<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1997
1933 ACT FILE NO. 33-572
1940 ACT FILE NO. 811-4409
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 69 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 71 [X]
EATON VANCE MUNICIPALS TRUST
--------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
----------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
617-482-8260
-------------------------------------
(REGISTRANT'S TELEPHONE NUMBER)
ALAN R. DYNNER, 24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
--------------------------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective pursuant to rule 485
(check appropriate box):
[ ] immediately upon filing [ ] on (date) pursuant to
pursuant to paragraph (b) paragraph (a)(1)
[X] on October 1, 1997 [ ] 75 days after filing
pursuant to paragraph (b) pursuant to paragraph (a)(2)
[ ] 60 days after filing [ ] on (date) pursuant to
pursuant to paragraph (a)(1) paragraph (a)(2).
If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
California Municipals Portfolio, Florida Municipals Portfolio, Massachusetts
Municipals Portfolio, Mississippi Municipals Portfolio, National Municipals
Portfolio, New York Municipals Portfolio, Ohio Municipals Portfolio, Rhode
Island Municipals Portfolio and West Virginia Municipals Portfolio have also
executed this Registration Statement.
The Registrant has filed a Declaration pursuant to Rule 24f-2. On September
24, 1997, Registrant filed its "Notice" as required by that Rule for the series
of the Registrant with the fiscal year end of July 31, 1997, on October 15, 1996
filed its "Notice" for the series of the Registrant with the fiscal year end of
August 31, 1996, and on November 21, 1996 filed its "Notice" for the series of
the Registrant with the fiscal year end of September 30, 1996. Registrant
continues its election to register an indefinite number of shares of beneficial
interest pursuant to Rule 24f-2.
================================================================================
<PAGE>
This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheets required by Rule 481(a) under Securities Act of 1933
Part A -- The Combined Prospectus of:
Eaton Vance California Municipals Fund
Eaton Vance Florida Municipals Fund
Eaton Vance Massachusetts Municipals Fund
Eaton Vance Mississippi Municipals Fund
Eaton Vance New York Municipals Fund
Eaton Vance Ohio Municipals Fund
Eaton Vance Rhode Island Municipals Fund
Eaton Vance West Virginia Municipals Fund
The Prospectuses of:
Eaton Vance National Municipals Fund
Eaton Vance Massachusetts Municipals Fund -- Class I Shares
Part B -- The Combined Statement of Additional Information of:
Eaton Vance California Municipals Fund
Eaton Vance Florida Municipals Fund
Eaton Vance Massachusetts Municipals Fund
Eaton Vance Mississippi Municipals Fund
Eaton Vance New York Municipals Fund
Eaton Vance Ohio Municipals Fund
Eaton Vance Rhode Island Municipals Fund
Eaton Vance West Virginia Municipals Fund
The Statements of Additional Information of:
Eaton Vance National Municipals Fund
Eaton Vance Massachusetts Municipal Funds -- Class I Shares
Part C -- Other Information
Signatures
Exhibit Index Required by Rule 483(b) under the Securities Act of 1933
Exhibits
This Amendment is not intended to amend the Prospectuses and Statements of
Additional Information of any other Series of the Registrant not identified
above.
<PAGE>
EATON VANCE MUNICIPALS TRUST
CROSS REFERENCE SHEET
FOR EATON VANCE STATE MUNICIPAL FUNDS
ITEMS REQUIRED BY FORM N-1A
<TABLE>
<CAPTION>
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- -------- ------------ ---------------------------------------------
<S> <C> <C>
1. ..................... Cover Page Cover Page
2. ..................... Synopsis Shareholder and Fund Expenses
3. ..................... Condensed Financial Information The Funds' Financial Highlights; Performance
Information
4. ..................... General Description of Registrant The Funds' Investment Objectives; Investment
Policies and Risks; Organization of the
Funds and the Portfolios
5. ..................... Management of the Fund Management of the Funds and the Portfolios
5A...................... Management's Discussion of Fund Not Applicable
Performance
6. ..................... Capital Stock and Other Securities Organization of the Funds and the Portfolios;
Reports to Shareholders; The Lifetime
Investing Account/Distribution Options;
Distributions and Taxes
7. ..................... Purchase of Securities Being Offered Valuing Shares; How to Buy Shares; The
Lifetime Investing Account/Distribution
Options; Distribution and Service Plans;
The Eaton Vance Exchange Privilege; Eaton
Vance Shareholder Services
8. ..................... Redemption or Repurchase How to Redeem Shares
9. ..................... Pending Legal Proceedings Not Applicable
PART B
ITEM NO. ITEM CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- -------- ------------ ---------------------------------------------
10. ..................... Cover Page Cover Page
11. ..................... Table of Contents Table of Contents
12. ..................... General Information and History Other Information
13. ..................... Investment Objectives and Policies Additional Information about Investment
Policies; Investment Restrictions
14. ..................... Management of the Fund Trustees and Officers
15. ..................... Control Persons and Principal Holders of Control Persons and Principal Holders of
Securities Securities
16. ..................... Investment Advisory and Other Investment Adviser and Administrator;
Services Distribution Plan - Class B Shares; Service
Plan - Class A Shares; Custodian;
Independent Certified Public Accountants
17. ..................... Brokerage Allocation and Other Portfolio Security Transactions
Practices
18. ..................... Capital Stock and Other Securities Other Information
19. ..................... Purchase, Redemption and Pricing of Determination of Net Asset Value; Principal
Securities Being Offered Underwriter; Service for Withdrawal;
Services for Accumulation - Class A Shares;
Distribution Plan -- Class B Shares;
Service Plan -- Class A Shares
20. ..................... Tax Status Taxes; Tax Equivalent Yield Table
21. ..................... Underwriters Principal Underwriter
22. ..................... Calculation of Performance Data Investment Performance
23. ..................... Financial Statements Financial Statements
</TABLE>
<PAGE>
EATON VANCE MUNICIPALS TRUST
CROSS REFERENCE SHEET
FOR EATON VANCE NATIONAL MUNICIPALS FUND
ITEMS REQUIRED BY FORM N-1A
<TABLE>
<CAPTION>
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- -------- ------------ ---------------------------------------------
<S> <C> <C>
1. ..................... Cover Page Cover Page
2. ..................... Synopsis Shareholder and Fund Expenses
3. ..................... Condensed Financial Information The Fund's Financial Highlights; Performance
Information
4. ..................... General Description of Registrant The Fund's Investment Objective; Investment
Policies and Risks; Organization of the
Fund and the Portfolio
5. ..................... Management of the Fund Management of the Fund and the Portfolio
5A...................... Management's Discussion of Fund Not Applicable
Performance
6. ..................... Capital Stock and Other Securities Organization of the Fund and the Portfolio;
Reports to Shareholders; The Lifetime
Investing Account/Distribution Options;
Distributions and Taxes
7. ..................... Purchase of Securities Being Offered Valuing Shares; How to Buy Shares; The
Lifetime Investing Account/Distribution
Options; Distribution and Service Plans;
The Eaton Vance Exchange Privilege; Eaton
Vance Shareholder Services
8. ..................... Redemption or Repurchase How to Redeem Shares
9. ..................... Pending Legal Proceedings Not Applicable
PART B
ITEM NO. ITEM CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- -------- ------------ ---------------------------------------------
10. ..................... Cover Page Cover Page
11. ..................... Table of Contents Table of Contents
12. ..................... General Information and History Other Information
13. ..................... Investment Objectives and Policies Additional Information about Investment
Policies; Investment Restrictions
14. ..................... Management of the Fund Trustees and Officers
15. ..................... Control Persons and Principal Holders of Control Persons and Principal Holders of
Securities Securities
16. ..................... Investment Advisory and Other Investment Adviser and Administrator;
Services Distribution Plans - Class B and Class C
Shares; Service Plan - Class A Shares;
Custodian; Independent Certified Public
Accountants
17. ..................... Brokerage Allocation and Other Portfolio Security Transactions
Practices
18. ..................... Capital Stock and Other Securities Other Information
19. ..................... Purchase, Redemption and Pricing of Determination of Net Asset Value; Principal
Securities Being Offered Underwriter; Service for Withdrawal;
Services for Accumulation - Class A Shares;
Distribution Plans -- Class B and Class C
Shares; Service Plan -- Class A Shares
20. ..................... Tax Status Taxes; Tax Equivalent Yield Table
21. ..................... Underwriters Principal Underwriter
22. ..................... Calculation of Performance Data Investment Performance
23. ..................... Financial Statements Financial Statements
</TABLE>
<PAGE>
EATON VANCE MUNICIPALS TRUST
CROSS REFERENCE SHEET
FOR EATON VANCE MASSACHUSETTS MUNICIPALS FUND -- CLASS I SHARES
ITEMS REQUIRED BY FORM N-1A
<TABLE>
<CAPTION>
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- -------- ------------ ---------------------------------------------
<S> <C> <C>
1. ..................... Cover Page Cover Page
2. ..................... Synopsis Shareholder and Fund Expenses
3. ..................... Condensed Financial Information The Fund's Financial Highlights; Performance
Information
4. ..................... General Description of Registrant The Fund's Investment Objective; Investment
Policies and Risks; Organization of the
Fund and the Portfolio
5. ..................... Management of the Fund Management of the Fund and the Portfolio
5A...................... Management's Discussion of Fund Not Applicable
Performance
6. ..................... Capital Stock and Other Securities Organization of the Fund and the Portfolio;
Reports to Shareholders; The Lifetime
Investing Account/Distribution Options;
Distributions and Taxes
7. ..................... Purchase of Securities Being Offered Valuing Shares; How to Buy Shares; The
Lifetime Investing Account/Distribution
Options; Eaton Vance Shareholder Services
8. ..................... Redemption or Repurchase How to Redeem Shares
9. ..................... Pending Legal Proceedings Not Applicable
PART B
ITEM NO. ITEM CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- -------- ------------ ---------------------------------------------
10. ..................... Cover Page Cover Page
11. ..................... Table of Contents Table of Contents
12. ..................... General Information and History Other Information
13. ..................... Investment Objectives and Policies Additional Information about Investment
Policies; Investment Restrictions
14. ..................... Management of the Fund Trustees and Officers
15. ..................... Control Persons and Principal Holders of Control Persons and Principal Holders of
Securities Securities
16. ..................... Investment Advisory and Other Investment Adviser and Administrator;
Services Custodian; Independent Certified Public
Accountants
17. ..................... Brokerage Allocation and Other Portfolio Security Transactions
Practices
18. ..................... Capital Stock and Other Securities Other Information
19. ..................... Purchase, Redemption and Pricing of Determination of Net Asset Value; Principal
Securities Being Offered Underwriter; Service for Withdrawal
20. ..................... Tax Status Taxes; Tax Equivalent Yield Table
21. ..................... Underwriters Principal Underwriter
22. ..................... Calculation of Performance Data Investment Performance
23. ..................... Financial Statements Financial Statements
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
[GRAPHIC OMITTED]
EATON VANCE CALIFORNIA MUNICIPALS FUND
EATON VANCE FLORIDA MUNICIPALS FUND
EATON VANCE MASSACHUSETTS MUNICIPALS FUND
EATON VANCE MISSISSIPPI MUNICIPALS FUND
EATON VANCE NEW YORK MUNICIPALS FUND
EATON VANCE OHIO MUNICIPALS FUND
EATON VANCE RHODE ISLAND MUNICIPALS FUND
EATON VANCE WEST VIRGINIA MUNICIPALS FUND
THESE 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. 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 October 1,
1997 for the Funds, as supplemented from time to time, has been filed with the
Securities and Exchange Commission (the "Commission") and is incorporated
herein by reference. This Statement of Additional Information is available
without charge from the Funds' principal underwriter, Eaton Vance
Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street, Boston,
MA 02110 (telephone (800) 225-6265). The Portfolios' investment adviser is
Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C><C> <C>
Shareholder and Fund Expenses ......................... 2 How to Redeem Shares .............................. 22
The Funds' Financial Highlights ....................... 4 Reports to Shareholders ........................... 24
The Funds' Investment Objectives ..................... 12 The Lifetime Investing Account/Distribution
Investment Policies and Risks ........................ 12 Options ......................................... 24
Organization of the Funds and the Portfolios .......... 16 The Eaton Vance Exchange Privilege ................ 25
Management of the Funds and the Portfolios ............ 17 Eaton Vance Shareholder Services .................. 26
Distribution and Service Plans ........................ 19 Distributions and Taxes ........................... 26
Valuing Shares ........................................ 20 Performance Information ........................... 27
How to Buy Shares ..................................... 20 Appendix -- State Specific Information ............ 29
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED OCTOBER 1, 1997
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75% None
Sales Charges Imposed on Reinvested Distributions None None
Fees to Exchange Shares None None
Maximum Contingent Deferred Sales Charge None 5.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of
average daily net assets)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
-------------------- -------------------- -------------------- --------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Adviser Fee 0.50% 0.50% 0.46% 0.46% 0.46% 0.46% 0.20% 0.20%
Rule 12b-1 Distribution and/or
Service Fees 0.10% 0.96% 0.07% 0.93% 0.20% 0.92% 0.20% 0.93%
Other Expenses 0.20% 0.20% 0.16% 0.16% 0.21% 0.21% 0.42% 0.42%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating Expenses 0.80% 1.66% 0.69% 1.55% 0.87% 1.59% 0.82% 1.56%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
EXAMPLE
- --------------------------------------------------------------------------------
An investor would pay the following expenses and, in the case of Class A
shares, maximum initial sales charge or, in the case of Class B shares,
contingent deferred sales charge on a $1,000 investment, assuming (a) 5%
annual return and (b) redemption at the end of each period:
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
-------------------- -------------------- -------------------- --------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 55 $ 67 $ 54 $ 66 $ 56 $ 66 $ 55 $ 66
3 Years $ 72 $ 92 $ 69 $ 89 $ 74 $ 90 $ 72 $ 89
5 Years $ 90 $110 $ 84 $104 $ 93 $107 $ 91 $104
10 Years $142 $197 $129 $185 $150 $189 $144 $185
</TABLE>
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
-------------------- -------------------- -------------------- --------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 55 $ 17 $ 54 $ 16 $ 56 $ 16 $ 55 $ 16
3 Years $ 72 $ 52 $ 69 $ 49 $ 74 $ 50 $ 72 $ 49
5 Years $ 90 $ 90 $ 84 $ 84 $ 93 $ 87 $ 91 $ 84
10 Years $142 $197 $129 $185 $150 $189 $144 $185
</TABLE>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of
average daily net assets)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
-------------------- -------------------- -------------------- --------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Adviser Fee (after any
applicable fee reduction) 0.46% 0.46% 0.46% 0.46% 0.13% 0.13% 0.24% 0.24%
Rule 12b-1 Distribution and/or
Service Fees 0.07% 0.92% 0.20% 0.93% 0.20% 0.89% 0.20% 0.95%
Other Expenses 0.16% 0.16% 0.24% 0.24% 0.33% 0.33% 0.36% 0.36%
---- ---- ---- ---- ---- ---- ---- ----
Total Operating Expenses
(after any applicable fee
reduction) 0.69% 1.54% 0.90% 1.63% 0.66% 1.35% 0.80% 1.55%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
EXAMPLE
- -------------------------------------------------------------------------------
An investor would pay the following expenses and, in the case of Class A
shares, maximum initial sales charge or, in the case of Class B shares,
contingent deferred sales charge on a $1,000 investment, assuming (a) 5%
annual return and (b) redemption at the end of each period:
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
-------------------- -------------------- -------------------- --------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 54 $ 66 $ 56 $ 67 $ 54 $ 64 $ 55 $ 66
3 Years $ 69 $ 89 $ 75 $ 91 $ 68 $ 83 $ 72 $ 89
5 Years $ 84 $104 $ 95 $109 $ 83 $ 94 $ 90 $104
10 Years $129 $185 $153 $193 $126 $162 $142 $185
</TABLE>
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
<TABLE>
<CAPTION>
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
-------------------- -------------------- -------------------- --------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 54 $ 16 $ 56 $ 17 $ 54 $ 14 $ 55 $ 16
3 Years $ 69 $ 49 $ 75 $ 51 $ 68 $ 43 $ 72 $ 49
5 Years $ 84 $ 84 $ 95 $ 89 $ 83 $ 74 $ 90 $ 84
10 Years $129 $185 $153 $193 $126 $162 $142 $185
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Portfolio and
each Class of shares of the Funds and are designed to help investors
understand the costs and expenses they will bear, directly or indirectly, by
investing in a Fund. Information for Class A shares is estimated based upon
the most recent fiscal year of its predecessor fund adjusted for the multiple-
class structure. Information for Class B shares is for the most recent fiscal
year (except for Class B shares of the Mississippi Fund which has been
estimated). The Investment Adviser Fee for the Rhode Island Fund includes an
estimated reduction of that fee. Absent that reduction the Investment Adviser
Fee would be 0.25% and Total Operating Expenses for Class A and Class B shares
would be 0.91% and 1.47%, respectively.
The Funds offer two classes of shares. Class A shares are sold subject to a
sales charge imposed at the time of purchase. No sales charge is payable at
the time of purchase on investments in Class A shares of $1 million or more.
However, a contingent deferred sales charge ("CDSC") of 0.50% will be imposed
on such investments in the event of certain redemptions within 12 months of
purchase. Class B shares are sold subject to a declining CDSC (5% maximum) if
redeemed within six years of purchase. The CDSC does not apply in certain
circumstances. See "How to Buy Shares" and "How to Redeem Shares".
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Federal
regulations require the Examples to assume a 5% annual return, but actual
return will vary. Long-term holders of Class B shares 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. For further
information regarding the expenses of the Funds and the Portfolios, see "The
Funds" Financial Highlights", "Management of the Funds and the Portfolios",
"Distribution and Service Plans" and "How to Redeem Shares".
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 17.
Each Fund invests exclusively in its corresponding Portfolio. Other investment
companies with different distribution arrangements and fees may invest in the
Portfolios in the future. See "Organization of the Funds and the Portfolios".
THE FUNDS' FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements that appear in the Funds' semi-annual and annual reports to
shareholders. The Funds' annual financial statements have been audited by
Deloitte & Touche LLP, independent certified public accountants, as experts in
accounting and auditing. The annual financial statements and the independent
auditors' report and the unaudited semi-annual financial statements are
incorporated by reference into the Statement of Additional Information.
Further information regarding the performance of a Fund is contained in its
annual and semi-annual reports to shareholders which may be obtained without
charge by contacting the Principal Underwriter. The financial information for
each of the periods presented in the Funds' Financial Highlights are for each
Fund prior to reclassification of its shares as Class B shares on October 1,
1997. Information for Class A shares is not presented because that class did
not exist prior to October 1, 1997. The Financial Highlights for Class A
shares will differ from the Financial Highlights for Class B shares due to the
absence of distribution fees for Class A shares.
- --------------------------------------------------------------------------------
CALIFORNIA FUND -- CLASS B
- --------------------------------------------------------------------------------
YEAR ENDED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, SEPTEMBER 30, MARCH 31,
1997 -------------------------------- --------------------------------
(UNAUDITED) 1996 1995 1994++ 1994 1993 1992**
----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.540 $ 9.410 $ 9.290 $ 9.560 $ 10.200 $ 9.850 $ 10.000
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.226 $ 0.464 $ 0.475 $ 0.240 $ 0.480 $ 0.509 $ 0.264
Net realized and unrealized gain
(loss) on investments (0.016) 0.135 0.253 (0.234) (0.395) 0.524 (0.100)
-------- -------- -------- -------- -------- -------- --------
Total income (loss) from operations $ 0.210 $ 0.599 $ 0.728 $ 0.006 $ 0.085 $ 1.033 $ 0.164
-------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.227) $ (0.465) $ (0.475) $ (0.240) $ (0.480) $ (0.509) $ (0.264)
In excess of net investment income(5) (0.003) (0.004) (0.016) (0.036) (0.092) (0.115) (0.050)
From net realized gain on investments -- -- -- -- (0.153) (0.059) --
In excess of net realized gain on investments(5) -- -- (0.117) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total distributions $ (0.230) $ (0.469) $ (0.608) $ (0.276) $ (0.725) $ (0.683) $ (0.314)
-------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, end of year $ 9.520 $ 9.540 $ 9.410 $ 9.290 $ 9.560 $ 10.200 $ 9.850
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN(1) 2.21% 6.49% 8.30% 0.06% 0.55% 10.82% 3.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000 omitted) $330,948 $361,255 $401,742 $439,591 $463,414 $438,938 $362,597
Ratio of net expenses to average daily
net assets(2)(4) 1.69%+ 1.66% 1.65% 1.63%+ 1.67% 1.84% 1.87%+
Ratio of net expenses to average daily
net assets after custodian fee reduction(2)(4) 1.68%+ 1.65% 1.64% -- -- -- --
Ratio of net investment income to
average daily net assets 4.74% 4.87% 5.19% 5.06%+ 4.64% 5.05% 5.28%+
PORTFOLIO TURNOVER(3) -- -- -- -- 5% 139% 65%
</TABLE>
(See footnotes on page 11.)
<PAGE>
- --------------------------------------------------------------------------------
CALIFORNIA FUND -- CLASS B
- --------------------------------------------------------------------------------
YEAR ENDED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------------
1991 1990 1989 1988 1987
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.570 $ 9.880 $ 9.810 $ 9.490 $10.480
-------- ------ ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.533 $ 0.558 $ 0.580 $ 0.590 $ 0.612
Net realized and unrealized gain
(loss) on investments 0.544 (0.203) 0.166 0.417 (0.886)
------- ------- ------- ------- -------
Total income (loss) from operations $ 1.077 $ 0.355 $ 0.746 $ 1.007 $(0.274)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.533) $(0.558) $(0.580) $(0.590) $(0.612)
In excess of net investment income(5) (0.114) (0.107) (0.096) (0.097) (0.104)
From net realized gain on investments -- -- -- -- --
In excess of net realized gain on investments(5) -- -- -- -- --
------- ------- ------- ------- -------
Total distributions $(0.647) $(0.665) $(0.676) $(0.687) $(0.716)
------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.000 $ 9.570 $ 9.880 $ 9.810 $ 9.490
======= ======= ======= ======= =======
TOTAL RETURN(1) 11.59% 3.63% 7.80% 10.95% (2.93)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000 omitted) $353,990 $281,723 $260,306 $206,741 $190,774
Ratio of net expenses to average daily
net assets(2)(4) 1.90% 1.95% 1.97% 1.97% 1.70%
Ratio of net expenses to average daily
net assets after custodian fee reduction(2)(4) -- -- -- -- --
Ratio of net investment income to
average daily net assets 5.42% 5.65% 5.80% 6.06% 5.82%
PORTFOLIO TURNOVER(3) 36% 13% 8% 29% 14%
</TABLE>
(See footnotes on page 11.)
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS FLORIDA FUND -- CLASS B
ENDED ----------------------------------------------------------------------------------
MARCH 31, YEAR ENDED SEPTEMBER 30,
1997 ----------------------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992 1991 1990++
----------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.780 $10.720 $10.270 $11.700 $10.940 $10.690 $ 9.990 $10.000
------- ------- ------- ------- ------- ------- ------ -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.241 $ 0.505 $ 0.514 $ 0.514 $ 0.516 $ 0.541 $ 0.573 $ 0.010
Net realized and unrealized
gain (loss) on investments (0.150) 0.067 0.469 (1.228) 1.040 0.434 0.838 (0.003)+++
------- ------- ------- ------- ------- ------- ------ -------
Total income (loss)
from operations $ 0.091 $ 0.572 $ 0.983 $(0.714) $ 1.556 $ 0.975 $ 1.411 $ 0.007
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income (0.242) (0.506) (0.514) (0.514) (0.516) (0.541) (0.573) (0.010)
In excess of net
investment income(5) (0.009) (0.006) (0.019) (0.082) (0.121) (0.127) (0.138) (0.007)
From net realized
gain on investments -- -- -- -- (0.150) (0.057) -- --
In excess of net
realized gain on
investments(5) -- -- -- (0.120) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.251) $(0.512) $(0.533) $(0.716) $(0.796) $(0.725) $(0.711) $(0.017)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.620 $10.780 $10.720 $10.270 $11.700 $10.940 $10.690 $ 9.990
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 0.83% 5.43% 9.90% (6.34)% 14.85% 9.41% 14.45% (0.10)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of
year (000 omitted) $548,548 $612,438 $701,565 $760,867 $776,856 $463,279 $233,021 $22,028
Ratio of net expenses to
average daily net assets(2)(4) 1.58%+ 1.55% 1.54% 1.44% 1.53% 1.64% 1.56% 1.00%+
Ratio of net expenses to
average daily net assets after
custodian fee reduction(2)(4) 1.54%+ 1.52% 1.51% -- -- -- -- --
Ratio of net investment income
to average daily net assets 4.53%+ 4.67% 4.97% 4.70% 4.54% 4.91% 5.33% 1.36%+
PORTFOLIO TURNOVER(3) -- -- -- -- 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,
the ratios and net investment income would have been as follows:
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.67% 1.25%+
Net investment income 5.22% 1.11%+
NET INVESTMENT INCOME PER SHARE $0.561 $0.008
====== ======
(See footnotes on page 11.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------------------
SIX MONTHS MASSACHUSETTS FUND -- CLASS B
ENDED ------------------------------------------------------------------------
MARCH 31, YEAR ENDED SEPTEMBER 30,
1997 ------------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992 1991++
--------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year $ 10.330 $ 10.270 $ 9.990 $ 11.250 $ 10.640 $ 10.250 $ 10.000
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.242 $ 0.491 $ 0.499 $ 0.505 $ 0.514 $ 0.526 $ 0.245
Net realized and unrealized gain
(loss) on investments (0.088) 0.066 0.307 (1.108) 0.784 0.556 0.305+++
Total income (loss)
from operations $ 0.154 $ 0.557 $ 0.806 $ (0.603) $ 1.298 $ 1.082 $ 0.550
-------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.244) $ (0.492) $ (0.499) $ (0.505) $ (0.514) $ (0.526) $ (0.245)
In excess of net investment
income(5) -- (6) (0.005) (0.027) (0.087) (0.116) (0.142) (0.055)
From net realized gain
on investments -- -- -- -- (0.058) (0.024) --
In excess of net realized gain on
investments(5) -- -- -- (0.065) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total distributions $ (0.244) $ (0.497) $ (0.526) $ (0.657) $ (0.688) $ (0.692) $ (0.300)
-------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, end of year $ 10.240 $ 10.330 $ 10.270 $ 9.990 $ 11.250 $ 10.640 $ 10.250
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN(1) 1.48% 5.53% 8.38% (5.57)% 12.67% 10.88% 5.33%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $246,967 $267,398 $291,114 $295,011 $286,801 $165,964 $35,532
Ratio of net expenses to
average daily net assets (2)(4) 1.63%+ 1.59% 1.58% 1.50% 1.58% 1.64% 1.28%+
Ratio of net expenses to
average daily net assets after
custodian fee reduction(2)(4) 1.62%+ 1.58% 1.56% -- -- -- --
Ratio of net investment income to
average daily net assets 4.72%+ 4.75% 5.00% 4.75% 4.69% 4.85% 5.15%+
PORTFOLIO TURNOVER(3) -- -- -- -- 27% 72% 21%
*For the period indicated, the operating expenses of the Fund reflect an allocation of expenses. Had such actions not been taken,
the ratios and net investment income per share would have been as follows:
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.68%+
Net investment i 4.75%+
NET INVESTMENT INCOME PER SHARE $ 0.226
=======
(See footnotes on page 11.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
MISSISSIPPI FUND -- CLASS B
------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 1997 ---------------------------------------------
(UNAUDITED) 1996 1995 1994 1993++
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.610 $ 9.480 $ 9.110 $10.260 $10.000
------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.212 $ 0.451 $ 0.449 $ 0.453 $ 0.106
Net realized and unrealized gain (loss)
on investments 0.015 0.122 0.379 (1.072) 0.300
------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.227 $ 0.573 $ 0.828 $(0.619) $ 0.406
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.212) $(0.443) $(0.449) $(0.453) $(0.106)
In excess of net investment income(5) (0.005) -- (0.009) (0.071) (0.040)
From net realized gain -- -- -- --
In excess of net realized gain on
investments(5) -- -- -- (0.007) --
------- ------- ------- ------- -------
Total distributions $(0.217) $(0.443) $(0.458) $(0.531) $(0.146)
------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.620 $ 9.610 $ 9.480 $ 9.110 $10.260
======= ======= ======= ======= =======
TOTAL RETURN(1) 2.37% 6.17% 9.40% (6.20)% 3.85%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) $22,506 $23,862 $26,756 $26,771 $11,810
Ratio of net expenses to average
daily net assets(2)(4) 1.67%+ 1.44% 1.36% 0.99% 0.75%+
Ratio of net expenses to average daily net
assets after custodian fee reduction(2)(4) 1.66%+ 1.41% 1.33% -- --
Ratio of net investment income to average
daily net assets 4.37%+ 4.64% 4.89% 4.63% 3.50%+
PORTFOLIO TURNOVER(3) -- -- -- -- --
*For the periods indicated, the operating expenses of the Fund 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, the ratios and net investment income per share would
have been as follows:
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.68%+ 1.55% 1.49% 1.45% 1.44%+
Expenses after custodian fee reduction(2)(4) 1.67%+ 1.52% 1.46% -- --
Net investment income 4.36%+ 4.53% 4.76% 4.17% 2.81%+
NET INVESTMENT INCOME PER SHARE $ 0.211 $ 0.440 $ 0.437 $ 0.407 $ 0.085
======= ======= ======= ======= =======
(See footnotes on page 11.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS NEW YORK FUND -- CLASS B
ENDED ----------------------------------------------------------------------------------
MARCH 31, YEAR ENDED SEPTEMBER 30,
1997 ----------------------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992 1991 1990++
----------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 10.930 $ 10.830 $ 10.450 $ 11.880 $ 11.070 $ 10.740 $ 9.950 $ 10.000
-------- -------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.250 $ 0.506 $ 0.523 $ 0.528 $ 0.535 $ 0.553 $ 0.563 $ 0.014
Net realized and unrealized gain
(loss) on investments (0.065) 0.116 0.406 (1.165) 1.014 0.524 0.929 (0.039)+++
-------- -------- -------- -------- -------- -------- -------- --------
Total income (loss)
from operations $ 0.185 $ 0.622 $ 0.929 $ (0.637) $ 1.549 $ 1.077 $ 1.492 $ (0.025)
-------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.252) $ (0.508) $ (0.523) $ (0.528) $ (0.535) $ (0.553) $ (0.563) $ (0.014)
In excess of net investment
income(5) (0.003) (0.014) (0.026) (0.089) (0.120) (0.135) (0.139) (0.011)
From net realized gain
on investments -- -- -- -- (0.084) (0.059) -- --
In excess of net realized gain on
investments(5) -- -- -- (0.176) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions $ (0.255) $ (0.522) $ (0.549) $ (0.793) $ (0.739) $ (0.747) $ (0.702) $ (0.025)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, end of year $ 10.860 $ 10.930 $ 10.830 $ 10.450 $ 11.880 $ 11.070 $ 10.740 $ 9.950
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL RETURN(1) 1.68% 5.87% 9.23% (5.62)% 14.53% 10.41% 15.58% (0.50)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of
year (000 omitted) $542,086 $590,397 $640,605 $648,325 $650,361 $415,144 $161,037 $ 7,640
Ratio of net expenses to
average daily net assets(2)(4) 1.61%+ 1.54% 1.55% 1.46% 1.55% 1.65% 1.62% 1.00%+
Ratio of net expenses to
average daily net assets after
custodian fee reduction(2)(4) 1.60%+ 1.51% 1.51% -- -- -- -- --
Ratio of net investment income
to average daily net assets 4.60%+ 4.64% 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 Fund reflect an allocation of expenses to the
Investment Adviser and/or the Administrator. Had such actions not been taken, the ratios and net
investment income per share would have been as follows:
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.69% 1.52%+
Net investment income 5.21% 0.66%+
NET INVESTMENT INCOME PER SHARE $ 0.556 $ 0.008
======== ========
(See footnotes on page 11.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ------------------------------------------------------------------------------------------------------------------------------
OHIO FUND -- CLASS B
--------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 1997 -------------------------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992 1991++
---------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year $ 10.590 $ 10.510 $ 10.070 $ 11.300 $ 10.550 $ 10.210 $ 10.000
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.246 $ 0.494 $ 0.487 $ 0.494 $ 0.499 $ 0.509 $ 0.245
Net realized and unrealized
gain (loss) on investments (0.044) 0.071 0.461 (1.081) 0.901 0.495 0.261+++
--------- --------- --------- --------- --------- --------- ---------
Total income (loss)
from operations $ 0.202 $ 0.565 $ 0.948 $ (0.587) $ 1.400 $ 1.004 $ 0.506
--------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
From net investment income $ (0.242) $ (0.485) $ (0.487) $ (0.494) $ (0.499) $ (0.509) $ (0.245)
In excess of net investment
income(5) -- -- (0.021) (0.084) (0.118) (0.137) (0.051)
From net realized gain
on investments -- -- -- -- (0.033) (0.018) --
In excess of net
realized gain on
investments(5) -- -- -- (0.065) -- -- --
-------- --------- --------- --------- --------- --------- --------
Total distributions $ (0.242) $ (0.485) $ (0.508) $ (0.643) $ (0.650) $ (0.664) $ (0.296)
--------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, end of year $ 10.550 $ 10.590 $ 10.510 $ 10.070 $ 11.300 $ 10.550 $ 10.210
========= ========= ========= ========= ========= ========= =========
TOTAL RETURN(1) 1.90% 5.48% 9.74% (5.39)% 13.74% 10.13% 4.88%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $ 272,533 $ 289,829 $ 315,891 $ 321,578 $ 299,331 $ 164,400 $ 51,215
Ratio of net expenses to
average daily net assets(2)(4) 1.63%+ 1.63% 1.59% 1.50% 1.58% 1.65% 1.47%+
Ratio of net expenses to
average daily net assets
after custodian fee
reduction(2)(4) 1.62%+ 1.61% 1.57% -- -- -- --
Ratio of net investment
income to average
daily net assets 4.65%+ 4.66% 4.80% 4.62% 4.57% 4.87% 5.04%+
PORTFOLIO TURNOVER(3) -- -- -- -- 12% 40% 11%
*For the period indicated, the operating expenses of the Fund reflect an allocation of expenses by the
Investment Adviser and/or the Administrator. Had such action not been taken, the ratios and net
investment income per share would have been as follows:
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.52%+
Net investment income 4.99%+
NET INVESTMENT INCOME PER SHARE $ 0.243
========
(See footnotes on page 11.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------
RHODE ISLAND FUND -- CLASS B
-------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 1997 ---------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993++
----------- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.510 $ 9.400 $ 9.090 $ 10.330 $ 10.000
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.213 $ 0.440 $ 0.452 $ 0.454 $ 0.113
Net realized and unrealized
gain (loss) on investments (0.066) 0.125 0.332 (1.146) 0.361
--------- --------- --------- --------- ---------
Total income (loss) from
operations $ 0.147 $ 0.565 $ 0.784 $ (0.692) $ 0.474
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
From net investment income $ (0.214) $ (0.444) $ (0.452) $ (0.454) $ (0.113)
In excess of net investment
income(5) (0.003) (0.011) (0.022) (0.078) (0.008)
From net realized gain on investments -- -- -- -- (0.023)
In excess of net realized
gain on investments(5) -- -- -- (0.016) --
--------- --------- --------- --------- ---------
Total distributions $ (0.217) $ (0.455) $ (0.474) $ (0.548) $ (0.144)
--------- --------- --------- --------- ---------
NET ASSET VALUE, end of year $ 9.440 $ 9.510 $ 9.400 $ 9.090 $ 10.330
========= ========= ========= ========= ========
TOTAL RETURN(1) 1.54% 6.14% 8.94% (6.91)% 4.53%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) $ 37,442 $ 39,488 $ 39,864 $ 34,261 $ 17,680
Ratio of net expenses to average
daily net assets(2)(4) 1.46%+ 1.35% 1.33% 1.02% 0.75%+
Ratio of net expenses to average
daily net assets after custodian
fee reduction(2)(4) 1.42%+ 1.32% 1.29% -- --
Ratio of net investment income
to average daily net assets 4.50%+ 4.63% 4.92% 4.65% 3.70%+
PORTFOLIO TURNOVER(3) -- -- -- -- --
*For the periods indicated, the operating expenses of the Fund and the Portfolio reflect an allocation of
expenses by the Investment Adviser and/or the Administrator. Had such action not been taken, the ratios
and net investment income per share would have been as follows:
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.58%+ 1.47% 1.46% 1.38% 1.30%+
Expenses after custodian fee reduction(2)(4) 1.54%+ 1.44% 1.42% -- --
Net investment income 4.37%+ 4.51% 4.79% 4.29% 3.15%+
NET INVESTMENT INCOME PER SHARE $ 0.207 $ 0.429 $ 0.440 $ 0.418 $ 0.096
========= ========= ========= ========= =========
(See footnotes on page 11.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- --------------------------------------------------------------------------------------------
WEST VIRGINIA FUND -- CLASS B
---------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEPTEMBER 30,
ENDED
MARCH 31, 1997 -------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993++
------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.620 $ 9.500 $ 9.130 $ 10.220 $ 10.000
--------- --------- --------- --------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.206 $ 0.420 $ 0.436 $ 0.450 $ 0.103
Net realized and unrealized gain
(loss) on investments (0.046) 0.147 0.393 (1.011) 0.262
--------- --------- --------- --------- ---------
Total income (loss) from operations $ 0.160 $ 0.567 $ 0.829 $ (0.561) $ 0.365
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
From net investment income $ (0.207) $ (0.427) $ (0.436) $ (0.450) $ (0.103)
In excess of net investment income(5) (0.003) (0.020) (0.023) (0.069) (0.042)
In excess of net realized gain
on investments(5) -- -- -- (0.010) --
--------- --------- --------- --------- ---------
Total distributions $ (0.210) $ (0.447) $ (0.459) $ (0.529) $ (0.145)
--------- --------- --------- --------- ---------
NET ASSET VALUE, end of year $ 9.570 $ 9.620 $ 9.500 $ 9.130 $ 10.220
========= ========= ========= ========= =========
TOTAL RETURN(1) 1.65% 6.02% 9.39% (5.66)% 3.47%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) $ 34,987 $ 37,708 $ 39,569 $ 38,476 $ 25,717
Ratio of net expenses to average
daily net assets(2)(4) 1.57%+ 1.55% 1.40% 0.95% 0.75%+
Ratio of net expenses to average
daily net assets after custodian
fee reduction(2)(4) 1.54%+ 1.51% 1.38% -- --
Ratio of net investment income
to average daily net assets 4.30%+ 4.30% 4.74% 4.62% 3.40%+
*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, the ratios
and net investment income per share would have been:
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.48% 1.32% 1.19%+
Expenses after custodian fee reduction(2)(4) 1.46% -- --
Net investment income 4.66% 4.25% 2.96%+
NET INVESTMENT INCOME PER SHARE $ 0.429 $ 0.414 $ 0.090
======= ======= =======
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.
+ 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. 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) 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) The expense ratios for the year ended September 30, 1995 and periods thereafter have been adjusted to reflect a change in
reporting requirements. The new reporting guidelines require a Fund, as well as its corresponding Portfolio, to increase its
expense ratio by the effect of any expense offset arrangements with its service providers. The expense ratios for the prior
periods have not been adjusted to reflect this change.
(5) The Funds have followed the Statement of Position (SOP) 93-2: Determination, Disclosure and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital 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.
(6) Distributions in excess of net investment income were less than $0.001 per share.
</TABLE>
THE FUNDS' INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio"). Each
Portfolio invests primarily in municipal obligations (as described below)
which are rated at least investment grade by a major rating agency or, if
unrated, determined to be of at least investment grade quality by the
Investment Adviser. Each Portfolio has the same investment objective as its
corresponding Fund.
EATON VANCE 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").
EATON VANCE 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").
EATON VANCE 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").
EATON VANCE 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").
EATON VANCE 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").
EATON VANCE 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").
EATON VANCE 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 its assets in the Rhode Island Municipals Portfolio (the "Rhode
Island Portfolio").
EATON VANCE 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").
INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER
DIRECTLY OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY
PRIMARILY (I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL
MARKET CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT
FROM REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE
WITH 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 each Portfolio will normally be invested in
obligations rated at least investment grade at the time of investment (which
are those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's")
or BBB or higher by either Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("Fitch")) or, if unrated, determined by the
Investment Adviser to be of at least investment grade quality. The balance of
each Portfolio's net assets may be invested in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
unrated municipal obligations considered to be of comparable quality by the
Investment Adviser. Municipal obligations rated Baa or BBB may have
speculative characteristics. Also, changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher rated obligations. Securities
rated below Baa or BBB are commonly known as "junk bonds". A Portfolio may
retain an obligation whose rating drops below B after its acquisition if such
retention is considered desirable by the Investment Adviser. See "Additional
Risk Considerations". For a description of municipal obligation ratings, see
the Statement of Additional Information.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public
and private purposes, the interest on which is, in the opinion of bond
counsel, exempt from regular federal income tax. Public purpose municipal
bonds include general obligation and revenue bonds. General obligation bonds
are backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility, or from the proceeds of a
specific revenue source. Some revenue bonds are payable solely or partly from
funds which are subject to annual appropriations by a State's legislature.
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, 1996, the Portfolios had invested in such obligations as
follows (as a percentage of net assets): California Portfolio (20.0%); Florida
Portfolio (24.0%); Massachusetts Portfolio (26.7%); Mississippi Portfolio
(18.6%); New York Portfolio (5.0%); Ohio Portfolio (26.2%); Rhode Island
Portfolio (21.3%); and West Virginia Portfolio (22.2%). Distributions to
corporate investors of certain interest income may also be subject to the AMT.
The Funds may not be suitable for investors subject to the AMT.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State and that State's political
subdivisions. Each Portfolio is, therefore, more susceptible to factors
adversely affecting issuers in one State than mutual funds which do not
concentrate in a specific State. Municipal obligations of issuers in a single
State may be adversely effected by economic developments (including insolvency
of an issuer) and by legislation and other governmental activities in that
State. Municipal obligations that rely on an annual appropriation of funds by
a State's legislature for payment are also subject to the risk that the
legislature will not appropriate the necessary amounts or take other action
needed to permit the issuer of such obligations to make required payments. To
the extent that a Portfolio's assets are concentrated in municipal obligations
of issuers of a single State, that Portfolio may be subject to an increased
risk of loss. Each Portfolio may also invest in obligations issued by the
governments of Puerto Rico, the U.S. Virgin Islands and Guam. See the Appendix
to this Prospectus for a description of some of the economic and other factors
relating to the States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its total assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities;
obligations dependent on annual appropriations by a State's legislature for
payment; obligations of State and local housing finance authorities, municipal
utilities systems or public housing authorities; obligations of hospitals or
life care facilities; or industrial development or pollution control bonds
issued for electric utility systems, steel companies, paper companies or other
purposes. This may make a Portfolio more susceptible to adverse economic,
political, or regulatory occurrences affecting a particular category of
issuer. For example, health care-related issuers are susceptible to medicaid
reimbursement policies, and national and State health care legislation. As a
Portfolio's concentration increases, so does the potential for fluctuation in
the value of the corresponding Fund's shares.
NON-DIVERSIFIED STATUS. As "non-diversified" investment companies, each
Portfolio may invest, with respect to 50% of its total assets, more than 5%
(but not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio is more susceptible to any single adverse economic or political
occurrence or development affecting issuers of the relevant State's municipal
obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive
their value from another instrument, security or index. In addition, each
Portfolio may temporarily borrow up to 5% of the value of its total assets to
satisfy redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the
securities may fluctuate prior to delivery and upon delivery the securities
may be worth more or less than a Portfolio agreed to pay for them. Each
Portfolio may also purchase instruments that give the Portfolio the option to
purchase a municipal obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in
inverse floaters may involve greater risk than an investment in a fixed rate
bond. Because changes in the interest rate on the other security or index
inversely affect the residual interest paid on the inverse floater, the value
of an inverse floater is generally more volatile than that of a fixed rate
bond. Inverse floaters have interest rate adjustment formulas which generally
reduce or, in the extreme, eliminate the interest paid to a Portfolio when
short-term interest rates rise, and increase the interest paid to the
Portfolio when short-term interest rates fall. Inverse floaters have varying
degrees of liquidity, and the market for these securities is new and
relatively volatile. These securities tend to underperform the market for
fixed rate bonds in a rising interest rate environment, but tend to outperform
the market for fixed rate bonds when interest rates decline. Shifts in long-
term interest rates may, however, alter this tendency. Although volatile,
inverse floaters typically offer the potential for yields exceeding the yields
available on fixed rate bonds with comparable credit quality and maturity.
These securities usually permit the investor to convert the floating rate to a
fixed rate (normally adjusted downward), and this optional conversion feature
may provide a partial hedge against rising rates if exercised at an opportune
time. Inverse floaters are leveraged because they provide two or more dollars
of bond market exposure for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. Futures contracts may be based on various debt securities
(such as U.S. Government securities and municipal obligations) and securities
indices (such as the Municipal Bond Index traded on the Chicago Board of
Trade). Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not
purchase or sell futures contracts or related options, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of margin deposits and premiums paid on the Portfolio's outstanding positions
would exceed 5% of the market value of the Portfolio's net assets. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce a Fund's current yield.
Insurance generally will be obtained from insurers with a claims-paying
ability rated Aaa by Moody's or AAA by S&P or Fitch. The insurance does not
guarantee the market value of the insured obligations or the net asset value
of a Fund's shares.
