,277)
---------- ---------- -------------
Increase in net assets from Fund share transactions $ 863,755 2,197,156 $ 2,900,260
---------- ---------- -------------
Net increase in net assets $ 991,031 $2,301,988 $3,045,460
NET ASSETS:
At beginning of year 3,101,421 1,245,693 1,381,677
---------- ---------- -------------
At end of year $4,092,452 $3,547,681 $ 4,427,137
========== ========== =============
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT END OF YEAR $ 1,944 $ (1,676) $ (5,243)
========== ========== =============
</TABLE>
9
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1994*
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CALIFORNIA FLORIDA NEW YORK
FUND FUND FUND
----------- ----------- ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 17,972 $ 15,078 $ 12,891
Net realized gain (loss) on investments (2,512) (990) 710
Unrealized depreciation of investments (14,419) (25,928) (29,992)
---------- ---------- ----------
Net increase (decrease) in net assets from operations $ 1,041 $ (11,840) $ (16,391)
---------- ---------- ----------
Distributions to shareholders (Note 2) -
From net investment income $ (17,972) $ (15,078) $ (12,891)
In excess of net investment income (150) (137) (282)
----------- ----------- ----------
Total distributions to shareholders $ (18,122) $ (15,215) $ (13,173)
----------- ---------- ----------
Transactions in shares of beneficial interest (Note 3) -
Proceeds from sales of shares $3,194,230 $1,320,013 $1,406,748
Net asset value of shares issued to shareholders in payment
of distributions declared 5,353 6,147 4,520
Cost of shares redeemed (81,081) (53,412) (27)
---------- ---------- ----------
Increase in net assets from Fund share transactions $3,118,502 $1,272,748 $1,411,241
---------- ---------- ----------
Net increase in net assets $3,101,421 $1,245,693 $1,381,677
NET ASSETS:
At beginning of year - - -
---------- ---------- ----------
At end of year $3,101,421 $1,245,693 $1,381,677
========== ========== ==========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT END OF YEAR $ (150) $ (137) $ (282)
========== ========== ==========
<FN>
* For the Traditional California, Traditional Florida and Traditional New
York Funds, the Statements of Changes in Net Assets are for the period from
the start of business, May 27, 1994, April 5, 1994, and April 15, 1994,
respectively, to September 30, 1994.
</TABLE>
See notes to financial statements
10
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TRADITIONAL CALIFORNIA FUND TRADITIONAL FLORIDA FUND TRADITIONAL NEW YORK FUND
--------------------------- ------------------------ -------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
--------------------------- ------------------------ -------------------------
1995 1994** 1995 1994** 1995 1994**
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.840 $10.000 $10.020 $10.000 $ 9.780 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.610 $ 0.209 $ 0.587 $ 0.288 $ 0.583 $ 0.271
Net realized and unrealized
gain (loss) on investments 0.335 (0.158) 0.438 0.023++ 0.390 (0.214)
------- ------- ------- ------- ------- -------
Total income from operations $ 0.945 $ 0.051 $ 1.025 $ 0.311 $ 0.973 $ 0.057
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.605) $(0.209) $(0.587) $(0.288) $(0.583) $(0.271)
In excess of net investment income -- (0.002) (0.008) (0.003) (0.017) (0.006)
In excess of net realized capital
gain on investments -- -- -- -- (0.003) --
------- ------- ------- ------- ------- -------
Total distributions $(0.605) $(0.211) $(0.595) $(0.291) $(0.603) $(0.277)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.180 $ 9.840 $10.450 $10.020 $10.150 $ 9.780
======= ======= ======= ======= ======= =======
TOTAL RETURN (2) 9.94% 0.50% 10.59% 3.10% 10.32% 0.56%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) $ 4,093 $ 3,101 $ 3,548 $ 1,246 $ 4,427 $ 1,382
Ratio of net expenses to average daily
net assets (1) 0.63% 0.54%+ 0.66% 0.50%+ 0.59% 0.44%+
Ratio of net investment income to average
daily net assets 6.08% 5.60%+ 5.68% 5.30%+ 5.77% 5.36%+
<FN>
* For the year ended September 30, 1995 and for the period from the start of business May 27, 1994, April 5, 1994, and April 15,
1994 (for the Traditional California Fund, Traditional Florida Fund and Traditional New York Fund, respectively), to
September 30, 1994, the operating expenses of the Funds reflect an allocation of expenses to the Administrator. Had such actions
not been taken, net investment income per share and the ratios would have been as follows:
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME PER SHARE $ 0.513 $ 0.158 $ 0.497 $ 0.081 $ 0.512 $ 0.156
======= ======= ======= ======= ======= =======
Ratios
(As a percentage of average daily net assets):
Expenses (1) 1.60% 1.92%+ 1.53% 2.48%+ 1.29% 2.71%+
Net investment income 5.11% 4.22%+ 4.81% 3.32%+ 5.07% 3.09%+
** For the Traditional California, Traditional Florida and the Traditional New York Funds, the Financial Highlights are for the
period from the start of business, May 27, 1994, April 5, 1994 and April 15, 1994, respectively, to September 30, 1994.
+ Annualized.
++ The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing
of sales of Fund shares and the amount of the per share realized and unrealized gains and losses at such time.
(1) Includes each 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 non-annualized basis.
</TABLE>
See notes to financial statements
11
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Municipals Trust (the Trust) is an entity of the type commonly
known as a Massachusetts business trust and is registered under the
Investment Company Act of 1940 (1940 Act), as amended, as an open-end
management investment company. The Trust presently consists of sixty-six
Funds, three of which are included in these financial statements. They
include EV Traditional California Municipals Fund ("Traditional California
Fund"), which is registered under the 1940 Act as a diversified management inv
estment company, EV Traditional Florida Tax Free Fund ("Traditional Florida
Fund"), and EV Traditional New York Tax Free Fund ("Traditional New York
Fund"), each of which is registered under the 1940 Act as a non-diversified
management investment company. Each Fund invests all of its investable
assets in interests in a separate corresponding open-end management
investment company (a Portfolio), a New York Trust, having the same
investment objective as its corresponding Fund. The Traditional California
Fund invests its assets in the California Tax Free Portfolio, the Traditional
Florida Fund invests its assets in the Florida Tax Free Portfolio, and the
Traditional New York Fund invests its assets in the New York Tax Free
Portfolio. The value of each Fund's investment in its corresponding Portfolio
reflects the Funds' proportionate interest in the net assets of that
Portfolio (1.0%, 0.5% and 0.7% at September 30, 1995 for the Traditional
California Fund, the Traditional Florida Fund, and the Traditional New York
Fund, respectively). The performance of each Fund is directly affected by the
performance of its corresponding Portfolio. The financial statements of each
Portfolio, including the portfolio of investments, are included elsewhere in
this report and should be read in conjunction with each Fund's financial
statements. The following is a summary of significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS - Valuation of securities by the Portfolios is
discussed in Note 1 of the Portfolios' Notes to Financial Statements which
are included elsewhere in this report.
B. INCOME - Each Fund's net investment income consists of each Fund's pro
rata share of the net investment income of its corresponding Portfolio, less
all actual and accrued expenses of each Fund determined in accordance with
generally accepted accounting principles.
<TABLE>
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 September 30, 1995, the Funds, for
Federal income tax purposes, had capital loss carryovers, which will reduce
taxable income arising from future net realized gain on investments, if any, to
the extent permitted by the Internal Revenue Code, and thus will reduce the
amount of the distributions to shareholders which would otherwise be necessary
to relieve the Funds of any liability for Federal income or excise tax. The
amounts and expiration dates of the capital loss carryovers are as follows:
<CAPTION>
Fund Amount Expires
- ---------------------------------------------------------------
<S> <C> <C>
Traditional California Fund $74,380 September 30, 2003
1,420 September 30, 2002
Traditional Florida Fund 2,396 September 30, 2003
636 September 30, 2002
Traditional New York Fund 3,063 September 30, 2003
</TABLE>
Additionally, at September 30, 1995, net capital losses of $36,910, and $31,826
for the Traditional Florida Fund and Traditional New York Fund, respectively,
attributable to securities transactions incurred after October 31, 1994 are
treated as arising on the first day of each 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.
E. OTHER - Investment transactions are accounted for on a trade date basis.
12
<PAGE>
- --------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of each Fund is determined daily and substantially all of the
net income so determined is declared as a dividend to shareholders of record at
the time of declaration. Distributions are paid monthly. Distributions of
allocated realized capital gains, if any, are made at least annually.
Shareholders may reinvest capital gain distributions in additional shares of a
Fund at the net asset value as of the ex-dividend date. Distributions are paid
in the form of additional shares or, at the election of the shareholder, in
cash. The Funds distinguish between distributions on a tax basis and a
financial reporting basis. Generally accepted accounting principles
require that only distributions in excess of tax basis earnings and profits be
reported in the financial statements as a return of capital. Differences in the
recognition or classification of income between the financial statements and
tax earnings and profits which result in temporary over distributions for
financial statements purposes are classified as distributions in excess of net
investment income or accumulated net realized gains. Permanent differences
between book and tax accounting relating to distributions are reclassified to
paid-in capital.
<TABLE>
- --------------------------------------------------------------------------------
(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:
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CALIFORNIA FUND FLORIDA FUND NEW YORK FUND
------------------------ ------------------------ ------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------ ------------------------ ------------------------
1995 1994* 1995 1994* 1995 1994*
------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales 165,155 322,759 232,635 128,981 336,733 140,815
Issued to shareholders selecting to receive
payment of distributions in Fund shares 5,199 536 4,700 605 8,010 458
Redemptions (83,462) (8,124) (22,345) (5,245) (49,664) (3)
------- ------- ------- ------- ------- -------
Net Increase 86,892 315,171 214,990 124,341 295,079 141,270
======= ======= ======= ======= ======= =======
<FN>
* For period from the start of business, May 27, 1994, April 5, 1994 and
April 15, 1994 for the Traditional California Fund, Traditional Florida Fund
and Traditional New York Fund, respectively, to September 30, 1994.
</TABLE>
- --------------------------------------------------------------------------------
(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 for
the year ended September 30, 1995, $35,928, $18,478 and $20,316 of expenses
related to the operation of the Traditional California Fund, Traditional
Florida Fund and Traditional New York 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.
With respect to Fund shares sold prior to March 27, 1995, Eaton Vance
Distributors, Inc. (EVD), a subsidiary of EVM and the Trust's Principal
Underwriter, receives a contingent deferred sales charge (CDSC) on
shareholder redemptions made within 18 months of purchase, where the initial
investment in a Fund was $1 million or more. EVD did not receive any CDSC during
the year ended September 30, 1995. No CDSC will be levied on shareholder
redemptions of Fund shares acquired on or after March 27, 1995.
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. All significant credit balances are reported as a
reduction of expenses in the statement of operations. Certain of the
officers and Trustees of the Funds and Portfolios are officers and
directors/trustees of the above organizations (Note 5).
(5) SERVICE PLAN
13
<PAGE>
- --------------------------------------------------------------------------------
Each Fund has adopted a service plan (the Plan) designed to meet the
requirements of Rule 12b-1 under the Investment Company Act of 1940 and the
service fee requirements of the revised sales charge rule of The National
Association of Securities Dealers, Inc. The Plans provide that each Fund may
make service fee payments to the Principal Underwriter, Eaton Vance
Distributors, Inc., a subsidiary of Eaton Vance Management, Authorized Firms
or other persons in amounts not exceeding 0.25% of each Fund's average daily
net assets for any fiscal year. The Trustees have initially implemented each
Plan by authorizing the Fund to make quarterly service fee payments to the
Principal Underwriter and Authorized
Firms in amounts not exceeding 0.20% (0.25% for the Traditional California
Fund) of each Fund's average daily net assets for any fiscal year which is
attributable to shares of a Fund sold by such persons and remaining
outstanding for at least one year. Service fee payments are made for personal
services and/or the maintenance of shareholder accounts. For the year ended
September 30, 1995, the Traditional California, Traditional Florida and
Traditional New York Funds paid or accrued service fees of $145, $265 and
$275, respectively.
Certain of the officers and Trustees of the Funds are officers and directors
of EVD.
<TABLE>
- --------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's investment in its corresponding
Portfolio for the year ended September 30, 1995 were as follows:
<CAPTION>
TRADITIONAL TRADITIONAL TRADITIONAL
CALIFORNIA FUND FLORIDA FUND NEW YORK FUND
--------------- ------------ -------------
<S> <C> <C> <C>
Increases $3,279,453 $2,334,986 $3,345,664
Decreases 1,024,678 319,943 613,677
</TABLE>
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF
EATON VANCE MUNICIPALS TRUST:
We have audited the accompanying statements of assets and liabilities of EV
Traditional California Municipals Fund, EV Traditional Florida Tax Free Fund and
EV Traditional New York Tax Free Fund (the Funds) (certain of the series
constituting Eaton Vance Municipals Trust) as of September 30, 1995, the related
statements of operations for the year then ended, and the statements of changes
in net assets and financial highlights for the year ended September 30, 1995 and
for the period from the start of business to September 30, 1994. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the
aforementioned Funds of Eaton Vance Municipals Trust at September 30, 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
OCTOBER 27, 1995
15
<PAGE>
<TABLE>
California Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 3.4%
NR BBB- $ 2,985 Central Valley Financing
Authority, Carson Ice-Gen
Project, 6.20%, 7/1/20 $ 2,914,584
NR BBB- 10,900 Sacramento Cogeneration
Authority, Procter &
Gamble Project,
6.50%, 7/1/21 10,987,636
-----------
$13,902,220
-----------
ESCROWED TO MATURITY - 16.2%
NR NR $ 130 City of Commerce Joint
Powers Financing Authority,
8.00%, 3/1/22 $ 153,456
NR BBB 2,000 City of Rancho Mirage
Joint Powers Financing
Authority, Civic Center,
7.50%, 4/1/17 2,320,380
Aaa AAA 8,000 County of Sacramento,
SFMRB (GNMA), (AMT),
8.125%, 7/1/16 (2)9,771,840
Aaa AAA 6,000 County of Sacramento,
SFMRB (GNMA), (AMT),
8.25%, 1/1/21 (2) 7,790,400
Aaa AAA 14,285 County of Sacramento,
SFMRB (GNMA), (AMT),
8.50%, 11/1/16 (2) 18,319,941
Aaa AAA 3,000 City and County of San
Francisco Sewer System
Secondary "RITES", (AMBAC),
Variable, 10/1/21 (1) 3,604,680
Baa1 A- 2,375 City of San Luis Obispo,
Capital Improvement
Board, 8.25%, 6/1/06 2,489,523
NR BBB 1,575 Fontana Public Financing
Authority, North Fontana
Redevelopment Project,
7.75%, 12/1/20 1,871,462
Aaa AAA 6,400 Port of Oakland, (BIGI),
0%, 11/1/05 3,784,960
NR NR 3,200 Oceanside California
Community Development
Commission, 8.40%, 6/1/18 3,357,408
NR NR 3,000 Poway Redevelopment
Agency, Paguay
Redevelopment Project,
7.75%, 12/15/21 3,567,420
NR BBB+ 1,000 City of Upland, Police
Building Construction,
8.20%, 8/1/16 1,054,870
NR NR 4,000 Huntington Beach Public
Financing Authority,
Huntington Beach Redevelop-
ment Projects, 8.375%, 5/1/18 4,472,080
NR NR 2,975 Sacramento-Yolo Port
District Port Facilities,
8.30%, 12/1/03 3,286,125
-----------
$65,844,545
-----------
GENERAL OBLIGATIONS - 1.9%
Baa1 A $ 3,000 Puerto Rico,
6.50%, 7/1/23 $ 3,131,640
AA Aa 5,000 East Bay Municipal
Utilities District,
Wastewater System,
5.00%, 4/1/15 4,435,100
-----------
$ 7,566,740
-----------
HOSPITALS - 1.1%
NR BBB+ $ 2,700 City of Stockton,
Dameron Hospital
Association,
8.30%, 12/1/14 $ 2,854,818
NR A 1,500 Woodland, Memorial
Hospital, 8.20%, 8/1/15 1,610,175
-----------
$ 4,464,993
-----------
HOUSING - 8.6%
Aa AA- $ 3,770 California Housing
Finance Agency (HFA),
(AMT), 7.375%, 8/1/11 $ 3,923,288
Aa AA- 800 California HFA, 7.375%,
8/1/17 855,792
Aa AA- 5,000 California HFA, (AMT),
7.40%, 8/1/26 5,381,050
Aa AA- 3,875 California HFA,
(AMT), 7.50%, 8/1/25 4,150,513
Aa AA- 8,185 California HFA (FHA),
(AMT), 7.65%, 8/1/23 8,549,724
Aa AA- 2,500 California HFA,
8.10%, 8/1/16 2,571,800
Aa AA- 2,500 California HFA,
8.20%, 8/1/17 2,596,875
Aa AA- 1,325 California HFA,
(AMT), 8.60%, 8/1/19 1,394,165
Aa3 NR 60 California HFA,
9.875%, 8/1/10 61,343
A NR 845 The Housing Authority
of the County of Los
Angeles, 7.875%, 8/1/16 874,541
NR NR 2,000 The Housing Authority
of the County of Los
Angeles, 10.50%, 12/1/29 2,061,700
</TABLE>
16
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING (CONTINUED)
NR A+ 2,050 City of Oakland HFA,
7.10%, 1/1/10 2,086,716
NR AAA 495 County of Riverside,
California HFA,
(GNMA), (AMT),
6.85%, 10/1/16 526,452
-----------
$35,033,959
-----------
INSURED-EDUCATION - 1.0%
Aaa AAA $ 3,330 Regents of the University
of California, (MBIA),
4.75%, 9/1/21 $ 2,770,826
Aaa AAA 1,500 Regents of the University
of California, (AMBAC),
4.875%, 9/1/19 1,280,340
-----------
$ 4,051,166
-----------
INSURED-GENERAL OBLIGATION - 0.3%
Aaa AAA $ 4,700 Roseville Unified High
School District, (FGIC),
0%, 6/1/20 $ 1,032,919
-----------
INSURED-HOUSING - 0.2%
Aaa AAA $ 720 California HFA, (MBIA),
(AMT), 7.00%, 8/1/23 $ 752,177
-----------
INSURED-HOSPITALS - 1.1%
Aaa AAA $ 5,250 Anaheim Memorial
Hospital, (AMBAC),
5.125%, 5/15/20 $ 4,547,813
-----------
INSURED-LEASE REVENUE/
CERTIFICATE OF PARTICIPATION - 4.3%
Aaa AAA $ 3,300 California Statewide
Communities Development
Authority, Motion Picture
and Television Fund,
(AMBAC), 5.68%, 1/1/24 $ 3,052,401
Aaa AAA 7,700 Moulton Niguel
Water District, (AMBAC),
4.80%, 9/1/17 6,548,003
Aaa AAA 4,350 Stockton, California
Wastewater Treatment Plant,
(FGIC), 6.80%, 9/1/24 4,701,350
Aaa AAA 13,985 Visalia Unified School
District, (MBIA),
0%, 12/1/17 3,206,201
-----------
$17,507,955
-----------
INSURED-TAX ALLOCATION - 1.0%
Aaa AAA $ 4,850 City of San Jose
Redevelopment Agency,
(MBIA), 4.75%, 8/1/24 $ 4,000,086
INSURED-TRANSPORTATION - 3.1%
Aaa AAA $10,000 Port of Oakland, (AMT),
(BIGI), 0%, 11/1/19 $ 1,734,500
Aaa AAA 10,000 Airports Commission
City and County of San
Francisco, San Francisco
International Airport,
(MBIA), 6.75%, 5/1/13 10,807,200
-----------
$12,541,700
-----------
INSURED-UTILITIES - 8.8%
Aaa AAA $ 5,700 Anaheim Public Financing
Authority, Anaheim
Electric Utility, (FGIC),
5.75%, 10/1/22 $ 5,444,754
Aaa AAA 8,000 Northern California Power
Agency "RIBS," (MBIA),
Variable, 9/2/25 (1) 8,640,960
Aaa AAA 3,500 Sacramento Municipal
Utilities District, (MBIA),
6.375%, 8/15/22 3,627,820
Aaa AAA 4,000 Southern California Public
Power Authority, (FGIC),
Variable, 7/1/12 (1) 4,000,000
Aaa AAA 6,915 Southern California Public
Power Authority, (MBIA),
5.00%, 1/1/20 6,044,747
Aaa AAA 2,750 Southern California Public
Power Authority, (MBIA),
5.50%, 7/1/20 2,576,970
Aaa AAA 5,750 Southern California Public
Power Authority, (MBIA),
5.75%, 7/1/21 5,569,393
-----------
$35,904,644
-----------
INSURED-WATER & SEWER - 2.7%
Aaa AAA $ 5,000 East Bay Municipal Utility
District "Yield Curve
Notes," (MBIA), Variable,
6/1/08 (1) $ 4,799,800
Aaa AAA 3,430 San Buenaventura Water
District, (AMBAC), 4.75%,
10/1/13 2,965,441
Aaa AAA 3,000 San Diego County Water
Authority, "RITES", (FGIC),
Variable, 4/22/09 (1) 3,074,79
-----------
$10,840,031
-----------
LEASE REVENUE/CERTIFICATES
OF PARTICIPATION - 22.6%
A1 AA- $ 2,945 City of Beverly Hills,
6.75%, 6/1/19 $ 3,026,606
A1 A- 3,140 California State Public
Works Board, Various
Community College Projects,
5.625%, 12/1/18 2,879,694
</TABLE>
17
<PAGE>
<TABLE>
CALIFORNIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEASE REVENUE/CERTIFICATES
OF PARTICIPATION (CONTINUED)
A1 A- 7,485 California State Public
Works Board, Various
University of California
Projects, 5.625%, 12/1/18 6,209,107
A1 A- 3,000 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/10 2,866,080
A1 A- 8,000 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/14 7,376,800
A A- 2,800 California State Public
Works Board, California
State Prison-Susanville,
5.375%, 6/1/12 2,586,500
A A- 3,500 California State Public Works
Board, California State Prison-
Susanville, 5.375%, 6/1/18 3,107,965
A1 A- 5,000 California State Public Works
Board, Various University of
California Projects, 5.25%,
6/1/20 4,369,250
A1 A- 14,025 California State Public Works
Board, Various University
of California Projects,
5.50%, 6/1/19 12,717,029
NR A 4,150 California Statewide
Community Development
Authority, Eskaton Health
Facilities, 5.875%, 5/1/20 3,862,322
A BBB 2,750 City of Inglewood, California,
Civic Center Improvement
Project, 7.00%, 8/1/19 2,841,438
A A- 5,115 County of Los Angeles,
Disney Parking Project,
0%, 3/1/16 1,217,114
A A- 1,925 County of Los Angeles,
Disney Parking Project,
0%, 3/1/17 426,927
A A- 5,370 County of Los Angeles,
Disney Parking Project,
0%, 3/1/18 1,110,086
A A- 3,100 County of Los Angeles,
Disney Parking Project,
0%, 3/1/20 550,188
A A- 5,000 County of Los Angeles,
Disney Parking Project,
0%, 9/1/17 1,070,600
A A- 1,000 County of Los Angeles,
Disney Parking Project,
6.50%, 3/1/23 992,330
NR NR 14,000 County of Los Angeles,
Capital Asset Leasing
Corporation, Marina del Rey,
6.50%, 7/1/08 13,725,460
Aa AA 4,305 County of Orange Water
District, 5.00%, 8/15/18 3,668,376
A1 A+ 4,000 Pasadena Parking Facility
Project, 6.25%, 1/1/18 4,111,480
NR A- 2,360 Richmond Joint Powers
Financing Authority,
7.00%, 5/15/07 2,532,091
Aa A+ 4,000 City of Sacramento
Financing Authority,
5.40%, 11/1/20 3,666,440
Aa NR 6,000 University of California at
Los Angeles Chiller/
Cogeneration Project,
5.60%, 11/1/20 5,537,460
NR BBB 1,000 Watsonville Mammoth
Lakes, 7.875%, 6/1/11 1,072,130
-----------
$91,523,473
-----------
NURSING HOMES - 0.8%
NR NR $ 3,250 Banning, San Georgonio Pass Convalescent
Hospital, (AMT), 9.50%, 12/1/11 $ 3,381,365
-----------
SOLID WASTE - 0.6%
Baa1 NR $ 2,350 Mojave Desert and
Mountain Solid Waste Joint
Powers Authority, (AMT),
7.875%, 6/1/20 $ 2,569,396
-----------
SPECIAL TAX - 4.9%
NR NR $ 2,100 City of Fairfield, Green
Valley Road-Mangels
Boulevard Extension
Assessment District,
7.375%, 9/2/18 $ 2,147,880
NR NR 970 City of Fairfield, Green
Valley Road-Mangels
Boulevard Extension
Assessment District,
8.00%, 9/2/11 999,876
NR NR 3,000 Lincoln Unified School
District, 7.625%, 9/1/21 3,128,730
Baa NR 10,800 Pleasanton Joint Powers
Financing Authority,
6.15%, 9/2/12 10,654,200
NR NR 3,000 County of Riverside
Community Facilities
District, 7.55%, 9/1/17 3,053,790
-----------
$19,984,476
-----------
</TABLE>
18
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX ALLOCATION - 9.0%
NR NR $ 2,945 City of Commerce
Joint Powers Financing
Authority, 8.00%, 3/1/22 $ 3,110,951
NR BBB 5,000 County of Contra
Costa Public Financing
Authority, 7.10%, 8/1/22 5,134,300
NR BBB 3,910 Fontana Public Financing
Authority, Downtown
Redevelopment Project
7.00%, 9/1/21 3,952,111
NR BBB 8,220 Fontana Redevelopment
Agency, Jurupa Hills
Redevelopment Project
Area, 7.00%, 10/1/14 8,351,191
NR BBB 2,500 City of Pittsburg
Redevelopment Agency,
7.40%, 8/15/20 2,614,900
NR BBB 600 City of Rancho Mirage
Joint Powers Financing
Authority, 7.50%, 4/1/17 632,592
NR BBB 2,500 County of Riverside
Redevelopment Agency,
7.50%, 10/1/26 2,619,025
NR BBB 5,605 San Carlos Redevelopment
Agency, 7.10%, 9/1/17 5,777,185
NR NR 1,400 City of Simi Valley
Community Development
Agency, 8.20%, 9/1/12 1,419,852
Baa1 BBB+ 3,000 Westminster Redevelopment
Agency, 7.30%, 8/1/213,107,820
------------
$ 36,719,927
------------
TRANSPORTATION - 5.8%
NR BBB $ 3,050 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 3,056,558
Aa AA- 2,000 City of Long Beach
Harbor Revenue Bonds,
(AMT), 7.25%, 5/15/192,154,720
A1 A- 1,400 County of Orange,
California Airport Revenue
Bonds, 8.125%, 7/1/16 1,449,294
NR NR 12,000 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/14 3,481,440
NR NR 5,765 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/26 721,778
NR NR 35,975 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/27 4,205,117
NR NR 4,940 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
7.00%, 1/1/30 5,074,368
Baa1 BBB 1,500 Stockton Port District,
7.95%, 1/1/05 1,598,940
Baa1 BBB 1,500 Stockton Port District,
8.10%, 1/1/14 1,611,510
------------
$ 23,353,725
------------
UTILITIES - 1.7%
Aa AA- $ 7,070 Southern California
Public Power Authority,
0%, 7/1/15 $ 2,109,829
Aa AA- 3,425 Southern California
Public Power Authority,
5.50%, 7/1/20 3,176,277
Aa AA 1,490 Southern California
Public Power Authority,
6.875%, 7/1/15 1,530,170
------------
$ 6,816,276
------------
WATER AND SEWER - 0.9%
NR BBB $ 3,190 Orange Cove Irrigation
District, 6.625%, 2/1/17 $ 3,232,904
Aa AA- 515 City of Pasadena, Water
Revenue Bonds, 5.00%,
7/1/18 449,760
------------
$ 3,682,664
------------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST, $381,719,158) $406,022,251
============
<FN>
(1) The above securities have been issued as an inverse floater bond.
(2) Security have been segregated to cover margin requirements for open
financial futures contracts.
</TABLE>
The Portfolio invests primarily in debt securities issued by California
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
eco-nomic developments, at September 30, 1995, 35.2% of the securities in the
portfolio of investments are backed by bond insurance of various financial
institutions and financial guarenty assurance agencies. The aggregate
percentage by financial institution range from 0.1% to 13.0% of total
investments.
See notes to financial statements
19
<PAGE>
<TABLE>
Florida Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 3.5%
Baa3 BBB- $ 7,275 Martin County, Indian
Town Project, (AMT),
7.875%, 12/15/25 $ 7,985,840
NR NR 4,000 Palm Beach County,
Okeelanta Power L.P.
Project (AMT),
6.85%, 2/15/21 3,942,760
NR NR 9,250 Palm Beach County,
Osceola Power L.P. Project
(AMT), 6.95%, 1/1/22 9,226,413
NR NR 3,100 Palm Beach County, Osceola
Power L.P. Project (AMT),
6.85%, 1/1/14 3,077,246
-----------
$24,232,259
-----------
EDUCATION - 0.8%
NR AAA $ 5,500 Volusia County Educational
Facilities, Embry-Riddle
Aeronautical University
Project (CLEE),
6.625%, 10/15/22 $ 5,863,055
-----------
ESCROWED - 3.8%
NR A+ $ 2,100 Charlotte County, St.
Joseph's Hospital, 8.25%,
8/15/18 $ 2,359,497
Aaa AAA 9,225 Dade County, Baptist
Hospital of Miami Project,
5.75%, 5/1/21 9,163,377
Aaa AAA 5,000 Florida Municipal Power
Agency Stanton II Project
(AMBAC),
Variable, 10/1/20 (1) 6,306,250
Aaa AAA 1,185 Jacksonville Transportation
Authority, 7.375%, 7/1/20 1,353,554
NR NR 1,675 Mid-Bay Bridge Authority,
6.875%, 10/1/22 1,881,879
Aaa AAA 2,000 Orlando & Orange County
Expressway Authority (FGIC),
8.25%, 7/1/14 2,585,120
NR AAA 2,355 Pinellas County Health
Facilities Finance Authority,
Sun Coast Health System,
Series A, 8.50%, 2,773,695
-----------
$26,423,372
-----------
GENERAL OBLIGATIONS - 7.5%
Aa AA $ 1,000 Florida Board of
Education, 6.75%, 6/1/09 $ 1,113,690
Aa AA 16,100 Florida Board of
Education, 6.70%, 6/1/22 17,056,823
Aa AA 1,500 Florida Board of
Education, 5.20%, 6/1/23 1,351,890
Aa AA 8,000 Florida Board of
General Services,
6.60%, 7/1/17 8,454,960
NR BBB 4,675 Guam Government,
5.40%, 11/15/18 4,068,840
A A 7,255 Hillsborough County,
Museum of Science &
Industry, 6.45%, 1/1/22 7,410,692
Baa1 A 2,000 Puerto Rico, 6.50%,
7/1/23 2,087,760
Baa1 A 3,235 Puerto Rico Public
Building Authority, 5.50%,
7/1/21 2,988,137
Baa1 A 7,350 Puerto Rico Public
Building Authority,
5.70%, 7/1/09 7,335,374
-----------
$51,868,165
-----------
HEALTH CARE - 7.4%
NR AAA $ 5,075 Dade County Industrial
Development Authority,
Gramercy Park Nursing Care
Center,
6.60%, 8/1/23 $ 5,298,351
NR AAA 4,285 Dade County Industrial
Development Authority,
Florida Club Care Center
(GNMA), 6.60%, 1/20/18 4,333,849
NR BBB+ 3,600 Escambia County Health
Facilities Authority, Baptist
Hospital, Inc. and The Baptist
Manor, Inc., 6.75%, 10/1/14 3,686,580
NR BBB+ 8,995 Escambia County Health
Facilities Authority, Baptist
Hospital, Inc.,
6.00%, 10/1/14 8,564,769
Baa1 NR 3,750 Jacksonville Health Facilities
Authority, National Benevolent
Association, Cypress Village
Florida Project,
7.00%, 12/1/22 3,805,125
A NR 14,000 City of Venice Health
Facilities, 6.00%, 12/1/14 15,304,100
A NR 9,810 City of Venice Health
Facilities, 5.75%, 12/1/24 10,544,573
-----------
$51,537,347
-----------
</TABLE>
20
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITAL REVENUE - 1.4%
NR AA+ $ 4,750 Jacksonville Health Facilities
Finance Authority, St. Luke's
Hospital Association Project,
6.75%, 11/15/13 $ 5,070,008
A BBB+ 5,000 St. John's County Industrial
Development Authority, Flagler
Hospital Project,
6.00%, 8/1/22 4,794,000
-----------
$ 9,864,008
-----------
HOUSING - 10.6%
NR AAA $ 630 Broward County HFA
SFMR (GNMA), (AMT),
7.35%, 3/1/23 $ 654,665
NR AAA 1,300 Clay County HFA
MFMR (GNMA),
7.40%, 12/1/25 1,382,043
Aaa NR 2,750 Clay County HFA
SFMR (GNMA), (AMT),
6.55%, 3/1/28 2,785,035
Aaa NR 290 Dade County HFA
SFMR (GNMA),
7.10%, 3/1/17 304,068
Aaa NR 1,220 Dade County HFA
SFMR (GNMA), (AMT),
7.75%, 9/1/22 1,284,306
Aaa NR 1,160 Dade County HFA
SFMR (GNMA), (AMT),
7.25%, 9/1/23 1,209,718
Aaa NR 75 Dade County HFA
SFMR (GNMA),
7.00%, 3/1/24 77,795
NR AAA 5,100 Dade County HFA
SFMR (GNMA), (AMT)
6.55%, 10/1/27 5,149,113
NR AAA 5,850 Dade County HFA
SFMR (GNMA), (AMT)
6.70%, 4/1/28 6,019,943
Aaa NR 2,540 Escambia County HFA
SFMR (GNMA), (AMT),
7.40%, 10/1/23 2,646,401
Aaa NR 7,500 Escambia County HFA
SFMR (GNMA), (AMT),
6.85%, 10/1/17 7,655,325
Aaa NR 5,000 Escambia County HFA
SFMR (GNMA), (AMT),
6.90%, 10/1/21 5,143,800
Aaa NR 6,250 Escambia County HFA
SFMR (GNMA), (AMT),
6.95%, 10/1/27 6,444,500
NR AAA 1,125 Florida HFA (FHA),
6.35%, 6/1/14 1,142,719
Aaa NR 960 Hillsborough County
HFA SFMR (GNMA),
(AMT), 7.875%, 5/1/23 1,025,040
NR NR 3,475 City of North Miami
Health Care Facilities,
The Imperial Club Project,
9.25%, 1/1/13 3,712,065
NR AAA 1,695 Orange County HFA
SFMR (GNMA), (AMT),
7.375%, 9/1/24 1,788,632
Aaa NR 12,000 Orange County HFA
SFMR (GNMA), (AMT),
6.85%, 10/1/27 (3) 12,421,440
NR AAA 8,000 Orange County HFA
SFMR (GNMA), (AMT),
6.60%, 4/1/28 8,057,520
Aaa NR 845 Palm Beach County HFA
SFMR (GNMA),
7.60%, 3/1/23 891,551
Aaa NR 1,455 Polk County HFA SFMR
(GNMA), 7.15%, 9/1/23 1,520,199
Baa BBB 1,400 Puerto Rico Urban
Renewal & Housing Corp,
7.875%, 10/1/04 1,582,770
Aaa AAA 860 Puerto Rico Housing Finance
Corp SFMR (GNMA),
7.65%, 10/15/22 910,602
-----------
$73,809,250
-----------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL REVENUE - 2.3%
B1 BB+ $15,200 Polk County Industrial
Development Authority
(AMT), 7.525%, 1/1/15 $15,952,552
-----------
INSURED HEALTH CARE - 0.4%
Aaa AAA $ 500 Alachua County Health
Facility, Mental Health
Services Project
(CGIC), 7.75%, 7/1/10 $ 565,260
Aaa AAA 2,050 Hillsborough County IDA,
Allegany Health Systems,
J. Knox Village
(MBIA), 5.75%, 12/1/21 2,022,510
-----------
$ 2,587,770
-----------
INSURED HOSPITALS - 5.7%
Aaa AAA $ 8,000 Charlotte County Health
Care, Bon-Secours Health
System Project
(FSA), Variable,
8/30/27 (1) $ 8,026,880
Aaa AAA 23,355 Jacksonville FL Health
Authority, Daughters of
Charity (MBIA),
5.00%, 11/15/15 20,846,439
</TABLE>
21
<PAGE>
<TABLE>
FLORIDA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITAL - (CONTINUED)
Aaa AAA 2,000 Lee County, Memorial
Hospital (MBIA), Variable,
4/1/20 (1) 2,161,080
Aaa AAA 5,290 Orange County Health
Facilities Finance Authority,
(FGIC), 7.875%, 12/1/25 5,614,753
Aaa AAA 3,000 Orange County Health
Facilities Authority (MBIA),
Variable, 10/29/21 (1) 3,199,950
-----------
$39,849,102
-----------
INSURED HOUSING - 2.3%
Aaa AAA $ 1,430 Brevard County HFA
SFMR (FSA), 7.00%,
3/1/13 $ 1,493,292
Aaa AAA 1,720 Duval County HFA
SFMR (FGIC), 7.35%,
7/1/24 1,811,900
Aaa AAA 6,530 FL HEFA, Maitland
Club Apartment Project
(AMBAC) (AMT),
6.875%, 8/1/26 6,776,377
Aaa AAA 3,000 FL HFA, Brittany of
Rosemont Project (AMBAC)
(AMT), 6.875%, 8/1/26 3,113,190
Aaa AAA 2,675 Lee County SCA
MFMR (FSA) (AMT),
7.05%, 1/1/30 2,773,387
-----------
$15,968,146
-----------
INSURED INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL REVENUE - 1.2%
Aaa AAA $ 8,200 Citrus County PCR
(MBIA), 6.35%, 2/1/22 $ 8,558,996
-----------
INSURED MISCELLANEOUS - 0.4%
Aaa AAA $ 2,000 Escambia County (MBIA),
7.20%, 1/1/15 $ 2,150,300
Aaa AAA 799 Osceola County IDA
Community Provider
Pooled Loan Program,
(CGIC), 7.75%, 7/1/10 854,251
-----------
$ 3,004,551
-----------
INSURED SOLID WASTE - 0.3%
Aaa AAA $ 1,500 St. John's County Solid
Waste Disposal (FGIC),
7.25%, 11/1/10 $ 1,685,850
-----------
INSURED SPECIAL TAX
REVENUE - 7.9%
Aaa AAA $ 5,630 FL Department of
Environmental Protection
(AMBAC), 4.75%, 7/1/06 $ 5,527,421
Aaa AAA 14,250 FL Department of
Environmental Protection
(MBIA), 4.75%, 7/1/09 13,318,905
Aaa AAA 9,675 FL Department of
Environmental Protection
(MBIA), 4.75%, 7/1/10 8,920,157
Aaa AAA 3,000 City of Jacksonville- River
City Renaissance Project
(FGIC), 5.375%, 10/1/18 2,799,570
Aaa AAA 1,000 City of Jacksonville (FGIC)
(AMT), 0%, 10/1/10 426,230
Aaa AAA 1,000 City of Jacksonville (FGIC)
(AMT), 0%, 10/1/11 396,450
Aaa AAA 2,000 City of Jacksonville (FGIC)
(AMT), 0%, 10/1/12 739,720
Aaa AAA 2,000 City of Jacksonville (FGIC)
(AMT), 0%, 10/1/13 691,600
Aaa AAA 2,000 City of Jacksonville (FGIC)
(AMT), 0%, 10/1/14 645,980
Aaa AAA 1,500 City of Jacksonville (FGIC)
(AMT), 0%, 10/1/15 452,085
Aaa AAA 1,185 City of Opa-Locka (FGIC),
7.00%, 1/1/14 1,327,449
Aaa AAA 2,500 Puerto Rico Highway &
Transportation Authority
(FSA), 5.50%, 7/1/17` 2,389,900
Aaa AAA 7,650 Puerto Rico Highway &
Transportation Authority
(FSA), 5.25%, 7/1/21 7,032,951
Aaa AAA 5,000 St. Petersburg Excise Tax
(FGIC), 5.00%, 10/1/16 4,517,950
Aaa AAA 2,000 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/10 871,300
Aaa AAA 1,760 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/12 667,286
Aaa AAA 2,840 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/14 943,022
Aaa AAA 4,000 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/15 1,241,200
Aaa AAA 4,140 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/16 1,211,571
Aaa AAA 2,525 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/17 696,925
-----------
$54,817,672
-----------
INSURED TRANSPORTATION - 7.0%
Aaa AAA $ 4,000 Dade County Aviation
Facilities (MBIA) (AMT),
6.55%, 10/1/13 $ 4,219,320
Aaa AAA 8,455 FL State Turnpike Authority
(FGIC), 6.35%, 7/1/2 28,788,803
</TABLE>
22
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED TRANSPORTATION (CONTINUED)
Aaa AAA 3,000 FL State Turnpike Authority
(FGIC), 5.00%, 7/1/19 2,667,660
Aaa AAA 8,600 Greater Orlando Aviation
Authority, Orlando Airport
Facilities (FGIC),
(AMT), 6.375%, 10/1/21 8,869,696
Aaa AAA 14,000 Orlando & Orange County
Expressway Authority
(FGIC), Variable, 7/1/04 (1) 14,218,120
Aaa AAA 10,920 Orlando & Orange County
Expressway Authority
(FGIC), 5.125%, 7/1/20 9,798,734
-----------
$48,562,333
-----------
INSURED UTILITIES - 8.5%
Aaa AAA $41,465 FL Municipal Power Agency
Stanton II Project (AMBAC),
4.50%, 10/1/27 (3) $33,007,384
Aaa AAA 7,770 FL Municipal Power
Agency Stanton II Project
(AMBAC), 4.50%, 10/1/16 6,511,338
Aaa AAA 8,000 FL Municipal Power
Agency Stanton II Project
(AMBAC), 5.10%, 10/1/25 7,064,080
Aaa AAA 4,000 Lakeland Electric & Water
(FGIC), 6.00%, 10/1/13 (2) 4,026,280
Aaa AAA 1,540 Manatee County Public
Utility (FGIC), 0%, 10/1/12 580,980
Aaa AAA 1,750 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/02 (1) 1,939,315
Aaa AAA 2,200 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/03 (1) 2,462,284
Aaa AAA 3,500 Vero Beach Electric (MBIA),
5.375%, 12/1/21 3,265,115
-----------
$58,856,776
-----------
INSURED WATER & SEWER - 5.4%
Aaa AAA $11,450 Broward County Water &
Sewer (AMBAC), 5.125%,
10/1/15 $10,529,535
Aaa AAA 9,500 Dade County Water and
Sewer System (FGIC),
5.00%, 10/1/13 8,717,580
Aaa AAA 2,000 City of Fort Myers Utility
(FGIC), 5.00%, 10/1/16 1,800,460
Aaa AAA 6,900 Palm Bay Utility Corp
Project (MBIA), 5.00%,
10/1/22 6,024,597
Aaa AAA 4,000 Sanford Water and Sewer
(AMBAC), 4.50%, 10/1/21 3,255,640
Aaa AAA 1,700 St. John's County Water &
Sewer (MBIA), 0%, 6/1/16 507,314
Aaa AAA 3,550 St. John's County Water &
Sewer (MBIA), 0%, 6/1/17 999,148
Aaa AAA 5,600 St. Lucie County Utility
System (FGIC), 6.00%.