ADDITIONAL RISK CONSIDERATIONS
Many municipal obligations offering current income are rated investment grade
or below (Baa or BBB or lower) or are 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. Municipal obligations rated investment grade or below 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.
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, including
defaulted obligations, 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.
In the case of a defaulted obligation, a Portfolio may incur additional
expense seeking recovery of its investment.
The net asset value of shares will change in response to fluctuations in
prevailing interest rates and changes in the value of the securities held by
its corresponding Portfolio. When interest rates decline, the value of
securities held by a Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of the issuers of municipal
obligations held by a Portfolio will affect the principal value of (and
possibly the income earned on) such obligations. In addition, the values of
such securities are affected by changes in general economic conditions and
business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of a security and in
the ability of the issuer to make payments of principal and interest may also
affect the value of a Portfolio's investments. The amount of information about
the financial condition of an issuer of municipal obligations may not be as
extensive as that made available by corporations whose securities are publicly
traded. An investment in shares of a Fund will not constitute a complete
investment program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other
accounts managed by the Investment Adviser and its affiliates, holds a major
portion or all of such securities. Under adverse market or economic conditions
or in the event of adverse changes in the financial condition of the issuer,
the Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain of the municipal
obligations in which a Portfolio may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, a Portfolio may be unable to dispose of
these municipal obligations at times when it would otherwise wish to do so at
the prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer redeems securities held by
the Portfolio during a time of declining interest rates, the Portfolio may not
be able to reinvest the proceeds in securities providing the same investment
return as the securities redeemed.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals during the
life of the security. Each Portfolio is required to accrue income from zero-
coupon bonds on a current basis, even though it does not receive that income
currently in cash and each Fund is required to distribute its share of the
Portfolio's income for each taxable year. Thus, a Portfolio may have to sell
other investments to obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such
leases is often subject to the appropriation by the appropriate legislative
body, on an annual or other basis, of funds for the payment of the
obligations. Investments in municipal leases are thus subject to the risk that
the legislative body will not make the necessary appropriation and the issuer
will not otherwise be willing or able to meet its obligation.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A
SHAREHOLDER VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH
ENUMERATED RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE
INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT
FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE
TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF A FUND'S
SHAREHOLDERS OR THE INVESTORS IN THE CORRESPONDING PORTFOLIO, AS THE CASE
MAY BE.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- --------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST, A
BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION
OF TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. The Trustees of the Trust are
responsible for the overall management and supervision of its affairs. The
Trust may issue an unlimited number of shares of beneficial interest (no par
value per share) in one or more series (such as the Funds). The Trustees of
the Trust have divided the shares of each Fund into multiple classes,
including Class A and Class B shares. Each class represents an interest in a
Fund, but is subject to different expenses, rights and privileges. See
"Distribution and Service Plans" and "How to Buy Shares". The Trustees have
the authority under the Declaration of Trust to create additional classes of
shares with differing rights and privileges. As a result of a reorganization
with separate series of the Trust, the Funds commenced offering Class A and
Class B shares on October 1, 1997. The Massachusetts Fund also offers another
class of shares. This Class is offered to limited categories of investors and
is subject to different sales charges and expenses than Class A and Class B
shares (which will result in different performance).
When issued and outstanding, shares are fully paid and nonassessable by the
Trust and redeemable as described under "How to Redeem Shares". There are no
annual meetings of shareholders, but special meetings may be held as required
by law to elect Trustees and consider certain other matters. Shareholders are
entitled to one vote for each full share held. Fractional shares may be voted
proportionately. Shares of a Fund will be voted together except that only
shareholders of a particular class may vote on matters affecting only that
class. Shares have no preemptive or conversion rights and are freely
transferable. In the event of the liquidation of a Fund, shareholders of each
class are entitled to share pro rata in the net assets attributable to that
class available for distribution to shareholders.
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 growth in the assets of the
Portfolios, may afford the potential for economies of scale for each Fund (at
least when the assets of its corresponding Portfolio exceed $500 million) and
may over time result in lower expenses for a Fund.
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. 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 or class due to variations in sales commissions
and other operating expenses. Therefore, these differences may result in
differences in returns experienced by investors in
the various funds that invest in its corresponding Portfolio. Information
regarding other pooled investment entities or funds which invest in a
Portfolio, or the additional class of shares offered by the Massachusetts
Fund, may be obtained by contacting the Principal Underwriter, 24 Federal
Street, Boston, MA 02110, (617) 482-8260.
Whenever a Fund as an investor in a Portfolio is requested to vote on matters
pertaining to the Portfolio (other than the termination of the Portfolio's
business, which may be determined by the Trustees of the Portfolio without
investor approval), the Fund will hold a meeting of Fund shareholders and will
vote its interest in the Portfolio for or against such matters proportionately
to the instructions to vote for or against such matters received from Fund
shareholders. A Fund shall vote shares for which it receives no voting
instructions in the same proportion as the shares for which it receives voting
instructions. Other investors in a Portfolio may alone or collectively acquire
sufficient voting interests in the Portfolio to control matters relating to
the operation of the Portfolio, which may require the corresponding Fund to
withdraw its investment in the Portfolio or take other appropriate action. Any
such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, a Fund could incur brokerage, tax or other charges
in converting the securities to cash. In addition, the distribution in kind
may result in a less diversified portfolio of investments or adversely affect
the liquidity of a Fund. Notwithstanding the above, there are other means for
meeting shareholder redemption requests, such as borrowing.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. In the event a Fund withdraws
all of its assets from its corresponding Portfolio, or the Board of Trustees
of the Trust determines that the investment objective of such Portfolio is no
longer consistent with the investment objective of the Fund, the 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 (or the assets of another investor in the Portfolio) from its
corresponding Portfolio.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund or class might become liable for a misstatement or
omission in this Prospectus regarding another Fund or class because the Funds
use this combined Prospectus. The Trustees of the Trust have considered this
factor in approving the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
- --------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs. BMR also
furnishes for the use of each Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
Portfolios. Under its investment advisory agreement with a Portfolio, BMR
receives a monthly advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each Category
as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which portion
shall bear the same relationship to the total daily gross income on such
day as that portion of the total daily net assets in the same Category
bears to the total daily net assets on such day) in each Category as
indicated below. 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>
For the fiscal year ended September 30, 1996, each Portfolio paid advisory
fees equivalent to the percentage of average daily net assets stated below:
<TABLE>
<CAPTION>
NET ASSETS AS OF
PORTFOLIO SEPTEMBER 30, 1996 ADVISORY FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
California $370,590,195 0.50%
Florida 624,374,001 0.46%
Massachusetts 281,129,236 0.46%
Mississippi 25,279,561 0.10%(1)
New York 604,529,520 0.46%
Ohio 292,670,816 0.46%
Rhode Island 42,167,179 0.13%(2)
West Virginia 39,500,791 0.24%
</TABLE>
(1)Absent a fee reduction, the Mississippi Portfolio would have paid BMR
advisory fees equivalent to 0.20% of average daily net assets.
(2)Absent a fee reduction, the Rhode Island Portfolio would have paid BMR
advisory fees equivalent to 0.25% of average daily net assets.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $20 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company which through its subsidiaries
and affiliates engages primarily in investment management, administration and
marketing activities. The Principal Underwriter is a wholly-owned subsidiary
of Eaton Vance.
Nicole Anderes has acted as the portfolio manager of the New York and Rhode
Island Portfolios since January 1994. She joined Eaton Vance and BMR as a Vice
President in 1994 and manages other Eaton Vance portfolios. Prior to joining
Eaton Vance, she was a Vice President and portfolio manager at Lazard Freres
Asset Management.
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 BMR since 1993 and a manager of other Eaton Vance portfolios since
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. Ms. Clemson manages other Eaton Vance portfolios, has been a
Vice President of Eaton Vance and BMR since 1993, and served as a high yield
municipal bond analyst at Eaton Vance beginning in 1985.
Thomas J. Fetter has acted as the portfolio manager of the Florida and Ohio
Portfolios since they commenced operations. He manages other Eaton Vance
portfolios and is a Vice President of Eaton Vance and BMR.
Robert B. MacIntosh has acted as the portfolio manager of the Massachusetts
Portfolio since it commenced operations.
Mr. MacIntosh manages other Eaton Vance portfolios and is a Vice President of
Eaton Vance and BMR.
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, each
Portfolio and BMR have adopted Codes of Ethics relating to personal securities
transactions. The Codes permit Eaton Vance personnel to invest in securities
(including securities that may be purchased or held by a Portfolio) for their
own accounts, subject to certain pre-clearance, reporting and other
restrictions and procedures contained in such Codes.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Funds. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by the Principal Underwriter under the
distribution agreement.
DISTRIBUTION AND SERVICE PLANS
- --------------------------------------------------------------------------------
The Trust has adopted a Service Plan (the "Class A Plan") for each Fund's
Class A shares that is designed to meet the service fee requirements of the
sales charge rule of the National Association of Securities Dealers, Inc. THE
CLASS A PLAN PROVIDES THAT EACH CLASS A 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 ITS AVERAGE DAILY NET ASSETS FOR ANY
FISCAL YEAR. The Trustees of the Trust have initially implemented the Class A
Plan by authorizing Class A to make quarterly service fee payments to the
Principal Underwriter and Authorized Firms in amounts not expected to exceed
.20% (.25% for the California Class A) of its average daily net assets for any
fiscal year which is based on the value of Class A shares sold by such persons
and remaining outstanding for at least twelve months. However, the Class A
Plan authorizes the Trustees of the Trust to increase payments without action
by Class A shareholders of any Fund, provided that the aggregate amount of
payments made in any fiscal year does not exceed .25% of average daily net
assets.
The Trust has also adopted a Distribution Plan ("Class B Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act") for each
Fund's Class B shares. The Plan is designed to permit an investor to purchase
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 therewith. UNDER SUCH PLAN, EACH CLASS B PAYS THE
PRINCIPAL UNDERWRITER A FEE, ACCRUED DAILY AND PAID MONTHLY, AT AN ANNUAL RATE
NOT EXCEEDING .75% OF ITS AVERAGE DAILY NET ASSETS TO FINANCE THE DISTRIBUTION
OF ITS SHARES. Such fees compensate the Principal Underwriter for sales
commissions paid by it to Authorized Firms on the sale of Class B shares and
for interest expenses. The Principal Underwriter uses its own funds to pay
sales commissions (except on exchange transactions and reinvestments) to
Authorized Firms at the time of sale equal to 4% of the purchase price of the
Class B shares sold by such Firms. CDSCs paid to the Principal Underwriter
will be used to reduce amounts owed to it. Because payments to the Principal
Underwriter under the Class B Plan are limited, uncovered distribution charges
(sales commissions paid by the Principal Underwriter plus interest, less the
above fees and CDSCs received by it) may exist indefinitely. During the fiscal
year ended September 30, 1996, each Class B (which was then a seperate series
fund) paid or accrued sales commissions equivalent to .75% of average daily
net assets. As at September 30, 1996, the outstanding uncovered distribution
charges of the Principal Underwriter on such day calculated under the Class B
Plan amounted to approximately $4,643,000 (equivalent to 1.3% of net assets on
such day) in the case of California Class B, $16,966,000 (equivalent to 2.8%
of net assets on such day) in the case of Florida Class B, $8,088,000
(equivalent to 3.0% of net assets on such day) in the case of Massachusetts
Class B, $1,007,000 (equivalent to 4.2% of net assets on such day) in the case
of Mississippi Class B, $15,494,000 (equivalent to 2.6% of net assets on such
day) in the case of New York Class B, $8,802,000 (equivalent to 3.0% of net
assets on such day) in the case of Ohio Class B, $1,614,000 (equivalent to
4.1% of net assets on such day) in the case of Rhode Island Class B, and
$1,448,000 (equivalent to 3.8% of net assets on such day) in the case of West
Virginia Class B.
THE CLASS B PLAN ALSO AUTHORIZES EACH CLASS B TO MAKE PAYMENTS OF SERVICE FEES
TO THE PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS
NOT EXCEEDING .25% OF ITS AVERAGE DAILY NET ASSETS FOR PERSONAL SERVICES, AND/
OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS. The Trustees of the Trust have
initially implemented this provision of the Class B Plan by authorizing each
Class B to make quarterly service fee payments to the Principal Underwriter
and Authorized Firms in amounts not expected to exceed .20% (.25% for the
California Class B) of the average daily net assets for any fiscal year which
is based on the value of Class B shares sold by such persons and remaining
outstanding for at least 12 months. This fee is paid quarterly in arrears
based on the value of Class B shares sold by such persons and remaining
outstanding for at least twelve months. For the fiscal year ended September
30, 1996, each Class B paid or accrued service fees as follows (as an
annualized percentage of average daily net assets): California Class B
(0.21%); Florida Class B (0.18%); Massachusetts Class B (0.17%); Mississippi
Class B (0.18%); New York Class B (0.17%); Ohio Class B (0.18%); Rhode Island
Class B (0.14%); and West Virginia Class B (0.20%).
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell Fund shares and/or shares of other funds distributed
by the Principal Underwriter. In some instances, such additional incentives
may be offered only to certain Authorized Firms whose representatives sell or
are expected to sell significant amounts of shares. In addition, the Principal
Underwriter may from time to time increase or decrease the sales commissions
payable to Authorized Firms.
The Trust may, in its absolute discretion, suspend, discontinue or limit the
offering of one or more of its classes of shares at any time. In determining
whether any such action should be taken, the Trust's management intends to
consider all relevant factors, including (without limitation) the size of a
Fund or class, the investment climate and market conditions, the volume of
sales and redemptions of shares, and in the case of Class B shares, the amount
of uncovered distribution charges of the Principal Underwriter. The Plans may
continue in effect and payments may be made under the Plans following any such
suspension, discontinuance or limitation of the offering of shares; however,
there is no contractual obligation to continue any Plans for any particular
period of time. Suspension of the offering of shares would not, of course,
affect a shareholder's ability to redeem shares.
VALUING SHARES
- --------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE 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 Class's net asset value per
share is determined by the Trust's custodian, Investors Bank & Trust Company
("IBT"), (as agent for the Trust) in the manner authorized by the Trustees of
the Trust. The net asset value of each Class is computed by dividing the value
of that Class's pro rata share of each Fund's total assets, less its
liabilities, by the number of shares of that Class outstanding. Because each
Fund invests its assets in an interest in its corresponding Portfolio, each
Class's net asset value will reflect the value of each Fund's interest in the
Portfolio (which, in turn, reflects the underlying value of the Portfolio's
assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per share, and, for Class A shares, the
public offering price based thereon. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio)
based on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING
THE NUMBER OF SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
ACCEPTABLE SECURITIES. Class A shares are purchased at the effective public
offering price, which price is based on the effective net asset value per
share plus the applicable sales charge. The sales charge is divided between
the Authorized Firm and the Principal Underwriter. Class B shares are
purchased at the net asset value per share next determined after an order is
effective. An Authorized Firm may charge its customers a fee in connection
with transactions executed by that Firm. The Trust may suspend the offering of
shares at any time and may refuse an order for the purchase of shares. Shares
of each Fund are offered for sale only in States where such shares may be
legally sold.
An initial investment 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 Trust's transfer agent (the "Transfer Agent") as follows:
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123.
The $1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services".
CLASS A SHARES. The sales charge may vary depending on the size of the
purchase and the number of Class A 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> <C>
Less than $25,000 4.75% 4.99% 4.50%
$25,000 but less than $100,000 4.50 4.71 4.25
$100,000 but less than $250,000 3.75 3.90 3.50
$250,000 but less than $500,000 3.00 3.09 2.75
$500,000 but less than $1,000,000 2.00 2.04 2.00
$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 or where the amount invested represents redemption proceeds
from a mutual fund unaffiliated with Eaton Vance, if the redemption occurred
no more than 60 days' prior to the purchase of Fund shares and the redeemed
shares were potentially subject to a sales charge. A CDSC of 0.50% will be
imposed on such investments (as described below) in the event of certain
redemptions within 12 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.
Class A shares may be sold at net asset value to current and retired Directors
and Trustees of Eaton Vance funds, including the Portfolios; to clients and
current and retired officers and employees of Eaton Vance, its affiliates and
other investment advisers of Eaton Vance sponsored funds; to registered
representatives and employees of Authorized Firms and bank employees who refer
customers to registered representatives of Authorized Firms; to officers and
employees of IBT and the Transfer Agent; and to such persons' spouses and
children under the age of 21 and their beneficial accounts. Class A shares may
also be issued at net asset value (1) in connection with the merger of an
investment company or series thereof with a Fund, (2) to investors making an
investment as part of a fixed fee program whereby an entity unaffiliated with
the Investment Adviser provides multiple investment services, such as
management, brokerage and custody, and (3) to investment advisors, financial
planners or other intermediaries who place trades for their own accounts or
the accounts of their clients and who charge a management, consulting or other
fee for their services; clients of such investment advisors, financial
planners or other intermediaries who place trades for their own accounts if
the accounts are linked to the master account of such investment advisor,
financial planner or other intermediary on the books and records of the broker
or agent; and retirement and deferred compensation plans and trusts used to
fund those plans, including, but not limited to, those defined in Section
401(a), 403(b) or 457 of the Internal Revenue Code of 1986, as amended (the
"Code") and "rabbi trusts".
STATEMENT OF INTENTION AND ESCROW AGREEMENT. If the investor, on an
application, makes a Statement of Intention to invest a specified amount over
a thirteen month period in Class A shares, 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
such shares (computed to the nearest full share at the public offering price
applicable to the initial purchase hereunder) registered in the investor's
name. All income dividends and capital gains distributions on escrowed shares
will be paid to the investor or to the investor's order. When the minimum
investment so specified is completed, the escrowed shares will be delivered to
the investor. If the investor has an accumulation account the shares will
remain on deposit under the investor's account.
If total purchases under this Statement of Intention are less than the amount
specified, the investor will promptly remit to the Principal Underwriter any
difference between the sales charge on the amount specified and on the amount
actually purchased. If the investor does not within 20 days after written
request by the Principal Underwriter or the Authorized Firm pay such
difference in sales charge, the escrow agent will redeem an appropriate number
of the escrowed shares in order to realize such difference. Full shares
remaining after any such redemption together with any excess cash proceeds of
the shares so redeemed will be delivered to the investor or to the investor's
order by the escrow agent.
If total purchases made under this Statement are large enough to qualify for a
lower sales charge than that applicable to the amount specified, all
transactions will be computed at the expiration date of this Statement to give
effect to the lower charge. Any difference in sales charge will be refunded to
the investor in cash, or applied to the purchase of additional shares at the
lower charge if specified by the investor. This refund will be made by the
Authorized Firm and by the Principal Underwriter. If at the time of the
recomputation an Authorized 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.
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. 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 of
Class A shares or net asset value of Class B shares 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:
<TABLE>
<CAPTION>
IN THE CASE OF BOOK ENTRY: IN THE CASE OF PHYSICAL DELIVERY:
<S> <C>
Deliver through Depository Trust Co. Investors Bank & Trust Company
Broker #2212 Attention: Eaton Vance [State name]
Investors Bank & Trust Company Municipals Fund (and Class)
For A/C Eaton Vance [State name] Physical Securities Processing Settlement Area
Municipals Fund (and Class) 200 Clarendon Street
Boston, MA 02116
</TABLE>
Investors who are contemplating an exchange of securities for shares, or their
representatives, must contact Eaton Vance to determine whether the securities
are acceptable before forwarding such securities. Eaton Vance reserves the
right to reject any securities. Exchanging securities for 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.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM SHARES IN ONE OF THREE WAYS -- BY MAIL, BY TELEPHONE
OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on the net
asset value per share next computed after a redemption request is received in
the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer
Agent, First Data Investor Services Group, P.O. Box 5123, Westborough, MA
01581-5123, during its business hours a written request for redemption in good
order, plus any share certificates with executed stock powers. Good order
means that all relevant documents must be endorsed by the record owner(s)
exactly as the shares are registered and the signature(s) must be guaranteed
by a member of either the Securities Transfer Association's STAMP program or
the New York Stock Exchange's Medallion Signature Program, or certain banks,
savings and loan institutions, credit unions, securities dealers, securities
exchanges, clearing agencies and registered securities associations as
required by a Commission regulation and acceptable to the Transfer Agent. In
addition, in some cases, good order may require the furnishing of additional
documents such as where shares are registered in the name of a corporation,
partnership or fiduciary.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Trust, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: To sell shares at their net asset value
through an Authorized Firm (a repurchase), a shareholder can place a
repurchase order with the Authorized Firm, which may charge a fee. The value
of such shares is based upon the net asset value calculated after the
Principal Underwriter, as the Trust's agent, receives the order. It is the
Authorized Firm's responsibility to transmit promptly repurchase orders to the
Principal Underwriter. Throughout this Prospectus, the word "redemption" is
generally meant to include a repurchase.
Within seven days after receipt of a redemption request in good order by the
Transfer Agent, the Trust 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 CDSC (described below) and any federal income tax required to be
withheld. While normally payments will be made 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 from its corresponding Portfolio. The securities so distributed
would be valued pursuant to the Portfolio's valuation procedures. If a
shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash.
If shares were recently purchased, the proceeds of a redemption will not be
sent until the check (including a certified or cashier's check) received for
the shares purchased has cleared. Payment for shares tendered for redemption
may be delayed up to 15 days from the purchase date when the purchase check
has not yet cleared. Redemptions may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Trust reserves the
right to redeem accounts with balances of less than $750. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. However, no such redemption would be required if the
cause of the low account balance was a reduction in the net asset value of
shares. No CDSC will be imposed with respect to involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Each class of shares is subject to a CDSC on
certain redemptions. The CDSC is calculated based on the lower of the net
asset value at the time of purchase or the time of redemption. Shares acquired
through the reinvestment of distributions are exempt. Redemptions are made
first from shares in the account which are not subject to a CDSC.
In calculating a CDSC upon the redemption of shares acquired in an exchange,
the shares are deemed to have been acquired at the time of the original
purchase of the exchanged shares and, in the case of Class B shares, the CDSC
schedule applicable to the exchanged shares will apply to the acquired shares.
No CDSC is imposed on shares sold to Eaton Vance or its affiliates, or to
their respective employees or clients. Shares acquired as the result of a
merger or liquidation of another Eaton Vance sponsored fund generally will be
subject to the same CDSC rate imposed by the prior fund.
CLASS A SHARES. If Class A shares are purchased at net asset value because the
purchase amount is $1 million or more, or because the amount invested
represents redemption proceeds from an unaffiliated mutual fund (as described
under "How to Buy Shares"), they will be subject to a .50% CDSC if redeemed
within 12 months of purchase.
CLASS B SHARES. Class B shares will be subject to the following CDSC schedule:
YEAR OF
REDEMPTION
AFTER PURCHASE CDSC
- ---------------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
The Class B CDSC is waived for redemptions (1) pursuant to a Withdrawal Plan
(see "Eaton Vance Shareholder Services"), (2) as part of a required minimum
distribution from a tax-sheltered retirement plan, or (3) following the death
of all beneficial owners of shares, provided the redemption is requested
within one year of death (a death certificate and other applicable documents
may be required).
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Funds' independent certified public accountants.
Shortly after the end of each calendar year, each Fund will furnish its
shareholders with information necessary for preparing federal and State tax
returns. Consistent with applicable law, duplicate mailings of shareholder
reports and certain other Fund information to shareholders residing at the
same address may be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF SHARES, THE TRANSFER AGENT WILL
SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE TRUST'S RECORDS.
This account is a complete record of all transactions which at all times shows
the balance of shares owned. The Trust will not issue share certificates
except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE to the Transfer
Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (please provide the name of
the shareholder, the Fund and Class, 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
Trust's dividend disbursing agent, First Data Investor Services Group, P.O.
Box 5123, Westborough, MA 01581-5123. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more
will be reinvested in the account in shares at the then current net asset
value. Furthermore, the distribution option on the account will be
automatically changed to the Share Option until such time as the shareholder
selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a
shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares 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 Trust and its Transfer Agent. Since the
Trust 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 Authorized Firm or to an account
directly with the Trust 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 Authorized Firm, or transferring the account to another
Authorized Firm, an investor wishing to reinvest distributions should
determine whether the Authorized 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 the same class of
one or more other funds in the Eaton Vance Group of Funds. Class A shares may
also be exchanged for shares of Eaton Vance Cash Management Fund, Eaton Vance
Income Fund of Boston, Eaton Vance Municipal Bond Fund L.P., and Eaton Vance
Tax Free Reserves. Class B shares may also be exchanged for shares of Eaton
Vance Prime Rate Reserves, which are subject to an early withdrawal charge, or
shares of Eaton Vance Money Market Fund, which are subject to a CDSC, and
shares of a money market fund sponsored by an Authorized Firm and approved by
the Principal Underwriter (an "Authorized Firm fund"). Any such exchange will
be made on the basis of the net asset value per share of each fund/class at
the time of the exchange (plus, in the case of an exchange made within six
months of the date of purchase of Class A 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). Exchange offers are available only in States where
shares of the fund being acquired may be legally sold. Exchanges are subject
to any restrictions or qualifications set forth in the current prospectus of
any such fund.
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 Trust does not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
The Transfer Agent makes exchanges at the next determined net asset value
after receiving an exchange request in good order (see "How to Redeem
Shares"). Consult the Transfer Agent for additional information concerning the
exchange privilege. Applications and prospectuses of other funds are available
from Authorized Firms or the Principal Underwriter. The prospectus for each
fund describes its investment objectives and policies, and shareholders should
obtain a prospectus and consider these objectives and policies carefully
before requesting an exchange.
No CDSC is imposed on exchanges. For purposes of calculating the CDSC upon
redemption of shares acquired in an exchange, the CDSC schedule applicable to
the shares at the time of purchase will apply and the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of
the original purchase of the exchanged shares, except that time during which
shares are held in an Authorized Firm fund will not be credited toward
completion of the CDSC period. For the CDSC schedule applicable to Class B
shares (except Prime Rate Reserves and Class B shares of the Limited Maturity
Funds), see "How to Redeem Shares". The CDSC or early withdrawal charge
schedule applicable to Prime Rate Reserves and Class B shares of the Limited
Maturity Funds 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.
Telephone exchanges are accepted by the Transfer Agent provided the investor
has not disclaimed in writing the use of the privilege. To effect such
exchanges, call the Transfer Agent at 800-262-1122, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as
the shares being exchanged. Neither the Trust, the Principal Underwriter nor
the Transfer Agent will be responsible for the authenticity of exchange
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An
exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
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THE TRUST OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter.
The cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund or Class 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 and specifying the Class being purchased may be mailed directly to the
Transfer Agent, First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123 at any time -- whether or not dividends are
reinvested. The name of the shareholder, the Fund and Class 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. For Class B shares, any such withdrawals may not
in the aggregate exceed 12% annually of the account balance at the time the
plan is established. Such amount will not be subject to the Class B CDSC. See
"How to Redeem Shares". A minimum deposit of $5,000 in shares is required. The
maintenance of a withdrawal plan concurrently with purchases of additional
Class A shares would be disadvantageous because of the sales charge included
in such purchases.
STATEMENT OF INTENTION: Purchases of $50,000 or more of Class A shares made
over a 13-month period are eligible for reduced sales charges. See "How to Buy
Shares -- Statement of Intention and Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges on
Class A shares when the current market value of holdings (shares at current
offering price), plus new purchases, reaches $50,000 or more. Class A 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.
REINVESTMENT PRIVILEGE: A shareholder who has redeemed shares may reinvest,
with credit for any CDSC paid on the redeemed shares, any portion or all of
the redemption proceeds (plus that amount necessary to acquire a fractional
share to round off the purchase to the nearest full share) in the same shares
(or for Class A shares in Class A shares of any other Eaton Vance fund),
provided that the reinvestment is effected within 60 days after such
redemption, and the privilege has not been used more than once in the prior 12
months. Shares are sold to a reinvesting shareholder at the next determined
net asset value following timely receipt of a written purchase order by the
Principal Underwriter or by the Trust (or by the Trust's Transfer Agent). To
the extent that any shares are sold at a loss and the proceeds are reinvested
in shares (or other shares 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 AND
CLASS-SPECIFIC EXPENSES, WILL BE DECLARED DAILY AS A DISTRIBUTION TO
SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION. Distributions on Class A
shares, 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. Distributions on Class B 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, 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 business day after collected funds for the purchase of
shares are available at the Transfer Agent. Shareholders will receive timely
federal income tax information as to the tax-exempt or taxable status of all
distributions made by their 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 Class A shares cannot be taken into
account for purposes of determining gain or loss on a redemption or exchange
of the shares before the 91st day after their purchase to the extent a sales
charge is reduced or eliminated in a subsequent acquisition of such shares of
a Fund or of another fund pursuant to a Fund's reinvestment or exchange
privilege. Any disregarded amounts will result in an adjustment to the
shareholder's tax basis in some or all of any other shares acquired.
Each Fund intends to qualify as a regulated investment company under the Code
and to satisfy all requirements necessary to avoid paying federal income taxes
on the part of its investment company taxable income (consisting generally of
taxable net investment income and net short-term capital gain) and net capital
gain that 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 substantially all of its ordinary income and capital gain net
income 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 AMT 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 shares have
been owned by the shareholder. If shares are purchased shortly before the
record date of such a distribution, the shareholder will pay the full price
for the shares and then receive some portion of the price back as a taxable
distribution. Distributions are taxed in the manner described above whether
paid in cash or reinvested in additional shares. Tax-exempt distributions
received from a Fund are includable in the tax base for determining the
taxability of social security and railroad retirement benefits.
The Code provides that interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares is not deductible to the extent it is
deemed related to a Fund's distributions of tax-exempt interest dividends to
the shareholder. 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. "Substantial user" is defined in applicable Treasury
regulations to include a "non-exempt person" who regularly uses in trade or
business a part of a facility financed from the proceeds of industrial
development bonds and would likely be interpreted to include private activity
bonds issued to finance similar facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult with their tax advisers concerning the
applicability of State, local and other taxes to an investment.
PERFORMANCE INFORMATION
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FROM TIME TO TIME, YIELD AND/OR AVERAGE ANNUAL TOTAL RETURN MAY BE ADVERTISED.
Current yield is calculated separately for each Class by dividing the net
investment income per share earned during a recent 30-day period by the
maximum offering price per share or net asset value 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. Average annual total return is determined separately for each Class by
computing the average annual percentage change in value of $1,000 invested at
the maximum public offering price (including maximum sales charge for Class A;
net asset value for Class B) for specified periods, assuming reinvestment of
all distributions. Total return may be quoted for the period prior to
commencement of operations which would reflect the Class's total return (or
that of its predecessor) adjusted to reflect any applicable sales charge. The
average annual total return calculation assumes a complete redemption of the
investment and the deduction of any applicable CDSC at the end of the period.
Each Fund may publish annual and cumulative total return figures from time to
time.
Each Fund may also publish total return figures for each Class which do not
take into account any sales charge. Any performance figure which does not take
into account a sales charge would be reduced to the extent such charge is
imposed upon a redemption. Each 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 investment results will fluctuate over time, and
any presentation of yield or total return for any prior period should not be
considered a representation of what an investment may earn or what the yield
or total return may be in any future period. If expenses are allocated to
Eaton Vance, 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. From the latter years of the 1980s through fiscal year 1992-1993,
California weathered a turbulent period of repeated budgetary imbalance. Even
as rapid population growth escalated the demand for government services, an
economic recession ravaged the State's revenue base and drove expenditures
above budget appropriations.
Bolstered by strengthening revenues, reduced caseload growth and an improving
economy, the State has begun to experience some relief from the serious
budgetary pressures that characterized a significant portion of the decade.
Reflecting the belief shared by many analysts that the California economy
would remain strong, the 1996-1997 Budget Act allocated a State budget of some
$63 billion. In the context of optimistic revenue projections released by the
Department of Finance, the Budget Act granted a $230 million tax cut to
corporations while simultaneously providing an increase in funding for
education and prisons. However, only a relatively modest amount, $287 million,
was allocated to the reserve fund available for emergencies such as
earthquakes.
Nonetheless, the State's budgetary fortunes continue to be subject to
unforeseeable events. In December, 1994, for example, Orange County,
California and its Investment Pool filed for bankruptcy. A plan of adjustment
has been approved by the court and became effective under which all non-
municipal creditors are to be paid in full. However, the ultimate financial
impact on the County and the State cannot be predicted with any certainty. In
addition, constant fluctuations in other factors affecting the State --
including health and welfare caseloads, property tax receipts, federal funding
and extraordinary expenditures related to natural disasters -- will
undoubtedly create new budget challenges.
Furthermore, certain California constitutional amendments, legislative
measures, executive orders, administrative regulations and voter initiatives
could produce the adverse effects on the California economy. Among these are
measures that have established tax, spending or appropriations limits and
prohibited the imposition of certain new taxes, authorized the transfers of
tax liabilities and reallocations of tax receipts among governmental entities
and provided for minimum levels of funding.
Finally, certain bonds in the Trust may be subject to provisions of California
law that could adversely affect payments on those bonds or limit the remedies
available to bondholders. Among these are bonds of health care institutions
which are subject to the strict rules and limits regarding reimbursement
payments of California's Medi-Cal Program for health care services to welfare
beneficiaries, and bonds secured by liens on real property.
General obligation bonds of the State are currently rated A1 by Moody's and A+
by S&P.
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 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 taxable at ordinary income rates under the California personal
income tax.
FLORIDA. Florida's financial operations are considerably different than most
other states as Florida does not impose an individual income tax.
Specifically, Florida's constitution prohibits the levy, under the authority
of the State, of an individual income tax upon the income of natural persons
who are residents or citizens of Florida in excess of amounts which may be
credited against or deducted from any similar tax levied by the United States
or any other state. Accordingly, a constitutional amendment would be necessary
to impose a state individual income tax in excess of the foregoing
constitutional limitations. The lack of an individual income tax exposes total
State tax collections to considerably more volatility than would otherwise be
the case and, in the event of an economic downswing, could effect the State's
ability to pay principal and interest in a timely manner.
The Florida Constitution and Statutes mandate that the State budget as a
whole, and each separate fund within the State budget, be kept in balance from
currently available revenues each State fiscal year (July 1 - June 30).
Pursuant to a constitutional amendment which was ratified by the voters on
November 8, 1994, the rate of growth in state revenues in a given fiscal year
is limited to no more than the average annual growth rate in Florida personal
income over the previous five years (revenues collected in excess of the
limitation are generally deposited into the Budget Stabilization Fund).
Financial operations of the State of Florida covering all receipts and
expenditures are maintained through the use of four funds (the General Revenue
Fund, Trust Funds, the Working Capital Fund and the Budget Stabilization
Fund). The General Revenue Fund receives the majority of State tax revenues.
The Trust Funds consist of monies received by the State which under law or
trust agreement are segregated for a purpose authorized by law. Revenues in
the General Revenue Fund which are in excess of the amount needed to meet
appropriations may be transferred to the Working Capital Fund.
The State finished the 1996 fiscal year with a working capital reserve of
$150.4 million and $260.8 million in the newly established budget
stabilization reserve. For fiscal year 1995-96, the estimated General Revenue
plus Working Capital and Budget Stabilization funds available totalled $15.4
billion, a 4.0% increase over fiscal year 1994-95. For fiscal year 1996-97,
the estimated General Revenue plus Working Capital and Budget Stabilization
funds available are reported to be $16.6 billion, a 7.7% increase over fiscal
year 1995-96. The 1997 budget incorporates a 4.9% increase in revenues. The
Florida and United States unemployment rates for 1995 were 5.5% and 5.6%,
respectively. The estimated Florida and United States unemployment rates for
1996 and 1997 are reported to be 5.3% and 5.4%, respectively.
In 1993, the State constitution was amended to limit the annual growth in the
assessed valuation of residential property. This amendment may, over time,
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the
amendment could have a negative impact on the financial performance of local
governments over time and lead to ratings revisions which may have a negative
impact on the prices of affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as
stable.
FLORIDA TAXES. The Florida Department of Revenue has ruled that shares of a
Florida series fund owned by a Florida resident will be exempt from the
Florida Intangible Personal Property Tax so long as the fund's portfolio
includes on January 1 of each year only assets, such as Florida tax-exempt
securities and United States Government securities, that are exempt from the
Florida Intangible Personal Property Tax. Although the date of valuation is
prescribed as the close of business on the last business day of the previous
calendar year, only the assets held in the portfolio of the fund on January 1
are to be valued.
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 strive to hold on January 1 of each year,
only assets that 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 4.0% for January 1997, as compared to January 1996,
when the unemployment rate was 4.6%, 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 and certain Medicaid
reimbursement payments for prior years) was limited to 10%. In addition, the
power of Massachusetts cities and towns and certain tax-supported districts
and public agencies to raise revenue from property taxes to support their
operations, including the payment of debt service, is limited. Property taxes
are virtually the only source of tax revenues available to cities and towns to
meet local costs. This limitation on cities and towns to generate revenues
could create a demand for increases in state-funded local aid.
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 (the "Department") 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
statutes that specifically exempt such gains from Massachusetts taxation will
also be exempt from Massachusetts personal income tax. Other distributions
from the Massachusetts Fund that are 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.
For purposes of determining the Massachusetts excise tax on corporations
subject to Massachusetts taxation, 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.
MISSISSIPPI. The State's economic outlook can be characterized as one of
continuing moderate growth. The manufacturing sector suffered modest declines
in 1995, as a result of weak national retail sales and foreign competition.
Construction remained healthy and continued to experience steady growth
throughout 1996. The casino industry experienced a slow but steady growth in
1996. In the twelve months ended May, 1997, employment in the government and
service sectors continued to expand, but construction, transporation and trade
experienced declines in employment levels. Employment growth is expected to
remain slow through 2000. The unemployment rate for May, 1997 was 5.2% as
compared to the national average of 4.1%.
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, 1996, the State's total
bond indebtedness was $1.25 billion. For the fiscal year ended June 30, 1996,
the constitutional debt limit was approximately $6.0 billion. State revenues
were $7.6 billion as of June 30, 1996. Mississippi's working cash
stabilization fund is fully funded at 7.5% of expenditures.
General obligations of Mississippi are rated AA and Aa3 by S&P and Moody's.
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") is
exempt from Mississippi income tax. Applicable Mississippi Income Tax
Regulations provide 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 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 (down 6.7% from peak employment in 1989). Although the State
has added approximately 240,000 jobs since late 1992, employment growth in the
State has been hindered during recent years by significant cutbacks in the
computer, manufacturing, utility, defense and banking industries. Government
downsizing has also moderated these job gains. Entertainment and finance
industries have had strong growth, moderating those losses. The State expects
continued employment growth in New York for 1997, though at a slower rate than
1996.
The State ended its 1997 fiscal year with a $145 million surplus, leaving a
total fund balance of $433 million. The surplus was due mainly to an increase
of tax revenues in the wake of tax reductions in 1996, with personal income
tax receipts up 2.0%, sales tax up 4.4%, business taxes up 4.4%, and consumer
taxes and fees up 2.5%. Tax collections were particularly enhanced by the
booming financial sector. Growth in that sector is expected to slow in fiscal
year 1998, which could impact tax revenue growth. Government spending also
declined by 0.9%, particularly capital spending and debt service.
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.
New York's general obligations are rated A2, A- and A+ by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as positive. As of June 3, 1997, New York City obligations were
rated Baa1, BBB+ and A- by Moody's, S&P and Fitch, respectively. On February
28, 1996, Fitch placed the City's general obligation bonds on Fitch Alert with
negative implications. On November 5, 1996, Fitch removed the City's general
obligation bonds from Fitch Alert, although Fitch stated that the outlook
remains negative.
NEW YORK TAXES. In the opinion of Brown & Wood LLP, under New York law,
dividends paid by the New York Fund are exempt from New York State and New
York City personal income tax applicable to 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 of Puerto Rico, the U.S. Virgin Islands and
Guam. Other distributions from the New York Fund, including distributions
derived from taxable ordinary income and net short-term and long-term capital
gains, are generally not exempt from New York State or City personal income
tax.
OHIO. The State's economy is reliant in part on durable goods manufacturing,
largely concentrated in motor vehicles and equipment, steel, rubber products
and household appliances. As a result, general economic activity in Ohio, as
in many other industrially developed states, tends to be more cyclical than in
some other states and in the nation as a whole. In fiscal 1993, a projected
$520 million budget gap was addressed through tax revisions and appropriation
cuts. By fiscal year 1996, the State had replenished its Budget Stabilization
Fund to a level of $828.3 million. Revenues continue to grow at a faster rate
than expenditures; 3.2% versus 2.2%. The State continues to maintain a solid
financial position.
General obligations of Ohio are rated AA+ and Aa1 by S&P and Moody's,
respectively (except that highway obligations are rated Aaa by S&P).
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund, Squire,
Sanders & Dempsey L.L.P., 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. Strong budget discipline in fiscal year 1995, led to a General
Fund balance of over $50 million, including reserves. Primarily General Fund
revenue sources include individual income, sales and use taxes, and corporate
income taxes. Recently, revenue growth has improved, even with a weak economic
recovery. Early in the 1995-1996 budget year, an estimated $62 million fiscal
gap emerged. Of that, $36.3 million was attributable to revenue shortfalls. In
October of 1995, the Governor began implementing reduction measures.
Subsequently a modest surplus was reached for fiscal year-end 1996. Revenue
growth for the first ten months of fiscal 1997 is 5.2% higher than for the
same period of fiscal 1996. Counter to the national trend of declining
unemployment rates, Rhode Island's unemployment rate increased from 4.6% in
May, 1996 to 5.2% in May, 1997. Over this period employment growth was a
sluggish 0.3%.
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 was heavily dependent on the
resource-based industries, specifically coal, chemical and steel. The State's
economy has rebounded from the economic recession and the State has
diversified its economy with new growth in home construction and increasing
retail trade and service employment. For May, 1997, the State unemployment
rate was 5.8% down from the May, 1996 level of 7.1%. The service and wood
sectors and tourism are expected to continue to lead the improving State
economy. The manufacturing sector and mining employment has contracted in
recent years. Per capita income for the state is approximately 81.4% of the
national average.
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
State has upgraded its financial management and reporting practices through
its conversion to GAAP-based accounting. The State also adopted policies to
amortize large unfunded accrued liabilities in its workers' compensation and
teachers retirement funds over 40 years.
In 1996, both S&P and Fitch upgraded West Virginia general obligation debt
citing economic expansion, sound financial management and moderate debt
burden. General obligations of West Virginia are currently rated AA, A1 and
AA-, 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 has slowed
through 1996. Growth is dependent on the state of the U.S. economy and the
relative stability in the price of oil, the exchange rate of the U.S. dollar
and the cost of borrowing. Section 936 (a tax incentive that has encouraged
economic growth in Puerto Rico) will be phased out over a ten year period. At
this time, it is uncertain as to the implication the change will have on the
Puerto Rican economy. Although the Puerto Rico unemployment rate has declined
substantially since 1985, the seasonally adjusted unemployment rate for 1996
was approximately 13.8%. The North American Free Trade Agreement (NAFTA),
which became effective January 1, 1994, could lead to the loss of Puerto
Rico's lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a negative outlook on Puerto Rico's rating on April 26, 1994 which
was changed to stable on December 16, 1996.
<PAGE>
[logo] EATON VANCE
-----------
MUTUAL FUNDS
EATON VANCE CALIFORNIA MUNICIPALS FUND
EATON VANCE FLORIDA MUNICIPALS FUND
EATON VANCE MASSACHUSETTS MUNICIPALS FUND
EATON VANCE MISSISSIPPI MUNICIPALS FUND
EATON VANCE NEW YORK MUNICIPALS FUND
EATON VANCE OHIO MUNICIPALS FUND
EATON VANCE RHODE ISLAND MUNICIPALS FUND
EATON VANCE WEST VIRGINIA MUNICIPALS FUND
PROSPECTUS
OCTOBER 1, 1997
- --------------------------------------------------------------------------------
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, 200 Clarendon Street, Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
10/1MUNIP
<PAGE>
Part A
Information Required in a Prospectus
EATON VANCE
NATIONAL MUNICIPALS FUND
- --------------------------------------------------------------------------------
EATON VANCE NATIONAL MUNICIPALS FUND (THE "FUND") IS A MUTUAL FUND SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX. THE FUND INVESTS
ITS ASSETS IN NATIONAL MUNICIPALS PORTFOLIO (THE "PORTFOLIO"), A DIVERSIFIED
OPEN-END INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND,
RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES. THE FUND IS A SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank or other insured depository institution, and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. Shares of the Fund involve investment risks,
including fluctuations in value and the possible loss of some or all of the
principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated October 1, 1997 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
(the "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.
- --------------------------------------------------------------------------------
PAGE PAGE
Shareholder and Fund Expenses ...... 2 How to Redeem Shares ............. 14
The Fund's Financial Highlights .... 4 Reports to Shareholders .......... 15
The Fund's Investment Objective .... 5 The Lifetime Investing Account/
Investment Policies and Risks ...... 5 Distribution Options ........... 15
Organization of the Fund and the The Eaton Vance Exchange Privilege 16
Portfolio ........................ 8 Eaton Vance Shareholder Services . 17
Management of the Fund and the Distributions and Taxes .......... 18
Portfolio ........................ 9 Performance Information .......... 19
Distribution and Service Plans ..... 10 Appendix ......................... 21
Valuing Shares ..................... 11
How to Buy Shares .................. 12
- ------------------------------------------------------------------------------
PROSPECTUS DATED OCTOBER 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.75% None None
Sales Charges Imposed on Reinvested Distributions None None None
Fees to Exchange Shares None None None
Maximum Contingent Deferred Sales Charge None 5.00% 1.00%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Investment Adviser Fee 0.44% 0.44% 0.44%
Rule 12b-1 Distribution and/or Service Fees 0.15% 0.96% 1.00%
Other Expenses 0.15% 0.15% 0.15%
--- --- ---
Total Operating Expenses 0.74% 1.55% 1.59%
=== === ===
EXAMPLE
- ---------------------------------------------------------------------------------------------------------
An investor would pay the following expenses and, in the case of Class A shares, maximum initial sales
charge or, in the case of Class B and Class C shares, the applicable contingent deferred sales charge on
a $1,000 investment, assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
1 Year $ 55 $ 66 $ 26
3 Years $ 70 $ 89 $ 50
5 Years $ 87 $104 $ 87
10 Years $135 $185 $189
An investor would pay the following expenses on the same investment, assuming
(a) 5% annual return and (b) no redemptions:
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
1 Year $ 55 $ 16 $ 16
3 Years $ 70 $ 49 $ 50
5 Years $ 87 $ 84 $ 87
10 Years $135 $185 $189
</TABLE>
NOTES:
The table and Example summarize the aggregate expenses of the Portfolio and each
Class of shares of the Fund and are designed to help investors understand the
costs and expenses they will bear, directly or indirectly, by investing in the
Fund. Information for Class B shares is for the most recent fiscal year.
Information for Class A and Class C shares is estimated based upon the most
recent fiscal year of its predecessor fund adjusted for the multiple-class
structure.
The Fund offers three classes of shares. Class A shares are sold subject to a
sales charge imposed at the time of purchase. No sales charge is payable at the
time of purchase on investments in Class A shares of $1 million or more.
However, a contingent deferred sales charge ("CDSC") of 0.50% will be imposed on
such investments in the event of certain redemptions within 12 months of
purchase. Class B shares are sold subject to a declining CDSC (5% maximum) if
redeemed within six years of purchase and Class C shares are sold subject to a
1% CDSC if redeemed within one year of purchase. The CDSC does not apply in
certain circumstances. See "How to Buy Shares" and "How to Redeem Shares."
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Federal regulations
require the Example to assume a 5% annual return, but actual return will vary.
Long-term holders of Class B and Class C shares 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. For further information
regarding the expenses of the Fund and the Portfolio see "The Fund's Financial
Highlights," "Management of the Fund and the Portfolio," "Distribution and
Service Plans," and "How to Redeem Shares."
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 9.
The Fund invests exclusively in the Portfolio. 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."
THE FUND'S FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements that appear in the Fund's semi-annual and annual reports to
shareholders. The Fund's annual financial statements have been audited by
Deloitte & Touche LLP, independent certified public accountants, as experts in
accounting and auditing. The annual financial statements and the independent
auditors' report and the unaudited semi-annual financial statements are
incorporated by reference into the Statement of Additional Information.
Further information regarding the performance of the Fund is contained in its
annual and semi-annual reports to shareholders which may be obtained without
charge by contacting the Principal Underwriter. The financial information for
each of the periods presented in the Fund's Financial Highlights are for the
Fund prior to reclassification of its shares as Class B shares on October 1,
1997. Information for Class A and Class C shares is not presented because
these classes did not exist prior to October 1, 1997. The Financial Highlights
for Class A and Class C shares will differ from the Financial Highlights for
Class B shares due to the different fees imposed on Class A and Class C shares.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
1997 --------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993(1) 1992
------------ --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.900 $ 9.800 $ 9.410 $10.570 $ 9.820 $ 9.430
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.274 $ 0.557 $ 0.570 $ 0.556 $ 0.553 $ 0.568
Net realized and unrealized gain
(loss) on investments (0.058) 0.096 0.395 (1.043) 0.856 0.490
------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.216 $ 0.653 $ 0.965 $(0.487) $ 1.409 $ 1.058
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.276) $(0.553) $(0.570) $(0.556) $(0.553) $(0.568)
In excess of net investment
income(1) -- -- (0.005) (0.077) (0.106) (0.100)
In excess of net realized gain on
investments(1) -- -- -- (0.040) -- --
------- ------- ------- ------- ------- -------
Total distributions $(0.276) $(0.553) $(0.575) $(0.673) $(0.659) $(0.668)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.840 $ 9.900 $ 9.800 $ 9.410 $10.570 $ 9.820
======= ======= ======= ======= ======= =======
TOTAL RETURN(2) 2.16% 6.84% 10.60% (4.82)% 14.90% 11.67%
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000 omitted) $1,989,547 $2,101,632 $2,191,240 $2,171,901 $2,090,482 $1,491,904
Ratio of net expenses to
average net assets(3)(4) 1.62%+ 1.55% 1.53% 1.51% 1.67% 1.79%
Ratio of net expenses to
average net assets after
custodian fee reduction(3) 1.62%+ 1.54% 1.52% -- -- --
Ratio of net investment income
to average net assets 5.49%+ 5.62% 6.00% 5.54% 5.43% 5.88%
PORTFOLIO TURNOVER(5) -- -- -- -- 10% 54%
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
1991 1990 1989 1988 1987
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.120 $ 9.570 $ 9.570 $9.260 $10.180
------- ------- ------- ------ -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.586 $ 0.613 $ 0.642 $0.659 $ 0.684
Net realized and unrealized gain
(loss) on investments 0.413 (0.348) 0.095 0.404 (0.819)
------- ------- ------- ------ -------
Total income (loss) from
operations $ 0.999 $ 0.265 $ 0.737 $1.063 $(0.135)
------- ------- ------- ------ -------
LESS DISTRIBUTIONS:
From net investment income $(0.586) $(0.613) $(0.643) $(0.658) $(0.684)
In excess of net investment
income(1) (0.103) (0.102) (0.094) (0.095) (0.101)
In excess of net realized gain on
investments(1) -- -- -- -- --
------- ------- ------- ------ -------
Total distributions $(0.689) $(0.715) $(0.737) $(0.753) $(0.785)
------- ------- ------- ------ -------
NET ASSET VALUE, end of year $ 9.430 $ 9.120 $ 9.570 $9.570 $ 9.260
======= ======= ======= ====== =======
TOTAL RETURN(2) 11.33% 2.83% 7.96% 11.94% (1.64)%
------- ------- ------- ------ -------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000 omitted) $1,178,454 $1,063,131 $988,267 $849,875 $860,547
Ratio of net expenses to
average net assets(3)(4) 1.86% 1.90% 1.91% 1.93% 1.78%+
Ratio of net expenses to
average net assets after
custodian fee reduction(3) -- -- -- -- --
Ratio of net investment income
to average net assets 6.31% 6.50% 6.66%6.98% 6.78%+
PORTFOLIO TURNOVER(5) 54% 15% 10% 19% 15%
NOTES:
(1) Distributions from paid-in capital for the years ended September 30, 1987 through 1992 have been
restated to conform with the treatment permitted under current financial reporting standards. During
the year ended September 30, 1993, 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.
(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. 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) Includes the Fund's share of the Portfolio's allocated expenses subsequent to February 1, 1993.
(4) The expense ratios for the year ended September 30, 1995 and periods thereafter, have been adjusted
to reflect a change in reporting requirements. The new reporting guidelines require the Fund, as well
as the Portfolio, to increase its expense ratio by the effect of any expense offset arrangements with
its service providers. The expense ratios for the prior periods have not been adjusted to reflect
this change.
(5) Portfolio Turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included in the Fund's annual report.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX. It currently seeks to meet its investment objective by
investing its assets in the National Municipals Portfolio (the "Portfolio"), a
separate registered investment company which invests primarily in municipal
obligations (described below) which are rated at least investment grade by a
major rating agency or, if unrated, determined to be of at least investment
grade quality by the Investment Adviser.
INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS ASSETS DURING PERIODS OF NORMAL MARKET CONDITIONS) IN
MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM REGULAR FEDERAL
INCOME TAX. The foregoing policy is a fundamental policy of both the Fund and
the Portfolio, which may not be changed unless authorized by a vote of the
shareholders of the Fund or the investors in the Portfolio, as the case may be.
At least 65% of the net assets of the Portfolio will normally be invested in
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 Portfolio may invest up
to 35% of its net assets in municipal obligations rated below investment grade
(but not lower than B by Moody's, S&P or Fitch) and unrated municipal
obligations considered to be of comparable quality by the Investment Adviser.
Municipal obligations rated Baa or BBB may have speculative characteristics.
Also, changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than in the
case of higher rated obligations. Securities rated below Baa or BBB are commonly
known as "junk bonds". 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
regular federal income tax. Public purpose municipal bonds include general
obligation and revenue bonds. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed by the revenues of a
project or facility, or from the proceeds of a specific revenue source. Some
revenue bonds are payable solely or partly from funds which are subject to
annual appropriations by a state's legislature. 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.
Interest on certain types of municipal obligations may be subject to the federal
alternative minimum tax (the "AMT") for individual investors. As at September
30, 1996, the Portfolio had 26.1% of its net assets invested in such
obligations. 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 total assets in
municipal obligations of issuers located in the same state or in municipal
obligations of the same type, including without limitation the following: lease
rental obligations of state and local authorities; obligations dependent on
annual appropriations by a state's legislature for payment; obligations of state
and local housing finance authorities, municipal utilities systems or public
housing authorities; obligations of hospitals or life care facilities; or
industrial development or pollution control bonds issued for electric utility
systems, steel companies, paper companies or other purposes. This may make the
Portfolio more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuers. For example, health-care
related issuers are susceptible to medicaid reimbursement policies, and national
and state health care legislation. As the Portfolio's concentration increases,
so does the potential for fluctuation in the value of the Fund's shares.
DIVERSIFIED STATUS. The Portfolio is a "diversified" investment company under
the Investment Company Act of 1940 (the "1940 Act"). This means that with
respect to 75% of its total assets (1) the Portfolio may not invest more than 5%
of its total assets in the securities of any one issuer (except U.S. Government
obligations) and (2) the Portfolio may not own more than 10% of the outstanding
voting securities of any one issuer (which generally is inapplicable because
municipal debt obligations are not voting securities).
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 payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than the Portfolio agreed to pay for them. The Portfolio 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 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. 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 the 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 RISK CONSIDERATIONS
Many municipal obligations offering current income are rated investment grade or
below (Baa or BBB or lower), or are unrated. As indicated above, the Portfolio
may invest in municipal obligations rated below investment grade (but not lower
than B by Moody's, S&P or Fitch) and comparable unrated obligations. See the
Appendix to this Prospectus for the asset composition of the Portfolio for the
fiscal year ended September 30, 1996. Municipal obligations rated investment
grade or below 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 the 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.
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 may retain in its portfolio an
obligation whose rating drops below B after its acquisition, including defaulted
obligations, 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 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 Portfolio's credit quality limitations. In the case of
a defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment.
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) 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 the 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 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 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 (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, the 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 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 from face value and pay
interest only at maturity rather than at intervals during the life of the
security. The Portfolio is required to accrue income from zero- coupon bonds on
a current basis, even though it does not receive that income currently in cash,
and the Fund is required to distribute its share of the Portfolio's income for
each taxable year. 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 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 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.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE FUND IS A DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST, A BUSINESS
TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST
DATED SEPTEMBER 30, 1985, AS AMENDED. The Trustees of the Trust are responsible
for the overall management and supervision of its affairs. The Trust may issue
an unlimited number of shares of beneficial interest (no par value per share) in
one or more series (such as the Fund). The Trustees of the Trust have divided
the shares of the Fund into multiple classes, including Class A, Class B and
Class C shares. Each class represents an interest in the Fund, but is subject to
different expenses, rights and privileges. See "Distribution and Service Plans"
and "How to Buy Shares." The Trustees have the authority under the Declaration
of Trust to create additional classes of shares with differing rights and
privileges. As a result of a reorganization with separate series of the Trust,
the Fund commenced offering Class A, B and C shares on October 1, 1997.
When issued and outstanding, the shares are fully paid and nonassessable by the
Trust and redeemable as described under "How to Redeem Shares". There are no
annual meetings of shareholders, but special meetings may be held as required by
law to elect Trustees and consider certain other matters. Shareholders are
entitled to one vote for each full share held. Fractional shares may be voted
proportionately. Shares of the Fund will be voted together except that only
shareholders of a particular class may vote on matters affecting only that
class. Shares have no preemptive or conversion rights and are freely
transferable. In the event of the liquidation of the Fund, shareholders of each
class are entitled to share pro rata in the net assets attributable to that
class available for distribution to shareholders.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of the Fund in the Portfolio, as well as the advantages and
disadvantages of the two-tier format. The Trustees believe that the structure
offers opportunities for growth in the assets of the Portfolio, may afford the
potential for economies of scale for the Fund (at least when the assets of the
Portfolio exceed $500 million) and may over time result in lower expenses for
the Fund.
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. 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, these differences may
result in differences in returns experienced by investors in the various funds
that invest in the Portfolio. Information regarding other pooled investment
entities or funds which invest in the Portfolio may be obtained by contacting
the Principal Underwriter, 24 Federal Street, Boston, MA 02110 (617) 482-8260.
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 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. In the event the Fund withdraws all of its assets
from the Portfolio, or the Board of Trustees of the Trust determines that the
investment objective of the Portfolio is no longer consistent with the
investment objective of the Fund, the Board of Trustees 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 (or the assets of
another investor in the Portfolio) from the Portfolio.
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. BMR also furnishes for the
use of the Portfolio office space and all necessary office facilities, equipment
and personnel for servicing the investments of the Portfolio. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each Category as
indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which portion
shall bear the same relationship to the total daily gross income on such day
as that portion of the total daily net assets in the same Category bears to
the total daily net assets on such day) in each Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- --------------------------------------------------------------------------------
1 up to $500 million 0.300% 3.00%
2 $500 million but less than $1 billion 0.275% 2.75%
3 $1 billion but less than $1.5 billion 0.250% 2.50%
4 $1.5 billion but less than $2 billion 0.225% 2.25%
5 $2 billion but less than $3 billion 0.200% 2.00%
6 $3 billion and over 0.175% 1.75%
As at September 30, 1996, the Portfolio had net assets of $2,212,478,002. For
the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory fees
equivalent to 0.44% of the Portfolio's average net assets for such year.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $20 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company which through its subsidiaries and
affiliates engages primarily in investment management, administration and
marketing activities. The Principal Underwriter is a wholly-owned subsidiary of
Eaton Vance.
Thomas M. Metzold has acted as the portfolio manager of the Portfolio since
December 17, 1993. He manages other Eaton Vance portfolios and is a Vice
President of Eaton Vance and BMR.
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and selling
at the higher asked price of the market, and the difference is customarily
referred to as the spread. In selecting firms which will execute portfolio
transactions BMR judges their professional ability and quality of service and
uses its best efforts to obtain execution at prices which are advantageous to
the Portfolio and at reasonably competitive spreads. Subject to the foregoing,
BMR may consider sales of shares of the Fund or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of firms to execute
portfolio transactions. The Trust, the Portfolio and BMR have adopted Codes of
Ethics relating to personal securities transactions. The Codes permit Eaton
Vance personnel to invest in securities (including securities that may be
purchased or held by the Portfolio) for their own accounts, subject to certain
pre-clearance, reporting and other restrictions and procedures contained in such
Codes.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Fund. The Trust has not retained the services of an investment adviser since
the Trust seeks to achieve the investment objective of the Fund by investing its
assets in the Portfolio. As Administrator, Eaton Vance provides the Fund with
general office facilities and supervises the overall administration of the Fund.
For these services Eaton Vance currently receives no compensation. The Trustees
of the Trust may determine, in the future, to compensate Eaton Vance for such
services.
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 the Principal Underwriter under the distribution
agreement.
DISTRIBUTION AND SERVICE PLANS
- --------------------------------------------------------------------------------
The Trust has adopted a Service Plan (the "Class A Plan") for the Fund's Class A
shares that is designed to meet the service fee requirements of the sales charge
rule of the National Association of Securities Dealers, Inc. THE CLASS A PLAN
PROVIDES THAT CLASS A 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 ITS AVERAGE DAILY NET ASSETS FOR ANY FISCAL YEAR. The Trustees of the
Trust have initially implemented the Class A Plan by authorizing Class A to make
quarterly service fee payments to the Principal Underwriter and Authorized Firms
in amounts not expected to exceed .25% of its average daily net assets for any
fiscal year which is based on the value of Class A shares sold by such persons
and remaining outstanding for at least twelve months.
The Trust has also adopted Distribution Plans ("Class B Plan" and "Class C
Plan") pursuant to Rule 12b-1 under the 1940 Act for the Fund's Class B and
Class C shares. Each Plan is designed to permit an investor to purchase 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 therewith. UNDER SUCH PLANS, CLASS B AND CLASS C EACH PAYS THE
PRINCIPAL UNDERWRITER A FEE, ACCRUED DAILY AND PAID MONTHLY, AT AN ANNUAL RATE
NOT EXCEEDING .75% OF ITS AVERAGE DAILY NET ASSETS TO FINANCE THE DISTRIBUTION
OF ITS SHARES. Such fees compensate the Principal Underwriter for sales
commissions paid by it to Authorized Firms on the sale of Class B and Class C
shares and for interest expenses. Under the Class B Plan, the Principal
Underwriter uses its own funds to pay sales commissions (except on exchange
transactions and reinvestments) to Authorized Firms at the time of sale equal to
4% of the purchase price of the Class B shares sold by such Firms. Under the
Class C Plan, 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 .75% of the purchase price of the
shares sold by such Firm, and (b) monthly sales commissions approximately
equivalent to 1/12 of .75% of the value of shares sold by such Firm and
remaining outstanding for at least one year. During the first year after a
purchase of Class C shares, the Principal Underwriter will retain the sales
commission as reimbursement for the sales commissions paid to Authorized Firms
at the time of sale. CDSCs paid to the Principal Underwriter will be used to
reduce amounts owed to it. Because payments to the Principal Underwriter under
the two Plans are limited, uncovered distribution charges (sales commissions
paid by the Principal Underwriter plus interest, less the above fees and CDSCs
received by it) may exist indefinitely. During the fiscal year ended September
30, 1996, Class B (which was then a separate series fund) paid or accrued sales
commissions equivalent to .75% of average daily net assets. As at September 30,
1996, the outstanding uncovered distribution charges of the Principal
Underwriter on such day calculated under the Class B Plan amounted to
approximately $37,025,400 (equivalent to 1.8% of net assets on such day).
THE CLASS B AND CLASS C PLANS ALSO AUTHORIZE EACH CLASS TO MAKE PAYMENTS OF
SERVICE FEES TO THE PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN
AMOUNTS NOT EXCEEDING .25% OF ITS AVERAGE DAILY NET ASSETS FOR PERSONAL
SERVICES, AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS. Under the Class B
Plan, this fee is paid quarterly in arrears based on the value of Class B shares
sold by such persons and remaining outstanding for at least twelve months. Under
the Class C Plan, 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 .25% of the purchase price of the
Class C shares sold by such Firm, and (b) monthly service fees approximately
equivalent to 1/12 of .25% of the value of Class C shares sold by such Firm and
remaining outstanding for at least one year. During the first year after a
purchase of Class C shares, the Principal Underwriter will retain the service
fee as reimbursement for the service fee payment made to Authorized Firms at the
time of sale. For the fiscal year ended September 30, 1996, Class B paid or
accrued service fees under its Plan equivalent to .21% of average daily net
assets for such year.
The Principal Underwriter may, from time to time, at its own expense, provide
additional incentives to Authorized Firms which employ registered
representatives who sell Fund shares and/or shares of other funds distributed by
the Principal Underwriter. In some instances, such additional incentives may be
offered only to certain Authorized Firms whose representatives sell or are
expected to sell significant amounts of shares. In addition, the Principal
Underwriter may from time to time increase or decrease the sales commissions
payable to Authorized Firms.
The Trust may, in its absolute discretion, suspend, discontinue or limit the
offering of one or more of its classes of its shares at any time. In determining
whether any such action should be taken, the Trust's management intends to
consider all relevant factors, including (without limitation) the size of the
Fund or class, the investment climate and market conditions, the volume of sales
and redemptions of shares, and, in the case of Class B and Class C shares, the
amount of uncovered distribution charges of the Principal Underwriter. The Plans
may continue in effect and payments may be made under the Plans following any
such suspension, discontinuance or limitation of the offering of shares;
however, there is no contractual obligation to continue any Plan for any
particular period of time. Suspension of the offering of shares would not, of
course, affect a shareholder's ability to redeem shares.
VALUING 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). Each Class's net asset value per
share is determined by the Trust's custodian, Investors Bank & Trust Company
("IBT"), (as agent for the Trust) in the manner authorized by the Trustees of
the Trust. The net asset value of each Class is computed by dividing the value
of that Class's pro rata share of the Fund's total assets, less its liabilities,
by the number of shares of that Class outstanding. Because the Fund invests its
assets in an interest in the Portfolio, each Class's net asset value will
reflect the value of the Fund's interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per share and, for Class A shares, the public
offering price based thereon. It is the Authorized Firms' responsibility to
transmit orders promptly to the Principal Underwriter.
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.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
ACCEPTABLE SECURITIES. Class A shares are purchased at the effective public
offering price, which price is based on the effective net asset value per share
plus the applicable sales charge. The sales charge is divided between the
Authorized Firm and the Principal Underwriter. Class B and Class C shares are
purchased at the net asset value per share next determined after an order is
effective. An Authorized Firm may charge its customers a fee in connection with
transactions executed by that Firm. The Trust may suspend the offering of shares
at any time and may refuse an order for the purchase of shares.
An initial investment 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 Trust's transfer agent (the "Transfer Agent") as follows:
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123.
The $1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
CLASS A SHARES. The sales charge may vary depending on the size of the purchase
and the number of Class A 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 $25,000 4.75% 4.99% 4.50%
$25,000 but less than $100,000 4.50 4.71 4.25
$100,000 but less than $250,000 3.75 3.90 3.50
$250,000 but less than $500,000 3.00 3.09 2.75
$500,000 but less than $1,000,000 2.00 2.04 2.00
$1,000,000 or more 0.00* 0.00* 0.50
* No sales charge is payable at the time of purchase on investments of $1 million or more or where the amount invested
represents redemption proceeds from a mutual fund unaffiliated with Eaton Vance, if the redemption occurred no more than
60 days' prior to the purchase of Fund shares and the redeemed shares were potentially subject to a sales charge. A CDSC
of 0.50% will be imposed on such investments (as described below) in the event of certain redemptions within 12 months of
purchase.
</TABLE>
The Principal Underwriter may at times allow discounts up to the full sales
charge. During periods when the discount includes the full sales charge,
Authorized Firms may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Class A shares may be sold at net asset value to current and retired Directors
and Trustees of Eaton Vance funds, including the Portfolio; to clients and
current and retired officers and employees of Eaton Vance, its affiliates and
other investment advisers of Eaton Vance sponsored funds; to registered
representatives and employees of Authorized Firms and bank employees who refer
customers to registered representatives of Authorized Firms; to officers and
employees of IBT and the Transfer Agent; and to such persons' spouses and
children under the age of 21 and their beneficial accounts. Class A shares may
also be issued at net asset value (1) in connection with the merger of an
investment company or series thereof with the Fund, (2) to investors making an
investment as part of a fixed fee program whereby an entity unaffiliated with
the Investment Adviser provides multiple investment services, such as
management, brokerage and custody, and (3) to investment advisors, financial
planners or other intermediaries who place trades for their own accounts or the
accounts of their clients and who charge a management, consulting or other fee
for their services; clients of such investment advisors, financial planners or
other intermediaries who place trades for their own accounts if the accounts are
linked to the master account of such investment advisor, financial planner or
other intermediary on the books and records of the broker or agent; and
retirement and deferred compensation plans and trusts used to fund those plans,
including, but not limited to, those defined in Section 401(a), 403(b) or 457 of
the Internal Revenue Code of 1986, as amended (the "Code") and "rabbi trusts".
STATEMENT OF INTENTION AND ESCROW AGREEMENT. If the investor, on an application,
makes a Statement of Intention to invest a specified amount over a thirteen
month period in Class A shares, 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 such shares (computed
to the nearest full share at the public offering price applicable to the initial
purchase hereunder) registered in the investor's name. All income dividends and
capital gains distributions on escrowed shares will be paid to the investor or
to the investor's order. When the minimum investment so specified is completed,
the escrowed shares will be delivered to the investor. If the investor has an
accumulation account the shares will remain on deposit under the investor's
account.
If total purchases under this Statement of Intention are less than the amount
specified, the investor will promptly remit to the Principal Underwriter any
difference between the sales charge on the amount specified and on the amount
actually purchased. If the investor does not within 20 days after written
request by the Principal Underwriter or the Authorized Firm pay such difference
in sales charge, the escrow agent will redeem an appropriate number of the
escrowed shares in order to realize such difference. Full shares remaining after
any such redemption together with any excess cash proceeds of the shares so
redeemed will be delivered to the investor or to the investor's order by the
escrow agent.
If total purchases made under this Statement are large enough to qualify for a
lower sales charge than that applicable to the amount specified, all
transactions will be computed at the expiration date of this Statement to give
effect to the lower charge. Any difference in sales charge will be refunded to
the investor in cash, or applied to the purchase of additional shares at the
lower charge if specified by the investor. This refund will be made by the
Authorized Firm and by the Principal Underwriter. If at the time of the
recomputation an Authorized 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.
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. 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 of Class B and
Class C shares or public offering price of Class A shares 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:
<TABLE>
<CAPTION>
IN THE CASE OF BOOK ENTRY: IN THE CASE OF PHYSICAL DELIVERY:
<S> <C>
Deliver through Depository Trust Co. Investors Bank & Trust Company
Broker #2212 Attention: Eaton Vance National Municipals Fund (and Class)
Investors Bank & Trust Company Physical Securities Processing Settlement Area
For A/C Eaton Vance National Municipals Fund (and Class) 200 Clarendon Street
Boston, MA 02116
</TABLE>
Investors who are contemplating an exchange of securities for shares, or their
representatives, must contact Eaton Vance to determine whether the securities
are acceptable before forwarding such securities. Eaton Vance reserves the right
to reject any securities. Exchanging securities for 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.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. Good order means that all
relevant documents must be endorsed by the record owner(s) exactly as the shares
are registered and the signature(s) must be guaranteed by a member of either the
Securities Transfer Association's STAMP program or the New York Stock Exchange's
Medallion Signature Program, or certain banks, savings and loan institutions,
credit unions, securities dealers, securities exchanges, clearing agencies and
registered securities associations as required by a Commission regulation and
acceptable to the Transfer Agent. In addition, in some cases, good order may
require the furnishing of additional documents such as where shares are
registered in the name of a corporation, partnership or fiduciary.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Trust, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: To sell shares at their net asset value
through an Authorized Firm (a repurchase), a shareholder can place a repurchase
order with the Authorized Firm, which may charge a fee. The value of those
shares is based upon the net asset value calculated after the Principal
Underwriter, as the Trust's agent, receives the order. It is the Authorized
Firm's responsibility to transmit promptly repurchase orders to the Principal
Underwriter. Throughout this Prospectus, the word "redemption" is generally
meant to include a repurchase.
Within seven days after receipt of a redemption request in good order by the
Transfer Agent, the Trust 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 CDSC (described below) and any federal income tax required to be
withheld. While normally payments will be made 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 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.
If shares were recently purchased, the proceeds of a redemption will not be sent
until the check (including a certified or cashier's check) received for the
shares purchased has cleared. Payment for shares tendered for redemption may be
delayed up to 15 days from the purchase date when the purchase check has not yet
cleared. Redemptions may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Trust reserves the right
to redeem accounts with balances of less than $750. Prior to such a redemption,
shareholders will be given 60 days' written notice to make an additional
purchase. However, no such redemption would be required by the Trust if the
cause of the low account balance was a reduction in the net asset value of
shares. No CDSC will be imposed with respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Each class of shares is subject to a CDSC on
certain redemptions. The CDSC is calculated based on the lower of the net asset
value at the time of purchase or the time of redemption. Shares acquired through
the reinvestment of distributions are exempt. Redemptions are made first from
shares in the account which are not subject to a CDSC.
In calculating a CDSC upon the redemption of shares acquired in an exchange, the
shares are deemed to have been acquired at the time of the original purchase of
the exchanged shares and, in the case of Class B shares, the CDSC schedule
applicable to the exchanged shares will apply to the acquired shares. No CDSC is
imposed on shares sold to Eaton Vance or its affiliates, or to their respective
employees or clients. Shares acquired as the result of a merger or liquidation
of another Eaton Vance sponsored fund generally will be subject to the same CDSC
rate imposed by the prior fund.
CLASS A SHARES. If Class A shares are purchased at net asset value because the
purchase amount is $1 million or more, or because the amount invested represents
redemption proceeds from an unaffiliated mutual fund (as described under "How to
Buy Shares"), they will be subject to a .50% CDSC if redeemed within 12 months
of purchase.
CLASS B SHARES. Class B shares will be subject to the following CDSC schedule:
YEAR OF
REDEMPTION
AFTER PURCHASE CDSC
- -------------------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
The Class B CDSC is waived for redemptions (1) pursuant to a Withdrawal Plan
(see "Eaton Vance Shareholder Services"), (2) as part of a required minimum
distribution from a tax-sheltered retirement plan, or (3) following the death of
all beneficial owners of shares, provided the redemption is requested within one
year of death (a death certificate and other applicable documents may be
required).
CLASS C SHARES. Class C shares will be subject to a 1% CDSC if redeemed within
12 months of purchase. The Class C CDSC is waived for redemptions (1) pursuant
to a Withdrawal Plan (see "Eaton Vance Shareholder Services"), (2) as part of a
distribution from a retirement plan qualified under Section 401, 403(b) or 457
of the Code, or (3) as part of a required minimum distribution from other
tax-sheltered retirement plans.
REPORTS TO SHAREHOLDERS
- -------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent certified public accountants. Shortly
after the end of each calendar year, the Fund will furnish all shareholders with
information necessary for preparing federal and state income tax returns.
Consistent with applicable law, duplicate mailings of shareholder reports and
certain other Fund information to shareholders residing at the same address may
be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF SHARES, THE TRANSFER AGENT WILL
SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE TRUST'S RECORDS.
This account is a complete record of all transactions which at all times shows
the balance of shares owned. The Trust will not issue share certificates except
upon request.
At least quarterly, the shareholder will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to the Transfer Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (please provide the name of the
shareholder, the Fund and Class 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 Trust's
dividend disbursing agent, First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123. The currently effective option will appear on each
account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal Service
as not deliverable or which remain uncashed for six months or more will be
reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares 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 Trust and its Transfer Agent. Since the
Trust 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 Authorized Firm or to an account directly with the
Trust 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 Authorized
Firm, or transferring the account to another Authorized Firm, an investor
wishing to reinvest distributions should determine whether the Authorized Firm
which will hold the shares allows reinvestment of distributions in "street name"
accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of the same class of
one or more other funds in the Eaton Vance Group of Funds. Class A shares may
also be exchanged for shares of Eaton Vance Cash Management Fund, Eaton Vance
Income Fund of Boston, Eaton Vance Municipal Bond Fund L.P., and Eaton Vance Tax
Free Reserves. Class B shares may also be exchanged for shares of Eaton Vance
Prime Rate Reserves, which are subject to an early withdrawal charge, or shares
of Eaton Vance Money Market Fund, which are subject to a CDSC, and shares of a
money market fund sponsored by an Authorized Firm and approved by the Principal
Underwriter (an "Authorized Firm fund"). Class C shares may also be exchanged
for shares of Eaton Vance Money Market Fund. Any such exchange will be made on
the basis of the net asset value per share of each fund/class at the time of the
exchange (plus, in the case of an exchange made within six months of the date of
purchase of Class A 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). Exchange offers are available only in states where shares of the fund
being acquired may be legally sold. Exchanges are subject to any restrictions or
qualifications set forth in the current prospectus of any such fund.
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 Trust does not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Transfer Agent makes exchanges at the next determined net asset value after
receiving an exchange request in good order (see "How to Redeem Shares").
Consult the Transfer Agent for additional information concerning the exchange
privilege. Applications and prospectuses of other funds are available from
Authorized Firms or the Principal Underwriter. The prospectus for each fund
describes its investment objectives and policies, and shareholders should obtain
a prospectus and consider these objectives and policies carefully before
requesting an exchange.
No CDSC is imposed on exchanges. For purposes of calculating the CDSC upon
redemption of shares acquired in an exchange, the CDSC schedule applicable to
the shares at the time of purchase will apply and the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares, except that time during which shares
are held in an Authorized Firm fund will not be credited toward completion of
the CDSC period. For the CDSC schedule applicable to Class B shares (except
Prime Rate Reserves and Class B shares of the Limited Maturity Funds), see "How
to Redeem Shares". The CDSC or early withdrawal charge schedule applicable to
Prime Rate Reserves and Class B shares of the Limited Maturity Funds 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.
Telephone exchanges are accepted by the Transfer Agent provided the investor has
not disclaimed in writing the use of the privilege. To effect such exchanges,
call the Transfer Agent at 800-262-1122, Monday through Friday, 9:00 a.m. to
4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange must be
registered in the same name(s) and with the same address as the shares being
exchanged. Neither the Trust, the Principal Underwriter nor the Transfer Agent
will be responsible for the authenticity of exchange instructions received by
telephone, provided that reasonable procedures to confirm that instructions
communicated are genuine have been followed. Telephone instructions will be tape
recorded. In times of drastic economic or market changes, a telephone exchange
may be difficult to implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE TRUST OFFERS THE FOLLOWING SERVICES WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund or Class 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
and specifying the Class being purchased may be mailed directly to the Transfer
Agent, First Data Investor Services Group, P.O. Box 5123, Westborough, MA
01581-5123 at any time -- whether or not dividends are reinvested. The name of
the shareholder, the Fund and Class 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. For Class B and Class C shares, any such
withdrawals may not in the aggregate exceed 12% annually of the account balance
at the time the plan is established. Such amount will not be subject to the
Class B or Class C CDSC. See "How to Redeem Shares". A minimum deposit of $5,000
in shares is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A shares would be disadvantages because of the
sales charge included in such purchase.
STATEMENT OF INTENTION: Purchases of $25,000 or more of Class A shares made
over a 13-month period are eligible for reduced sales charges. See "How to Buy
Shares -- Statement of Intention and Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges on Class
A shares when the current market value of holdings (shares at current offering
price), plus new purchases, reaches $25,000 or more. Class A 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.
REINVESTMENT PRIVILEGE: A shareholder who has redeemed shares may reinvest, with
credit for any CDSCs paid on the redeemed shares, any portion or all of the
redemption proceeds (plus that amount necessary to acquire a fractional share to
round off the purchase to the nearest full share) in the same shares (or for
Class A shares in Class A shares of any other Eaton Vance fund), provided that
the reinvestment is effected within 60 days after such redemption and the
privilege has not been used more than once in the prior 12 months. Shares are
sold to a reinvesting shareholder at the next determined net asset value
following timely receipt of a written purchase order by the Principal
Underwriter or by the Trust (or by the Trust's Transfer Agent). To the extent
that any shares are sold at a loss and the proceeds are reinvested in shares (or
other shares are acquired) within the period beginning 30 days before and ending
30 days after the date of redemption, some or all of the loss generally will not
be allowed as a tax deduction. Shareholders should consult their tax advisers
concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES AND CLASS-SPECIFIC
EXPENSES, WILL BE DECLARED DAILY AS A DISTRIBUTION TO SHAREHOLDERS OF RECORD AT
THE TIME OF DECLARATION. Distributions on Class A shares, 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. Distributions on Class B shares
will ordinarily be paid on the fifteenth day of each month or the next business
day thereafter. Distributions on Class C shares will ordinarily be paid on the
twenty-second day of each month or the next business day thereafter. The Fund
anticipates that for tax purposes, the entire distribution, whether paid in cash
or reinvested in additional shares, will constitute tax-exempt income to
shareholders, except for the proportionate part of the distribution that may be
considered taxable income if the Fund has taxable income during the calendar
year. Shareholders reinvesting the monthly distribution should treat the amount
of the entire distribution as the tax cost basis of the additional shares
acquired by reason of such reinvestment. Daily distribution crediting will
commence on the business day after collected funds for the purchase of shares
are available at the Transfer Agent. Shareholders will receive timely federal
income tax information as to the tax-exempt or taxable status of all
distributions made by the Fund during the calendar year. The Fund's net realized
capital gains, if any, consist of the net realized capital gains allocated to
the Fund by the Portfolio for tax purposes, after taking into account any
available capital loss carryovers; the Fund's net realized capital gains, if
any, will be distributed at least once a year, usually in December.
Sales charges paid upon a purchase of Class A shares cannot be taken into
account for purposes of determining gain or loss on a redemption or exchange of
the shares before the 91st day after their purchase to the extent a sales charge
is reduced or eliminated in a subsequent acquisition of such shares of the Fund
or of another fund pursuant to the 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.
The Fund intends to qualify as a regulated investment company under the Code and
to satisfy all requirements necessary to avoid paying federal income taxes on
the part of its investment company taxable income (consisting generally of
taxable net investment income and net short-term capital gain) and net capital
gain that it distributes to shareholders. In satisfying these requirements, the
Fund will treat itself as owning its proportionate share of each of the
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
As a regulated investment company under the Code, the Fund does not pay federal
income or excise taxes to the extent that it distributes to shareholders
substantially all of its ordinary income and capital gain net income in
accordance with the timing requirements imposed by the Code. As a partnership
under the Code, the Portfolio does not pay federal income or excise taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the AMT 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 shares have been
owned by the shareholder. If shares are purchased shortly before the record date
of such a distribution, the shareholder will pay the full price for the shares
and then receive some portion of the price back as a taxable distribution.
Distributions are taxed in the manner described above whether paid in cash or
reinvested in additional shares. Tax-exempt distributions received from the Fund
are includable in the tax base for determining the taxability of social security
and railroad retirement benefits.
The Code provides that interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares is not deductible to the extent it is
deemed related to the Fund's distributions of tax-exempt interest dividends to
the shareholder. 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. "Substantial user" is defined in applicable Treasury
regulations to include a "non-exempt person" who regularly uses in trade or
business a part of a facility financed from the proceeds of industrial
development bonds and would likely be interpreted to include private activity
bonds issued to finance similar facilities.
Shareholders should consult with their tax advisers concerning the applicability
of state, local and other taxes to an investment.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, YIELD AND/OR AVERAGE ANNUAL TOTAL RETURN MAY BE ADVERTISED.
Current yield is calculated separately for each Class by dividing the net
investment income per share earned during a recent 30-day period by the maximum
offering price per share or net asset value 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. Average
annual total return is determined separately for each Class by computing the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (including maximum sales charge for Class A; net asset
value for Class B and Class C) for specified periods, assuming reinvestment of
all distributions. Total return may be quoted for the period prior to
commencement of operations which would reflect the Class's total return (or that
of its predecessor) adjusted to reflect any applicable sales charge. The average
annual total return calculation assumes a complete redemption of the investment
and the deduction of any applicable CDSC at the end of the period. The Fund may
publish annual and cumulative total return figures from time to time.
The Fund may also publish total return figures for each Class which do not take
into account any sales charge. Any performance figure which does not take into
account a sales charge would be reduced to the extent such charge is imposed
upon a redemption. 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 investment results will fluctuate over time, and any
presentation of yield or total return for any prior period should not be
considered a representation of what an investment may earn or what the yield or
total return may be in any future period.
The following chart reflects the annual investment returns of Class B of the
Fund for one-year periods ending September 30 and does not take into account any
sales charge which investors may bear. The performance of the predecessor funds
of Class A and Class C was different.
5 Year Average Annual Total Return -- 7.62%
10 Year Average Annual Total Return -- 6.98%
1987 (1.64)%
1988 11.94%
1989 7.96%
1990 2.83%
1991 11.33%
1992 11.67%
1993 14.90%
1994 (4.82%)
1995 10.65%
1996 6.84%
<PAGE>
APPENDIX
NATIONAL MUNICIPALS PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
RATINGS OF RATINGS OF
MUNICIPAL BONDS MUNICIPAL BONDS
BY MOODY'S BY S&P
PERCENT OF PERCENT OF
NET ASSETS NET ASSETS
---------- ----------
Aaa ................. 22.98% AAA .................... 24.33%
Aa .................. 0.02% AA ..................... 0.25%
Aa2 ................. 1.99% AA- .................... 2.24%
A1 .................. 0.97% A+ ..................... 0.39%
A2 .................. 2.98% A ...................... 0.83%
Baa1 ................ 5.69% A- ..................... 2.62%
Baa2 ................ 11.37% BBB+ ................... 3.19%
Baa3 ................ 5.62% BBB .................... 7.73%
Ba1 ................. 0.40% BBB- ................... 4.12%
Ba2 ................. 0.62% BB+ .................... 5.41%
Ba3 ................. 0.13% BB ..................... 4.50%
B1 .................. 0.05% BB- .................... 0.11%
B2 .................. 0.60% B ...................... 0.08%
Unrated ............. 46.94% Unrated ................ 44.20%
------ ------
100.00% 100.00%
The chart above indicates the weighted average composition of the securities
held by the Portfolio for the period ended September 30, 1996, with the debt
securities rated by Moody's and S&P separated into the indicated categories. The
above was calculated on a dollar weighted basis and was computed as at the end
of each month during the fiscal year. The chart does not necessarily indicate
what the composition of the securities held by the Portfolio will be in the
current and subsequent fiscal years. Securities that are rated by one rating
agency may be "unrated" by the other.
For a description of Moody's and S&P's municipal bond ratings, see the Appendix
to the Statement of Additional Information.
<PAGE>
[LOGO]
EATON VANCE
- --------------------
Mutual Funds
EATON VANCE
NATIONAL MUNICIPALS
FUND
PROSPECTUS
OCTOBER 1, 1997
EATON VANCE NATIONAL
MUNICIPALS FUND
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, MA02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte &Touche LLP, 125 Summer Street, Boston, MA02110
HMP
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EATON VANCE MASSACHUSETTS MUNICIPALS FUND
CLASS I SHARES
EATON VANCE MASSACHUSETTS MUNICIPALS FUND (THE "FUND") IS A 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"), AN 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. THE FUND IS
A SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST"). CLASS I SHARES OF THE
FUND ARE OFFERED BY THIS PROSPECTUS.
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 October 1, 1997, as
supplemented from time to time, has been filed with the Securities and Exchange
Commission (the "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 OF CONTENTS
Shareholder and Fund Expenses ............................................. 2
The Fund's Financial Highlights ........................................... 3
The Fund's Investment Objective ........................................... 5
Investment Policies and Risks ............................................. 5
Organization of the Fund and the Portfolio ................................ 10
Management of the Fund and the Portfolio .................................. 11
Valuing Shares ............................................................ 13
How to Buy Shares ......................................................... 13
How to Redeem Shares ...................................................... 14
Reports to Shareholders ................................................... 16
The Lifetime Investing Account/Distribution Options ....................... 16
Eaton Vance Shareholder Services .......................................... 17
Distributions and Taxes ................................................... 18
Performance Information ................................................... 20
- --------------------------------------------------------------------------------
PROSPECTUS DATED OCTOBER 1, 1997
<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 CLASS I SHARES
(as a percentage of average daily net assets)
Investment Adviser Fee 0.46%
Other Expenses (after expense reduction) 0.21%
Total Operating Expenses (after reduction) 0.67%
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
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: $7 $21 $37 $83
Notes:
The table and Example summarize the aggregate expenses of the Portfolio
and Class I shares of the Fund and are designed to help investors
understand the costs and expenses they will bear, directly or indirectly,
by investing in the Fund. Information for Class I is estimated based upon
the most recent fiscal year of its predecessor fund adjusted for the
multiple-class structure.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Federal regulations require the Example to assume a 5% annual return, but
actual return will vary. For further information regarding the expenses of
the Fund and the Portfolio, see "The Fund's Financial Highlights" 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.
The Fund invests exclusively in the Portfolio. 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 financial
statements included in the Fund's semi-annual and annual reports to
shareholders. The Fund's annual financial statements have been audited by
Deloitte & Touche LLP, independent certified public accountants, as experts in
accounting and auditing. The annual financial statements and the independent
auditors' report and semi-annual financial statements are incorporated by
reference into the Statement of Additional Information. Further information
regarding the performance of the Fund is contained in its semi-annual and annual
reports to shareholders which may be obtained without charge by contacting the
Fund's Principal Underwriter. The financial information for each of the periods
presented in the Fund's Financial Highlights are for the Fund prior to
reclassification of its shares as Class B shares on October 1, 1997. Information
for Class I shares is not presented because that Class did not exist prior to
October 1, 1997. The Financial Highlights for Class I shares will differ from
the Financial Highlights for Class B shares due to the absence of distribution
and service fees for Class I shares.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------
SIX MONTHS
ENDED
MARCH 31,
1997
(UNAUDITED) 1996 1995 1994 1993 1992 1991++
--------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.330 $10.270 $ 9.990 $11.250 $10.640 $10.250 $10.000
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.242 $ 0.491 $ 0.499 $ 0.505 $ 0.514 $ 0.526 $ 0.245
Net realized and unrealized gain
(loss) on investments (0.088) 0.066 0.307 (1.108) 0.784 0.556 0.305+++
------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.154 $ 0.557 $ 0.806 $(0.603) $ 1.298 $ 1.082 $ 0.550
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.244) $(0.492) $(0.499) $(0.505) $(0.514) $(0.526) $(0.245)
In excess of net investment
income(5) --(6) (0.005) (0.027) (0.087) (0.116) (0.142) (0.055)
From net realized gain on
investments -- -- -- -- (0.058) (0.024) --
In excess of net realized gain
on investments(5) -- -- -- $(0.065) -- -- --
Total distributions $(0.244) $(0.497) $(0.526) $(0.657) $(0.688) $(0.692) $(0.300)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.240 $10.330 $10.270 $ 9.990 $11.250 $10.640 $10.250
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 1.48% 5.53% 8.38% (5.57)% 12.67% 10.88% 5.33%
RATIOS/SUPPLEMENTAL DATA*
Net assets, end of year (000
omitted) $246,967 $267,398 $291,114 $295,011 $286,801 $165,964 $35,532
Ratio of net expenses to average
daily net assets(2)(4) 1.63%+ 1.59% 1.58% 1.50% 1.58% 1.64% 1.28%+
Ratio of net expenses to average
daily net assets after custodian
fee reduction(2)(4) 1.62%+ 1.58% 1.56% -- -- -- --
Ratio of net investment income to
average daily net assets 4.72%+ 4.75% 5.00% 4.75% 4.69% 4.85% 5.15%+
PORTFOLIO TRUNOVER(3) -- -- -- -- 27% 72% 21%
* For the period indicated, the operating expenses of the Fund reflect an allocation of expenses. Had such
action not been taken, the ratios and net investment income per share would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.226
=======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.68%+
Net investment income 4.75%+
+ 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 (loss) for the period
because of the timing of sales of shares and the amount of per share realized and unrealized gains and
losses at such time.