10/1/20 5,672,632
-----------
$37,506,906
-----------
LIFE CARE - 1.0%
NR NR $ 6,895 Atlantic Beach, Fleet
Landing Project,
8.00%, 10/1/24 $ 7,208,860
-----------
LEASE / CERTIFICATES OF
PARTICIPATION - 0.4%
A1 A+ $ 2,280 Florida State Department
of General Services,
7.00%, 9/1/20 $ 2,465,273
-----------
NURSING HOMES - 1.1%
NR NR $ 300 Broward County Industrial
Development Authority,
Beverly Enterprises -
Florida, Inc. Project,
9.80%, 11/1/10 $ 335,520
NR NR 475 Charlotte County Industrial
Development Authority,
Beverly Enterprises,
10.00%, 6/1/11 542,279
NR NR 4,000 Citrus County Industrial
Development Authority,
Beverly Enterprises,
7.25%, 4/1/03 4,012,040
NR NR 700 Highlands County Industrial
Development Authority,
Beverly Enterprises - Florida,
Inc. Project, 9.25%, 7/1/07 775,817
NR NR 410 Okaloosa County, Beverly
Enterprises, 10.75%, 10/1/03 448,200
NR NR 700 Orange County Industrial
Development Authority,
Beverly Enterprises, 9.25%,
8/1/10 776,475
NR NR 1,000 Winter Garden, Beverly
Enterprises, 8.75%, 7/1/12 1,092,750
-----------
$ 7,983,081
-----------
SOLID WASTE - 0.6%
A A $ 3,870 Broward County Waste
Energy Company, L.P.
North Project,
7.95%, 12/1/08 $ 4,296,590
-----------
</TABLE>
23
<PAGE>
<TABLE>
FLORIDA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SPECIAL TAX REVENUE - 6.2%
A1 A+ $10,620 Orange County 5.375%,
1/1/24 $ 9,654,111
A1 NR 3,000 City of Orlando, 6.00%,
10/1/22 2,941,050
Baa1 A 7,410 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/19 6,908,047
Baa1 A 6,310 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/20 5,636,281
Baa1 A 10,135 Puerto Rico Highway &
Transportation Authority,
5.00%, 7/1/22 8,684,682
Baa1 A 10,560 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/21 9,413,290
------------
$ 43,237,461
------------
TRANSPORTATION - 1.4%
NR NR $10,140 Mid-Bay Bridge
Authority,
6.125%, 10/1/22 $ 9,634,318
UTILITIES - 12.5%
NR BBB $32,325 Guam Power Authority,
5.25%, 10/1/23 $ 27,848,634
Aa1 AA 42,005 Jacksonville Electric
Authority, Bulk Power
Supply System, Scherer 4
Project, 5.25%, 10/1/21(3) 38,294,278
Aa1 AA 2,850 Orlando Utilities
Commission Water and
Electric, 5.125%, 10/1/19 2,554,940
Aa AA 1,750 Orlando Utilities
Commission Water and
Electric, 5.25%, 10/1/23 1,588,400
Baa1 A- 185 Puerto Rico Electric
Power Authority, 7.125%,
7/1/14 201,743
Baa1 A- 10,000 Puerto Rico Electric
Power Authority, 7.00%,
7/1/21 11,379,200
A2 A+ 2,515 St. Lucie County Solid
Waste Disposal, Florida Power
& Light Company (AMT),
6.70%, 5/1/27 2,631,520
NR NR 2,000 Virgin Islands Water &
Power Authority, 7.40%,
7/1/11 2,100,420
------------
$ 86,599,134
------------
WATER & SEWER - 0.4%
Baa1 BBB+ $ 2,500 Hillsborough County
Utility, 6.625%, 8/1/11 $ 2,637,625
------------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST, $661,202,447) $695,010,453
============
<FN>
(1) The above securities have been issued as inverse floater bonds.
(2) When-issued security.
(3) Security has been segregated to cover open when-issued securities (Note 1F).
</TABLE>
The Portfolio invests primarily in debt securities issued by Florida
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 September 30, 1995, 50.8% of the securities in the
portfolio of investments are backed by bond insurance of various financial
guaranty assurance agencies. The aggregate percentage by financial
institution ranges from 0.2% to 12.8% of total investments.
See notes to financial statements.
24
<PAGE>
<TABLE>
New York Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSISTED LIVING - 0.3%
NR NR $ 1,970 Village of North Syracuse
Housing Authority, (AJM
Senior Housing,
Inc. Janus Park Project),
8.00%, 6/1/24 $ 1,922,168
-----------
EDUCATION - 12.7%
A NR $ 1,000 Dutchess County IDA,
Bard College, 7.00%,
11/1/17 $ 1,084,310
A1 NR 6,295 Monroe County IDA,
University of Rochester,
7.25%, 12/1/16 6,646,324
NR BBB- 1,660 City of New Rochelle IDA
Civic Facilities, College
of New Rochelle,
6.75%, 7/1/22 1,704,920
Baa1 BBB+ 6,895 Dormitory Authority, State
University Educational
Facilities,
4.75%, 7/1/14 6,124,208
Baa1 BBB+ 2,500 Dormitory Authority, State
University Educational
Facilities, 5.00%, 5/15/18 2,118,800
Baa1 BBB+ 11,500 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/13 10,464,310
Baa1 BBB+ 7,600 Dormitory Authority, State
University Educational Facilities,
5.25%, 5/15/15 6,850,260
Baa1 BBB+ 7,605 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/19 6,714,759
Baa1 BBB+ 6,805 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/21 6,043,657
Baa1 BBB+ 3,130 Dormitory Authority, State
University Educational
Facilities, 5.50%, 5/15/08 3,041,139
Baa1 BBB+ 28,250 Dormitory Authority, State
University Educational
Facilities, 5.50%, 5/15/13 26,375,613
Baa1 BBB+ 415 Dormitory Authority, State
University Educational
Facilities, 7.375%, 5/15/14 450,279
Baa1 BBB+ 1,300 Dormitory Authority, State
University Educational
Facilities, 7.50%, 5/15/11 1,497,184
NR AA 1,300 Dormitory Authority, New
York Medical College
(Asset Guaranty), 6.875%,
7/1/21 1,391,845
A1 A+ 950 Dormitory Authority,
University of Rochester,
5.625%, 7/1/12 927,276
-----------
$81,434,884
-----------
ELECTRIC UTILITIES - 4.9%
A1 A $ 2,500 New York State Energy
Resource & Development
Authority, Brooklyn Union
Gas (RIBS)(AMT),
Variable, 7/1/26 (1) $ 2,918,350
Aa3 A+ 500 New York State Energy
Resource & Development
Authority, Consolidated Edison
(AMT), 7.75%, 1/1/24 538,345
Aa3 A+ 2,365 New York State Energy
Resource & Development
Authority, Consolidated Edison
(AMT), 7.50%, 7/1/25 2,563,684
Aa3 A+ 1,000 New York State Energy
Resource & Development
Authority, Consolidated Edison
(AMT), 7.50%, 1/1/26 1,098,470
Aa AA- 18,000 Power Authority of the
State of New York,
5.25%, 1/1/18 16,447,500
Baa1 A- 11,500 Puerto Rico Electric Power
Authority, 0%, 7/1/17 3,023,350
Baa1 A- 2,250 Puerto Rico Electric Power
Authority, 5.50%, 7/1/20 2,081,183
NR NR 3,000 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 3,150,630
-----------
$31,821,512
-----------
ESCROWED - 7.6%
Aaa AAA $ 725 Albany Municipal Water
(MBIA), 7.50%, 12/1/17 $ 806,592
Aaa BBB 1,000 Dormitory Authority, City
University, 7.625%, 7/1/20 1,152,840
Aaa BBB+ 1,530 Dormitory Authority, State
University Educational
Facilities, 7.70%, 5/15/12 1,763,677
NR BBB 1,000 Dormitory Authority, City
University, 8.125%, 7/1/08 1,116,170
Baa1 BBB- 2,250 Dormitory Authority, Upstate
Community College,
7.20%, 7/1/21 2,582,842
Baa1 NR 2,000 Dormitory Authority, Upstate
Community College,
7.30%, 7/1/21 2,305,860
</TABLE>
25
<PAGE>
<TABLE>
NEW YORK TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESCROWED (CONTINUED)
Aaa AAA 500 Erie County Water Authority,
Water Works System, 6.00%,
12/1/08 528,920
Aaa AAA 500 Metropolitan Transportation
Authority Commuter Facilities
Bonds, 7.50%, 7/1/19 571,735
Aaa AAA 1,000 New York Local Government
Assistance Corporation
(LGAC), 7.00%, 4/1/16 1,136,100
Aaa AAA 5,500 New York LGAC, 6.75%,
4/1/21 6,238,980
Aaa BBB 1,000 New York State Housing
Finance Agency Service
Contracts, 7.80%, 9/15/11 1,173,510
Aaa AAA 1,775 New York State Housing
Finance Agency Service
Contracts, 7.375%, 9/15/21 2,073,520
Aaa BBB+ 90 New York State Medical Care
Facilities Finance Agency,
Mental Health Services
Facilities, 7.75%, 8/15/10 103,334
Aaa AAA 450 New York State Medical Care
Facilities Finance Agency,
Mental Health Services
Facilities, 7.875%, 8/15/08 525,047
Aaa AAA 3,320 New York State Medical Care
Facilities Finance Agency,
Mental Health Services
Facilities, 7.50%, 2/15/21 3,842,004
Aaa NR 8,100 New York State Urban
Development Corporation
Correctional Facilities,
6.50%, 1/1/21 8,848,197
Baa1 BBB 4,750 New York State Thruway
Authority, Local Highway
and Bridge Service Contract
Bonds, 7.25%, 1/1/10 (2) 5,404,740
Baa1 BBB 5,350 New York State UDC,
Onondaga Co. Convention
Center, 7.875% 1/1/10 6,241,577
NR AA- 500 Power Authority of the
State of New York,
8.00%, 1/1/17 548,960
NR A 1,760 Puerto Rico Highway &
Transportation Authority,
6.625%, 7/1/18 1,989,310
-----------
$48,953,915
-----------
GENERAL OBLIGATIONS - 1.6%
Baa1 A- $ 120 New York City, 8.25%,
11/15/16 $ 136,942
Baa1 A- 4,000 New York City, 7.50%,
2/1/18 4,399,280
Aa AA 1,700 Onondaga County,
5.875%, 2/15/11 1,758,259
Aa AA 1,600 Onondaga County,
5.875%, 2/15/12 1,641,424
Baa1 A 2,175 Puerto Rico Public
Building Authority, Public
Education and Health
Facilities, 5.75%, 7/1/15 2,102,594
-----------
$10,038,499
-----------
HEALTH CARE - 19.1%
NR AAA $ 6,705 Dormitory Authority, United
Health Services (FHA),
7.35%, 8/1/29 $ 7,225,509
Aa AAA 4,785 New York State Medical
Care Facilities Finance
Agency (MCFFA),
Hospital Insured Mortgage
(FHA), 5.25%, 8/15/14 4,443,782
NR AA 2,670 New York State MCFFA,
Hospital and Nursing
Insured Mortgage
(FHA), 6.10%, 8/15/15 2,663,645
NR AAA 3,710 New York State MCFFA,
Hospital and Nursing Insured
Mortgage (FHA), 6.125%,
2/15/14 3,902,994
Aa AA 1,000 New York State MCFFA,
Hospital and Nursing Insured
Mortgage (FHA), 6.55%,
8/15/12 1,043,570
Aa AA 3,800 New York State MCFFA,
Hospital and Nursing Insured
Mortgage (FHA), 6.65%,
8/15/32 3,946,338
NR AA 9,000 New York State MCFFA,
Hospital and Nursing Insured
Mortgage (FHA), 6.70%,
8/15/23 9,446,220
Aa AA 1,050 New York State MCFFA,
Hospital and Nursing Insured
Mortgage (FHA), 6.75%,
2/15/12 1,107,446
Aa AA 1,500 New York State MCFFA,
Hospital and Nursing Insured
Mortgage (FHA), 6.95%,
2/15/32 1,586,430
Aa AA 2,190 New York State MCFFA,
Hospital and Nursing Insured
Mortgage (FHA), 7.00%,
8/15/32 2,326,262
Aa AA 6,600 New York State MCFFA,
Hospital and Nursing Insured
Mortgage (FHA), 7.25%,
2/15/31 7,124,634
</TABLE>
26
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE (CONTINUED)
Aa AA 750 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
7.35%, 2/15/29 819,128
Aa AA 2,425 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 2/15/10 2,484,607
Aa AA 3,500 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 8/15/14 3,591,490
Aa AA 5,625 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 8/15/15 5,723,775
Aa AA 6,550 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.25%, 8/15/15 6,661,285
Aa AA 2,500 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.50%, 2/15/35 2,552,300
Aa AA 950 New York State MCFFA,
Insured Mortgage Project
(FHA), 7.45%, 8/15/31 1,030,095
Baa1 BBB+ 10,205 New York State MCFFA,
Mental Health Services
Facilities, 5.25%, 2/15/19 9,320,737
Baa1 BBB+ 11,500 New York State MCFFA,
Mental Health Services
Facilities, 5.25%, 8/15/23 9,895,865
Baa1 BBB+ 6,625 New York State MCFFA,
Mental Health Services
Facilities, Series 1994 A,
5.25%, 8/15/23 5,700,879
Baa1 BBB+ 1,230 New York State MCFFA,
Mental Health Services
Facilities, 7.50%, 2/15/21 1,372,754
Baa1 BBB+ 1,610 New York State MCFFA,
Mental Health Services
Facilities, 7.625%, 8/15/17 1,777,150
Baa1 BBB+ 145 New York State MCFFA,
Mental Health Services
Facilities, 7.75%, 8/15/10 161,153
Baa1 BBB+ 495 New York State MCFFA,
Mental Health Services
Facilities, 7.875%, 8/15/08 558,469
Baa BBB 19,700 New York State MCFFA,
Secured Hospital
(Brookdale), 6.80%, 8/15/12 20,263,223
Baa BBB 5,540 New York State MCFFA,
Secured Hospital,
7.35%, 8/15/11 5,881,652
------------
$122,611,392
------------
HOSPITALS - 0.7%
Aa AAA $ 1,500 Dormitory Authority,
Long Island Jewish Medical
Center (FHA),7.75%,
8/15/27 $ 1,629,735
NR AAA 1,000 Dormitory Authority,
St. Francis Hospital (FHA),
7.65%, 8/1/30 1,119,780
Baa1 BBB+ 1,800 Syracuse Industrial
Development Agency (IDA),
St. Joseph's Hospital Health
Center, 7.50%, 6/1/18 1,914,804
------------
$ 4,664,319
------------
HOUSING - 5.5%
NR NR $ 4,744 New York City Housing
Development Corporation
(HDC),Allerville Project,
6.50%, 11/15/18 $ 4,772,297
Baa A 4,750 New York City HDC,
General Housing,
6.50%, 5/1/22 4,797,690
NR NR 2,080 New York City HDC,
Dayton Project,
6.50% 11/15/18 2,092,643
NR AAA 2,550 New York City HDC,
Multi-Unit Management,
7.35%, 6/1/19 2,702,439
Aa A+ 235 New York State Housing
Finance Agency, Baytown,
7.10%, 8/15/35 248,280
Aa NR 250 New York State Mortgage
Agency, 6.90%, 4/1/03 263,523
Aa NR 8,750 New York State Mortgage
Agency, 6.90%, 4/1/15 9,220,313
Aa NR 1,000 New York State Mortgage
Agency, 7.50%, 4/1/15 1,082,280
Aa NR 295 New York State Mortgage
Agency, 7.65%, 4/1/19 311,963
Aa NR 625 New York State Mortgage
Agency, 7.70%, 10/1/12 676,644
Aa NR 270 New York State Mortgage
Agency, 8.00%, 10/1/17 287,312
Aa NR 6,350 New York State Mortgage
Agency (AMT),
6.40%, 10/1/20 6,318,568
Aa NR 1,600 New York State Mortgage
Agency (AMT),
7.95%, 10/1/21 1,727,808
Baa BBB 350 Puerto Rico Commonwealth
Urban Renewal & Housing
Corporation, 7.875%, 10/1/04 395,693
</TABLE>
27
<PAGE>
<TABLE>
NEW YORK TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING (CONTINUED)
Aaa AAA 410 Puerto Rico Housing
Financial Corporation
Single-Family (GNMA),
7.65%, 10/15/22 434,124
-----------
$35,331,577
-----------
INSURED COLLEGE & UNIVERSITY - 1.8%
Aaa AAA $ 6,950 Dormitory Authority,
Marist College (MBIA),
6.00%, 7/1/22 $ 6,958,549
Aaa AAA 5,000 Dormitory Authority,
New York University
(MBIA), 5.00%, 7/1/11 4,698,350
-----------
$11,656,899
-----------
INSURED GENERAL OBLIGATIONS - 1.0%
Aaa AAA $ 1,035 Erie County Water
Authority (AMBAC),
0%, 12/1/17 $ 211,295
Aaa AAA 3,900 New York City Trust for
Cultural Resources,
Museum of Modern Art
(AMBAC), 5.40%, 1/1/12 3,764,748
Aaa AAA 2,480 New York State Environmental
Facilities Corporation (EFC),
Jamaica Water Supply Company
(AMT) (AMBAC), 7.625%,
4/1/29 2,677,334
-----------
$ 6,653,377
-----------
INSURED GENERAL OBLIGATIONS
LOCAL - 1.8%
Aaa AAA $ 520 Chautauqua County
Unlimited Tax (FGIC),
6.40%, 9/15/08 $ 574,621
Aaa AAA 770 Chautauqua County
Unlimited Tax (FGIC),
6.40%, 9/15/09 847,123
Aaa AAA 465 Chautauqua County
Unlimited Tax (FGIC),
7.30%, 4/1/07 547,793
Aaa AAA 725 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/07 838,521
Aaa AAA 600 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/08 693,852
Aaa AAA 675 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/13 789,278
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/09 814,891
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/10 816,739
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/11 817,929
Aaa AAA 675 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/12 789,271
Aaa AAA 515 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/14 601,808
Aaa AAA 2,000 New York City
(AMBAC), 7.00%, 8/1/17 2,201,300
Aaa AAA 500 Oyster Bay (FGIC),
6.60%, 2/15/12 533,400
Aaa AAA 450 Oyster Bay (FGIC),
6.60%, 2/15/13 480,060
-----------
$11,346,586
-----------
INSURED GENERAL OBLIGATIONS
SCHOOL DISTRICT - 0.2%
Aaa AAA $ 700 Bethlehem Central School
District (AMBAC),
7.10%, 11/1/08 $ 819,903
Aaa AAA 700 Bethlehem Central School
District (AMBAC),
7.10%, 11/1/09 814,716
-----------
$ 1,634,619
-----------
INSURED GENERAL OBLIGATIONS
TERRITORY - 0.7%
Aaa AAA $ 4,500 Commonwealth of Puerto
Rico Public Improvement
Residual Interest Tax Exempt
Securities (FSA), Variable,
7/1/22 (1) $ 4,616,865
-----------
INSURED HEALTH CARE - 4.4%
Aaa AAA $ 1,500 New York State MCFFA,
Long Term Health Care
(CGIC), 6.80%, 11/1/14 $ 1,588,695
Aaa AAA 1,300 New York State MCFFA,
New York Hospital (FHA)
(AMBAC), 6.60%, 2/15/11 1,409,226
Aaa AAA 5,400 New York State MCFFA,
New York Hospital (FHA)
(AMBAC), 6.75%, 8/15/14 5,794,146
Aaa AAA 20,525 New York State MCFFA,
Mental Health Services
Facilities (MBIA),
5.375%, 2/15/14 19,280,980
-----------
$28,073,047
-----------
INSURED HOUSING - 0.1%
Aaa AAA $ 500 New York City HDC,
Charter Oaks (MBIA),
7.375% 4/1/17 $ 524,525
-----------
INSURED MISCELLANEOUS - 0.1%
Aaa AAA $ 500 New York City IDA,
(USTA National Tennis
Center Incorporated Project)
(FSA), 6.375%, 11/15/14 $ 522,020
-----------
INSURED SOLID WASTE - 1.6%
Aaa AAA $ 1,650 Dutchess County Resource
Recovery Solid Waste
(FGIC), 7.50%, 1/1/09 $ 1,814,505
</TABLE>
28
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED SOLID WASTE (CONTINUED)
Aaa AAA 6,795 Islip Resource Recovery
Agency (MBIA),
6.50%, 7/1/09 7,272,960
Aaa AAA 1,000 Montgomery, Otesgo,
Schoharie Solid Waste
Management Authority
(MBIA), 5.25%, 1/1/14 936,350
-----------
$10,023,815
-----------
INSURED TOLL & TURNPIKE - 1.0%
Aaa AAA $ 3,000 Triborough Bridge &
Tunnel Authority Residual
Interest Securities (MBIA),
Variable, 1/1/19 (1) $ 3,033,030
Aaa AAA 3,000 Triborough Bridge &
Tunnel Authority
Residual Interest Securities
(MBIA), Variable, 1/1/12 (1) 3,229,230
-----------
$ 6,262,260
-----------
INSURED WATER & SEWER - 0.1%
Aaa AAA $ 275 Albany Municipal Water
Financial Authority (MBIA),
7.50%, 12/1/17 $ 298,944
-----------
LEASE/CERTIFICATE OF
PARTICIPATION - 8.7%
Baa1 BBB $ 1,955 Dormitory Authority,
City University,
5.75%, 7/1/13 $ 1,869,000
Baa1 BBB 17,815 Dormitory Authority,
City University,
5.75%, 7/1/13 17,031,318
Baa1 BBB 250 Dormitory Authority,
City University,
6.375%, 7/1/08 256,618
Baa1 BBB 5,100 Dormitory Authority,
City University,
7.00%, 7/1/09 5,653,044
Baa1 BBB 4,325 Dormitory Authority,
City University,
7.50%, 7/1/10 4,967,133
Baa1 BBB 6,125 New York State HFA
Service Contract,
5.375%, 9/15/11 5,635,000
NR BBB 5,865 New York State Thruway
Authority, 0%, 1/1/01 4,438,046
Baa1 BBB 5,775 New York State Urban
Development Corporation
(UDC) Correctional Facilities,
5.50%, 1/1/14 5,342,337
Baa1 BBB 7,670 New York State UDC
Correctional Facilities,
5.25%, 1/1/13 6,896,557
Baa1 BBB 500 New York State UDC,
Alfred Technology,
7.875%, 1/1/20 549,070
Baa1 BBB 750 New York State UDC,
Clarkson Center for
Advanced Materials,
7.80%, 1/1/20 821,512
Baa1 BBB 750 New York State UDC,
Clarkson Center for
Advanced Materials,
8.00%, 1/1/20 839,737
Baa1 A 1,825 Syracuse - Hancock
International Airport
Certificates of Participation,
6.625%, 1/1/12 1,921,105
-----------
$56,220,477
-----------
MISCELLANEOUS - 1.6%
Aa AA- $ 200 City of New York Municipal
Assistance Corporation,
7.50%, 7/1/08 $ 218,888
Aa AA- 485 City of New York Municipal
Assistance Corporation,
7.625%, 7/1/08 530,896
Aa AA- 635 City of New York Municipal
Assistance Corporation,
7.625%, 7/1/08 714,724
NR NR 1,300 New York City IDA, (YMCA
of Greater New York),
8.00%, 8/1/16 1,394,536
Aaa AAA 7,000 VRDC-IVRC Trust, Variable
Rate, 6/26/02 (1) 7,214,340
-----------
$10,073,384
-----------
SOLID WASTE - 2.0%
Baa1 A- $ 2,665 Hempstead IDA Resource
Recovery, American
Refunding Fuel Co.,
7.40%, 12/1/10 $ 2,782,473
Baa NR 9,530 New York State EFC
Resource Recovery,
Huntington Project,
7.50%, 10/1/12 10,056,056
-----------
$12,838,529
-----------
SPECIAL TAX REVENUE - 12.5%
A A $12,160 New York State LGAC,
5.00%, 4/1/21 $10,582,240
A A 5,000 New York State LGAC,
5.00%, 4/1/21 4,368,900
A A 8,750 New York State LGAC,
5.00%, 4/1/23 7,526,313
A A 4,750 New York State LGAC,
5.25%, 4/1/16 4,406,908
A A 2,500 New York State LGAC,
5.25%, 4/1/19 2,265,400
</TABLE>
29
<PAGE>
<TABLE>
NEW YORK TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SPECIAL TAX REVENUE (CONTINUED)
A A 4,500 New York State LGAC,
5.375%, 4/1/16 4,221,180
A A 5,225 New York State LGAC,
5.50%, 4/1/17 4,960,040
A A 12,420 New York State LGAC,
5.50%, 4/1/18 11,731,808
A A 13,000 New York State LGAC,
5.50%, 4/1/21 12,140,570
NR BBB+ 2,630 New York State Municipal
Bond Bank Agency,
6.875%, 3/15/06 2,866,095
Baa1 BBB 3,100 New York State Thruway
Authority Contract, Local &
Highway Building, 5.25%,
4/1/13 2,800,478
Baa1 A 2,000 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 1,902,740
Baa1 A 2,500 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 2,378,425
Baa1 A 4,840 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/18 5,079,774
Baa1 BBB 3,335 Triborough Bridge &
Tunnel Authority, Convention
Center, 6.00%, 1/1/11 3,318,158
------------
$ 80,549,029
------------
TRANSPORTATION - 6.2%
Baa1 BBB $ 4,025 MTA Transit Facilities
Service Contract,
4.75%, 7/1/19 $ 3,261,417
Baa1 BBB 3,670 MTA Transit Facilities
Service Contract,
4.75%, 7/1/19 2,973,764
Baa1 BBB 2,000 MTA Transit Facilities
Service Contract,
5.75%, 7/1/13 1,928,740
Baa1 BBB 725 MTA Transit Facilities
Service Contract,
5.75%, 7/1/13 699,168
NR BBB 2,350 New York State
Thruway Authority,
Cross Westchester Expressway
Project, 0%, 1/1/03 1,587,566
Ba1 BB 6,500 Port Authority of New
York and New Jersey,
5.75%, 6/15/30 6,254,170
Ba1 BB 2,800 Port Authority of
New York and New Jersey,
Delta Airlines LaGuardia
Airport, 6.95%, 6/1/08 2,969,512
A1 AA- 1,500 Port Authority of New York
and New Jersey (AMT),
Variable, 1/15/27 (1) 1,553,730
Aa A+ 5,330 Triborough Bridge and
Tunnel Authority (TBTA)
General Purpose, 5.00%,
1/1/12 4,869,062
Aa A+ 11,580 TBTA General Purpose,
5.50%, 1/1/17 11,048,941
Aa A+ 2,500 TBTA General Purpose,
6.125%, 1/1/21 2,583,100
------------
$ 39,729,170
------------
WATER & SEWER REVENUE - 3.8%
Aa A $11,050 New York State EFC, State
Water Pollution Control,
6.875%, 6/15/10 $ 12,110,568
Aa A+ 4,545 New York State EFC,
State Water Pollution
Control, 7.20%, 3/15/11 5,052,540
Aa A 2,750 New York State EFC,
State Water Pollution
Control, 7.00%, 6/15/12 3,053,738
Aa A 150 New York State EFC,
State Water Pollution
Control, 7.50%, 6/15/12 169,304
Baa1 A 3,750 Puerto Rico Aqueduct
& Sewer Authority,
7.875%, 7/1/17 4,160,625
------------
$ 24,546,775
------------
TOTAL TAX-EXEMPT INVESTMENTS
(IDENTIFIED COST, $610,645,613) $642,348,587
============
<FN>
(1) The above securities have been issued as an inverse floater bond.
(2) Security has been segregated to cover margin requirements for open
financial futures contracts.
</TABLE>
The Portfolio invests primarily in debt securities issued by New York
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 September 30, 1995, 23.7% 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 institutions ranged from 0.1% to 11.0% of total
investments.
See notes to financial statements.
30
<PAGE>
Tax Free Portfolios
Financial Statements
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------
September 30, 1995
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA FLORIDA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investments -
Identified cost $381,719,158 $661,202,447 $610,645,613
Unrealized appreciation 24,303,093 33,808,006 31,702,974
------------ ------------ ------------
Total investments, at value (Note 1A) $406,022,251 $695,010,453 $642,348,587
Cash 589 5,917,921 696
Receivable for investments sold 50,000 45,000 17,612,917
Interest receivable 6,743,380 15,155,609 10,635,275
Deferred organization expenses (Note 1D) 14,563 21,095 14,921
------------ ------------ ------------
Total assets $412,830,783 $716,150,078 $670,612,396
------------ ------------ ------------
LIABILITIES:
Demand note payable (Note 5) $ 2,032,000 $ -- $ 476,000
Payable for investments purchased -- -- 16,908,493
Payable for when-issued securities (Note 1F) -- 3,936,280 --
Payable for daily variation margin on open
financial futures contracts (Note 1E) 103,125 -- 477,125
Payable to affiliates -
Trustees' fees 4,638 5,150 5,150
Custodian fee 8,667 1,879 1,500
Accrued expenses 12,215 3,633 7,819
------------ ------------ ------------
Total liabilities $ 2,160,645 $ 3,946,942 $ 17,876,087
------------ ------------ ------------
NET ASSETS applicable to investors' interest in Portfolio $410,670,138 $712,203,136 $652,736,309
============ ============ ============
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and withdrawals $386,540,544 $678,395,130 $621,396,197
Unrealized appreciation of investments and financial
futures contracts (computed on the basis of identified cost) 24,129,594 33,808,006 31,340,112
------------ ------------ ------------
Total $410,670,138 $712,203,136 $652,736,309
============ ============ ============
</TABLE>
See notes to financial statements
31
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA FLORIDA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 28,624,042 $ 47,432,310 $ 41,798,094
------------ ------------ ------------
Expenses -
Investment adviser fee (Note 2) $ 2,121,262 $ 3,433,489 $ 3,031,508
Compensation of Trustees not members of the
Investment Adviser's organization (Note 2) 18,570 21,513 20,640
Custodian fee (Note 2) 187,581 231,473 221,548
Interest expense (Note 5) -- 267,593 --
Legal and accounting services 42,258 37,372 37,661
Amortization of organization expenses (Note 1D) 5,625 8,829 6,278
Miscellaneous 120,219 36,944 193,968
------------ ------------ ------------
Total expenses $ 2,495,515 $ 4,037,213 $ 3,511,603
Deduct reduction of custodian fee (Note 2) 47,611 220,751 220,048
------------ ------------ ------------
Net expenses $ 2,447,904 $ 3,816,462 $ 3,291,555
------------ ------------ ------------
Net investment income $ 26,176,138 $ 43,615,848 $ 38,506,539
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss -
Investment transactions (identified cost basis) $(19,076,355) $(10,100,669) $(12,293,704)
Financial futures contracts (3,974,440) (12,765,513) (6,983,956)
------------ ------------ ------------
Net realized loss on investments $(23,050,795) $(22,866,182) $(19,277,660)
------------ ------------ ------------
Change in unrealized appreciation (depreciation) -
Investments $ 34,125,832 $ 54,420,669 $ 43,541,560
Financial futures contracts (650,309) -- (498,006)
------------ ------------ ------------
Net unrealized appreciation of investments $ 33,475,523 $ 54,420,669 $ 43,043,554
------------ ------------ ------------
Net realized and unrealized gain on investments $ 10,424,728 $ 31,554,487 $ 23,765,894
------------ ------------ ------------
Net increase in net assets from operations $ 36,600,866 $ 75,170,335 $ 62,272,433
============ ============ ============
</TABLE>
See notes to financial statements
32
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA FLORIDA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations -
Net investment income $ 26,176,138 $ 43,615,848 $ 38,506,539
Net realized loss on investments (23,050,795) (22,866,182) (19,277,660)
Change in unrealized appreciation of investments 33,475,523 54,420,669 43,043,554
------------- ------------- -------------
Net increase in net assets from operations $ 36,600,866 $ 75,170,335 $ 62,272,433
------------- ------------- -------------
Capital transactions -
Contributions $ 39,600,866 $ 64,327,943 $ 61,423,633
Withdrawals (110,738,796) (199,418,295) (126,606,533)
------------- ------------- -------------
Decrease in net assets resulting from capital transactions $ (71,062,129) $(135,090,352) $ (65,182,900)
------------- ------------- -------------
Total decrease in net assets $ (34,461,263) $ (59,920,017) $ (2,910,467)
NET ASSETS:
At beginning of year 445,131,401 772,123,153 655,646,776
------------- ------------- -------------
At end of year $ 410,670,138 $ 712,203,136 $ 652,736,309
============= ============= =============
</TABLE>
See notes to financial statements
33
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA FLORIDA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------- ------------- --------------
Year Ended Year Ended Year Ended
September 30, 1994** March 31, 1994* September 30, 1994
------------------ --------------- ------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations-
Net investment income $ 13,943,369 $ 25,183,098 $ 45,081,235 $ 38,006,256
Net realized gain (loss) on investment transactions (10,624,666) 10,976,521 (5,816,054) (2,555,481)
Change in unrealized depreciation of investments (942,071) (34,132,327) (84,917,438) (67,884,728)
------------ ------------ ------------- ------------
Net increase (decrease) in net assets from operations $ 2,376,632 $ 2,027,292 $ (45,652,257) $(32,433,953)
------------ ------------ ------------- ------------
Capital transactions-
Contribution $ 24,605,354 $553,867,973 $ 174,248,758 $135,102,754
Withdrawals (49,109,598) (88,736,272) (128,894,901) (95,828,619)
------------ ------------ ------------- ------------
Increase (decrease) in net assets resulting from
capital transactions $(24,504,244) $465,131,701 $ 45,353,857 $ 39,274,135
------------ ------------ ------------- ------------
Total increase (decrease) in net assets $(22,127,612) $467,158,993 $ (298,400) $ 6,840,182
NET ASSETS:
At beginning of year 467,259,013 100,020 772,421,553 648,806,594
------------ ------------ ------------- ------------
At end of year $445,131,401 $467,259,013 $ 772,123,153 $655,646,776
============ ============ ============= ============
<FN>
* For the period from the start of business, May 3, 1993 to March 31, 1994.
** For the six months ended September 30, 1994 (Note 7).
</TABLE>
See notes to financial statements
34
<PAGE>
<TABLE>
SUPPLEMENTARY DATA
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CALIFORNIA PORTFOLIO FLORIDA PORTFOLIO
----------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED
----------------------------------- ----------------------------------
SEPTEMBER 30, MARCH 31 SEPTEMBER 30,
--------------------- ----------- ----------------------------------
1995 1994*** 1994** 1995 1994 1993*
---------- --------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average daily net assets):
Expenses 0.59% 0.57%+ 0.55%+ 0.55% 0.48% 0.47%+
Net investment income 6.22% 6.09%+ 5.72%+ 5.94% 5.65% 5.53%+
Net assets, end of year (000 omitted) $410,763 $445,131 $467,259 $712,203 $772,123 $772,422
PORTFOLIO TURNOVER 58% 40% 91% 61% 57% 55%
</TABLE>
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
--------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1995 1994 1993*
---------- --------- ----------
<S> <C> <C> <C>
RATIOS (As a percentage of average daily net assets):
Expenses 0.54% 0.48% 0.48%+
Net investment income 5.97% 5.70% 5.64%+
Net assets, end of year (000 omitted) $652,736 $655,647 $648,807
PORTFOLIO TURNOVER 55% 47% 37%
<FN>
+ Annualized.
* For the period from the start of business, February 1, 1993, to September 30, 1993.
** For the period from the start of business, May 3, 1993 to March 31, 1994.
*** For the six months ended September 30, 1994 (Note 7).
</TABLE>
See notes to financial statements
35
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
California Tax Free Portfolio ("California Portfolio") is registered under
the Investment Company Act of 1940 as a diversified open-end management
investment company. The Florida Tax Free Portfolio ("Florida Portfolio") and
New York Tax Free Portfolio ("New York Portfolio"), collectively the
Portfolios, are registered under the Investment Company Act of 1940 as
non-diversified open-end management investment companies. The Portfolios were
organized as trusts under the laws of the State of New York on May 1, 1992.
The Declarations of Trust permit the Trustees to issue interests in the
Portfolios. The following is a summary of significant accounting policies of
the Portfolios. The policies are in conformity with generally accepted
accounting principles.
A. INVESTMENT VALUATIONS - Municipal bonds are normally valued on the basis
of valuations furnished by a pricing service. Taxable obligations, if any,
for which price quotations are readily available are normally valued at the
mean between the latest bid and asked prices. Futures contracts listed on
commodity exchanges are valued at closing settlement prices. Short-term
obligations, maturing in sixty days or less, are valued at amortized cost,
which approximates value. Investments for which valuations or market
quotations are unavailable are valued at fair value using methods determined
in good faith by or at the direction of the Trustees.
B. INCOME - Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES - The Portfolios are treated as partnerships for Federal tax
purposes. No provision is made by the Portfolios for federal or state taxes
on any taxable income of the Portfolios because each investor in the
Portfolios is ultimately responsible for the payment of any taxes. Since some
of the Portfolios' investors are regulated investment companies that invest
all or substantially all of their assets in the Portfolios, the Portfolios
normally must satisfy the applicable source of income and diversification
requirements (under the Internal Revenue Code) in order for their respective
investors to satisfy them. The Portfolios will allocate at least annually
among their respective investors each investor's distributive share of the
Portfolios' net taxable (if any) and tax-exempt investment income, net
realized capital gains, and any other items of income, gain, loss, deductions
or credit. Interest income received by the Portfolios on investments in
municipal bonds, which is excludable from gross income under the Internal
Revenue Code, will retain its status as income exempt from federal income tax
when allocated to the Portfolios' 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 the Portfolios in
connection with their organization are being amortized on the straight-line
basis over five years.
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 the Portfolios ("margin maintenance") each day, dependent
on the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by a Portfolio. A
Portfolio's investment in financial futures contracts is designed only to
hedge against anticipated future changes in interest rates. Should interest
rates move unexpectedly, the Portfolios may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS - The Portfolios may engage
in when-issued and delayed delivery transactions. The Portfolios record
when-issued securities on trade date and maintain security positions such
that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on
settlement date.
G. OTHER - Investment transactions are accounted for on a trade date basis.
36
<PAGE>
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation
for management and investment advisory services rendered to each Portfolio.
The fee is based upon a percentage of average daily net assets plus a
percentage of gross income (i.e., income other than gains from the sale of
securities).
<TABLE>
For the year ended September 30, 1995 each portfolio paid advisory fees as
follows:
<CAPTION>
PORTFOLIO AMOUNT EFFECTIVE RATE*
--------- -------- ----------------
<S> <C> <C>
California $2,121,262 0.50%
Florida 3,433,489 0.47%
New York 3,031,508 0.47%
<FN>
* Advisory fees paid as a percentage of average daily net assets.
</TABLE>
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 Portfolio 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. All siginificant credit balances are reported as
a reduction of expenses in the statement of operations. 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 portion of
their annual fees in accordance with the terms of the Trustees Deferred
Compensation Plan. For the year ended September 30, 1995, no significant
amounts have been deferred.
- --------------------------------------------------------------------------------
<TABLE>
(3) INVESTMENTS
Purchases and sales of investments, other than U.S. Government securities and
short-term obligations, for the year ended September 30, 1995, were as follows:
<CAPTION>
CALIFORNIA PORTFOLIO FLORIDA PORTFOLIO NEW YORK PORTFOLIO
-------------------- ----------------- ------------------
<S> <C> <C> <C>
Purchases $240,733,525 $442,070,821 $355,016,997
Sales 289,176,459 538,413,651 397,804,899
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned by each Portfolio at September 30, 1995, as computed on a federal
income tax basis, are as follows:
<CAPTION>
CALIFORNIA PORTFOLIO FLORIDA PORTFOLIO NEW YORK PORTFOLIO
-------------------- ----------------- ------------------
<S> <C> <C> <C>
Aggregate Cost $381,719,158 $661,202,447 $610,645,613
============ ============ ============
Gross unrealized appreciation $ 24,714,474 $ 37,104,327 $ 34,539,991
Gross unrealized depreciation 411,381 3,296,321 2,837,017
------------ ------------ ------------
Net unrealized appreciation $ 24,303,093 $ 33,808,006 $ 31,702,974
============ ============ ============
</TABLE>
37
<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 September 30, 1995, the California Portfolio and New
York Portfolio had loan balances outstanding pursuant to this line of credit of
$2,032,000 and $476,000, respectively.
For the year ended September 30, 1995, the Florida Portfolio had an average
daily balance outstanding pursuant to this line of credit of $9,287,587, at an
average interest rate of 7.28%. The Florida Portfolio had a maximum outstanding
month-end balance during the year ended September 30, 1995 of $26,664,000. The
California and New York Portfolios did not have any significant borrowings or
allocated fees during the year ended September 30, 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.
<TABLE>
A summary of obligations under these financial instruments at September 30,
1995 is as follows:
<CAPTION>
FUTURES CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
- ----- ----------------- --------- -------- --------------
<S> <C> <C> <C> <C>
California 12/95 75 U.S. Treasury Bonds Short $173,499
New York 12/95 347 U.S. Treasury Bonds Short 362,862
</TABLE>
At September 30, 1995 each Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts. The Florida Portfolio
did not have any open obligations under these financial instruments at
September 30, 1995.
- --------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The California Portfolio changed its fiscal year end from March 31 to
September 30, effective September 30, 1994.
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees and Investors of:
California Tax Free Portfolio
Florida Tax Free Portfolio
New York Tax Free Portfolio
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of California Tax Free Portfolio,
Florida Tax Free Portfolio and New York Tax Free Portfolio as of September 30,
1995, the related statements of operations for the year then ended, the
statements of changes in net assets for the years ended September 30, 1995 and
1994, and for the California Tax Free Portfolio, the year ended March 31, 1994
and the supplementary data for each of the years in the three-year period ended
September 30, 1995. These financial statements and supplementary data are the
responsibility of each Trust's 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 audits 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 procedure included confirmation of securities
owned at September 30, 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 California Tax
Free Portfolio, Florida Tax Free Portfolio and New York Tax Free Portfolio at
September 30, 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
OCTOBER 27, 1995
39
<PAGE>
<TABLE>
INVESTMENT MANAGEMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
FUNDS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspaper of New England, Inc.
JAMES B. HAWKES
Vice President, Trustee SAMUEL L. HAYES, III
Jacob H. Schiff Professor of Investment
ROBERT B. MACINTOSH Banking, Harvard University Graduate
Vice President School of Business Administration
JAMES L. O'CONNOR NORTON H. REAMER
Treasurer President and Director, United Asset
Management Corporation
THOMAS OTIS
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 and Portfolio Manager of President, Dwight Partners, Inc.
Florida Tax Free Portfolio Chairman, Newspaper of New England, Inc.
JAMES B. HAWKES SAMUEL L. HAYES, III
Vice President, Trustee Jacob H. Schiff Professor of Investment
Banking, Harvard University Graduate
ROBERT B. MACINTOSH School of Business Administration
Vice President and Portfolio Manager
of California Tax Free Portfolio NORTON H. REAMER
President and Director, United Asset
NICOLE ANDERES Management Corporation
Vice President and Portfolio Manager
of New York Tax Free Portfolio JOHN L. THORNDIKE
Director, Fiduciary Company Incorporated
JAMES L. O'CONNOR
Treasurer JACK L. TREYNOR
Investment Adviser and Consultant
THOMAS OTIS
Secretary
</TABLE>
40
<PAGE>
INVESTMENT ADVISER OF STATE TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV TRADITIONAL STATE TAX FREE FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
41
<PAGE>
(THIS SPACE INTENTIONALLY LEFT BLANK.)
<PAGE>
(THIS SPACE INTENTIONALLY LEFT BLANK.)