(1) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net
asset value on the last day of each period reported. Distributions, if any, are assumed to be reinvested at
the net asset value on the payable date. Total return is computed on a non-annualized basis.
(2) Includes the Fund's share of the Portfolio's allocated expenses.
(3) Portfolio Turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements
which are included in the Fund's annual report.
(4) The expense ratios for the years ended September 30, 1996 and 1995 have been adjusted to reflect a change in
reporting requirements. The reporting guidelines require the Fund to increase its expense ratio by the
effect of any expense offset arrangements with its service providers. The expense ratios for prior periods
have not been adjusted to reflect this change.
(5) 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 earning 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.
(6) Distributions in excess of net investment income were less than $0.001 per share.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX AND MASSACHUSETTS STATE PERSONAL INCOME TAXES. The Fund
currently 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 (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.
INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
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 Fund's shareholders
or the Portfolio's investors, as the case may be.
At least 75% 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 municipal obligations rated below
investment grade (but not lower than B by Moody's, S&P or Fitch) and unrated
municipal obligations considered to be of comparable quality by the Investment
Adviser. Municipal obligations rated Baa or BBB may have speculative
characteristics. Also, changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher rated obligations. Securities rated below
Baa or BBB are commonly known as "junk bonds". 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
regular federal income tax. Public purpose municipal bonds include general
obligation and revenue bonds. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed by the revenues of a
project or facility, or from the proceeds of a specific revenue source. Some
revenue bonds are payable solely or partly from funds which are subject to
annual appropriations by the State legislature. 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.
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, 1996, the Portfolio had 26.7% of its net assets in such
obligations. 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 dependent
on annual appropriations by the state legislature for payment; obligations of
state and local housing finance authorities, municipal utilities systems or
public housing authorities; obligations of hospitals or life care facilities; or
industrial development or pollution control bonds issued for electric utility
systems, steel companies, paper companies or other purposes. This may make 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.
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. The Portfolio is, therefore, more susceptible to
factors adversely affecting issuers in Massachusetts. Municipal obligations
issued by Massachusetts issuers may be adversely effected by economic
developments (including insolvency of an issuer) and by legislation and other
governmental activities in Massachusetts. Municipal obligations that rely on an
annual appropriation of funds by the State's legislature for payment are also
subject to the risk that the legislature will not appropriate the necessary
amounts or take other action needed to permit the issuer of such obligations to
make required payments. 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 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 the State's 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 4.0% for January 1997, as compared to the January 1996
rate of 4.6% and a national unemployment rate of 5.5%.
Massachusetts law limits the amount of direct bonds that may be
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. 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.
General obligations of Massachusetts are 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 has slowed through 1996.
Growth is dependent on the state of the U.S. economy and the relative stability
in the price of oil, the exchange rate of the U.S. dollar and the cost of
borrowing. Section 936 (a tax incentive that has encouraged economic growth in
Puerto Rico) will be phased out over a ten year period. At this time, it is
uncertain as to the implication the change will have on the Puerto Rican
economy. Although the Puerto Rico unemployment rate has declined substantially
since 1985, the seasonally adjusted unemployment rate for 1996 was approximately
13.8%. The North American Free Trade Agreement (NAFTA), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it
Baa1; these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a negative outlook on Puerto Rico on April 26, 1994 which was changed
to stable on December 16, 1996.
NON-DIVERSIFIED STATUS. As a "non-diversified" investment company, the 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. The Portfolio is
more likely to invest a greater percentage of its assets in the securities of a
single issuer than would a diversified fund. Therefore, the Portfolio is 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,
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 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 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 rated investment
grade or below (Baa or BBB or lower), or are unrated. As indicated above, the
Portfolio may invest in municipal obligations rated below investment grade (but
not lower than B by Moody's, S&P or Fitch) and comparable unrated obligations.
Municipal obligations rated investment grade or below 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.
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 may retain in its
portfolio an obligation whose rating drops below B after its acquisition,
including defaulted obligations, 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 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 Portfolio's credit quality limitations. In
the case of a defaulted obligation, the Portfolio may incur additional expense
seeking recovery of its investment.
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) 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 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 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, the 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 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 income from zero-coupon
bonds on a current basis, even though it does not receive that income currently
in cash, and the Fund is required to distribute its share of the Portfolio's
income for each taxable year. 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.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
- --------------------------------------------------------------------------------
THE FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST, A BUSINESS
TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST
DATED SEPTEMBER 30, 1985, AS AMENDED. The Trustees of the Trust are responsible
for the overall management and supervision of its affairs. The Trust may issue
an unlimited number of shares of beneficial interest (no par value per share) in
one or more series (such as the Fund). The Trustees of the Trust have divided
the shares of the Fund into three classes, including Class I shares. Each class
represents an interest in the Fund, but is subject to different rights and
privileges, as well as different sales charges and expenses (which will result
in different performance for each class). For information about the other
classes of shares offered by the Fund, contact the Principal Underwriter at
(617) 482-8260. The Trustees have the authority under the Declaration of Trust
to create additional classes of shares with differing rights and privileges. As
a result of a reorganization with separate series of the Trust, the Fund
commenced offering classes of shares on October 1, 1997.
When issued and outstanding, the shares are fully paid and nonassessable
by the Fund and redeemable as described under "How to Redeem Fund Shares." There
are no annual meetings of shareholders, but special meeting may be held as
required by law to elect Trustees and consider certain other matters.
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 of each class are entitled to share pro rata in the net assets
attributable to that class available for distribution to shareholders.
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 growth in the assets of the Portfolio, may
afford the potential for economies of scale for the Fund (at least when the
assets of the Portfolio exceed $500 million) and may over time result in lower
expenses for the Fund.
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 purposIn
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 or class due to variations in sales
commissions and other operating expenses. Therefore, these differences may
result in differences in returns experienced by investors in the various funds
that invest in the Portfolio. Information regarding other pooled investment
entities or funds which invest in the Portfolio may be obtained by contacting
the Principal Underwriter, 24 Federal Street, Boston, MA 02110 (617) 482-8260.
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 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. 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.
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. BMR also
furnishes for the use of the Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
Portfolio. 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, 1996, the Portfolio had net assets of $281,129,236.
For the fiscal year ended September 30, 1996, 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 $20 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly-held holding company which through its subsidiaries and
affiliates, engages primarily in investment management, administration and
marketing activities. The Principal Underwriter is a wholly-owned subsidiary of
Eaton Vance.
Robert B. MacIntosh has acted as the portfolio manager of the Portfolio
since it commenced operations. Mr. MacIntosh manages other Eaton Vance
portfolios and is a Vice President of Eaton Vance and BMR.
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, the Portfolio and BMR have adopted Codes of
Ethics relating to personal securities transactions. The Codes permit Eaton
Vance personnel to invest in securities (including securities that may be
purchased or held by the Portfolio) for their own accounts, subject to certain
pre-clearance, reporting and other restrictions and procedures contained in such
Codes.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing its assets in the Portfolio. As Administrator, Eaton Vance provides
the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
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 the Principal Underwriter under the distribution
agreement.
VALUING 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 net asset value per share of
Class I shares is determined by the Trust's custodian, Investors Bank & Trust
Company ("IBT"), (as agent for the Trust) in the manner authorized by the
Trustees of the Trust. The net asset value of each Class is computed by dividing
the value of that Class's pro rata share of the Fund's total assets, less its
liabilities, by the number of shares of that Class outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the net asset value of Class
I shares will reflect the value of the Fund's 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.
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
The Trustees of the Trust have determined that Class I 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 Class I 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. 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 Class I 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 Eaton Vance Massachusetts Municipals Fund - Class I
shares, A/C #[Insert your account number - see below].
To make an initial investment by wire, you must 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 (the "Transfer Agent"), P.O. Box 5123,
Westborough, MA 01581-5123.
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 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 Eaton Vance Massachusetts
Municipals Fund - Class I shares to: First Data Investor Services Group, P.O.
Box 5123, Westborough, MA 01581-5123.
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 Eaton Vance Massachusetts Municipals Fund -
Class I shares at the above address. Please provide the name(s) of the
registered owner(s) of the account and the account number to which the
subsequent purchase is to be credited.
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 net
asset value per Class I 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 (available from the
Principal Underwriter), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C Eaton Vance Massachusetts Municipals Fund - Class I shares
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: Eaton Vance Massachusetts Municipal Fund - Class I shares
Physical Securities Processing Settlement Area
200 Clarendon Street
Boston, MA 02116
Investors who are contemplating an exchange of securities for shares of
the Fund, or their representatives, must contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
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.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM SHARES IN ONE OF FOUR WAYS - BY MAIL, BY TELEPHONE, BY
WIRE OR BY CHECK. The redemption price will be based on the net asset value per
share next computed after a redemption request is received in the proper form as
described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. Good order means that all
relevant documents must be endorsed by the record owner(s) exactly as the shares
are registered and the signature(s) must be guaranteed by a member of either the
Securities Transfer Association's STAMP program or the New York Stock Exchange's
Medallion Signature Program, or certain banks, savings and loan institutions,
credit unions, securities dealers, securities exchanges, clearing agencies and
registered securities associations as required by a Commission regulation and
acceptable to the Transfer Agent. In addition, in some cases, good order may
require the furnishing of additional documents such as where shares are
registered in the name of a corporation, partnership or fiduciary. The Fund will
make payment on a written redemption request received in good order within seven
days of receipt of such request.
REDEMPTIONS BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Trust, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market charges, a telephone redemption may be difficult to
implement. The Fund will make payment on a telephone redemption request received
in good order within seven days of receipt of such request.
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. Requests for wire redemptions 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.
REDEMPTIONS BY CHECK: Shareholders holding shares for which certificates have
not been issued may make redemptions by check by completing an Account
Instruction form (available by calling 800-225-6265 (extension 7601)) and
appointing Boston Safe Deposit and Trust Company ("Boston Safe") their agent.
Boston Safe will provide shareholders electing this option with 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. To obviate such a return of check, the check should
not be written for close to the full value of an account. 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.
The Fund will generally 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.
If shares were recently purchased, the proceeds of a redemption will not
be sent until the check (including a certified or cashier's check) received for
the shares purchased has cleared. Payment for shares tendered for redemption may
be delayed up to 15 days from the purchase date when the purchase check has not
yet cleared. Redemptions may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem Fund accounts with balances of less than $750. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. However, no such redemption would be required 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. Consistent with applicable law,
duplicate mailings of shareholder reports and certain other Fund information to
shareholders residing at the same address may be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF SHARES, THE TRANSFER AGENT WILL
SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE TRUST'S RECORDS.
This account is a complete record of all transactions between the investor and
the Fund which at all times shows the balance of shares owned. The Fund will not
issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to the Transfer Agent.
Any questions concerning a shareholder's account or services available may
also be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at
800-225-6265, extension 2, or in writing to the Transfer Agent, First Data
Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 (please
provide the name of the shareholder, the Fund and Class, 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 Trust's dividend disbursing agent, First Data Investor Services Group, P.O.
Box 5123, Westborough, MA 01581-5123. The currently effective option will appear
on each account statement.
Share Option - Dividends and capital gains will be reinvested in
additional shares.
Income Option - Dividends will be paid in cash, and capital gains will
be
reinvested in additional shares.
Cash Option - Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account 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
and specifying the Class may be mailed directly to the Transfer Agent, First
Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 at any
time - whether or not distributions are reinvested. The name of the shareholder,
the Fund and the Class, 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 Class A shares of
any fund in the Eaton Vance 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). 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 Fund does not permit the
exchange to be used for "Market Timing" and may terminate the exchange privilege
for any shareholder account engaged in Market Timing activity. Any shareholder
account for which more than two round-trip exchanges are made within any twelve
month period will be deemed to be engaged in Market Timing. Furthermore, a group
of unrelated accounts for which exchanges are entered contemporaneously by a
financial intermediary will be considered to be engaged in Market Timing.
The Transfer Agent makes exchanges at the next determined net asset value
after receiving an exchange request in good order (see "How to Redeem Fund
Shares"). Consult the Transfer Agent for additional information concerning the
exchange privilege. Applications and prospectuses of the other funds are
available from 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.
Telephone exchanges are accepted by the Transfer Agent, provided the
investor has not disclaimed in writing the use of the privilege. To effect such
exchanges, call the Transfer Agent at 800-262-1122 or, within Massachusetts
617-573-9403, Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard
Time). Shares acquired by telephone exchange must be registered in the same
name(s) and with the same address as the shares being exchanged. Neither the
Fund, the Principal Underwriter nor the Transfer Agent will be responsible for
the authenticity of exchange instructions received by telephone, provided that
reasonable procedures to confirm that instructions communicated are genuine have
been followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone exchange may be difficult to implement.
An exchange may result in a taxable gain or loss.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO (LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES AND CLASS-SPECIFIC
EXPENSES) WILL BE DECLARED DAILY AS A DISTRIBUTION TO 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, 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 business day
after 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.
The 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 avoid paying federal income taxes on the part of its
investment company taxable income (consisting generally of taxable net
investment income and net short-term capital gain) and net capital gain that it
distributes to shareholders. 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
substantially all of its ordinary income and capital gain net income 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 AMT provisions applicable to individuals and
corporations. Distributions of taxable income (including a portion of any
original issue discount with respect to certain stripped municipal obligations
and stripped coupons and accretion of certain market discount) and net
short-term capital gains will be taxable to shareholders as ordinary income.
Distributions of long-term capital gains are taxable to shareholders as such for
federal income tax purposes, regardless of the length of time Fund shares have
been owned by the shareholder. If shares are purchased shortly before the record
date of such a distribution, the shareholder will pay the full price for the
shares and then receive some portion of the price back as a taxable
distribution. Distributions are taxed in the manner described above whether paid
in cash or reinvested in additional shares of 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.
The Code provides that 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 a Fund's distribution of tax-exempt interest
dividends to the shareholder. 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. "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. 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 that are 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.
For purposes of determining the Massachusetts excise tax on corporations
subject to Massachusetts taxation, 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.
Shareholders should consult their own tax advisers concerning the
applicability of state, local and other taxes to an investment in the Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, YIELD AND/OR AVERAGE ANNUAL TOTAL RETURN MAY BE advertised.
Current yield is calculated separately for each Class by dividing the net
investment income per share earned during a recent 30-day period by the maximum
offering price per share 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. Average annual total return
is determined separately for each Class by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods, assuming reinvestment of all
distributions. Total return may be quoted for the period prior to commencement
of operations which would reflect the Class's total return (or that of its
predecessor) adjusted to reflect any difference in sales charge. The total
return calculation assumes a complete redemption of the investment.
The Fund may also publish annual and cumulative total return figures from
time to time. The Fund'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 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 expenses are allocated to Eaton Vance, the Fund's performance
will be higher.
<PAGE>
PORTFOLIO INVESTMENT ADVISER EATON VANCE MASSACHUSETTS MUNICIPALS FUND
Boston Management and Research
24 Federal Street
Boston, MA 02110
CLASS I SHARES
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 PROSPECTUS
Investors Bank & Trust Company
200 Clarendon Street OCTOBER 1, 1997
Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group
P.O. Box 5123
Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EATON VANCE MASSACHUSETTS MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
MMBP
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
October 1, 1997
EATON VANCE CALIFORNIA MUNICIPALS FUND
EATON VANCE FLORIDA MUNICIPALS FUND
EATON VANCE MASSACHUSETTS MUNICIPALS FUND
EATON VANCE MISSISSIPPI MUNICIPALS FUND
EATON VANCE NEW YORK MUNICIPALS FUND
EATON VANCE OHIO MUNICIPALS FUND
EATON VANCE RHODE ISLAND MUNICIPALS FUND
EATON VANCE WEST VIRGINIA MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information provides general information about
the Funds listed above and their corresponding Portfolios. This Statement of
Additional Information is sometimes referred to herein as the "SAI".
TABLE OF CONTENTS
Page
Additional Information about Investment Policies ..................... 1
Investment Restrictions .............................................. 7
Trustees and Officers ................................................ 8
Investment Adviser and Administrator ................................. 11
Custodian ............................................................ 14
Services for Accumulation -- Class A Shares .......................... 15
Service for Withdrawal ............................................... 15
Determination of Net Asset Value ..................................... 16
Investment Performance ............................................... 16
Taxes ................................................................ 18
Principal Underwriter ................................................ 20
Service Plan -- Class A Shares ....................................... 21
Distribution Plan -- Class B Shares .................................. 21
Portfolio Security Transactions ...................................... 23
Other Information .................................................... 25
Independent Certified Public Accountants ............................. 26
Financial Statements ................................................. 27
Appendix A: Class A Shares ........................................... a-1
Appendix B: Class B Shares ........................................... b-1
Appendix C: State Specific Information ............................... c-1
Appendix D: Tax Equivalent Yield Tables .............................. d-1
Appendix E: Ratings .................................................. e-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund (or Class) might become liable for a misstatement or
omission in this Statement of Additional Information regarding another Fund (or
Class) because the Funds use this combined Statement of Additional Information.
The Trustees of the Trust have considered this factor in approving the use of a
combined Statement of Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED OCTOBER 1, 1997, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS COMBINED STATEMENT
OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A
COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON VANCE
DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND
PHONE NUMBER).
<PAGE>
This SAI provides information about the Funds and the Portfolios.
Capitalized terms used in this SAI and not otherwise defined have the meanings
given them in the Prospectus. The Funds are subject to the same investment
policies as those of the Portfolio. Each Fund currently seeks to achieve its
objective by investing in its corresponding 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 tax and is not a tax preference item for
purposes of 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 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 a Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the AMT. For corporate shareholders, a Fund's distributions
derived from interest on all municipal obligations (whenever issued) is included
in "adjusted current earnings" for purposes of the AMT as applied to
corporations (to the extent not already included in alternative minimum taxable
income as income attributable to private activity bonds).
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (i.e., obligations with a term of more than one
year) purchased after April 30, 1993 other than, in general, at their original
issue, is taxable as ordinary income. A long-term debt obligation is generally
treated as acquired at a market discount if purchased after its original issue
at a price less than (i) the stated principal amount payable at maturity, in the
case of an obligation that does 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.
Each 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. Each 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 a Portfolio as a result of any such event, and a
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 a Portfolio will
be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations of a Particular State. For a discussion of the risks
associated with a Portfolio's policy of concentrating its investments in
particular State issuers of municipal obligations, see "Risks of Concentration"
in Appendix C.
Obligations of Particular Types of Issuers. Each 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, the U.S. Virgin Islands and Guam. Subject to each
Fund's investment policies as set forth in the Prospectus, each Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
Accordingly, the Portfolio may be adversely affected by local political and
economic conditions and developments within Puerto Rico, the U.S. Virgin Islands
and Guam affecting the issuers of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. Manufacturing is the largest sector in terms of gross domestic
product and is more diversified than during earlier phases of Puerto Rico's
industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and manufacturing
(16.4%). These three sectors represent 37.5%, 11% and 41.8%, respectively, of
the gross domestic product. The service sector is the fastest growing, followed
by manufacturing which has begun to show signs of expansion. 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 Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the federal government. Most federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Code was amended and provided for two alternative limitations
to the Section 936 credit. The first option limited the credit against such
income to 40% of the credit allowable under then current law, with a five year
phase-in period starting at 60% of the allowable credit. The second option was a
wage and depreciation based credit. Additional amendments to Section 936 in 1996
imposed caps on these credits, beginning in 1998 for the first option and
beginning in 2002 for the second option. More importantly, the 1996 amendments
eliminated both options for taxable years beginning in 2006. The eventual
elimination of 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
this 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 in the
long-term. Short-term affects are minimal.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. Puerto Ricans voted to retain Commonwealth
status, leaving intact the current relationship with the federal government.
There can be no assurance that the statehood issue will not be brought to a vote
in the future. A successful statehood vote in Puerto Rico would then require the
U.S. Congress to ratify the election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. In 1996,
unemployment stood at 13.8%. The tourism industry is economically sensitive
and would likely be adversely affected by a recession in either the United
States or Europe.
An important component of the USVI revenue base is the federal excise tax on
rum exports. Tax revenues rebated by the federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI is periodically hit by hurricanes.
Several hurricanes have caused extensive damage, which has had a negative impact
on revenue collections. There is currently no rated, unenhanced Virgin Islands
debt outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. The
Naval Air Station, one of several U.S. military facilities on the island, has
been slated for closure by the Defense Base Closure and Realignment Committee;
however, the administration plans to use these facilities to expand the island's
commercial airport. Guam is also heavily reliant on tourists, particularly the
Japanese. For 1995, the government realized a General Fund operating surplus.
The administration has taken steps to improve its financial position; however,
there are no guarantees that an improvement will be realized. Guam's general
obligation debt is rated BBB by S&P with a negative outlook.
MUNICIPAL LEASES
Each Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
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 each 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 a Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by a Portfolio. In the
event a Portfolio acquires an unrated municipal lease obligation, the Investment
Adviser will be responsible for determining the credit quality of such
obligation on an 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 a 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 a
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
Each 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 a
Portfolio.
SHORT-TERM TRADING
Each Portfolio may sell (and later purchase) securities in anticipation of a
market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the same
time to take advantage of what a Portfolio believes to be a temporary disparity
in the normal yield relationship between the two securities. Yield disparities
may occur for reasons not directly related to the investment quality of
particular issues or the general movement of interest rates, such as changes in
the overall demand for or supply of various types of municipal obligations or
changes in the investment objectives of investors. Such trading may be expected
to increase the portfolio turnover rate, which may increase capital gains and
the expenses incurred in connection with such trading. A Portfolio cannot
accurately predict its portfolio turnover rate, but it is anticipated that the
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 a
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. Each 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. For the portfolio turnover rate of each Portfolio in prior fiscal
years, see "Supplementary Data" in the financial statements contained in the
annual report attached hereto.
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 take
place within a specified number of days after the date of a Portfolio's
commitment and are subject to certain conditions such as the issuance of
satisfactory legal opinions. Each 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 a Portfolio to buy such securities on a
settlement date that could be several months or several years in the future.
Each 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 a Portfolio enters into the
purchase commitment. When a 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 a 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 a 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
Each 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. Each Portfolio would anticipate using these obligations as cash
equivalents pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Longer term fixed-rate bonds may give the holder a right to
request redemption at certain times (often annually after the lapse of an
intermediate term). These bonds are more defensive than conventional long term
bonds (protecting to some degree against a rise in interest rates) while
providing greater opportunity than comparable intermediate term bonds, because
the Portfolio may retain the bond if interest rates decline. By acquiring these
kinds of obligations a Portfolio obtains the contractual right to require the
issuer of the security or some other person (other than a broker or dealer) to
purchase the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement with the seller or some
other person. Because this right is assignable with the security, which is
readily marketable and valued in the customary manner, the Portfolio will not
assign any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
Each 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. Each
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 a Portfolio or that selling institutions will be willing to permit
a 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. A Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put or demand features may not qualify as tax-exempt interest.
SECURITIES LENDING
Each Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. A 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. A Portfolio would not have the right to vote any
securities having voting rights during the existence of the loan, but would call
the loan in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks of
delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Portfolio's management to be of good
standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type, net of
administrative expenses and any finders' fees, justifies the attendant risk.
Distributions by a Fund of any income realized by a 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 a Portfolio's total assets. Each 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 a Portfolio (or of securities that a Portfolio expects to
purchase). To hedge against changes in rates, a 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 a
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.
Each 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. Each Portfolio will engage in transactions in
futures and related options contracts only to the extent such transactions are
consistent with the requirements of the Code for maintaining qualification of a
Fund as a regulated investment company for federal income tax purposes (see
"Taxes").
ASSET COVERAGE REQUIREMENTS
Transactions involving when-issued securities or futures contracts and
options (other than options that the Portfolio has purchased) expose the
Portfolio to an obligation to another party. A Portfolio will not enter into any
such transactions unless it owns either (1) an offsetting ("covered") position
in securities or other options or futures contracts, or (2) cash or liquid
securities (such as readily marketable obligations and money market instruments)
with a value sufficient at all times to cover its potential obligations not
covered as provided in (1) above. Each Portfolio will comply with Commission
guidelines regarding cover for these instruments and, if the guidelines so
require, set aside cash or liquid securities in a segregated account with its
custodian in the prescribed amount. The securities in the segregated account
will be marked to market daily.
Assets used as cover or held in a segregated account maintained by the
custodian cannot be sold while the position requiring coverage or segregation is
outstanding unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of a Portfolio's assets to segregated accounts
or to cover could impede portfolio management or a Portfolio's ability to meet
redemption requests or other current obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions of each Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of a Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of a 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
a Fund. Accordingly, each Fund may not:
(1) Borrow money or issue senior securities except as permitted by the 1940
Act;
(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.
Each Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by each Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of a Portfolio.
The Funds and the Portfolios have adopted the following investment policies
which may be changed by the Trust with respect to a Fund without approval by
that Fund's shareholders or with respect to the Portfolio without approval of a
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; (c) invest more
than 15% of its net assets in investments which are not readily marketable,
including restricted securities and repurchase agreements maturing in more than
seven days. Restricted securities for the purposes of this limitation do not
include securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 and commercial paper issued pursuant to Section 4(2) of
said Act that the Board of Trustees of the Trust or the Portfolio, or its
delegate, determines to be liquid; or (d) purchase or retain in its portfolio
any securities issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Trustee of the Trust or the Portfolio or is a
member, officer, director or trustee of any investment adviser of the Trust or
the Portfolio, if after the purchase of the securities of such issuer by the
Fund or the Portfolio one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities or both (all taken at market value) of
such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value).
For purposes of a Portfolio's investment restrictions, the determination of
the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease resulting
from a change in values, assets or other circumstances, or any subsequent rating
change below investment grade made by a rating service, will not compel the Fund
or the Portfolio, as the case may be, to dispose of such security or other
asset. Where applicable and notwithstanding the foregoing, under normal market
conditions the Fund and the Portfolio must take actions necessary to comply with
the policy of investing at least 65% of total assets in a particular State.
Moreover, the Fund and Portfolio must always be in compliance with the borrowing
policies set forth above.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolios 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 Investment Adviser, 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 or
the Portfolio, as defined in the 1940 Act by virtue of their affiliation with
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIOS
DONALD R. DWIGHT (66), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company); Chairman of the Board of Newspapers of New England, Inc. Director
or Trustee of various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (55), Vice President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and a
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (62), 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 02163
NORTON H. REAMER (62), Trustee
President and Director, United Asset Management Corporation (a holding company
owning institutional investment management firms); Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (70), Trustee
Formerly Director of 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 (67), 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 PORTFOLIOS
THOMAS J. FETTER (54), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected President of
the Trust and the Portfolio on December 13, 1993.
ROBERT B. MACINTOSH (40), Vice President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice
President of the Trust on March 22, 1993.
JAMES L. O'CONNOR (52), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
ALAN R. DYNNER (56), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance, EVC and EV since
November 1, 1996. Previously, he was a Partner of the law firm of Kirkpatrick
& Lockhart LLP, New York and Washington, D.C., and was Executive Vice
President of Neuberger & Berman Management, Inc., a mutual fund management
company. Officer of various investment companies managed by Eaton Vance or
BMR. Mr. Dynner was elected Secretary on June 23, 1997.
JANET E. SANDERS (61), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (34), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor, The
Boston Company (1991-1993). Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Murphy was elected Assistant Secretary on March 27,
1995.
ERIC G. WOODBURY (40), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
In addition, Nicole Anderes (36) is a Vice President of the New York and
Rhode Island Portfolios. Ms. Anderes has served as a Vice President of the
Portfolios since June 19, 1995. Ms. Anderes has been a Vice President of BMR
and Eaton Vance since 1994. Prior to joining Eaton Vance, Ms. Anderes was Vice
President and portfolio manager, Lazard Freres Asset Management. Timothy T.
Browse (38), Vice President of Eaton Vance and BMR, is a Vice President of the
West Virginia Portfolio. Mr. Browse has served as a Vice President of the West
Virginia Portfolio since June 19, 1995. Cynthia J. Clemson (34), Vice
President of Eaton Vance and BMR, is a Vice President of the California and
Mississippi Portfolios. Ms. Clemson has served as a Vice President of the
Portfolios since June 19, 1995. Ms. Anderes, Ms. Clemson and Mr. Browse are
officers of various investment companies managed by Eaton Vance or BMR.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolios. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Funds and the Portfolios, including
investment advisory (Portfolio only), administrative, transfer agency, custodial
and fund accounting and distribution services, and (ii) all other matters in
which Eaton Vance or its affiliates has any actual or potential conflict of
interest with the Funds, the Portfolios or investors therein.
The Nominating Committee of the Board of Trustees of the Trust and the
Portfolios is comprised of four Trustees who are not "interested persons" as
that term is defined under the 1940 Act ("noninterested Trustees"). The
Committee has four-year staggered terms, with one member rotating off the
Committee to be replaced by another noninterested Trustee. The purpose of the
Committee is to recommend to the Board nominees for the position of
noninterested Trustee and to assure that at least a majority of the Board of
Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolios. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing matters relative
to trading and brokerage policies and practices, accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the custodian, transfer agent and dividend disbursing
agent of the Trust and of the Portfolios.
Trustees of the Portfolios 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
"Trustees" Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by a 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 Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolios' assets, liabilities, and net
income per share, and will not obligate a Portfolio to retain the services of
any Trustee or obligate a Portfolio to pay any particular level of compensation
to the Trustee. Neither the Portfolios nor the Trust has a retirement plan for
its Trustees.
The fees and expenses of those Trustees of the Trust and of the Portfolios
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Funds (and the other series of the Trust) and the Portfolios,
respectively. (The Trustees of the Trust and the Portfolios who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolios). During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Trust, the Portfolio and the funds in the
Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
SAMUEL L.
DONALD R. HAYES, III NORTON H. JOHN L. JACK L.
SOURCE OF COMPENSATION DWIGHT(3) (4) REAMER THORNDIKE TREYNOR
- ---------------------- --------- ---------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Trust(2) $ 14,739 $ 13,514 $ 13,412 $ 13,633 $ 14,616
California Portfolio 3,530 3,537 3,549 3,599 3,685
Florida Portfolio 4,155 4,103 4,108 4,173 4,301
Massachusetts Portfolio 3,118 3,162 3,087 3,218 3,278
Mississippi Portfolio 344 313 310 317 339
New York Portfolio 4,155 4,103 4,018 4,173 4,301
Ohio Portfolio 3,224 3,257 3,181 3,313 3,380
Rhode Island Portfolio 446 313 310 317 339
West Virginia Portfolio 344 313 310 317 339
Trust and Fund Complex $142,500(5) $153,750(6) $142,500 $147,500 $147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies or series thereof.
(2) The Trust consisted of 60 Funds as of July 31, 1996.
(3) Mr. Dwight received deferred compensation from each Portfolio as follows: California - $1,376; Florida - $1,635;
Massachusetts - $1,214; Mississippi - $135; New York - $1,635; Ohio - $1,266; Rhode Island - $135; and West Virginia - $135.
(4) Mr. Hayes received deferred compensation from each Portfolio as follows: California - $1,236; Florida - $1,361;
Massachusetts - $1,111; Mississippi - $104; New York - $1,361; Ohio - $1,111; Rhode Island - $104; and West Virginia - $104.
(5) Includes $42,500 of deferred compensation. (6) Includes $37,500 of deferred compensation.
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR
Each Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement, which is substantially the same for each Portfolio. BMR or
Eaton Vance acts as investment adviser to investment companies and various
individual and institutional clients with combined assets under management of
approximately $20 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to a family of mutual funds,
and individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Mumbai. Together Eaton Vance and Lloyd George manage over
$21 billion in assets. Eaton Vance mutual funds are distributed by the Principal
Underwriter both within the United States and offshore.
The Principal Underwriter believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short-and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 32 long-term state portfolios, 5
national portfolios and 9 limited maturity portfolios, which serve as investment
vehicles for over 100 mutual funds with varying pricing options. A staff of 29
(including 7 portfolio managers and 9 credit specialists) 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 $7.6 billion. The
investment philosophy of the municipal investment group is to: seek value by
avoiding unnecessary credit risk; build portfolios one security at a time; and
take a long-term approach to managing market risk. Over the long-term, the group
seeks to maximize tax-free income by keeping portfolios fully invested (rather
than trying to "time the market" for short-term results) and reduce potential
capital losses due to poor credit quality. Diligent and continuing research and
analysis are a critical component of the municipal investment group's investment
philosophy and long-term strategy.
The following persons manage one or more of the Eaton Vance municipal
portfolios. For the identity of a Portfolio's portfolio manager, see the
Prospectus.
William H. Ahern, Jr. is a Vice President of Eaton Vance and BMR. Mr.
Ahern graduated from Boston College in 1981 with a B.A. in Economics, and
received his M.B.A. degree in Finance from Babson College in 1987. Mr. Ahern
is a member of the Boston Security Analysts Society.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and BMR, and the
portfolio manager of single-state, tax-exempt funds in six states: Hawaii,
Louisiana, Massachusetts, Minnesota, New Jersey and North Carolina. He also
serves as economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
BMR manages the investments and affairs of each Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolios 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. Each 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. A Portfolio is responsible for all expenses
not expressly stated to be payable by BMR under its Investment Advisory
Agreement, including, without implied limitation, (i) expenses of maintaining
the Portfolio and continuing its existence, (ii) registration of the Portfolio
under the 1940 Act, (iii) commissions, fees and other expenses connected with
the acquisition, holding and disposition of securities and other investments,
(iv) auditing, accounting and legal expenses, (v) taxes and interest, (vi)
governmental fees, (vii) expenses of issue, sale and redemption of interests in
the Portfolio, (viii) expenses of registering and qualifying the Portfolio and
interests in the Portfolio under federal and state securities laws and of
preparing and printing registration statements or other offering statements or
memoranda for such purposes and for distributing the same to investors, and fees
and expenses of registering and maintaining registrations of the Portfolio and
of the Portfolio's placement agent as broker-dealer or agent under state
securities laws, (ix) expenses of reports and notices to investors and of
meetings of investors and proxy solicitations therefor, (x) expenses of reports
to governmental officers and commissions, (xi) insurance expenses, (xii)
association membership dues, (xiii) fees, expenses and disbursements of
custodians and subcustodians for all services to the Portfolio (including
without limitation safekeeping of funds, securities and other investments,
keeping of books, accounts and records, and determination of net asset values,
book capital account balances and tax capital account balances), (xiv) fees,
expenses and disbursements of transfer agents, dividend disbursing agents,
investor servicing agents and registrars for all services to the Portfolio, (xv)
expenses for servicing the accounts of investors, (xvi) any direct charges to
investors approved by the Trustees of the Portfolio, (xvii) compensation and
expenses of Trustees of the Portfolio who are not members of BMR's organization,
and (xviii) such non-recurring items as may arise, including expenses incurred
in connection with litigation, proceedings and claims and any legal obligation
of the Portfolio to indemnify its Trustees, officers and investors with respect
thereto, to the extent not covered by insurance.
For a description of the compensation that each Portfolio pays BMR, see the
Prospectus. The following table sets forth the net assets of each Portfolio and
the advisory fees earned during the fiscal years ended July 31, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
ADVISORY FEE FOR FISCAL YEARS ENDED
NET ASSETS -----------------------------------
PORTFOLIO AT 9/30/96 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
- --------- ---------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
California $370,590,195 $1,942,811 $2,121,262 $1,141,013*
Florida 624,374,001 3,123,150 3,433,489 3,644,215
Massachusetts 281,129,236 1,343,099 1,383,407 1,397,963
Mississippi(1) 25,279,561 55,976 65,442 45,841
New York 604,529,520 2,932,032 3,031,508 3,073,565
Ohio 292,670,816 1,404,951 1,463,895 1,454,208
Rhode Island(2) 42,167,179 108,803 100,476 63,773
West Virginia(3) 39,500,791 95,361 98,003 82,158
- ----------
* For the period April 1, 1994 to September 30, 1994. For the period May 3, 1994 to March 31, 1994 the advisory fee was
$2,149,273.
(1) To enhance the net income of the Mississippi Portfolio, BMR made a reduction of its advisory fee for the fiscal years ended
September 30, 1996, 1995 and 1994 in the amount of $27,990, $36,759 and $45,841, respectively. For the fiscal year ended
September 30, 1994, BMR was allocated a portion of the expenses related to the operation of the Portfolio in the amount of
$19,780.
(2) To enhance the net income of the Rhode Island Portfolio, BMR made a reduction of its advisory fee for the fiscal years ended
September 30, 1996, 1995 and 1994 in the amount $53,561, $50,721 and $63,773, respectively.
(3) To enhance the net income of the West Virginia Portfolio, BMR made a reduction of its advisory fee for the fiscal years
ended September 30, 1995 and 1994 in the amount $32,526, $82,158, respectively.
</TABLE>
Each Investment Advisory Agreement with BMR continues in effect from year to
year so long as such continuance is approved at least annually (i) by the vote
of a majority of the noninterested Trustees of the Portfolio 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. Each 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. Each Agreement provides that BMR may render
services to others. Each 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 each
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the
Trust, Eaton Vance has been engaged to administer the Funds' affairs, subject to
the supervision of the Trustees of the Trust, and shall furnish for the use of
the Funds office space and all necessary office facilities, equipment and
personnel for administering the affairs of the Funds.
Each 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 the Trust's registration under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and any legal obligation of the Trust to indemnify its Trustees and
officers with respect thereto, to the extent not covered by insurance.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, M. Dozier Gardner, James B. Hawkes and
Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons and
John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman, Mr. Gardner is
vice chairman and Mr. Hawkes is president and chief executive officer of EVC,
BMR, Eaton Vance and EV. All of the issued and outstanding shares of Eaton
Vance and EV are owned by EVC. All of the issued and outstanding shares of BMR
are owned by Eaton Vance. All shares of the outstanding Voting Common Stock of
EVC are deposited in a Voting Trust which expires on December 31, 1997, the
Voting Trustees of which are Messrs. Clay, Gardner, Hawkes and Rowland and
Thomas E. Faust, Jr. The Voting Trustees have unrestricted voting rights for
the election of Directors of EVC. All of the outstanding voting trust receipts
issued under said Voting Trust are owned by certain of the officers of BMR and
Eaton Vance who are also officers or officers and Directors of EVC and EV. As
of August 30, 1997, Messrs. Clay, Gardner and Hawkes each owned 24% of such
voting trust receipts, and Messrs. Rowland and Faust owned 15% and 13%,
respectively, of such voting trust receipts. Messrs. Hawkes and Dynner are
officers or Trustees of the Trust and the Portfolios and are members of the
EVC, BMR, Eaton Vance and EV organizations. Messrs. Ahern, Browse, Fetter,
MacIntosh, Metzold, Murphy, O'Connor and Woodbury and Ms. Anderes, Ms. Clemson
and Ms. Sanders, are officers of the Trust and/or the Portfolios and are also
members of the BMR, Eaton Vance and EV organizations.
Eaton Vance owns all the stock of Northeast Properties, Inc., which is
engaged in real estate investment. EVC owns all the stock of Fulcrum Management,
Inc., and MinVen Inc., which are engaged in precious metal mining venture
investment and management. EVC also owns 22% of the Class A shares of Lloyd
George Management (B.V.I.) Limited, a registered investment adviser. EVC, BMR,
Eaton Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, IBT. It is Eaton Vance's opinion that the terms and conditions of
such transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund or the Portfolio and such
banks.
CUSTODIAN
IBT acts as custodian for the Trust and the Portfolios. IBT has the custody
of all cash and securities representing a Fund's interest in a Portfolio, has
custody of each Portfolio's assets, maintains the general ledger of each
Portfolio and each Fund and computes the daily net asset value of interests in
each 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 Portfolios' investments, receives and
disburses all funds and performs various other ministerial duties upon receipt
of proper instructions from the Trust and the Portfolios. IBT charges fees which
are competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of Fund and
Portfolio net assets and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then reduced by a
credit for cash balances of the particular investment company at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
particular investment company's average daily collected balances for the week.
Landon T. Clay, a Director of EVC and an officer, Trustee or Director of other
entities in the Eaton Vance organization, owns approximately 13% of the voting
stock of Investors Financial Services Corp., the holding company parent of IBT.
Management believes that such ownership does not create an affiliated person
relationship between the Trust or a Portfolio and IBT under the 1940 Act.
IBT also provides services in connection with the preparation of shareholder
reports and the electronic filing of such reports with the Commission, for which
it receives a separate fee.
SERVICES FOR ACCUMULATION -- CLASS A SHARES
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 Class A shares and shares of other funds exchangeable
for Class A shares and listed under "The Eaton Vance Exchange Privilege" in the
Prospectus 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 Shares" in the
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 Class A shares is calculated by taking the
dollar amount of the current purchase and adding it to the value (calculated at
the maximum current offering price) of the shares the shareholder owns in his or
her account(s) in the Fund, and shares of other funds exchangeable for Class A
shares and listed under "The Eaton Vance Exchange Privilege" in the Prospectus.
The sales charge on the shares being purchased will then be at the rate
applicable to the aggregate. For sales charges on quantity purchases, see "How
to Buy Shares" in the Prospectus. Shares purchased (i) by an individual, his or
her spouse and their children under the age of twenty-one, and (ii) by a
trustee, guardian or other fiduciary of a single trust estate or a single
fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for the Right of Accumulation and if qualifying, the
applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her Authorized Firm must provide the Principal Underwriter
(in the case of a purchase made through an Authorized Firm) or the Transfer
Agent (in the case of an investment made by mail) with sufficient information to
permit verification that the purchase order qualifies for the accumulation
privilege. Confirmation of the order is subject to such verification. The Right
of Accumulation privilege may be amended or terminated at any time as to
purchases occurring thereafter.
SERVICE FOR WITHDRAWAL
The 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 Prospectus) based upon the value
of the shares held. The checks will be drawn from share redemptions and hence,
although they are a return of principal, may require the recognition of taxable
gain or loss. Income dividends and capital gains distributions in connection
with withdrawal plan accounts will be credited at net asset value as of the
record date for each distribution. Continued withdrawals in excess of current
income will eventually use up principal, particularly in a period of declining
market prices. 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 each Portfolio is 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 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 or at the
direction of the Trustees of the Portfolio. The Fund and the Portfolio will be
closed for business and will not price their respective shares or interests on
the following business holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in a Portfolio, including a Fund, may add to or reduce its
investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage, determined on the prior Portfolio Business Day, which
represented that investor's share of the aggregate interests in the Portfolio on
such prior day. Any additions or withdrawals for the current Portfolio Business
Day will then be recorded. Each investor's percentage of the aggregate interest
in the Portfolio will then be recomputed as a percentage equal to a fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the Portfolio Valuation Time on the prior Portfolio Business Day
plus or minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio on the current Portfolio
Business Day and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the Portfolio Valuation Time on the prior Portfolio
Business Day plus or minus, as the case may be, the amount of the net additions
to or withdrawals from the aggregate investment in the Portfolio on the current
Portfolio Business Day by all investors in the Portfolio. The percentage so
determined will then be applied to determine the value of the investor's
interest in the Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined separately for each Class of a
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the result. The calculation assumes (i) that all distributions are
reinvested at net asset value on the reinvestment dates during the period, (ii)
the deduction of the maximum sales charge from the initial $1,000 purchase order
for Class A shares, (iii) a complete redemption of the investment and, (iv) the
deduction of any CDSC at the end of the period. For further information
concerning the total return of the Classes of a Fund, see Appendix A and
Appendix B.
Yield is computed separately for each Class of a Fund 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 (including; the
maximum initial sales charge for Class A shares) 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 and Class
expenses for the period with the resulting number being divided by the average
daily number of Class shares outstanding and entitled to receive distributions
during the period. This yield figure does not reflect the deduction of any CDSCs
which (if applicable) are imposed upon certain redemptions at the rates set
forth under "How to Redeem Shares" in the Prospectus. Yield calculations assume
the current maximum initial sales charge for Class A shares set forth under "How
to Buy Shares" in the Prospectus. (Actual yield may be affected by variations in
sales charges on investments). A taxable-equivalent yield is computed by using
the tax-exempt yield and dividing by 1 minus a stated rate. For the yield and
taxable-equivalent yield of the Classes of a Fund, see Appendix A and Appendix
B.
A 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. A Fund's
performance may differ from that of other investors in its corresponding
Portfolio, including other investment companies.
The Trust (or Principal Underwriter) 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, Morningstar, Inc., The Bond Buyer, the Federal Reserve Board
or The Wall Street Journal). The Trust may also refer in investor publications
to Tax Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to
help illustrate the value of tax free investing, as well as other tax-related
information. Information, charts and illustrations showing the effects of
inflation and taxes (including their effects on the dollar and the return on
various investments) and compounding earnings may also be included in
advertisements and materials furnished to present and prospective investors.
Information about portfolio allocation and holdings of a 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 a Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. Such information may also compare the tax equivalent
yield (or value) of the Fund to the after-tax yield (or value) of such other
investment vehicles. Such information may be in the form of hypothetical
illustrations. A bank certificate of deposit, unlike the Fund's shares, pays a
fixed rate of interest and entitles the depositor to receive the face amount of
the certificate of deposit at maturity. A bank money market deposit account is a
form of savings account which pays a variable rate of interest. Unlike the
Fund's shares, bank certificates of deposit and bank money market deposit
accounts are insured by the Federal Deposit Insurance Corporation. A money
market mutual fund is designed to maintain a constant value of $1.00 per share
and, thus, a money market fund's shares are subject to less price fluctuation
than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
- cost associated with aging parents;
- funding a college education (including its actual and estimated
cost);
- health care expenses (including actual and projected expenses);
- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in municipal bond
funds. Such information may describe the following advantages of investing in a
municipal bond mutual fund versus individual municipal bonds: regular monthly
income; free reinvestment of distributions; potential for increased income; bond
diversification; liquidity; low-cost easy access; and active management and in
depth credit analysis by investment professionals. In addition, by investing in
a municipal bond fund instead of individual bonds, an investor can avoid dealing
with the complexities of the municipal bond market, while benefitting from the
market access and lower transactions costs enjoyed by municipal bond funds.
The Trust (or Principal Underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to investors
or prospective investors. Such material or advertisements may also provide
information on the use of investment professionals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal income
tax purposes. Each Fund has elected to be treated and intends to qualify each
year, as a regulated investment company ("RIC") under the Code. Accordingly,
each Fund intends to satisfy certain requirements relating to sources of its
income and diversification of its assets and to distribute substantially all of
its ordinary income (including tax-exempt income) and net income (after
reduction by any available capital loss carryforwards) in accordance with the
timing requirements imposed by the Code, so as to maintain its RIC status and to
avoid paying any federal income or excise tax. Each Fund so qualified for its
fiscal year ended September 30, 1996. Because each Fund invests its assets in a
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements in order for the Fund to also satisfy these
requirements. Each Portfolio will allocate at least annually among its
investors, including a 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, each Fund (i) will be deemed to own its proportionate share of each of
the assets of the corresponding Portfolio and (ii) will be entitled to the gross
income of that Portfolio attributable to such share.
In order to avoid incurring a federal excise tax obligation, the Code
requires that each 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 its capital gain net
income (which is 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 (i) any available capital loss
carryforwards and (ii) 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 a Fund qualifies as a RIC
and a Portfolio is treated as a partnership for Massachusetts and federal tax
purposes, neither the Fund nor the Portfolio should be liable for any income,
corporate excise or franchise tax in the Commonwealth of Massachusetts.
A 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 relevant Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund, the
Portfolio may be required to liquidate securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio to make distributions to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for a Portfolio (and, hence, for the relevant Fund) to the extent that
the issuers of these securities default on their obligations pertaining thereto.
The Code is not entirely clear regarding the federal income tax consequences of
a Fund's taking certain positions in connection with ownership of such
distressed securities. For example, the Code is unclear regarding: (i) when a
Portfolio may cease to accrue interest, original issue discount, or market
discount; (ii) when and to what extent deductions may be taken for bad debts or
worthless securities; (iii) how payments received on obligations in default
should be allocated between principal and income; and (iv) whether exchanges of
debt obligations in a workout context are taxable.
Distributions by a 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 a Fund to be entitled to pay the tax-exempt interest income allocated to it
by its corresponding Portfolio as exempt-interest dividends to its shareholders,
the Fund must and intends to satisfy certain requirements, including the
requirement that, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consists of obligations the interest on which
is exempt from regular federal income tax under Code Section 103(a). For
purposes of applying this 50% requirement, the Fund will be deemed to own its
proportionate share of each of the assets of the Portfolio, and the Portfolio
currently intends to invest its assets in a manner such that the Fund can meet
this 50% requirement. Interest on certain municipal obligations is treated as a
tax preference item for purposes of the AMT. Shareholders of each 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 a
Portfolio and the value of the securities held by it may be affected.
In the course of managing its investments, a 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. A Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of discount with respect to certain stripped municipal obligations or
their stripped coupons, and certain realized gains or income attributable to
accrued market discount. Any distributions by a Fund of its share of such
capital gains (after reduction by any capital loss carryforwards) or taxable
income would be taxable to shareholders of the Fund. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to the
tax exempt interest earned by the corresponding Portfolio and allocated to the
Fund. Certain distributions of a Fund, if declared in October, November or
December and paid the following January, may be taxed to shareholders as if
received on December 31 of the year in which they are declared.
A 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 a
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 a 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 periods of Portfolio securities,
and conversion of short-term capital losses into long-term capital losses. A
Portfolio may have to limit its activities in options and futures contracts in
order to enable the relevant Fund to maintain its RIC status.
Any loss realized upon the sale or exchange of shares of a Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net
long-term capital gains with respect to such shares. In addition, a loss
realized on a redemption or other disposition of Fund shares may be disallowed
to the extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by a Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service (the
"IRS") as well as shareholders with respect to whom the Fund has received
certain information from the IRS or a broker, may be subject to "backup"
withholding of federal income tax arising from the Fund's taxable dividends and
other distributions as well as the proceeds of redemption transactions
(including repurchases and exchanges), at a rate of 31%. An individual's TIN is
generally his or her social security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on a 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 convention. Distributions from the
excess of a 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 arise if: (i) the
shareholder is engaged in a trade or business in the United States; (ii) the
shareholder is present in the United States for a sufficient period of time
during a taxable year to be treated as a U.S. resident, (generally 180 days or
more); or (iii) the shareholder fails to provide any required certifications
regarding its 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 a Fund.
OHIO TAXES. In the opinion of special tax counsel to the Fund, Squire,
Sanders & Dempsey L.L.P., under Ohio law, provided that the Ohio 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 Ohio 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 Ohio 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 Ohio Fund will generally not be exempt from the Ohio
personal income tax or municipal or school district income taxes in Ohio.
Provided the Ohio Fund qualifies as an Ohio fund, (1) distributions from the
Ohio 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 Ohio 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.
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, and, where applicable, foreign tax
consequences of investing in a Fund.
PRINCIPAL UNDERWRITER
CLASS A SHARES. Class A shares of each Fund may be continuously purchased at
the public offering price through Authorized Firms which have agreements with
the Principal Underwriter. The Trust reserves the right to suspend or limit the
offering of its shares to the public at any time. 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 Prospectus (see
"How to Buy Shares"). Such table is applicable to purchases of a Fund alone or
in combination with purchases of certain 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 Class A shares pursuant to a written
Statement of Intention; or (2) purchases of Class A shares 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 Trust may issue
Class A 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 Class. Normally no
sales charges will be paid in connection with an exchange of Class A shares for
the assets of such investment company. Class A shares may be sold at net asset
value to any officer, director, trustee, general partner or employee of the
Trust, a Portfolio or any investment company for which Eaton Vance or BMR acts
as investment adviser, any investment advisory, agency, custodial or trust
account managed or administered by Eaton Vance or by any parent, subsidiary or
other affiliate of Eaton Vance, or any officer, director or employee of any
parent, subsidiary or other affiliate of Eaton Vance. The terms "officer,"
"director," "trustee," "general partner" or "employee" as used in this paragraph
include any such person's spouse and minor children, and also retired officers,
directors, trustees, general partners and employees and their spouses and minor
children. Class A shares 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 Principal Underwriter acts as principal in selling Class A shares under
a Distribution Agreement with the Trust. 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 Class A shares under
federal and state securities laws are borne by the Class. The Distribution
Agreement is renewable annually by the Board of Trustees of the Trust (including
a majority of the noninterested Trustees) may be terminated on six months'
notice by either party and is automatically terminated upon assignment. The
Principal Underwriter distributes Class A 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. 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.
The Trust 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 Trust will exceed
the amounts paid therefor.
CLASS B SHARES. Under a Distribution Agreement, the Principal Underwriter
acts as principal in selling Class B shares. The expenses of printing copies of
prospectuses used to offer shares to Authorized 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 Class B shares under federal and state
securities laws are borne by the Class. In addition, each Class B makes payments
to the Principal Underwriter pursuant to a Distribution Plan as described in the
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 the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the 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
Class B shares or on six months' notice by the Principal Underwriter and is
automatically terminated upon assignment. The Principal Underwriter distributes
Class B shares on a "best efforts" basis under which it is required to take and
pay for only such shares as may be sold. The Trust 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 Trust will exceed the amounts paid therefor. For the amount paid
by the Trust to the Principal Underwriter for acting as repurchase agent, see
Appendix B.
SERVICE PLAN -- CLASS A SHARES
The Trust on behalf of each of its Class A shares has adopted 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. (the "NASD").
(Management believes service fee payments are not distribution expenses governed
by Rule 12b-1 under the 1940 Act, but has chosen to have the Plan approved as if
that Rule were applicable.) The following supplements the discussion of the Plan
contained in the Prospectus.
The Plan continues in effect from year to year, for so long as such
continuance is approved by a vote of both a majority of (i) the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the "Plan 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 Plan Trustees or by a vote of a majority of the outstanding Class A
shares of a Fund. The Plan has been approved by the Board of Trustees of the
Trust, including the Plan Trustees.
Under the Plan, an officer 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 affected shareholders of Class
A shares, and all material amendments of the Plan must also be approved by the
Trustees of the Trust in the manner described above. 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 each Fund and its
Class A shareholders.
DISTRIBUTION PLAN -- CLASS B SHARES
The Trust has adopted a Distribution Plan (the "Plan") on behalf of its
Class B shares designed to meet the requirements of Rule 12b-1 under the 1940
Act and the sales charge rule of the NASD. The purpose of the Plan is to
compensate the Principal Underwriter for its distribution services and
facilities provided with respect to Class B shares.
The Plan provides that each Fund will pay sales commissions and distribution
fees to the Principal Underwriter only after and as a result of the sale of
Class B shares of the Fund. On each sale of Fund shares (excluding reinvestment
of distributions) the Fund will pay the Principal Underwriter amounts
representing (i) sales commissions equal to 5% of the amount received by the
Fund for each share sold and (ii) distribution fees calculated by applying the
rate of 1% over the prime rate then reported in The Wall Street Journal to the
outstanding balance of uncovered distribution charges (as described below) of
the Principal Underwriter.
The 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 respective Class and will accordingly reduce
the Class'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 a Class's net assets on such day. The level of a Class's net
assets changes each day and depends upon the amount of sales and redemptions of
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Class, Fund and the Portfolio accrued and allocated to the Fund
and Class 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 Trust does not accrue possible future payments as a
liability of a Class or reduce a Class'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 Class will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding uncovered distribution charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Trust to the Principal Underwriter
whenever there exist uncovered distribution charges.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Trust to the Principal Underwriter and CDSCs theretofore
paid or payable to the Principal Underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding uncovered distribution
charges with respect to such day. The amount of outstanding uncovered
distribution charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of uncovered distribution charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of 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 shares upon which a
CDSC will be imposed, the level and timing of redemptions of shares upon which
no CDSC will be imposed (including redemptions of shares pursuant to the
exchange privilege which result in a reduction of uncovered distribution
charges), changes in the level of the net assets of the Class, and changes in
the interest rate used in the calculation of the distribution fee under the
Plan. Periods with a high level of sales of Class shares accompanied by a low
level of early redemptions of Class shares resulting in the imposition of CDSCs
will tend to increase the time during which there will exist uncovered
distribution charges of the Principal Underwriter.
Currently, payments of sales commissions and distribution fees and of
service fees may equal 1% of a Class's average daily net assets per annum. For
actual payments made and the outstanding uncovered distribution charges of the
Principal Underwriter, see Appendix B. The Trust 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 shares and through the
amounts paid to the Principal Underwriter, including CDSCs, pursuant to the
Plan. The Eaton Vance organization may be considered to have realized a profit
under the Plan if at any point in time the aggregate amounts theretofore
received by the Principal Underwriter pursuant to the Plan and from CDSCs have
exceeded the total expenses theretofore incurred by such organization in
distributing Class B 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 Trust.
The Plan continues in effect from year to year so long as such continuance
is approved at least annually by the vote of both a majority of (i) the
noninterested Trustees of the Trust who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to the Plan (the
"Rule 12b-1 Trustees") and (ii) all of the Trustees then in office, and the
Distribution Agreement contains a similar provision. The Plan and Distribution
Agreement may be terminated at any time by vote of a majority of the Rule 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
applicable Class. The Plan requires quarterly Trustee review of 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 affected
Class and the Trustees. So long as the Plan is in effect, the selection and
nomination of the noninterested Trustees shall be committed to the discretion of
such Trustees.
The Trustees of the Trust believe that the Plan will be a significant factor
in the expected growth of each Fund's assets, and will result in increased
investment flexibility and advantages which have benefitted and will continue to
benefit the Fund and its Class B 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 Class B 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 of the Trust have determined that in their
judgment there is a reasonable likelihood that the Plan will benefit the Fund
and its Class B 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 each 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 each 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
Portfolios 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 Portfolios 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 each 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 Portfolios and BMR's
other clients for providing brokerage and research services to BMR.
The following table shows brokerage commission paid by each Portfolio for
each of the fiscal years ended September 30, 1996, 1995 and 1994:
PORTFOLIO 9/30/96 9/30/95 9/30/94
- --------- ------- ------- -------
California .......... $ 5,115 $ -0- $ -0-
Florida ............. 21,746 -0- -0-
Massachusetts ....... 37,917 -0- -0-
Mississippi ......... 4,552 -0- -0-
New York ............ 94,192 -0- -0-
Ohio ................ -0- -0- -0-
Rhode Island ........ 8,186 -0- -0-
West Virginia ....... 10,423 -0- -0-
All of such portfolio security transactions were directed to firms which
provided some research services to BMR or its affiliates (although many of such
firms may have been selected in any particular transaction primarily because of
their execution capabilities), and the amounts of such transactions for the
fiscal year ended September 30, 1996 were as follows: California - $503,688,461;
Florida - $1,978,955,352; Massachusetts - $305,166,481; Mississippi -
$40,485,462; New York - $703,948,362; Rhode Island - $63,027,171; and West
Virginia - $75,888,648.
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 a 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 compensation was reasonable in relation to
the value of the brokerage and research services provided. This determination
may be made either on the basis of 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 Portfolios' 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 each
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any broker-dealer firm with whom portfolio orders may
be placed the fact that such firm has sold or is selling shares of the Funds or
of other investment companies sponsored by BMR or Eaton Vance. This policy is
not inconsistent with a rule of the NASD, which rule provides that no firm which
is a member of the NASD shall favor or disfavor the distribution of shares of
any particular investment company or group of investment companies on the basis
of brokerage commissions received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolios may also
be appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by a Portfolio and one or
more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may be
instances where a Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order may
not be allocated on a pro rata basis where, for example: (i) consideration is
given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies 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 Portfolios that the benefits from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" or "EV" in the Fund's name and may use the words "Eaton
Vance" or "EV" in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes (such as reclassifying series of classes of shares or restructuring the
Trust) 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.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such liability
has been imposed. The Trust's Declaration of Trust contains an express
disclaimer of liability on the part of the Fund shareholders and the Trust's
By-laws provide that the Trust shall assume the defense on behalf of any Fund
shareholders. The Declaration of Trust also contains provisions limiting the
liability of a series or class to that series or class. Moreover, the Trust's
By-laws also provide for indemnification out of the property of the Fund of any
shareholder held personally liable solely by reason of being or having been a
shareholder for all loss or expense arising from such liability. The assets of
the Fund are readily marketable and will ordinarily substantially exceed its
liabilities. In light of the nature of the Fund's business and the nature of its
assets, management believes that the possibility of the Fund's liability
exceeding its assets, and therefore the shareholder's risk of personal
liability, is extremely remote.
In accordance with the Declaration of Trust of each 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 of the
Portfolio 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 each 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.
Each Portfolio's Declaration of Trust provides that a 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.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for federal income tax purposes.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
Each Fund changed its name from Eaton Vance [state name] Tax Free Fund to EV
Marathon [state name] Tax Free Fund on December 21, 1993 for the Mississippi,
Rhode Island and West Virginia Funds and on February 1, 1994 for the California,
Florida, Massachusetts, New York, and Ohio Funds and then to EV Marathon [state
name] Municipals Fund on December 8, 1995. Each Fund was reorganized into
multiple classes and changed its name to Eaton Vance [state name] Municipals
Fund on October 1, 1997. The operations of the Class B reflect the operations of
a Fund prior to October 1, 1997. Class A is a successor to the operations of a
separate series of the Trust.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Funds and the Portfolios,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Commission.
FINANCIAL STATEMENTS
The audited financial statements of and independent auditors' reports for
the Funds and the Portfolios, appear in the Funds' most recent annual report to
shareholders, the unaudited financial statements of the Funds and the Portfolios
appear in the Funds' most recent semiannual report to shareholders both of which
are incorporated by reference into this SAI. A copy of the Funds' semiannual and
annual report accompanies this SAI.
Registrant incorporates by reference the audited financial information for
the Funds and the Portfolios listed below for the fiscal year ended September
30, 1996, as previously filed electronically with the Commission:
EV Marathon California Municipals Fund California Municipals Portfolio
EV Marathon Florida Municipals Fund Florida Municipals Portfolio
EV Marathon Massachusetts Municipals Fund Massachusetts Municipals Portfolio
EV Marathon Mississippi Municipals Fund Mississippi Municipals Portfolio
EV Marathon New York Municipals Fund New York Municipals Portfolio
EV Marathon Ohio Municipals Fund Ohio Municipals Portfolio
EV Marathon Rhode Island Municipals Fund Rhode Island Municipals Portfolio
EV Marathon West Virginia Municipals Fund West Virginia Municipals Portfolio
(Accession No. 0000950135-96-005156)
Registrant incorporates by reference the unaudited financial information for
the Funds and the Portfolios listed below for the six months ended March 31,
1997, as previously filed electronically with the Commission:
EV Marathon California Municipals Fund California Municipals Portfolio
EV Marathon Florida Municipals Fund Florida Municipals Portfolio
EV Marathon Massachusetts Municipals Fund Massachusetts Municipals Portfolio
EV Marathon Mississippi Municipals Fund Mississippi Municipals Portfolio
EV Marathon New York Municipals Fund New York Municipals Portfolio
EV Marathon Ohio Municipals Fund Ohio Municipals Portfolio
EV Marathon Rhode Island Municipals Fund Rhode Island Municipals Portfolio
EV Marathon West Virginia Municipals Fund West Virginia Municipals Portfolio
(Accession No. 0000950109-97-004438)
<PAGE>
APPENDIX A: CLASS A SHARES
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return on
a hypothetical investment of $1,000 in a predecessor fund reorganized October 1,
1997 into Class A shares for the periods shown in each table. Total return for
Class A prior to October 1, 1997 reflects the total return of predecessors,
adjusted to reflect any applicable sales charge. Predecessor total return has
not been adjusted to reflect certain other expenses (such as distribution and/or
service fees). If such adjustments were made, the performance would be
different. The "Value of Initial Investment" reflects the deduction of the
maximum sales charge of 4.75%. 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. Information
presented with two asterisks (**) includes the effect of subsidizing expenses.
Returns would have been lower without subsidies.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT -- CALIFORNIA
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT --------------------------- ----------------------------
PERIOD* DATE INVESTMENT ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------ ------------- -------------
10 Years Ended
<S> <C> <C> <C> <C> <C> <C> <C>
3/31/97** 3/31/87 $952.64 $1,684.86 76.86% 5.87% 68.49% 5.36%
5 Years Ended
3/31/97** 3/31/92 $952.61 $1,309.77 37.49% 6.57% 30.98% 5.55%
1 Year Ended
3/31/97** 3/31/96 $952.07 $1,011.44 6.24% 6.24% 1.14% 1.14%
- ------------
*Predecessor Fund commenced operations May 27, 1994.
VALUE OF A $1,000 INVESTMENT -- FLORIDA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT --------------------------- ----------------------------
PERIOD* DATE INVESTMENT ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 8/28/90 $952.75 $1,533.71 60.98% 7.49% 53.37% 6.71%
5 Years Ended
3/31/97** 3/31/92 $952.19 $1,300.74 36.60% 6.44% 30.07% 5.40%
1 Year Ended
3/31/97** 3/31/96 $952.86 $ 994.93 4.41% 4.41% -0.51% -0.51%
- ------------
*Predecessor Fund commenced operations April 5, 1994.
VALUE OF A $1,000 INVESTMENT -- MASSACHUSETTS
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT --------------------------- ----------------------------
PERIOD* DATE INVESTMENT ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/19/91 $952.40 $1,386.13 45.53% 6.51% 38.61% 5.64%
5 Years Ended
3/31/97** 3/31/92 $952.42 $1,260.86 32.38% 5.77% 26.09% 4.75%
1 Year Ended
3/31/97** 3/31/96 $952.77 $1,002.54 5.22% 5.22% 0.25% 0.25%
- ------------
*Predecessor Fund commenced operations December 7, 1993.
VALUE OF A $1,000 INVESTMENT -- MISSISSIPPI
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT --------------------------- ----------------------------
PERIOD* DATE INVESTMENT ON 3/31/97** CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/11/93 $952.76 $1,106.38 16.12% 4.00% 10.64% 2.69%
1 Year Ended
3/31/97** 3/31/96 $952.09 $1,013.42 6.44% 6.44% 1.34% 1.34%
- ------------
*Predecessor Fund commenced operations December 7, 1993.
VALUE OF A $1,000 INVESTMENT -- NEW YORK
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT --------------------------- ----------------------------
PERIOD* DATE INVESTMENT ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 8/30/90 $952.76 $1,574.29 65.22% 7.92% 57.43% 7.13%
5 Years Ended
3/31/97 3/31/92 $952.60 $1,336.51 40.30% 7.01% 33.65% 5.97%
1 Year Ended
3/31/97 3/31/96 $952.25 $1,006.37 5.69% 5.69% 0.64% 0.64%
- ------------
*Predecessor Fund commenced operations April 15, 1994.
VALUE OF A $1,000 INVESTMENT -- OHIO
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT --------------------------- ----------------------------
PERIOD* DATE INVESTMENT ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/18/91 $952.38 $1,392.30 46.19% 6.59% 39.23% 5.72%
5 Years Ended
3/31/97 3/31/92 $952.94 $1,283.78 34.72% 6.14% 28.38% 5.12%
1 Year Ended
3/31/97 3/31/96 $952.09 $1,005.39 5.59% 5.59% 0.54% 0.54%
- ------------
*Predecessor Fund commenced operations December 7, 1993.
VALUE OF A $1,000 INVESTMENT -- RHODE ISLAND
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT --------------------------- ----------------------------
PERIOD* DATE INVESTMENT ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/11/93 $952.74 $1,068.92 14.08% 3.52% 8.69% 2.21%
1 Year Ended
3/31/97** 3/31/96 $952.48 $1,002.73 5.28% 5.28% 0.27% 0.27%
- ------------
*Predecessor Fund commenced operations December 7, 1993.
VALUE OF A $1,000 INVESTMENT -- WEST VIRGINIA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT --------------------------- ----------------------------
PERIOD* DATE INVESTMENT ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/11/93 $952.83 $1,097.64 15.19% 3.78% 9.76% 2.48%
1 Year Ended
3/31/97** 3/31/96 $952.33 $1,005.56 5.59% 5.59% 0.56% 0.56%
- ------------
*Predecessor Fund commenced operations December 13, 1993.
</TABLE>
The following shows the yield of Class A shares for the thirty-day period
ended March 31, 1997 and the yield required of a taxable security that would
produce an after-tax yield equivalent to the thirty-day yield, assuming a
certain combined federal and State tax rate. If a Portfolio's or Fund's expenses
had not been subsidized, yield would be lower. Appendix D contains
state-specific applicable tax rates and income brackets.
TAXABLE SECURITY ASSUMED
CLASS A 30-DAY YIELD EQUIVALENT YIELD TAX RATE
California ........ 4.93% 7.94% 37.90%
Florida ........... 5.15% 7.74% 33.48%
Massachusetts ..... 5.25% 8.65% 39.28%
Mississippi ....... 4.71% 7.19% 34.45%
New York .......... 4.82% 7.90% 38.99%
Ohio .............. 5.40% 8.41% 35.76%
Rhode Island ...... 5.14% 8.14% 36.88%
West Virginia ..... 5.13% 7.95% 35.49%
<PAGE>
APPENDIX B: CLASS B SHARES
FEES AND EXPENSES
DISTRIBUTION PLANS
Each Distribution Plan and Distribution Agreement remains in effect until
April 28, 1998 and may be continued as described under "Distribution Plan".
Pursuant to Rule 12b-1, the Plan has been approved by the relevant Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1.
The following table shows, for the fiscal year ended September 30, 1996, (1)
sales commissions paid by the Principal Underwriter to Authorized Firms on sales
of Class B shares, (2) distribution payments to the Principal Underwriter
allocated to Class B shares under the Plan, (3) CDSC payments to the Principal
Underwriter, (4) service fees on Class B shares paid or accrued under the Plan,
and (5) amount of service fees on Class B shares paid to Authorized Firms (the
balance of which being retained by the Principal Underwriter).
<TABLE>
<CAPTION>
DISTRIBUTION CDSC SERVICE
PAYMENTS TO PAYMENTS TO FEES TO
SALES THE PRINCIPAL THE PRINCIPAL SERVICE AUTHORIZED
CLASS B COMMISSIONS UNDERWRITER UNDERWRITER FEES FIRMS
- ------- ----------- ----------- ----------- ---- -----
<S> <C> <C> <C> <C> <C>
California ................... $370,287 $2,883,653 $ 928,000 $ 817,797 $ 807,971
Florida ...................... 628,527 4,996,054 2,658,000 1,176,534 1,167,094
Massachusetts ................ 317,361 2,125,998 963,000 485,320 481,472
Mississippi .................. 41,308 192,340 122,000 45,430 45,368
New York ..................... 847,919 4,673,407 2,011,000 1,038,619 1,035,541
Ohio ......................... 332,448 2,288,285 1,045,000 542,013 537,806
Rhode Island ................. 187,415 299,958 187,000 54,463 54,229
West Virginia ................ 95,669 289,676 193,000 76,217 76,148
</TABLE>
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1996, each Fund paid the Principal
Underwriter for repurchase transactions handled by it $2.50 for each such
transaction which aggregated as follows: California - $3,995; Florida - $7,395;
Massachusetts - $3,467.50; Mississippi - $367.50; New York - $6,607.50; Ohio -
$3,957.50; Rhode Island - $637.50; and West Virginia - $590.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator", the Administrator
currently receives no compensation for providing administrative services to each
Fund. For the fiscal year ended September 30, 1994, the following Funds had a
portion of their operating expenses allocated to the Administrator: Mississippi
- - $42,290; Rhode Island - $44,682; and West Virginia - $49,009.
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return on
a hypothetical investment of $1,000 in Class B shares for the periods shown in
each 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. Information presented with two asterisks
(**) includes the effect of subsidizing expenses. Return would have been lower
without subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- CALIFORNIA
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/97 CDSC ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
3/31/97 3/31/87 $1,690.32 $1,690.32 69.03% 5.39% 69.03% 5.39%
5 Years Ended
3/31/97 3/31/92 $1,314.06 $1,294.73 31.41% 5.61% 29.47% 5.30%
1 Year Ended
3/31/97 3/31/96 $1,052.33 $1,002.33 5.23% 5.23% 0.23% 0.23%
VALUE OF A $1,000 INVESTMENT -- FLORIDA
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/97 CDSC ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 8/28/90 $1,572.26 $1,572.26 57.23% 7.11% 57.23% 7.11%
5 Years Ended
3/31/97 3/31/92 $1,334.18 $1,314.18 33.42% 5.94% 31.42% 5.62%
1 Year Ended
3/31/97 3/31/96 $1,033.76 $ 984.46 3.38% 3.38% -1.55% -1.55%
- ------------
* Investment operations began on August 28, 1990.
VALUE OF A $1,000 INVESTMENT -- MASSACHUSETTS
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/97 CDSC ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 4/18/91 $1,442.33 $1,432.33 44.23% 6.35% 43.23% 6.22%
5 Years Ended
3/31/97 3/31/92 $1,311.99 $1,292.16 31.20% 5.58% 29.22% 5.26%
1 Year Ended
3/31/97 3/31/96 $1,042.78 $ 993.07 4.28% 4.28% -0.69% -0.69%
- ------------
* Investment operations began on April 18, 1991.
VALUE OF A $1,000 INVESTMENT -- MISSISSIPPI
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/97 CDSC ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/11/93 $1,158.22 $1,129.36 15.82% 3.93% 12.94% 3.24%
1 Year Ended
3/31/97** 3/31/96 $1,057.75 $1,007.75 5.78% 5.78% 0.78% 0.78%
- ------------
* Investment operations began on June 11, 1993.
VALUE OF A $1,000 INVESTMENT -- NEW YORK
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/97 CDSC ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 8/30/90 $1,613.79 $1,613.79 61.38% 7.53% 61.38% 7.53%
5 Years Ended
3/31/97 3/31/92 $1,370.34 $1,350.34 37.03% 6.50% 35.03% 6.19%
1 Year Ended
3/31/97 3/31/96 $1,048.38 $ 998.38 4.84% 4.84% -0.16% -0.16%
- ----------
* Investment operations began on August 30, 1990.
VALUE OF A $1,000 INVESTMENT -- OHIO
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/97 CDSC ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 4/18/91 $1,466.06 $1,456.06 46.61% 6.64% 45.61% 6.52%
5 Years Ended
3/31/97 3/31/92 $1,350.99 $1,330.99 35.10% 6.20% 33.10% 5.89%
1 Year Ended
3/31/97 3/31/96 $1,047.92 $ 997.92 4.79% 4.79% -0.21% -0.21%
- ----------
* Investment operations began on April 18, 1991.
VALUE OF A $1,000 INVESTMENT -- RHODE ISLAND
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/97 CDSC ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/11/93 $1,142.52 $1,114.20 14.25% 3.56% 11.42% 2.88%
1 Year Ended
3/31/97** 3/31/96 $1,050.11 $1,000.11 5.01% 5.01% 0.01% 0.01%
- ----------
* Investment operations began on June 11, 1993.
VALUE OF A $1,000 INVESTMENT -- WEST VIRGINIA
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/97 CDSC ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/11/93 $1,150.86 $1,122.15 15.09% 3.76% 12.22% 3.07%
1 Year Ended
3/31/97 3/31/96 $1,047.69 $ 997.69 4.77% 4.77% -0.23% -0.23%
- ------------
* Investment operations began on June 11, 1993.
</TABLE>
The following shows the yield of Class B shares for the thirty-day period
ended March 31, 1997 and the yield required of a taxable security that would
produce an after-tax yield equivalent to the thirty-day yield, assuming a
certain combined federal and State tax rate. If a Portfolio's or Fund's expenses
had not been subsidized, yield would be lower. Appendix D contains state
specific applicable tax rates and income brackets.
TAXABLE SECURITY ASSUMED
CLASS B 30-DAY YIELD EQUIVALENT YIELD TAX RATE
California ........ 4.45% 7.17% 37.90%
Florida ........... 4.44% 6.72% 33.89%
Massachusetts ..... 4.63% 7.63% 39.28%
Mississippi ....... 4.30% 6.56% 34.45%
New York .......... 4.10% 6.72% 38.99%
Ohio .............. 4.54% 7.07% 35.76%
Rhode Island ...... 4.49% 7.11% 36.88%
West Virginia ..... 4.35% 6.74% 35.49%
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at August 31, 1997, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of each Class B
and of each Fund. As of August 31, 1997, Merrill Lynch, Pierce, Fenner & Smith,
Inc., Jacksonville, FL was the record owner of the following amounts of the
Class B shares, which are 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: California - 13.0%; Florida - 15.5%; Massachusetts - 8.5%;
Mississippi - 26.3%; New York - 11.8%; Ohio - 20.8%; Rhode Island - 23.3%; and
West Virginia - 14.0%. In addition, as of the same date, Corelink Financial
Inc., Concord, CA was the record owner of 6.6% of the Rhode Island Class B
shares, which are 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 any Fund's outstanding Class B shares as of such
date.
<PAGE>
APPENDIX C: STATE SPECIFIC INFORMATION
RISKS OF CONCENTRATION
The following information as to certain State specific considerations is
given to investors in view of a Portfolio's policy of concentrating its
investments in particular State 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 issuers of each particular State. Neither the Trust nor the
Portfolios have independently verified this information.
CALIFORNIA
Economic Factors
Fiscal Years Prior to 1996-97. By the close of the 1989-90 Fiscal Year,
California's revenues had fallen below projections so that the State's budget
reserve, the Special Fund for Economic Uncertainties (the "Special Fund"), was
fully depleted by June 30, 1990. A recession which had begun in mid-1990,
combined with higher health and welfare costs driven by the State's rapid
population growth, adversely affected General Fund revenues and raised
expenditures above initial budget appropriations.
As a result of these factors and others, the State confronted a period of
budget imbalance. Beginning with the 1990-91 Fiscal Year and for several years
thereafter, the budget required multibillion dollar actions to bring projected
revenues and expenditures into balance. During this period, expenditures
exceeded revenues in four out of six years, and the State accumulated and
sustained a budget deficit in the Special Fund -- approaching $2.8 billion at
its peak on June 30, 1993.
By the 1993-94 Fiscal Year, the accumulated deficit was too large to be
prudently retired in one year and a two-year program was implemented. This
program used revenue anticipation warrants to carry a portion of the deficit
over to the end of the fiscal year.
The 1994-95 Budget Act projected General Fund revenues and transfers of
$41.9 billion. Expenditures were projected to be $40.9 billion -- an increase of
$1.6 billion over the prior year. As a result of the improving economy, however,
the fiscal year ultimately produced revenues and transfers of $42.7 billion
which more than offset expenditures of $42.0 billion and thereby reduced the
accumulated budget deficit.
With strengthening revenues and reduced caseload growth driven by an
improving economy, the State entered the 1995-96 Fiscal Year budget negotiations
with the smallest nominal "budget gap" to be closed in many years. The 1995-96
Budget Act projected General Fund revenues and transfers of $44.1 billion, a
3.5% increase from the prior year, and expenditures were budgeted at $43.4
billion. In addition, the Department of Finance projected that after repaying
the last of the carryover budget deficit, there would be a positive balance of
$28 million in the budget reserve as of June 30, 1996.
1996-97 Fiscal Year. The 1996-97 Governor's Budget, released January 10, 1996,
projected General Fund revenues and transfers of $45.6 billion, a 1.3% increase
over 1995-96. The Governor's budget proposed two major initiatives, a 15%
personal and corporate income tax cuts and a revision of the trial court funding
program, which would have the effect of reducing General Fund revenues. The
Governor's Budget proposed General Fund expenditures of $45.2 billion. The
Governor's Budget also proposed Special Fund revenues equal to expenditures, at
a level of $13.3 billion.
The May Revision of the Governor's Budget, released on May 21, 1996 ("The
May Revision"), updated revenue estimates for the 1996-97 Fiscal Year,
reflecting stronger economic activity in the State and thus greater revenue
growth. The revised estimate was for $47.1 billion of revenues, still assuming
the Governor's tax cut would be enacted, and $46.5 billion of expenditures.
1996-97 Budget Act. The 1996-97 Budget Act was signed by the Governor on July
15, 1996, along with various implementing bills. The Governor vetoed about $82
million of appropriations (both General Fund and Special Fund). With the signing
of the Budget Act, the State implemented its regular cash flow borrowing program
with the issuance of $3.0 billion of Revenue Anticipation Notes to mature on
June 30, 1997. The Budget Act appropriates a budget reserve in the Special Fund
of $305 million, as of June 30, 1997. The Department of Finance projects that,
on June 30, 1997, the State's available borrowable (cash) resources will be $2.9
billion, after payment of all obligations due by that date, so that no
cross-fiscal year borrowing is anticipated.
Revenues -- The Legislature rejected the Governor's proposed 15% cut in
personal income taxes (to be phased in over three years), approved a 5% cut in
bank and corporation taxes, to be effective for income years commencing on
January 1, 1997. As a result of the Legislature's failure to enact the personal
income tax cut, revenues for the Fiscal Year are estimated to be $550 million
higher than projected in the May Revision, and are now estimated to total
$47.643 billion, a 3.3 percent increase over the final estimated 1995-96
revenues. Special Fund revenues are estimated to be $13.3 billion.
Expenditures -- The Budget Act contains General Fund appropriations totaling
$47.251 billion, a 4.0% increase over the final estimated 1995-96 expenditures.
Special Fund expenditures are budgeted at $12.6 billion.
The following are principal features of the 1996-97 Budget Act:
1. Proposition 98 funding for schools and community college districts
increased by almost $1.6 billion (General Fund) and $1.65 billion above
revised 1995-96 levels. Almost half of this money was budgeted to fund
class-size reductions in kindergarten and grades 1-3. Also, for the second
consecutive year, the full cost of living allowance (3.2 percent) was
funded. Proposition 98 increases have brought K-12 expenditures to almost
$4,800 per pupil (also called ADA, or Average Daily Attendance), an almost
15% increase over the level prevailing during the recession years. Out of
this $1.6 billion total community colleges will receive an increase in
funding of $157 million for 1996-97.
Due to higher than projected revenues in 1995-96, an additional $1.1
billion ($190 per K-12 ADA and $145 million for community colleges) was
appropriated and retroactively applied towards the 1995-96 Proposition 98
guarantee, bringing K-12 expenditures in that year to over $4,600 per ADA.
Similar retroactive increases totaling $230 million, based on final figures
on revenues and State population growth, were made to the 1991-92 and the
1994-95 Proposition 98 guarantees, most of which was allocated to each
school site.
2. The Budget Act assumed savings of approximately $660 million in
health and welfare costs which required changes in federal law, including
federal welfare reform. The Budget Act further assumed federal law changes
in August 1996 which would allow welfare cash grant levels to be reduced by
October 1, 1996. These cuts totaled approximately $163 million of the
anticipated $660 million savings. See "Federal Welfare Reform".
3. A 4.9% increase in funding for the University of California ($130
million General Fund) and the California State University system ($101
million General Fund), with no increases in student fees.
4. The Budget Act assumed the federal government will provide
approximately $700 million in new aid for incarceration and health care
costs of illegal immigrants. These funds reduce appropriations in these
categories that would otherwise have to be paid from the General Fund. (For
purposes of cash flow projections, the Department of Finance expects $540
million of this amount to be received during the 1996-97 fiscal year.)
5. General Fund support for the Department of Corrections was increased
by about 7% over the prior year, reflecting estimates of increased prison
population.
6. With respect to aid to local governments, the principal new programs
included in the Budget Act are $100 million in grants to cities and counties
for law enforcement purposes, and budgeted $50 million for competitive
grants to local governments for programs to combat juvenile crime.
The Budget Act did not contain any tax increases. As noted, there was a
reduction in bank and corporate taxes. In addition, the Legislature approved
another one-year suspension of the Renters Tax Credit, saving $520 million in
expenditures.
Federal Welfare Reform -- Following enactment of the 1996-97 Budget Act,
Congress passed and the President signed (on August 22, 1996) the Personal
Responsibility and Work Opportunity Act of 1996 (P.L. 104-193, the "Law") making
a fundamental reform of the current welfare system. Among many provisions, the
Law includes: (i) conversion of Aid to Families with Dependent Children from an
entitlement program to a block grant titled Temporary Assistance for Needy
Families (TANF), with lifetime time limits on TANF recipients, work requirements
and other changes; (ii) provisions denying certain federal welfare and public
benefits to legal noncitizens, allowing states to elect to deny additional
benefits (including TANF) to legal noncitizens, and generally denying almost all
benefits to illegal immigrants; and (iii) changes in the Food Stamp program,
including reducing maximum benefits and imposing work requirements.
The Law requires states to implement the new TANF program not later than
July 1, 1997 and provides California approximately $3.7 billion in block grant
funds for fiscal year 1996-97. States are allowed to implement TANF as soon as
possible and will receive a prorated block grant effective the date of
application. The California State Plan is to be submitted in time to allow grant
reductions to be implemented effective January 1, 1997 (allowing $92 million of
the $163 million referred to in paragraph 2 above to be saved) and to allow the
State to capture approximately $267 million in additional federal block grant
funds over the currently budgeted level. None of the other federal changes
needed to achieve the balance of the $660 million cost savings were enacted.
Thus in lieu of the $660 million savings initially assumed to be saved, it is
now projected that savings will total approximately $360 million.
A preliminary analysis of the Law by the Legislative Analyst's Office
indicated that an overall assessment of how these changes will affect the
State's General Fund will not be known for some time, and will depend on how the
State implements the Law. There are many choices including how quickly the State
implements the Law; the degree to which the State elects to make up for cuts in
federal aid; provide more aid to counties, or cut some of its own existing
programs for noncitizens; and the State's ability to avoid certain penalties
written into the Law.
1997-98 Fiscal Year Proposed Budget. On January 9, 1997, the Governor released
his proposed budget for the 1997-98 Fiscal Year (the "Governor's Budget"). The
Governor's Budget projects General Fund revenues and transfers in 1997-98 of
$50.7 billion, a 4.6% increase from revised 1996-97 figures. The Governor
proposes expenditures of $50.3 billion, a 3.9% increase from 1996-97. The
Governor's Budget projects a balance in the SFEU of $553 million on June 30,
1998. The Governor's Budget also anticipates about $3 billion of external
borrowing for cash flow purposes during the year, with no requirement for
cross-fiscal year borrowing.
Among the major initiatives and features of the Governor's Budget are the
following:
1. A proposed 10% cut in the Bank and Corporation Tax rate, to be phased
in over two years.
2. Proposition 98 funding for K-14 schools will be increased again, as a
result of stronger revenues. Per-pupil funding for K-12 schools will reach
$5,010, compared to $4,220 as recently as the 1993-94 Fiscal Year. Part of
the new funding is proposed to be dedicated to the completion of the current
program to reduce class size to 20 pupils in lower elementary grades, and to
expand the program by one grade, so that it will cover K-3rd grade.
3. Funding for higher education will be increased consistent with a
four-year "compact" established in 1995-96. There is not projected to be any
increase in student fees at any of the three levels of the State higher
education system.
4. The 1997-98 proposed Governor's Budget assumes approximately $500
million in savings contingent upon federal action. The Budget assumes that
federal law will be enacted to remove the maintenance-of-effect requirement
for Supplemental Security Income (SSI) payments, thereby enabling the state
to reduce grant levels pursuant to previously enacted state law ($279
million). The Budget also assumes the federal government will fund $216
million in costs of health care for illegal immigrants.
The Orange County Bankruptcy. On December 6, 1994, Orange County, California
and its Investment Pool (the "Pool") filed for bankruptcy under Chapter 9 of the
United States Bankruptcy Code. The subsequent restructuring led to the sale of
substantially all of the Pool's portfolio and resulted in losses estimated to be
approximately $1.7 billion (or approximately 22% of amounts deposited by the
Pool investors). Approximately 187 California public entities -- substantially
all of which are public agencies within the county -- had various bonds, notes
or other forms of indebtedness outstanding. In some instances the proceeds of
such indebtedness were invested in the Pool.
In April, 1996, the County emerged from bankruptcy after closing on a $900
million recovery bond deal. At that time, the County and its financial advisors
stated that the County had emerged from the bankruptcy without any structural
fiscal problems and assured that the County would not slip back into bankruptcy.
However, for many of the cities, schools and special districts that lost money
in the County portfolio, repayment remains contingent on the outcome of
litigation which is pending against investment firms and other finance
professionals. Thus, it is impossible to determine the ultimate impact of the
bankruptcy and its aftermath on these various agencies and their claims.
Constitutional, Legislative and Other Factors
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could produce
the adverse effects described below, among others.
Revenue Distribution. Certain Debt Obligations in the Portfolio may be
obligations of issuers which rely in whole or in part on California State
revenues for payment of these obligations. Property tax revenues and a portion
of the State's general fund surplus are distributed to counties, cities and
their various taxing entities and the State assumes certain obligations
theretofore paid out of local funds. Whether and to what extent a portion of the
State's general fund will be distributed in the future to counties, cities and
their various entities is unclear.
Health Care Legislation. Certain Debt Obligations in the Portfolio may be
obligations which are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect these
revenues and, consequently, payment on those Debt Obligations.
The Federally sponsored Medicaid program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting is
made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations may be
imposed on payment for services rendered to Medi-Cal beneficiaries in the
future.
Under this approach, in most geographical areas of California, only those
hospitals which enter into a Medi-Cal contract with the State of California will
be paid for non-emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice under
certain circumstances and is obligated to make contractual payments only to the
extent the California legislature appropriates adequate funding therefor.