<PAGE>
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Funds, including distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EATON VANCE MUNICIPALS TRUST
24 FEDERAL STREET
BOSTON, MA 02110
T-CSRC
<PAGE>
EATON VANCE MUNICIPALS TRUST
FOR THE FUNDS:
- EV Classic California Municipals Fund
- EV Classic Florida Tax Free Fund
- EV Classic Massachusetts Tax Free Fund
- EV Classic Mississippi Tax Free Fund
- EV Classic New York Tax Free Fund
- EV Classic Ohio Tax Free Fund
- EV Classic Rhode Island Tax Free Fund
- EV Classic West Virginia Tax Free Fund
- --------------------------------------------------------------------------------
[GRAPHIC OF A DOOR]
- --------------------------------------------------------------------------------
ANNUAL SHAREHOLDER REPORT
SEPTEMBER 30, 1995
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
Year-end results, listed by state ...................................... 2
President's letter to shareholders ..................................... 3
Management Reports:
EV Classic California Municipals Fund ........................... 4
EV Classic Florida Tax Free Fund ................................. 5
EV Classic Massachusetts Tax Free Fund ........................... 6
EV Classic Mississippi Tax Free Fund ............................. 7
EV Classic New York Tax Free Fund ................................ 8
EV Classic Ohio Tax Free Fund .................................... 9
EV Classic Rhode Island Tax Free Fund ............................ 10
EV Classic West Virginia Tax Free Fund ........................... 11
Financial Results ............................................... 12
</TABLE>
INFORMATION ABOUT YOUR MUTUAL FUND INVESTMENT
<TABLE>
<CAPTION>
FINANCIAL DATA: TAX DATA:
- ------------------------------------------------------------------------------------------------------------------------------------
RESULTS FOR THE YEAR Fund's The after-tax
ENDING SEPTEMBER 30, 1995 Dividends paid Fund's NAV distribution If your combined equivalent Federal
by Fund per share rate at Federal & State yield you income tax
during period at 9/30/95 9/30/95 tax rate is... would need is information*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EV Classic California $0.472 $9.32 4.95% [GRAPHIC OF 43.04% 8.64% 98.75
Municipals Fund CALIFORNIA]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic Florida $0.464 $9.35 4.87% [GRAPHIC OF 38.63% 7.88% 98.34
Tax Free Fund FLORIDA]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic Massachusetts $0.473 $9.26 5.00% [GRAPHIC OF 43.68% 8.83% 98.86
Tax Free Fund MASSACHUSETTS]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic Mississippi $0.438 $9.30 4.60% [GRAPHIC OF 39.20% 7.52% 98.50
Tax Free Fund MISSISSIPPI]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic New York $0.468 $9.42 4.85% [GRAPHIC OF 40.96% 8.16% 98.70
Tax Free Fund NEW YORK]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic Ohio $0.453 $9.32 4.75% [GRAPHIC OF 40.80% 8.01% 99.35
Tax Free Fund OHIO]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic Rhode Island $0.454 $9.21 4.82% [GRAPHIC OF 42.34% 8.34% 99.35
Tax Free Fund RHODE ISLAND]
- ------------------------------------------------------------------------------------------------------------------------------------
EV Classic West Virginia $0.443 $9.35 4.63% [GRAPHIC OF 40.16% 7.74% 99.66
Tax Free Fund VIRGINIA]
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
* Percentages represent the amounts of the total dividends paid by the Funds from net investment income during the year ended
September 30, 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.
</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.
DESPITE TAX POLICY UNCERTAINTIES, TAX-EXEMPT BONDS YIELD MORE THAN 89% OF
TREASURY YIELDS
<TABLE>
<CAPTION>
<S> <C>
30-YR. AA GENERAL OBLIGATION (GO) BONDS* 5.90%
TAXABLE EQUIVALENT YIELD OF INVESTMENT
FOR COUPLE IN 36% TAX BRACKET 9.21%
30-YR TREASURY BONDS 6.50%
<FN>
Principal and interest payments of Treasury securities are guaranteed by the
U.S. government.
* 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 September 30, 1995.
Past Performance is no guarantee of future results.
Source: Bloomberg, L.P.
</TABLE>
However, for many reasons, we at Eaton Vance believe there is little chance of
major tax reform legislation being enacted. 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.+
Sincerely,
/s/ Thomas J. Fetter
--------------------
Thomas J. Fetter
President
November 3, 1995
+ A portion of the Portfolios' income could be subject to Federal alternative
minimum tax.
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 comprises bonds principally from your individual
state, the Index is composed of bonds from all 50 states and many jurisdictions.
The Index's total return does not reflect any commissions or expenses that would
be incurred if an investor individually purchased or sold the securities
represented in the Index.
3
<PAGE>
EV Classic California Municipals Fund
YOUR INVESTMENT AT WORK
Sacramento Cogeneration Authority
Cogeneration Project Bonds
These bonds are being used to build a gas-fired cogeneration plant that will
produce electricity for the Sacramento Municipal Utility District. The plant
also will produce steam for a nearby Procter & Gamble manufacturing facility. It
is located on a 10-acre parcel next to the Procter & Gamble property.
The project is part of the Municipal Utility District's plan to reduce its
purchases of electrical power from local electric utilities. It is scheduled to
begin operation in 1996 and will be the second of up to four cogeneration plants
to be constructed in the Sacramento area.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues.................................. 110
Average quality................................... A+
Investment grade.................................. 88.3
Effective maturity................................ 14.67 yrs.
Largest sectors:
Lease revenues/Certificates of
participation.................................. 22.6%
Escrowed to maturity........................... 16.2
Tax allocation................................. 9.0
Insured utilities.............................. 8.8*
Housing........................................ 8.6
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: California
California's economy is improving slowly. Gains in the northern part of the
state - in San Francisco and the Silicon Valley, for example - have been
partially offset by continued poor economic conditions in Orange and Los Angeles
Counties.
The Los Angeles County economy continues to lag, and the Orange County
government has been in bankruptcy since December, 1994, when losses in the
derivatives market drained nearly $1.7 billion from its investment pool. Both
counties are finding it necessary to cut back on government services; those
cutbacks have the effect of further dampening local economic activity.
While California's long-term economic outlook is positive, its current problems
are not likely to end soon, in part because of the magnitude of its outstanding
financial issues. The state, home to much import and export business with
Pacific Rim countries, has also been hurt by the depressed Japanese economy. It
could expect to recover more quickly if the Japanese economy were to improve.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC CALIFORNIA
MUNICIPALS FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 7.3% 1.5%
Without CDSC 8.3% 1.5%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.CALIFORNIA LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10159 10114
2/94 9920 9852
3/94 9494 9451
4/94 9498 9531
5/94 9544 9614
6/94 9444 9558
7/94 9612 9730
8/94 9648 9764
9/94 9497 9621
10/94 9294 9450
11/94 9054 9279
12/94 9207 9483
1/95 9548 9754
2/95 9856 10038
3/95 9958 10153
4/95 9949 10165
5/95 10279 10490
6/95 10082 10398
7/95 10126 10496
8/95 10211 10630
9/95 10287 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/3/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"California is such a large state that we have been able to choose credits for
the Portfolio very selectively. In general, we have avoided Los Angeles County
debt, though we do hold two relatively secure specialized bonds from the area
for yield purposes.
"Similarly, our holdings in Orange County are disproportionately low because of
the county's continuing financial problems. Over time, we have been able to
assess the full effect of those problems and can say with assurance that the
Portfolio's five credits located in the county have not been affected by the
county's financial problems."
- Robert B. MacIntosh
4
<PAGE>
EV Classic Florida Tax Free Fund
YOUR INVESTMENT AT WORK
Martin County Industrial
Development Authority
Indiantown Cogeneration Project
The proceeds of this $125 million bond issue were used to refund bonds issued in
1992 used to build a portion of this cogeneration project.
The power plant will burn coal and supply electricity to Florida Power & Light
Company and steam to Caulkins Indiantown Citrus Company. Construction began in
1992 and is expected to be completed next year.
The 1992 bond proceeds financed the costs of acquiring, building and equipping
facilities for treatment of solid wastes associated with operating the
coal-fired cogeneration plant.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues............................... 138
Average quality................................ AA-
Investment grade............................... 92.4%
Effective maturity............................. 16.83 yrs.
Largest sectors:
Utilities................................... 12.5%
Housing..................................... 10.6
Insured utilities........................... 8.5*
Insured special tax revenue................. 7.9*
General obligations......................... 7.5
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Florida
The Florida economy is relatively strong, helped by solid gains in the business
services sector, which is growing at a double-digit rate. Meanwhile, the
construction sector has been hampered by slower income and household growth.
State agencies project that Florida's population will grow at an annual rate of
nearly 2%, not as strong as the state had estimated earlier.
Tourism continues to be a cornerstone of the Florida economy. Tourism levels in
1995 have slightly exceeded the state's expectations.
It is estimated that Florida's unemployment rate through 1995 will be 6.1%, a
significant drop from 8.2% at the peak of the recession in 1992.
The 1995 legislative session ended with approval of budget appropriations which,
adjusted for inflation, represent the smallest increase in state spending in
more than 10 years. Despite the need for substantial expenditures to accommodate
continuing growth, Florida's level of debt is considered moderate and its
economy stable.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC FLORIDA TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.7% 1.5%
Without CDSC 9.7% 1.5%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.FLORIDA LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10148 10114
2/94 9848 9852
3/94 9332 9451
4/94 9375 9531
5/94 9410 9614
6/94 9329 9558
7/94 9516 9730
8/94 9520 9764
9/94 9326 9621
10/94 9081 9450
11/94 8853 9279
12/94 9144 9483
1/95 9461 9754
2/95 9819 10038
3/95 9888 10153
4/95 9888 10165
5/95 10162 10490
6/95 9977 10398
7/95 10031 10496
8/95 10125 10630
9/95 10233 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/3/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The Florida health care market has been somewhat in disarray because of health
care reform. As a result, we have exercised caution when looking at health care
or hospital bonds. Through our proprietary research, we have been able to buy
high-quality hospital bonds at very attractive prices.
"We have employed a two-pronged approach to the Portfolio, with an emphasis on
quality and also bonds that allow us to add to yield.
"We are still very constructive on the Florida economy, and we continue to look
for discount coupon bonds that add attractive characteristics to the Portfolio."
- Thomas J. Fetter
5
<PAGE>
EV Classic Massachusetts Tax Free Fund
YOUR INVESTMENT AT WORK
Plymouth County
Correctional Facility
These bonds were used to construct a new 1,140-bed prison to house federal,
state and county inmates in Plymouth. In addition to expanded housing
facilities, the project includes a modern medical facility.
The project was designed to provide partial relief for the Commonwealth's
correctional system, which has become seriously overcrowded in the past decade.
As a state-of-the-art, "direct supervision" facility, the project aims to
provide a more successful correctional environment while reducing costs. The new
facility is operated by the Plymouth County Sheriff's Department.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues............................... 95
Average quality................................ A+
Investment grade............................... 96.3%
Effective maturity (years)..................... 15.47
Largest sectors:
General obligations......................... 13.7%
Insured hospitals........................... 11.8*
Housing..................................... 11.4
Water and sewer............................. 9.8
Education................................... 9.8
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Massachusetts
Massachusetts' employment levels have climbed significantly in recent years,
recovering roughly 60% of the jobs lost in the last recession. Recent jobless
rates have remained at or below the national rate, and personal income growth
continues to accelerate. Growth has been especially impressive in the high
technology and financial sectors.
The Commonwealth has greatly improved its financial position. Debt levels, while
still too high, have nonetheless been reduced, while reserve levels have
increased to 3% of revenues. As a result, Massachusetts now enjoys enhanced
liquidity and more leeway with respect to operations, and should record a modest
surplus in the current fiscal year. As a reflection of the progress the
Commonwealth has made in recent years, its debt ratings have been upgraded to A1
and A+, considerably higher than they were at their lowest point in early 1991.
Looking ahead, the economy should continue to post modest growth. On the fiscal
front, the administration has recently initiated efforts to control social
spending. While opening a thorny political issue, the move could result in
further fiscal improvements in the future.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC
MASSACHUSETTS TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 7.4% 1.1%
Without CDSC 8.4% 1.1%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.MASS. LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10070 10114
2/94 9841 9852
3/94 9357 9451
4/94 9331 9531
5/94 9418 9614
6/94 9328 9558
7/94 9496 9730
8/94 9532 9764
9/94 9360 9621
10/94 9116 9450
11/94 8837 9279
12/94 9108 9483
1/95 9447 9754
2/95 9764 10038
3/95 9844 10153
4/95 9835 10165
5/95 10077 10490
6/95 9892 10398
7/95 9947 10496
8/95 10075 10630
9/95 10151 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/7/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The Portfolio's exposure to the hospital sector remains quite low. Health care
institutions around the country are under increasing pressure from competition.
This condition is especially true in Massachusetts, where there are too many
hospital beds for the commonwealth's population.
"As a result, we do extensive research before adding any hospital bonds to the
Portfolio, to ensure that the hospitals we choose will be among the survivors in
this increasingly competitive environment.
"In structuring the Portfolio, we've employed a two-pronged strategy in the
Portfolio, emphasizing quality on one hand and prudent yield enhancement on the
other."
- Robert B. MacIntosh
6
<PAGE>
EV Classic Mississippi Tax Free Fund
YOUR INVESTMENT AT WORK
Mississippi State University
Renovation Project
Bond proceeds were used to renovate and equip two buildings on the Mississippi
State University campus. The renovations included the conversion of former
dormitory buildings into classroom and office space.
The funds were also used to extend a chilled water loop on the campus in order
to improve the university's heating and cooling system.
The bonds were issued in 1995, with a maturity of 2015. The cost of the project
is estimated to be $3 million.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues....................... 36
Average quality........................ AA
Investment grade....................... 98.7%
Effective maturity..................... 15.55 yrs.
Largest sectors:
Insured hospitals................... 19.2%*
Utilities........................... 10.9
Industrial development revenue...... 10.0
Housing............................. 9.4
General obligations................. 7.8
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Mississippi
Mississippi's economy, traditionally reliant on cyclical manufacturing, has
shown significant growth in recent years.Expansion in the manufacturing and
service sectors allowed the state's unemployment rate to remain roughly the same
in 1994 as in 1993.
Much of the state's recent job growth came from gaming-related employment in the
early 1990s. It is estimated that some 50,000 jobs were created either directly
or indirectly by this industry. However, with more than 30 casinos now open in
the state, Mississippi is saturated with gambling. In addition, the industry now
faces strong competition from neighboring Louisiana, which is opening gambling
in New Orleans.
Although Mississippi's economy should continue to grow during the next few
years, expected changes in the gaming industry, combined with a slowdown in
other sectors, are likely to cause the pace of that growth to be slower than it
has been in recent years.
A positive for the state is its very conservative fiscal management.
Mississippi's debt level is one of the lowest in the country.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC MISSISSIPPI
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.5% 1.0%
Without CDSC 9.5% 1.0%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.MISSISSIPPI LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10109 10114
2/94 9798 9852
3/94 9180 9451
4/94 9253 9531
5/94 9336 9614
6/94 9254 9558
7/94 9428 9730
8/94 9430 9764
9/94 9256 9621
10/94 9030 9450
11/94 8790 9279
12/94 9016 9483
1/95 9361 9754
2/95 9715 10038
3/95 9793 10153
4/95 9770 10165
5/95 10061 10490
6/95 9907 10398
7/95 9969 10496
8/95 10071 10630
9/95 10132 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/7/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Mississippi is now in a period of economic strength. We have tried to take
advantage of that fact by moving the Portfolio into more state-backed general
obligation bonds.
"At the same time, we have somewhat reduced our exposure to the insured sector
because insured bonds are plentiful and are not as attractive as some other
Mississippi bonds.
"We continue to look to add industrial development bonds to the Portfolio, as
they offer an attractive combination of yield and security."
- Cynthia J. Clemson
7
<PAGE>
EV Classic New York Tax Free Fund
YOUR INVESTMENT AT WORK
New York State Power Authority
Historically, three of the top issuer names in New York have been "Ports" (Port
Authorities of New York and New Jersey), "Powers" (New York State Power
Authority) and "Tribes" (Triborough Bridge and Tunnel Authority). Bonds of these
three issuers are among the highest rated in the market.
Of the three, we see the most value in Power Authority bonds, especially as a
place to weather any coming storm in BBB-rated New York State-appropriated
bonds. The Triborough Bridge and Tunnel Authority will likely be under credit
pressure as it begins borrowing plans for the MTA subway system.Port Authority
bonds typically do not offer the attractive coupon structure available on some
Power Authority bonds.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues............................ 179
Average quality............................. A+
Investment grade............................ 98.0%
Effective maturity (years).................. 14.47
Largest sectors:
Health care.............................. 19.1%
Education................................ 12.7
Special tax revenue...................... 12.5
Lease/Certificate of
participation............................ 8.7
Escrowed................................. 7.6
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: New York
New York is at a crossroads, with its first new governor in 12 years. Governor
George Pataki's first real chance to make his mark comes with next year's
budget. The impact of his proposed income tax cuts will be felt much more deeply
in the budget for fiscal year 1996-97; it will garner much attention because tax
cuts must be accompanied by spending cuts. It has the potential to be Pataki's
first big step toward streamlining state government and fulfilling his election
promises.
Given the potential for next year's budget process to be especially contentious
and given that this year's budget was passed late, as often occurs, the Governor
plans an earlier unveiling of the fiscal 1996-97 budget. The goal of matching
spending commitments to ongoing revenue resources is positive for the state's
long-term credit standing but may produce near-term turmoil.
Of more immediate interest to New York tax-exempt investors is the November
voter referendum on state debt reform. New Yorkers will vote on whether to end
the state's entrenched process of "backdoor borrowing." If debt reform passes,
the state will revamp its borrowing process. Consequently, it currently plans to
issue an unusually heavy calendar of state-supported appropriation debt between
now and year-end.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC NEW YORK TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.5% 1.9%
Without CDSC 9.5% 1.9%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.NEW YORK LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10131 10114
2/94 9852 9852
3/94 9368 9451
4/94 9413 9531
5/94 9508 9614
6/94 9399 9558
7/94 9565 9730
8/94 9621 9764
9/94 9398 9621
10/94 9165 9450
11/94 8854 9279
12/94 9166 9483
1/95 9483 9754
2/95 9819 10038
3/95 9920 10153
4/95 9910 10165
5/95 10204 10490
6/95 10030 10398
7/95 10106 10496
8/95 10233 10630
9/95 10286 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/6/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Anticipating that state-appropriated debt will underperform in the face of a
heavy new issuance calendar, we have been reducing the Portfolio's exposure to
State appropriation debt and swapping into high-grade debt. Once this wave of
debt has come to market, state-appropriated debt should be attractively priced
and once again represent a buying opportunity.
"This past summer, during the second leg of the 1995 rally, discount coupon
bonds returned to favor. This was an opportunity to sell deep discounts in the
New York Portfolio and trade into more moderate discount coupon bonds that
should perform comparably to deep discounts in an up market and much better in a
down market."
- Nicole Anderes
8
<PAGE>
EV Classic Ohio Tax Free Fund
YOUR INVESTMENT AT WORK
Higher Educational Facility Comm.
University of Dayton
The proceeds of these bonds are being used for a variety of projects, the
largest of which is acquisition of land for the University of Dayton Law School.
The money also is being used to construct and equip the Law School and Library,
to complete the Phillips Center for the Humanities, to acquire and renovate
student residences, rebuild campus roads and to renovate a variety of other
buildings on campus.
The Law School and Library building will have floor space of more than 120,000
square feet and will be completely computer accessible. The university has more
than 10,000 students.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues....................... 139
Average quality........................ A+
Investment grade....................... 90.5%
Effective maturity..................... 13.42 yrs.
Largest sectors:
Hospitals........................... 19.3%
Insured hospitals................... 11.7*
General obligations................. 9.1
Industrial development/ Pollution
control revenue..................... 8.8
Education........................... 7.9
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Ohio
The Ohio economy continues to be diverse and strong. Overall, the state has
moved from heavy reliance on manufacturing jobs to a more balanced economy.
Ohio's financial position has improved during the last 12 months, allowing the
state to begin restoring its financial reserves.
The state's service sector has been a source of job growth during the past
several years.While the manufacturing sector grew during the second half of
1994, it is expected to recede somewhat during the last half of 1995.
Unemployment rates at the end of 1994 were considerably lower than the national
average.
The recent robust economic activity in Ohio has helped the state's balance
sheet. Tax receipts were greater than expected in the 1994 fiscal year and into
1995. For the same reason, Medicaid expenditures were somewhat lower than
anticipated.
Ohio benefits from relatively conservative management and a debt burden that is
low relative to that of other industrialized states.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC OHIO TAX
FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.6% 1.2%
Without CDSC 9.6% 1.2%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.OHIO LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10080 10114
2/94 9770 9852
3/94 9223 9451
4/94 9256 9531
5/94 9361 9614
6/94 9270 9558
7/94 9467 9730
8/94 9480 9764
9/94 9267 9621
10/94 9041 9450
11/94 8791 9279
12/94 9060 9483
1/95 9408 9754
2/95 9722 10038
3/95 9780 10153
4/95 9779 10165
5/95 10073 10490
6/95 9941 10398
7/95 10004 10496
8/95 10130 10630
9/95 10193 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/7/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The past year has proved to be volatile for the bond market, with a sharp
decline during most of 1994 and the strong bond market rally of 1995.
"In the Ohio Portfolio, the levels of new bond issuance have decreased
significantly. This creates a supply-and-demand situation that bodes well for
the inherent value of bonds.
"We remain highly selective in terms of the health care and hospital bonds that
we add to the Portfolio. This sector is extremely competitive nationwide, and it
is important to use thorough research to determine the most attractive
candidates for the Portfolio. These are often medical facilities that have
strengthened themselves through mergers or alliances with other facilities or
HMOs."
- Thomas J. Fetter
9
<PAGE>
EV Classic Rhode Island Tax Free Fund
YOUR INVESTMENT AT WORK
Rhode Island State Industrial
Facilities Corporation
Marine Terminal Bonds
The proceeds of these bonds were used to build the main Rhode Island terminal
and distribution facilities for Mobil Oil Refining in the mid-1980s. The company
transports oil in tanker ships through Narragansett Bay and distributes it to
the Rhode Island area through these facilities, which are located inEast
Providence.
These bonds carry the senior corporate debt ratings of Mobil Corp., Aa2/AA.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues........................ 48
Average quality......................... AA
Investment grade........................ 99.2%
Effective maturity...................... 17.10yrs.
Largest sectors:
Housing.............................. 16.7
Insured water and sewer.............. 16.6*
Insured college and university....... 9.8*
Special tax.......................... 6.7
Insured housing...................... 6.1*
<FN>
* Private insurance does not remove the risk of loss of principal due to changes in market
conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: Rhode Island
Rhode Island's economy is softening after barely showing signs of recovery from
the recession of the late 1980s. Employment numbers for 1995 are running below
those of 1994; the state recently had to revise revenues down slightly to
reflect the weaker economy. Even the state's outlook for a "continued recovery
at a sluggish pace" may be too optimistic and the 1.2% annual employment growth
projected may have to be revised downward.
As sobering as this news is, our diversified portfolio of Rhode Island bonds
should not be directly affected by the state's budget and economic problems. For
example, portfolio holdings include tax-exempt debt backed by single-family
mortgage pools, by high-grade corporations and by the state's leading
universities and colleges.
Also, Providence appears to be a bright spot in the state's economic landscape
and may be more of a stabilizing influence than it has been historically.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC RHODE ISLAND
TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS MUNICIPAL BOND
INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.0% 0.6%
Without CDSC 9.0% 0.6%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C.RHODE ISLAND LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10138 10114
2/94 9757 9852
3/94 9140 9451
4/94 9223 9531
5/94 9338 9614
6/94 9237 9558
7/94 9444 9730
8/94 9457 9764
9/94 9243 9621
10/94 8976 9450
11/94 8737 9279
12/94 9028 9483
1/95 9386 9754
2/95 9700 10038
3/95 9790 10153
4/95 9757 10165
5/95 9997 10490
6/95 9779 10398
7/95 9865 10496
8/95 10001 10630
9/95 10075 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/7/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"Over the past year, the goal has been to restructure the Rhode Island Portfolio
to balance long discount holdings with more defensive, higher yielding bonds.
The relatively small Portfolio size makes rebalancing tricky; seemingly small
changes can have a large impact on performance.
"Housing bonds have offered the best opportunity to add yield and a defensive
sector to the Portfolio; holdings in this sector were increased from nearly 12%
in September 1994 to 17% by September 1995.Since housing bonds typically carry
AA or AAA ratings, added exposure to this sector has allowed us to take
advantage of our strong research capabilities by prudently adding higher
yielding BBBcredits while maintaining overall credit quality at an average AA
rating."
- Nicole Anderes
10
<PAGE>
EV Classic West Virginia Tax Free Fund
YOUR INVESTMENT AT WORK
Upshur County
TJ International Project
The proceeds of these bonds are being used to build a sewage and solid waste
disposal system for a lumber production plant in Upshur County. The facility
manufactures engineered lumber in the form of wood joists and related lumber
products.
The factory is owned by Trus Joist MacMillan.
The bonds were issued in 1995 and will mature in 2025.
The total cost of construction is estimated at about $22 million.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
<TABLE>
<S> <C>
Number of issues............................ 39
Average quality............................. AA-
Investment grade............................ 95.6%
Effective maturity.......................... 16.42 yrs.
Largest sectors:
Insured hospitals........................ 15.7*
Insured electric utilities............... 13.5%*
Industrial development/pollution
control revenue.......................... 12.5
Electric utilities....................... 11.8
Insured water & sewer.................... 11.1*
<FN>
* Private insurance does not remove the risk of loss of principal due to changes
in market conditions that is associated with these investments.
</TABLE>
- --------------------------------------------------------------------------------
THE STATE OF THE STATE: West Virginia
West Virginia's economy suffers from a heavy reliance on the coal mining
industry and on employment in older metal and chemical factories.
The state economy recovered well in 1994 from the recession of the early 1990s,
in large part because of the end of the coal strike. That event brought a needed
boost to the state's employment and retail sales.
In 1995, the state's economy has continued to grow, though at a much slower pace
than in 1994. In fact, West Virginia has the slowest rate of growth of the
southeastern states and its unemployment levels still exceed the national
average. During the last year, however, the state experienced significant gains
in the construction, transportation and communications sectors. Increases in
tourism have helped the state's economy slightly, as has growth in Federal
employment.
The state's prospects for economic expansion are enhanced somewhat by the fact
that its population is now increasing.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN EV CLASSIC WEST
VIRGINIA TAX FREE FUND (INCLUDING SALES CHARGE) AND THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX
From December 31, 1993, through September 30, 1995
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN 1 Life
Year of Fund*
<S> <C> <C>
With CDSC 8.4% 1.2%
Without CDSC 9.4% 1.2%
</TABLE>
<TABLE>
[LINE CHART USING THE FOLLOWING FIGURES AS PLOT POINTS]
<CAPTION>
DATE C. WEST VIRGINIA LEHMAN BROS.
<S> <C> <C>
12/93+ 10000 10000
1/94 10139 10114
2/94 9857 9852
3/94 9291 9451
4/94 9283 9531
5/94 9387 9614
6/94 9254 9558
7/94 9470 9730
8/94 9493 9764
9/94 9309 9621
10/94 9074 9450
11/94 8803 9279
12/94 9060 9483
1/95 9385 9754
2/95 9728 10038
3/95 9827 10153
4/95 9815 10165
5/95 10118 10490
6/95 9932 10398
7/95 9994 10496
8/95 10140 10630
9/95 10180 10697
<FN>
Past performance is not indicative of future results. Investment returns and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source: Towers Data Systems,
Bethesda, MD.
*Investment operations commenced 12/13/93. +Index information is available only
at month-end; therefore, the line comparison begins at the next month-end
following the commencement of the Fund's investment operations.
</TABLE>
FROM THE PORTFOLIO MANAGER:
"The West Virginia bond market is extremely sensitive to movements of supply and
demand. The challenge for a portfolio manager is to stay abreast of those
movements.
"We try to purchase issues when they are trading cheaply in the secondary market
and wait for supply to diminish, at which time we can offer them at a
significant profit.
"Our principal focus is on maintaining a 'barbell' structure in the Portfolio
that provides good performance in both up and down markets. We want to maintain
both yield and diversification, and to that end are committing a great deal of
effort to researching non-rated private placement issues to gain yield."
- Timothy T. Browse
11
<PAGE>
-------
EV Classic Tax Free Funds
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
---------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in Portfolio --
Identified cost $2,681,678 $5,310,943 $ 2,700,769 $2,237,833
Unrealized appreciation (depreciation) 36,002 (71,742) 47,677 74,290
---------- ---------- ---------- ----------
Total investment in Portfolio, at value (Note 1A) $2,717,680 $5,239,201 $ 2,748,446 $2,312,123
Receivable for Fund shares sold 158 -- -- --
Receivable from the Administrator (Note 4) 39,199 24,340 13,833 14,260
Deferred organization expenses (Note 1D) 8,988 4,825 6,375 7,274
---------- ---------- ---------- ----------
Total assets $2,766,025 $5,268,366 $ 2,768,654 $2,333,657
---------- ---------- ---------- ----------
LIABILITIES:
Dividends payable $ 2,993 $ 5,606 $ 3,045 $ 2,349
Payable to affiliates --
Trustees' fees -- 43 -- --
Custodian fee 584 584 584 584
Accrued expenses 2,349 1,518 1,099 962
---------- ---------- ---------- ----------
Total liabilities $ 5,926 $ 7,751 $ 4,728 $ 3,895
---------- ---------- ---------- ----------
NET ASSETS $2,760,099 $5,260,615 $ 2,763,926 $2,329,762
========== ========== ========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $2,921,227 $6,014,862 $ 3,034,389 $2,535,528
Accumulated net realized loss on investment and
financial futures transactions (computed on the basis
of identified cost) (204,111) (690,559) (318,562) (286,435)
Accumulated undistributed net investment income 6,981 8,054 422 6,379
Unrealized appreciation (depreciation) of investments
and financial futures contracts from Portfolio
(computed on the basis of identified cost) 36,002 (71,742) 47,677 74,290
---------- ---------- ---------- ----------
Total $2,760,099 $5,260,615 $ 2,763,926 $2,329,762
========== ========== ========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 296,153 562,364 298,594 250,630
========== ========== ========== ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (NOTE
6) PER SHARE (net assets / shares of beneficial interest
outstanding) $9.32 $9.35 $9.26 $9.30
========== ========== ========== ==========
</TABLE>
See notes to financial statements
12
<PAGE>
-------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in Portfolio --
Identified cost $5,285,125 $2,120,821 $3,143,159 $ 1,061,963
Unrealized appreciation (depreciation) 126,845 (20,561) (130,245) (36,491)
---------- ---------- ---------- ----------
Total investment in Portfolio, at value (Note 1A) $5,411,970 $2,100,260 $3,012,914 $ 1,025,472
Receivable for Fund shares sold 15,100 43,688 -- --
Receivable from the Administrator (Note 4) 24,385 20,605 20,429 16,838
Deferred organization expenses (Note 1D) 6,573 7,150 6,530 7,378
---------- ---------- ---------- ----------
Total assets $5,458,028 $2,171,703 $3,039,873 $ 1,049,688
---------- ---------- ---------- ----------
LIABILITIES:
Dividends payable $ 5,926 $ 2,278 $ 3,225 $ 1,063
Payable for Fund shares redeemed 470 -- 1,007 15,101
Payable to affiliates --
Trustees' fees 43 -- -- --
Custodian fee 584 584 151 559
Accrued expenses 1,623 927 1,206 677
---------- ---------- ---------- ----------
Total liabilities $ 8,646 $ 3,789 $ 5,589 $ 17,400
---------- ---------- ---------- ----------
NET ASSETS $5,449,382 $2,167,914 $3,034,284 $ 1,032,288
========== ========== ========== ==========
SOURCES OF NET ASSETS:
Paid-in capital $5,512,810 $2,295,498 $3,415,734 $ 1,133,678
Accumulated net realized loss on investment and
financial futures transactions (computed on the basis
of identified cost) (199,204) (106,999) (257,942) (67,904)
Accumulated undistributed (distributions in excess of)
net investment income 8,931 (24) 6,737 3,005
Unrealized appreciation (depreciation) of investments
and financial futures contracts from Portfolio
(computed on the basis of identified cost) 126,845 (20,561) (130,245) (36,491)
---------- ---------- ---------- ----------
Total $5,449,382 $2,167,914 $3,034,284 $ 1,032,288
========== ========== ========== ==========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 578,363 232,722 329,629 110,431
========== ========== ========== ==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE (NOTE
6) PER SHARE (net assets / shares of beneficial interest
outstanding) $9.42 $9.32 $9.21 $9.35
========== ========== ========== ==========
</TABLE>
See notes to financial statements
13
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
---------- --------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 188,661 $ 397,958 $ 186,481 $ 153,412
Expenses allocated from Portfolio (16,129) (32,077) (15,317) (5,882)
--------- --------- --------- ---------
Net investment income from Portfolio $ 172,532 $ 365,881 $ 171,164 $ 147,530
--------- --------- --------- ---------
Expenses --
Compensation of Trustees not members of the
Administrator's organization $ -- $ 122 $ -- $ --
Distribution costs (Note 5) 27,957 57,947 27,026 23,394
Custodian fee (Note 4) 3,526 3,886 3,543 3,130
Transfer and dividend disbursing agent fees 2,470 3,502 2,390 1,828
Printing and postage 17,250 10,554 -- 5,607
Legal and accounting services 6,265 6,650 5,006 5,615
Registration costs -- 1,112 1,049 941
Amortization of organization expenses (Note 1D) 2,967 1,518 2,009 2,296
Miscellaneous 9,043 2,052 493 1,025
--------- --------- --------- ---------
Total expenses $ 69,478 $ 87,343 $ 41,516 $ 43,836
--------- --------- --------- ---------
Deduct allocation of expenses to the Administrator
(Note 4) $ 39,199 $ 24,340 $ 13,833 $ 14,260
Deduct reduction of custodian fee (Note 4) -- 1,183 -- --
--------- --------- --------- ---------
Total $ 39,199 $ 25,523 $ 13,833 $ 14,260
--------- --------- --------- ---------
Net expenses $ 30,279 $ 61,820 $ 27,683 $ 29,576
--------- --------- --------- ---------
Net investment income $ 142,253 $ 304,061 $ 143,481 $ 117,954
--------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $(113,634) $(363,457) $(186,609) $(188,597)
Financial futures contracts (24,662) (97,603) (31,485) (30,325)
--------- --------- --------- ---------
Net realized loss on investments $(138,296) $(461,060) $(218,094) $(218,922)
Change in unrealized appreciation (depreciation) of
investments 203,944 629,276 242,489 304,544
--------- --------- --------- ---------
Net realized and unrealized gain $ 65,648 $ 168,216 $ 24,395 $ 85,622
--------- --------- --------- ---------
Net increase in net assets from operations $ 207,901 $ 472,277 $ 167,876 $ 203,576
========= ========= ========= =========
</TABLE>
See notes to financial statements
14
<PAGE>
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
---------- -------- ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1B):
Interest income allocated from Portfolio $ 357,605 $127,727 $ 209,585 $ 90,067
Expenses allocated from Portfolio (28,168) (11,069) (8,578) (4,286)
---------- -------- --------- --------
Net investment income from Portfolio $ 329,437 $116,658 $ 201,007 $ 85,781
---------- -------- --------- --------
Expenses --
Compensation of Trustees not members of the
Administrator's organization $ 165 $ -- $ -- $ --
Distribution costs (Note 5) 52,724 19,276 31,974 13,957
Custodian fee (Note 4) 3,321 3,387 3,503 3,416
Transfer and dividend disbursing agent fees 3,458 1,888 3,085 1,471
Printing and postage 12,238 4,834 7,024 5,359
Legal and accounting services 6,021 5,864 4,860 4,611
Registration costs 380 1,156 -- --
Amortization of organization expenses (Note 1D) 2,099 2,081 2,051 2,314
Miscellaneous 1,059 2,280 1,427 965
---------- -------- --------- --------
Total expenses $ 81,465 $ 40,766 $ 53,924 $ 32,093
---------- -------- --------- --------
Deduct allocation of expenses to the Administrator
(Note 4) $ 24,385 $ 20,605 $ 20,429 $ 16,838
Deduct reduction of custodian fee (Note 4) 2,868 -- 561 --
---------- -------- --------- --------
Total $ 27,253 $ 20,605 $ 20,990 $ 16,838
---------- -------- --------- --------
Net expenses $ 54,212 $ 20,161 $ 32,934 $ 15,255
---------- -------- --------- --------
Net investment income $ 275,225 $ 96,497 $ 168,073 $ 70,526
---------- -------- --------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from Portfolio --
Investment transactions (identified cost basis) $ (78,176) $(67,704) $ (115,559) $ (26,782)
Financial futures contracts (63,649) (16,928) (56,902) (18,506)
---------- -------- --------- --------
Net realized loss on investments $(141,825) $(84,632) $ (172,461) $ (45,288)
Change in unrealized appreciation (depreciation) of
investments 381,603 161,713 261,324 99,940
---------- -------- --------- --------
Net realized and unrealized gain $ 239,778 $ 77,081 $ 88,863 $ 54,652
---------- -------- --------- --------
Net increase in net assets from operations $ 515,003 $173,578 $ 256,936 $ 125,178
========== ======== ========= ========
</TABLE>
See notes to financial statements
15
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 142,253 $ 304,061 $ 143,481 $ 117,954
Net realized loss on investments (138,296) (461,060) (218,094) (218,922)
Change in unrealized appreciation (depreciation)
of investments 203,944 629,276 242,489 304,544
----------- ----------- ------------- -----------
Net increase in net assets from operations $ 207,901 $ 472,277 $ 167,876 $ 203,576
----------- ----------- ------------- -----------
Distributions to shareholders (Note 2) --
From net investment income $ (142,253) $ (304,061) $ (143,481) $ (117,954)
In excess of net investment income (3,147) (13,024) (7,184) (3,078)
In excess of net realized gain on investments (5,291) -- -- --
----------- ----------- ------------- -----------
Total distributions to shareholders $ (150,691) $ (317,085) $ (150,665) $ (121,032)
----------- ----------- ------------- -----------
Transactions in shares of beneficial interest (Note
3) --
Proceeds from sales of shares $ 785,921 $ 899,398 $ 938,555 $ 747,475
Net asset value of shares issued to shareholders
in
payment of distributions declared 56,477 139,236 109,243 76,392
Cost of shares redeemed (1,032,948) (3,996,087) (2,043,937) (1,376,356)
----------- ----------- ------------- -----------
Decrease in net assets from Fund share
transactions $ (190,550) $(2,957,453) $ (996,139) $ (552,489)
----------- ----------- ------------- -----------
Net decrease in net assets $ (133,340) $(2,802,261) $ (978,928) $ (469,945)
NET ASSETS:
At beginning of year 2,893,439 8,062,876 3,742,854 2,799,707
----------- ----------- ------------- -----------
At end of year $ 2,760,099 $ 5,260,615 $ 2,763,926 $2,329,762
============ ============ ================ ===========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN NET ASSETS AT END OF YEAR $ 6,981 $ 8,054 $ 422 $ 6,379
============ ============ ================ ===========
</TABLE>
See notes to financial statements
16
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 275,225 $ 96,497 $ 168,073 $ 70,526
Net realized loss on investments (141,825) (84,632) (172,461) (45,288)
Change in unrealized appreciation
(depreciation)
of investments 381,603 161,713 261,324 99,940
---------- ---------- ---------- ----------
Net increase in net assets from operations $ 515,003 $ 173,578 $ 256,936 $ 125,178
---------- ---------- ---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (275,225) $ (96,497) $ (168,073) $ (70,526)
In excess of net investment income (7,088) (5,422) (4,045) (2,437)
---------- ---------- ---------- ----------
Total distributions to shareholders $(282,313) $ (101,919) $ (172,118) $ (72,963)
---------- ---------- ---------- ----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $2,176,868 $ 522,879 $ 315,949 $ 48,967
Net asset value of shares issued to
shareholders in payment of distributions
declared 229,427 70,373 114,621 49,748
Cost of shares redeemed (2,326,154) (607,702) (1,399,657) (1,015,933)
---------- ---------- ---------- ----------
Increase (decrease) in net assets from Fund
share transactions $ 80,141 $ (14,450) $ (969,087) $ (917,218)
---------- ---------- ---------- ----------
Net increase (decrease) in net assets $ 312,831 $ 57,209 $ (884,269) $ (865,003)
NET ASSETS:
At beginning of year 5,136,551 2,110,705 3,918,553 1,897,291
---------- ---------- ---------- ----------
At end of year $5,449,382 $2,167,914 $3,034,284 $ 1,032,288
========== ========== ========== ==========
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS
OF) NET INVESTMENT INCOME INCLUDED IN NET ASSETS
AT END OF YEAR $ 8,931 $ (24) $ 6,737 $ 3,005
========== ========== ========== ==========
</TABLE>
See notes to financial statements
17
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CALIFORNIA FUND CLASSIC CLASSIC CLASSIC
-------------------------- FLORIDA MASSACHUSETTS MISSISSIPPI
YEAR ENDED YEAR ENDED FUND FUND FUND
SEPTEMBER 30, MARCH 31, ----------- ------------- -----------
1994** 1994* YEAR ENDED SEPTEMBER 30, 1994***
-------------- ---------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 61,773 $ 21,091 $ 268,997 $ 103,634 $ 83,964
Net realized gain (loss) on investments (62,402) 1,878 (229,499) (100,468) (67,513)
Change in unrealized depreciation of
investments (842) (167,100) (701,018) (194,812) (230,254)
---------- ---------- ---------- ---------- ----------
Net decrease in net assets from
operations $ (1,471) $(144,131) $ (661,520) $ (191,646) $ (213,803)
---------- ---------- ---------- ---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (61,773) $ (21,091) $ (268,997) $ (103,634) $ (83,964)
In excess of net investment income (9,885) (3,747) (48,427) (19,821) (14,125)
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders $ (71,658) $ (24,838) $ (317,424) $ (123,455) $ (98,089)
---------- ---------- ---------- ---------- ----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $1,431,747 $3,317,122 $11,658,622 $ 4,628,340 $3,787,256
Net asset value of shares issued to
shareholders in payment of distributions
declared 37,372 9,644 143,172 93,925 52,885
Cost of shares redeemed (597,281) (1,063,067) (2,759,974) (664,310) (728,542)
---------- ---------- ---------- ---------- ----------
Increase in net assets from Fund share
transactions $ 871,838 $2,263,699 $ 9,041,820 $ 4,057,955 $3,111,599
---------- ---------- ---------- ---------- ----------
Net increase in net assets $ 798,709 $2,094,730 $ 8,062,876 $ 3,742,854 $2,799,707
NET ASSETS:
At beginning of year 2,094,730 -- -- -- --
---------- ---------- ---------- ---------- ----------
At end of year $2,893,439 $2,094,730 $ 8,062,876 $ 3,742,854 $2,799,707
========== ========== ========== ========== ==========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT
END OF YEAR $ (357) $ -- $ (3,902) $ (3,008) $ --
========== ========== ========== ========== ==========
</TABLE>
* For the period from the start of business, December 3, 1993 to March 31,
1994.
** For the six months ended September 30, 1994 (Note 8).
*** For the Classic Florida, Classic Massachusetts and Classic Mississippi
Funds, the Statements of Changes in Net Assets are for the period from the
start of business, December 3, 1993, December 7, 1993 and December 7, 1993,
respectively, to September 30, 1994.
See notes to financial statements
18
<PAGE>
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended September 30, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 110,149 $ 67,300 $ 131,218 $ 55,093
Net realized loss on investments (57,379) (22,367) (85,481) (22,616)
Change in unrealized depreciation of
investments (254,758) (182,274) (391,569) (136,431)
---------- ---------- ---------- ----------
Net decrease in net assets from operations $ (201,988) $ (137,341) $ (345,832) $ (103,954)
---------- ---------- ---------- ----------
Distributions to shareholders (Note 2) --
From net investment income $ (110,149) $ (67,300) $ (131,218) $ (55,093)
In excess of net investment income (22,654) (13,207) (24,131) (10,215)
---------- ---------- ---------- ----------
Total distributions to shareholders $ (132,803) $ (80,507) $ (155,349) $ (65,308)
---------- ---------- ---------- ----------
Transactions in shares of beneficial interest
(Note 3) --
Proceeds from sales of shares $6,440,708 $ 3,336,935 $5,314,659 $ 2,589,662
Net asset value of shares issued to
shareholders in payment of distributions
declared 94,263 59,809 100,358 45,910
Cost of shares redeemed (1,063,629) (1,068,191) (995,283) (569,019)
---------- ---------- ---------- ----------
Increase in net assets from Fund share
transactions $5,471,342 $ 2,328,553 $4,419,734 $ 2,066,553
---------- ---------- ---------- ----------
Net increase in net assets $5,136,551 $ 2,110,705 $3,918,553 $ 1,897,291
NET ASSETS:
At beginning of year -- -- -- --
---------- ---------- ---------- ----------
At end of year $5,136,551 $ 2,110,705 $3,918,553 $ 1,897,291
========== ========== ========== ==========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME INCLUDED IN NET ASSETS AT END
OF YEAR $ (4,017) $ (1,905) $ (2,203) $ (814)
========== ========== ========== ==========
</TABLE>
* For the Classic New York, Classic Ohio, Classic Rhode Island and Classic West
Virginia Funds, the Statements of Changes in Net Assets are for the period
from the start of business December 6, 1993, December 7, 1993, December 7,
1993, and December 13, 1993, respectively, to September 30, 1994.