California enacted legislation in 1982 that authorizes private health plans
and insurers to contract directly with hospitals for services to beneficiaries
on negotiated terms. Some insurers have introduced plans known as "preferred
provider organizations" ("PPOs"), which offer financial incentives for
subscribers who use only the hospitals which contract with the plan. Under an
exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
These Debt Obligations may also be insured by the State of California
pursuant to an insurance program implemented by the Office of Statewide Health
Planning and Development for health facility construction loans. If a default
occurs on insured Debt Obligations, the State Treasurer will issue debentures
payable out of a reserve fund established under the insurance program or will
pay principal and interest on an unaccelerated basis from unappropriated State
funds. At the request of the Office of Statewide Health Planning and
Development, Arthur D. Little, Inc. prepared a study in December 1983, to
evaluate the adequacy of the reserve fund established under the insurance
program and based on certain formulations and assumptions found the reserve fund
substantially underfunded. In September of 1986, Arthur D. Little, Inc. prepared
an update of the study and concluded that an additional 10% reserve be
established for "multi-level" facilities. For the balance of the reserve fund,
the update recommended maintaining the current reserve calculation method. In
March of 1990, Arthur D. Little, Inc. prepared a further review of the study and
recommended that separate reserves continue to be established for "multi-level"
facilities at a reserve level consistent with those that would be required by an
insurance company.
Mortgages and Deeds. Certain Debt Obligations in the Portfolio may be
obligations which are secured in whole or in part by a mortgage or deed of trust
on real property. California has five principal statutory provisions which limit
the remedies of a creditor secured by a mortgage or deed of trust. Two statutes
limit the creditor's right to obtain a deficiency judgment, one limitation being
based on the method of foreclosure and the other on the type of debt secured.
Under the former, a deficiency judgment is barred when the foreclosure is
accomplished by means of a nonjudicial trustee's sale. Under the latter, a
deficiency judgment is barred when the foreclosed mortgage or deed of trust
secures certain purchase money obligations. Another California statute, commonly
known as the "one form of action" rule, requires creditors secured by real
property to exhaust their real property security by foreclosure before bringing
a personal action against the debtor. The fourth statutory provision limits any
deficiency judgment obtained by a creditor secured by real property following a
judicial sale of such property to the excess of the outstanding debt over the
fair value of the property at the time of the sale, thus preventing the creditor
from obtaining a large deficiency judgment against the debtor as the result of
low bids at a judicial sale. The fifth statutory provision gives the debtor the
right to redeem the real property from any judicial foreclosure sale as to which
a deficiency judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to California
real property, the creditor's nonjudicial foreclosure rights under the power of
sale contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing of a
formal notice of default, the debtor is entitled to reinstate the mortgage by
making any overdue payments. Under standard loan servicing procedures, the
filing of the formal notice of default does not occur unless at least three full
monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days after
expiration of the three-month reinstatement period. The debtor may reinstate the
mortgage, in the manner described above, up to five business days prior to the
scheduled sale date. Therefore, the effective minimum period for foreclosing on
a mortgage could be in excess of seven months after the initial default. Such
time delays in collections could disrupt the flow of revenues available to an
issuer for the payment of debt service on the outstanding obligations if such
defaults occur with respect to a substantial number of mortgages or deeds of
trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a mortgage for such private
sale to constitute "state action," and could hold that the private-
right-of-sale proceedings violate the due process requirements of the Federal or
State Constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain Debt Obligations in the Portfolio may be obligations which finance
the acquisition of single family home mortgages for low and moderate income
mortgagors. These obligations may be payable solely from revenues derived from
the home mortgages, and are subject to California's statutory limitations
described above applicable to obligations secured by real property. Under
California antideficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure.
Under California law, mortgage loans secured by single-family owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage loans
may be imposed only with respect to voluntary prepayments made during the first
five years during the term of the mortgage loan, and then only if the borrower
prepays an amount in excess of 20% of the original principal amount of the
mortgage loan in a 12-month period; a prepayment charge cannot in any event
exceed six months' advance interest on the amount prepaid during the 12-month
period in excess of 20% of the original principal amount of the loan. This
limitation could affect the flow of revenues available to an issuer for debt
service on the outstanding debt obligations which financed such home mortgages.
Proposition 13. Certain of the Debt Obligations may be obligations of
issuers who rely in whole or in part on ad valorem real property taxes as a
source of revenue. On June 6, 1978, California voters approved an amendment to
the California Constitution known as Proposition 13, which added Article XIIIA
to the California Constitution. The effect of Article XIIIA was to limit ad
valorem taxes on real property and to restrict the ability of taxing entities to
increase real property tax revenues.
Section 1 of Article XIIIA, as amended, limits the maximum ad valorem tax on
real property to 1% of full cash value to be collected by the counties and
apportioned according to law. The 1% limitation does not apply to ad valorem
taxes or special assessments to pay the interest and redemption charges on any
bonded indebtedness for the acquisition or improvement of real property approved
by two-thirds of the votes cast by the voters voting on the proposition. Section
2 of Article XIIIA defines "full cash value" to mean "the County Assessor's
valuation of real property as shown on the 1975/76 tax bill under "full cash
value" or, thereafter, the appraised value of real property when purchased,
newly constructed, or a change in ownership has occurred after the 1975
assessment." The full cash value may be adjusted annually to reflect inflation
at a rate not to exceed 2% per year, or reduction in the consumer price index or
comparable local data, or reduced in the event of declining property value
caused by damage, destruction or other factors.
Legislation enacted by the California Legislature to implement Article XIIIA
provides that notwithstanding any other law, local agencies may not levy any ad
valorem property tax except to pay debt service on indebtedness approved by the
voters prior to July 1, 1978, and that each county will levy the maximum tax
permitted by Article XIIIA.
Proposition 9. On November 6, 1979, an initiative known as "Proposition 9"
or the "Gann Initiative" was approved by the California voters, which added
Article XIIIB to the California Constitution. Under Article XIIIB, State and
local governmental entities have an annual "appropriations limit" and are not
allowed to spend certain moneys called "appropriations subject to limitation" in
an amount higher than the "appropriations limit." Article XIIIB does not affect
the appropriation of moneys which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is required to be based on certain 1978/79 expenditures, and is to be
adjusted annually to reflect changes in consumer prices, population, and certain
services provided by these entities. Article XIIIB also provides that if these
entities' revenues in any year exceed the amounts permitted to be spent, the
excess is to be returned by revising tax rates or fee schedules over the
subsequent two years.
Proposition 98. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed below), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of General Fund
revenues ("Test 1"), (b) the amount appropriated to K-14 schools in the prior
year, adjusted for changes in the cost of living (measured as in Article XIII B
by reference to State per capita personal income) and enrollment ("Test 2"), or
(c) a third test, which would replace Test 2 in any year when the percentage
growth in per capita General Fund revenues from the prior year plus one half of
one percent is less than the percentage growth in State per capita personal
income ("Test 3"). Under Test 3, schools would receive the amount appropriated
in the prior year adjusted for changes in enrollment and per capita General Fund
revenues, plus an additional small adjustment factor. If Test 3 is used in any
year, the difference between Test 3 and Test 2 would become a "credit" to
schools which would be the basis of payments in future years when per capita
General Fund revenue growth exceeds per capita personal income growth.
Proposition 98 permits the Legislature -- by two-thirds vote of both houses,
with the Governor's concurrence -- to suspend the K-14 schools' minimum funding
formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit to
K-14 schools.
During the recession years of the early 1990s, General Fund revenues for
several years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher than the minimum
percentage provided in the law. The Legislature responded to these developments
by designating the "extra" Proposition 98 payments in one year as a "loan" from
future years' Proposition 98 entitlements, and also intended that the "extra"
payments would not be included in the Proposition 98 "base" for calculating
future years' entitlements. In 1992, a lawsuit was filed, California Teachers'
Association v. Gould, which challenged the validity of these off-budget loans.
During the course of this litigation, a trial court determined that almost $2
billion in "loans" which had been provided to school districts during the
recession violated the constitutional protection of support for public
education. A settlement was reached on April 12, 1996 which ensures that future
school funding will not be in jeopardy over repayment of these so-called loans.
Proposition 111. On June 30, 1989, the California Legislature enacted Senate
Constitutional Amendment 1, a proposed modification of the California
Constitution to alter the spending limit and the education funding provisions of
Proposition 98. Senate Constitutional Amendment 1 -- on the June 5, 1990 ballot
as Proposition 111 -- was approved by the voters and took effect on July 1,
1990. Among a number of important provisions, Proposition 111 recalculated
spending limits for the State and for local governments, allowed greater annual
increases in the limits, allowed the averaging of two years' tax revenues before
requiring action regarding excess tax revenues, reduced the amount of the
funding guarantee in recession years for school districts and community college
districts (but with a floor of 40.9 percent of State general fund tax revenues),
removed the provision of Proposition 98 which included excess moneys transferred
to school districts and community college districts in the base calculation for
the next year, limited the amount of State tax revenue over the limit which
would be transferred to school districts and community college districts, and
exempted increased gasoline taxes and truck weight fees from the State
appropriations limit. Additionally, Proposition 111 exempted from the State
appropriations limit funding for capital outlays.
Proposition 62. On November 4, 1986, California voters approved an
initiative statute known as Proposition 62. This initiative provided the
following:
1. Requires that any tax for general governmental purposes imposed by local
governments be approved by resolution or ordinance adopted by a two-thirds vote
of the governmental entity's legislative body and by a majority vote of the
electorate of the governmental entity;
2. Requires that any special tax (defined as taxes levied for other than
general governmental purposes) imposed by a local governmental entity be
approved by a two-thirds vote of the voters within that jurisdiction;
3. Restricts the use of revenues from a special tax to the purposes or for
the service for which the special tax was imposed;
4. Prohibits the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by Article XIIIA;
5. Prohibits the imposition of transaction taxes and sales taxes on the sale
of real property by local governments;
6. Requires that any tax imposed by a local government on or after August 1,
1985 be ratified by a majority vote of the electorate within two years of the
adoption of the initiative;
7. Requires that, in the event a local government fails to comply with the
provisions of this measure, a reduction in the amount of property tax revenue
allocated to such local government occurs in an amount equal to the revenues
received by such entity attributable to the tax levied in violation of the
initiative; and
8. Permits these provisions to be amended exclusively by the voters of the
State of California.
In September 1988, the California Court of Appeal in City of Westminster v.
County of Orange, 204 Cal.App. 3d 623, 215 Cal.Rptr. 511 (Cal.Ct.App. 1988),
held that Proposition 62 is unconstitutional to the extent that it requires a
general tax by a general law city, enacted on or after August 1, 1985 and prior
to the effective date of Proposition 62, to be subject to approval by a majority
of voters. The Court held that the California Constitution prohibits the
imposition of a requirement that local tax measures be submitted to the
electorate by either referendum or initiative. It is impossible to predict the
impact of this decision on charter cities, on special taxes or on new taxes
imposed after the effective date of Proposition 62. The California Court of
Appeal in City of Woodlake v. Logan, (1991) 230 Cal.App.3d 1058, subsequently
held that Proposition 62's popular vote requirements for future local taxes also
provided for an unconstitutional referenda. The California Supreme Court
declined to review both the City of Westminster and the City of Woodlake
decisions.
In Santa Clara Local Transportation Authority v. Guardino, (Sept. 28, 1995)
11 Cal.4th 220, reh'g denied, modified (Dec. 14, 1995) 12 Cal.4th 344e, the
California Supreme Court upheld the constitutionality of Proposition 62's
popular vote requirements for future taxes, and specifically disapproved of the
City of Woodlake decision as erroneous. The Court did not determine the
correctness of the City of Westminster decision, because that case appeared
distinguishable, was not relied on by the parties in Guardino, and involved
taxes not likely to still be at issue. It is impossible to predict the impact of
the Supreme Court's decision on charter cities or on taxes imposed in reliance
on the City of Woodlake case.
Senate Bill 1590 (O'Connell), introduced February 16, 1996, would make the
Guardino decision inapplicable to any tax first imposed or increased by an
ordinance or resolution adopted before December 14, 1995. The California State
Senate passed the Bill on May 16, 1996 and it is currently pending in the
California State Assembly. It is not clear whether the Bill, if enacted, would
be constitutional as a non-voted amendment to Proposition 62 or as a non-voted
change to Proposition 62's operative date.
Proposition 218. On November 5, 1996, the voters of the State approved
Proposition 218, a constitutional initiative, entitled the "Right to Vote on
Taxes Act" ("Proposition 218"). Proposition 218 adds Articles XIII C and XIII D
to the California Constitution and contains a number of interrelated provisions
affecting the ability of local governments to levy and collect both existing and
future taxes, assessments, fees and charges. Proposition 218 became effective on
November 6, 1996. The Sponsors are unable to predict whether and to what extent
Proposition 218 may be held to be constitutional or how its terms will be
interpreted and applied by the courts. However, if upheld, Proposition 218 could
substantially restrict certain local governments' ability to raise future
revenues and could subject certain existing sources of revenue to reduction or
repeal, and increase local government costs to hold elections, calculate fees
and assessments, notify the public and defend local government fees and
assessments in court.
Article XIII C of Proposition 218 requires majority voter approval for the
imposition, extension or increase of general taxes and two-thirds voter approval
for the imposition, extension or increase of special taxes, including special
taxes deposited into a local government's general fund. Proposition 218 also
provides that any general tax imposed, extended or increased without voter
approval by any local government on or after January 1, 1995 and prior to
November 6, 1996 shall continue to be imposed only if approved by a majority
vote in an election held within two years of November 6, 1996.
Article XIII C of Proposition 218 also expressly extends the initiative
power to give voters the power to reduce or repeal local taxes, assessments,
fees and charges, regardless of the date such taxes, assessments, fees or
charges were imposed. This extension of the initiative power to some extent
constitutionalizes the March 6, 1995 State Supreme Court decision in Rossi v.
Brown, which upheld an initiative that repealed a local tax and held that the
State constitution does not preclude the repeal, including the prospective
repeal, of a tax ordinance by an initiative, as contrasted with the State
constitutional prohibition on referendum powers regarding statutes and
ordinances which impose a tax. Generally, the initiative process enables
California voters to enact legislation upon obtaining requisite voter approval
at a general election. Proposition 218 extends the authority stated in Rossi v.
Brown by expanding the initiative power to include reducing or repealing
assessments, fees and charges, which had previously been considered
administrative rather than legislative matters and therefore beyond the
initiative power.
The initiative power granted under Article XIII C of Proposition 218, by its
terms, applies to all local taxes, assessments, fees and charges and is not
limited to local taxes, assessments, fees and charges that are property related.
Article XIII D of Proposition 218 adds several new requirements making it
generally more difficult for local agencies to levy and maintain "assessments"
for municipal services and programs. "Assessment" is defined to mean any levy or
charge upon real property for a special benefit conferred upon the real
property.
Article XIII D of Proposition 218 also adds several provisions affecting
"fees" and "charges" which are defined as "any levy other than an ad valorem
tax, a special tax, or an assessment, imposed by a local government upon a
parcel or upon a person as an incident of property ownership, including a user
fee or charge for a property related service." All new and, after June 30, 1997,
existing property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which (i) generate revenues
exceeding the funds required to provide the property related service, (ii) are
used for any purpose other than those for which the fees and charges are
imposed, (iii) are for a service not actually used by, or immediately available
to, the owner of the property in question, or (iv) are used for general
governmental services, including police, fire or library services, where the
service is available to the public at large in substantially the same manner as
it is to property owners. Further, before any property related fee or charge may
be imposed or increased, written notice must be given to the record owner of
each parcel of land affected by such fee or charges. The local government must
then hold a hearing upon the proposed imposition or increase of such property
based fee, and if written protests against the proposal are presented by a
majority of the owners of the identified parcels, the local government may not
impose or increase the fee or charge. Moreover, except for fees or charges for
sewer, water and refuse collection services, no property related fee or charge
may be imposed or increased without majority approval by the property owners
subject to the fee or charge or, at the option of the local agency, two-thirds
voter approval by the electorate residing in the affected area.
Proposition 87. On November 8, 1988, California voters approved Proposition
87. Proposition 87 amended Article XVI, Section 16, of the California
Constitution by authorizing the California Legislature to prohibit redevelopment
agencies from receiving any of the property tax revenue raised by increased
property tax rates levied to repay bonded indebtedness of local governments
which is approved by voters on or after January 1, 1989.
FLORIDA
Florida is a state characterized by rapid population growth and substantial
capital needs which are being funded through frequent debt issuances and
pay-as-you-go financing. Florida's economy is characterized by a large service
sector, a dependence on the tourism and construction industries, and a large
retirement population. The management of rapid growth has been the major
challenge facing state and local governments. While attracting many senior
citizens, Florida also offers a favorable business environment and growing
employment opportunities that have continued to generate working-age population
immigration. As this growth continues, particularly within the retirement
population, the demand for both public and private services will increase, which
may strain the service sector's capacity and impede the State's budget balancing
efforts.
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.
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. Tourist
arrivals are expected to decrease 2.7% and 3.2%, in fiscal years 1996-97 and
1997-98, respectively. The total number of visiting tourists is expected to
reach 42.6 million and 43.9 million during fiscal years 1996-97 and 1997-98,
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
1995, the share had edged downward to nearly 5%. This trend is expected to
continue as Florida's economy continues to diversify.
The ability of the State and its local units of government to satisfy its
debt obligations may be affected by numerous factors which impact on the
economic vitality of the State in general and the particular region of the State
in which the issuer of the debt obligations is located. South Florida is
particularly susceptible to international trade and currency imbalances and to
economic dislocations in Central and South America, due to its geographical
location and its involvement with foreign trade, tourism and investment capital.
North and Central Florida are impacted by problems in the agricultural sector,
particularly with regard to the citrus and sugar industries. Short-term adverse
economic conditions may be created in these areas, and in the State as a whole,
due to crop failures, severe weather conditions or other agriculture-related
problems. The State economy also has historically been dependent on the tourism
and construction industries and is, therefore, sensitive to trends in those
sectors.
MASSACHUSETTS
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 4.6% in January 1996 to 4.0% in January
1997.
1995 Fiscal Year. Fiscal 1995 tax revenue collections totalled $11.163
billion. Budgeted revenues and other sources, including non-tax revenue
collected in fiscal 1995 totalled $16.387 billion, approximately $837 million,
or 5.4%, above 1994 budgeted revenues of $15.550 billion. Budgeted expenditures
and other uses of funds in 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.
1996 Fiscal Year. Current fiscal 1996 projected spending is approximately
$16.963 billion, including approximately $153.2 million reserved for
contingencies. Projected revenues are approximately $16.851 billion. The fiscal
1996 forecast for federal reimbursements has decreased by approximately $7
million primarily due to lower reimbursable spending in public assistance
programs.
1997 Fiscal Year. On April 13, 1996, the House of Representatives adopted a
fiscal 1997 budget that provides for total expenditures of approximately $17.615
billion. A legislative conference committee will develop a compromise budget for
consideration by the House and Senate, which upon enactment by both houses will
be presented to the Governor. Tax collections are reported to be well above the
Revenue Department's target range.
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. The projects include 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 complete 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
assumptions regarding the amounts to be supplied through federal aid are subject
to change.
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, no significant
challenge has been raised since it took effect. Increased revenues received by
the state and passed on to local governments during the 1980's ameliorated the
effect of this initiative and made local governments in Massachusetts more
dependent on state aid than those in other states. Therefore, the recent fiscal
problems encountered by the state have amplified the economic and fiscal
problems encountered by cities and towns throughout the Commonwealth. A
continuation of the Commonwealth's fiscal problems resulting in further 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.
MISSISSIPPI
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, 1996, $4.87 billion in revenue was collected by the Special Fund. The major
sources of such revenue being $2.33 billion from federal grants-in-aid,
including $1.49 billion for public health and welfare and $371.7 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, 1996, the State derived 40.0% of total
revenue from sales taxes, 27.4% from individual income taxes and 9.7% from
corporate income taxes. Sales taxes, the largest source of revenue for the
General Fund, can be adversely affected by downturns in the economy. The General
Fund had an ending fund balance of $85.6 million for fiscal year 1996. 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 had experienced cash flow
problems the prior years prior to the Budget Reform Act of 1992. Commencing with
fiscal year 1994, the General Fund appropriation is limited to 98% of the sum of
the official revenue estimate and the estimated prior year ending cash balance.
Additionally, the balance of the State's Working Cash -- Stabilization Fund is
presently $207.7 million, equalling 7 1/2% of the fiscal year 1997 General Fund
appropriation, its maximum balance for fiscal 1997.
An action against the State regarding the conditions in its penal
institutions, which has been reviewed by the Attorney General's office is
reported to be the only significant case in which the State is the defendant and
wherein the State's financial resources may be materially adversely affected.
NEW YORK
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
240,000 jobs since late 1992, employment growth in the State has been below the
national average primarily due to significant cutbacks in the computer,
manufacturing, utility, defense and banking industries. New York's economy is
expected to continue to expand modestly during 1997. The unemployment rate for
the State in February, 1997 was 6.3%, unchanged from last year, versus 5.3% for
the nation. New York City's unemployment rate was 8.8% for 1996, up from 8.2% a
year earlier.
In July 1995, the State Comptroller issued its audit of the State's
1994-1995 fiscal year prepared in accordance with generally accepted auditing
standards. The State completed its 1994-1995 fiscal year with a General Fund
operating deficit of $1.426 billion, as compared with an operating surplus of
$914 million for the previous fiscal year. The 1994-1995 fiscal year deficit was
caused by several factors including the adoption of changes in accounting
methodologies by the State Comptroller. The State used $1.026 billion of the
1993-1994 fiscal year surplus in the 1994-1995 fiscal year.
The State ended its 1995-1996 fiscal year in balance, with a reported
1995-1996 General Fund cash surplus of $445 million. Prior to adoption of the
State's 1995-1996 fiscal year budget, the State had projected a potential budget
gap of approximately $5 billion, which was closed primarily through spending
reductions, cost containment measures, State agency actions and local assistance
reforms.
The State ended its 1997 fiscal year with a $145 million surplus, leaving a
total fund balance of $433 million. The surplus was due mainly to an increase of
tax revenues in the wake of tax reductions in 1996, with personal income tax
receipts up 2.0%, sales tax up 4.4%, business taxes up 4.4%, and consumer taxes
and fees up 2.5%. Tax collections were particularly enhanced by the booming
financial sector. Growth in that sector is expected to slow in fiscal year 1998,
which could impact tax revenue growth. Government spending also declined by
0.9%, particularly capital spending and debt service.
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 1996 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 projected budget gaps of $3.3 billion, $2.3
billion, $3.1 billion and $2.7 billion for the 1994, 1995, 1996 and 1997 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. For the 1998 fiscal year, the
City previously projected a budget gap of $720 million after taking into account
the prepayment in the 1997 fiscal year of $856 million of debt service due in
the 1998 and 1999 fiscal years. Various gap-closing actions to balance the 1998
fiscal year budget include advancing fiscal year 1997 surplus into fiscal year
1998, reductions in entitlement programs, federal welfare reform savings,
additional state aid, cost saving initiatives and asset sales. The City
currently projects budget gaps of $2.0 billion, $2.9 billion and $2.7 billion
for its 1999, 2000 and 2001 fiscal years, respectively. The City's gap-closing
plans for the 1999 through 2001 fiscal years include savings from restructuring
city government and privatization, City agency actions, additional State aid,
asset sales 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 1998
through 2001 fiscal years. Implementation of the City's four-year annual
financial plan is also dependent upon the City's ability to market its
securities successfully in the public credit markets. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the New York City Transitional Finance Authority (TFA) primarily to reconstruct
and rehabilitate the City's infrastructure and physical assets and to make other
capital investments. In 1997, the State enacted the New York City Transitional
Finance Authority Act (the "Finance Authority Act"), which created the TFA, to
assist the City to avoid certain state constitutional debt limitations. The TFA
is authorized to issue up to $7.5 billion in long-term debt. On June 2, 1997 an
action was brought in the State Supreme Court, Albany County seeking a
declaratory judgment declaring that the Finance Authority Act to be
unconstitutional. If the Finance Authority Act were voided, and depending on
whether the New York State Legislature took other action which would provide
relief to the City under the general debt limit, the City might be required to
curtail its currently defined capital program early in the 1998 fiscal year. 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, 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.
As of 1997, the City's general obligation bonds were 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+. On
February 28, 1996, Fitch placed the City's general obligation bonds on Fitch
Alert with negative implications. On November 5, 1996, Fitch removed the City's
general obligation bonds from FitchAlert, although Fitch stated that the outlook
remains negative. 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. Ratings for the State are Moody's "A(2),"
S&P "A-" and Fitch "A+".
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.
OHIO
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 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 $300.2 million transfer from the Budget Stabilization Fund ("BSF") to
the GRF. As fiscal year 1992 progressed, reduced tax collections led to a
revenue shortfall. This, in combination with additional expenditures, produced a
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 fiscal year 1994 budget was balanced. The
1996-97 biennial budget calls for GRF expenditures to increase 9.1% over the
1995-96 biennium.
For the fiscal year ended June 30, 1996, the BSF was up to $828.3 million
and the GRF had a $781 million fund balance.
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 119 of the State's 600+ local school districts. A small
number of local school districts have in any year required special assistance
from the State under a prior program 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,
twenty-nine districts borrowed $71.1 million in fiscal year 1995 and twenty
districts borrowed $87 million in fiscal year 1996. Schools were affected by
budget-balancing expenditure reductions discussed above.
Litigation, similar to that in other states, has been pending questioning
the constitutionality of Ohio's system of school funding. The Ohio Supreme 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, staying its order for a year to permit
time for responsive corrective actions. 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.
RHODE ISLAND
Following severe fiscal problems during the recession of the early 1990's,
Rhode Island has significantly improved its financial position. Strong budget
discipline in fiscal year 1995, led to a General Fund balance of over $50
million, including reserves. Primary General Fund revenue sources include
individual income, sales and use taxes, and corporate income taxes. Recently,
revenue growth has improved, even with a weak economic recovery. Early in the
1995-96 budget year, an estimated $62 million fiscal gap emerged. Of that, $36.3
million was attributable to revenue shortfalls. In October of 1995, the Governor
began implementing reduction measures. Subsequently a modest surplus was reached
for fiscal year end 1996, bringing the General Fund balance to $53 million or
1.9% of revenues. For the first ten months of fiscal 1997, revenues are 5.2%
higher than the previous year.
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.
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 further modified 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 enacted budget for fiscal year 1996 increased
school aid by $22.9 million (5.3%), including $20.7 million in operations aid,
which will be distributed through the PWF. Education aid totalled $462 million
in fiscal 1997.
WEST VIRGINIA
The economy of the State is based primarily on manufacturing, mining and
tourism. New growth has occurred in home construction, retail trade and the
service sector. 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. The State deposited 50% into an
emergency reserve fund, to guard against out-year shortfalls. The General Fund
1995 balance was $63.7 million, or 2.8% of appropriations.
The Business and Occupation Tax, the Personal Income Tax, the Consumer Sales
and Service Tax, the Minerals Severance Tax, the Corporate Net Income Tax and
the Business Franchise Tax together provided nearly 90% of the revenue for the
General Revenue Fund in the fiscal year ended June 30, 1996. 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.
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.
<PAGE>
APPENDIX D: TAX EQUIVALENT YIELD TABLES
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
applicable state and local tax rates applicable for 1997.
Note: The federal income tax portion of the indicated combined income tax
brackets in the tables does not take into account the effect of a reduction in
the deductibility of itemized deductions (including applicable state and local
taxes) for taxpayers with adjusted gross income in excess of $121,200. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $121,200 and joint filers
with adjusted gross income in excess of $181,800. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
in the tables.
Yields shown are for illustration purposes only and are not meant to represent a
Fund's actual yield. No assurance can be given that any specific tax exempt
yield will be achieved. While it is expected that each Portfolio will invest
principally in obligations, the interest from which is exempt from the regular
federal income tax and applicable state and local taxes described in the
Prospectus, other income received by a Portfolio and allocated to a Fund may be
taxable. The tables do not take into account state or local taxes, if any,
payable on Fund distributions except for those described in the footnote to the
tables. Also, 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 herein is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<TABLE>
CALIFORNIA
<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>
Up to $ 24,650 Up to $ 41,200 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 59,751 - $124,650 $ 99,601 - $151,750 37.42 6.39 7.19 7.99 8.79 9.59 10.39 11.19
$124,651 - $271,050 $151,751 - $271,050 41.95 6.89 7.75 8.61 9.47 10.34 11.20 12.06
Over $271,050 Over $271,050 45.22 7.30 8.21 9.13 10.04 10.95 11.87 12.78
* Net amount subject to federal and California personal income tax after deductions and exemptions.
+ The table is based on California State income tax laws and tax rates applicable for 1996. 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.
FLORIDA
<CAPTION>
YOU ARE IN
THIS IN YOUR BRACKET, A TAX-FREE YIELD OF
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON FEDERAL ------------------------------------
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 $ 24,650 Up to $ 41,200 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 59,751 - $124,650 $ 99,601 - $151,750 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$124,651 - $271,050 $151,751 - $271,050 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $271,050 Over $271,050 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* 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 $ 24,650 Up to $ 41,200 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 59,751 - $124,650 $ 99,601 - $151,750 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$124,651 - $271,050 $151,751 - $271,050 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $271,050 Over $271,050 6.97 7.80 8.62 9.45 10.28 11.10 11.93
* 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.
MASSACHUSETTS
<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 $ 24,650 Up to $ 41,200 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 59,751-$124,650 $ 99,601-$151,750 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$124,651-$271,050 $151,751-$271,050 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $271,050 Over $271,050 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
* 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.
MISSISSIPPI
<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>
Up to $ 24,650 Up to $ 41,200 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 31.60 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 59,751-$124,650 $ 99,601-$151,750 34.45 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$124,651-$271,050 $151,751-$271,050 39.20 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $271,050 Over $271,050 42.62 6.97 7.84 8.71 9.59 10.46 11.33 12.20
* 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%.
NEW YORK
<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>
Up to $ 24,650 Up to $ 41,200 24.55% 5.30% 5.96% 6.63% 7.29% 7.95% 8.62% 9.28%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 36.14 6.26 7.05 7.83 8.61 9.40 10.18 10.96
$ 59,751 - $124,650 $ 99,601 - $151,750 38.80 6.54 7.35 8.17 8.99 9.80 10.62 11.44
$124,651 - $271,050 $151,751 - $271,050 43.24 7.05 7.93 8.81 9.69 10.57 11.45 12.33
Over $271,050 Over $271,050 46.43 7.47 8.40 9.33 10.27 11.20 12.13 13.07
* 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 combined tax bracket is calculated using the highest State rate (6.85%) and the highest City rate (including
surcharges) 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 and City rates are at their
maximum (6.85% and 4.457%, respectively) throughout all other brackets. The applicable federal tax rates within each of these
combined tax brackets are 15%, 28%, 31%, 36%, and 39.6% over the same ranges of income.
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 1997.
<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>
Up to $ 24,650 Up to $ 41,200 20.82% 5.05% 5.68% 6.31% 6.95% 7.58% 8.21% 8.84%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 32.93 5.96 6.71 7.46 8.20 8.95 9.69 10.44
$ 59,751 - $124,650 $ 99,601 - $151,750 35.73 6.22 7.00 7.78 8.56 9.34 10.11 10.89
$124,651 - $271,050 $151,751 - $271,050 40.38 6.71 7.55 8.39 9.23 10.06 10.90 11.74
Over $271,050 Over $271,050 43.74 7.11 8.00 8.89 9.78 10.66 11.55 12.44
* 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 New York State rate (6.85%) 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, 6.85%, 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.
OHIO
<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>
Up to $ 24,650 Up to $ 41,200 19.42% 4.96% 5.58% 6.21% 6.83% 7.45% 8.07% 8.69%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 32.28 5.91 6.64 7.38 8.12 8.86 9.60 10.34
$ 59,751 - $124,650 $ 99,601 - $151,750 35.76 6.23 7.01 7.78 8.56 9.34 10.12 10.90
$124,651 - $271,050 $151,751 - $271,050 40.80 6.76 7.60 8.45 9.29 10.14 10.98 11.82
Over $271,050 Over $271,050 44.13 7.16 8.05 8.95 9.84 10.74 11.63 12.53
* 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.
RHODE ISLAND
<CAPTION>
A FEDERAL AND RHODE ISLAND STATE
TAX EXEMPT YIELD OF:
COMBINED --------------------------------------------------------------------
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:
- -------------------------------------------- ------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 18.51% 4.91% 5.52% 6.14% 6.75% 7.36% 7.98% 8.59%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 33.54 6.02 6.77 7.52 8.28 9.03 9.78 10.53
$ 59,751 - $124,650 $ 99,601 - $151,750 36.88 6.34 7.13 7.92 8.71 9.51 10.30 11.09
$124,651 - $271,050 $151,751 - $271,050 42.34 6.94 7.80 8.67 9.54 10.41 11.27 12.14
Over $271,050 Over $271,050 46.18 7.43 8.36 9.29 10.22 11.15 12.08 13.01
* 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.
WEST VIRGINIA
<CAPTION>
A FEDERAL AND WEST VIRGINIA STATE TAX EXEMPT YIELD OF:
COMBINED ------------------------------------------------------
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>
Up to $ 24,650 Up to $ 41,200 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 32.68 5.94 6.68 7.43 8.17 8.91 9.66 10.40
$ 59,751 - $124,650 $ 99,601 - $151,750 35.49 6.20 6.98 7.75 8.53 9.30 10.08 10.85
$124,651 - $271,050 $151,751 - $271,050 40.16 6.68 7.52 8.36 9.19 10.03 10.86 11.70
Over $271,050 Over $271,050 43.53 7.08 7.97 8.85 9.74 10.62 11.51 12.40
* Net amount subject to federal and West Virginia personal income tax after deductions and exemptions.
+ The combined tax rate for the lowest federal income brackets is 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>
<PAGE>
APPENDIX E: RATINGS
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 SAI 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 a Portfolio's
fiscal year end.
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. Each 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>
[LOGO]
EATON VANCE
- --------------------
Mutual Funds
- --------------------------------------------------------------------------------
EATON VANCE CALIFORNIA MUNICIPALS FUND
EATON VANCE FLORIDA MUNICIPALS FUND
EATON VANCE MASSACHUSETTS MUNICIPALS FUND
EATON VANCE MISSISSIPPI MUNICIPALS FUND
EATON VANCE NEW YORK MUNICIPALS FUND
EATON VANCE OHIO MUNICIPALS FUND
EATON VANCE RHODE ISLAND MUNICIPALS FUND
EATON VANCE WEST VIRGINIA MUNICIPALS FUND
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1997
- --------------------------------------------------------------------------------
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, 200 Clarendon Street, Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
10/1MUNISAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
October 1, 1997
EATON VANCE NATIONAL MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information provides general information about
Eaton Vance National Municipals Fund (the "Fund") and National Municipals
Portfolio (the "Portfolio"). This Statement of Additional Information is
sometimes referred to herein as the "SAI."
TABLE OF CONTENTS
Page
Additional Information about Investment Policies ..................... 1
Investment Restrictions .............................................. 6
Trustees and Officers ................................................ 8
Investment Adviser and Administrator ................................. 10
Custodian ............................................................ 13
Services for Accumulation -- Class A Shares .......................... 13
Service for Withdrawal ............................................... 14
Determination of Net Asset Value ..................................... 14
Investment Performance ............................................... 15
Taxes ................................................................ 16
Principal Underwriter ................................................ 18
Service Plan -- Class A Shares ....................................... 19
Distribution Plans -- Class B and Class C Shares ..................... 20
Portfolio Security Transactions ...................................... 21
Other Information .................................................... 23
Independent Certified Public Accountants ............................. 24
Financial Statements ................................................. 24
Appendix A: Class A Shares ........................................... a-1
Appendix B: Class B Shares ........................................... b-1
Appendix C: Class C Shares ........................................... c-1
Appendix D: Tax Equivalent Yield Table ............................... d-1
Appendix E: Ratings .................................................. e-1
THIS 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 OCTOBER 1, 1997, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. 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>
This SAI provides information about the Fund and the Portfolio. Capitalized
terms used in this SAI and not otherwise defined have the meanings given them in
the 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 of
which is exempt from federal income tax and is not a tax preference item for
purposes of 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 before
August 7, 1986, which include "qualified Section 501(c)(3) bonds" or refundings
of certain obligations included in the second category. In assessing the federal
income tax treatment of interest on any municipal obligation, the Portfolio will
generally rely on an opinion of the issuer's counsel (when available) and will
not undertake any independent verification of the basis for the opinion. The two
principal classifications of municipal bonds are "general obligation" and
"revenue" bonds.
Interest on certain "private activity bonds" issued after August 7, 1986 is
exempt from regular federal income tax but such interest (including a
distribution by the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the AMT. For corporate shareholders, the Fund's distributions
derived from interest on all municipal obligations (whenever issued) is included
in "adjusted current earnings" for purposes of the AMT as applied to
corporations (to the extent not already included in alternative minimum taxable
income as income attributable to private activity bonds).
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (i.e., obligations with a term of more than one
year) purchased after April 30, 1993 other than, in general, at their original
issue is taxable as ordinary income. A long-term debt obligation is generally
treated as acquired at a market discount if purchased after its original issue
at a price less than (i) the stated principal amount payable at maturity, in the
case of an obligation that does 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 are 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 municipal 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 Portfolio may invest 25% or more of its total assets in municipal
obligations whose issuers are located in the same state or 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 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, effect 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.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to these
arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Such arrangements are, therefore, subject to the risk that
the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value. In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this SAI with respect to any defaulted obligations held by the
Portfolio.
SHORT-TERM TRADING
The Portfolio may sell (and later purchase) securities in anticipation of a
market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the same
time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, such as changes
in the overall demand for or supply of various types of municipal obligations or
changes in the investment objectives of investors. Such trading may be expected
to increase the portfolio turnover rate, which may increase capital gains and
the expenses incurred in connection with such trading. The Portfolio cannot
accurately predict its portfolio turnover rate, but it is anticipated that the
annual 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.
For the fiscal years ended September 30, 1996 and 1995, the portfolio turnover
rates of the Portfolio were 19% and 54%, respectively.
WHEN-ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-issued"
basis, that is, delivery and payment for the securities normally taking place
within a specified number of days after the date of the Portfolio's commitment
and are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Portfolio may also purchase securities on a when-issued basis
pursuant to refunding contracts in connection with the refinancing of an
issuer's outstanding indebtedness. Refunding contracts generally require the
issuer to sell and the Portfolio to buy such securities on a settlement date
that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. When the Portfolio commits to purchase a security on a
when-issued basis it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by the Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the issuer
and changes in the level of interest rates (i.e., appreciation when interest
rates decline and depreciation when interest rates rise). Therefore, to the
extent that the Portfolio remains substantially fully invested at the same time
that it has purchased securities on a when-issued basis, there will be greater
fluctuations in the Portfolio's net asset value than if it solely set aside cash
to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and which 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. Longer term fixed-rate bonds may give the holder a right to
request redemption at certain times (often annually after the lapse of an
intermediate term). These bonds are more defensive than conventional long term
bonds (protecting to some degree against a rise in interest rates) while
providing greater opportunity than comparable intermediate term bonds, because
the Portfolio may retain the bond if interest rates decline. By acquiring these
kinds of obligations the Portfolio obtains the contractual right to require the
issuer of the security or some other person (other than a broker or dealer) to
purchase the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement with the seller or some
other person. Because this right is assignable with the security, which is
readily marketable and valued in the customary manner, the Portfolio will not
assign any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put or demand features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. The Portfolio
would have the right to call a loan and obtain the securities loaned at any time
on up to five business days' notice. During the existence of a loan, the
Portfolio will continue to receive the equivalent of the interest paid by the
issuer on the securities loaned and will also receive a fee, or all or a portion
of the interest on investment of the collateral, if any. However, the Portfolio
may pay lending fees to such borrowers. The Portfolio would not have the right
to vote any securities having voting rights during the existence of the loan,
but would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the securities
loaned if the borrower of the securities fails financially. However, the loans
will be made only to organizations deemed by the Portfolio's management to be of
good standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type, net of
administrative expenses and any finders' fees, 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. The Portfolio will engage in transactions in
futures and related options contracts only to the extent such transactions are
consistent with the requirements of the Code for maintaining qualification of
the Fund as a regulated investment company for federal income tax purposes (see
"Taxes").
ASSET COVERAGE REQUIREMENTS
Transactions involving when-issued securities or futures contracts and
options (other than options that the Portfolio has purchased) expose the
Portfolio to an obligation to another party. The Portfolio will not enter into
any such transactions unless it owns either (1) an offsetting ("covered")
position in securities or other options or futures contracts, or (2) cash or
liquid securities (such as readily marketable obligations and money market
instruments) with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. The Portfolio will comply with
Commission guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash or liquid securities in a segregated
account maintained by its custodian in the prescribed amount. The securities in
the segregated account will be marked to market daily.
Assets used as cover or held in a segregated account maintained by the
custodian cannot be sold while the position requiring coverage or segregation is
outstanding unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of the Portfolio's assets to segregated
accounts or to cover could impede portfolio management or the Portfolio's
ability to meet redemption requests or other current obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of the Fund present or
represented by proxy at a meeting if the holders of more than 50% of the shares
are present or represented at the meeting or (b) more than 50% of the shares of
the Fund. Accordingly, the Fund may not:
(1) Purchase any security (other than U.S. Government securities) if such
purchase, at the time thereof, would cause more than 5% of the total assets of
the Fund (taken at market value) to be invested in the securities of a single
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(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) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund 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);
(4) Purchase securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of the total outstanding voting securities of such
issuer to be held by the Fund; provided, however, that the Fund may invest all
or part of its investable assets in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund;
(5) Purchase securities issued by any other open-end investment company or
investment trust; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(6) 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 is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund 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);
(7) 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, or participate on a joint or a joint and
several basis in any trading account in securities;
(8) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security. (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(9) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund is permitted to incur. The Fund will not purchase
securities while outstanding temporary bank borrowings exceed 5% of its total
assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with substantially the same investment
objective, policies and restrictions as the Fund while such borrowings are
outstanding. The deposit of cash, cash equivalents and liquid debt securities in
a segregated account with the custodian and/or with a broker in connection with
futures contracts or related options transactions and the purchase of securities
on a "when-issued" basis is not deemed to be a pledge;
(10) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(11) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate;
(12) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities;
(13) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its underwriter, as principal;
however, any such person or concerns may be employed as a broker upon customary
terms; or
(14) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or 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) 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 of the Securities Act of 1933 and commercial paper issued
pursuant to Section 4(2) of said Act that the Board of Trustees of the Trust or
the Portfolio, or its delegate, determine to be liquid; provided, however, that
the Fund may invest without limitation in the Portfolio or in another investment
company with substantially the same investment objective; (b) engage in options,
futures or forward transactions if more than 5% of its net assets, as measured
by the aggregate of the premiums paid by the Fund or the Portfolio, would be so
invested. The Fund and the Portfolio may purchase put options on municipal
obligations only if after such purchase not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it would
be so invested; or (c) purchase any put options, long futures contracts, or call
options on a futures contract if at the date of such purchase realized net
losses from such transactions during the fiscal year to date exceed 5% of its
average net assets during such period. Neither the Fund nor the Portfolio intend
to invest in reverse repurchase agreements during the current fiscal year.
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 obligation.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease resulting
from a change in values, assets or other circumstances, other than a subsequent
rating change below investment grade made by a rating service, will not compel
the Fund or the Portfolio, as the case may be, to dispose of such security or
other asset. Notwithstanding the foregoing, the Fund and Portfolio must always
be in compliance with the borrowing policies set forth above.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Investment Adviser, BMR, a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); 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 or the Portfolio,
as defined in the 1940 Act by virtue of their affiliation with BMR, Eaton Vance,
EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (66), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company); Chairman of the Board of Newspapers of New England, Inc. Director
or Trustee of various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (55), Vice President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and a
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (62), 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 02163
NORTON H. REAMER (62), Trustee
President and Director, United Asset Management Corporation (a holding company
owning institutional investment management firms); Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (70), Trustee
Formerly Director of 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 (67), 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 (54), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected President of
the Trust and the Portfolio on December 13, 1993.
ROBERT B. MACINTOSH (40), Vice President
Vice President of Eaton Vance and EV, and BMR. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice
President of the Trust on March 22, 1993.
THOMAS M. METZOLD (39), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Metzold was elected Vice
President of the Portfolio on June 19, 1995.
JAMES L. O'CONNOR (52), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
ALAN R. DYNNER (56), Secretary
Vice President and Chief Legal Officer of Eaton Vance, BMR, EVC and EV since
November 1, 1996. Previously, he was a Partner of the law firm of Kirkpatrick
& Lockhart LLP, New York and Washington, D.C., and was Executive Vice
President of Neuberger & Berman Management, Inc., a mutual fund management
company. Officer of various investment companies managed by Eaton Vance or
BMR. Mr. Dynner was elected Secretary on June 23, 1997.
JANET E. SANDERS (61), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (34), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor, The
Boston Company (1991-1993). Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Murphy was elected Assistant Secretary on March 27,
1995.
ERIC G. WOODBURY (40), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert, Price & Rhoads. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Fund and the Portfolio, including
investment advisory (Portfolio only), administrative, transfer agency, custodial
and fund accounting and distribution services, and (ii) all other matters in
which Eaton Vance or its affiliates has any actual or potential conflict of
interest with the Fund, the Portfolio or investors therein.
The Nominating Committee of the Board of Trustees of the Trust and the
Portfolio is comprised of four Trustees who are not "interested persons" as that
term is defined under the 1940 Act ("noninterested Trustees"). The Committee has
four-year staggered terms, with one member rotating off the Committee to be
replaced by another noninterested Trustee. The purpose of the Committee is to
recommend to the Board nominees for the position of noninterested Trustee and to
assure that at least a majority of the Board of Trustees is independent of Eaton
Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing matters relative
to trading and brokerage policies and practices, accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the custodian, transfer agent and dividend disbursing
agent of the Trust 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 "
Trustees" Plan"). Under the Trustees' 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 Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' 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 Trust nor the Portfolio has a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and the
Portfolio 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 Trust
or the Portfolio.) During the fiscal year ended September 30, 1996, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Trust the Portfolio, and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM TRUST(2) FROM PORTFOLIO FUND COMPLEX
- ---- ------------- -------------- ------------------
Donald R. Dwight ..... $687 $5,942(3) $142,500(5)
Samuel L. Hayes, III . 625 5,728(4) 153,750(6)
Norton H. Reamer ..... 619 5,629 142,500
John L. Thorndike .... 634 5,820 147,500
Jack L. Treynor ...... 679 6,065 147,500
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) The Trust consisted of 60 Funds as of September 30, 1996.
(3) Includes $2,339 of deferred compensation.
(4) Includes $1,901 of deferred compensation.
(5) Includes $42,500 of deferred compensation. (6) Includes $37,500 of deferred
compensation.
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 $20 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to a family of mutual funds,
and individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Bombay. Together Eaton Vance and Lloyd George manage over
$21 billion in assets. Eaton Vance mutual funds are distributed by the Principal
Underwriter, both within the United States and offshore.
The Principal Underwriter believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 32 long-term state portfolios, 5
national portfolios and 9 limited maturity portfolios, which serve as investment
vehicles for over 100 mutual funds with varying pricing options. A staff of 29
(including 7 portfolio managers and 9 credit specialists) 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 $7.6 billion. The
investment philosophy of the municipal investment group is to: seek value by
avoiding unnecessary credit risk; build portfolios one security at a time; and
take a long-term approach to managing market risk. Over the long-term, the group
seeks to maximize tax-free income by keeping portfolios fully invested (rather
than trying to "time the market" for short-term results) and reduce potential
capital losses due to poor credit quality. Diligent and continuing research and
analysis are a critical component of the municipal investment group's investment
philosophy and long-term strategy.
The following persons manage one or more of the Eaton Vance municipal
portfolios. For the identity of the Portfolio's portfolio manager, see the
Prospectus.
William H. Ahern, Jr. is a Vice President of Eaton Vance and BMR. Mr.
Ahern graduated from Boston College in 1981 with a B.A. in Economics, and
received his M.B.A. degree in Finance from Babson College in 1987. Mr. Ahern
is a member of the Boston Security Analysts Society.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and BMR, and the
portfolio manager of single-state tax-exempt funds in six states: Hawaii,
Louisiana, Massachusetts, Minnesota, New Jersey and North Carolina. He also
serves as economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and any legal obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto, to the extent not covered by
insurance.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Prospectus. As at September 30, 1996, the
Portfolio had net assets of $2,212,478,002. For the fiscal years ended September
30, 1994, 1995 and 1996, the Portfolio paid BMR advisory fees of $9,648,375,
$9,944,026 and $9,942,568, respectively, (equivalent to 0.44%, 0.45% and 0,44%
of the Portfolio's average net assets for each such period).
The Investment Advisory Agreement with BMR continues in effect from year to
year so long as such continuance is approved at least annually (i) by the vote
of a majority of the noninterested Trustees of the Portfolio cast in person at a
meeting specifically called for the purpose of voting on such approval and (ii)
by the Board of Trustees of the Portfolio or by vote of a majority of the
outstanding voting securities of the Portfolio. The Agreement may be terminated
at any time without penalty on sixty (60) days' written notice by the Board of
Trustees of either party, or by vote of the majority of the outstanding voting
securities of the Portfolio, and the Agreement will terminate automatically in
the event of its assignment. The Agreement provides that BMR may render services
to others. The Agreement also provides that BMR shall not be liable for any loss
incurred in connection with the performance of its duties, or action taken or
omitted under that Agreement, in the absence of willful misfeasance, bad faith,
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties thereunder, or for any losses sustained
in the acquisition, holding or disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the Fund,
Eaton Vance has been engaged to administer the Fund's affairs, subject to the
supervision of the Trustees of the Trust, and shall furnish for the use of the
Fund office space and all necessary office facilities, equipment and personnel
for administering the affairs of the Fund.
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 the Trust's registration under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and any legal obligation of the Trust to indemnify its Trustees and
officers with respect thereto, to the extent not covered by insurance.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, M. Dozier Gardner, James B. Hawkes and Benjamin A.
Rowland, Jr. The Directors of EVC consist of the same persons and John G.L.
Cabot and Ralph Z. Sorenson. Mr. Clay is chairman, Mr. Gardner is vice chairman
and Mr. Hawkes is president and chief executive officer of EVC, BMR, Eaton Vance
and EV. All of the issued and outstanding shares of Eaton Vance and EV are owned
by EVC. All of the issued and outstanding shares of BMR are owned by Eaton
Vance. All shares of the outstanding Voting Common Stock of EVC are deposited in
a Voting Trust which expires on December 31, 1997, the Voting Trustees of which
are Messrs. Clay, Gardner, Hawkes and Rowland and Thomas E. Faust, Jr. The
Voting Trustees have unrestricted voting rights for the election of Directors of
EVC. All of the outstanding voting trust receipts issued under said Voting Trust
are owned by certain of the officers of BMR and Eaton Vance who are also
officers or officers and Directors of EVC and EV. As of September 30, 1997,
Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust receipts,
and Messrs. Rowland and Faust owned 15% and 13%, respectively, of such voting
trust receipts. Messrs. Hawkes and Dynner 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, Metzold, Murphy, O'Connor and
Woodbury, and Ms. Sanders, are officers or Trustees of the Trust and/or the
Portfolio and are also members of the BMR, Eaton Vance and EV organizations.
Eaton Vance owns all of the stock of Northeast Properties, Inc., which is
engaged in real estate investment. EVC owns all the stock of Fulcrum Management,
Inc. and MinVen, Inc., which are engaged in precious metal mining venture
investment and management. EVC also owns 22% of the Class A shares of Lloyd
George Management (B.V.I.) Limited, a registered investment adviser. Eaton
Vance, BMR, EVC and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, IBT. It is Eaton Vance's opinion that the terms and conditions of
such transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund or the Portfolio and such
banks.
CUSTODIAN
IBT acts as custodian for the Fund and the Portfolio. IBT has the custody of
all cash and securities representing the Fund's interest in the Portfolio, has
custody of all the Portfolio's assets, maintains the general ledger of the
Portoflio and the Fund and computes the daily net asset value of interests in
the Portfolio and the net asset value of shares of the Fund. In such capacity it
attends to details in connection with the sale, exchange, substitution, transfer
or other dealings with the Portfolio's investments, receives and disburses all
funds and performs various other ministerial duties upon receipt of proper
instructions from the Fund and the Portfolio. IBT charges fees which are
competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of Fund and
Portfolio net assets, and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then reduced by a
credit for cash balances of the particular investment company at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
particular investment company's average daily collected balances for the week.
Landon T. Clay, a Director of EVC and an officer, Trustee or Director of other
entities in the Eaton Vance organization, owns approximately 13% of the voting
stock of Investors Financial Services Corp., the holding company parent of IBT.
Management believes that such ownership does not create an affiliated person
relationship between the Trust or the Portfolio and IBT under the 1940 Act.
IBT also provides services in connection with the preparation of shareholder
reports and the electronic filing of such reports with the Commission, for which
it receives a separate fee.
SERVICES FOR ACCUMULATION -- CLASS A SHARES
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 Class A shares and shares of other funds exchangeable
for Class A shares and listed under "The Eaton Vance Exchange Privilege" in the
Prospectus 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 Shares" in the
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 Class A shares is calculated by taking the
dollar amount of the current purchase and adding it to the value (calculated at
the maximum current offering price) of the shares the shareholder owns in his or
her account(s) in the Fund and shares of other funds exchangeable for Class A
shares and listed under "The Eaton Vance Exchange Privilege" in the Prospectus.
The sales charge on the shares being purchased will then be at the rate
applicable to the aggregate. For sales charges on quantity purchases, see "How
to Buy Shares" in the Prospectus. Shares purchased (i) by an individual, his or
her spouse and their children under the age of twenty-one, and (ii) by a
trustee, guardian or other fiduciary of a single trust estate or a single
fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for the Right of Accumulation and if qualifying, the
applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her Authorized Firm must provide the Principal Underwriter
(in the case of a purchase made through an Authorized Firm) or the Transfer
Agent (in the case of an investment made by mail) with sufficient information to
permit verification that the purchase order qualifies for the accumulation
privilege. Confirmation of the order is subject to such verification. The Right
of Accumulation privilege may be amended or terminated at any time as to
purchases occurring thereafter.
SERVICE FOR WITHDRAWAL
The 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 Prospectus) based upon the value
of the shares held. The checks will be drawn from share redemptions and hence,
although they are a return of principal, may require the recognition of taxable
gain or loss. 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. 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 Portfolio is 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 use information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities, various relationships between securities,
and yield to maturity in determining value. Taxable obligations for which price
quotations are readily available normally will be valued at the mean between the
latest available bid and asked prices. Open futures positions on debt securities
are valued at the most recent settlement prices, unless such price does not
reflect the fair value of the contract, in which case the positions will be
valued by or at the direction of the Trustees of the Portfolio. Other assets are
valued at fair value using methods determined in good faith by or at the
direction of the Trustees of the Portfolio. The Fund and the Portfolio will be
closed for business and will not price their respective shares or interests on
the following business holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage, determined on the prior Portfolio Business Day, which
represented that investor's share of the aggregate interests in the Portfolio on
such prior day. Any additions or withdrawals for the current Portfolio Business
Day will then be recorded. Each investor's percentage of the aggregate interest
in the Portfolio will then be recomputed as a percentage equal to a fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the Portfolio Valuation Time on the prior Portfolio Business Day
plus or minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio on the current Portfolio
Business Day and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the Portfolio Valuation Time on the prior Portfolio
Business Day plus or minus, as the case may be, the amount of the net additions
to or withdrawals from the aggregate investment in the Portfolio on the current
Portfolio Business Day by all investors in the Portfolio. The percentage so
determined will then be applied to determine the value of the investor's
interest in the Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined separately for each Class of the
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the results. The calculation assumes (i) that all distributions are
reinvested at net asset value on the reinvestment dates during the period, (ii)
the deduction of the maximum sales charge from the initial $1,000 purchase
order, (iii) a complete redemption of the investment and, (iv) the deduction of
any CDSC at the end of the period. For information concerning the total return
of the Classes of the Fund, see Appendix A, Appendix B and Appendix C.
Yield is computed separately for each Class of the Fund pursuant to a
standardized formula by dividing net investment income per share earned during a
recent thirty-day period by the maximum offering price (including the maximum
initial sales charge for Class A Shares) 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 and Class
expenses for the period with the resulting number being divided by the average
daily number of Class shares outstanding and entitled to receive distributions
during the period. This yield figure does not reflect the deduction of any CDSCs
which (if applicable) are imposed on certain redemptions at the rates set forth
under "How to Redeem Shares" in the Prospectus. Yield calculations assume the
current maximum initial sales charge for Class A shares set forth under "How to
Buy Shares" in the Prospectus. (Actual yield may be affected by variations in
sales charges on investments.) 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 Classes of the Fund, see Appendix A, Appendix B
and Appendix C.
The Fund's total return may be compared to relevant indices, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
other investment companies.
The Trust (or Principal Underwriter) 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, Morningstar, Inc., The Bond Buyer, the Federal Reserve Board
or The Wall Street Journal). The Trust may also refer in investor publications
to Tax Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to
help illustrate the value of tax free investing, as well as other tax-related
information. Information, charts and illustrations showing the effects of
inflation and taxes (including their effects on the dollar and the return on
various investments) and compounding earnings may also be included in
advertisements and materials furnished to present and prospective investors.
Information about the portfolio allocation and holdings of the Portfolio at
a particular date (including ratings assigned by independent ratings services
such as Moody's, S&P and Fitch) may be included in advertisements and other
material furnished to present and prospective shareholders. Such information may
be stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield or distribution rate of the Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. Such information may also compare the taxable
equivalent yield (or value) of the Fund to the after-tax yield (or value) of
such other investment vehicles. Such information may be in the form of
hypothetical illustrations. A bank certificate of deposit, unlike the Fund's
shares, pays a fixed rate of interest and entitles the depositor to receive the
face amount of the certificate of deposit at maturity. A bank money market
deposit account is a form of savings account which pays a variable rate of
interest. Unlike the Fund's shares, bank certificates of deposit and bank money
market deposit accounts are insured by the Federal Deposit Insurance
Corporation. A money market mutual fund is designed to maintain a constant value
of $1.00 per share and, thus, a money market fund's shares are subject to less
price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
- cost associated with aging parents;
- funding a college education (including its actual and estimated
cost);
- health care expenses (including actual and projected expenses); -
long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in municipal bond
funds. Such information may describe the following advantages of investing in a
municipal bond mutual fund versus individual municipal bonds: regular monthly
income; free reinvestment of distributions; potential for increased income; bond
diversification; liquidity; low-cost easy access; and active management and in
depth credit analysis by investment professionals. In addition, by investing in
a municipal bond fund instead of individual bonds, an investor can avoid dealing
with the complexities of the municipal bond market, while benefitting from the
market access and lower transactions costs enjoyed by municipal bond funds.
The Trust (or Principal Underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to investors
or prospective investors. Such material or advertisements may also provide
information on the use of investment professionals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated and intends to qualify each
year as a regulated investment company ("RIC") under the Code. Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute substantially all of its
ordinary income (including tax-exempt income) and net income (after reduction by
any available capital loss carryforwards) in accordance with the timing
requirements imposed by the Code, so as to maintain its RIC status and avoid
paying any federal income or excise tax. The Fund so qualified for its fiscal
year ended September 30, 1996. Because the Fund invests its assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements in order for the Fund to also satisfy these
requirements. 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
(i) will be deemed to own its proportionate share of each of the assets of the
Portfolio and (ii) will be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid incurring a federal excise tax obligation, 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 its capital gain net income
(which is 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 (i) any available capital loss
carryforwards, and (ii) 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
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 that the issuers
of these securities default on their obligations pertaining thereto. The Code is
not entirely clear regarding the federal income tax consequences of the Fund's
taking certain positions in connection with ownership of such distressed
securities. For example, the Code is unclear regarding: (i) when the Portfolio
may cease to accrue interest, original issue discount, or market discount; (ii)
when and to what extent deductions may be taken for bad debts or worthless
securities; (iii) how payments received on obligations in default should be
allocated between principal and income; and (iv) whether exchanges of debt
obligations in a workout context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations, the
interest on which is exempt from regular federal income tax under Code Section
103(a). For purposes of applying this 50% requirement, the Fund will be deemed
to own its proportionate share of each of the assets of the Portfolio, and the
Portfolio currently intends to invest its assets in a manner such that the Fund
can meet this 50% requirement. Interest on certain municipal obligations is
treated as a tax preference item for purposes of the AMT. Shareholders of the
Fund are required to report tax-exempt interest on their federal income tax
returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of discount with respect to certain stripped municipal obligations or
their stripped coupons and certain realized gains or income attributable to
accrued market discount. Any distributions by the Fund of its share of such
capital gains (after reduction by any capital loss carryforwards) or taxable
income would be taxable to shareholders of the Fund. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to the
tax exempt interest earned by the Portfolio and allocated to the Fund. Certain
distributions if declared in October, November or December and paid the
following January may 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 RIC status.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net
long-term capital gains with respect to such shares. In addition, a loss
realized on a redemption or other disposition of Fund shares may be disallowed
to the extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service (the
"IRS"), as well as shareholders with respect to whom the Fund has received
notification from the IRS or a broker, may be subject to "backup" withholding of
federal income tax from the Fund's taxable dividends and distributions as well
as the proceeds of redemption transactions (including repurchases and
exchanges), at a rate of 31%. An individual's TIN is generally his or her social
security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax convention. 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: (i) the
shareholder is engaged in a trade or business in the United States; (ii) the
shareholder is present in the United States for a sufficient period of time
during a taxable year to be treated as a U.S. resident, (generally 180 days or
more); or (iii) the shareholder fails to provide any required certifications
regarding its 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, and, where applicable, foreign tax
consequences of investing in the Fund.
STATE AND LOCAL TAXES
The exemption of interest income for federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. Shareholders of the Fund may be exempt from state and
local taxes on distributions of tax-exempt interest income derived from
obligations of the state and/or municipalities of the state in which they are
resident, but taxable generally on income derived from obligations of other
jurisdictions. The Fund will report annually to shareholders, with respect to
net tax exempt income earned, the percentages representing the proportionate
ratio of such income earned in each state.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
PRINCIPAL UNDERWRITER
CLASS A SHARES. Class A shares of the Fund may be continuously purchased at
the public offering price through Authorized Firms which have agreements with
the Principal Underwriter. The Trust reserves the right to suspend or limit the
offering of its shares to the public at any time. 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 Prospectus (see
"How to Buy Shares"). Such table is applicable to purchases of a Fund alone or
in combination with purchases of certain 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 Class A shares pursuant to a written
Statement of Intention; or (2) purchases of Class A shares 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 Trust may issue
Class A 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 Class. Normally no
sales charges will be paid in connection with an exchange of Class A shares for
the assets of such investment company. Class A shares may be sold at net asset
value to any officer, director, trustee, general partner or employee of the
Trust, the Portfolio or any investment company for which Eaton Vance or BMR acts
as investment adviser, any investment advisory, agency, custodial or trust
account managed or administered by Eaton Vance or by any parent, subsidiary or
other affiliate of Eaton Vance, or any officer, director or employee of any
parent, subsidiary or other affiliate of Eaton Vance. The terms "officer,"
"director," "trustee," "general partner" or "employee" as used in this paragraph
include any such person's spouse and minor children, and also retired officers,
directors, trustees, general partners and employees and their spouses and minor
children. Class A shares 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 Principal Underwriter acts as principal in selling Class A shares under
a Distribution Agreement with the Trust. 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 Class A shares under
federal and state securities laws are borne by the Class. The Distribution
Agreement is renewable annually by the Board of Trustees of the Trust (including
a majority of the noninterested Trustees), may be terminated on six months'
notice by either party and is automatically terminated upon assignment. The
Principal Underwriter distributes Class A 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. 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.
CLASS B AND CLASS C SHARES. Under the Distribution Agreement, the Principal
Underwriter acts as principal in selling Class B and Class C shares. The
expenses of printing copies of prospectuses used to offer shares to Authorized
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 Class B and
Class C shares under federal and state securities laws are borne by the Class.
In addition, each Class B and Class C makes payments to the Principal
Underwriter pursuant to their Distribution Plans as described in the 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 the noninterested Trustees
who have no direct or indirect financial interest in the operation of the
Distribution Plans or the Distribution Agreement), may be terminated on sixty
days' notice either by such Trustees or by vote of a majority of the outstanding
Class B and Class C shares or on six months' notice by the Principal Underwriter
and is automatically terminated upon assignment. The Principal Underwriter
distributes Class B and Class C shares on a "best efforts" basis under which it
is required to take and pay for only such shares as may be sold.
The Trust 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 Trust will exceed
the amounts paid therefor. For the amount paid by the Trust to the Principal
Underwriter for acting as repurchase agent, see Appendix B.
SERVICE PLAN -- CLASS A SHARES
The Trust on behalf of its Class A shares has adopted 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. (the "NASD").
(Management believes service fee payments are not distribution expenses governed
by Rule 12b-1 under the 1940 Act, but has chosen to have the Plan approved as if
that Rule were applicable.) The following supplements the discussion of the Plan
contained in the Prospectus.
The Plan remains in effect from year to year provided such continuance is
approved by a vote of both a majority of (i) the noninterested Trustees who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Plan 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 Plan
Trustees or by a vote of a majority of the outstanding Class A shares of the
Fund. The Plan has been approved by the Board of Trustees of the Trust,
including the Plan Trustees.
The Plan requires quarterly Trustee review of 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 affected shareholders of Class A shares and the
Trustees. So long as the Plan is in effect, the selection and nomination of the
noninterested Trustees shall be committed to the discretion of such Trustees.
The Trustees have determined that in their judgment there is a reasonable
likelihood that the Plan will benefit the Fund and its Class A shareholders.
DISTRIBUTION PLANS -- CLASS B AND CLASS C SHARES
The Trust has adopted Distribution Plans (the "Plans") on behalf of its
Class B and Class C shares designed to meet the requirements of Rule 12b-1 under
the 1940 Act and the sales charge rule of the NASD. The purpose of the Plans is
to compensate the Principal Underwriter for its distribution services and
facilities provided with respect to Class B and Class C shares.
The Plans provide that the Fund will pay sales commissions and distribution
fees to the Principal Underwriter only after and as a result of the sale of
Class B or Class C shares of the Fund. On each sale of Fund shares (excluding
reinvestment of distributions) the Fund will pay the Principal Underwriter
amounts representing (i) sales commissions equal to 5% of Class B sales and
6.25% of Class C sales of the amount received by the Fund for each share sold
and (ii) distribution fees calculated by applying the rate of 1% over the prime
rate then reported in The Wall Street Journal to the outstanding balance of
uncovered distribution charges (as described below) of the Principal
Underwriter.
The amount payable to the Principal Underwriter pursuant to the Plans as
sales commissions and distribution fees with respect to each day will be accrued
on such day as a liability of the respective Class and will accordingly reduce
the net assets of the Class 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 net assets of the Class on such day. The level of net
assets changes each day and depends upon the amount of sales and redemptions of
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Class, the Fund and the Portfolio accrued and allocated to the
Fund and Class 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 Trust does not accrue possible future
payments as a liability of a Class or reduce current net assets in respect of
unknown amounts which may become payable under the Plans in the future because
the standards for accrual of such a liability under accounting principles have
not been satisfied.
The Plans provide that the Fund will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding uncovered distribution charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Trust to the Principal Underwriter
whenever there exist uncovered distribution charges.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plans since their inception. Payments theretofore paid or
payable under the Plans by the Trust to the Principal Underwriter and CDSCs
theretofore paid or payable to the Principal Underwriter will be subtracted from
such distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding uncovered distribution
charges with respect to such day. The amount of outstanding uncovered
distribution charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of uncovered distribution charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of 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 shares upon which a
CDSC will be imposed, the level and timing of redemptions of shares upon which
no CDSC will be imposed (including redemptions of shares pursuant to the
exchange privilege which result in a reduction of uncovered distribution
charges), changes in the level of the net assets of the Class, and changes in
the interest rate used in the calculation of the distribution fee under the
Plans. Periods with a high level of sales of Class shares accompanied by a low
level of early redemptions of Class shares resulting in the imposition of CDSCs
will tend to increase the time during which there will exist uncovered
distribution charges of the Principal Underwriter.
Currently, payments of sales commissions and distribution fees and of
service fees may equal 1% of average daily net assets per annum. For actual
payments made and the outstanding uncovered distribution charges of the
Principal Underwriter, see Appendix B. The Trust believes that the combined rate
of all these payments may be higher than the rate of payments made under
distribution plans adopted by other investment companies pursuant to Rule 12b-1.
Although the Principal Underwriter will use its own funds (which may be borrowed
from banks) to pay sales commissions and service fees for Class C sales and
sales commissions for Class B sales at the time of sale, it is anticipated that
the Eaton Vance organization will profit by reason of the operation of the Plans
through an increase in the Fund's assets (thereby increasing the advisory fee
payable to BMR by the Portfolio) resulting from sale of shares and through the
amounts paid to the Principal Underwriter, including CDSCs, pursuant to the
Plans. The Eaton Vance organization may be considered to have realized a profit
under the Plans if at any point in time the aggregate amounts theretofore
received by the Principal Underwriter pursuant to the Plans and from CDSCs have
exceeded the total expenses theretofore incurred by such organization in
distributing Class B and Class C 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
Trust.
The Plans continue in effect from year to year for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the noninterested Trustees of the Trust 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 Plans and Distribution
Agreements may be terminated at any time by vote of a majority of the Rule 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
applicable Class. The Plans require quarterly Trustee review of a written report
of the amount expended under the Plans and the purposes for which such
expenditures were made. The Plans may not be amended to increase materially the
payments described therein without approval of the shareholders of the affected
Class and the Trustees. So long as the Plans are in effect, the selection and
nomination of the noninterested Trustees shall be committed to the discretion of
such Trustees.
The Trustees of the Trust believe that the Plans will be a significant
factor in the expected growth of the Fund's assets, and will result in increased
investment flexibility and advantages which have benefitted and will continue to
benefit the Fund and its Class B and Class C shareholders. Payments for sales
commissions and distribution fees made to the Principal Underwriter under the
Plans will compensate the Principal Underwriter for its services and expenses in
distributing Class B and Class C shares of the Fund. Service fee payments made
to the Principal Underwriter and Authorized Firms under the Plans 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 Plans are 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 of the Trust have
determined that in their judgment there is a reasonable likelihood that the
Plans will benefit the Fund and its Class B and Class C 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 compensation was reasonable in relation to
the value of the brokerage and research services provided. This determination
may be made either on the basis of that particular transaction or on the basis
of overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any broker-dealer firm with whom Portfolio orders may
be placed the fact that such firm has sold or is selling shares of the Fund or
of other investment companies sponsored by BMR or Eaton Vance. This policy is
not inconsistent with a rule of the NASD, which rule provides that no firm which
is a member of the NASD shall favor or disfavor the distribution of shares of
any particular investment company or group of investment companies on the basis
of brokerage commissions received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by the Portfolio and one
or more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may be
instances where the Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order may
not be allocated on a pro rata basis where, for example: (i) consideration is
given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized invesment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies 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 from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions. For the
fiscal year ended September 30, 1996, the Portfolio paid brokerage commissions
of $123,200 on portfolio security transactions aggregating $1,545,011,045 to
firms which provided some research services to BMR or its affiliates (although
many of such firms may have been selected in any particular transaction
primarily because of their execution capabilities). For the fiscal years ended
September 30, 1995 and 1994, 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" or "EV" in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event, the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's by-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's by-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The by-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes (such as reclassifying series or classes of shares or restructuring the
Trust) 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.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such liability
has been imposed. The Trust's Declaration of Trust contains an express
disclaimer of liability on the part of the Fund shareholders and the Trust's
By-laws provide that the Trust shall assume the defense on behalf of any Fund
shareholders. (The Declaration also contains provisions limiting the liability
of a series or class to that series or class). Moreover, the Trust's By-laws
also provide for indemnification out of the property of the Fund of any
shareholder held personally liable solely by reason of being or having been a
shareholder for all loss or expense arising from such liability. The assets of
the Fund are readily marketable and will ordinarily substantially exceed its
liabilities. In light of the nature of the Fund's business and the nature of its
assets, management believes that the possibility of the Fund's liabilities
exceeding its assets, and therefore the shareholder's risk of personal
liability, is extremely remote.
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 interests
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The Portfolio's Declaration of Trust provides that the 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.
The Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for federal income tax purposes.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Commission.
FINANCIAL STATEMENTS
The audited financial statements of and independent auditors' reports for
the Fund and the Portfolio, appear in the Fund's most recent annual report to
shareholders, and the unaudited financial statements of the Fund and the
Portfolio appear in the Fund's most recent semiannual report to shareholders
both of which are incorporated by reference into this SAI. A copy of the Fund's
semiannual and annual report accompanies this SAI.
Registrant incorporates by reference the audited financial information for
EV Marathon National Municipals Fund and National Municipals Portfolio for the
fiscal year ended September 30, 1996, as previously filed electronically with
the Commission (Accession No. 0000950156-96-000901) and the unaudited financial
information for the six months ended March 31, 1997, as previously filed
electronically with the Commission (Accession No. 0000950109-97-004373).
<PAGE>
APPENDIX A: CLASS A SHARES
PERFORMANCE INFORMATION
The table below indicates the cumulative and average total return on a
hypothetical investment of $1,000 in a predecessor fund reorganized October 1,
1997 into Class A shares covering the one-, five- and ten-year periods ended
March 31, 1997. Total return for Class A prior to October 1, 1997 reflects the
total return (of predecessors), adjusted to reflect any applicable sales charge.
Predecessor total return has not been adjusted to reflect certain other expenses
(such as distribution and/or service fees). If such adjustments were made, the
performance would be different. The "Value of Initial Investment" reflects the
deduction of the maximum sales charge of 4.75%. 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. Information presented with two asterisks (**) includes the effect of
subsidizing expenses. Returns would have been lower without subsidies.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
3/31/97 3/31/87 $952.50 $1,831.17 92.25% 6.75% 83.12% 6.24%
5 Years Ended
3/31/97** 3/31/92 $952.28 $1,391.06 46.08% 7.87% 39.11% 6.82%
1 Year Ended
3/31/97 3/31/96 $952.81 $1,014.78 6.51% 6.51% 1.48% 1.48%
- ----------
*Predecessor Fund commenced operations April 5, 1994.
</TABLE>
For the thirty-day period ended March 31, 1997, the yield of Class A shares
was 5.79%. The yield required of a taxable security that would produce an
after-tax yield equivalent to 5.79% would be 8.39%, assuming a federal rate of
31%.
<PAGE>
APPENDIX B: CLASS B SHARES
FEES AND EXPENSES
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1998 and may be continued as described under "Distribution Plans".
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, including
the Rule 12b-1 Trustees. During the fiscal year ended September 30, 1996, the
Principal Underwriter paid to Authorized Firms sales commissions of $4,380,359
on sales of shares of the Fund. During the same period, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$16,282,007 and the Principal Underwriter received approximately $4,905,000 in
CDSCs imposed on early redeeming shareholders. These sales commissions and CDSC
payments reduced Uncovered Distribution Charges under the Plan. As at September
30, 1996, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $37,025,400
(which amount was equivalent to 1.8% of the Fund's net assets on such day).
During the fiscal year ending September 30, 1996, the Fund made service fee
payments to the Principal Underwriter and Authorized Firms aggregating
$4,611,605 of which $4,578,619 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, 1996, the Fund paid the Principal
Underwriter $21,967.50 for repurchase transactions handled by the Principal
Underwriter.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average total return on a
hypothetical investment of $1,000 in Class B shares covering the one-, five-and
ten-year periods ended March 31, 1997. Past performance is not indicative of
future results. Investment return and principal value will fluctuate; shares,
when redeemed, may be worth more or less than their original cost.
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVEST- INVEST-
MENT BEFORE MENT AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING THE CDSC DEDUCTING THE CDSC
INVESTMENT INVESTMENT AMOUNT OF CDSC ON CDSC ON -------------------------- --------------------------
PERIOD DATE INVESTMENT 3/31/97 3/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
3/31/97 3/31/87 $1,000 $1,877.03 $1,877.03 87.70% 6.50% 87.70% 6.50%
5 Years Ended
3/31/97 3/31/92 $1,000 $1,426.38 $1,406.38 42.64% 7.36% 40.64% 7.06%
1 Year Ended
3/31/97 3/31/96 $1,000 $1,059.37 $1,009.37 5.94% 5.94% 0.94% 0.94%
</TABLE>
For the thirty-day period ended March 31, 1997, the yield of Class B shares
was 5.29%. The yield required of a taxable security that would produce an
after-tax yield equivalent to 5.29% would be 7.67%, assuming a federal tax rate
of 31%.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at August 31, 1997, 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
August 31, 1997, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
32246 was the record owner of approximately 26.7% of the outstanding shares,
which were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
<PAGE>
APPENDIX D: 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 to those of tax-exempt bonds
yielding from 4% to 7% under the regular federal income tax laws and tax rates
applicable to 1997.
<TABLE>
<CAPTION>
MARGINAL
SINGLE RETURN JOINT RETURN INCOME TAX-EXEMPT YIELD
- --------------------- ------------------- TAX --------------------------------------------------------------------------
(TAXABLE INCOME)* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------ ----------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equivalent Taxable Yield
Up to $ 24,650 Up to $ 41,200 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 59,751-$124,650 $ 99,601-$151,750 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$124,651-$271,050 $151,751-$271,050 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $271,050 Over $271,050 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
</TABLE>
* Net amount subject to federal personal income tax after deductions and
exemptions.
Note: The above indicated federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
taxpayers with adjusted gross income in excess of $121,200. The tax brackets
also do not show the effects of phase out of personal exemptions for single
filers with adjusted gross incomes in excess of $121,200 and joint filers with
adjusted gross income in excess of $181,800. 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 state or local
taxes, if any, payable on Fund distributions. It should also be noted that the
interest earned on certain "private activity bonds" issued after August 7, 1986,
while exempt from the regular federal income tax, is treated as a tax preference
item which could subject the recipient to the federal alternative minimum tax.
The illustrations assume that the federal alternative minimum tax is not
applicable 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>
APPENDIX E: RATINGS
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.
- ------------
+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.
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.
Provisional Ratings: 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
AAA: 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>
[LOGO]
EATON VANCE
- --------------------
Mutual Funds
EATON VANCE
NATIONAL
MUNICIPALS FUND
STATEMENT OF
ADDITIONAL INFORMATION
OCTOBER 1, 1997
EATON VANCE NATIONAL
MUNICIPALS FUND
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, 200 Clarendon Street, Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
HMSAI
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
October 1, 1997
EATON VANCE MASSACHUSETTS MUNICIPALS FUND
CLASS I SHARES
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
TABLE OF CONTENTS Page
Additional Information About Investment Policies..............................2
Investment Restrictions......................................................12
Trustees and Officers........................................................14
Control Persons and Principal Holders of Securities..........................17
Investment Adviser and Administrator.........................................17
0ustodian.....................................................................2
Service for Withdrawal.......................................................21
Determination of Net Asset Value.............................................21
Investment Performance.......................................................22
Taxes........................................................................24
Principal Underwriter........................................................27
Portfolio Security Transactions..............................................28
Other Information............................................................30
Independent Certified Public Accountants.....................................32
Financial Statements.........................................................32
Appendix A: Tax Equivalent Yield Table......................................33
Appendix B: Ratings.........................................................34
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS FOR THE CLASS I SHARES OF EATON VANCE
MASSACHUSETTS MUNICIPALS FUND (THE "FUND") DATED OCTOBER 1, 1997, AS
SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS
SAI 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>
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
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.
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 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).
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (i.e., obligations with a term of more than one
year) purchased in the secondary market after April 30, 1993 other than, in
general, at their original issue is taxable as ordinary income. A long-term debt
obligation is generally treated as acquired at a market discount if purchased
after its original issue at a price less than (i) the stated principal amount
payable at maturity, in the case of an obligation that does 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 4.6% in January 1996 to 4.0% in
January 1997.
1995 Fiscal Year. Fiscal 1995 tax revenue collections totaled $11.163
billion. Budgeted revenues and other sources, including non-tax revenue
collected in fiscal 1995 totaled $16.387 billion, approximately $837 million, or
5.4%, above 1994 budgeted revenues of $15.550 billion. Budgeted expenditures and
other uses of funds in 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.
1996 Fiscal Year. Current fiscal 1996 projected spending is approximately
$16.963 billion, including approximately $153.2 million reserved for
contingencies. Projected revenues are approximately $16.851 billion. The fiscal
1996 forecast for federal reimbursements has decreased by approximately $7
million primarily due to lower reimbursable spending in public assistance
programs.
1997 Fiscal Year. On April 13, 1996, the House of Representatives adopted a
fiscal 1997 budget that provides for total expenditures of approximately $17.615
billion. A legislative conference committee will develop a compromise budget for
consideration by the House and Senate, which upon enactment by both houses will
be presented to the Governor.
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
assumptions regarding the amounts to be supplied through federal aid are subject
to change.
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 (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 37.5%, 11% and 41.8%, 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 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. In conjunction with the 1993 U.S. Budget plan, Section
936 of the Code was amended and provided for two alternative limitations to the
Section 936 credit. The first option limited the credit against such income to
40% of the credit allowable under then current law, with a five year phase-in
period starting at 60% of the allowable credit. The second option was a wage and
depreciation based credit. Additional amendments to Section 936 in 1996 imposed
caps on these credits, beginning in 1998 for the first option and beginning in
2002 for the second option. More importantly, the 1996 amendments eliminated
both options for taxable years beginning in 2006. The eventual elimination of
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 this 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 in the long-term.
Short-term affects are minimal.
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 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 the U.S. Congress to ratify the election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. In 1996,
unemployment stood at 13.8%. The tourism industry is economically sensitive and
would likely be adversely affected by a recession in either the United States or
Europe.
An important component of the USVI revenue base is the federal excise tax on
rum exports. Tax revenues rebated by the federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI is periodically hit by hurricanes.
Several hurricanes have caused extensive damage, which has had a negative impact
on revenue collections. There is currently no rated, unenhanced Virgin Islands
debt outstanding (although there is unrated debt outstanding).
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. The
Naval Air Station, one of several U.S. military facilities on the island, has
been slated for closure by the Defense Base Closure and Realignment Committee;
however, the administration plans to use these facilities to expand the Island's
commercial airport. Guam is also heavily reliant on tourists, particularly the
Japanese. For 1995, the government realized a General Fund operating surplus.
The administration has taken steps to improve its financial position; however,
there are no guarantees that an improvement will be realized. Guam's general
obligation debt is rated BBB by S&P with a negative outlook.
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 canceled.
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 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.
For the portfolio turnover rate of the Portfolio, see "Supplementary Data" in
the financial statements attached hereto.
WHEN-ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-issued"
basis, that is, delivery and payment for the securities normally taking place
within a specified number of days after the date of the Portfolio's commitment
and are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Portfolio may also purchase securities on a when-issued basis
pursuant to refunding contracts in connection with the refinancing of an
issuer's outstanding indebtedness. Refunding contracts generally require the
issuer to sell and the Portfolio to buy such securities on a settlement date
that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. When the Portfolio commits to purchase a security on a
when-issued basis it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by the Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the issuer
and changes in the level of interest rates (i.e. appreciation when interest
rates decline and depreciation when interest rates rise). Therefore, to the
extent that the Portfolio remains substantially fully invested at the same time
that it has purchased securities on a when-issued basis, there will be greater
fluctuations in the Portfolio's net asset value than if it solely set aside cash
to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940 and Rule 5b-2 thereunder. The Portfolio would anticipate using these
obligations as cash equivalents pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Longer term fixed-rate bonds may give the holder a right to
request redemption at certain times (often annually after the lapse of an
intermediate term). These bonds are more defensive than conventional long term
bonds (protecting to some degree against a rise in interest rates) while
providing greater opportunity than comparable intermediate term bonds, 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 or demand features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. The Portfolio
would have the right to call a loan and obtain the securities loaned at any time
on up to five business days' notice. During the existence of a loan, the
Portfolio will continue to receive the equivalent of the interest paid by the
issuer on the securities loaned and will also receive a fee, or all or a portion
of the interest on investment of the collateral, if any. However, the Portfolio
may pay lending fees to such borrowers. The Portfolio would not have the right
to vote any securities having voting rights during the existence of the loan,
but would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the securities
loaned if the borrower of the securities fails financially. However, the loans
will be made only to 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. The Portfolio will engage in transactions in
futures and related options contracts only to the extent such transactions are
consistent with the requirements of the Code for maintaining qualification of
the Fund as a regulated investment company for federal income tax purposes (see
"Taxes").
ASSET COVERAGE REQUIREMENTS
Transactions involving when-issued securities or futures contracts and
options (other than options that the Portfolio has purchased) expose the
Portfolio to an obligation to another party. The Portfolio will not enter into
any such transactions unless it owns either (1) an offsetting ("covered")
position in securities or other options or futures contracts or (2) cash or
liquid securities (such as readily marketable obligations and money market
instruments) with a value sufficient at all times to cover its potential
obligations not covered as provided in (1) above. The Portfolio will comply with
Commission guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash or liquid securities in a segregated
account with its custodian in the prescribed amount. The securities in the
segregated account will be marked to market daily.
Assets used as cover or held in a segregated account maintained by the
custodian cannot be sold while the position requiring the coverage or
segregation is outstanding, unless they are replaced with other appropriate
assets. As a result, the commitment of a large portion of the Portfolio's assets
to segregated accounts or to cover 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 1940
Act;
(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.
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; (c) invest more
than 15% of net assets in investments which are not readily marketable,
including restricted securities and repurchase agreements maturing in more than
seven days. Restricted securities for the purposes of this limitation do not
include securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 and commercial paper issued pursuant to Section 4(2) of
said Act that the Board of Trustees of the Trust or the Portfolio, or its
delegate, determines to be liquid; or (d) purchase or retain in its portfolio
any securities issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Trustee of the Trust or the Portfolio or is a
member, officer, director or trustee of any investment adviser of the Trust or
the Portfolio, if after the purchase of the securities of such issuer by the
Fund or the Portfolio one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities or both (all taken at market value).
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligations which is not a general obligation
bond will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease resulting
from a change in values, assets or other circumstances, other than a subsequent
rating change below investment grade made by a rating service, will not compel
the Fund or the Portfolio, as the case may be, to dispose of such security or
other asset. Notwithstanding the foregoing, under normal market conditions the
Fund and the Portfolio must take actions necessary to comply with the policy of
investing at least 65% of total assets in Massachusetts issuers. Moreover, the
Fund and Portfolio must always be in compliance with the borrowing policy set
forth above.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), 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 or the
Portfolio, as defined in the 1940 Act, by virtue of their affiliation with any
one or more of BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (66), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company); Chairman of the Board of Newspapers of New England, Inc. Director or
Trustee of various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (55), Trustee and Vice President*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and a
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (62), 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
02163
NORTON H. REAMER (62), Trustee
President and Director, United Asset Management Corporation (a holding company
owning institutional investment management firms); Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (70), Trustee
Formerly Director, Fiduciary Company Incorporated. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (66), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (54), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected President of the
Trust and the Portfolio on December 13, 1993.
ROBERT B. MACINTOSH (40), Vice President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice
President of the Trust on March 22, 1993.
JAMES L. O'CONNOR (52), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
ALAN R. DYNNER (56), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance, EVC and EV since
November 1, 1996. Previously, he was a Partner of the law firm of Kirkpatrick &
Lockhart LLP, New York and Washington, D.C., and was Executive Vice President of
Neuberger & Berman Management, Inc., a mutual fund management company. Officer
of various investment companies managed by Eaton Vance or BMR. Mr. Dynner was
elected Secretary on June 23, 1997.
JANET E. SANDERS (61), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (34), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993). Mr. Murphy was elected Assistant Secretary on March
27, 1995.
ERIC G. WOODBURY (40), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoads. Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Woodbury was elected Assistant Secretary on June 19,
1995.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Fund, including administrative
services, transfer agency, custodial and fund accounting and distribution
services, and (ii) all other matters in which Eaton Vance or its affiliates has
any actual or potential conflict of interest with the Fund, the Portfolio or
investors therein.
The Nominating Committee of the Boards of Trustees of the Trust and the
Portfolio is comprised of four Trustees who are not "interested persons" as the
term is defined under the 1940 Act ("noninterested Trustees"). The Committee has
four-year staggered terms, with one member rotating off the Committee to be
replaced by another noninterested Trustee of the Trust. The purpose of the
Committee is to recommend to the Board nominees for the position of
noninterested Trustee and to assure that at least a majority of the Board of
Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing matters relative
to trading and brokerage policies and practices, accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the custodian and transfer agent of the Trust 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
"Trustees' Plan"). Under the Trustees' 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 Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the services of
any Trustee or obligate the Portfolio to pay any particular level of
compensation to the Trustee. Neither the Portfolio nor the Trust has a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and of the
Portfolio 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 Trust
or the Portfolio.) During the fiscal year ended September 30, 1996, the Trustees
of the Trust and the Portfolio earned the following compensation in their
capacities as Trustees from the Trust, the Portfolio and the funds in the Eaton
Vance fund complex:
Aggregate Aggregate Total
Compensation Compensation from Trust
Name from Trust(2) and from Portfolio Fund Complex(1)
Donald R. Dwight $ 14,739 $ 3,118(3) $142,500(5)
Samuel L. Hayes 13,514 3,162(4) 153,750(6)
Norton H. Reamer 13,412 3,087 142,500
John L. Thorndike 13,633 3,218 147,500
Jack L. Treynor 14,616 3,278 147,500
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) The Trust consisted of 60 Funds as of July 31, 1996.
(3) Includes $1,214 of deferred compensation.
(4) Includes $1,111 of deferred compensation.
(5) Includes $42,500 of deferred compensation.
(6) Includes $37,500 of deferred compensation.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at August 31, 1997 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
August 31, 1997, Mars & Co., Boston, MA and Jupiter & Co., Boston, MA were the
record owners of approximately 52.5% and 9.9%, 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 The Charles C. Cunningham Trust, Boston, MA held of
record and beneficially owned 5.3% 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. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of approximately $20 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 municipal portfolios in more states than any
other sponsor of mutual funds. There are 32 long-term state portfolios, 5
national portfolios and 10 limited maturity portfolios. A staff of 29 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
$7.6 billion. The following persons manage one or more of the Eaton Vance
municipal portfolios. For the identity of the Portfolio's portfolio manager, see
the Prospectus.
William H. Ahern, Jr. is a Vice President of Eaton Vance and BMR. Mr. Ahern
graduated from Boston College in 1981 with a B.A. in Economics, and received his
M.B.A. degree in Finance from Babson College in 1987. Mr. Ahern is a member of
the Boston Security Analysts Society.
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.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and any legal obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto, to the extent not covered by
insurance.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. As of
September 30, 1996, the Portfolio had net assets of $281,129,236. For the fiscal
year ended September 30, 1996, the Portfolio paid BMR advisory fees of
$1,343,099 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). 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).
The Investment Advisory Agreement with BMR continues in effect from year to
year so long as such continuance is approved at least annually (i) by the vote
of a majority of the Trustees of the Portfolio who are not interested persons of
the Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others. The Agreement also
provides that BMR shall not be liable for any loss incurred in connection with
the performance of its duties, or action taken or omitted under that Agreement,
in the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but receives no compensation for providing administrative services to the
Fund. 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 any legal obligation of the Trust to indemnify its Trustees and
officers with respect thereto, to the extent not covered by insurance.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, M. Dozier Gardner, James B. Hawkes and Benjamin A.