See notes to financial statements
19
<PAGE>
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
----------------------------- ----------------- ----------------- -----------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- --------- ----------------- ----------------- -----------------
1995 1994++ 1994*** 1995 1994* 1995 1994* 1995 1994*
------- ------- --------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.080 $ 9.340 $10.000 $ 8.970 $10.000 $ 9.000 $10.000 $ 8.920 $10.000
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.460 $ 0.227 $ 0.140 $ 0.444 $ 0.351 $ 0.449 $ 0.350 $ 0.426 $ 0.338
Net realized and unrealized gain
(loss) on investments 0.267 (0.224) (0.635) 0.399 (0.967) 0.283 (0.933) 0.391 (1.024)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.727 $ 0.003 $(0.495) $ 0.843 $(0.616) $ 0.732 $(0.583) $ 0.817 $(0.686)
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.460) $(0.227) $(0.140) $(0.444) $(0.351) $(0.449) $(0.350) $(0.426) $(0.338)
In excess of net investment income (0.010) (0.036) (0.025) (0.019) (0.063) (0.023) (0.067) (0.011) (0.056)
In excess of net realized gain on
investments (0.017) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.487) $(0.263) $(0.165) $(0.463) $(0.414) $(0.472) $(0.417) $(0.437) $(0.394)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.320 $ 9.080 $ 9.340 $ 9.350 $ 8.970 $ 9.260 $ 9.000 $ 9.300 $ 8.920
======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (2) 8.32% 0.03% (5.16%) 9.72% (6.36%) 8.45% (6.02%) 9.47% (6.96%)
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000
omitted) $ 2,761 $ 2,893 $ 2,095 $ 5,261 $ 8,063 $ 2,764 $ 3,743 $ 2,330 $ 2,800
Ratio of net expenses to average
daily net assets (1) 1.67% 1.73%+ 1.64%+ 1.59% 1.63%+ 1.53% 1.61%+ 1.48% 1.24%+
Ratio of net investment income to
average daily net assets 5.11% 4.89%+ 4.17%+ 4.99% 4.51%+ 5.05% 4.55%+ 4.79% 4.42%+
</TABLE>
** For the period from the start of business, December 3, 1993, to March 31,
1994, for the six months ended September 30, 1994, and for the year ended
September 30, 1995 (for Classic California Fund) and for the period from the
start of business, December 3, 1993, December 7, 1993 and December 7, 1993,
respectively, to September 30, 1994 and for the year ended September 30, 1995
(for Classic Florida, Classic Massachusetts and Classic Mississippi Funds,
respectively), 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> <C>
NET INVESTMENT INCOME PER SHARE $0.335 $0.120 $0.123 $0.408 $0.331 $0.405 $0.260 $0.364 $0.246
====== ====== ====== ====== ====== ====== ====== ====== ======
RATIOS (As a percentage of average
daily net
assets):
Expenses (1) 3.07% 4.03%+ 2.15%+ 1.99% 1.88%+ 2.02% 2.78%+ 2.18% 2.45%+
Net investment income 3.71% 2.59%+ 3.66%+ 4.59% 4.26%+ 4.56% 3.38%+ 4.09% 3.21%+
+ Annualized.
++ For the six months ended September 30, 1994 (Note 8).
(1) Includes each 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 non-annualized basis.
* For the Classic Florida, Classic Massachusetts and Classic Mississippi Funds, the Financial Highlights are for the
period from the start of business, December 3, 1993, December 7, 1993 and December 7, 1993, respectively, to
September 30, 1994.
*** For the period from the start of business, December 3, 1993, to March 31, 1994.
</TABLE>
See notes to financial statements
20
<PAGE>
-------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
----------------- ----------------- ----------------- -----------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- ----------------- ----------------- -----------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.060 $10.000 $ 8.940 $10.000 $ 8.890 $10.000 $ 8.980 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.454 $ 0.344 $ 0.428 $ 0.348 $ 0.442 $ 0.347 $ 0.427 $ 0.326
Net realized and unrealized gain (loss) on
investments 0.372 (0.869) 0.404 (0.992) 0.331 (1.046) 0.385 (0.959)
------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.826 $(0.525) $ 0.832 $(0.644) $ 0.773 $(0.699) $ 0.812 $(0.633)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.454) $(0.344) $(0.428) $(0.348) $(0.442) $(0.347) $(0.427) $(0.326)
In excess of net investment income (0.012) (0.071) (0.024) (0.068) (0.011) (0.064) (0.015) (0.061)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.466) $(0.415) $(0.452) $(0.416) $(0.453) $(0.411) $(0.442) $(0.387)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.420 $ 9.060 $ 9.320 $ 8.940 $ 9.210 $ 8.890 $ 9.350 $ 8.980
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (2) 9.45% (5.45%) 9.64% (6.75%) 9.00% (7.29%) 9.35% (6.53%)
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of year (000 omitted) $ 5,449 $ 5,137 $ 2,168 $ 2,111 $ 3,034 $ 3,919 $ 1,032 $ 1,897
Ratio of net expenses to average daily net
assets (1) 1.57% 1.64%+ 1.56% 1.60%+ 1.29% 1.23%+ 1.35% 1.28%+
Ratio of net investment income to average
daily net assets 4.96% 4.41%+ 4.76% 4.42%+ 5.00% 4.50%+ 4.81% 4.53%+
</TABLE>
** For the period from the start of business, December 6, 1993, December 7,
1993, December 7, 1993 and December 13, 1993, respectively, to September 30,
1994, and for the year ended September 30, 1995 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 $0.414 $0.293 $0.336 $0.241 $0.377 $0.299 $0.318 $0.204
====== ====== ====== ====== ====== ====== ====== ======
RATIOS (As a percentage of average daily net
assets):
Expenses (1) 2.01% 2.29%+ 2.58% 2.96%+ 2.03% 1.85%+ 2.58% 2.66%+
Net investment income 4.52% 3.76%+ 3.74% 3.06%+ 4.26% 3.88%+ 3.58% 3.15%+
+ Annualized.
(1) Includes each 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 non-annualized basis.
* For the Classic New York, Classic Ohio, Classic Rhode Island and Classic West Virginia Funds, the Financial
Highlights are for the period from the start of business, December 6, 1993, December 7, 1993, December 7, 1993 and
December 13, 1993, respectively, to September 30, 1994.
</TABLE>
See notes to financial statements
21
<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 (1940 Act), as amended, as an open-end management investment
company. The Trust presently consists of sixty-six Funds, eight of which are
included in these financial statements. They include EV Classic California
Municipals Fund ("Classic California Fund") (formerly a series of Eaton Vance
Investment Trust), which is registered under the 1940 Act as a diversified
management investment company, EV Classic Florida Tax Free Fund ("Classic
Florida Fund"), EV Classic Massachusetts Tax Free Fund ("Classic Massachusetts
Fund"), EV Classic Mississippi Tax Free Fund ("Classic Mississippi Fund"), EV
Classic New York Tax Free Fund ("Classic New York Fund"), EV Classic Ohio Tax
Free Fund ("Classic Ohio Fund"), EV Classic Rhode Island Tax Free Fund ("Classic
Rhode Island Fund"), and EV Classic West Virginia Tax Free Fund ("Classic West
Virginia Fund"), each of which is registered under the 1940 Act as a
non-diversified management investment company. 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 California Fund invests its
assets in the California Tax Free Portfolio, the Classic Florida Fund invests
its assets in the Florida Tax Free Portfolio, the Classic Massachusetts Fund
invests its assets in the Massachusetts Tax Free Portfolio, the Classic
Mississippi Fund invests its assets in the Mississippi Tax Free Portfolio, the
Classic New York Fund invests its assets in the New York Tax Free Portfolio, the
Classic Ohio Fund invests its assets in the Ohio Tax Free Portfolio, the Classic
Rhode Island Fund invests its assets in the Rhode Island Tax Free Portfolio, and
the Classic West Virginia Fund invests its assets in the West 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
(0.7%, 0.7%, 0.9%, 8.0%, 0.8%, 0.7%, 0.7%, and 2.5% at September 30, 1995 for
the Classic California Fund, Classic Florida Fund, Classic Massachusetts Fund,
Classic Mississippi Fund, Classic New York Fund, Classic Ohio Fund, Classic
Rhode Island Fund and Classic West 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 September 30, 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 which would otherwise be necessary to relieve the
Funds of any liability for federal income or excise tax.
The amounts and expiration dates of the capital loss carryovers are as follows:
<TABLE>
<CAPTION>
FUND AMOUNT EXPIRES
- ------------------------------------------------------
<S> <C> <C>
Classic California Fund $ 4,833 September 30, 2003
59,053 September 30, 2002
Classic Florida Fund 19,484 September 30, 2003
166,878 September 30, 2002
Classic Massachusetts
Fund 14,863 September 30, 2003
85,630 September 30, 2002
Classic Mississippi
Fund 20,891 September 30, 2003
65,533 September 30, 2002
Classic New York Fund 16,076 September 30, 2003
46,131 September 30, 2002
Classic Ohio Fund 4,540 September 30, 2003
15,584 September 30, 2002
Classic Rhode Island
Fund 85,223 September 30, 2002
Classic West Virginia
Fund 4,513 September 30, 2003
20,474 September 30, 2002
</TABLE>
Additionally, at September 30, 1995, net capital losses of $141,249, $360,526,
$203,067, $203,526, $122,759, $73,189, $168,377 and $42,901 for the Classic
California Fund, Classic Florida Fund, Classic Massachusetts Fund, Classic
Mississippi Fund, Classic New York Fund, Classic Ohio Fund, Classic Rhode Island
Fund and Classic West 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 tax-exempt interest on 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
22
<PAGE>
-------
- --------------------------------------------------------------------------------
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.
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 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 statement
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital. During
the year ended September 30, 1995, $10,485, $24,980, $10,614, $9,457, $20,036,
$7,303, $12,985 and $6,256 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 California Fund,
Classic Florida Fund, Classic Massachusetts Fund, Classic Mississippi Fund,
Classic New York Fund, Classic Ohio Fund, Classic Rhode Island Fund and Classic
West Virginia Fund, respectively. Net investment income, net realized gains and
net assets were not affected by these reclassifications.
23
<PAGE>
-------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
(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 CLASSIC
CLASSIC CLASSIC MASSACHUSETTS MISSISSIPPI
CALIFORNIA FUND FLORIDA FUND FUND FUND
------------------------------ --------------- -------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
----------------- MARCH 31, --------------- -------------- --------------
1995 1994*** 1994** 1995 1994* 1995 1994* 1995 1994*
------- ------- ---------- ------ ------ ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 86,883 155,065 333,899 100,863 1,181,103 103,012 475,720 85,045 387,168
Issued to shareholders
electing to receive
payments of distributions
in Fund shares 6,267 4,043 990 15,557 15,396 12,218 10,132 8,505 5,724
Redemptions (115,522) (64,922) (110,549) (452,681) (297,874) (232,568) (69,920) (156,634) (79,178)
-------- -------- -------- -------- -------- -------- ------- -------- -------
Net increase (decrease) (22,372) 94,186 224,340 (336,261) 898,625 (117,338) 415,932 (63,084) 313,714
======== ======== ======== ======== ========= ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK FUND OHIO FUND RHODE ISLAND FUND WEST VIRGINIA FUND
------------------- ----------------- ------------------ ------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------- ----------------- ------------------ ------------------
1995 1994* 1995 1994* 1995 1994* 1995 1994*
-------- -------- ------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 242,369 669,316 58,811 341,950 35,648 536,962 5,454 267,099
Issued to shareholders
electing to receive
payments of distributions
in Fund shares 25,207 10,092 7,852 6,461 12,896 10,899 5,559 4,960
Redemptions (255,881) (112,740) (70,065) (112,287) (159,886) (106,890) (111,885) (60,756)
-------- -------- ------- -------- -------- -------- -------- -------
Net increase (decrease) 11,695 566,668 (3,402) 236,124 (111,342) 440,971 (100,872) 11,303
======== ======== ======= ======== ======= ======== ======== =======
</TABLE>
* For the Classic Florida, Classic Massachusetts, Classic Mississippi, Classic
New York, Classic Ohio, Classic Rhode Island and Classic West Virginia
Funds, the transactions in Fund shares are for the period from the start of
business, December 3, 1993, December 7, 1993, December 7, 1993, December 6,
1993, December 7, 1993, December 7, 1993 and December 13, 1993,
respectively, to September 30, 1994.
** For the Classic California Fund, the transactions in Fund shares are for the
period from the start of business, December 3, 1993, to March 31, 1994.
*** For the Classic California Fund, the transactions in Fund shares are for the
six months ended September 30, 1994 (Note 8).
24
<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, $39,199,
$24,340, $13,833, $14,260, $24,385, $20,605, $20,429 and $16,838 of expenses
related to the operation of the Classic California Fund, Classic Florida Fund,
Classic Massachusetts Fund, Classic Mississippi Fund, Classic New York Fund,
Classic Ohio Fund, Classic Rhode Island Fund and Classic West 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. All significant credit balances are reported as a reduction
of expenses in the statement of operations. 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. 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 September
30, 1995, Classic California Fund, Classic Florida Fund, Classic Massachusetts
Fund, Classic Mississippi Fund, Classic New York Fund, Classic Ohio Fund,
Classic Rhode Island Fund, and Classic West Virginia Fund, paid or accrued
$20,968, $45,748, $21,336, $18,469, $41,624, $15,218, $25,243 and $11,019,
respectively, to or payable to EVD representing 0.75% (annualized) of average
daily net assets. At September 30, 1995, the amount of Uncovered Distribution
Charges of EVD calculated under the Plans for Classic California Fund, Classic
Florida Fund, Classic Massachusetts Fund, Classic Mississippi Fund, Classic New
York Fund, Classic Ohio Fund, Classic Rhode Island Fund and Classic West
Virginia Fund were approximately $331,000, $713,000, $310,000, $281,000,
$467,000, $240,000, $340,000 and $166,000, respectively.
In addition, the Plans permit the Funds to make monthly payments of service fees
to the Principal Underwriter, 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 monthly service fee
payments to the Principal Underwriter in amounts not expected to exceed 0.20%
(0.25% for the Classic California Fund) of each Fund's average daily net assets
for each fiscal year. For the year ended September 30, 1995, Classic California
Fund, Classic Florida Fund, Classic Massachusetts Fund, Classic Mississippi
Fund, Classic New York Fund, Classic Ohio Fund, Classic Rhode Island Fund and
Classic West Virginia Fund paid or accrued service fees to or payable to EVD in
the amount of $6,989, $12,199, $5,690, $4,925, $11,100, $4,058, $6,731 and
$2,938, 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% (0.25% for the Classic
California Fund) 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% (0.25%
for the Classic California Fund) 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.
25
<PAGE>
-------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
(6) CONTINGENT DEFERRED SALES CHARGES
For shares purchased on or after January 30, 1995, a contingent deferred sales
charge (CDSC) of 1% is imposed on any redemption of Fund shares made within one
year of purchase. Generally, the CDSC is based upon the lower of the net asset
value at date of redemption or date of purchase. No charge is levied on shares
acquired by reinvestment of dividends or capital gains distributions. No CDSC is
levied on shares which have been sold to EVD or its affiliates or to their
respective employees or clients. CDSC charges are paid to EVD to reduce the
amount of Uncovered Distribution Charges calculated under the Funds'
Distribution Plans. CDSC received when no Uncovered Distribution Charges exist
will be credited to the Funds. For the year ended September 30, 1995, EVD
received $400, $917, $1,445, $59, $97, $19 and $186, respectively of CDSC paid
by shareholders for the Classic California Fund, Classic Florida Fund, Classic
Massachusetts Fund, Classic Mississippi Fund, Classic New York Fund, Classic
Ohio Fund, and Classic Rhode Island Fund. EVD did not receive any CDSC from
shareholders of the Classic West Virginia Fund during the year ended September
30, 1995.
- --------------------------------------------------------------------------------
(7) INVESTMENT TRANSACTIONS
Increases and decreases in each Fund's
investment in its corresponding
Portfolio for the year ended September
30, 1995 were as follows:
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Increases $ 873,828 $ 989,913 $ 998,839 $ 827,116
Decreases 1,235,100 4,428,717 2,169,128 1,502,599
</TABLE>
<TABLE>
<CAPTION>
CLASSIC CLASSIC CLASSIC CLASSIC
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Increases $2,820,843 $ 524,994 $ 416,499 $ 80,818
Decreases 2,520,062 703,777 1,636,556 1,086,744
</TABLE>
- --------------------------------------------------------------------------------
(8) CHANGE IN FISCAL YEAR
The Classic California Fund changed its fiscal year end from March 31, to
September 30, effective September 30, 1994.
26
<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 California Municipals Fund, EV Classic Florida Tax Free Fund, EV Classic
Massachusetts Tax Free Fund, EV Classic Mississippi Tax Free Fund, EV Classic
New York Tax Free Fund, EV Classic Ohio Tax Free Fund, EV Classic Rhode Island
Tax Free Fund and EV Classic West Virginia Tax Free Fund (the Funds) (certain of
the series constituting Eaton Vance Municipals Trust) as of September 30, 1995,
the related statements of operations for the year then ended, and the statements
of changes in net assets and the financial highlights for each of the years in
the two-year period ended September 30, 1995 and for the EV Classic California
Municipals Fund for the period from the start of business, December 3, 1993 to
March 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 September 30,
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
OCTOBER 27, 1995
27
<PAGE>
-------
California Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 3.4%
NR BBB- $ 2,985 Central Valley Financing
Authority, Carson Ice-Gen
Project, 6.20%, 7/1/20 $ 2,914,584
NR BBB- 10,900 Sacramento Cogeneration
Authority, Procter &
Gamble Project, 6.50%,
7/1/21 10,987,636
-------------
$ 13,902,220
-------------
ESCROWED TO MATURITY - 16.2%
NR NR $ 130 City of Commerce Joint
Powers Financing
Authority, 8.00%, 3/1/22 $ 153,456
NR BBB 2,000 City of Rancho Mirage
Joint Powers Financing
Authority, Civic Center,
7.50%, 4/1/17 2,320,380
Aaa AAA 8,000 County of Sacramento,
SFMRB (GNMA), (AMT),
8.125%, 7/1/16 (2) 9,771,840
Aaa AAA 6,000 County of Sacramento,
SFMRB (GNMA), (AMT),
8.25%, 1/1/21 (2) 7,790,400
Aaa AAA 14,285 County of Sacramento,
SFMRB (GNMA), (AMT),
8.50%, 11/1/16 (2) 18,319,941
Aaa AAA 3,000 City and County of San
Francisco Sewer System
Secondary "RITES,"
(AMBAC), Variable, 10/1/21
(1) 3,604,680
Baa1 A- 2,375 City of San Luis Obispo,
Capital Improvement Board,
8.25%, 6/1/06 2,489,523
NR BBB 1,575 Fontana Public Financing
Authority, North Fontana
Redevelopment Project,
7.75%, 12/1/20 1,871,462
Aaa AAA 6,400 Port of Oakland, (BIGI),
0%, 11/1/05 3,784,960
NR NR 3,200 Oceanside California
Community Development
Commission, 8.40%, 6/1/18 3,357,408
NR NR 3,000 Poway Redevelopment
Agency, Paguay
Redevelopment Project,
7.75%, 12/15/21 3,567,420
NR BBB+ 1,000 City of Upland, Police
Building Construction,
8.20%, 8/1/16 1,054,870
NR NR 4,000 Huntington Beach Public
Financing Authority,
Huntington Beach
Redevelopment Projects,
8.375%, 5/1/18 4,472,080
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 2,975 Sacramento - Yolo Port
District Port Facilities,
8.30%, 12/1/03 3,286,125
-------------
$ 65,844,545
-------------
GENERAL OBLIGATIONS - 1.9%
Baa1 A $ 3,000 Puerto Rico, 6.50%, 7/1/23 $ 3,131,640
AA Aa 5,000 East Bay Municipal
Utilities District,
Wastewater System, 5.00%,
4/1/15 4,435,100
-------------
$ 7,566,740
-------------
HOSPITALS - 1.1%
NR BBB+ $ 2,700 City of Stockton, Dameron
Hospital Association,
8.30%, 12/1/14 $ 2,854,818
NR A 1,500 Woodland, Memorial
Hospital, 8.20%, 8/1/15 1,610,175
-------------
$ 4,464,993
-------------
HOUSING - 8.6%
Aa AA- $ 3,770 California Housing Finance
Agency (HFA), (AMT),
7.375%, 8/1/11 $ 3,923,288
Aa AA- 800 California HFA, 7.375%,
8/1/17 855,792
Aa AA- 5,000 California HFA, (AMT),
7.40%, 8/1/26 5,381,050
Aa AA- 3,875 California HFA, (AMT),
(FHA) 7.50%, 8/1/25 4,150,513
Aa AA- 8,185 California HFA, (AMT),
(FHA) 7.65%, 8/1/23 8,549,724
Aa AA- 2,500 California HFA, 8.10%,
8/1/16 2,571,800
Aa AA- 2,500 California HFA, 8.20%,
8/1/17 2,596,875
Aa AA- 1,325 California HFA, (AMT),
8.60%, 8/1/19 1,394,165
Aa3 NR 60 California HFA, 9.875%,
8/1/10 61,343
A NR 845 The Housing Authority of
the County of Los Angeles,
7.875%, 8/1/16 874,541
NR NR 2,000 The Housing Authority of
the County of Los Angeles,
10.50%, 12/1/29 2,061,700
NR A+ 2,050 City of Oakland, HFA,
7.10%, 1/1/10 2,086,716
NR AAA 495 County of Riverside,
California HFA (GNMA),
(AMT), 6.85%, 10/1/16 526,452
-------------
$ 35,033,959
-------------
</TABLE>
28
<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 - 1.0%
Aaa AAA $ 3,330 Regents of the University
of California, (MBIA),
4.75%, 9/1/21 $ 2,770,826
Aaa AAA 1,500 Regents of the University
of California, (AMBAC),
4.875%, 9/1/19 1,280,340
-------------
$ 4,051,166
-------------
INSURED GENERAL OBLIGATION - 0.3%
Aaa AAA $ 4,700 Roseville Unified High
School District, (FGIC),
0%, 6/1/20 $ 1,032,919
-------------
INSURED HOUSING - 0.2%
Aaa AAA $ 720 California HFA, (MBIA),
(AMT), 7.00%, 8/1/23 $ 752,177
-------------
INSURED HOSPITALS - 1.1%
Aaa AAA $ 5,250 Anaheim Memorial Hospital,
(AMBAC), 5.125%, 5/15/20 $ 4,547,813
-------------
INSURED LEASE
REVENUE/CERTIFICATE OF
PARTICIPATION - 4.3%
Aaa AAA $ 3,300 California Statewide
Communities Development
Authority, Motion Picture
and Television Fund,
(AMBAC), 5.68%, 1/1/24 $ 3,052,401
Aaa AAA 7,700 Moulton Niguel Water
District, (AMBAC), 4.80%,
9/1/17 6,548,003
Aaa AAA 4,350 Stockton, California
Wastewater Treatment
Plant, (FGIC), 6.80%,
9/1/24 4,701,350
Aaa AAA 13,985 Visalia Unified School
District, (MBIA), 0%,
12/1/17 3,206,201
-------------
$ 17,507,955
-------------
INSURED TAX
ALLOCATION - 1.0%
Aaa AAA $ 4,850 City of San Jose
Redevelopment Agency,
(MBIA), 4.75%, 8/1/24 $ 4,000,086
-------------
INSURED TRANSPORTATION - 3.1%
Aaa AAA $10,000 Port of Oakland, (AMT),
(BIGI), 0%, 11/1/19 $ 1,734,500
Aaa AAA 10,000 Airports Commission City
and County of San
Francisco, San Francisco
International Airport,
(MBIA), 6.75%, 5/1/13 10,807,200
-------------
$ 12,541,700
-------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED UTILITIES - 8.8%
Aaa AAA $ 5,700 Anaheim Public Financing
Authority, Anaheim
Electric Utility, (FGIC),
5.75%, 10/1/22 $ 5,444,754
Aaa AAA 8,000 Northern California Power
Agency "RIBS," (MBIA),
Variable, 9/2/25 (1) 8,640,960
Aaa AAA 3,500 Sacramento Municipal
Utilities District,
(MBIA), 6.375%, 8/15/22 3,627,820
Aaa AAA 4,000 Southern California Public
Power Authority, (FGIC),
Variable, 7/1/12 4,000,000
Aaa AAA 6,915 Southern California Public
Power Authority, (MBIA),
5.00%, 1/1/20 6,044,747
Aaa AAA 2,750 Southern California Public
Power Authority, (MBIA),
5.50%, 7/1/20 2,576,970
Aaa AAA 5,750 Southern California Public
Power Authority, (MBIA),
5.75%, 7/1/21 5,569,393
-------------
$ 35,904,644
-------------
INSURED WATER & SEWER - 2.7%
Aaa AAA $ 5,000 East Bay Municipal Utility
District "Yield Curve
Notes," (MBIA), Variable,
6/1/08 (1) $ 4,799,800
Aaa AAA 3,430 San Buenaventura Water
District, (AMBAC), 4.75%,
10/1/13 2,965,441
Aaa AAA 3,000 San Diego County Water
Authority, "RITES,"
(FGIC), Variable, 4/22/09
(1) 3,074,790
-------------
$ 10,840,031
-------------
LEASE REVENUE/CERTIFICATES
OF PARTICIPATION - 22.6%
A1 AA- $ 2,945 City of Beverly Hills,
6.75%, 6/1/19 $ 3,026,606
A1 A- 3,140 California State Public
Works Board, Various
Community College
Projects, 5.00%, 6/1/23 2,879,694
A1 A- 7,485 California State Public
Works Board, Various
University of California
Projects, 5.625%, 12/1/18 6,209,107
A1 A- 3,000 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/10 2,866,080
</TABLE>
29
<PAGE>
-------
CALIFORNIA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
LEASE REVENUE/CERTIFICATES
OF PARTICIPATION - (CONTINUED)
A1 A- 8,000 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/14 7,376,800
A A- 2,800 California State Public
Works
Board, California State Prison -
Susanville, 5.375%, 6/1/12 2,586,500
A A- 3,500 California State Public
Works
Board, California State Prison -
Susanville, 5.375%, 6/1/18 3,107,965
A1 A- 5,000 California State Public
Works Board, Various
University of California
Projects, 5.25%, 6/1/20 4,369,250
A1 A- 14,025 California State Public
Works Board, Various
University of California
Projects, 5.50%, 6/1/19 12,717,029
NR A 4,150 California Statewide
Community Development
Authority, Eskaton Health
Facilities, 5.875%, 5/1/20 3,862,322
A BBB 2,750 City of Inglewood,
California, Civic Center
Improvement Project,
7.00%, 8/1/19 2,841,438
A A- 5,115 County of Los Angeles,
Disney Parking Project,
0%, 3/1/16 1,217,114
A A- 1,925 County of Los Angeles,
Disney Parking Project,
0%, 3/1/17 426,927
A A- 5,370 County of Los Angeles,
Disney Parking Project,
0%, 3/1/18 1,110,086
A A- 3,100 County of Los Angeles,
Disney Parking Project,
0%, 3/1/20 550,188
A A- 5,000 County of Los Angeles,
Disney Parking Project,
0%, 9/1/17 1,070,600
A A- 1,000 County of Los Angeles,
Disney Parking Project,
6.50%, 3/1/23 992,330
NR NR 14,000 County of Los Angeles,
Capital Asset Leasing
Corporation, Marina del
Rey, 6.50%, 7/1/08 13,725,460
Aa AA 4,305 County of Orange Water
District, 5.00%, 8/15/18 3,668,376
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
A1 A+ 4,000 Pasadena Parking Facility
Project, 6.25%, 1/1/18 4,111,480
NR A- 2,360 Richmond Joint Powers
Financing Authority,
7.00%, 5/15/07 2,532,091
Aa A+ 4,000 City of Sacramento
Financing Authority,
5.40%, 11/1/20 3,666,440
Aa NR 6,000 University of California
at Los Angeles
Chiller/Cogeneration
Project, 5.60%, 11/1/20 5,537,460
NR BBB 1,000 Watsonville Mammoth Lakes,
7.875%, 6/1/11 1,072,130
-------------
$ 91,523,473
-------------
NURSING HOMES - 0.8%
NR NR $ 3,250 Banning, San Georgonio
Pass Convalescent
Hospital, (AMT), 9.50%,
12/1/11 $ 3,381,365
-------------
SOLID WASTE - 0.6%
Baa1 NR $ 2,350 Mojave Desert and Mountain
Solid Waste Joint Powers
Authority, (AMT), 7.875%,
6/1/20 $ 2,569,396
-------------
SPECIAL TAX - 4.9%
NR NR $ 2,100 City of Fairfield, Green
Valley Road - Mangels
Boulevard Extension
Assessment District,
7.375%, 9/2/18 $ 2,147,880
NR NR 970 City of Fairfield, Green
Valley Road - Mangels
Boulevard Extension
Assessment District,
8.00%, 9/2/11 999,876
NR NR 3,000 Lincoln Unified School
District, 7.625%, 9/1/21 3,128,730
Baa NR 10,800 Pleasanton Joint Powers
Financing Authority,
6.15%, 9/2/12 10,654,200
NR NR 3,000 County of Riverside
Community Facilities
District, 7.55%, 9/1/17 3,053,790
-------------
$ 19,984,476
-------------
TAX ALLOCATION - 9.0%
NR NR $ 2,945 City of Commerce Joint
Powers Financing
Authority, 8.00%, 3/1/22 $ 3,110,951
NR BBB 5,000 County of Contra Costa
Public Financing
Authority, 7.10%, 8/1/22 5,134,300
</TABLE>
30
<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>
TAX ALLOCATION - (CONTINUED)
NR BBB 3,910 Fontana Public Financing
Authority, Downtown
Redevelopment Project
7.00%, 9/1/21 3,952,111
NR BBB 8,220 Fontana Redevelopment
Agency, Jurupa Hills
Redevelopment Project
Area, 7.00%, 10/1/14 8,351,191
NR BBB 2,500 City of Pittsburg
Redevelopment Agency,
7.40%, 8/15/20 2,614,900
NR BBB 600 City of Rancho Mirage
Joint Powers Financing
Authority, 7.50%, 4/1/17 632,592
NR BBB 2,500 County of Riverside
Redevelopment Agency,
7.50%, 10/1/26 2,619,025
NR BBB 5,605 San Carlos Redevelopment
Agency, 7.10%, 9/1/17 5,777,185
NR NR 1,400 City of Simi Valley
Community Development
Agency, 8.20%, 9/1/12 1,419,852
Baa1 BBB+ 3,000 Westminster Redevelopment
Agency, 7.30%, 8/1/21 3,107,820
-------------
$ 36,719,927
-------------
TRANSPORTATION - 5.8%
NR BBB $ 3,050 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 3,056,558
Aa AA- 2,000 City of Long Beach Harbor
Revenue Bonds, (AMT),
7.25%, 5/15/19 2,154,720
A1 A- 1,400 County of Orange,
California Airport Revenue
Bonds, 8.125%, 7/1/16 1,449,294
NR NR 12,000 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/14 3,481,440
NR NR 5,765 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/26 721,778
NR NR 35,975 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
0%, 1/1/27 4,205,117
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 4,940 San Joaquin Hills
Transportation Corridor
Agency, Toll Road Revenue
Bonds, (Fitch: rated BBB),
7.00%, 1/1/30 5,074,368
Baa1 BBB 1,500 Stockton Port District,
7.95%, 1/1/05 1,598,940
Baa1 BBB 1,500 Stockton Port District,
8.10%, 1/1/14 1,611,510
-------------
$ 23,353,725
-------------
UTILITIES - 1.7%
Aa AA- $ 7,070 Southern California Public
Power Authority, 0%,
7/1/15 $ 2,109,829
Aa AA- 3,425 Southern California Public
Power Authority, 5.50%,
7/1/20 3,176,277
Aa AA 1,490 Southern California Public
Power Authority, 6.875%,
7/1/15 1,530,170
-------------
$ 6,816,276
-------------
WATER AND SEWER - 0.9%
NR BBB $ 3,190 Orange Cove Irrigation
District, 6.625%, 2/1/17 $ 3,232,904
Aa AA- 515 City of Pasadena, Water
Revenue Bonds, 5.00%,
7/1/18 449,760
-------------
$ 3,682,664
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $381,719,158) $ 406,022,251
=============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by California
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 September 30, 1995, 35.2% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution range from 0.1% to 13.0% of total investments.
See notes to financial statements
31
<PAGE>
-------
Florida Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
COGENERATION - 3.5%
Baa3 BBB- $ 7,275 Martin County, Indian Town
Project, (AMT), 7.875%,
12/15/25 $ 7,985,840
NR NR 4,000 Palm Beach County,
Okeelanta Power L.P.
Project (AMT), 6.85%,
2/15/21 3,942,760
NR NR 9,250 Palm Beach County, Osceola
Power L.P. Project (AMT),
6.95%, 1/1/22 9,226,413
NR NR 3,100 Palm Beach County, Osceola
Power L.P. Project (AMT),
6.85%, 1/1/14 3,077,246
-------------
$ 24,232,259
-------------
EDUCATION - 0.8%
NR AAA $ 5,500 Volusia County Educational
Facilities, Embry-Riddle
Aeronautical University
Project (CLEE), 6.625%,
10/15/22 $ 5,863,055
-------------
ESCROWED - 3.8%
NR A+ $ 2,100 Charlotte County, St.
Joseph's Hospital, 8.25%,
8/15/18 $ 2,359,497
Aaa AAA 9,225 Dade County, Baptist
Hospital of Miami Project,
5.75%, 5/1/21 9,163,377
Aaa AAA 5,000 Florida Municipal Power
Agency Stanton II Project
(AMBAC), Variable, 10/1/20
(1) 6,306,250
Aaa AAA 1,185 Jacksonville
Transportation Authority,
7.375%, 7/1/20 1,353,554
NR NR 1,675 Mid-Bay Bridge Authority,
6.875%, 10/1/22 1,881,879
Aaa AAA 2,000 Orlando & Orange County
Expressway Authority
(FGIC), 8.25%, 7/1/14 2,585,120
NR AAA 2,355 Pinellas County Health
Facilities Finance
Authority, Sun Coast
Health System, Series A,
8.50%, 3/1/20 2,773,695
-------------
$ 26,423,372
-------------
GENERAL OBLIGATIONS - 7.5%
Aa AA $ 1,000 Florida Board of
Education, 6.75%, 6/1/09 $ 1,113,690
Aa AA 16,100 Florida Board of
Education, 6.70%, 6/1/22 17,056,823
Aa AA 1,500 Florida Board of
Education, 5.20%, 6/1/23 1,351,890
Aa AA 8,000 Florida Board of General
Services, 6.60%, 7/1/17 8,454,960
NR BBB 4,675 Guam Government, 5.40%,
11/15/18 4,068,840
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
A A 7,255 Hillsborough County,
Museum of Science &
Industry, 6.45%, 1/1/22 7,410,692
Baa1 A 2,000 Puerto Rico, 6.50%, 7/1/23 2,087,760
Baa1 A 3,235 Puerto Rico Public
Building Authority, 5.50%,
7/1/21 2,988,137
Baa1 A 7,350 Puerto Rico Public
Building Authority, 5.70%,
7/1/09 7,335,374
-------------
$ 51,868,165
-------------
HEALTH CARE - 7.4%
NR AAA $ 5,075 Dade County Industrial
Development Authority,
Gramercy Park Nursing Care
Center, 6.60%, 8/1/23 $ 5,298,351
NR AAA 4,285 Dade County Industrial
Development Authority,
Florida Club Care Center
(GNMA), 6.60%, 1/20/18 4,333,849
NR BBB+ 3,600 Escambia County Health
Facilities Authority,
Baptist Hospital, Inc. and
The Baptist Manor, Inc.,
6.75%, 10/1/14 3,686,580
NR BBB+ 8,995 Escambia County Health
Facilities Authority,
Baptist Hospital, Inc.,
6.00%, 10/1/14 8,564,769
Baa1 NR 3,750 Jacksonville Health
Facilities Authority,
National Benevolent
Association, Cypress
Village Florida Project,
7.00%, 12/1/22 3,805,125
A NR 14,000 City of Venice Health
Facilities, 6.00%, 12/1/14 15,304,100
A NR 9,810 City of Venice Health
Facilities, 5.75%, 12/1/24 10,544,573
-------------
$ 51,537,347
-------------
HOSPITAL REVENUE - 1.4%
NR AA+ $ 4,750 Jacksonville Health
Facilities Finance
Authority, St. Luke's
Hospital Association
Project, 6.75%, 11/15/13 $ 5,070,008
A BBB+ 5,000 St. John's County
Industrial Development
Authority, Flagler
Hospital Project, 6.00%,
8/1/22 4,794,000
-------------
$ 9,864,008
-------------
HOUSING - 10.6%
NR AAA $ 630 Broward County HFA SFMR
(GNMA), (AMT), 7.35%,
3/1/23 $ 654,665
NR AAA 1,300 Clay County HFA MFMR
(GNMA), 7.40%, 12/1/25 1,382,043
</TABLE>
32
<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)
Aaa NR 2,750 Clay County HFA SFMR
(GNMA), (AMT), 6.55%,
3/1/28 2,785,035
Aaa NR 290 Dade County HFA SFMR
(GNMA), 7.10%, 3/1/17 304,068
Aaa NR 1,220 Dade County HFA SFMR
(GNMA), (AMT), 7.75%,
9/1/22 1,284,306
Aaa NR 1,160 Dade County HFA SFMR
(GNMA), (AMT), 7.25%,
9/1/23 1,209,718
Aaa NR 75 Dade County HFA SFMR
(GNMA), 7.00%, 3/1/24 77,795
NR AAA 5,100 Dade County HFA SFMR
(GNMA), (AMT), 6.55%,
10/1/27 5,149,113
NR AAA 5,850 Dade County HFA SFMR
(GNMA), (AMT), 6.70%,
4/1/28 6,019,943
Aaa NR 2,540 Escambia County HFA SFMR
(GNMA), (AMT), 7.40%,
10/1/23 2,646,401
Aaa NR 7,500 Escambia County HFA SFMR
(GNMA), (AMT), 6.85%,
10/1/17 7,655,325
Aaa NR 5,000 Escambia County HFA SFMR
(GNMA), (AMT), 6.90%,
10/1/21 5,143,800
Aaa NR 6,250 Escambia County HFA SFMR
(GNMA), (AMT), 6.95%,
10/1/27 6,444,500
NR AAA 1,125 Florida HFA (FHA), 6.35%,
6/1/14 1,142,719
Aaa NR 960 Hillsborough County HFA
SFMR (GNMA), (AMT),
7.875%, 5/1/23 1,025,040
NR NR 3,475 City of North Miami Health
Care Facilities, The
Imperial Club Project,
9.25%, 1/1/13 3,712,065
NR AAA 1,695 Orange County HFA SFMR
(GNMA), (AMT), 7.375%,
9/1/24 1,788,632
Aaa NR 12,000 Orange County HFA SFMR
(GNMA), (AMT), 6.85%,
10/1/27 (3) 12,421,440
NR AAA 8,000 Orange County HFA SFMR
(GNMA), (AMT), 6.60%,
4/1/28 8,057,520
Aaa NR 845 Palm Beach County HFA SFMR
(GNMA), 7.60%, 3/1/23 891,551
Aaa NR 1,455 Polk County HFA SFMR
(GNMA), 7.15%, 9/1/23 1,520,199
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Baa BBB 1,400 Puerto Rico Urban Renewal
& Housing Corp, 7.875%,
10/1/04 1,582,770
Aaa AAA 860 Puerto Rico Housing
Finance Corp SFMR (GNMA),
7.65%, 10/15/22 910,602
-------------
$ 73,809,250
-------------
INDUSTRIAL DEVELOPMENT
/POLLUTION CONTROL REVENUE
-2.3%
B1 BB+ $15,200 Polk County Industrial
Development Authority
(AMT), 7.525%, 1/1/15 $ 15,952,552
-------------
INSURED HEALTH CARE - 0.4%
Aaa AAA $ 500 Alachua County Health
Facility, Mental Health
Services Project (CGIC),
7.75%, 7/1/10 $ 565,260
Aaa AAA 2,050 Hillsborough County IDA,
Allegany Health Systems,
J. Knox Village (MBIA),
5.75%, 12/1/21 2,022,510
-------------
$ 2,587,770
-------------
INSURED HOSPITALS - 5.7%
Aaa AAA $ 8,000 Charlotte County Health
Care, Bon-Secours Health
System Project (FSA),
Variable, 8/30/27 (1) $ 8,026,880
Aaa AAA 23,355 Jacksonville FL Health
Authority, Daughters of
Charity (MBIA), 5.00%,
11/15/15 20,846,439
Aaa AAA 2,000 Lee County, Memorial
Hospital (MBIA), Variable,
4/1/20 (1) 2,161,080
Aaa AAA 5,290 Orange County Health
Facilities Finance
Authority, (FGIC), 7.875%,
12/1/25 5,614,753
Aaa AAA 3,000 Orange County Health
Facilities Authority
(MBIA), Variable, 10/29/21
(1) 3,199,950
-------------
$ 39,849,102
-------------
INSURED HOUSING - 2.3%
Aaa AAA $ 1,430 Brevard County HFA SFMR
(FSA), 7.00%, 3/1/13 $ 1,493,292
Aaa AAA 1,720 Duval County HFA SFMR
(FGIC), 7.35%, 7/1/24 1,811,900
Aaa AAA 6,530 FL HEFA, Maitland Club
Apartment Project (AMBAC)
(AMT), 6.875%, 8/1/26 6,776,377
</TABLE>
33
<PAGE>
-------
FLORIDA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOUSING -
(CONTINUED)
Aaa AAA 3,000 FL HFA, Brittany of
Rosemont Project (AMBAC)
(AMT), 6.875%, 8/1/26 3,113,190
Aaa AAA 2,675 Lee County SCA MFMR (FSA)
(AMT), 7.05%, 1/1/30 2,773,387
-------------
$ 15,968,146
-------------
INSURED INDUSTRIAL
DEVELOPMENT/POLLUTION
CONTROL REVENUE - 1.2%
Aaa AAA $ 8,200 Citrus County PCR (MBIA),
6.35%, 2/1/22 $ 8,558,996
-------------
INSURED MISCELLANEOUS - 0.4%
Aaa AAA $ 2,000 Escambia County (MBIA),
7.20%, 1/1/15 $ 2,150,300
Aaa AAA 799 Osceola County IDA
Community Provider Pooled
Loan Program, (CGIC),
7.75%, 7/1/10 854,251
-------------
$ 3,004,551
-------------
INSURED SOLID WASTE - 0.3%
Aaa AAA $ 1,500 St. John's County Solid
Waste Disposal (FGIC),
7.25%, 11/1/10 $ 1,685,850
-------------
INSURED SPECIAL TAX
REVENUE - 7.9%
Aaa AAA $ 5,630 FL Department of
Environmental Protection
(AMBAC), 4.75%, 7/1/06 $ 5,527,421
Aaa AAA 14,250 FL Department of
Environmental Protection
(MBIA), 4.75%, 7/1/09 13,318,905
Aaa AAA 9,675 FL Department of
Environmental Protection
(MBIA), 4.75%, 7/1/10 8,920,157
Aaa AAA 3,000 City of Jacksonville-River
City Renaissance Project
(FGIC), 5.375%, 10/1/18 2,799,570
Aaa AAA 1,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/10 426,230
Aaa AAA 1,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/11 396,450
Aaa AAA 2,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/12 739,720
Aaa AAA 2,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/13 691,600
Aaa AAA 2,000 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/14 645,980
Aaa AAA 1,500 City of Jacksonville
(FGIC) (AMT), 0%, 10/1/15 452,085
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 1,185 City of Opa-Locka (FGIC),
7.00%, 1/1/14 1,327,449
Aaa AAA 2,500 Puerto Rico Highway &
Transportation Authority
(FSA), 5.50%, 7/1/17 2,389,900
Aaa AAA 7,650 Puerto Rico Highway &
Transportation Authority
(FSA), 5.25%, 7/1/21 7,032,951
Aaa AAA 5,000 St. Petersburg Excise Tax
(FGIC), 5.00%, 10/1/16 4,517,950
Aaa AAA 2,000 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/10 871,300
Aaa AAA 1,760 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/12 667,286
Aaa AAA 2,840 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/14 943,022
Aaa AAA 4,000 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/15 1,241,200
Aaa AAA 4,140 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/16 1,211,571
Aaa AAA 2,525 Sunrise Florida Public
Facilities (MBIA), 0%,
10/1/17 696,925
-------------
$ 54,817,672
-------------
INSURED TRANSPORTATION - 7.0%
Aaa AAA $ 4,000 Dade County Aviation
Facilities (MBIA) (AMT),
6.55%, 10/1/13 $ 4,219,320
Aaa AAA 8,455 FL State Turnpike
Authority (FGIC), 6.35%,
7/1/22 8,788,803
Aaa AAA 3,000 FL State Turnpike
Authority (FGIC), 5.00%,
7/1/19 2,667,660
Aaa AAA 8,600 Greater Orlando Aviation
Authority, Orlando Airport
Facilities (FGIC), (AMT),
6.375%, 10/1/21 8,869,696
Aaa AAA 14,000 Orlando & Orange County
Expressway Authority
(FGIC), Variable, 7/1/04
(1) 14,218,120
Aaa AAA 10,920 Orlando & Orange County
Expressway Authority
(FGIC), 5.125%, 7/1/20 9,798,734
-------------
$ 48,562,333
-------------
INSURED UTILITIES - 8.5%
Aaa AAA $41,465 FL Municipal Power Agency
Stanton II Project
(AMBAC), 4.50%, 10/1/27
(3) $ 33,007,384
Aaa AAA 7,770 FL Municipal Power Agency
Stanton II Project
(AMBAC), 4.50%, 10/1/16 6,511,338
Aaa AAA 8,000 FL Municipal Power Agency
Stanton II Project
(AMBAC), 5.10%, 10/1/25 7,064,080
Aaa AAA 4,000 Lakeland Electric & Water
(FGIC), 6.00%, 10/1/13 (2) 4,026,280
</TABLE>
34
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED UTILITIES - (CONTINUED)
Aaa AAA 1,540 Manatee County Public
Utility (FGIC), 0%,
10/1/12 580,980
Aaa AAA 1,750 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/02 (1) 1,939,315
Aaa AAA 2,200 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/03 (1) 2,462,284
Aaa AAA 3,500 Vero Beach Electric
(MBIA), 5.375%, 12/1/21 3,265,115
-------------
$ 58,856,776
-------------
INSURED WATER & SEWER - 5.4%
Aaa AAA $11,450 Broward County Water &
Sewer (AMBAC), 5.125%,
10/1/15 $ 10,529,535
Aaa AAA 9,500 Dade County Water and
Sewer System (FGIC),
5.00%, 10/1/13 8,717,580
Aaa AAA 2,000 City of Fort Myers Utility
(FGIC), 5.00%, 10/1/16 1,800,460
Aaa AAA 6,900 Palm Bay Utility Corp
Project (MBIA), 5.00%,
10/1/22 6,024,597
Aaa AAA 4,000 Sanford Water and Sewer
(AMBAC), 4.50%, 10/1/21 3,255,640
Aaa AAA 1,700 St. John's County Water &
Sewer (MBIA), 0%, 6/1/16 507,314
Aaa AAA 3,550 St. John's County Water &
Sewer (MBIA), 0%, 6/1/17 999,148
Aaa AAA 5,600 St. Lucie County Utility
System (FGIC), 6.00%,
10/1/20 5,672,632
-------------
$ 37,506,906
-------------
LIFE CARE - 1.0%
NR NR $ 6,895 Atlantic Beach, Fleet
Landing Project, 8.00%,
10/1/24 $ 7,208,860
-------------
LEASE/CERTIFICATES OF
PARTICIPATION - 0.4%
A1 A+ $ 2,280 Florida State Department
of General Services,
7.00%, 9/1/20 $ 2,465,273
-------------
NURSING HOMES - 1.1%
NR NR $ 300 Broward County Industrial
Development Authority,
Beverly Enterprises -
Florida, Inc. Project,
9.80%, 11/1/10 $ 335,520
NR NR 475 Charlotte County
Industrial Development
Authority, Beverly
Enterprises, 10.00%,
6/1/11 542,279
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 4,000 Citrus County Industrial
Development Authority,
Beverly Enterprises,
7.25%, 4/1/03 4,012,040
NR NR 700 Highlands County
Industrial Development
Authority, Beverly
Enterprises - Florida,
Inc. Project, 9.25%,
7/1/07 775,817
NR NR 410 Okaloosa County, Beverly
Enterprises, 10.75%,
10/1/03 448,200
NR NR 700 Orange County Industrial
Development Authority,
Beverly Enterprises,
9.25%, 8/1/10 776,475
NR NR 1,000 Winter Garden, Beverly
Enterprises, 8.75%, 7/1/12 1,092,750
-------------
$ 7,983,081
-------------
SOLID WASTE - 0.6%
A A $ 3,870 Broward County Waste
Energy Company, L.P. North
Project, 7.95%, 12/1/08 $ 4,296,590
-------------
SPECIAL TAX REVENUE - 6.2%
A1 A+ $10,620 Orange County, 5.375%,
1/1/24 $ 9,654,111
A1 NR 3,000 City of Orlando, 6.00%,
10/1/22 2,941,050
Baa1 A 7,410 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/19 6,908,047
Baa1 A 6,310 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/20 5,636,281
Baa1 A 10,135 Puerto Rico Highway &
Transportation Authority,
5.00%, 7/1/22 8,684,682
Baa1 A 10,560 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/21 9,413,290
-------------
$ 43,237,461
-------------
TRANSPORTATION - 1.4%
NR NR $10,140 Mid-Bay Bridge Authority,
6.125%, 10/1/22 $ 9,634,318
-------------
UTILITIES - 12.5%
NR BBB $32,325 Guam Power Authority,
5.25%, 10/1/23 $ 27,848,634
Aa1 AA 42,005 Jacksonville Electric
Authority, Bulk Power
Supply System, Scherer 4
Project, 5.25%, 10/1/21
(3) 38,294,278
Aa1 AA 2,850 Orlando Utilities
Commission Water and
Electric, 5.125%, 10/1/19 2,554,940
</TABLE>
35
<PAGE>
-------
FLORIDA TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES - (CONTINUED)
Aa AA 1,750 Orlando Utilities
Commission Water and
Electric, 5.25%, 10/1/23 1,588,400
Baa1 A- 185 Puerto Rico Electric Power
Authority, 7.125%, 7/1/14 201,743
Baa1 A- 10,000 Puerto Rico Electric Power
Authority, 7.00%, 7/1/21 11,379,200
A2 A+ 2,515 St. Lucie County Solid
Waste Disposal, Florida
Power & Light Company
(AMT), 6.70%, 5/1/27 2,631,520
NR NR 2,000 Virgin Islands Water &
Power Authority, 7.40%,
7/1/11 2,100,420
-------------
$ 86,599,134
-------------
WATER & SEWER - 0.4%
Baa1 BBB+ $ 2,500 Hillsborough County
Utility, 6.625%, 8/1/11 $ 2,637,625
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $661,202,447) $ 695,010,453
=============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) When-issued security.
(3) Security has been segregated to cover open when-issued securities.
The Portfolio invests primarily in debt securities issued by Florida
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 September 30, 1995, 50.8% of the securities in the portfolio of
investments are backed by bond insurance of various financial guaranty assurance
agencies. The aggregate percentage by financial institution ranges from 0.2% to
12.8% of total investments.
See notes to financial statements
36
<PAGE>
-------
Massachusetts Tax Free Portfolio
Portfolio of Investments - September 30, 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 - 9.8%
Aa1 AA+ $ 1,625 Massachusetts Health and
Educational Facilities
Authority, (HEFA) Amherst
College, 6.80%, 11/1/21 $ 1,740,440
A1 A+ 250 Massachusetts HEFA, Tufts
University, 7.75%, 8/1/13 271,052
NR BBB- 3,700 Massachusetts HEFA,
Merrimack College, 7.125%,
7/1/12 3,882,003
NR AAA 2,900 Massachusetts HEFA,
Wentworth Institute,
(Connie Lee), 5.50%,
10/1/23 2,675,047
NR BBB- 6,855 Massachusetts HEFA, Smith
College, 5.75%, 7/1/24 6,694,182
Aaa AAA 5,180 Massachusetts HEFA,
Harvard University,
5.625%, 11/1/28 5,114,577
Aa1 AA 4,690 Massachusetts Industrial
Finance Agency, Phillips
Academy, 5.375%, 9/1/23 4,385,056
A1 NR 2,000 The New England Education
Loan Marketing
Corporation, (AMT), 6.90%,
11/1/09 2,157,440
NR BBB- 1,300 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Control Authority,
Polytechnic University,
5.50%, 8/1/24 1,128,491
NR BBB- 1,000 Puerto Rico Industrial,
Tourist, Educational,
Medical and Environmental
Control Authority,
Polytechnic University,
6.50%, 8/1/24 990,870
-------------
$ 29,039,158
-------------
GENERAL OBLIGATIONS -13.7%
Baa1 NR $ 1,000 City of Lowell, 6.375%,
8/15/01 $ 1,067,490
A1 A+ 3,900 Commonwealth of
Massachusetts, 5.00%,
1/1/12 3,609,060
A1 A+ 875 Commonwealth of
Massachusetts, 5.00%,
1/1/14 795,839
A1 A+ 4,750 Massachusetts Bay
Transportation Authority
(MBTA), 5.50%, 3/1/21 4,525,135
A1 A+ 2,500 MBTA, 5.75%, 3/1/18 2,465,775
A1 A+ 14,000 MBTA, 5.75%, 3/1/25 13,593,440
A1 A+ 1,000 MBTA, 5.90%, 3/1/12 1,014,690
NR BBB 1,175 Government of Guam, 5.40%,
11/15/18 1,022,650
A NR 3,375 Town of Nantucket, 6.80%,
12/1/11 3,634,875
Baa1 A 100 Puerto Rico Public
Buildings Authority,
5.50%, 7/1/21 92,369
Baa1 A 1,900 Puerto Rico Aqueduct and
Sewer Authority, 7.00%,
7/1/19 2,037,313
<CAPTION>
RATINGS (UNAUDITED)
- -------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A A 2,500 University of
Massachusetts Building
Authority, 6.875%, 5/1/14 2,839,950
A A 250 University of
Massachusetts Building
Authority, 7.20%, 5/1/04 287,396
NR NR 3,350 Virgin Islands Public
Finance Authority, 7.25%,
10/1/18 3,528,321
-------------
$ 40,514,303
-------------
HOSPITALS - 8.4%
A A- $ 3,000 Massachusetts HEFA,
Charlton Memorial
Hospital, 7.25%, 7/1/13 $ 3,147,750
A1 A 530 Massachusetts HEFA,
Spaulding Rehabilitation
Hospital, 7.625%, 7/1/21 568,632
Baa1 BBB+ 2,000 Massachusetts HEFA, New
England Baptist Hospital,
7.35%, 7/1/17 2,067,480
Aa NR 3,100 Massachusetts HEFA,
Daughters of Charity
Health System, 6.10%,
7/1/14 3,143,524
A1 A+ 1,000 Massachusetts HEFA, Dana-
Farber Cancer Institute,
6.65%, 12/1/15 1,020,340
A A 4,250 Massachusetts HEFA, The
Medical Center of Central
Massachusetts, 7.10%,
7/1/21 4,394,755
Baa BBB 1,825 Massachusetts HEFA,
Sisters of Providence
Health System, 6.50%,
11/15/08 1,877,870
NR A- 1,470 Massachusetts HEFA, Jordan
Hospital, 6.875%, 10/1/15 1,052,722
NR A- 1,470 Massachusetts HEFA, Jordan
Hospital, 6.875%, 10/1/22 1,507,073
NR AAA 2,625 Massachusetts HEFA,
Winchester Hospital
(Connie Lee), 5.75% 7/1/14 2,557,223
NR AAA 3,650 Massachusetts HEFA,
Winchester Hospital
(Connie Lee), 5.75% 7/1/24 3,486,917
-------------
$ 24,824,286
-------------
HOUSING - 11.4%
NR AAA $ 2,750 Framingham Housing
Authority, (GNMA), 6.65%,
2/20/32 $ 2,783,275
A1 A+ 6,000 Massachusetts Housing
Finance Agency (HFA),
6.375%, 4/1/21 5,973,720
Aa A+ 7,250 Massachusetts HFA, (AMT),
6.60%, 12/1/26 7,328,952
Aa A+ 6,400 Massachusetts HFA, (AMT),
6.60%, 12/1/26 6,469,696
Aaa AAA 1,000 Massachusetts HFA, (FNMA),
6.875%, 11/15/11 1,063,630
</TABLE>
37
<PAGE>
-------
MASSACHUSETTS TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
- -----------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - (CONTINUED)
Aaa AAA 2,750 Massachusetts HFA, (FNMA),
6.90%, 11/15/21 2,882,330
Aa A+ 2,795 Massachusetts HFA, (AMT),
7.125%, 6/1/25 2,908,924
Aa A+ 400 Massachusetts HFA, 7.35%,
12/1/16 425,408
Aa A+ 2,265 Massachusetts HFA, (AMT),
8.10%, 6/1/20 2,369,734
Aa A+ 1,500 Massachusetts HFA, (AMT),
8.10%, 12/1/21 1,576,035
-------------
$ 33,781,704
-------------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL - 7.0%
Baa1 BBB $14,185 City of Boston Harbor
Electric Energy Company
Project, (AMT), 7.30%,
5/15/15 $ 15,178,942
NR NR 9,000 Massachusetts Industrial
Finance Agency,
Massachusetts Biomedical
Research Corporation, 0%,
8/1/19 3,817,800
Aa3 AA 1,550 Puerto Rico Industrial,
Medical and Environmental
Pollution Control
Authority, The Upjohn
Company, 7.50%, 12/1/23 1,697,235
-------------
$ 20,693,977
-------------
INSURED EDUCATION - 2.1%
Aaa AAA $ 335 Massachusetts Educational
Finance Authority, (MBIA),
(AMT), 7.25%, 1/1/09 $ 350,460
Aaa AAA 2,000 Massachusetts Educational
Finance Authority,
(AMBAC), (AMT), 7.30%,
1/1/12 2,096,840
Aaa AAA 250 Massachusetts HEFA,
Northeastern University,
(AMBAC), 7.50%, 10/1/08 273,820
Aaa AAA 400 Massachusetts HEFA, Boston
University "RIBS", (MBIA),
Variable, 10/1/31 (1) 439,464
Aaa AAA 3,000 Massachusetts HEFA, Tufts
University, (FGIC), 5.95%,
8/15/18 3,032,640
-------------
$ 6,193,224
-------------
INSURED GENERAL OBLIGATION - 1.7%
Aaa AAA $ 1,795 City of Boston, (FSA),
4.875%, 9/1/09 $ 1,686,833
Aaa AAA 1,000 Commonwealth of Puerto
Rico "RIBS", (AMBAC),
Variable, 7/1/15 (1) 1,009,940
Aaa AAA 600 Town of Tyngsborough,
(AMBAC), 6.90%, 5/15/08 663,798
Aaa AAA 1,770 MBTA, (MBIA), 5.50%,
3/1/21 1,663,995
-------------
$ 5,024,566
-------------
<CAPTION>
RATINGS (UNAUDITED)
- -----------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITALS - 11.8%
Aaa AAA $ 300 Massachusetts HEFA,
Berkshire Health Systems,
(MBIA), 7.60%, 10/1/14 $ 332,346
Aaa AAA 1,250 Massachusetts HEFA, Beth
Israel Hospital, Inverse
Floaters, (AMBAC),
Variable, 7/1/25 (1) 1,253,675
Aaa AAA 1,500 Massachusetts HEFA,
Capital Asset Program,
(MBIA), 7.20%, 7/1/09 1,649,085
AAA AAA 2,050 Massachusetts HEFA, Fallon
Healthcare System (CGIG),
6.75%, 6/1/20 (2) 2,171,442
AAA AAA 4,500 Massachusetts HEFA, Fallon
Healthcare System (CGIG),
6.875%, 6/1/11 4,881,465
Aaa AAA 2,040 Massachusetts HEFA,
Beverly Hospital, (MBIA),
7.30%, 7/1/13 2,219,581
Aaa AAA 1,000 Massachusetts HEFA,
Baystate Medical Center,
(FGIC), 5.00%, 7/1/20 883,550
Aaa AAA 3,000 Massachusetts HEFA, The
Medical Center of Central
Massachusetts, (AMBAC),
"CARS", Variable, 6/23/22
(1) 3,330,090
Aaa AAA 2,000 Massachusetts HEFA, St.
Elizabeth Hospital Issue,
"LEVRRS", (FSA), Variable,
8/15/21 (1) 2,196,960
Aaa AAA 2,600 Massachusetts HEFA, Saint
Luke's Hospital, "Yield
Curve Notes", (MBIA),
Variable, 8/15/13 (1) 2,556,970
Aaa AAA 1,200 Massachusetts HEFA,
University Hospital,
(MBIA), 7.25%, 7/1/19 1,323,552
Aaa AAA 6,950 Massachusetts HEFA, Lahey
Clinic, (MBIA), 5.375%,
7/1/23 6,454,118
Aaa AAA 5,000 Massachusetts HEFA, New
England Medical Center,
(MBIA), 5.375%, 7/1/24 4,664,350
Aaa AAA 1,000 Massachusetts HEFA, New
England Medical Center,
(FGIC), 6.50%, 7/1/12 1,052,960
-------------
$ 34,970,144
-------------
INSURED HOUSING - 0.7%
Aaa AAA $ 2,000 Massachusetts Housing
Finance Agency, (AMBAC),
6.45%, 1/1/36 $ 2,027,680
-------------
</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 TRANSPORTATION - 2.2%
Aaa AAA $ 5,860 Massachusetts Port
Authority, (AMT), (FGIC),
7.50%, 7/1/20 $ 6,490,243
-------------
LEASE/CERTIFICATE OF
PARTICIPATION - 2.9%
NR A $ 7,800 Plymouth County,
Massachusetts Correctional
Facility Project, 7.00%,
4/1/22 $ 8,363,862
-------------
NURSING HOMES - 0.5%
NR AA $ 1,495 Massachusetts HEFA,
Deutches Altenheim,
Incorporated, (FHA),
7.70%, 11/1/31(2) $ 1,613,195
-------------
SOLID WASTE - 2.6%
Baa1 BBB $ 5,970 Massachusetts Industrial
Finance Agency,
Massachusetts Refusetech,
Inc. Project, 6.30%,
7/1/05 $ 6,242,531
NR NR 1,340 City of Pittsfield, Vicon
Recovery Associates
Project, 7.95%, 11/1/04 1,409,425
-------------
$ 7,651,956
-------------
SPECIAL TAX - 4.2%
A1 A+ $ 5,695 Commonwealth of
Massachusetts, Special
Obligation Revenue Bonds,
6.00%, 6/1/13 $ 5,747,223
A1 A+ 4,560 Commonwealth of
Massachusetts, Special
Obligation Revenue Bonds,
5.80%, 6/1/14 4,518,550
Baa1 A 2,000 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/18 2,099,080
-------------
$ 12,364,853
-------------
TRANSPORTATION - 5.2%
NR BBB $ 7,950 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 7,967,093
Aa AA- 7,300 Massachusetts Port
Authority, 6.00%, 7/1/23 7,260,069
-------------
$ 15,227,162
-------------
UTILITY - 6.0%
NR BBB $ 2,765 Guam Power Authority,
5.25%, 10/1/23 $ 2,382,103
A BBB+ 2,610 Massachusetts Municipal
Wholesale Electric
Company, 6.00%, 7/1/18 2,555,843
A BBB+ 5,560 Massachusetts Municipal
Wholesale Electric
Company, 6.625%, 7/1/18 5,747,205
<CAPTION>
RATINGS (UNAUDITED)
- -----------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A BBB+ 3,500 Massachusetts Municipal
Wholesale Electric
Company, 6.75%, 7/1/11 3,664,010
Baa1 A- 1,850 Puerto Rico Electric Power
Authority, 5.50%, 7/1/13 1,755,447
Baa1 A- 150 Puerto Rico Electric Power
Authority, 5.50%, 7/1/20 138,746
NR NR 1,500 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 1,575,314
-------------
$ 17,818,668
-------------
WATER & SEWER - 9.8%
NR NR $ 2,075 Massachusetts Industrial
Finance Authority,
American Hingham Water,
6.60%, 12/1/15 $ 2,095,480
A A 18,620 Massachusetts Water
Resources Authority
(MWRA), 4.75%, 12/1/23 15,364,479
A A 5,000 MWRA, 5.00%, 3/1/22 4,323,500
A A 1,500 MWRA, 5.25%, 3/1/13 1,390,095
A A 3,915 MWRA, 5.25%, 12/1/15 3,608,260
NR NR 2,000 Virgin Islands Water and
Power Authority, 7.60%,
1/1/12 2,122,760
-------------
$ 28,904,574
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $277,979,560) $ 295,503,555
=============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Massachusetts
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 September 30, 1995, 21.2% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 0.5% to 7.3% of total investments.
See notes to financial statements
39
<PAGE>
-------
Mississippi Tax Free Portfolio
Portfolio of Investments - September 30, 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>
ESCROWED - 1.6%
Aaa NR $1,500 Mississippi Housing Finance
Corporation, SFMR, (AMT),
(ETM), 0%, 6/1/15 $ 447,360
------------
GENERAL OBLIGATIONS - 7.8%
NR A- $1,000 Mississippi Development
Bank, Golden Triangle Solid
Waste, 6.00%, 7/1/15 $ 972,850
Aa AA- 200 Mississippi State, 5.10%,
11/15/12 188,648
Aa AA- 500 Mississippi State, 5.75%,
6/1/14 500,965
Aa AA- 500 Mississippi State, 6.75%,
12/1/14 536,265
------------
$ 2,198,728
------------
HOSPITAL REVENUE - 3.2%
A NR $1,000 Mississippi Hospital
Equipment & Facilities
Authority, Rankin Medical
Center Project, 5.60%,
3/1/19 $ 919,410
------------
HOUSING - 9.4%
Aa NR $ 500 Hinds County Urban Renewal,
Woodridge Apartments,
(FHA), 6.25%, 11/1/27 $ 495,860
NR NR 200 City of Ridgeland Urban
Renewal, The Orchard, LTD.,
7.75%, 12/1/15 197,958
Aaa NR 300 Vicksburg Leased Housing
Corporation, MFMR, Magnolia
Manor Apartments, (FHA),
5.95%, 8/15/22 294,063
Aaa NR 500 Mississippi Home
Corporation, SFMR, Access
Program, (AMT), 8.10%,
12/1/24 554,725
Aaa NR 1,020 Mississippi Home
Corporation, SFMR, Access
Program, (AMT), 8.125%,
12/1/24 1,131,914
------------
$ 2,674,520
------------
INDUSTRIAL DEVELOPMENT
REVENUE - 10.0%
NR A- $ 600 Jackson County,
International Paper Company
Project, (AMT), 5.55%,
10/1/17 $ 564,468
A2 A 1,000 Lowndes County,
Weyerhaeuser Company
Project, 6.80%, 4/1/22 1,106,900
A3 A- 600 Warren County,
International Paper Company
Project, (AMT), 6.60%,
3/1/19 608,592
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR AA 500 Port of Gulfport, E.I. du
Pont de Nemours and Company
Project, (AMT), 7.15%,
5/1/16 (2) 544,390
------------
$ 2,824,350
------------
INSURED EDUCATION - 3.7%
Aaa AAA $1,000 Mississippi Educational
Facilities Authority,
Milsaps College Project,
(MBIA) 6.50%, 11/1/19 $ 1,041,610
------------
INSURED GENERAL OBLIGATION - 5.0%
Aaa AAA $ 500 Hinds County, (MBIA) 6.25%,
3/1/11 $ 535,360
Aaa AAA 1,000 Desoto County School
District, (MBIA) 4.75%,
2/1/13 883,120
------------
$ 1,418,480
------------
INSURED HOSPITALS - 19.2%
Aaa AAA $1,000 Alcorn County, Magnolia
Regional Health Center,
(AMBAC) 5.75%, 10/1/13 $ 967,370
Aaa AAA 1,000 Gulfport Mississippi
Hospital Facilities
Authority, Memorial
Hospital of Gulfport,
(MBIA) 6.20%, 7/1/18 1,020,310
Aaa AAA 1,275 Hinds County, Mississippi
Methodist Hospital and
Rehabilitation Center,
(AMBAC) 5.60%, 5/1/12 1,256,003
Aaa AAA 1,250 Mississippi Hospital
Equipment and Facilities
Authority, Methodist Health
Systems, (MBIA) 5.50%,
8/15/13 1,189,850
Aaa AAA 1,000 Mississippi Hospital
Equipment and Facilities
Authority, Mississippi
Baptist Medical Center,
(MBIA) 6.00%, 5/1/13 1,009,080
------------
$ 5,442,613
------------
INSURED HOUSING - 1.8%
Aaa NR $ 500 Mississippi Home
Corporation, SFMR, (GNMA),
(AMT), 6.625%, 4/1/27 $ 511,910
------------
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 5.2%
Aaa AAA $1,500 Medical Center Building
Corporation, University of
Mississippi Medical Center
Project, (MBIA) 5.80%,
12/1/14 $ 1,476,015
------------
</TABLE>
40
<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 UTILITIES - 7.0%
Aaa AAA $1,600 Jackson County, Gautier
Utility District, (MBIA)
6.375%, 3/1/12 $ 1,661,504
Aaa AAA 300 Puerto Rico Electric Power
Authority, (FSA), Variable,
7/1/03 (1) 335,766
------------
$ 1,997,270
------------
INSURED WATER & SEWER - 5.2%
Aaa AAA $1,000 Jackson County, Water and
Sewer Bonds, (MBIA) 5.40%,
9/1/09 $ 980,790
Aaa AAA 500 City of Natchez, Combined
Water and Sewer System,
(MBIA) 5.70%, 8/1/17 485,380
------------
$ 1,466,170
------------
NURSING HOMES - 1.7%
NR NR $ 500 Mississippi Business
Finance Corporation,
Magnolia Healthcare, 7.99%,
7/1/25 (2) $ 472,415
------------
LEASE/CERTIFICATE OF
PARTICIPATION - 3.6%
A NR $1,000 Mississippi University
Educational Building Corp.,
Facilities Renovation,
6.15%, 6/15/15 $ 1,009,330
------------
SPECIAL TAX - 4.7%
Baa1 A $ 500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 $ 446,615
Baa1 A 1,000 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/21 891,410
------------
$ 1,338,025
------------
<CAPTION>
RATINGS (UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES - 10.9%
NR BBB $ 810 Guam Power Authority,
6.625%, 10/1/14 $ 829,999
Aa3 A+ 1,310 Lamar County, South
Mississippi Electric Power
Association Project, 4.85%,
12/1/06 1,237,505
Baa3 NR 1,000 Warren County, Mississippi
Power & Light Company
Project, 7.00%, 4/1/22 1,038,360
------------
$ 3,105,864
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $27,181,386) $ 28,344,069
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Mississippi
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 September 30, 1995, 49.9% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.2% to 36.3% of total investments.
See notes to financial statements
41
<PAGE>
-------
New York Tax Free Portfolio
Portfolio of Investments - September 30, 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>
ASSISTED LIVING - 0.3%
NR NR $ 1,970 Village of North Syracuse
Housing Authority, (AJM
Senior Housing, Inc. Janus
Park Project), 8.00%,
6/1/24 $ 1,922,168
-------------
EDUCATION - 12.7%
A NR $ 1,000 Dutchess County IDA, Bard
College, 7.00%, 11/1/17 $ 1,084,310
A1 NR 6,295 Monroe County IDA,
University of Rochester,
7.25%, 12/1/16 6,646,324
NR BBB- 1,660 City of New Rochelle IDA
Civic Facilities, College
of New Rochelle, 6.75%,
7/1/22 1,704,920
Baa1 BBB+ 6,895 Dormitory Authority, State
University Educational
Facilities, 4.75%, 7/1/14 6,124,208
Baa1 BBB+ 2,500 Dormitory Authority, State
University Educational
Facilities, 5.00%, 5/15/18 2,118,800
Baa1 BBB+ 11,500 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/13 10,464,310
Baa1 BBB+ 7,600 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/15 6,850,260
Baa1 BBB+ 7,605 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/19 6,714,759
Baa1 BBB+ 6,805 Dormitory Authority, State
University Educational
Facilities, 5.25%, 5/15/21 6,043,657
Baa1 BBB+ 3,130 Dormitory Authority, State
University Educational
Facilities, 5.50%, 5/15/08 3,041,139
Baa1 BBB+ 28,250 Dormitory Authority, State
University Educational
Facilities, 5.50%, 5/15/13 26,375,613
Baa1 BBB+ 415 Dormitory Authority, State
University Educational
Facilities, 7.375%,
5/15/14 450,279
Baa1 BBB+ 1,300 Dormitory Authority, State
University Educational
Facilities, 7.50%, 5/15/11 1,497,184
NR AA 1,300 Dormitory Authority, New
York Medical College
(Asset Guaranty), 6.875%,
7/1/21 1,391,845
A1 A+ 950 Dormitory Authority,
University of Rochester,
5.625%, 7/1/12 927,276
-------------
$ 81,434,884
-------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ELECTRIC UTILITIES - 4.9%
A1 A $ 2,500 New York State Energy
Resource & Development
Authority, Brooklyn Union
Gas (RIBS)(AMT), Variable,
7/1/26 (1) $ 2,918,350
Aa3 A+ 500 New York State Energy
Resource & Development
Authority, Consolidated
Edison (AMT), 7.75%,
1/1/24 538,345
Aa3 A+ 2,365 New York State Energy
Resource & Development
Authority, Consolidated
Edison (AMT), 7.50%,
7/1/25 2,563,684
Aa3 A+ 1,000 New York State Energy
Resource & Development
Authority, Consolidated
Edison (AMT), 7.50%,
1/1/26 1,098,470
Aa AA- 18,000 Power Authority of the
State of New York, 5.25%,
1/1/18 16,447,500
Baa1 A- 11,500 Puerto Rico Electric Power
Authority, 0%, 7/1/17 3,023,350
Baa1 A- 2,250 Puerto Rico Electric Power
Authority, 5.50%, 7/1/20 2,081,183
NR NR 3,000 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 3,150,630
-------------
$ 31,821,512
-------------
ESCROWED - 7.6%
Aaa AAA $ 725 Albany Municipal Water
(MBIA), 7.50%, 12/1/17 $ 806,592
Aaa BBB 1,000 Dormitory Authority, City
University, 7.625%, 7/1/20 1,152,840
Aaa BBB+ 1,530 Dormitory Authority, State
University Educational
Facilities, 7.70%, 5/15/12 1,763,677
NR BBB 1,000 Dormitory Authority, City
University, 8.125%, 7/1/08 1,116,170
Baa1 BBB- 2,250 Dormitory Authority,
Upstate Community College,
7.20%, 7/1/21 2,582,842
Baa1 NR 2,000 Dormitory Authority,
Upstate Community College,
7.30%, 7/1/21 2,305,860
Aaa AAA 500 Erie County Water
Authority, Water Works
System, 6.00%, 12/1/08 528,920
Aaa AAA 500 Metropolitan
Transportation Authority
Commuter Facilities Bonds,
7.50%, 7/1/19 571,735
Aaa AAA 1,000 New York Local Government
Assistance Corporation
(LGAC), 7.00%, 4/1/16 1,136,100
</TABLE>
42
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESCROWED - (CONTINUED)
Aaa AAA 5,500 New York LGAC, 6.75%,
4/1/21 6,238,980
Aaa BBB 1,000 New York State Housing
Finance Agency Service
Contracts, 7.80%, 9/15/11 1,173,510
Aaa AAA 1,775 New York State Housing
Finance Agency Service
Contracts, 7.375%, 9/15/21 2,073,520
Aaa BBB+ 90 New York State Medical
Care Facilities Finance
Agency, Mental Health
Services Facilities,
7.75%, 8/15/10 103,334
Aaa AAA 450 New York State Medical
Care Facilities Finance
Agency, Mental Health
Services Facilities,
7.875%, 8/15/08 525,047
Aaa AAA 3,320 New York State Medical
Care Facilities Finance
Agency, Mental Health
Services Facilities,
7.50%, 2/15/21 3,842,004
Aaa NR 8,100 New York State Urban
Development Corporation
Correctional Facilities,
6.50%, 1/1/21 8,848,197
Baa1 BBB 4,750 New York State Thruway
Authority, Local Highway
and Bridge Service
Contract Bonds, 7.25%,
1/1/10 (2) 5,404,740
Baa1 BBB 5,350 New York State UDC,
Onondaga Co. Convention
Center, 7.875% 1/1/10 6,241,577
NR AA- 500 Power Authority of the
State of New York, 8.00%,
1/1/17 548,960
NR A 1,760 Puerto Rico Highway &
Transportation Authority,
6.625%, 7/1/18 1,989,310
-------------
$ 48,953,915
-------------
GENERAL OBLIGATIONS - 1.6%
Baa1 A- $ 120 New York City, 8.25%,
11/15/16 $ 136,942
Baa1 A- 4,000 New York City, 7.50%,
2/1/18 4,399,280
Aa AA 1,700 Onondaga County, 5.875%,
2/15/11 1,758,259
Aa AA 1,600 Onondaga County, 5.875%,
2/15/12 1,641,424
Baa1 A 2,175 Puerto Rico Public
Building Authority, Public
Education and Health
Facilities, 5.75%, 7/1/15 2,102,594
-------------
$ 10,038,499
-------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE - 19.1%
NR AAA $ 6,705 Dormitory Authority,
United Health Services
(FHA), 7.35%, 8/1/29 $ 7,225,509
Aa AAA 4,785 New York State Medical
Care Facilities Finance
Agency (MCFFA), Hospital
Insured Mortgage (FHA),
5.25%, 8/15/14 4,443,782
NR AA 2,670 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.10%, 8/15/15 2,663,645
NR AAA 3,710 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.125%, 2/15/14 3,902,994
Aa AA 1,000 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.55%, 8/15/12 1,043,570
Aa AA 3,800 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.65%, 8/15/32 3,946,338
NR AA 9,000 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.70%, 8/15/23 9,446,220
Aa AA 1,050 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.75%, 2/15/12 1,107,446
Aa AA 1,500 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
6.95%, 2/15/32 1,586,430
Aa AA 2,190 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
7.00%, 8/15/32 2,326,262
Aa AA 6,600 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
7.25%, 2/15/31 7,124,634
Aa AA 750 New York State MCFFA,
Hospital and Nursing
Insured Mortgage (FHA),
7.35%, 2/15/29 819,128
Aa AA 2,425 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 2/15/10 2,484,607
Aa AA 3,500 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 8/15/14 3,591,490
</TABLE>
43
<PAGE>
-------
NEW YORK TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE - (CONTINUED)
Aa AA 5,625 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.20%, 8/15/15 5,723,775
Aa AA 6,550 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.25%, 8/15/15 6,661,285
Aa AA 2,500 New York State MCFFA,
Insured Mortgage Project
(FHA), 6.50%, 2/15/35 2,552,300
Aa AA 950 New York State MCFFA,
Insured Mortgage Project
(FHA), 7.45%, 8/15/31 1,030,095
Baa1 BBB+ 10,205 New York State MCFFA,
Mental Health Services
Facilities, 5.25%, 2/15/19 9,320,737
Baa1 BBB+ 11,500 New York State MCFFA,
Mental Health Services
Facilities, 5.25%, 8/15/23 9,895,865
Baa1 BBB+ 6,625 New York State MCFFA,
Mental Health Services
Facilities, Series 1994 A,
5.25%, 8/15/23 5,700,879
Baa1 BBB+ 1,230 New York State MCFFA,
Mental Health Services
Facilities, 7.50%, 2/15/21 1,372,754
Baa1 BBB+ 1,610 New York State MCFFA,
Mental Health Services
Facilities, 7.625%,
8/15/17 1,777,150
Baa1 BBB+ 145 New York State MCFFA,
Mental Health Services
Facilities, 7.75%, 8/15/10 161,153
Baa1 BBB+ 495 New York State MCFFA,
Mental Health Services
Facilities, 7.875%,
8/15/08 558,469
Baa BBB 19,700 New York State MCFFA,
Secured Hospital
(Brookdale), 6.80%,
8/15/12 20,263,223
Baa BBB 5,540 New York State MCFFA,
Secured Hospital, 7.35%,
8/15/11 5,881,652
-------------
$ 122,611,392
-------------
HOSPITALS - 0.7%
Aa AAA $ 1,500 Dormitory Authority, Long
Island Jewish Medical
Center (FHA), 7.75%,
8/15/27 $ 1,629,735
NR AAA 1,000 Dormitory Authority,
St. Francis Hospital
(FHA), 7.65%, 8/1/30 1,119,780
Baa1 BBB+ 1,800 Syracuse Industrial
Development Agency (IDA),
St. Joseph's Hospital
Health Center, 7.50%,
6/1/18 1,914,804
-------------
$ 4,664,319
-------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - 5.5%
NR NR $ 4,744 New York City Housing
Development Corporation
(HDC), Allerville Project,
6.50%, 11/15/18 $ 4,772,297
Baa A 4,750 New York City HDC, General
Housing, 6.50%, 5/1/22 4,797,690
NR NR 2,080 New York City HDC, Dayton
Project, 6.50% 11/15/18 2,092,643
NR AAA 2,550 New York City HDC, Multi-
Unit Management, 7.35%,
6/1/19 2,702,439
Aa A+ 235 New York State Housing
Finance Agency, Baytown,
7.10%, 8/15/35 248,280
Aa NR 250 New York State Mortgage
Agency, 6.90%, 4/1/03 263,523
Aa NR 8,750 New York State Mortgage
Agency, 6.90%, 4/1/15 9,220,313
Aa NR 1,000 New York State Mortgage
Agency, 7.50%, 4/1/15 1,082,280
Aa NR 295 New York State Mortgage
Agency, 7.65%, 4/1/19 311,963
Aa NR 625 New York State Mortgage
Agency, 7.70%, 10/1/12 676,644
Aa NR 270 New York State Mortgage
Agency, 8.00%, 10/1/17 287,312
Aa NR 6,350 New York State Mortgage
Agency (AMT), 6.40%,
10/1/20 6,318,568
Aa NR 1,600 New York State Mortgage
Agency (AMT), 7.95%,
10/1/21 1,727,808
Baa BBB 350 Puerto Rico Commonwealth
Urban Renewal & Housing
Corporation, 7.875%,
10/1/04 395,693
Aaa AAA 410 Puerto Rico Housing
Financial Corporation
Single-Family (GNMA),
7.65%, 10/15/22 434,124
-------------
$ 35,331,577
-------------
INSURED COLLEGE &
UNIVERSITY - 1.8%
Aaa AAA $ 6,950 Dormitory Authority,
Marist College (MBIA),
6.00%, 7/1/22 $ 6,958,549
Aaa AAA 5,000 Dormitory Authority, New
York University (MBIA),
5.00%, 7/1/11 4,698,350
-------------
$ 11,656,899
-------------
</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>
INSURED GENERAL
OBLIGATIONS - 1.0%
Aaa AAA $ 1,035 Erie County Water
Authority (AMBAC), 0%,
12/1/17 $ 211,295
Aaa AAA 3,900 New York City Trust for
Cultural Resources, Museum
of Modern Art (AMBAC),
5.40%, 1/1/12 3,764,748
Aaa AAA 2,480 New York State
Environmental Facilities
Corporation (EFC), Jamaica
Water Supply Company (AMT)
(AMBAC), 7.625%, 4/1/29 2,677,334
-------------
$ 6,653,377
-------------
INSURED GENERAL
OBLIGATIONS LOCAL - 1.8%
Aaa AAA $ 520 Chautauqua County
Unlimited Tax (FGIC),
6.40%, 9/15/08 $ 574,621
Aaa AAA 770 Chautauqua County
Unlimited Tax (FGIC),
6.40%, 9/15/09 847,123
Aaa AAA 465 Chautauqua County
Unlimited Tax (FGIC),
7.30%, 4/1/07 547,793
Aaa AAA 725 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/07 838,521
Aaa AAA 600 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/08 693,852
Aaa AAA 675 Jamestown, (Secondary
AMBAC), 7.00%, 3/15/13 789,278
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/09 814,891
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/10 816,739
Aaa AAA 700 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/11 817,929
Aaa AAA 675 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/12 789,271
Aaa AAA 515 Jamestown, (Secondary
AMBAC), 7.10%, 3/15/14 601,808
Aaa AAA 2,000 New York City (AMBAC),
7.00%, 8/1/17 2,201,300
Aaa AAA 500 Oyster Bay (FGIC), 6.60%,
2/15/12 533,400
Aaa AAA 450 Oyster Bay (FGIC), 6.60%,
2/15/13 480,060
-------------
$ 11,346,586
-------------
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
- ------------------- AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL
OBLIGATIONS SCHOOL
DISTRICT - 0.2%
Aaa AAA $ 700 Bethlehem Central School
District (AMBAC), 7.10%,
11/1/08 $ 819,903
Aaa AAA 700 Bethlehem Central School
District (AMBAC), 7.10%,
11/1/09 814,716
-------------
$ 1,634,619
-------------
INSURED GENERAL
OBLIGATIONS TERRITORY -
0.7%
Aaa AAA $ 4,500 Commonwealth of Puerto
Rico Public Improvement
Residual Interest Tax
Exempt Securities (FSA),
Variable, 7/1/22 (1) $ 4,616,865
-------------
INSURED HEALTH CARE - 4.4%
Aaa AAA $ 1,500 New York State MCFFA, Long
Term Health Care (CGIC),
6.80%, 11/1/14 $ 1,588,695
Aaa AAA 1,300 New York State MCFFA, New
York Hospital (FHA)
(AMBAC), 6.60%, 2/15/11 1,409,226
Aaa AAA 5,400 New York State MCFFA, New
York Hospital (FHA)
(AMBAC), 6.75%, 8/15/14 5,794,146
Aaa AAA 20,525 New York State MCFFA,
Mental Health Services
Facilities (MBIA), 5.375%,
2/15/14 19,280,980
-------------
$ 28,073,047
-------------
INSURED HOUSING - 0.1%
Aaa AAA $ 500 New York City HDC, Charter
Oaks (MBIA), 7.375% 4/1/17 $ 524,525
-------------
INSURED MISCELLANEOUS - 0.1%
Aaa AAA $ 500 New York City IDA, (USTA
National Tennis Center
Incorporated Project)
(FSA), 6.375%, 11/15/14 $ 522,020
-------------
</TABLE>
45
<PAGE>
-------
NEW YORK TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED SOLID WASTE - 1.6%
Aaa AAA $ 1,650 Dutchess County Resource
Recovery Solid Waste
(FGIC), 7.50%, 1/1/09 $ 1,814,505
Aaa AAA 6,795 Islip Resource Recovery
Agency (MBIA), 6.50%,
7/1/09 7,272,960
Aaa AAA 1,000 Montgomery, Otesgo,
Schoharie Solid Waste
Management Authority
(MBIA), 5.25%, 1/1/14 936,350
-------------
$ 10,023,815
-------------
INSURED TOLL & TURNPIKE - 1.0%
Aaa AAA $ 3,000 Triborough Bridge & Tunnel
Authority Residual
Interest Securities
(MBIA), Variable, 1/1/19
(1) $ 3,033,030
Aaa AAA 3,000 Triborough Bridge & Tunnel
Authority Residual
Interest Securities
(MBIA), Variable, 1/1/12
(1) 3,229,230
-------------
$ 6,262,260
-------------
INSURED WATER & SEWER - 0.1%
Aaa AAA $ 275 Albany Municipal Water
Financial Authority
(MBIA), 7.50%, 12/1/17 $ 298,944
-------------
LEASE/CERTIFICATE OF
PARTICIPATION - 8.7%
Baa1 BBB $ 1,955 Dormitory Authority, City
University, 5.75%, 7/1/13 $ 1,869,000
Baa1 BBB 17,815 Dormitory Authority, City
University, 5.75%, 7/1/13 17,031,318
Baa1 BBB 250 Dormitory Authority, City
University, 6.375%, 7/1/08 256,618
Baa1 BBB 5,100 Dormitory Authority, City
University, 7.00%, 7/1/09 5,653,044
Baa1 BBB 4,325 Dormitory Authority, City
University, 7.50%, 7/1/10 4,967,133
Baa1 BBB 6,125 New York State HFA Service
Contract, 5.375%, 9/15/11 5,635,000
NR BBB 5,865 New York State Thruway
Authority, 0%, 1/1/01 4,438,046
Baa1 BBB 5,775 New York State Urban
Development Corporation
(UDC) Correctional
Facilities, 5.50%, 1/1/14 5,342,337
Baa1 BBB 7,670 New York State UDC
Correctional Facilities,
5.25%, 1/1/13 6,896,557
Baa1 BBB 500 New York State UDC, Alfred
Technology, 7.875%, 1/1/20 549,070
<CAPTION>
RATINGS (UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Baa1 BBB 750 New York State UDC,
Clarkson Center for
Advanced Materials, 7.80%,
1/1/20 821,512
Baa1 BBB 750 New York State UDC,
Clarkson Center for
Advanced Materials, 8.00%,
1/1/20 839,737
Baa1 A 1,825 Syracuse-Hancock
International Airport
Certificates of
Participation, 6.625%,
1/1/12 1,921,105
-------------
$ 56,220,477
-------------
MISCELLANEOUS - 1.6%
Aa AA- $ 200 City of New York Municipal
Assistance Corporation,
7.50%, 7/1/08 $ 218,888
Aa AA- 485 City of New York Municipal
Assistance Corporation,
7.625%, 7/1/08 530,896
Aa AA- 635 City of New York Municipal
Assistance Corporation,
7.625%, 7/1/08 714,724
NR NR 1,300 New York City IDA,
(YMCA of Greater New
York), 8.00%, 8/1/16 1,394,536
Aaa AAA 7,000 VRDC-IVRC Trust, Variable
Rate, 6/26/02 (1) 7,214,340
-------------
$ 10,073,384
-------------
SOLID WASTE - 2.0%
Baa1 A- $ 2,665 Hempstead IDA Resource
Recovery, American
Refunding Fuel Co., 7.40%,
12/1/10 $ 2,782,473
Baa NR 9,530 New York State EFC
Resource Recovery,
Huntington Project, 7.50%,
10/1/12 10,056,056
-------------
$ 12,838,529
-------------
SPECIAL TAX REVENUE - 12.5%
A A $12,160 New York State LGAC,
5.00%, 4/1/21 $ 10,582,240
A A 5,000 New York State LGAC,
5.00%, 4/1/21 4,368,900
A A 8,750 New York State LGAC,
5.00%, 4/1/23 7,526,313
A A 4,750 New York State LGAC,
5.25%, 4/1/16 4,406,908
A A 2,500 New York State LGAC,
5.25%, 4/1/19 2,265,400
A A 4,500 New York State LGAC,
5.375%, 4/1/16 4,221,180
A A 5,225 New York State LGAC,
5.50%, 4/1/17 4,960,040
</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>
SPECIAL TAX REVENUE - (CONTINUED)
A A 12,420 New York State LGAC,
5.50%, 4/1/18 11,731,808
A A 13,000 New York State LGAC,
5.50%, 4/1/21 12,140,570
NR BBB+ 2,630 New York State Municipal
Bond Bank Agency, 6.875%,
3/15/06 2,866,095
Baa1 BBB 3,100 New York State Thruway
Authority Contract, Local
& Highway Building, 5.25%,
4/1/13 2,800,478
Baa1 A 2,000 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 1,902,740
Baa1 A 2,500 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 2,378,425
Baa1 A 4,840 Puerto Rico Highway and
Transportation Authority,
6.625%, 7/1/18 5,079,774
Baa1 BBB 3,335 Triborough Bridge & Tunnel
Authority, Convention
Center, 6.00%, 1/1/11 3,318,158
-------------
$ 80,549,029
-------------
TRANSPORTATION - 6.2%
Baa1 BBB $ 4,025 MTA Transit Facilities
Service Contract, 4.75%,
7/1/19 $ 3,261,417
Baa1 BBB 3,670 MTA Transit Facilities
Service Contract, 4.75%,
7/1/19 2,973,764
Baa1 BBB 2,000 MTA Transit Facilities
Service Contract, 5.75%,
7/1/13 1,928,740
Baa1 BBB 725 MTA Transit Facilities
Service Contract, 5.75%,
7/1/13 699,168
NR BBB 2,350 New York State Thruway
Authority, Cross
Westchester Expressway
Project, 0%, 1/1/03 1,587,566
Ba1 BB 6,500 Port Authority of New York
and New Jersey, 5.75%,
6/15/30 6,254,170
Ba1 BB 2,800 Port Authority of New York
and New Jersey, Delta
Airlines LaGuardia
Airport, 6.95%, 6/1/08 2,969,512
A1 AA- 1,500 Port Authority of New York
and New Jersey (AMT),
Variable, 1/15/27 (1) 1,553,730
<CAPTION>
RATINGS (UNAUDITED)
- ------------------- PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa A+ 5,330 Triborough Bridge and
Tunnel Authority (TBTA)
General Purpose, 5.00%,
1/1/12 4,869,062
Aa A+ 11,580 TBTA General Purpose,
5.50%, 1/1/17 11,048,941
Aa A+ 2,500 TBTA General Purpose,
6.125%, 1/1/21 2,583,100
-------------
$ 39,729,170
-------------
WATER & SEWER REVENUE - 3.8%
Aa A $11,050 New York State EFC, State
Water Pollution Control,
6.875%, 6/15/10 $ 12,110,568
Aa A+ 4,545 New York State EFC, State
Water Pollution Control,
7.20%, 3/15/11 5,052,540
Aa A 2,750 New York State EFC, State
Water Pollution Control,
7.00%, 6/15/12 3,053,738
Aa A 150 New York State EFC, State
Water Pollution Control,
7.50%, 6/15/12 169,304
Baa1 A 3,750 Puerto Rico Aqueduct &
Sewer Authority, 7.875%,
7/1/17 4,160,625
-------------
$ 24,546,775
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $610,645,613) $ 642,348,587
=============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by New York
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 September 30, 1995, 23.7% 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 0.1% to 11.0% of total investment.
See notes to financial statements
47
<PAGE>
-------
Ohio Tax Free Portfolio
Portfolio of Investments - September 30, 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 - 7.9%
A A+ $ 1,000 University of Cincinnati,
6.50%, 12/1/11 $ 1,035,190
A1 AA- 650 University of Cincinnati,
6.50%, 6/1/11 684,314
Aa AA- 550 Ohio State Higher
Educational Facilities,
Case Western University,
6.50%, 10/1/20 604,335
NR AA 1,000 Ohio State Higher
Educational Facilities,
Oberlin College, 5.375%,
10/1/15 942,190
NR AAA 2,100 Ohio Higher Educational
Facilities, Ohio Northern
University (CLEE), 5.60%,
5/1/13 2,069,886
NR AAA 2,750 Ohio Higher Educational
Facilities, Ohio Northern
University (CLEE), 5.65%,
5/1/18 2,688,153
A1 A+ 1,300 Ohio State Higher
Educational Facilities,
Public Facilities, 5.50%,
12/1/07 1,319,513
A1 NR 7,000 Ohio State Student Loan
Funding Corp (AMT),
6.10%, 8/1/07 7,165,200
A1 NR 7,000 Ohio State Student Loan
Funding Corp (AMT),
6.10%, 8/1/08 7,121,100
A1 AA- 1,500 Ohio State University
Revenue, 5.75%, 12/1/09 1,523,325
-------------
$ 25,153,206
-------------
ESCROWED - 0.2%
A1 NR $ 500 Gahanna, Ohio General
Obligation, 7.00%, 6/1/12 $ 566,875
-------------
GENERAL OBLIGATIONS -
9.1%
NR NR $ 3,035 Belmont County, 7.30%,
12/1/17 $ 3,190,392
A NR 600 City of Brunswick,
Various Purpose, 6.30%,
12/1/12 617,586
NR NR 2,450 Cleveland City School
District, 7.25%, 6/15/98 2,498,069
Aaa AAA 1,035 City of Columbus, 5.50%,
11/1/12 1,025,902
A1 NR 1,360 Copley-Fairlawn City
School District, 6.25%,
12/1/15 1,403,180
NR BBB 3,500 Guam Government, 5.375%,
11/15/13 3,104,535
A1 NR 3,340 Hilliard City School
District, 6.30%, 12/1/14 3,462,344
A1 NR 500 Huber Heights, Ohio,
6.75%, 12/1/11 534,185
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A NR 1,200 Mansfield Ohio Waterworks
Improvement, 5.60%,
12/1/13 1,162,692
A1 NR 725 City of Medina, Ohio Fire
Station Improvement,
3.00%, 12/1/10 527,445
Aa AA 1,500 Ohio State Infrastructure
Improvement, 0%, 8/1/11 632,685
Baa1 NR 1,000 Scioto County, Ohio Human
Services Building, 7.15%,
8/1/11 1,136,590
NR NR 1,000 Tuscarawas Public Library
Improvement, 6.90%,
12/1/11 1,055,300
Baa NR 1,000 Youngstown, Ohio, 7.55%,
12/1/11 1,080,240
NR NR 6,855 Youngstown, Ohio, 7.35%,
6/15/05 7,413,614
-------------
$ 28,844,759
-------------
HEALTH CARE - 2.4%
NR AAA $ 1,000 Allen County Ohio, LIMA
Convalescent Home
Foundation (GNMA), 6.40%,
1/1/21 $ 1,022,330
Aa2 NR 1,600 Hamilton County,
Episcopal Retirement
Homes, 6.80%, 1/1/08 1,745,504
NR BBB- 1,800 Marion County, United
Church Homes, 6.30%,
11/15/15 1,734,354
Baa BBB 2,925 Puerto Rico Urban Renewal
& Housing Corporation,
0%, 10/1/99 2,364,570
Aa2 NR 600 Warren County, Otterbein
Home Project, 7.20%,
7/1/11 662,418
-------------
$ 7,529,176
-------------
HOSPITALS - 19.3%
Baa BBB- $ 1,000 Butler County, Hamilton-
Hughe Hospital, 7.50%,
1/1/10 $ 1,032,270
NR BBB 1,000 Cambridge Ohio, Guernsey
Memorial Hospital, 8.00%,
12/1/11 1,068,500
A1 A 2,100 Cuyahoga County, Fairview
General Hospital, 6.25%,
8/15/10 2,152,101
A1 A 2,370 Cuyahoga County, Meridia
Health System, 7.00%,
8/15/23 2,505,967
A1 A 2,000 Cuyahoga County, Meridia
Health System, 6.50%,
8/15/12 2,052,600
</TABLE>
48
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOSPITALS - (CONTINUED)
Aa AA 750 Cuyahoga County,
University Hospitals
Health System, 6.50%,
1/15/19 778,560
Aa AA 4,450 Cuyahoga County,
University Hospitals
Health System, 6.00%,
1/15/22 4,487,024
NR BBB 4,500 Defiance Hospital, Inc.,
7.625%, 11/1/03 4,641,075
Baa BBB- 665 East Liverpool City
Hospital-Series A, 8.00%,
10/1/21 696,893
Baa BBB- 1,000 East Liverpool City
Hospital-Series B, 8.00%,
10/1/21 1,044,880
A A- 4,000 Erie County, Firelands
Community Hospital,
6.75%, 1/1/08 4,237,640
Aa NR 3,000 Franklin County,
Children's Hospital,
6.60%, 5/1/13 3,167,310
Aa NR 1,900 Franklin County,
Riverside United
Methodist Hospital,
5.75%, 5/15/20 1,804,088
A A 1,015 City of Garfield Heights,
Marymount Hospital,
6.65%, 11/15/11 1,052,058
A A 1,000 City of Garfield Heights,
Marymount Hospital,
6.70%, 11/15/15 1,040,670
Aa2 NR 1,000 Hamilton County, Wesley
Hall Project, 6.50%,
3/1/15 1,022,560
A1 A 4,000 Hamilton County, Bethesda
Hospital, Inc., 6.25%,
1/1/12 4,027,400
A1 A+ 1,095 Lorain County, Humility
of Mary Health Care
Corp., 7.125%, 12/15/06 1,199,266
A1 A+ 5,900 Lorain County, Humility
of Mary Health Care
Corp., 5.90%, 12/15/08 6,048,208
A1 A+ 1,000 Lorain County, Humility
of Mary Health Care
Corp., 7.20%, 12/15/11 1,081,030
NR A+ 1,750 Lorain County, Lakeland
Community Hospital, Inc.,
6.50%, 11/15/12 1,794,538
NR BBB+ 1,000 Lucas County, Flowers
Hospital, 6.125%, 12/1/13 939,000
A A 2,760 City of Middleburg
Heights, Southwest
General Hospital Project,
6.75%, 8/15/21 2,880,971
NR NR 10,000 Mt Vernon, Knox Community
Hospital, 7.875%, 6/1/12 10,358,900
-------------
$ 61,113,509
-------------
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - 7.1%
Aa NR $ 1,300 City of Clermont, Laurels
Project (FHA), 6.00%,
9/1/20 $ 1,285,011
Aa NR 1,000 Franklin County, Hamilton
Creek Apartments (FHA),
(AMT), 5.80%, 7/1/14 942,190
Aa NR 3,660 Franklin County, Hamilton
Creek Apartments (FHA),
(AMT), 5.55%, 7/1/24 3,239,905
NR AAA 3,490 Ohio HFA, (GNMA), (AMT),
6.375%, 3/1/25 3,523,853
NR AAA 4,735 Ohio HFA, (GNMA), (AMT),
6.70%, 3/1/25 4,844,899
NR AAA 835 Ohio HFA, SFMR (GNMA),
7.60%, 9/1/16 871,723
NR AAA 1,250 Ohio HFA, MFMR-Asbury
Woods (FHA), 7.00%,
10/1/24 1,279,350
Aa NR 2,850 Ohio HFA, Oakleaf Village
Project, (FHA), 5.70%,
9/1/26 2,643,746
Aa NR 1,000 Ohio HFA, Aristocrat
South Board & Care
Project (FHA), (AMT),
7.30%, 8/1/31 1,037,330
Aaa AAA 1,085 Ohio HFA SFMR, (GNMA)
(AMT), Variable, 3/31/31
(1) 1,162,317
NR BBB+ 1,020 Ohio Economic
Development, KMART Corp.,
6.75%, 5/15/07 1,034,810
A1 A+ 500 Ohio Building Authority
Juvenile Correctional
Building, 5.80%, 10/1/07 515,125
-------------
$ 22,380,259
-------------
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL
REVENUE - 8.8%
NR BBB $510.... Madison County, IDR,
KMART Corp., 6.75%,
9/15/06 $ 523,734
Baa1 NR 3,750 Ohio Air Quality
Development Authority,
Ashland Oil Inc, 6.85%,
4/1/10 3,991,163
NR A- 595 Ohio IDR, Enterprise Bond
Fund, Burrows Paper Corp.
(AMT), 7.625%, 6/1/11 659,546
NR A- 310 Ohio IDR, Enterprise Bond
Fund, Cheryl & Co.,
(AMT), 5.50%, 12/1/04 307,774
NR A- 530 Ohio IDR, Enterprise Bond
Fund, Cheryl & Co.,
(AMT), 5.90%, 12/1/09 530,806
</TABLE>
49
<PAGE>
-------
OHIO TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL
REVENUE - (CONTINUED)
NR A- 1,815 Ohio IDR, Enterprise Bond
Fund, Consolidated
Biscuit, (AMT), 7.00%,
12/1/09 2,014,051
NR A- 3,425 Ohio IDR, Enterprise Bond
Fund, J J & W LP Project
(AMT), 6.70%, 12/1/14 3,536,826
NR A- 750 Ohio IDR, Enterprise Bond
Fund, Luigino's Inc.
(AMT), 6.85%, 6/1/01 772,388
NR A- 1,000 Ohio IDR, Enterprise Bond
Fund, Progress Plastic
Products, (AMT), 6.80%,
12/1/01 1,086,040
NR A- 1,525 Ohio IDR, Enterprise Bond
Fund, Progress Plastic
Products, (AMT), 7.80%,
12/1/09 1,772,660
NR A- 680 Ohio IDR, Enterprise Bond
Fund, Royal Appliance
Manufacturing Co., Series
1991 #9 (AMT), 7.625%,
12/1/11 758,234
NR A- 1,000 Ohio IDR, Enterprise Bond
Fund, Royal Appliance
Manufacturing Co., Series
1991 #5 (AMT), 7.625%,
12/1/11 1,115,050
NR A- 1,800 Ohio IDR, Enterprise Bond
Fund, Speco Corp. (AMT),
6.60%, 6/1/04 1,857,186
NR A- 170 Ohio IDR, Enterprise Bond
Fund, Speco Corp. (AMT),
6.25%, 6/1/00 173,553
NR A- 880 Ohio IDR, Enterprise Bond
Fund, VSM Corp., (AMT),
7.375%, 12/1/11 969,936
NR AA- 1,000 Ohio Pollution Control,
Standard Oil Company,
6.75%, 12/1/15 1,167,220
Baa2 BBB 4,065 Ohio Water Development
Authority, Union Carbide
Corp. Project, 5.50%,
1/15/07 3,935,245
Ba2 NR 1,500 Portage County, Kroger
Corporation, 7.25%,
7/1/99 1,592,175
Ba2 NR 1,000 Summit County, Kroger
Corporation, 6.85%,
7/1/99 1,050,140
-------------
$ 27,813,727
-------------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED EDUCATION - 1.1%
Aaa AAA $ 1,000 Adams & Highland County
Local School District
(MBIA), 5.25%, 12/1/21 $ 923,810
Aaa AAA 1,500 Delaware County, Buckeye
Valley Local School
District (MBIA), 5.25%,
12/1/20 1,402,665
Aaa AAA 1,000 Ohio Higher Education,
University of Dayton
Project (FGIC), 5.80%,
12/1/14 1,000,720
-------------
$ 3,327,195
--------------
INSURED GENERAL
OBLIGATIONS - 1.5%
Aaa AAA $ 1,700 Puerto Rico (AMBAC),
Variable, 7/1/15 (1) $ 1,716,898
Aaa AAA 3,000 Puerto Rico (FSA),
Variable, 7/1/22 (1) 3,077,910
-------------
$ 4,794,808
-------------
INSURED HEALTH CARE -
2.4%
Aaa AAA $ 1,945 Hamilton County, Sisters
of Charity Health Care
System (MBIA), 5.25%,
5/15/13 $ 1,819,645
Aa AA- 5,925 Montgomery County,
Sisters of Charity Health
Care System (MBIA),
5.25%, 5/15/11 5,563,871
-------------
$ 7,383,516
-------------
INSURED HOSPITALS - 11.7%
Aaa AAA $ 2,500 Akron, Bath and Copley
Townships Children's
Hospital Medical Center
of Akron, (AMBAC), 5.25%,
11/15/20 $ 2,276,175
Aaa AAA 1,000 Clermont County, Mercy
Health System (AMBAC),
Variable, 10/5/21 (1) 1,128,810
Aaa AAA 1,500 Cuyahoga County, Fairview
Hospital, (MBIA), 5.50%,
8/15/19 1,389,270
Aaa AAA 5,885 Franklin County,
Riverside United
Methodist (AMBAC), 5.75%,
5/15/12 5,797,961
Aaa AAA 10,500 Franklin County,
Riverside United
Methodist (AMBAC), 5.75%,
5/15/20 10,085,565
Aaa AAA 1,455 Hamilton County, The
Christ Hospital (FGIC),
5.50%, 1/1/08 1,472,169
Aaa AAA 1,500 Hamilton County,
Children's Hospital
Medical Center, (FGIC),
5.00%, 5/15/13 1,370,130
Aaa AAA 2,750 Mansfield General
Hospital (AMBAC), 6.70%,
12/1/09 2,970,028
</TABLE>
50
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED HOSPITALS -
(CONTINUED)
Aaa AAA 1,000 Montgomery County, Ohio
Miami Valley Hospital,
(AMBAC), 6.25%, 11/15/16 1,030,000
Aaa AAA 6,565 Portage County, Robinson
Memorial Hospital,
(MBIA), 5.80%, 11/15/15 6,272,201
Aaa AAA 3,500 Stark County, Timken
Mercy Medical, (MBIA),
5.00%, 12/1/19 3,113,320
-------------
$ 36,905,629
-------------
INSURED HOUSING - 0.6%
Aaa AAA $ 990 Ohio Capital Corporation
FHA Insured Mortgage
Loans, (MBIA), 7.25%,
7/1/24 $ 1,032,649
Aaa AAA 750 Ohio Capital Corporation
FHA Insured Mortgage
Loans, (MBIA), 6.50%,
1/1/25 763,965
-------------
$ 1,796,614
-------------
INSURED INDUSTRIAL DEVELOPMENT
REVENUE - 2.3%
Aaa AAA $ 7,000 Ohio Air Quality
Development Authority,
JMG Funding, L.P.
Project, (AMBAC), (AMT),
6.375%, 1/1/29 $ 7,180,670
-------------
INSURED LEASE - 2.6%
Aaa AAA $ 1,000 Ohio Higher Education,
University of Dayton,
(FGIC), 0%, 12/1/06 $ 560,870
Aaa AAA 8,000 Ohio State Public
Building
Authority-Workers Comp
Facilities (MBIA),
4.50%, 4/1/04 7,785,200
-------------
$ 8,346,070
-------------
INSURED SPECIAL TAX
REVENUE - 4.9%
Aaa AAA $ 2,110 Hudson Local School
District, (FGIC), 0%,
12/15/09 $ 976,656
Aaa AAA 2,115 Hudson Local School
District, (FGIC), 0%,
12/15/10 920,427
Aaa AAA 2,000 North Canton City School
District (AMBAC), 5.90%,
12/1/14 2,024,260
Aaa AAA 1,400 Pickerington Local School
District, (AMBAC), 0%,
12/1/11 562,800
Aaa AAA 2,000 Puerto Rico Highway &
Transportation Authority
(FSA), 5.50%, 7/1/17 1,911,920
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA 7,000 Puerto Rico Highway &
Transportation Authority
(FSA), 5.25%, 7/1/21 6,435,380
Aaa AAA 3,000 Puerto Rico Highway &
Transportation Authority
(FSA), 5.25%, 7/1/20 2,762,220
-------------
$ 15,593,663
-------------
INSURED UTILITIES - 2.4%
Aaa AAA $ 1,650 Cleveland Public Power
System, (MBIA), 7.00%,
11/15/17 $ 1,809,605
Aaa AAA 2,000 Cuyahoga County Medical
Center Utility System
(AMT) (MBIA), 6.10%,
8/15/15 2,001,480
Aaa AAA 1,380 OH Municipal Electric
Generation Agency
(AMBAC), 5.375%, 2/15/24 1,289,665
Aaa AAA 2,300 Puerto Rico Electric
Power Authority, (FSA),
Variable, 7/1/02 (1) 2,548,814
-------------
$ 7,649,564
-------------
LEASE/COPS - 1.1%
A NR $ 1,000 University of Akron COP,
West Campus Parking Deck,
5.50%, 1/1/14 $ 974,080
Baa1 A 2,500 Puerto Rico Public
Building Authority,
6.00%, 7/1/12 2,504,675
-------------
$ 3,478,755
-------------
LIFE CARE - 0.6%
Aa NR $ 2,000 Franklin County,
Kensington Place Project,
6.75%, 1/1/34 ()2 $ 2,046,600
-------------
SPECIAL TAX REVENUE -
4.2%
Baa1 A $ 3,000 Puerto Rico Highway &
Transportation Authority,
6.625%, 7/1/12 $ 3,168,450
Baa1 A 1,500 Puerto Rico Highway &
Transportation Authority,
5.50%, 7/1/15 1,427,055
Baa1 A 5,000 Puerto Rico Highway &
Transportation Authority,
5.25%, 7/1/20 4,466,150
Baa1 A 4,995 Puerto Rico Highway &
Transportation Authority,
5.00%, 7/1/22 4,280,216
-------------
$ 13,341,871
-------------
</TABLE>
51
<PAGE>
-------
OHIO TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION - 1.7%
NR BBB $ 2,750 Guam Airport Authority,
(AMT), 6.70%, 10/1/23 $ 2,755,913
A1 AA- 2,830 Ohio Turnpike Commission,
5.75%, 2/15/24 2,771,617
-------------
$ 5,527,530
-------------
UTILITIES - 7.2%
NR BBB $ 5,500 Guam Power Authority,
5.25%, 10/1/13 $ 4,960,170
NR BBB 5,000 Guam Power Authority,
5.25%, 10/1/23 4,307,600
Baa1 A- 3,000 Puerto Rico Electric
Power Authority, 5.00%,
7/1/12 2,709,060
Baa1 A- 360 Puerto Rico Electric
Power Authority, 7.125%,
7/1/14 392,580
Baa1 A- 4,000 Puerto Rico Electric
Power Authority, 6.00%,
7/1/14 3,968,440
Baa1 A- 20,165 Puerto Rico Electric
Power Authority, 0%,
7/1/17 5,301,379
NR NR 1,000 Virgin Islands Water and
Power Authority, 7.40%,
7/1/11 1,050,210
-------------
$ 22,689,439
-------------
WATER & SEWER REVENUE -
0.9%
NR NR $ 800 The Mahoning Valley
Sanitary District, 7.80%,
12/15/08 $ 855,392
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR 950 The Mahoning Valley
Sanitary District, 7.80%,
12/15/09 1,013,099
NR NR 1,000 City of Vermilion, Ohio
Water System, 7.25%,
8/15/15 1,066,720
-------------
$ 2,935,211
-------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $304,406,955)
$ 316,398,646
===============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
The Portfolio invests primarily in debt securities issued by Ohio
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 September 30, 1995, 36.3% 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 2.0% to 11.4% of total investments.
See notes to financial statements
52
<PAGE>
-------
Rhode Island Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- --------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES - 100%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 5.1%
Aa AA $1,500 Rhode Island Health and
Educational Building
Corporation, Brown
University, 5.375%, 9/1/23 $ 1,410,315
A NR 750 Rhode Island Student Loan
Authority, 5.60%, 12/1/12 703,560
-----------
$ 2,113,875
-----------
ELECTRIC UTILITY - 3.7%
Baa1 A- $ 710 Puerto Rico Electric Power
Authority, 5.00%, 7/1/12 $ 641,144
Baa1 A- 1,000 Puerto Rico Electric Power
Authority, 5.50%, 7/1/25 912,910
-----------
$ 1,554,054
-----------
GENERAL OBLIGATIONS (LOCAL)
-0.8%
Ba NR $ 310 West Warwick, 6.80%,
7/15/98 $ 315,670
-----------
GENERAL OBLIGATIONS
(TERRITORY) - 3.9%
Baa1 A $ 500 Puerto Rico Public
Improvement, 5.50%, 7/1/13 $ 477,075
Baa1 A 500 Puerto Rico Public Building
Authority, 5.75%, 7/1/15 483,355
NR BBB 750 Government of Guam, 5.40%,
11/15/18 652,755
-----------
$ 1,613,185
-----------
HOSPITALS - 5.7%
NR AA $1,500 Rhode Island Health and
Educational Building
Corporation, Landmark
Medical Center, 5.875%,
10/1/19 $ 1,432,335
NR A 1,015 Rhode Island Health and
Educational Building
Corporation, Butler
Hospital, 5.125%, 1/1/08 957,135
-----------
$ 2,389,470
-----------
HOUSING - 16.7%
Aa AA+ $1,500 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 6.60%,
10/1/25 $ 1,502,370
Aa AA 100 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 6.70%,
10/1/12 101,929
Aa AA 270 Rhode Island Housing and
Mortgage Finance
Corporation, 6.70%, 10/1/14 280,930
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aa AA+ 875 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 6.80%,
10/1/25 (2) 893,034
Aa AA+ 1,000 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 7.10%,
10/1/23 1,033,790
Aa AA+ 2,000 Rhode Island Housing and
Mortgage Finance
Corporation (AMT), 7.55%,
10/1/22 2,137,460
NR A 35 Rhode Island Housing and
Mortgage Finance
Corporation, 7.875%,
10/1/22 36,217
Baa BBB 1,025 Puerto Rico Housing Bank
and Finance Agency, 5.125%,
12/1/05 994,527
-----------
$ 6,980,257
-----------
INDUSTRIAL DEVELOPMENT
REVENUE - 3.6%
Baa3 BB+ $ 500 Puerto Rico Port Authority,
American Airlines, Inc.
(AMT), 6.30%, 6/1/23 $ 493,499
Aa2 AA 1,000 Rhode Island Industrial
Facilities Corp., Mobil
Corp., 6.00%, 11/1/14 995,440
-----------
$ 1,488,939
-----------
INSURED COLLEGE AND
UNIVERSITY - 9.8%
Aaa AAA $1,000 Rhode Island Health and
Educational Building,
Providence College Issue
(MBIA), 5.60%, 11/1/15 $ 954,740
Aaa AAA 730 Rhode Island Health and
Educational Building,
Providence College Issue
(MBIA), 5.60%, 11/1/22 687,397
Aaa AAA 500 Rhode Island Health and
Educational Building,
University of Rhode Island
(MBIA), 5.50%, 9/15/13 478,550
Aaa AAA 2,200 Rhode Island Health and
Educational Building,
University of Rhode Island
(MBIA), 5.25%, 9/15/23 1,966,712
-----------
$ 4,087,399
-----------
</TABLE>
53
<PAGE>
-------
RHODE ISLAND TAX FREE PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED GENERAL OBLIGATIONS
- 7.9%
Aaa AAA $ 750 Rhode Island Depositors
Economic Protection
Corporation (MBIA), 5.25%,
8/1/21 $ 677,453
Aaa AAA 1,980 Rhode Island Port Authority
and Economic Development
Corporation Airport, (FSA),
5.25%, 7/1/23 1,734,539
Aaa AAA 900 Rhode Island Public
Buildings Authority
(AMBAC), 5.25%, 2/1/10 866,601
-----------
$ 3,278,593
-----------
INSURED GENERAL OBLIGATIONS
(LOCAL) - 4.7%
Aaa AAA $1,000 Burrellville, (MBIA),
5.75%, 10/15/17 $ 993,800
Aaa AAA 500 Town of West Warwick,
(MBIA), 5.90%, 1/1/05 534,925
Aaa AAA 480 City of Woonsocket, Water
Bonds (MBIA), 5.125%,
3/1/13 454,824
-----------
$ 1,983,549
-----------
INSURED GENERAL OBLIGATIONS
(STATE) - 2.4%
Aaa AAA $1,000 State of Rhode Island and
Providence Plantations,
Consolidated Capital
Development (FGIC), 5.50%,
7/15/12 $ 999,900
-----------
INSURED GENERAL OBLIGATION
(TERRITORY) - 0.6%
Aaa AAA $ 250 Puerto Rico, Public
Improvement Bonds of 1992,
Yield Curve Notes (AMBAC),
Variable, 7/1/15 (1) $ 252,485
-----------
INSURED HOUSING - 6.1%
Aaa AAA $ 890 Providence Housing
Development Corporation
Mortgage, (Barbara Jordan
Apartments) (MBIA), 6.50%,
7/1/09 $ 917,643
Aaa AAA 1,075 Villa Excelsior Housing
Development Corporation
Mortgage (MBIA), 6.75%,
1/1/19 1,103,756
Aaa AAA 500 Villa Excelsior Housing
Development Corporation
Mortgage (MBIA), 6.85%,
1/1/24 515,260
-----------
$ 2,536,659
-----------
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURED LEASE/CERTIFICATE
OF PARTICIPATION - 4.6%
Aaa AAA $ 800 City of Pawtucket, Public
Building Authority (CGIC),
5.75%, 3/15/14 $ 796,368
Aaa AAA 590 Providence Rhode Island
Public Building Authority,
Feinstein School (MBIA),
5.25%, 12/15/13 551,249
Aaa AAA 630 Providence Rhode Island
Public Building Authority,
Feinstein School (MBIA),
5.25%, 12/15/14 583,947
-----------
$ 1,931,564
-----------
INSURED WATER & SEWER - 16.6%
Aaa AAA $1,500 Kent County Water Authority
General Revenue Bonds, 1994
Series A (MBIA), 6.35%,
7/15/14 $ 1,560,390
Aaa AAA 1,000 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.80%, 10/1/09 1,030,650
Aaa AAA 1,000 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.80%, 8/1/12 1,003,100
Aaa AAA 500 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.85%, 10/1/09 515,120
Aaa AAA 2,000 Rhode Island Clean Water,
Water Pollution Control
(MBIA), 5.875%, 10/1/15 1,996,480
Aaa AAA 750 Rhode Island Clean Water,
Safe Drinking Water (MBIA),
6.70%, 1/1/15 800,610
-----------
$ 6,906,350
-----------
MISCELLANEOUS - 1.1%
Baa1 A- $ 500 Rhode Island Depositors
Economic Protection
Corporation, 5.75%, 8/1/21 $ 476,090
-----------
SPECIAL TAX - 6.7%
Baa BBB- $1,500 City of Providence, Rhode
Island, Special Obligation
Tax Increment Bonds, 7.65%,
6/1/16 $ 1,631,490
Baa1 A 750 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/17 701,258
</TABLE>
54
<PAGE>
-------
- --------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
(UNAUDITED)
- ------------------ PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
SPECIAL TAX - (CONTINUED)
Baa1 A 500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 446,615
-----------
$ 2,779,363
-----------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $41,635,939) $ 41,687,402
===========
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by Rhode Island
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 September 30, 1995, 52.7% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage by financial
institution ranged from 1.9% to 37.4% of total investments.
See notes to financial statements
55
<PAGE>
-------
West Virginia Tax Free Portfolio
Portfolio of Investments - September 30, 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%
NR BBB- $1,490 Puerto Rico IM&E
(Polytechnic University of
Puerto Rico), 5.50%, 8/1/24 $ 1,293,424
------------
ELECTRIC UTILITIES - 11.8%
NR BBB $ 750 Guam Power Authority,
5.25%, 10/1/13 $ 676,388
NR BBB 500 Guam Power Authority,
5.25%, 10/1/23 430,760
NR BBB 450 Guam Power Authority,
6.625%, 10/1/14 461,111
A2 A 2,000 Harrison, West Virginia PCR
(Monongahela Power Company
Harrison Station), 6.75%,
8/1/24 2,087,160
A3 BBB+ 1,000 Mason, West Virginia PCR
(Appalacian Power Co.),
6.85%, 6/1/22 1,050,440
------------
$ 4,705,859
------------
ESCROWED - 1.7%
Aaa AAA $2,500 Kanawha-Putnam, West
Virginia Single Family
Mortgage (AMBAC), 0%,
12/1/16 672,925
------------
HEALTH CARE - 1.9%
NR NR $ 745 Kanawha, West Virginia IDR
(Beverly Enterprises),
7.25%, 11/1/04 $ 751,102
------------
HOSPITALS - 9.9%
NR BBB+ $1,750 Berkeley, West Virginia
Building Commission (City
Hospital), 6.50%, 11/1/22 $ 1,747,655
A1 NR 1,000 West Virginia HFA
(Charleston Area Medical
Center), 6.50%, 9/1/23 1,028,530
A1 NR 1,125 West Virginia HFA
(Charleston Area Medical
Center), 6.50%, 9/1/16 1,160,303
------------
$ 3,936,488
------------
HOUSING - 4.6%
Aa1 AA+ $1,000 West Virginia Housing
Development Finance, 5.45%,
11/1/21 $ 907,180
Aa1 AA+ 1,000 West Virginia Housing
Development Finance, 5.55%,
5/1/17 932,170
------------
$ 1,839,350
------------
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL DEVELOPMENT/
POLLUTION CONTROL REVENUE -
12.5%
NR A- $1,375 Jefferson, West Virginia
IDR (Royal Venders,
Incorporated) (AMT), 5.90%,
8/1/04 $ 1,402,321
Baa2 BBB 300 Kanawha, West Virginia IDR
(Union Carbide Chemicals
and Plastics Company)
(AMT), 8.00%, 8/1/20 328,362
A2 NR 1,500 Puerto Rico IM&E (American
Home Products Corporation),
5.10%, 12/1/18 1,321,875
Baa3 BB+ 925 Puerto Rico Port Authority
(American Airlines) (AMT),
6.30%, 6/1/23 923,696
NR NR 1,000 Upshur, West Virginia Solid
Waste (TJI Project) (AMT),
7.00%, 7/15/25 1,017,510
------------
$ 4,993,764
------------
INSURED EDUCATION - 4.5%
Aaa AAA $1,150 West Virginia State College
System (AMBAC), 6.00%,
4/1/12 (2) $ 1,164,088
Aaa AAA 650 West Virginia State
University System (AMBAC),
6.00%, 4/1/12 660,329
------------
$ 1,824,417
------------
INSURED ELECTRIC UTILITIES - 13.5%
Aaa AAA $2,500 Marshall County PCR (Ohio
Power Kammer Plant) (MBIA),
5.45%, 7/1/14 $ 2,386,825
Aaa AAA 1,500 Mason County PCR (Ohio
Power Company) (AMBAC),
5.45%, 12/1/16 1,425,840
Aaa AAA 250 Puerto Rico Electric Power
Authority (FSA), Variable,
7/1/03 (1) 279,805
Aaa AAA 1,400 Putnam County PCR
(Appalachian Power Company)
(AMBAC), 5.45%, 6/1/19 1,304,898
------------
$ 5,397,368
------------
INSURED GENERAL OBLIGATIONS - 2.5%
Aaa AAA $1,000 West Virginia School
Building Authority (MBIA),
6.00%, 7/1/12 $ 1,009,250
------------
INSURED HOSPITALS - 15.7%
Aaa AAA $1,000 West Virginia HFA (Linked
Bulls & Bears) (MBIA),
6.10%, 1/1/18 $ 1,007,600
</TABLE>
56
<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 HOSPITALS -
(CONTINUED)
Aaa AAA 200 West Virginia HFA
(University Hospital)
(MBIA), 5.00%, 6/1/13 179,592
Aaa AAA 2,000 West Virginia HFA
(University Hospital)
(MBIA), 5.00%, 6/1/16 1,756,180
Aaa AAA 2,300 West Virginia HFA (Cabell
Huntington Hospital)
(AMBAC), 6.25%, 1/1/19 2,346,782
Aaa AAA 1,000 West Virginia HFA
(Charleston Area Medical
Center) (MBIA), 5.75%,
9/1/13 972,720
------------
$ 6,262,874
------------
INSURED TRANSPORTATION -
2.0%
Aaa AAA $1,250 West Virginia Parkways
Economic Development and
Tourism Authority (FGIC),
0%, 5/15/04 $ 793,888
------------
INSURED WATER & SEWER -
11.1%
Aaa AAA $1,500 Huntington City Sewerage
System (FSA), 5.375%,
11/1/23 $ 1,412,085
Aaa AAA 1,000 Parkersburg City Waterworks
(MBIA), 6.375%, 9/1/19 1,036,110
Aaa AAA 500 West Virginia Water
Development (Loan Program
II) (FSA), 5.75%, 11/1/19 485,395
Aaa AAA 810 West Virginia Water
Development (Loan Program
II) (FSA), 5.50%, 11/1/23 751,162
Aaa AAA 750 West Virginia Water
Development (Loan Program
II) (FSA), 6.00%, 11/1/14 754,170
------------
$ 4,438,922
------------
<CAPTION>
RATINGS (UNAUDITED)
- ------------------------
PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOLID WASTE - 2.6%
A2 A $1,000 Braxton, West Virginia
Solid Waste (Weyerhaeuser)
(AMT), 6.50%, 4/1/25 $ 1,022,740
------------
SPECIAL TAX REVENUE - 2.3%
Baa1 A $ 500 Puerto Rico Highway and
Transportation Authority,
5.25%, 7/1/20 $ 446,615
Baa1 A 500 Puerto Rico Highway and
Transportation Authority,
5.50%, 7/1/15 475,681
------------
$ 922,294
------------
TOTAL TAX-EXEMPT
INVESTMENTS (IDENTIFIED
COST, $40,032,289) $ 39,864,667
============
</TABLE>
(1) The above designated securities have been issued as inverse floater bonds.
(2) Security has been segregated to cover margin requirements on open financial
futures contracts.
The Portfolio invests primarily in debt securities issued by West 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 September 30, 1995, 49.5% 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 2.0% to 48.8% total investments.
See notes to financial statements
57
<PAGE>
- --------------------------------------------------------------------------------
Tax Free Portfolios
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $381,719,158 $661,202,447 $277,979,560 $27,181,386
Unrealized appreciation 24,303,093 33,808,006 17,523,995 1,162,683
------------ ------------ ------------ -----------
Total investments, at value (Note 1A) $406,022,251 $695,010,453 $295,503,555 $28,344,069
Cash 589 5,917,921 6,632 38
Receivable for investments sold 50,000 45,000 13,030,253 1,555,677
Interest receivable 6,743,380 15,155,609 5,219,546 492,405
Deferred organization expenses (Note 1D) 14,563 21,095 12,432 1,700
------------ ------------ ------------ -----------
Total assets $412,830,783 $716,150,078 $313,772,418 $30,393,889
------------ ------------ ------------ -----------
LIABILITIES:
Demand note payable (Note 5) $ 2,032,000 $ -- $ 2,018,000 $ 405,000
Payable for investments purchased -- -- 9,507,914 975,907
Payable for when-issued securities (Note 1F) -- 3,936,280 -- --
Payable for daily variation margin on open financial
futures contracts (Note 1E) 103,125 -- 61,875 16,500
Payable to affiliates --
Trustees' fees 4,638 5,150 4,126 426
Custodian fee 8,667 1,879 4,381 1,946
Accrued expenses 12,215 3,633 5,875 1,150
------------ ------------ ------------ -----------
Total liabilities $ 2,160,645 $ 3,946,942 $ 11,602,171 $ 1,400,929
------------ ------------ ------------ -----------
NET ASSETS applicable to investors' interest in
Portfolio $410,670,138 $712,203,136 $302,170,247 $28,992,960
============ ============ ============ ===========
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $386,540,544 $678,395,130 $284,750,352 $27,858,037
Unrealized appreciation of investments and financial
futures contracts (computed on the basis of
identified cost) 24,129,594 33,808,006 17,419,895 1,134,923
------------ ------------ ------------ -----------
Total $410,670,138 $712,203,136 $302,170,247 $28,992,960
============ ============ ============ ===========
</TABLE>
See notes to financial statements
58
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost $610,645,613 $304,406,955 $41,635,939 $40,032,289
Unrealized appreciation (depreciation) 31,702,974 11,991,691 51,463 (167,622)
------------ ------------ ----------- -----------
Total investments, at value (Note 1A) $642,348,587 $316,398,646 $41,687,402 $39,864,667
Cash 696 522 999,953 122
Receivable for investments sold 17,612,917 998,095 -- 1,251,526
Interest receivable 10,635,275 5,490,518 771,453 698,045
Deferred organization expenses (Note 1D) 14,921 9,316 1,744 1,738
------------ ------------ ----------- -----------
Total assets $670,612,396 $322,897,097 $43,460,552 $41,816,098
------------ ------------ ----------- -----------
LIABILITIES:
Demand note payable (Note 5) $ 476,000 $ 3,860,000 $ -- $ 970,000
Payable for investments purchased 16,908,493 -- 504,263 --
Payable for daily variation margin on open
financial futures contracts (Note 1E) 477,125 -- 48,125 7,313
Payable to affiliates --
Trustees' fees 5,150 4,126 426 427
Custodian fee 1,500 6,183 1,500 1,500
Accrued expenses 7,819 10,140 271 1,797
------------ ------------ ----------- -----------
Total liabilities $ 17,876,087 $ 3,880,449 $ 554,585 $ 981,037
------------ ------------ ----------- -----------
NET ASSETS applicable to investors' interest in
Portfolio $652,736,309 $319,016,648 $42,905,967 $40,835,061
============ ============ =========== ===========
SOURCES OF NET ASSETS:
Net proceeds from capital contributions and
withdrawals $621,396,197 $307,024,957 $42,891,975 $41,009,996
Unrealized appreciation (depreciation) of
investments and financial futures contracts
(computed on the basis of identified cost) 31,340,112 11,991,691 13,992 (174,935)
------------ ------------ ----------- -----------
Total $652,736,309 $319,016,648 $42,905,967 $40,835,061
============ ============ =========== ===========
</TABLE>
See notes to financial statements
59
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 28,624,042 $ 47,432,310 $ 19,516,946 $1,829,920
------------ ------------ ------------ ----------
Expenses --
Investment adviser fee (Note 2) $ 2,121,262 $ 3,433,489 $ 1,383,407 $ 65,442
Compensation of Trustees not members of
the Investment Adviser's organization (Note 2) 18,570 21,513 16,111 1,642
Custodian fee (Note 2) 187,581 231,473 135,884 20,589
Interest expense (Note 5) -- 267,593 -- --
Legal and accounting services 42,258 37,372 30,407 15,822
Amortization of organization expenses (Note 1D) 5,625 8,830 5,209 620
Miscellaneous 120,219 36,943 91,575 11,551
------------ ------------ ------------ ----------
Total expenses $ 2,495,515 $ 4,037,213 $ 1,662,593 $ 115,666
------------ ------------ ------------ ----------
Deduct reduction of investment adviser fee
(Note 2) $ -- $ -- $ -- $ 36,759
Deduct reduction of custodian fee (Note 2) 47,611 220,751 61,501 10,910
------------ ------------ ------------ ----------
Total $ 47,611 $ 220,751 $ 61,501 $ 47,669
------------ ------------ ------------ ----------
Net expenses $ 2,447,904 $ 3,816,462 $ 1,601,092 $ 67,997
------------ ------------ ------------ ----------
Net investment income $ 26,176,138 $ 43,615,848 $ 17,915,854 $1,761,923
------------ ------------ ------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(19,076,355) $(10,100,669) $(12,310,806) $(1,606,974)
Financial futures contracts (3,974,440) (12,765,513) (3,356,628) (429,946)
------------ ------------ ------------ ----------
Net realized loss on investments $(23,050,795) $(22,866,182) $(15,667,434) $(2,036,920)
------------ ------------ ------------ ----------
Change in unrealized appreciation (depreciation) --
Investments $ 34,125,832 $ 54,420,669 $ 24,470,289 $3,291,986
Financial futures contracts (650,309) -- (482,875) (49,109)
------------ ------------ ------------ ----------
Net unrealized appreciation of investments $ 33,475,523 $ 54,420,669 $ 23,987,414 $3,242,877
------------ ------------ ------------ ----------
Net realized and unrealized gain on
investments $ 10,424,728 $ 31,554,487 $ 8,319,980 $1,205,957
------------ ------------ ------------ ----------
Net increase in net assets from operations $ 36,600,866 $ 75,170,335 $ 26,235,834 $2,967,880
============ ============ ============ ==========
</TABLE>
See notes to financial statements
60
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (Note 1B) $ 41,798,094 $20,219,008 $ 2,510,499 $ 2,448,706
------------ ------------ ----------- -----------
Expenses --
Investment adviser fee (Note 2) $ 3,031,508 $ 1,463,895 $ 100,476 $ 98,033
Compensation of Trustees not members of
the Investment Adviser's organization (Note
2) 20,640 19,598 1,642 1,614
Custodian fee (Note 2) 221,548 157,716 25,652 19,975
Interest expense (Note 5) -- 114,074 9,944 --
Legal and accounting services 37,661 30,478 19,975 22,425
Amortization of organization expenses (Note 1D) 6,278 3,960 633 631
Miscellaneous 193,968 31,370 8,450 14,013
------------ ------------ ----------- -----------
Total expenses $ 3,511,603 $ 1,821,091 $ 166,772 $ 156,691
------------ ------------ ----------- -----------
Deduct reduction of investment adviser fee
(Note 2) $ -- $ -- $ 50,721 $ 32,526
Deduct reduction of custodian fee (Note 2) 220,048 67,412 16,510 8,102
------------ ------------ ----------- -----------
Total $ 220,048 $ 67,412 $ 67,231 $ 40,628
------------ ------------ ----------- -----------
Net expenses $ 3,291,555 $ 1,753,679 $ 99,541 $ 116,063
------------ ------------ ----------- -----------
Net investment income $ 38,506,539 $18,465,329 $ 2,410,958 $ 2,332,643
------------ ------------ ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss --
Investment transactions (identified cost basis) $(12,293,704) $(4,554,010) $ (674,421) $ (534,437)
Financial futures contracts (6,983,956) (2,677,416) (717,584) (623,660)
------------ ------------ ----------- -----------
Net realized loss on investments $(19,277,660) $(7,231,426) $(1,392,005) $(1,158,097)
------------ ------------ ----------- -----------
Change in unrealized appreciation
(depreciation) --
Investments $ 43,541,560 $20,963,434 $ 2,912,214 $ 2,862,911
Financial futures contracts (498,006) -- (37,471) (52,368)
------------ ------------ ----------- -----------
Net unrealized appreciation of investments $ 43,043,554 $20,963,434 $ 2,874,743 $ 2,810,543
------------ ------------ ----------- -----------
Net realized and unrealized gain on
investments $ 23,765,894 $13,732,008 $ 1,482,738 $ 1,652,446
------------ ------------ ----------- -----------
Net increase in net assets from
operations $ 62,272,433 $32,197,337 $ 3,893,696 $ 3,985,089
============ ============ =========== ===========
</TABLE>
See notes to financial statements
61
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 26,176,138 $ 43,615,848 $ 17,915,854 $ 1,761,923
Net realized loss on investments (23,050,795) (22,866,182) (15,667,434) (2,036,920)
Change in unrealized appreciation of investments 33,475,523 54,420,669 23,987,414 3,242,877
------------- ------------- ------------ -----------
Net increase in net assets from operations $ 36,600,866 $ 75,170,335 $ 26,235,834 $ 2,967,880
------------- ------------- ------------ -----------
Capital transactions --
Contributions $ 39,676,667 $ 64,327,943 $ 27,917,577 $ 4,982,661
Withdrawals (110,738,796) (199,418,295) (60,522,944) (8,434,232)
------------- ------------- ------------ -----------
Decrease in net assets resulting from capital
transactions $ (71,062,129) $(135,090,352) $(32,605,367) $(3,451,571)
------------- ------------- ------------ -----------
Total decrease in net assets $ (34,461,263) $ (59,920,017) $ (6,369,533) $ (483,691)
NET ASSETS:
At beginning of year 445,131,401 772,123,153 308,539,780 29,476,651
------------- ------------- ------------ -----------
At end of year $ 410,670,138 $ 712,203,136 $302,170,247 $28,992,960
============= ============= ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 38,506,539 $ 18,465,329 $ 2,410,958 $ 2,332,643
Net realized loss on investments (19,277,660) (7,231,426) (1,392,005) (1,158,097)
Change in unrealized appreciation of
investments 43,043,554 20,963,434 2,874,743 2,810,543
------------- ------------ ----------- -----------
Net increase in net assets from operations $ 62,272,433 $ 32,197,337 $ 3,893,696 $ 3,985,089
------------- ------------ ----------- -----------
Capital transactions --
Contributions $ 61,423,633 $ 24,237,228 $ 9,514,698 $ 3,302,492
Withdrawals (126,606,533) (61,829,470) (8,622,345) (6,925,830)
------------- ------------ ----------- -----------
Increase (decrease) in net assets resulting
from capital transactions $ (65,182,900) $(37,592,242) $ 892,353 $(3,623,338)
------------- ------------ ----------- -----------
Total increase (decrease) in net assets $ (2,910,467) $ (5,394,905) $ 4,786,049 $ 361,751
NET ASSETS:
At beginning of year 655,646,776 324,411,553 38,119,918 40,473,310
------------- ------------ ----------- -----------
At end of year $ 652,736,309 $319,016,648 $42,905,967 $40,835,061
============= ============ =========== ===========
</TABLE>
See notes to financial statements
62
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA PORTFOLIO
-----------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31, FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -----------
YEAR ENDED
1994** 1994* SEPTEMBER 30, 1994
------------- ------------ ---------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 13,943,369 $ 25,183,098 $ 45,081,235 $ 17,598,654 $ 1,360,681
Net realized gain (loss) on
investment transactions (10,624,666) 10,976,521 (5,816,054) (5,575,616) (648,050)
Change in unrealized
depreciation of investments (942,071) (34,132,327) (84,917,438) (26,955,377) (2,341,025)
------------ ------------ ------------- ------------ -----------
Net increase (decrease) in net
assets from operations $ 2,376,632 $ 2,027,292 $ (45,652,257) $(14,932,339) $(1,628,394)
------------ ------------ ------------- ------------ -----------
Capital transactions --
Contributions $ 24,605,354 $553,867,973 $ 174,248,758 $ 73,999,994 $22,605,600
Withdrawals (49,109,598) (88,736,272) (128,894,901) (41,140,572) (2,733,129)
------------ ------------ ------------- ------------ -----------
Increase (decrease) in net
assets resulting from
capital transactions $(24,504,244) $465,131,701 $ 45,353,857 $ 32,859,422 $19,872,471
------------ ------------ ------------- ------------ -----------
Total increase (decrease)
in net assets $(22,127,612) $467,158,993 $ (298,400) $ 17,927,083 $18,244,077
NET ASSETS:
At beginning of year 467,259,013 100,020 772,421,553 290,612,697 11,232,574
------------ ------------ ------------- ------------ -----------
At end of year $445,131,401 $467,259,013 $ 772,123,153 $308,539,780 $29,476,651
============ ============ ============= ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
YEAR ENDED SEPTEMBER 30, 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations --
Net investment income $ 38,006,256 $ 18,012,641 $ 1,702,520 $ 1,998,183
Net realized loss on investment transactions (2,555,481) (413,084) (572,496) (467,540)
Change in unrealized depreciation of
investments (67,884,728) (32,855,282) (3,287,877) (3,500,185)
------------- ------------- ------------ -----------
Net decrease in net assets from operations $(32,433,953) $(15,255,725) $(2,157,853) $(1,969,542)
------------- ------------- ------------ -----------
Capital transactions --
Contributions $135,102,754 $ 78,699,031 $26,648,655 $21,082,434
Withdrawals (95,828,619) (37,123,714) (3,352,183) (3,399,808)
------------- ------------- ------------ -----------
Increase in net assets resulting from capital
transactions $ 39,274,135 $ 41,575,317 $23,296,472 $17,682,626
------------- ------------- ------------ -----------
Total increase in net assets $ 6,840,182 $ 26,319,592 $21,138,619 $15,713,084
NET ASSETS:
At beginning of year 648,806,594 298,091,961 16,981,299 24,760,226
------------- ------------- ------------ -----------
At end of year $655,646,776 $324,411,553 $38,119,918 $40,473,310
============ ============ =========== ===========
</TABLE>
See notes to financial statements
63
<PAGE>
- --------------------------------------------------------------------------------
* For the period from the start of business, May 3, 1993 to March 31, 1994.
** For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
64
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA PORTFOLIO FLORIDA PORTFOLIO
-------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED
-------------------------------- ----------------------------------
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
------------------- -------- ----------------------------------
1995 1994**** 1994*** 1995 1994 1993*
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets):
Expenses 0.59% 0.57% + 0.55% + 0.55% 0.48% 0.47%+
Net investment income 6.22% 6.09% + 5.72% + 5.94% 5.65% 5.53%+
Net assets, end of year (000 omitted) $410,763 $445,131 $467,259 $712,203 $772,123 $772,422
PORTFOLIO TURNOVER 58% 40% 91% 61% 57% 55%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MASSACHUSETTS PORTFOLIO MISSISSIPPI PORTFOLIO
------------------------------ -------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 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 0.56% 0.51% 0.49%+ 0.27% 0.05% 0.00%+
Net investment income 6.00% 5.74% 5.72%+ 5.97% 5.67% 4.49%+
Net assets, end of year (000 omitted) $302,170 $308,540 $290,613 $28,993 $29,477 $11,233
PORTFOLIO TURNOVER 87% 53% 38% 52% 38% 11%
</TABLE>
++The operating expenses of the Mississippi Portfolio 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> <C>
RATIOS (As a percentage of average daily net
assets):
Expenses 0.39% 0.32% 0.25%+
Net investment income 5.85% 5.40% 4.24%+
</TABLE>
+ Annualized.
* For the period from the start of business, February 1, 1993, to September
30, 1993.
** For the period from the start of business, June 11, 1993, to September 30,
1993.
*** For the period from the start of business, May 3, 1993 to March 31, 1994.
**** For the six months ended September 30, 1994 (Note 7).
See notes to financial statements
65
<PAGE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO OHIO PORTFOLIO
---------------------------------- ----------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
---------------------------------- ----------------------------------
1995 1994 1993* 1995 1994 1993*
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RATIOS (As a percentage of average
daily net assets):
Expenses 0.54% 0.48% 0.48%+ 0.57% 0.51% 0.49%+
Net investment income 5.97% 5.70% 5.64%+ 5.80% 5.61% 5.61%+
Net assets, end of year (000 omitted) $652,736 $655,647 $648,807 $319,017 $324,412 $298,092
PORTFOLIO TURNOVER 55% 47% 37% 51% 31% 24%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RHODE ISLAND PORTFOLIO WEST VIRGINIA PORTFOLIO
--------------------------------- ---------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 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 0.29% 0.12% 0.00%+ 0.31% 0.10% 0.00%+
Net investment income 5.96% 5.64% 4.86%+ 5.81% 5.52% 4.50%+
Net assets, end of year (000 omitted) $42,906 $38,120 $16,981 $40,835 $40,473 $24,760
PORTFOLIO TURNOVER 42% 42% 23% 19% 39% 19%
</TABLE>
++ The operating expenses of the Rhode Island and West Virginia 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> <C>
RATIOS (As a percentage of average daily
net assets):
Expenses 0.41% 0.33% 0.26%+ 0.39% 0.33% 0.21%+
Net investment income 5.80% 5.43% 4.60%+ 5.73% 5.29% 4.30%+
</TABLE>
+ Annualized.
* For the period from the start of business, February 1, 1993, to September 30,
1993.
** For the period from the start of business, June 11, 1993, to September 30,
1993.
See notes to financial statements
66
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
California Tax Free Portfolio (California Portfolio) is registered under the
Investment Company Act of 1940 as a diversified open-end Management Investment
Company. Florida Tax Free Portfolio (Florida Portfolio), Massachusetts Tax Free
Portfolio (Massachusetts Portfolio), Mississippi Tax Free Portfolio (Mississippi
Portfolio), New York Tax Free Portfolio (New York Portfolio), Ohio Tax Free
Portfolio (Ohio Portfolio), Rhode Island Tax Free Portfolio (Rhode Island
Portfolio) and West Virginia Tax Free Portfolio (West Virginia Portfolio),
collectively the Portfolios, are registered under the Investment Company Act of
1940 as non-diversified open-end management investment companies. The Portfolios
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
consistently followed by the Portfolios in the preparation of their financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS--Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts listed on commodity
exchanges are valued at closing settlement prices. Short-term obligations,
maturing in sixty days or less, are valued at amortized cost, which approximates
value. Investments for which valuations or market quotations are unavailable are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees.
B. INCOME--Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C. INCOME TAXES--The Portfolios are treated as partnerships for Federal tax
purposes. No provision is made by the Portfolios for federal or state taxes on
any taxable income of the Portfolios because each investor in the Portfolios is
ultimately responsible for the payment of any taxes. Since some of the
Portfolios' investors are regulated investment companies that invest all or
substantially all of their assets in the Portfolios, the Portfolios normally
must satisfy the applicable source of income and diversification requirements
(under the Internal Revenue Code) in order for their respective investors to
satisfy them. The Portfolios will allocate at least annually among their
respective investors each investor's distributive share of the Portfolios' net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deductions or credit. Interest income
received by the Portfolios on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will retain its
status as income exempt from federal income tax when allocated to each
Portfolio's investors. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986, may be considered a tax preference
item for investors.
D. DEFERRED ORGANIZATIONAL EXPENSES--Costs incurred by a Portfolio in connection
with its organization are being amortized on the straight-line basis over five
years.
E. FINANCIAL FUTURES CONTRACTS--Upon the entering of a financial futures
contract, a Portfolio is required to deposit ("initial margin") either in cash
or securities an amount equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by a Portfolio ("margin maintenance") each day, dependent on the daily
fluctuations in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by a Portfolio. A Portfolio's investment
in financial futures contracts is designed only to hedge against anticipated
future changes in interest rates. Should interest rates move unexpectedly, the
Portfolios may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-- The Portfolios may engage in
when-issued and delayed delivery transactions. The Portfolio records when-issued
securities on trade date and maintains security positions such that sufficient
liquid assets will be available to make payments for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are
marked-to-market daily and begin earning interest on settlement date.
G. OTHER -- Investment transactions are accounted for on a trade date basis.
67
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(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 September 30, 1995, each Portfolio paid advisory fees as follows:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT EFFECTIVE RATE*
- ------------------ ---------- ----------------
<S> <C> <C>
California $2,121,262 0.50%
Florida 3,433,489 0.47%
Massachusetts 1,383,407 0.46%
Mississippi 65,442 0.22%
New York 3,031,508 0.47%
Ohio 1,463,895 0.46%
Rhode Island 100,476 0.25%
West Virginia 98,033 0.24%
</TABLE>
* Advisory fees paid as a percentage of average daily net assets.
To enhance the net income of the Mississippi Portfolio, Rhode Island Portfolio
and West Virginia Portfolio, BMR made a reduction in its fee in the amount of
$36,759, $50,721 and $32,526, respectively, for the year ended September 30,
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. All significant credit balances are reported as a
reduction of expenses in the statement of operations.
Certain of the officers and Trustees of the Portfolios are officers and
directors/trustees of the above organizations. Trustees of the Portfolio that
are not affiliated with the Investment Adviser may elect to defer receipt of all
or a percentage of their annual fees in accordance with the terms of the
Trustees Deferred Compensation Plan. For the year ended September 30, 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 fiscal year ended September 30, 1995, were as
follows:
<TABLE>
<CAPTION>
CALIFORNIA
PORTFOLIO FLORIDA PORTFOLIO MASSACHUSETTS PORTFOLIO MISSISSIPPI PORTFOLIO
------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Purchases $ 240,733,525 $442,070,821 $256,567,304 $ 15,055,910
Sales 289,176,459 538,413,651 272,646,745 17,241,107
</TABLE>
<TABLE>
<CAPTION>
NEW YORK RHODE ISLAND WEST VIRGINIA
PORTFOLIO OHIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------- ------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Purchases $ 355,016,997 $159,675,006 $ 18,875,194 $ 7,550,158
Sales 397,804,899 188,427,313 16,667,230 10,130,261
</TABLE>
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation (depreciation) in value of the investments
owned by each Portfolio at September 30, 1995, as computed on a federal income
tax basis, are as follows:
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Aggregate Cost $381,719,158 $661,202,447 $277,979,560 $27,181,386
============ ============ ============= ==============
Gross unrealized appreciation $ 24,714,474 $ 37,104,327 $17,673,126 $ 1,233,400
Gross unrealized depreciation 411,381 3,296,321 149,131 70,717
------------ ------------ ------------ -------------
Net unrealized appreciation $ 24,303,093 $ 33,808,006 $17,523,995 $ 1,162,683
============ ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Aggregate Cost $610,645,613 $304,406,955 $41,635,939 $40,032,289
============ ============ ============ =============
Gross unrealized appreciation $ 34,539,991 $ 13,447,996 $ 809,990 $ 586,957
Gross unrealized depreciation 2,837,017 1,456,305 758,527 754,579
------------ ------------ ------------ -------------
Net unrealized appreciation (depreciation) $ 31,702,974 $ 11,991,691 $ 51,463 $ (167,622)
============ ============ ============ =============
</TABLE>
- --------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolios participate with other portfolios and funds managed by BMR and
EVM in a $120 million unsecured line of credit agreement with a bank. The line
of credit consists of a $20 million committed facility and a $100 million
discretionary facility. Each Portfolio may temporarily borrow up to 5% of its
total assets to satisfy redemption requests or settle securities transactions.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above either the bank's adjusted certificate of deposit rate, a variable
adjusted certificate of deposit rate, or a federal funds effective rate. In
addition, a fee computed at an annual rate of 1/4 of 1% on the $20 million
committed facility and on the daily unused portion of the $100 million
discretionary facility is allocated among the participating funds and portfolios
at the end of each quarter. At September 30, 1995, the California Portfolio,
Massachusetts Portfolio, Mississippi Portfolio, New York Portfolio, Ohio
Portfolio and West Virginia Portfolio had loan balances outstanding pursuant to
this line of credit of $2,032,000, $2,018,000, $405,000, $476,000, $3,860,000
and $970,000, respectively.
For the year ended September 30, 1995, the average daily balance outstanding
pursuant to this line of credit, the average interest rate and the maximum
outstanding month end balance were as follows:
<TABLE>
<CAPTION>
MAXIMUM
OUTSTANDING
AVERAGE AVERAGE MONTH END
PORTFOLIO DAILY BALANCE INTEREST RATE BALANCE
- ------------- ------------- ------------- -----------
<S> <C> <C> <C>
Florida $ 9,287,587 7.28% $26,664,000
Ohio 2,928,000 7.27% 9,776,000
Rhode Island 747,882 7.26% 1,370,000
</TABLE>
The California, Massachusetts, Mississippi, New York, and West Virginia
Portfolios did not have any significant borrowings or allocated fees during the
year end September 30, 1995.
69
<PAGE>
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(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 September 30,
1995, were as follows:
<TABLE>
<CAPTION>
FUTURES
CONTRACTS NET UNREALIZED
PORTFOLIO EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
- -------------- ---------------- ------------------------- -------- --------------
<S> <C> <C> <C> <C>
California 12/95 75 U.S. Treasury Bonds Short $173,499
Massachusetts 12/95 45 U.S. Treasury Bonds Short 104,100
Mississippi 12/95 12 U.S. Treasury Bonds Short 27,760
New York 12/95 347 U.S. Treasury Bonds Short 362,862
Rhode Island 12/95 35 U.S. Treasury Bonds Short 37,471
West Virginia 12/95 10 U.S. Treasury Bonds Short 7,313
</TABLE>
At September 30, 1995, each Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts. The Florida Portfolio and
Ohio Portfolio did not have any open obligations under these financial
instruments at September 30, 1995.
- --------------------------------------------------------------------------------
(7) CHANGE IN FISCAL YEAR
The California Portfolio changed it fiscal year end from March 31 to September
30, effective September 30, 1994.
70
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF:
CALIFORNIA TAX FREE PORTFOLIO
FLORIDA TAX FREE PORTFOLIO
MASSACHUSETTS TAX FREE PORTFOLIO
MISSISSIPPI TAX FREE PORTFOLIO
NEW YORK TAX FREE PORTFOLIO
OHIO TAX FREE PORTFOLIO
RHODE ISLAND TAX FREE PORTFOLIO
WEST VIRGINIA TAX FREE PORTFOLIO
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of California Tax Free Portfolio, Florida Tax
Free Portfolio, Massachusetts Tax Free Portfolio, Mississippi Tax Free
Portfolio, New York Tax Free Portfolio, Ohio Tax Free Portfolio, Rhode Island
Tax Free Portfolio and West Virginia Tax Free Portfolio as of September 30,
1995, the related statements of operations for the year then ended, the
statements of changes in net assets for the years ended September 30, 1995 and
1994, and for the California Tax Free Portfolio, the year ended March 31, 1994,
and the supplementary data for each of the years in the three-year period ended
September 30, 1995. These financial statements and supplementary data are the
responsibility of each 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 audits 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
September 30, 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 California Tax Free
Portfolio, Florida Tax Free Portfolio, Massachusetts Tax Free Portfolio,
Mississippi Tax Free Portfolio, New York Tax Free Portfolio, Ohio Tax Free
Portfolio, Rhode Island Tax Free Portfolio and West Virginia Tax Free Portfolio
at September 30, 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
October 27, 1995
71
<PAGE>
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Investment Management
- --------------------------------------------------------------------------------
FUNDS OFFICERS INDEPENDENT TRUSTEES
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
Chairman, Newspaper of New
England, Inc.
JAMES B. HAWKES
Vice President, Trustee SAMUEL L. HAYES, III
Jacob H. Schiff Professor of
Investment
ROBERT B. MACINTOSH Banking, Harvard University
Vice President Graduate School of
Business Administration
JAMES L. O'CONNOR
Treasurer
NORTON H. REAMER
THOMAS OTIS President and Director,
Secretary United Asset Management
Corporation
JOHN L. THORNDIKE
Director,
Fiduciary Company Incorporated
JACK L. TREYNOR
Investment Adviser
and Consultant
- --------------------------------------------------------------------------------
PORTFOLIOS OFFICERS JAMES L. O'CONNOR
Treasurer
THOMAS J. FETTER
President and Portfolio
Manager of Florida THOMAS OTIS
and Ohio Tax Free Secretary
Portfolios
JAMES B. HAWKES
Vice President, Trustee INDEPENDENT TRUSTEES
DONALD R. DWIGHT
ROBERT B. MACINTOSH President, Dwight Partners, Inc.
Vice President and Chairman, Newspaper of New
Portfolio England, Inc.
Manager of California and
Massachusetts
Tax Free Portfolios SAMUEL L. HAYES, III
Jacob H. Schiff Professor of
Investment Banking,
NICOLE ANDERES Harvard University
Vice President and Graduate School of
Portfolio Business Administration
Manager of New York and
Rhode Island
Tax Free Portfolios
NORTON H. REAMER
TIMOTHY T. BROWSE President and Director,
Vice President and United Asset Management
Portfolio Corporation
Manager of West Virginia
Tax Free Portfolio JOHN L. THORNDIKE
Director,
Fiduciary Company Incorporated
CYNTHIA J. CLEMSON
Vice President and
Portfolio
Manager of Mississippi JACK L. TREYNOR
Tax Free Portfolio Investment Adviser
and Consultant
<PAGE>
-------
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
73
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
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THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS WHICH
CONTAINS MORE COMPLETE INFORMATION ON THE FUND, INCLUDING ITS DISTRIBUTION PLAN,
SALES CHARGES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
EATON VANCE
MUNICIPALS TRUST
24 FEDERAL STREET
BOSTON, MA 02110
C-8TFCSRC
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1996
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
- --------------------------------------------------------------------------------
TABLE OF CONTENTS Page
Investment Objective and Policies.................................... 2
Investment Restrictions.............................................. 12
Trustees and Officers................................................ 14
Control Persons and Principal Holders of Securities.................. 17
Investment Adviser and Administrator................................. 17
Custodian............................................................ 21
Service for Withdrawal............................................... 22
Determination of Net Asset Value..................................... 22
Investment Performance............................................... 23
Taxes................................................................ 25
Principal Underwriter................................................ 28
Portfolio Security Transactions...................................... 28
Other Information.................................................... 30
Independent Certified Public Accountants............................. 32
Financial Statements................................................. 32
Tax Equivalent Yield Table........................................... 33
Appendix............................................................. 34
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF MASSACHUSETTS MUNICIPAL BOND PORTFOLIO (THE
"FUND") DATED FEBRUARY 1, 1996, AS SUPPLEMENTED FROM TIME TO TIME. THIS
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>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of Massachusetts Municipal Bond Portfolio (the
"Fund"), a series of Eaton Vance Municipals Trust (the "Trust"), is to provide
current income exempt from regular federal income tax and Massachusetts state
personal income taxes. The Fund seeks to meet its investment objective by
investing its assets in the Massachusetts Municipals Portfolio (the
"Portfolio"), a separate registered investment company with the same investment
objective as the Fund. This Statement of Additional Information is sometimes
referred to as the "SAI."
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations the interest on
which is exempt from federal income taxes and is not a tax preference item for
purposes of the federal alternative minimum tax (the "AMT"): (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 such obligation, the Portfolio will generally rely on an opinion of counsel
(when available) obtained by the issuer and will not undertake any independent
verification of the basis for the opinion. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds.
Interest on certain "private activity bonds" issued after August 7,
1986 is exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the AMT. For corporate shareholders, the Fund's distributions
derived from interest on all municipal obligations (whenever issued) is included
in "adjusted current earnings" for purposes of the AMT as applied to
corporations (to the extent not already included in alternative minimum taxable
income as income attributable to private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is less than (i) the stated principal amount payable at maturity,
in the case of an obligation that does not have original issue discount or (ii)
in the case of an obligation that does have original issue discount, the sum of
the issue price and any original issue discount that accrued before the
obligation was purchased, subject to a de minimis exclusion.
Issuers of general obligation bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds 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 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
The following information as to certain Massachusetts considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Massachusetts 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 Massachusetts issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Obligations of the Commonwealth of Massachusetts and Political Subdivisions
Thereunder. Beginning in 1989, the Commonwealth's economy slowed significantly.
Most of the employment growth during this period was experienced in the services
and trade sectors of the economy, while the manufacturing sector continues to
suffer employment losses. Like most other industrial states, Massachusetts has
seen a shift in employment from manufacturing to more technology and
service-based industries. Between 1993 and 1994, per capita personal income in
Massachusetts increased 3.6%, as compared to 1.7% for the nation as a whole. The
unemployment rate for the Commonwealth fell from 6.4% in October 1994 to 5.3%
for October 1995. The national unemployment rate for October 1995 was 5.5%.
1995 FISCAL YEAR. The Commonwealth has closed its fiscal 1995 financial
records and published its audited financial information. Fiscal 1995 tax revenue
collections were approximately $11.163 billion, approximately $12 million above
the Department of Revenue's revised fiscal year 1995 tax revenue estimate of
$11.151 billion, approximately $556 million, or 5.2%, above fiscal 1994 tax
revenues of $10.607 billion. Budgeted revenues and other sources, including
non-tax revenues, collected in fiscal 1995 were approximately $16.387 billion,
approximately $837 million, or 5.4%, above fiscal 1994 budgeted revenues of
$15.550 billion. Budgeted expenditures and other uses of funds fiscal 1995 were
approximately $16.251 billion, approximately $728 million, or $4.7%, above
fiscal 1994 budgeted expenditures and uses of $15.523 billion. The Commonwealth
ended fiscal 1995 with an operating gain of $137 million and an ending fund
balance of $726 million.
Budgeted revenues and other sources to be collected in fiscal 1996 are
estimated by the Executive Office for Administration and Finance to be
approximately $16.778 billion. This amount includes estimated fiscal 1996 tax
revenues of $11.653 billion, which is approximately $490 million, or 4.3%,
higher than fiscal 1995 tax revenues.
In connection with his proposal to reorganize state government, the
Governor also announced on November 1, 1995 that he would propose to reduce the
personal income tax rate on earned income from 5.95% to 5.45%. Legislation to
effectuate such tax reduction is expected to be filed by the Governor in
January, 1996 in conjunction with the filing of his budget recommendations for
fiscal 1997. The cost to the Commonwealth of the proposed tax reduction has been
estimated to be approximately $500 million per year.
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base spending
of $1.288 billion of approximately $175 million in fiscal 1994. The Executive
office for Administration and Finance expects annual increases in expenditures
above the fiscal 1993 base spending of $1.288 billion (after the expenditure of
approximately $37 million in fiscal 1995) of $629 million in fiscal 1996 and
approximately $872 million in fiscal 1997. Additional annual increases are also
expected in later fiscal years.
Major infrastructure projects are anticipated over the next decade. It
is currently anticipated that the federal government will assume responsibility
for approximately 90% of the estimated $7.7 billion cost of projects which
consist of the depression of the central artery which traverses the City of
Boston and the construction of a third harbor tunnel linking downtown Boston to
Logan Airport.
The Massachusetts Water Resources Authority is undertaking capital
projects for the construction and rehabilitation of sewage collection and
treatment facilities in order to bring wastewater discharges into Boston Harbor
into compliance with federal and state pollution control requirements. The
harbor cleanup project is estimated to cost $3.5 billion in 1994 dollars. Work
on the project began in 1988 and is expected to be completed in 1999, with the
most significant expenditures occurring between 1990 and 1999. The majority of
the project's expenditures will be paid for by local communities, in the form of
user fees, with federal and state sources making up the difference.
The fiscal viability of the Commonwealth's authorities and
municipalities is inextricably linked to that of the Commonwealth. The
Commonwealth guarantees the debt of several authorities, most notably the
Massachusetts Bay Transportation Authority and the University of Massachusetts
Building Authority. Their ratings are based on this guarantee and can be
expected to move in tandem. Several other authorities are funded in part or in
whole by the Commonwealth and their debt ratings may be adversely affected by a
negative change in those of the Commonwealth.
Massachusetts' municipal governments are constrained in their ability
to increase local revenues by an initiative passed in 1980, "Proposition 2 1/2".
Proposition 2 1/2 limits the amount of property taxes that can be levied in a
fiscal year to the lower of 2.5% of fair value or 102.5% of the previous year's
levy, unless overridden by a majority of local voters. Proposition 2 1/2 also
limits the amount the municipality can be charged by certain government entities
such as counties. While Proposition 2 1/2 is not a constitutional question and
can therefore be amended or abolished by the legislature, it should be noted
that no significant challenge has been raised since it took effect. Any fiscal
problems encountered by the state amplify the economic and fiscal problems
encountered by cities and towns throughout the Commonwealth. Any Commonwealth
fiscal problems which result in local aid reductions could, in the absence of
overrides, result in payment defaults by local cities and towns and/or ratings
downgrades resulting in an erosion of their market value.
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 the Territories affecting the issuers of such
obligations.
Puerto Rico has a diversified economy dominated by the manufacturing
and service sectors. The three largest sectors of the economy (as a percentage
of employment) are services (47%), government (22%) and manufacturing (16.4%).
These three sectors represent 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
The North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico. The November, 1995 unemployment rate was 13.4%.
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. A 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 changes in tax treatment of Puerto Rico
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 to retain their Commonwealth status, become a state or
establish an independent nation. Puerto Ricans voted to retain Commonwealth
status, leaving intact the current relationship with the federal government.
There can be no assurance that the statehood issue will not be brought to a vote
in the future. A successful statehood vote in Puerto Rico would then require
ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. The
tourism industry is economically sensitive and would likely be adversely
affected by a recession in either the United States or Europe. In September
1995, St. Thomas and St. John were hit by a hurricane and sustained extensive
damage. The longer term impact on the tourism industry is not yet known. There
can be no assurances that the market for USVI bonds will not be affected. In
general, hurricanes and civil unrest have and will continue to have an adverse
affect on the tourism industry.
An important component of the USVI revenue base is the federal excise
tax on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than 90%
of the rum distilled in the USVI is distilled at one plant, any interruption in
its operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI experienced 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 (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles
southeast of Tokyo. The U.S. military is a key component of Guam's economy. The
federal government directly comprises more than 10% of the employment base, with
a substantial component of the service sector to support these personnel. Guam
is expected to benefit from the closure of the Subic Bay Naval Base and the
Clark Air Force Base in the Philippines. The Naval Air Station, one of several
U.S. military facilities on the island, has been slated for closure by the
Defense Base Closure and Realignment Committee; however, the administration
plans to use these facilities to expand the Island's commercial airport. Guam is
also heavily reliant on tourists, particularly the Japanese. For 1994, the
financial position of Guam has weakened as it incurred an unaudited General Fund
operating deficit. The administration has taken steps to improve its financial
position; however, there are no guarantees that an improvement will be realized.
Guam's general obligation debt is rated Baa by Moody's.
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 a similar type. In particular, investments in the industrial
revenue bonds listed above might involve without limitation the following risks.
Hospital bond ratings are often based on feasibility studies which
contain projections of expenses, revenues and occupancy levels. Among the
influences affecting a hospital's gross receipts and net income available to
service its debt are demand for hospital services, the ability of the hospital
to provide the services required, management capabilities, economic developments
in the service area, efforts by insurers and government agencies to limit rates
and expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction
programs in an inflationary period, cost increases and delay occasioned by
safety and environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices, and in achieving
timely and adequate rate relief from regulatory commissions, effects of energy
conservation and limitations on the capacity of the capital market to absorb
utility debt.
Life care facilities are an alternative form of long-term housing for
the elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state 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.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations
therein, which arrangements frequently involve special risks. Municipal leases
are obligations in the form of a lease or installment purchase arrangement which
is issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to these
arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Such arrangements are, therefore, subject to the risk that
the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be
deemed illiquid for the purpose of the Portfolio's 15% limitation on investment
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 Statement"
incorporated by reference into this SAI 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 an another purchased at approximately the same time to take
advantage of what the Portfolio believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes in the overall
demand for or supply of various types of municipal obligations or changes in the
investment objectives of investors. Such trading may be expected to increase the
portfolio turnover rate, which may increase capital gains and the expenses
incurred in connection with such trading. The Portfolio anticipates that its
annual portfolio turnover rate will generally not exceed 100% (excluding
turnover of securities having a maturity of one year or less). A 100% annual
turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
WHEN ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a
"when-issued" basis, that is, delivery and payment for the securities normally
taking place within a specified number of days after the date of the Portfolio's
commitment and are subject to certain conditions such as the issuance of
satisfactory legal opinions. The Portfolio may also purchase securities on a
when-issued basis pursuant to refunding contracts in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Portfolio to buy such securities on
a settlement date that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the Portfolio commits to purchase a security on a when-issued
basis it records the transaction and reflects the value of the security in
determining its net asset value. Securities purchased on a when-issued basis and
the securities held by the Portfolio are subject to changes in value based upon
the perception of the creditworthiness of the issuer and changes in the level of
interest rates (i.e. appreciation when interest rates decline and depreciation
when interest rates rise). Therefore, to the extent that the Portfolio remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be greater fluctuations in the Portfolio's
net asset value than if it solely set aside cash to pay for when-issued
securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940 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, since the Portfolio may retain the bond if interest
rates decline. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Since this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller
of the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organization 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 form 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 rats may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities and (ii) futures
contracts on securities indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or foreign
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 contracts 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 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) Underwriter 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 Investment Company Act of 1940 (the "1940 Act"). Whenever the
Trust is requested to vote on a change in the fundamental investment
restrictions of the Portfolio (or the Portfolio's 80% investment policy with
respect to State obligations described in the Fund's current Prospectus), the
Trust will hold a meeting of Fund shareholders and will cast its vote as
instructed by the shareholders.
The Fund and the Portfolio have 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 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 their 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.
In order to permit the sale of shares of the Fund, in certain states,
the Fund may make commitments more restrictive than the policies described
above. Should the Fund determine that any such commitment is no longer in the
best interests of the Fund and its shareholders, it will revoke the commitment
by terminating sales of its shares, in the state(s) involved.
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"), which is 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 and officers 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), Trustee and Vice President*
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 (60), III, 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 Business School,
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 Trust Company. 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 (39), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust on March 22,
1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (33), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary on March
27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
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 and the Portfolio's contractual
relationship with the investment adviser, making recommendations to the Trustees
regarding the compensation of those Trustees who are not members of the Eaton
Vance organization, and making recommendations to the Trustees regarding
candidates to fill vacancies, as and when they occur, in the ranks of those
Trustees who are not "interested persons" of the Trust, the Portfolio, or the
Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit
Committee of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
with such accountants and the Treasurer of the Trust and of the Portfolio
matters relative to accounting and auditing practices and procedures, accounting
records, internal accounting controls, and the functions performed by the
custodian and transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred fees
invested by the Portfolio in the shares of one or more funds in the Eaton Vance
Family of Funds, and the amount paid to the Trustees under the Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Plan will have a negligible effect on the
Portfolio's assets, liabilities, and net income per share, and will not obligate
the Portfolio to retain the services of any Trustee or obligate the Portfolio to
pay any particular level of compensation to the Trustee. Neither the Portfolio
nor the Fund has a retirement plan for its Trustees.
The fees and expenses of those Trustees of the Trust and of the
Portfolio who are not members of the Eaton Vance organization are paid by the
Fund (and the other series of the Trust) and the Portfolio, respectively. During
the fiscal year ended September 30, 1995, the Trustees of the Trust and the
Portfolio earned the following compensation in their capacities as Trustees from
the Fund, the Portfolio and of the funds in the Eaton Vance fund complex:
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX(1)
---- ------------ -------------- -----------------
Donald R. Dwight ......... $34 $3,188(2) $135,000(4)
Samuel L. Hayes .......... 32 3,172(3) 150,000(5)
Norton H. Reamer ......... 32 3,160 135,000
John L. Thorndike ........ 32 3,268 140,000
Jack L. Treynor .......... 35 3,325 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
(2) Includes $1,069 of deferred compensation.
(3) Includes $962 of deferred compensation.
(4) Includes $35,000 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at October 31, 1995 the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of October 31, 1995 Mars & Co., Boston, MA, Jupiter & Co., Boston, MA
and Mercury & Co., Boston, MA were the record owners of approximately 34.4%,
16.9% and 5.4%, 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, and Charles
C. Cunningham, Boston, MA held of record and beneficially owned 11.1% of the
outstanding shares of the Fund. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an
Investment Advisory Agreement dated October 13, 1992. 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 31 long-term state portfolios, 3
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 manger, 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 Management and
the portfolio manager of single-state, tax-exempt funds in five states: Hawaii,
Louisiana, Massachusetts, New Jersey and North Carolina. He also serves as
economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
David C. Reilly is a Vice President of Eaton Vance and BMR. Mr. Reilly,
a Chartered Financial Analyst, received a B.S. from Skidmore College. He is a
member and former President of the Boston Municipal Analysts Forum. He also
holds memberships in the Boston Securities Analysts Society and the Financial
Analysts Federation.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. As of
September 30, 1995, the Portfolio had net assets of $302,170,247. For the fiscal
year ended September 30, 1995, the Portfolio paid BMR advisory fees of
$1,383,407 (equivalent to 0.46% of the Portfolio's average daily net assets for
such period). For the fiscal year ended September 30, 1994, the Portfolio paid
BMR advisory fees of $1,397,963 (equivalent to 0.46% 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
earned advisory fees of $735,829 (equivalent to 0.45% (annualized) of the
Portfolio's average daily net assets for such period).
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 remains in effect until
February 28, 1996. It 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 receives no compensation for providing administrative services to
the Fund. For the fiscal years ended September 30, 1995 and 1994, $18,261 and
$46,085, respectively, of the Fund's operating expenses were allocated to the
Administrator. As Administrator, Eaton Vance administers 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.
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 January 31, 1996, Messrs. Clay, Gardner and
Hawkes each owned 24% of such voting trust receipts, and Messrs. Rowland and
Brigham owned 15% and 13%, respectively, of such voting trust receipts. Messrs.
Hawkes and Otis are officers or Trustees of the Trust and the Portfolio and are
members of the EVC, BMR, Eaton Vance and EV organizations. Messrs. Fetter,
MacIntosh, Murphy, O'Connor, Woodbury and Ms. Sanders, are officers of the Trust
and 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.
Eaton Vance owns all of the stock of Energex Energy Corporation, which
is engaged 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"), 89 South Street, Boston,
Massachusetts acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT charges
fees which are competitive within the industry. A portion of the fee relates to
custody, bookkeeping and valuation services and is based upon a percentage of
Fund and Portfolio net assets and a portion of the fee relates to activity
charges, primarily the number of portfolio transactions. These fees are then
reduced by a credit for cash balances of the particular investment company at
the custodian equal to 75% of the 91-day, U.S. Treasury Bill auction rate
applied to the particular investment company's average daily collected balances
for the week. Landon T. Clay, a Director of EVC and an officer, Trustee or
Director of other members of 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 fiscal year ended September
30, 1995, the Fund incurred custody fees of $3,285 and the Portfolio incurred
custody fees of $135,884, which were reduced by fee credits of $61,501.
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., current 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 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. 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 the fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the Portfolio Valuation Time
on the prior Portfolio Business Day plus or minus, as the case may be, the
amount of any additions to or withdrawals from the investor's investment in the
Portfolio on the current Portfolio Business Day and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investment in the Portfolio on the current Portfolio Business Day by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio for the current
Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the results. The
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period, and a complete
redemption of the investment at the end of the period.
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. A
taxable-equivalent yield is computed by using the tax-exempt yield figure and
dividing by one minus a stated rate. For the thirty-day period ended September
30, 1995 the yield of the Fund was 5.36%. The yield required of a taxable
security that would produce an after-tax yield equivalent to that earned by the
Fund of 5.36% would be 8.83% assuming a combined federal and Massachusetts tax
rate of 39.28%. If a portion of the Fund's expenses had not been allocated to
the Administrator, the Fund would have had a lower yield.
The Principal Underwriter may publish to Authorized Firms the Fund's
distribution rate and/or the effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current net asset value per share. The Fund's
effective distribution rate is computed by dividing the distribution rate by the
ratio used to annualize the most recent monthly distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. The Fund's yield is calculated
using a standardized formula, the income component of which is computed from the
yields to maturity of all debt obligations held by the Portfolio based on
prescribed methods (with all purchases and sales of securities during such
period included in the income calculation on a settlement date basis), whereas
the distribution rate is based on the Fund's last monthly distribution 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). The
Fund's distribution rate (calculated on September 30, 1995 and based on the
Fund's monthly distribution paid September 15, 1995) was 5.63%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 5.77%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
The table below indicate the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from April 18, 1991 through September 30, 1995 and for the one year period ended
September 30, 1995. The total return for the period prior to the Fund's
commencement of operations on June 17, 1993 reflects the Portfolio's total
return (or that of its predecessor).
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
Value of Total Return
Investment Investment Amount of Investment ------------
Period Date Investment on 9/30/95 Cumulative Annualized
-------- ------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Life of the Fund* 4/18/91 $1,000 $1,369.57** 36.96** 7.31%**
1 Year Ended
9/30/95 9/30/94 $1,000 $1,093.71** 9.37** 9.37%**
</TABLE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate and shares, when redeemed, may be worth more or
less than their original cost.
- --------------------------
* Investment operations began on April 18, 1991.
** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
The Fund's total return may be compared to relevant indices, such as
the Consumer Price Index, of the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
other investment companies.
The Fund may provide investors with information on municipal bond
investing, which may include comparative performance information, evaluations of
Fund performance, charts and/or illustrations prepared by independent sources
(such as Lipper Analytical Services, Inc., CDA/Wiesenberger or Morningstar,
Inc.). The Fund may also refer in investor publications to Tax Freedom Day, as
computed by the Tax Foundation, Washington, DC 20005, to help illustrate the
value of tax free investing, as well as other tax-related information.
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
FEDERAL INCOME 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, has qualified, 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
September 30, 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 regulated
investment company, 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 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. 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 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 Trustees of the Trust have determined that shares of the Fund shall
only be available to employees of Eaton Vance Corp. (and its affiliates,
including subsidiaries), clients of Eaton Vance Corp. (and its affiliates,
including subsidiaries) and certain institutional investors. The Fund and/or the
Principal Underwriter reserve the right to permit purchases by other than
affiliates, subsidiaries or clients of Eaton Vance Corp.
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 Municipal 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 fiscal years ended September 30, 1995 and
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.
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 Trusts's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. In addition, the By-laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
In accordance with the Declaration of Trust of the Portfolio, there
will normally be no meetings of the investors for the purpose of electing
Trustees unless and until such time as less than a majority of the Trustees
holding office have been elected by investors. In such an event the Trustees of
the Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The right to redeem shares of the Fund can be suspended and the payment
of the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are
the independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are
included in the Fund's Annual Report to Shareholders, are incorporated by
reference into this SAI and have been so incorporated in reliance on the report
of Deloitte & Touche LLP, independent certified public accountants, as experts
in accounting and auditing. A copy of the Fund's most recent Annual Report
accompanies this SAI.
<PAGE>
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 Massachusetts state income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A Federal and Massachusetts State
Combined tax exempt yield of:
Single Return Joint Return Federal and 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------- ------------ MA State ------------------------------------------------------------
(Taxable Income*) tax bracket+ is equivalent to a fully taxable yield of:
- -------------------------------------------------- ------------ ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,000 Up to $40,101 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$24,001 - $58,150 $40,101 - $96,900 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$58,151 - $121,300 $96,901 - $147,700 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$121,301 - $263,750 $147,701 - $263,750 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $263,750 Over $263,750 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
</TABLE>
*Net amount subject to federal and Massachusetts personal income tax after
deductions and exemptions.
+The combined tax rates include a Massachusetts tax rate of 12% applicable to
taxable bond interest and dividends, and assume that Massachusetts taxes are
itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets are 15%, 28%, 31%,
36% and 39.6%, over the same range 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 Massachusetts State income
taxes) for taxpayers with Adjusted Gross Income in excess of $117,950. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $117,950 and joint filers
with Adjusted Gross Income in excess of $176,950. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the Fund will achieve
any specific tax exempt yield. While it is expected that the Portfolio will
invest principally in obligations, the interest from which is exempt from the
regular federal income tax and Massachusetts 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 Massachusetts 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 AMT. The
illustrations assume that the AMT is not applicable.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
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.
+ 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.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a
plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and
'AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated 'F-1+'.
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these bonds, and `D' represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong 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>
INVESTMENT ADVISER OF MASSACHUSETTS MASSACHUSETTS MUNICIPAL
MUNICIPALS PORTFOLIO
Boston Management and Research BOND PORTFOLIO
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF MASSACHUSETTS
MUNICIPAL BOND PORTFOLIO
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN STATEMENT OF
Investors Bank & Trust Company
89 South Street ADDITIONAL INFORMATION
Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group FEBRUARY 1, 1996
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
MASSACHUSETTS MUNICIPAL
BOND PORTFOLIO
24 FEDERAL STREET
BOSTON, MA 02110
MMBPSAI
<PAGE>
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EATON VANCE MUNICIPALS TRUST
FOR THE FUND:
o Massachusetts Municipal Bond Portfolio
- ----------------------------------------------------------------------------
[ logo ]
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ANNUAL SHAREHOLDER REPORT
SEPTEMBER 30, 1995
<PAGE>
TO SHAREHOLDERS
Massachusetts Municipal Bond Portfolio (the Fund) paid to its shareholders
monthly income dividends totaling $0.545 per share during the fiscal year ended
September 30, 1995.
Based on the most recent dividend paid and the Portfolio's net asset value per
share of $9.51 on September 30, 1995, the Fund's annualized distribution rate
was 5.63%. To equal that rate in a taxable investment, a couple in the combined
Federal and state 43.68% tax bracket would have to earn 9.94%.
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 under-performed
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, for many reasons, we at Eaton Vance believe there is little chance of
major tax reform legislation being enacted. 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.(+)
Sincerely,
/s/Thomas J. Fetter
Thomas J. Fetter
President
November 20, 1995
(+) A portion of the Portfolio's income could be subject to Federal alternative
minimum tax.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS...
For Federal income tax purposes, 99.85% of the total dividends paid by the Fund
from net investment income during the fiscal year that ended September 30, 1995,
is designated as an exempt-interest dividend. Tax legislation eliminated the
exemption 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 following page is a performance chart that compares 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 comprises bonds principally 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.
- -------------------------------------------------------------------------------
<PAGE>
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MANAGEMENT REPORT
YOUR INVESTMENT AT WORK [logo]
Plymouth County
Correctional Facility
These bonds were used to construct a new 1,140-bed prison to house federal,
state and county inmates in Plymouth. In addition to expanded housing
facilities, the project includes a modern medical facility. The project was
designed to provide partial relief for the Commonwealth's correctional system,
which has become seriously overcrowded in the past decade. As a
state-of-the-art, "direct supervision" facility, the project aims to provide a
more successful correctional environment while reducing costs. The new facility
is operated by the Plymouth County Sheriff's Department.
PORTFOLIO OVERVIEW
Based on market value as of Sept. 30, 1995
Number of issues.......................................95
Average quality........................................A+
Investment grade....................................96.3%
Effective maturity (years)..........................15.47
Largest sectors:
General obligations..............................13.7%
Insured hospitals................................11.8*
Housing..........................................11.4
Education........................................ 9.8
Water and sewer.................................. 9.8
* 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: Massachusetts
Massachusetts' employment levels have climbed significantly in recent years,
recovering roughly 60% of the jobs lost in the last recession. Recent jobless
rates have remained at or below the national rate, and personal income growth
continues to accelerate. Growth has been especially impressive in the high
technology and financial sectors.
The Commonwealth has greatly improved its financial position. Debt levels, while
still too high, have nonetheless been reduced, while reserve levels have
increased to 3% of revenues. As a result, Massachusetts now enjoys enhanced
liquidity and more leeway with respect to operations and should record a modest
surplus in the current fiscal year. As a reflection of the progress the
Commonwealth has made in recent years, its debt ratings have been upgraded to A1
and A+, considerably higher than they were at their lowest point in early 1991.
Looking ahead, the economy should continue to post modest growth. On the fiscal
front, the administration has recently initiated efforts to control social
spending. While opening a thorny political issue, the move could result in
further fiscal improvements in the future.
FROM THE PORTFOLIO MANAGER:
"The Portfolio's exposure to the hospital sector remains quite low. Health care
institutions around the country are under increasing pressure from competition.
This condition is especially true in Massachusetts, where there are too many
hospital beds for the Commonwealth's population.
"As a result, we do extensive research before adding any hospital bonds to the
Portfolio, to ensure that the hospitals we choose will be among the survivors in
this increasingly competitive environment.
"In structuring the Portfolio, we've employed a two-pronged strategy in the
Portfolio, emphasizing quality on one hand and prudent yield enhancement on the
other."
- Robert B. MacIntosh
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN MASSACHUSETTS MUNICIPAL
BOND PORTFOLIO AND THE LEHMAN BROTHER MUNICIPAL BOND INDEX
From June 30, 1993. through September 30, 1995
- ------------------------
AVERAGE ANNUAL RETURN
- ------------------------
1 Year 9.4%
- ------------------------
Life of Portfolio* 3.6%
- ------------------------
Label A B
Massachusetts
Label date Municipal Bond Lehman Bros.
- -----------------------------------------------------------
1 6/93+ 10000 10000
2 7/93 9930 10013
3 8/93 10215 10221
4 9/93 10332 10338
5 10/93 10338 10358
6 11/93 10234 10266
7 12/93 10455 10483
8 1/94 10567 10603
9 2/94 10314 10328
10 3/94 9799 9908
11 4/94 9785 9992
12 5/94 9876 10078
13 6/94 9786 10020
14 7/94 9975 10200
15 8/94 10021 10236
16 9/94 9837 10086
17 10/94 9588 9907
18 11/94 9301 9727
19 12/94 9587 9941
20 1/95 9955 10266
21 2/95 10276 10523
22 3/95 10377 10644
23 4/95 10376 10656
24 5/95 10655 10996
25 6/95 10473 10900
26 7/95 10536 11003
27 8/95 10675 11143
28 9/95 10759 11214
Massachusetts Municipal Bond Portfolio: $10,759
Lehman Brothers Municipal Bond Index: $11,214
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 on 6/17/93.
+ 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.
<PAGE>
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Massachusetts Municipal Bond Portfolio
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
- ------------------------------------------------------------------------------
September 30, 1995
- ------------------------------------------------------------------------------
ASSETS:
Investment in Massachusetts Tax Free Portfolio-
Identified cost $7,063,263
Unrealized appreciation 116,995
----------
Total investment in Portfolio, at value (Note 1A) $7,180,258
Receivable from the Administrator (Note 4) 18,261
Deferred organization expenses (Note 1D) 4,870
----------
Total assets $7,203,389
==========
LIABILITIES:
Dividends payable $15,820
Payable to affiliates-
Trustees' fees 43
Custodian fee 584
Accrued expenses 985
-------
Total liabilities 17,432
----------
NET ASSETS for 755,764 shares of beneficial
interest outstanding $7,185,957
==========
SOURCES OF NET ASSETS:
Paid-in capital $7,961,511
Accumulated net realized loss on investment and
financial futures transactions (computed on the basis
of identified cost) (884,905)
Accumulated distributions in excess of
net investment income (7,644)
Unrealized appreciation of investments and
financial futures contracts from Portfolio
(computed on the basis of identified cost) 116,995
----------
Total $7,185,957
==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($7,185,957 / 755,764 shares of beneficial interest outstanding) $9.51
==========
See notes to financial statements
<PAGE>
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STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
Year Ended September 30, 1995
- -------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B):
Investment income allocated from Portfolio $ 474,754
Expenses allocated from Portfolio (39,205)
----------
Net investment income from Portfolio $ 435,549
Expenses-
Compensation of Trustees not members
of the Administrator's organization $ 165
Custodian fee (Note 4) 3,285
Legal and accounting services 7,159
Transfer and dividend disbursing agent fees 4,835
Printing and postage 4,647
Amortization of organization expenses
(Note 1D) 1,854
Registration costs 1,084
Miscellaneous 401
-------
Total expenses $23,430
Deduct allocation of expenses to the
Administrator (Note 4) 18,261
-------
Net expenses 5,169
----------
Net investment income $ 430,380
----------
REALIZED AND UNREALIZED GAIN
(LOSS)ON INVESTMENTS:
Net realized loss from Portfolio-
Investment transactions (identified
cost basis) $ (510,070)
Financial futures contracts (72,565)
----------
Net realized loss $ (582,635)
Change in unrealized appreciation of investments and
financial futures contracts 717,570
----------
Net realized and unrealized gain $ 134,935
----------
Net increase in net assets from operations $ 565,315
==========
See notes to financial statements
<PAGE>
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STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------
1995 1994
----------- -----------
INCREASE (DECREASE) IN NET ASSETS:
From operations-
Net investment income $ 430,380 $ 501,835
Net realized loss on investments (582,635) (300,911)
Change in unrealized appreciation
(depreciation) of investments 717,570 (656,269)
----------- -----------
Net increase (decrease) in net
assets from operations $ 565,315 $ (455,345)
----------- -----------
Distributions to shareholders (Note 2)-
From net investment income $ (429,708) $ (501,835)
In excess of net investment income - (3,565)
In excess of realized gain on
investment transactions - (7,899)
----------- -----------
Total distributions to
shareholders $ (429,708) $ (513,299)
----------- -----------
Transactions in shares of beneficial
interest (Note 3)-
Proceeds from sales of shares $ 1,433,581 $ 7,345,742
Net asset value of shares issued to
shareholders in payment
of distributions declared 96,976 113,009
Cost of shares redeemed (3,818,659) (2,214,217)
----------- -----------
Increase (decrease) in net assets
from Fund share transactions $(2,288,102) $ 5,244,534
----------- -----------
Net increase (decrease) in
net assets $(2,152,495) $ 4,275,890
NET ASSETS:
At beginning of year 9,338,452 5,062,562
----------- -----------
At end of year $ 7,185,957 $ 9,338,452
=========== ===========
ACCUMULATED DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME INCLUDED IN NET
ASSETS AT END OF YEAR $ (7,644) $ (8,316)
=========== ===========
See notes to financial statements
<PAGE>
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FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1995 1994 1993<F2>
---------- ---------- ---------
<S> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.220 $ 10.260 $ 10.000
---------- ---------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.546 $ 0.548 $ 0.141
Net realized and unrealized
gain (loss) on investments 0.290 (1.026) 0.284
----------- ---------- --------
Total income (loss) from operations $ 0.836 $ (0.478) $ 0.425
---------- ---------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.546) $ (0.548) $ (0.141)
In excess of net investment income - (0.004) (0.024)
In excess of net realized gain on investment transactions - (0.010) -
---------- ---------- --------
Total distributions $ (0.546) $ (0.562) $ (0.165)
---------- ---------- --------
NET ASSET VALUE, end of year $ 9.510 $ 9.220 $ 10.260
========== ========== ========
TOTAL RETURN<F4> 9.37% (4.79%) 4.04%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) $ 7,186 $ 9,338 $ 5,063
Ratio of net expenses to average daily net assets<F3> 0.63% 0.60% 1.21%<F1>
Ratio of net investment income to average daily net assets 5.93% 5.65% 4.80%<F1>
* For the years ended September 30, 1995 and 1994, the operating expenses of the Fund reflect a reduction of expenses by the
Administrator. Had such action not been taken, net investment income per share and the ratios would have been as follows:
Net investment income per share: $ 0.523 $ 0.498
========== ==========
RATIOS (As a percentage of average daily net assets):
Expenses<F3> 0.88% 1.12%
Net investment income 5.68% 5.13%
<FN>
<F1> Annualized.
<F2> For the period from the start of business, June 17, 1993, to September 30, 1993.
<F3> Includes the Fund's share of Massachusetts Tax Free Portfolio's allocated expenses.
<F4> Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on
the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net asset value
on the payable date. Total return is computed on a non-annualized basis.
</TABLE>
<PAGE>
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Notes to Financial Statements
- ------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Massachusetts Municipal Bond Portfolio (the Fund) is a non-diversified series of
Eaton Vance Municipals Trust (the 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 Fund invests all of its investable assets in interests in
Massachusetts Tax Free Portfolio (the Portfolio), a New York Trust, having the
same investment objective as the Fund. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of the
Portfolio (2.4% at September 30, 1995). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements of the
Portfolio, including the Portfolio of investments, are included elsewhere in
this report and should be read in conjunction with the Fund's financial
statements. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. INVESTMENT VALUATIONS - Valuation of securities by the Portfolio is discussed
in Note 1 of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
B. INCOME - The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted accounting
principles.
C. FEDERAL TAXES - The 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 September 30, 1995, the Fund for
Federal income tax purposes had a capital loss carryover of $297,528 which will
reduce taxable income arising from future net realized gains 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 Fund of any liability for Federal income or excise tax.
Such capital loss carryover will expire on September 30, 2003. Additionally, at
September 30, 1995, net capital losses of $541,316 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 the Fund from net
interest on tax-exempt municipal bonds allocated from the Portfolio are not
includable by shareholders as gross income for Federal income tax purposes
because the Fund and Portfolio intend to meet certain requirements of the
Internal Revenue Code applicable to regulated investment companies which will
enable the Fund 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 the Fund in connection
with its organization, including registration costs, are being amortized on the
straight-line basis over five years.
E. OTHER - Investment transactions are accounted for on a trade date basis.
- ------------------------------------------------------------------------------
(2) DISTRIBUTIONS TO SHAREHOLDERS
The net income of the 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 the 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 Fund
distinguishes between distributions on a tax basis and a financial reporting
basis. Generally accepted accounting principles require that only distributions
in excess of tax basis earnings and profits be reported in the financial
statements as a return of capital. Differences in the recognition or
classification of income between the financial statements and tax earnings and
profits which result in temporary over distributions for financial statement
purposes are classified as distributions in excess of net investment income or
accumulated net realized gains. Permanent differences between book and tax
accounting relating to distributions are reclassified to paid-in capital. 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 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>
Year Ended September 30,
-----------------------------------------------
1995 1994
------------------- -------------------
<S> <C> <C>
Sales 158,095 733,241
Issued to shareholders electing to receive
payments of distributions in Fund shares 10,463 11,633
Redemptions (425,246) (225,793)
----------------- ------------------
Net increase (decrease) (256,688) 519,081
================= ==================
</TABLE>
- ------------------------------------------------------------------------------
(4) TRANSACTIONS WITH AFFILIATES
Eaton Vance Management (EVM) serves as the Administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services. See
Note 2 of the Portfolio's Notes to the Financial Statements which are included
elsewhere in this report. To enhance the net income of the Fund, $18,261 of
expenses related to the operation of the Fund were allocated to EVM. Except as
to Trustees of the Fund and the Portfolio, who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Fund out of such investment adviser fee. Investors Bank & Trust Company
(IBT), an affiliate of EVM, serves as custodian to the Fund and the Portfolio.
Pursuant to the respective custodian agreements, IBT receives a fee reduced by
credits which are determined based on the average cash balances the Fund or
Portfolio maintains with IBT. Certain of the officers and Trustees of the Fund
and Portfolio are officers and directors/trustees of the above organizations.
- ------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Increases and decreases in the Fund's investment in the Portfolio for the year
ended September 30, 1995, aggregated $1,479,720 and $4,180,879, respectively.
<PAGE>
- ------------------------------------------------------------------------------
Independent Auditors' Report
- ------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF
EATON VANCE MUNICIPALS TRUST:
We have audited the accompanying statement of assets and liabilities of
Massachusetts Municipal Bond Portfolio (one of the series constituting Eaton
Vance Municipals Trust) as of September 30, 1995, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period ended September 30, 1995 and the financial
highlights for each of the two years in the period ended September 30, 1995 and
for the period from the start of business June 17, 1993 to September 30, 1993.
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 audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Massachusetts
Municipal Bond Portfolio series of Eaton Vance Municipals Trust at September 30,
1995, the results of its operations, the changes in its net assets, and its
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
OCTOBER 27, 1995
<PAGE>
- ------------------------------------------------------------------------------
Massachusetts Tax Free Portfolio
Portfolio of Investments - September 30, 1995
- -------------------------------------------------------------------------------
TAX-EXEMPT INVESTMENTS- 100%
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS (UNAUDITED) PRINCIPAL
AMOUNT
STANDARD (000
MOODY'S & POOR'S OMITTED) SECURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C>
EDUCATION - 9.8%
Aa1 AA+ $1,625 Massachusetts Health and Educational Facilities Authority, (HEFA) Amherst College,
6.80%, 11/1/21 $ 1,740,440
A1 A+ 250 Massachusetts HEFA, Tufts University, 7.75%, 8/1/13 271,052
NR BBB- 3,700 Massachusetts HEFA, Merrimack College, 7.125%, 7/1/12 3,882,003
NR AAA 2,900 Massachusetts HEFA, Wentworth Institute, (Connie Lee), 5.50%, 10/1/23 2,675,047
NR BBB- 6,855 Massachusetts HEFA, Smith College, 5.75%, 7/1/24 6,694,182
Aaa AAA 5,180 Massachusetts HEFA, Harvard University, 5.625%, 11/1/28 5,114,577
Aa1 AA 4,690 Massachusetts Industrial Finance Agency, Phillips Academy, 5.375%, 9/1/23 4,385,056
A1 NR 2,000 The New England Education Loan Marketing Corporation, (AMT), 6.90%, 11/1/09 2,157,440
NR BBB- 1,300 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control
Authority, Polytechnic University, 5.50%, 8/1/24 1,128,491
NR BBB- 1,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Authority,
Polytechnic University, 6.50%, 8/1/24 990,870
------------
$ 29,039,158
------------
GENERAL OBLIGATIONS - 13.7%
Baa1 NR $1,000 City of Lowell, 6.375%, 8/15/01 $ 1,067,490
A1 A+ 3,900 Commonwealth of Massachusetts, 5.00%, 1/1/12 3,609,060
A1 A+ 875 Commonwealth of Massachusetts, 5.00%, 1/1/14 795,839
A1 A+ 4,750 Massachusetts Bay Transportation Authority (MBTA), 5.50%, 3/1/21 4,525,135
A1 A+ 2,500 MBTA, 5.75%, 3/1/18 2,465,775
A1 A+ 14,000 MBTA, 5.75%, 3/1/25 13,593,440
A1 A+ 1,000 MBTA, 5.90%, 3/1/12 1,014,690
NR BBB 1,175 Government of Guam, 5.40%, 11/15/18 1,022,650
A NR 3,375 Town of Nantucket, 6.80%, 12/1/11 3,634,875
Baa1 A 100 Puerto Rico Public Buildings Authority, 5.50%, 7/1/21 92,369
Baa1 A 1,900 Puerto Rico Aqueduct and Sewer Authority, 7.00%, 7/1/19 2,037,313
A A 2,500 University of Massachusetts Building Authority, 6.875%, 5/1/14 2,839,950
A A 250 University of Massachusetts Building Authority, 7.20%, 5/1/04 287,396
NR NR 3,350 Virgin Islands Public Finance Authority, 7.25%, 10/1/18 3,528,321
------------
$ 40,514,303
------------
HOSPITALS - 8.4%
A A- $3,000 Massachusetts HEFA, Charlton Memorial Hospital, 7.25%, 7/1/13 $ 3,147,750
A1 A 530 Massachusetts HEFA, Spaulding Rehabilitation Hospital, 7.625%, 7/1/21 568,632
Baa1 BBB+ 2,000 Massachusetts HEFA, New England Baptist Hospital, 7.35%, 7/1/17 2,067,480
Aa NR 3,100 Massachusetts HEFA, Daughters of Charity Health System, 6.10%, 7/1/14 3,143,524
A1 A+ 1,000 Massachusetts HEFA, Dana-Farber Cancer Institute, 6.65%, 12/1/15 1,020,340
A A 4,250 Massachusetts HEFA, The Medical Center of Central Massachusetts, 7.10%, 7/1/21 4,394,755
Baa BBB 1,825 Massachusetts HEFA, Sisters of Providence Health System, 6.50%, 11/15/08 1,877,870
NR A- 1,470 Massachusetts HEFA, Jordan Hospital, 6.875%, 10/1/15 1,052,722
NR A- 1,470 Massachusetts HEFA, Jordan Hospital, 6.875%, 10/1/22 1,507,073
NR AAA 2,625 Massachusetts HEFA, Winchester Hospital (Connie Lee), 5.75%, 7/1/14 2,557,223
NR AAA 3,650 Massachusetts HEFA, Winchester Hospital (Connie Lee), 5.75%, 7/1/24 3,486,917
------------
$ 24,824,286
------------
HOUSING - 11.4%
NR AAA $2,750 Framingham Housing Authority, (GNMA), 6.65%, 2/20/32 $ 2,783,275
A1 A+ 6,000 Massachusetts Housing Finance Agency (HFA), 6.375%, 4/1/21 5,973,720
Aa A+ 7,250 Massachusetts HFA, (AMT), 6.60%, 12/1/26 7,328,952
Aa A+ 6,400 Massachusetts HFA, (AMT), 6.60%, 12/1/26 6,469,696
Aaa AAA 1,000 Massachusetts HFA, (FNMA), 6.875%, 11/15/11 1,063,630
Aaa AAA 2,750 Massachusetts HFA, (FNMA), 6.90%, 11/15/21 2,882,330
Aa A+ 2,795 Massachusetts HFA, (AMT), 7.125%, 6/1/25 2,908,924
Aa A+ 400 Massachusetts HFA, 7.35%, 12/1/16 425,408
Aa A+ 2,265 Massachusetts HFA, (AMT), 8.10%, 6/1/20 2,369,734
Aa A+ 1,500 Massachusetts HFA, (AMT), 8.10%, 12/1/21 1,576,035
------------
$ 33,781,704
------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL - 7.0%
Baa1 BBB $14,185 City of Boston Harbor Electric Energy Company Project, (AMT), 7.30%, 5/15/15 $ 15,178,942
NR NR 9,000 Massachusetts Industrial Finance Agency, Massachusetts Biomedical Research
Corporation, 0%, 8/1/19 3,817,800
Aa3 AA 1,550 Puerto Rico Industrial, Medical and Environmental Pollution Control Authority,
The Upjohn Company, 7.50%, 12/1/23 1,697,235
------------
$ 20,693,977
------------
INSURED EDUCATION - 2.1%
Aaa AAA $ 335 Massachusetts Educational Finance Authority, (MBIA), (AMT), 7.25%, 1/1/09 $ 350,460
Aaa AAA 2,000 Massachusetts Educational Finance Authority, (AMBAC), (AMT), 7.30%, 1/1/12 2,096,840
Aaa AAA 250 Massachusetts HEFA, Northeastern University, (AMBAC), 7.50%, 10/1/08 273,820
Aaa AAA 400 Massachusetts HEFA, Boston University "RIBS", (MBIA), Variable, 10/1/31<F1> 439,464
Aaa AAA 3,000 Massachusetts HEFA, Tufts University, (FGIC), 5.95%, 8/15/18 3,032,640
------------
$ 6,193,224
------------
INSURED GENERAL OBLIGATION - 1.7%
Aaa AAA $1,795 City of Boston, (FSA), 4.875%, 9/1/09 $ 1,686,833
Aaa AAA 1,000 Commonwealth of Puerto Rico "RIBS", (AMBAC), Variable, 7/1/15<F1> 1,009,940
Aaa AAA 600 Town of Tyngsborough, (AMBAC), 6.90%, 5/15/08 663,798
Aaa AAA 1,770 MBTA, (MBIA), 5.50%, 3/1/21 1,663,995
------------
$ 5,024,566
------------
INSURED HOSPITALS - 11.8%
Aaa AAA $ 300 Massachusetts HEFA, Berkshire Health Systems, (MBIA), 7.60%, 10/1/14 $ 332,346
Aaa AAA 1,250 Massachusetts HEFA, Beth Israel Hospital, Inverse Floaters, (AMBAC),
Variable, 7/1/25<F1> 1,253,675
Aaa AAA 1,500 Massachusetts HEFA, Capital Asset Program, (MBIA), 7.20%, 7/1/09 1,649,085
AAA AAA 2,050 Massachusetts HEFA, Fallon Healthcare System (CGIG), 6.75%, 6/1/20<F2> 2,171,442
AAA AAA 4,500 Massachusetts HEFA, Fallon Healthcare System (CGIG), 6.875%, 6/1/11 4,881,465
Aaa AAA 2,040 Massachusetts HEFA, Beverly Hospital, (MBIA), 7.30%, 7/1/13 2,219,581
Aaa AAA 1,000 Massachusetts HEFA, BayState Medical Center, (FGIC), 5.00%, 7/1/20 883,550
Aaa AAA 3,000 Massachusetts HEFA, The Medical Center of Central Massachusetts, (AMBAC), "CARS",
Variable, 6/23/22<F1> 3,330,090
Aaa AAA 2,000 Massachusetts HEFA, St. Elizabeth Hospital Issue, "LEVRRS", (FSA),
Variable, 8/15/21<F1> 2,196,960
Aaa AAA 2,600 Massachusetts HEFA, Saint Luke's Hospital, "Yield Curve Notes", (MBIA),
Variable, 8/15/13<F1> 2,556,970
Aaa AAA 1,200 Massachusetts HEFA, University Hospital, (MBIA), 7.25%, 7/1/19 1,323,552
Aaa AAA 6,950 Massachusetts HEFA, Lahey Clinic, (MBIA), 5.375%, 7/1/23 6,454,118
Aaa AAA 5,000 Massachusetts HEFA, New England Medical Center, (MBIA), 5.375%, 7/1/24 4,664,350
Aaa AAA 1,000 Massachusetts HEFA, New England Medical Center, (FGIC), 6.50%, 7/1/12 1,052,960
------------
$ 34,970,144
------------
INSURED HOUSING - 0.7%
Aaa AAA $2,000 Massachusetts Housing Finance Agency, (AMBAC), 6.45%, 1/1/36 $ 2,027,680
------------
INSURED TRANSPORTATION - 2.2%
Aaa AAA $5,860 Massachusetts Port Authority, (AMT), (FGIC), 7.50%, 7/1/20 $ 6,490,243
------------
LEASE/CERTIFICATE OF PARTICIPATION - 2.8%
NR A $7,800 Plymouth County, Massachusetts Correctional Facility Project, 7.00%, 4/1/22 $ 8,363,862
------------
NURSING HOMES - 0.5%
NR AA $1,495 Massachusetts HEFA, Deutches Altenheim, Incorporated, (FHA), 7.70%, 11/1/31<F2> $ 1,613,195
------------
SOLID WASTE - 2.6%
Baa1 BBB $5,970 Massachusetts Industrial Finance Agency, Massachusetts Refusetech, Inc.
Project, 6.30%, 7/1/05 $ 6,242,531
NR NR 1,340 City of Pittsfield, Vicon Recovery Associates Project, 7.95%, 11/1/04 1,409,425
------------
$ 7,651,956
------------
SPECIAL TAX - 4.2%
A1 A+ $5,695 Commonwealth of Massachusetts, Special Obligation Revenue Bonds, 6.00%, 6/1/13 $ 5,747,223
A1 A+ 4,560 Commonwealth of Massachusetts, Special Obligation Revenue Bonds, 5.80%, 6/1/14 4,518,550
Baa1 A 2,000 Puerto Rico Highway and Transportation Authority, 6.625%, 7/1/18 2,099,080
------------
$ 12,364,853
------------
TRANSPORTATION - 5.2%
NR BBB $7,950 Guam Airport Authority, (AMT), 6.70%, 10/1/23 $ 7,967,093
Aa AA- 7,300 Massachusetts Port Authority, 6.00%, 7/1/23 7,260,069
------------
$ 15,227,162
------------
UTILITY - 6.0%
NR BBB $2,765 Guam Power Authority, 5.25%, 10/1/23 $ 2,382,103
A BBB+ 2,610 Massachusetts Municipal Wholesale Electric Company, 6.00%, 7/1/18 2,555,843
A BBB+ 5,560 Massachusetts Municipal Wholesale Electric Company, 6.625%, 7/1/18 5,747,205
A BBB+ 3,500 Massachusetts Municipal Wholesale Electric Company, 6.75%, 7/1/11 3,664,010
Baa1 A- 1,850 Puerto Rico Electric Power Authority, 5.50%, 7/1/13 1,755,447
Baa1 A- 150 Puerto Rico Electric Power Authority, 5.50%, 7/1/20 138,746
NR NR 1,500 Virgin Islands Water and Power Authority, 7.40%, 7/1/11 1,575,314
------------
$ 17,818,668
------------
WATER & SEWER - 9.8%
NR NR $2,075 Massachusetts Industrial Finance Authority, American Hingham Water, 6.60%, 12/1/15 $ 2,095,480
A A 18,620 Massachusetts Water Resources Authority (MWRA), 4.75%, 12/1/23 15,364,479
A A 5,000 MWRA, 5.00%, 3/1/22 4,323,500
A A 1,500 MWRA, 5.25%, 3/1/13 1,390,095
A A 3,915 MWRA, 5.25%, 12/1/15 3,608,260
NR NR 2,000 Virgin Islands Water and Power Authority, 7.60%, 1/1/12 2,122,760
------------
$ 28,904,574
------------
TOTAL TAX-EXEMPT INVESTMENTS (IDENTIFIED COST, $277,979,560) $295,503,555
============
<FN>
<F1> The above designated securities have been issued as inverse floater bonds.
<F2> Security has been segregated to cover margin requirements on open financial futures contracts.
The Portfolio invests primarily in debt securities issued by Massachusetts 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 September 30, 1995, 21.2% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and financial guaranty assurance agencies. The aggregate
percentage by financial institution ranged from 0.5% to 7.3% of total investments.
</TABLE>
See notes to financial statements
<PAGE>
- ------------------------------------------------------------------------------
Massachusetts Tax Free Portfolio
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------
September 30, 1995
- -----------------------------------------------------------------------------
ASSETS:
Investments-
Identified cost $277,979,560
Unrealized appreciation 17,523,995
------------
Total investments, at value (Note 1A) $295,503,555
Cash 6,632
Receivable for investments sold 13,030,253
Interest receivable 5,219,546
Deferred organization expenses (Note 1D) 12,432
------------
Total assets $313,772,418
------------
LIABILITIES:
Demand note payable (Note 5) $2,018,000
Payable for investments purchased 9,507,914
Payable for daily variation margin
on open financial futures contracts
(Note 1E) 61,875
Payable to affiliates-
Trustees' fees 4,126
Custodian fee 4,381
Accrued expenses 5,875
----------
Total liabilities $ 11,602,171
------------
NET ASSETS applicable to investors'
interest in Portfolio $302,170,247
============
SOURCES OF NET ASSETS:
Net proceeds from capital
contributions and withdrawals $284,750,352
Unrealized appreciation of investments
and financial futures contracts
(computed on the basis of identified cost) 17,419,895
------------
Total $302,170,247
============
See notes to financial statements
<PAGE>
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------
For the Year Ended September 30, 1995
- -----------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income (Note 1B) $ 19,516,946
Expenses -
Investment adviser fee (Note 2) $ 1,383,407
Compensation of Trustees not members
of the Investment Adviser's
organization 16,111
Custodian fee (Note 2) 135,884
Legal and accounting services 30,407
Amortization of organization expenses
(Note 1D) 5,209
Miscellaneous 91,575
------------
Total expenses $ 1,662,593
Deduct reduction in custodian fee
(Note 2) 61,501
------------
Net expenses 1,601,092
------------
Net investment income $ 17,915,854
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss -
Investment transactions
(identified cost basis) $(12,310,806)
Financial futures contracts (3,356,628)
Net realized loss on investments $(15,667,434)
Change in unrealized appreciation
(depreciation) -
Investments $ 24,470,289
Financial futures contracts (482,875)
------------
Net unrealized appreciation of
investments 23,987,414
------------
Net realized and unrealized
gain on investments $ 8,319,980
------------
Net increase in net assets
from operations $ 26,235,834
============
See notes to financial statements
<PAGE>
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1995 1994
---------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations-
Net investment income $ 17,915,854 $ 17,598,654
Net realized loss on investments (15,667,434) (5,575,616)
Change in unrealized appreciation (depreciation) of investments 23,987,414 (26,955,377)
------------ ------------
Net increase (decrease) in net assets from operation $ 26,235,834 $(14,932,339)
------------ ------------
Capital transactions-
Contributions $ 27,917,577 $ 73,999,994
Withdrawals (60,522,944) (41,140,572)
------------ ------------
Increase (decrease) in net assets resulting from capital transactions $(32,605,367) $ 32,859,422
------------ ------------
Total increase (decrease) in net assets $ (6,369,533) $ 17,927,083
NET ASSETS:
At beginning of year 308,539,780 290,612,697
------------ ------------
At end of year $302,170,247 $308,539,780
============ ============
</TABLE>
- ------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- ------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 1994 1993*
------ ------ ------
RATIOS (As a percentage of average daily
net assets):
Expenses 0.56% 0.51% 0.49%+
Net investment income 6.00% 5.74% 5.72%+
PORTFOLIO TURNOVER 87% 53% 38%
NET ASSETS, end of period (000 omitted): $302,170 $308,540 $290,613
+ Annualized
* For the period from the start of business, February 1, 1993, to September 30,
1993.
See notes to financial statements
<PAGE>
- ------------------------------------------------------------------------------
Notes to Financial Statements
- ------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
Massachusetts Tax Free Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company which was organized as a trust under the laws of the State of
New York on May 1, 1992. The Declaration of Trust permits the Trustees to issue
interests in the Portfolio. The following is a summary of the significant
accounting policies of the Portfolio. 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 market 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 Portfolio is treated as a partnership for Federal tax
purposes. No provision is made by the Portfolio for Federal or state taxes on
any taxable income of the Portfolio because each investor in the Portfolio is
individually responsible for the payment of any taxes on its share of such
income. Since some of the Portfolio's investors are regulated investment
companies that invest all or substantially all of their assets in the Portfolio,
the Portfolio normally must satisfy the applicable source of income and
diversification requirements, (under the Internal Revenue Code), in order for
its investors to satisfy them. The Portfolio will allocate, at least annually
among its investors, 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. Interest income
received by the Portfolio 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 the 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 the Portfolio in
connection with its organization are being amortized on the straight-line basis
over five years.
E. FINANCIAL FUTURES CONTRACTS - Upon the entering of a financial futures
contract, the 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 the Portfolio ("margin maintenance") each day, dependent on daily
fluctuations in the value of the underlying security, and are recorded for book
purposes as unrealized gains or losses by the Portfolio. The Portfolio's
investment in financial futures contracts is designed only to hedge against
anticipated future changes in interest rates. Should interest rates move
unexpectedly, the Portfolio may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS - The Portfolio may engage in
when-issued and delayed delivery transactions. The Portfolio records when-issued
securities on trade date and maintains security positions such that sufficient
liquid assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are
marked-to-market daily and begin earning interest on settlement date.
G. OTHER - Investment transactions are
accounted for on a trade date basis.
- ------------------------------------------------------------------------------
(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 the 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 September 30, 1995, the fee was equivalent to 0.46% of the
Portfolio's average net assets for such period and amounted to $1,383,407.
Except as to Trustees of the Portfolio who were not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolio out of such investment adviser fee. Investors Bank &Trust Company
(IBT), an affiliate of EVM and BMR, serves as custodian of the Portfolio.
Pursuant to the custodian agreement, IBT receives a fee reduced by credits which
are determined based on the average daily cash balances the Portfolio maintains
with IBT. Credit balances used to reduce the Portfolio's custodian fee are
reported as a reduction of expenses in the statement of operations. Certain of
the officers and Trustees of the Portfolio are officers or directors/trustees of
the above organizations. Trustees of the Portfolio that are not affiliated with
the Investment Adviser may elect to defer receipt of all or a portion of their
annual fees in accordance with the terms of the Trustee Deferred Compensation
Plan. For the year ended September 30, 1995, no significant amounts have been
deferred.
- -------------------------------------------------------------------------------
(3) INVESTMENTS
For the year ended September 30, 1995, purchases and sales of investments, other
than U.S. Government securities and short-term obligations, aggregated
$256,567,304 and $272,646,745, respectively.
- -------------------------------------------------------------------------------
(4) FEDERAL INCOME TAX BASIS OF INVESTMENTS
The cost and unrealized appreciation/depreciation in value of the investments
owned by the Portfolio at September 30, 1995, as computed on a federal income
tax basis, are as follows:
Aggregate cost $277,979,560
============
Gross unrealized appreciation $ 17,673,126
Gross unrealized depreciation 149,131
------------
Net unrealized appreciation $ 17,523,995
============
- ------------------------------------------------------------------------------
(5) LINE OF CREDIT
The Portfolio participates 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. The Portfolio may temporarily borrow up to 5% of its
total assets to satisfy redemption requests or settle securities transactions.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above either the bank's adjusted certificate of deposit rate, a variable
adjusted certificate of deposit rate, or a Federal funds effective rate. In
addition, a fee computed at an annual rate of 1/4 of 1% on the $20 million
committed facility and on the daily unused portion of the $100 million
discretionary facility is allocated among the participating funds and portfolios
at the end of each quarter. At September 30, 1995, the Portfolio had a balance
outstanding pursuant to this line of credit of $2,018,000. The Portfolio did not
have any significant borrowings or allocated fees during the year ended
September 30, 1995.
- ------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its 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
the 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 September 30, 1995 is as follows:
<TABLE>
<CAPTION>
FUTURES CONTRACTS NET UNREALIZED
EXPIRATION DATE CONTRACTS POSITION DEPRECIATION
<S> <C> <C> <C>
12/95 45 Municipal Bonds Short $104,100
========
</TABLE>
At September 30, 1995, the Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
<PAGE>
- -------------------------------------------------------------------------------
Independent Auditors' Report
- -------------------------------------------------------------------------------
TO THE TRUSTEES AND INVESTORS OF
MASSACHUSETTS TAX FREE PORTFOLIO
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Massachusetts Tax Free Portfolio as of
September 30, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period ended September 30, 1995 and the supplementary data for each of the two
years in the period ended September 30, 1995 and for the period from the start
of business February 1, 1993 to September 30, 1993. These financial statements
and supplementary data are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
supplementary data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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
September 30, 1995, by correspondence with the custodians and brokers. 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 the Massachusetts Tax Free
Portfolio at September 30, 1995, the results of its operations, the changes in
its net assets, and its supplementary data for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
OCTOBER 27, 1995
<PAGE>
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Investment Management
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<TABLE>
<CAPTION>
FUND OFFICERS INDEPENDENT TRUSTEES
<C> <S> <S>
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
JAMES B. HAWKES Chairman, Newspaper of New 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
JAMES L. O'CONNOR of Business Administration
Treasurer NORTON H. REAMER
THOMAS OTIS President and Director, United Asset
Secretary Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Company Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
<CAPTION>
PORTFOLIO OFFICERS INDEPENDENT TRUSTEES
<C> <S> <S>
THOMAS J. FETTER DONALD R. DWIGHT
President President, Dwight Partners, Inc.
JAMES B. HAWKES Chairman, Newspaper of New England, Inc.
Vice President, Trustee SAMUEL L. HAYES, III
ROBERT B. MACINTOSH Jacob H. Schiff Professor of Investment
Vice President and Portfolio Manager Banking, Harvard University Graduate School
JAMES L. O'CONNOR of Business Administration
Treasurer NORTON H. REAMER
THOMAS OTIS President and Director, United Asset
Secretary Management Corporation
JOHN L. THORNDIKE
Director, Fiduciary Company Incorporated
JACK L. TREYNOR
Investment Adviser and Consultant
</TABLE>
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
<PAGE>
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This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Funds, including distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
EATON VANCE MUNICIPALS TRUST
24 FEDERAL STREET
BOSTON, MA 02110
MMBSRC