Rowland, Jr. The Directors of EVC consist of the same persons and John G. L.
Cabot and Ralph Z. Sorenson. Mr. Clay is chairman, Mr. Gardner is vice chairman
and Mr. Hawkes is president and chief executive officer of EVC, BMR, Eaton Vance
and EV. All of the issued and outstanding shares of Eaton Vance and EV are owned
by EVC. All of the issued and outstanding shares of BMR are owned by Eaton
Vance. All shares of the outstanding Voting Common Stock of EVC are deposited in
a Voting Trust which expires on December 31, 1997, the Voting Trustees of which
are Messrs. Clay, Gardner, Hawkes and Rowland and Thomas E. Faust, Jr. The
Voting Trustees have unrestricted voting rights for the election of Directors of
EVC. All of the outstanding voting trust receipts issued under said Voting Trust
are owned by certain of the officers of BMR and Eaton Vance who are also
officers and Directors of EVC and EV. As of September 30, 1997, Messrs. Clay,
Gardner and Hawkes each owned 24% of such voting trust receipts, and Messrs.
Rowland and Faust owned 15% and 13%, respectively, of such voting trust
receipts. 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. Dynner, 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.
Eaton Vance owns all the stock of Northeast Properties, Inc., which is
engaged in real estate investment. EVC owns all the stock of Fulcrum Management,
Inc. and MinVen Inc., which are engaged in precious metal mining venture
investment and management. EVC also owns 24% of the Class A shares of Lloyd
George Management (B.V.I.) Limited, a registered investment adviser. EVC, BMR,
Eaton Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, IBT. It is Eaton Vance's opinion that the terms and conditions of
such transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund or the Portfolio and such
banks.
CUSTODIAN
IBT acts as custodian for the Fund and the Portfolio. IBT has the custody of
all cash and securities representing the Fund's interest in the Portfolio, has
custody of all the Portfolio's assets, maintains the general ledger of the
Portfolio and the Fund and computes the daily net asset value of interests in
the Portfolio and the net asset value of shares of the Fund. In such capacity it
attends to details in connection with the sale, exchange, substitution, transfer
or other dealings with the Portfolio's investments, receives and disburses all
funds and performs various other ministerial duties upon receipt of proper
instructions from the Fund and the Portfolio. IBT charges fees which are
competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of Fund and
Portfolio net assets and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then reduced by a
credit for cash balances of the particular investment company at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
particular investment company's average daily collected balances for the week.
Landon T. Clay, a Director of EVC and an officer, Trustee or Director of other
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.
IBT also provides services in connection with the preparation of shareholder
reports and the electronic filing of such reports with the Commission, for which
it receives a separate fee.
SERVICE FOR WITHDRAWAL
The 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, although they are a return of principal, may require the
recognition of taxable gain or loss. Income dividends and capital gains
distributions in connection with withdrawal accounts will be credited at net
asset value as of the record date for each distribution. Continued withdrawals
in excess of current income will eventually use up principal, particularly in a
period of declining market prices. A shareholder may not have a withdrawal plan
in effect at the same time he 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 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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the 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 separately for each class of
shares of the Fund 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 separately for each class of shares of the Fund 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 and Class expenses for the period with the
resulting number being divided by the average daily number of Class 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 March 31,
1997 the yield of the Fund was 5.38%. The yield required of a taxable security
that would produce an after-tax yield equivalent to that earned by the Fund of
5.38% would be 8.86% assuming a combined federal and Massachusetts tax rate of
39.28%.
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in Class I shares of the Fund covering the
life of the Fund through March 31, 1997 and for the five - and one-year periods
ended March 31, 1997. Total return for Class I prior to October 1, 1997 reflects
the total return of return predecessors, adjusted to reflect any applicable
sales charge. Predecessor total return has not been adjusted to reflect certain
other expenses (such as distribution and/or service fees). If such adjustments
were made, the performance would be different.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
Value of
Investment Investment Amount of Investment Total Return
Period Date Investment on 3/31/97 Cumulative Annualized
---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Life of the Fund 4/18/91 $1,000 $1,483.93 48.39% 6.86%
5 Years Ended
3/31/97 3/31/92 $1,000 $1,349.82 34.98% 6.18%
1 Year Ended
3/31/97 3/31/96 $1,000 $1,050.91 5.09% 5.09%
</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.
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 taxes (including their effects on
the dollar and the return on various investments) may also be included in
advertisements and other material furnished to present and prospective
shareholders.
Information about portfolio allocation and holdings of the Portfolio at a
particular date (including ratings assigned by independent ratings services such
as Moody's, S&P and Fitch) may be included in advertisements and other material
furnished to present and prospective shareholders. Such information may be
stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield or distribution rate of the Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. Such information may also compare the tax equivalent
yield (or value) of the Fund to the after-tax yield (or value) of such other
investment vehicles. Such information may be in the form of hypothetical
illustrations. A bank certificate of deposit, unlike the Fund's shares, pays a
fixed rate of interest and entitles the depositor to receive the face amount of
the certificate of deposit at maturity. A bank money market deposit account is a
form of savings account which pays a variable rate of interest. Unlike the
Fund's shares, bank certificates of deposit and bank money market deposit
accounts are insured by the Federal Deposit Insurance Corporation. A money
market mutual fund is designed to maintain a constant value of $1.00 per share
and, thus, a money market fund's shares are subject to less price fluctuation
than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and 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
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated and intends to qualify each
year, as a regulated investment company ("RIC") under the Code. Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute substantially all of its
ordinary income (including tax-exempt income) and net income (after reduction by
any available capital loss carry forwards) in accordance with the timing
requirements imposed by the Code, so as to maintain its RIC status and to avoid
any federal income or excise tax. The Fund so qualified for its fiscal year
ended September 30, 1996. Because the Fund invests its assets in the Portfolio,
the Portfolio normally must satisfy the applicable source of income and
diversification requirements in order for the Fund to also satisfy these
requirements. 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
(i) will be deemed to own its proportionate share of each of the assets of the
Portfolio and (ii) will be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid incurring a federal excise tax obligation, 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 its capital gains net income
(which is 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 (i) any available capital loss
carryforwards and (ii) 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
should be 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 securities that it might otherwise have continued to hold
in order to generate cash that the Fund may withdraw from the Portfolio to make
distributions 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 that the
issuers of these securities default on their obligations pertaining thereto. The
Code is not entirely clear regarding the federal income tax consequences of the
Portfolio's taking certain positions in connection with ownership of such
distressed securities. For example, the Code is unclear regarding: (1) when the
Portfolio may cease to accrue interest, original issue discount, or market
discount; (ii) when and to what extent deductions may be taken for bad debts or
worthless securities; (iii) how payments received on obligations in default
should be allocated between principal and income; and (iv) whether exchanges of
debt obligations in a workout context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular federal income tax under Code Section
103(a). For purposes of applying this 50% requirement, the Fund will be deemed
to own its proportionate share of each of the assets of the Portfolio, and the
Portfolio currently intends to invest its assets in a manner such that the Fund
can meet this 50% requirement. Interest on certain municipal obligations is
treated as a tax preference item for purposes of the 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 discount with respect to certain stripped municipal obligations or
their stripped coupons, and certain realized gains or income attributable to
accrued market discount. Any distributions by the Fund of its share of such
capital gains (after reduction by any capital loss carryforwards) or taxable
income would be taxable to shareholders of the Fund. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to the
tax exempt interest earned by the Portfolio and allocated to the Fund. Certain
distributions of the Fund declared in October, November or December and paid the
following January may 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 capital losses 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 RIC status.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution of net long-term
capital gains with respect to such shares. In addition, a loss realized on a
redemption or other disposition of Fund shares may be disallowed to the extent
the shareholder acquired other Fund shares (whether through the reinvestment of
distributions or otherwise) within the period beginning 30 days before the
redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service
("IRS"), as well as shareholders with respect to whom the Fund has received
notification from the IRS or a broker, may be subject to "backup" withholding of
federal income tax from the Fund's taxable dividends and other distributions and
the proceeds of redemptions (including repurchases and exchanges), at a rate of
31%. An individual's TIN is generally his or her social security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax convention. 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: (i) the
shareholder is engaged in a trade or business in the United States; (ii) the
shareholder is present in the United States for a sufficient period of time
during a taxable year to be treated as a U.S. resident (generally 180 days or
more); or (iii) the shareholder fails to provide any required certifications
regarding its 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 Class I shares of the Fund. The expenses of printing copies of
prospectuses used to offer Class I 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
are 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 Class I 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 in a manner it deems equitable portfolio security
transactions among the Portfolio and the portfolios of its other investment
accounts whenever decisions are made to purchase or sell securities by the
Portfolio and one or more of such other accounts simultaneously. In making such
allocations, the main factors to be considered are the respective investment
objectives of the Portfolio and such other accounts, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment by the Portfolio and such accounts, the size of investment
commitments generally held by the Portfolio and such accounts and the opinions
of the persons responsible for recommending investments to the Portfolio and
such accounts. 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 year ended September
30, 1996, the Portfolio paid brokerage commissions of $37,917 on portfolio
security transactions aggregating $305,166,481 to firms which provided some
research services to BMR or its affiliates (although many of such firms may have
been selected in any particular transaction primarily because of their execution
capabilities). For the fiscal years ended September 30, 1995 and 1994, 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" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's By-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such liability
has been imposed. The Trust's Declaration of Trust contains an express
disclaimer of liability on the part of the Fund shareholders and the Trust's
By-laws provide that the Trust shall assume the defense on behalf of any Fund
shareholders. The Declaration of Trust also contains provisions limiting the
liability of a series of class to that series or class. Moreover, the Trust's
By-laws also provide for indemnification out of the property of the Fund of any
shareholder held personally liable solely by reason of being or having been a
shareholder for all loss or expenses arising from such liability. The assets of
the Fund are readily marketable and will ordinarily substantially exceed its
liabilities. In light of the nature of the Fund's business and the nature of its
assets, management believes that the possibility of the Fund's liability
exceeding its assets, and therefore the shareholder's risk of personal
liability, is extremely remote.
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.
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.
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.
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.
The Fund changed its name from Eaton Vance Massachusetts Tax Free Fund to EV
Marathon Massachusetts Tax Free Fund on February 1, 1994 and then to EV Marathon
Massachusetts Municipals Fund on December 8, 1995. The Fund was organized into
multiple classes and changed its name to Eaton Vance Massachusetts Municipals
Fund on October 1, 1997. Class I is a successor to the operations of a separate
series of the Trust.
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 Commission.
FINANCIAL STATEMENTS
The audited financial statements of, and independent auditors' report for,
the Fund and the Portfolio appear in the Fund's most recent annual report to
shareholders and the unaudited financial statements of the Fund and the
Portfolio appear in the Fund's most recent semiannual report to shareholders,
both of which are incorporated by reference into this SAI. A copy of the Fund's
semiannual and annual reports accompanies this SAI.
Registrant incorporates by reference the audited financial information for
the Fund and the Portfolio for the fiscal year ended September 30, 1996, as
previously filed electronically with the Commission (Accession No.
0000928816-96-000336). Registrant also incorporates by reference the unaudited
financial information for the Fund and the Portfolio for the six months ended
March 31, 1997, as previously filed electronically with the Commission
(Accession No. 0000950109-97-004360).
<PAGE>
APPENDIX A
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 1997.
<TABLE>
<CAPTION>
Combined A Federal and Massachusetts State tax exempt yield of:
Taxable Income Federal and is equivalent to a fully taxable yield of:
-------------- MA State -------------------------------------------------------------
Single Return Joint Return tax bracket(+) 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------ ----------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,650 Up to $41,200 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$24,651 - $59,750 $41,201 - $99,600 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$59,751 - $124,650$99,601 - $151,750 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$124,651 - $271,050$151,751 - $271,050 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $271,050 Over $271,050 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
* 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.
</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 $121,200. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $121,200 and joint filers
with Adjusted Gross Income in excess of $181,800. 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 B
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.
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 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>
EATON VANCE MASSACHUSETTS
MUNICIPALS FUND
PORTFOLIO INVESTMENT ADVISER CLASS I SHARES
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 STATEMENT OF
Investors Bank & Trust Company
200 Clarendon Street ADDITIONAL INFORMATION
Boston, MA 02116
TRANSFER AGENT
First Data Investor Services Group OCTOBER 1, 1997
P.O. Box 5123
Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EATON VANCE MASSACHUSETTS MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110 MMFSAI
<PAGE>
PART C
OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS*
INCLUDED IN PART A FOR THE FUNDS LISTED BELOW ARE "FINANCIAL HIGHLIGHTS"
FOR THE PERIOD FROM THE DATE INDICATED TO THE FISCAL YEAR ENDED
SEPTEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED):
Eaton Vance California Municipals Fund (from October 1, 1996) Eaton
Vance Florida Municipals Fund (from August 28, 1990) Eaton Vance
Massachusetts Municipals Fund (from April 18, 1991) Eaton Vance
Mississippi Municipals Fund (from June 11, 1993) Eaton Vance New
York Municipals Fund (from August 30, 1990) Eaton Vance Ohio
Municipals Fund (from April 18, 1991) Eaton Vance Rhode Island
Municipals Fund (from December 7, 1993) Eaton Vance West Virginia
Municipals Fund (from June 11, 1993) Eaton Vance National Municipals
Fund (from October 1, 1996)
INCORPORATED BY REFERENCE INTO PART B ARE THE FINANCIAL STATEMENTS
CONTAINED IN THE SEMI-ANNUAL REPORTS FOR THE FUNDS, DATED MARCH 31,
1997 (WHICH WERE PREVIOUSLY FILED ELECTRONICALLY PURSUANT TO SECTION
30(b)(2) OF THE INVESTMENT COMPANY ACT OF 1940):
<TABLE>
<S> <C>
Eaton Vance California Municipals Fund Eaton Vance Rhode Island Municipals Fund
Eaton Vance Florida Municipals Fund Eaton Vance West Virginia Municipals Fund
Eaton Vance Massachusetts Municipals Fund (Accession No. 0000950109-97-004438)
Eaton Vance Mississippi Municipals Fund Eaton Vance National Municipals Fund
Eaton Vance New York Municipals Fund (Accession No. 0000950109-97-004373)
Eaton Vance Ohio Municipals Fund
</TABLE>
THE FINANCIAL STATEMENTS CONTAINED IN THE FUNDS' SEMI-ANNUAL REPORTS ARE
AS FOLLOWS:
Statement of Assets and Liabilities (Unaudited)
Statement of Operations (Unaudited)
Statements of Changes in Net Assets (Unaudited)
Financial Highlights (Unaudited)
Notes to Financial Statements (Unaudited)
INCORPORATED BY REFERENCE INTO PART B ARE THE FINANCIAL STATEMENTS
CONTAINED IN THE ANNUAL REPORTS FOR THE FUNDS, DATED SEPTEMBER 30,
1996 (WHICH WERE PREVIOUSLY FILED ELECTRONICALLY PURSUANT TO SECTION
30(b)(2) OF THE INVESTMENT COMPANY ACT OF 1940):
<TABLE>
<S> <C>
Eaton Vance California Municipals Fund Eaton Vance Rhode Island Municipals Fund
Eaton Vance Florida Municipals Fund Eaton Vance West Virginia Municipals Fund
Eaton Vance Massachusetts Municipals Fund (Accession No. 0000950135-96-005156)
Eaton Vance Mississippi Municipals Fund Eaton Vance National Municipals Fund
Eaton Vance New York Municipals Fund (Accession No. 0000950156-96-000901)
Eaton Vance Ohio Municipals Fund
</TABLE>
- ------------
*Each Fund was previously known as EV Marathon [State Name or National]
Municipals Fund.
<PAGE>
THE FINANCIAL STATEMENTS CONTAINED IN THE FUNDS' ANNUAL REPORTS ARE AS
FOLLOWS:
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
ALSO INCORPORATED BY REFERENCE INTO PART B ARE THE FOLLOWING FINANCIAL
STATEMENTS OF CALIFORNIA MUNICIPALS PORTFOLIO, FLORIDA MUNICIPALS
PORTFOLIO, MASSACHUSETTS MUNICIPALS PORTFOLIO, MISSISSIPPI MUNICIPALS
PORTFOLIO, NATIONAL MUNICIPALS PORTFOLIO, NEW YORK MUNICIPALS
PORTFOLIO, OHIO MUNICIPALS PORTFOLIO, RHODE ISLAND MUNICIPALS
PORTFOLIO AND WEST VIRGINIA MUNICIPALS PORTFOLIO, WHICH ARE CONTAINED
IN THE SEMI-ANNUAL REPORTS DATED MARCH 31, 1997 OF THE CORRESPONDING
FUNDS:
Portfolio of Investments (Unaudited)
Statement of Assets and Liabilities (Unaudited)
Statement of Operations (Unaudited)
Statements of Changes in Net Assets (Unaudited)
Supplementary Data (Unaudited)
Notes to Financial Statements (Unaudited)
ALSO INCORPORATED BY REFERENCE INTO PART B ARE THE FOLLOWING FINANCIAL
STATEMENTS OF CALIFORNIA MUNICIPALS PORTFOLIO, FLORIDA MUNICIPALS
PORTFOLIO, MASSACHUSETTS MUNICIPALS PORTFOLIO, MISSISSIPPI MUNICIPALS
PORTFOLIO, NATIONAL MUNICIPALS PORTFOLIO, NEW YORK MUNICIPALS
PORTFOLIO, OHIO MUNICIPALS PORTFOLIO, RHODE ISLAND MUNICIPALS
PORTFOLIO AND WEST VIRGINIA MUNICIPALS PORTFOLIO, WHICH ARE CONTAINED
IN THE ANNUAL REPORTS DATED SEPTEMBER 30, 1996 OF THE CORRESPONDING
FUNDS:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Supplementary Data
Notes to Financial Statements
Independent Auditors' Report
(b) EXHIBITS:
(1)(a) Amended and Restated Declaration of Trust of Eaton Vance
Municipals Trust dated January 11, 1993, filed as Exhibit
(1)(a) to Post-Effective Amendment No. 55 and incorporated
herein by reference.
(b) Amendment dated June 23, 1997 to the Declaration of Trust
filed as Exhibit (1)(b) to Post-Effective Amendment No. 67
and incorporated herein by reference.
(c) Establishment and Designation of Classes of Shares of
Beneficial Interest, without Par Value, dated November 18,
1996 filed as Exhibit (1)(c) to Post-Effective Amendment No.
62 and incorporated herein by reference.
(2)(a) By-Laws as amended October 21, 1987 filed as Exhibit (2)(a)
to Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Amendment to By-Laws of Eaton Vance Municipals Trust dated
December 13, 1993 filed as Exhibit (2)(b) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(3) Not applicable
(4) Not applicable
(5) Not applicable
(6)(a) Distribution Agreement between Eaton Vance Municipals Trust
and Eaton Vance Distributors, Inc. effective June 23, 1997
with attached Schedule A effective June 23, 1997 filed as
Exhibit (6)(a)(5) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(b) Selling Group Agreement between Eaton Vance Distributors,
Inc. and Authorized Dealers filed as Exhibit (6)(b) to
Post-Effective Amendment No. 61 to the Registration Statement
of Eaton Vance Growth Trust (File Nos. 2-22019, 811-1241) and
incorporated herein by reference.
(7) The Securities and Exchange Commission has granted the
Registrant an exemptive order that permits the Registrant to
enter into deferred compensation arrangements with its
independent Trustees. See in the Matter of Capital Exchange
Fund, Inc., Release No. IC-20671 (November 1, 1994).
(8)(a) Custodian Agreement with Investors Bank & Trust Company dated
October 15, 1992 filed as Exhibit (8) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(b) Amendment to Custodian Agreement with Investors Bank & Trust
Company dated October 23, 1995 filed as Exhibit (8)(b) to
Post-Effective Amendment No. 57 and incorporated herein by
reference.
(9)(a)(1) Amended Administrative Services Agreement between Eaton Vance
Municipals Trust (on behalf of each of its series) and Eaton
Vance Management with attached schedules (including Amended
Schedule A dated September 29, 1995) filed as Exhibit (9)(a)
to Post-Effective Amendment No. 55 and incorporated herein by
reference.
(2) Amendment to Schedule A dated June 23, 1997 to the Amended
Administrative Services Agreement dated June 19, 1995 filed
as Exhibit (9)(a)(2) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(b) Transfer Agency Agreement dated June 7, 1989 filed as Exhibit
9(d) to Post- Effective Amendment No. 65 to the Registration
Statement of Eaton Vance Growth Trust (File Nos. 2-22019,
811-1241) and incorporated herein by reference.
(c) Amendment to Transfer Agency Agreement dated February 1, 1993
filed as Exhibit 9(e) to Post-Effective Amendment No. 65 to
the Registration Statement of Eaton Vance Growth Trust (File
Nos. 2-22019, 811-1241) and incorporated herein by reference.
(10) Not applicable.
(11)(a) Consent of Independent Auditors for Eaton Vance California
Municipals Fund, Eaton Vance Florida Municipals Fund, Eaton
Vance Massachusetts Municipals Fund, Eaton Vance Mississippi
Municipals Fund, Eaton Vance New York Municipals Fund, Eaton
Vance Ohio Municipals Fund, Eaton Vance Rhode Island
Municipals Fund, and Eaton Vance West Virginia Municipals
Fund, filed herewith.
(11)(b) Consent of Independent Auditors for Eaton Vance National
Municipals Fund, filed herewith.
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15)(a) Eaton Vance Municipals Trust Class A Service Plan adopted
June 23, 1997 with attached Schedule A effective June 23,
1997 filed as Exhibit (15)(g) to Post- Effective Amendment
No. 67 and incorporated herein by reference.
(b) Eaton Vance Municipals Trust Class B Distribution Plan
adopted June 23, 1997 with attached Schedule A effective June
23, 1997 filed herewith.
(c) Eaton Vance Municipals Trust Class C Distribution Plan
adopted June 23, 1997 with attached Schedule A effective June
23, 1997 filed herewith.
(16) Schedule for Computation of Performance Quotations filed
herewith.
(17)(a) Power of Attorney for Eaton Vance Municipals Trust dated
April 22, 1997 filed as Exhibit (17)(a) to Post-Effective
Amendment No. 65 and incorporated herein by reference.
(b) Power of Attorney for Alabama Municipals Portfolio, Arizona
Municipals Portfolio, Arkansas Municipals Portfolio,
California Municipals Portfolio, Colorado Municipals
Portfolio, Connecticut Municipals Portfolio, Florida
Municipals Portfolio, Georgia Municipals Portfolio, Kentucky
Municipals Portfolio, Louisiana Municipals Portfolio,
Maryland Municipals Portfolio, Massachusetts Municipals
Portfolio, Michigan Municipals Portfolio, Minnesota
Municipals Portfolio, Mississippi Municipals Portfolio,
Missouri Municipals Portfolio, National Municipals Portfolio,
New Jersey Municipals Portrfolio, New York Municipals
Portfolio, North Carolina Municipals Portfolio, Ohio
Municipals Portfolio, Oregon Municipals Portfolio,
Pennsylvania Municipals Portfolio, Rhode Island Municipals
Portfolio, South Carolina Municipals Portfolio, Tennessee
Municipals Portfolio, Texas Municipals Portfolio, Virginia
Municipals Portfolio and West Virginia Municipals Portfolio
dated April 22, 1997 filed as Exhibit (17)(b) to
Post-Effective Amendment No. 65 and incorporated herein by
reference.
(18) Multiple Class Plan for Eaton Vance Funds dated June 23, 1997
filed as Exhibit (18) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest as of August 31, 1997
EV Classic National Municipals Fund 1,155
Eaton Vance Alabama Municipals Fund 1,724
Eaton Vance Arizona Municipals Fund -- Class A 48
Eaton Vance Arizona Municipals Fund -- Class B 2,338
Eaton Vance Arkansas Municipals Fund 1,649
Eaton Vance California Municipals Fund 6,160
Eaton Vance Colorado Municipals Fund -- Class A 70
Eaton Vance Colorado Municipals Fund -- Class B 968
Eaton Vance Connecticut Municipals Fund -- Class A 69
Eaton Vance Connecticut Municipals Fund -- Class B 3,809
Eaton Vance Florida Municipals Fund 10,376
Eaton Vance Georgia Municipals Fund 2,155
Eaton Vance Kentucky Municipals Fund 2,950
Eaton Vance Louisiana Municipals Fund 536
Eaton Vance Maryland Municipals Fund 2,675
Eaton Vance Massachusetts Municipals Fund 5,882
Eaton Vance Michigan Municipals Fund -- Class A 36
Eaton Vance Michigan Municipals Fund -- Class B 3,571
Eaton Vance Minnesota Municipals Fund -- Class A 78
Eaton Vance Minnesota Municipals Fund -- Class B 2,030
Eaton Vance Mississippi Municipals Fund 546
Eaton Vance Missouri Municipals Fund 2,261
Eaton Vance National Municipals Fund 37,880
Eaton Vance New Jersey Municipals Fund -- Class A 132
Eaton Vance New Jersey Municipals Fund -- Class B 8,902
Eaton Vance New York Municipals Fund 12,527
Eaton Vance North Carolina Municipals Fund 3,765
Eaton Vance Ohio Municipals Fund 6,270
Eaton Vance Oregon Municipals Fund 2,950
Eaton Vance Pennsylvania Municipals Fund -- Class A 128
Eaton Vance Pennsylvania Municipals Fund -- Class B 10,889
Eaton Vance Rhode Island Municipals Fund 736
Eaton Vance South Carolina Municipals Fund 1,192
Eaton Vance Tennessee Municipals Fund 1,316
Eaton Vance Texas Municipals Fund -- Class A 8
Eaton Vance Texas Municipals Fund -- Class B 351
Eaton Vance Virginia Municipals Fund 4,086
Eaton Vance West Virginia Municipals Fund 987
EV Traditional Alabama Municipals Fund 59
EV Traditional Arkansas Municipals Fund 35
EV Traditional California Municipals Fund 65
EV Traditional Florida Municipals Fund 123
EV Traditional Georgia Municipals Fund 47
EV Traditional Kentucky Municipals Fund 36
EV Traditional Louisiana Municipals Fund 32
EV Traditional Maryland Municipals Fund 54
EV Traditional Massachusetts Municipals Fund 93
EV Traditional Mississippi Municipals Fund 28
EV Traditional Missouri Municipals Fund 81
EV Traditional National Municipals Fund 778
EV Traditional New York Municipals Fund 194
EV Traditional North Carolina Municipals Fund 95
EV Traditional Ohio Municipals Fund 45
EV Traditional Oregon Municipals Fund 41
EV Traditional Rhode Island Municipals Fund 39
EV Traditional South Carolina Municipals Fund 23
EV Traditional Tennessee Municipals Fund 38
EV Traditional Virginia Municipals Fund 49
EV Traditional West Virginia Municipals Fund 45
Massachusetts Municipal Bond Portfolio 32
ITEM 27. INDEMNIFICATION
Article IV of the Trust's Amended and Restated Declaration of Trust, dated
January 11, 1993, permits Trustee and officer indemnification by By-law,
contract and vote. Article XI of the By-laws contains indemnification
provisions. Registrant's Trustees and officers are insured under a standard
mutual fund errors and omissions insurance policy covering insured by reason of
negligent errors and omissions committed in their capacities as such.
The distribution agreements of the Trust also provide for reciprocal
indemnity of the principal underwriter, on the one hand, and the Trustees and
officers, on the other.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the information set forth under the caption
"Investment Adviser and Administrator" in the Statement of Additional
Information, which information is incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the investment companies named below:
Eaton Vance Growth Trust Eaton Vance Municipal Bond Fund L.P.
Eaton Vance Income Fund of Boston Eaton Vance Mutual Funds Trust
Eaton Vance Investment Trust Eaton Vance Prime Rate Reserves
Eaton Vance Municipals Trust Eaton Vance Special Investment Trust
Eaton Vance Municipals Trust II EV Classic Senior Floating-Rate Fund
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICE
BUSINESS ADDRESS* WITH PRINCIPAL UNDERWRITER WITH REGISTRANT
------------------ -------------------------- --------------------
<S> <C> <C>
James B. Hawkes Vice President and Director Vice President and Trustee
William M. Steul Vice President and Director None
Wharton P. Whitaker President and Director None
Chris Berg Vice President None
Kate B. Bradshaw Vice President None
David B. Carle Vice President None
Daniel C. Cataldo Vice President None
Raymond Cox Vice President None
Mark P. Doman Vice President None
Alan R. Dynner Vice President Secretary
James Foley Vice President None
Michael A. Foster Vice President None
William M. Gillen Senior Vice President None
Hugh S. Gilmartin Vice President None
Perry D. Hooker Vice President None
Brian Jacobs Senior Vice President None
Thomas P. Luka Vice President None
John Macejka Vice President None
Timothy D. McCarthy Vice President None
Joseph T. McMenamin Vice President None
Morgan C. Mohrman Senior Vice President None
James A. Naughton Vice President None
Mark D. Nelson Vice President None
Linda D. Newkirk Vice President None
James L. O'Connor Vice President Treasurer
Thomas Otis Secretary and Clerk None
George D. Owen II Vice President None
F. Anthony Robinson Vice President None
Jay S. Rosoff Vice President None
Benjamin A. Rowland, Jr. Vice President, Treasurer and Director None
Stephen M. Rudman Vice President None
John P. Rynne Vice President None
Kevin Schrader Vice President None
George V.F. Schwab, Jr. Vice President None
Cornelius J. Sullivan Senior Vice President None
John M. Trotsky Vice President None
David M. Thill Vice President None
Chris Volf Vice President None
Sue Wilder Vice President None
- ----------
*Address is 24 Federal Street, Boston, MA 02110
</TABLE>
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the 1940 Act and the Rules promulgated
thereunder are in the possession and custody of the Registrant's custodian,
Investors Bank & Trust Company, 200 Clarendon Street, 16th Floor Mail Code
ADM27, Boston, MA 02116 and its transfer agent, First Data Investor Services
Group, 4400 Computer Drive, Westborough, MA 01581-5123, with the exception of
certain corporate documents and portfolio trading documents which are in the
possession and custody, Eaton Vance Management, 24 Federal Street, Boston, MA
02110. Registrant is informed that all applicable accounts, books and documents
required to be maintained by registered investment advisers are in the custody
and possession of Eaton Vance Management and Boston Management and Research.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the latest annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, and the
Commonwealth of Massachusetts, on the 26th day of September, 1997.
EATON VANCE MUNICIPALS TRUST
By /s/THOMAS J. FETTER
--------------------------------------
THOMAS J. FETTER, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/ THOMAS J. FETTER Executive Officer) September 26, 1997
- --------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 26, 1997
- --------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee September 26, 1997
- --------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 26, 1997
- --------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee September 26, 1997
- --------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee September 26, 1997
- --------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee September 26, 1997
- --------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee September 26, 1997
- --------------------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- --------------------------------------
ALAN R. DYNNER
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
California Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 26th day of
September, 1997.
CALIFORNIA MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
--------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/ THOMAS J. FETTER Executive Officer) September 26, 1997
- --------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 26, 1997
- --------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee September 26, 1997
- --------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 26, 1997
- --------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee September 26, 1997
- --------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee September 26, 1997
- --------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee September 26, 1997
- --------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee September 26, 1997
- --------------------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- --------------------------------------
ALAN R. DYNNER
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Florida Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 26th day of
September, 1997.
FLORIDA MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
--------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/ THOMAS J. FETTER Executive Officer) September 26, 1997
- --------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 26, 1997
- --------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee September 26, 1997
- --------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 26, 1997
- --------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee September 26, 1997
- --------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee September 26, 1997
- --------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee September 26, 1997
- --------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee September 26, 1997
- --------------------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- --------------------------------------
ALAN R. DYNNER
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Massachusetts Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 26th day of
September, 1997.
MASSACHUSETTS MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
--------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/ THOMAS J. FETTER Executive Officer) September 26, 1997
- --------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 26, 1997
- --------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee September 26, 1997
- --------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 26, 1997
- --------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee September 26, 1997
- --------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee September 26, 1997
- --------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee September 26, 1997
- --------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee September 26, 1997
- --------------------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- --------------------------------------
ALAN R. DYNNER
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Mississippi Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 26th day of
September, 1997.
MISSISSIPPI MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
--------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/ THOMAS J. FETTER Executive Officer) September 26, 1997
- --------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 26, 1997
- --------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee September 26, 1997
- --------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 26, 1997
- --------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee September 26, 1997
- --------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee September 26, 1997
- --------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee September 26, 1997
- --------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee September 26, 1997
- --------------------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- --------------------------------------
ALAN R. DYNNER
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
National Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 26th day of
September, 1997.
NATIONAL MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
--------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/ THOMAS J. FETTER Executive Officer) September 26, 1997
- --------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 26, 1997
- --------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee September 26, 1997
- --------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 26, 1997
- --------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee September 26, 1997
- --------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee September 26, 1997
- --------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee September 26, 1997
- --------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee September 26, 1997
- --------------------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- --------------------------------------
ALAN R. DYNNER
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
New York Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 26th day of
September, 1997.
NEW YORK MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
--------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/ THOMAS J. FETTER Executive Officer) September 26, 1997
- --------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 26, 1997
- --------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee September 26, 1997
- --------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 26, 1997
- --------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee September 26, 1997
- --------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee September 26, 1997
- --------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee September 26, 1997
- --------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee September 26, 1997
- --------------------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- --------------------------------------
ALAN R. DYNNER
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Ohio Municipals Portfolio has duly caused this Amendment to the Registration
Statement on Form N-1A of Eaton Vance Municipals Trust (File No. 33-572) to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Boston and the Commonwealth of Massachusetts on the 26th day of September,
1997.
OHIO MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
--------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/ THOMAS J. FETTER Executive Officer) September 26, 1997
- --------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 26, 1997
- --------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee September 26, 1997
- --------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 26, 1997
- --------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee September 26, 1997
- --------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee September 26, 1997
- --------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee September 26, 1997
- --------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee September 26, 1997
- --------------------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- --------------------------------------
ALAN R. DYNNER
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
Rhode Island Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 26th day of
September, 1997.
RHODE ISLAND MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
--------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/ THOMAS J. FETTER Executive Officer) September 26, 1997
- --------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 26, 1997
- --------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee September 26, 1997
- --------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 26, 1997
- --------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee September 26, 1997
- --------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee September 26, 1997
- --------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee September 26, 1997
- --------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee September 26, 1997
- --------------------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- --------------------------------------
ALAN R. DYNNER
As attorney-in-fact
</TABLE>
<PAGE>
SIGNATURES
West Virginia Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on the 26th day of
September, 1997.
WEST VIRGINIA MUNICIPALS PORTFOLIO
By /s/ THOMAS J. FETTER
--------------------------------------
THOMAS J. FETTER, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Chief
/s/ THOMAS J. FETTER Executive Officer) September 26, 1997
- --------------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and Accounting
/s/ JAMES L. O'CONNOR Officer September 26, 1997
- --------------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee September 26, 1997
- --------------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee September 26, 1997
- --------------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee September 26, 1997
- --------------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee September 26, 1997
- --------------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee September 26, 1997
- --------------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee September 26, 1997
- --------------------------------------
JACK L. TREYNOR
*By: /s/ ALAN R. DYNNER
- --------------------------------------
ALAN R. DYNNER
As attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this amendment to the
Registration Statement pursuant to General Instructions E of Form N-1A.
<TABLE>
<CAPTION>
PAGE IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION SYSTEM
- ----------- ----------- ----------
<S> <C> <C>
(11)(a) Consent of Independent Auditors for Eaton Vance California
Municipals Fund, Eaton Vance Florida Municipals Fund, Eaton
Vance Massachusetts Municipals Fund, Eaton Vance
Mississippi Municipals Fund, Eaton Vance New York
Municipals Fund, Eaton Vance Ohio Municipals Fund, Eaton
Vance Rhode Island Municipals Fund, and Eaton Vance West
Virginia Municipals Fund.
(11)(b) Consent of Independent Auditors for Eaton Vance National Municipals
Fund.
(15)(b) Eaton Vance Municipals Trust Class B Distribution Plan.
(15)(c) Eaton Vance Municipals Trust Class C Distribution Plan.
(16) Schedule for Computation of Performance Quotations.
</TABLE>
<PAGE>
EXHIBIT (11)(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 69 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No.
33-572) on behalf of Eaton Vance California Municipals Fund, Eaton Vance Florida
Municipals Fund, Eaton Vance Massachusetts Municipals Fund, Eaton Vance
Mississippi Municipals Fund, Eaton Vance New York Municipals Fund, Eaton Vance
Ohio Municipals Fund, Eaton Vance Rhode Island Municipals Fund, and Eaton Vance
West Virginia Municipals Fund of our report dated November 1, 1996, relating to
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, and EV Marathon West Virginia Municipals
Fund, and of our report dated November 1, 1996, relating to California
Municipals Portfolio, Florida Municipals Portfolio, Massachusetts Municipals
Portfolio, Mississippi Municipals Portfolio, New York Municipals Portfolio, Ohio
Municipals Portfolio, Rhode Island Municipals Portfolio, and West Virginia
Municipals Portfolio, which reports are included in the Annual Report to
Shareholders for the year ended September 30, 1996 which is incorporated by
reference in the Statement of Additional Information, which is part of such
Registration Statement.
We also consent to the reference to our Firm under the heading "The Funds"
Financial Highlights" in the Prospectus and under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of the
Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
September 26, 1997
Boston, Massachusetts
<PAGE>
EXHIBIT (11)(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 69 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No.
33-572) on behalf of Eaton Vance National Municipals Fund of our report dated
November 1, 1996, relating to EV Marathon National Municipals Fund and of our
report dated November 1, 1996, relating to National Municipals Portfolio,
which reports are included in the Annual Report to Shareholders for the year
ended September 30, 1996 which is incorporated by reference in the Statement
of Additional Information, which is part of such Registration Statement.
We also consent to the reference to our Firm under the heading "The Fund's
Financial Highlights" in the Prospectus and under the caption "Independent
Certified Public Accountants" in the Statement of Additional Information of the
Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
September 26, 1997
Boston, Massachusetts
<PAGE>
EXHIBIT 15(b)
EATON VANCE MUNICIPALS TRUST
CLASS B DISTRIBUTION PLAN
WHEREAS, Eaton Vance Municipals Trust (the "Trust") engages in business
as an open-end investment company with multiple series (each with multiple
classes) and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, on June 23, 1997 the Trust adopted a Plan of Reorganization
and a Multiple Class Plan on behalf of its series and in connection therewith
the Trustees of the Trust amended the Declaration of Trust to terminate certain
series, to rename its Marathon series and to establish four classes of shares
(including Class B shares) within each renamed series;
WHEREAS, the assets of each Marathon series will be converted to Class
B assets of the renamed series and the shares of each Marathon series will be
converted to Class B shares of the renamed series pursuant to such
reorganization;
WHEREAS, the Trust adopted separate Distribution Plans and an Amended
Distribution Plan (collectively the "Original Plans") on behalf of its Marathon
series which are the predecessors to its Class B shares pursuant to which each
Marathon series made payments in connection with the distribution of its shares;
WHEREAS, the Trust employs Eaton Vance Distributors, Inc. to act as
Principal Underwriter (as defined in the Act) of Class B shares of each of its
series listed on Schedule A (a "Fund"), but does not intend to remunerate the
Principal Underwriter under this Class B Distribution Plan unless and until the
Principal Underwriter sells Class B shares of the Fund;
WHEREAS, each Fund will pay the Principal Underwriter sales commissions
and distribution fees out of Class B assets only in connection with the sale of
Class B shares;
WHEREAS, each Fund intends to pay service fees out of Class B assets as
contemplated in subsections (b) and (d) of Rule 2830 of the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD Rules");
WHEREAS, the Trustees of the Trust have determined that it is desirable
to adopt this Class B Distribution Plan as a successor to the Original Plans;
and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of this Class B Distribution Plan will
benefit the Trust, each Fund listed on Schedule A, and the holders of Class B
shares of each such Fund.
NOW, THEREFORE, the Trust hereby adopts this Class B Distribution Plan
(this "Plan") on behalf of each Fund in accordance with Rule 12b-1 under the Act
and containing the following terms and conditions:
1. The Fund will pay sales commissions and distribution fees out of
Class B assets to the Principal Underwriter only after and as a result of the
sale of Class B shares. The Principal Underwriter will provide such distribution
services and facilities as the Trust may from time to time consider necessary to
accomplish the sale of Class B shares. It is understood that the Principal
Underwriter may pay such sales commissions and make such other payments to
Authorized Firms and other persons as it considers appropriate to encourage
distribution of such shares.
2. On each sale of Class B shares (excluding reinvestment of dividends
and distributions), the Fund shall pay the Principal Underwriter a sales
commission out of Class B assets in an amount not exceeding 5% of the price
received by the Fund therefor, such payment to be made in the manner set forth
and subject to the terms of this Plan. The amount of the sales commission shall
be established from time to time by vote or other action of a majority of (i)
those Trustees of the Trust who are not "interested persons" (as defined in the
Act) of the Trust and have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the "Rule 12b-1
Trustees") and (ii) all of the Trustees then in office. The Fund shall also pay
the Principal Underwriter out of Class B assets a separate distribution fee
(calculated in accordance with Section 3), such payment to be made in the manner
set forth and subject to the terms of this Plan.
3. The sales commissions and distribution fees referred to in Section 2
shall be accrued and paid in the following manner. Each Class B shall accrue
daily an amount calculated at the rate of .75% per annum of its daily net
assets, which net assets shall be computed in accordance with the governing
documents of the Trust and applicable votes and determinations of the Trustees
of the Trust. The daily amounts so accrued throughout the month shall be paid to
the Principal Underwriter on the last day of each month. The amount of such
daily accrual, as so calculated, shall first be applied and charged to all
unpaid sales commissions, and the balance, if any, shall then be applied and
charged to all unpaid distribution fees. No amount shall be accrued with respect
to any day on which there exist no outstanding uncovered distribution charges of
the Principal Underwriter due from Class B shares. The amount of such uncovered
distribution charges shall be calculated daily. For purposes of this
calculation, distribution charges of the Principal Underwriter shall include (a)
the aggregate of all sales commissions which the Principal Underwriter has been
paid pursuant to this Section 3 (and pursuant to Section 3 of the Original
Plans) plus all sales commissions which it is entitled to be paid pursuant to
Section 2 (and pursuant to Section 2 of the Original Plans) since inception of
the Original Plans through and including the day next preceding the date of
calculation, and (b) an amount equal to the aggregate of all distribution fees
referred to below which the Principal Underwriter has been paid pursuant to this
Section 3 (and pursuant to Section 3 of the Original Plans) plus all such fees
which it is entitled to be paid pursuant to Section 2 (and pursuant to Section 2
of the Original Plans) since inception of the Original Plans through and
including the day next preceding the date of calculation. From this sum
(distribution charges) there shall be subtracted (i) the aggregate amount paid
or payable to the Principal Underwriter pursuant to this Section 3 (and pursuant
to Section 3 of the Original Plans) since inception of the Original Plans
through and including the day next preceding the date of calculation and (ii)
the aggregate amount of all contingent deferred sales charges paid or payable to
the Principal Underwriter since inception of the Original Plans through and
including the day next preceding the date of calculation. If the result of such
subtraction is a positive amount, a distribution fee [computed at the rate of 1%
per annum above the prime rate (being the base rate on corporate loans posted by
at least 75% of the nation's 30 largest banks) then being reported in the
Eastern Edition of The Wall Street Journal or if such prime rate is not so
reported such other rate as may be designated from time to time by vote or other
action of a majority of (i) the Rule 12b-1 Trustees and (ii) all of the Trustees
then in office] shall be computed on such amount and added to such amount, with
the resulting sum constituting the amount of outstanding uncovered distribution
charges of the Principal Underwriter due from Class B shares with respect to
such day for all purposes of this Plan. In addition, the calculation shall
include amounts under the Original Plans when a predecessor principal
underwriter existed. If the result of such subtraction is a negative amount,
there shall exist no outstanding uncovered distribution charges of the Principal
Underwriter due from Class B shares with respect to such day and no amount shall
be accrued or paid to the Principal Underwriter with respect to such day. The
aggregate amounts accrued and paid pursuant to this Section 3 during any fiscal
year of the Fund shall not exceed .75% of the average daily net assets of Class
B for such year.
4. The Principal Underwriter shall be entitled to receive all
contingent deferred sales charges paid or payable with respect to any day on
which there exist outstanding uncovered distribution charges of the Principal
Underwriter due from Class B shares. Class B shall be entitled to receive all
remaining contingent deferred sales charges paid or payable by Class B
shareholders with respect to any day on which there exist no outstanding
uncovered distribution charges of the Principal Underwriter due from Class B
shares, provided that no such sales charge which would cause the Class B to
exceed the maximum applicable cap imposed thereon by paragraph (2) of subsection
(d) of Rule 2830 of the NASD Rules shall be imposed.
5. The Fund may make payments of service fees out of Class B assets to
the Principal Underwriter, Authorized Firms and other persons. The aggregate of
such payments during any fiscal year of the Fund shall not exceed .25% of the
average daily net assets of Class B for such year. Appropriate adjustment of
service fee payments shall be made whenever necessary to ensure that no such
payment shall cause the Class B to exceed the applicable maximum cap imposed
thereon by paragraph (5) of subsection (d) of Rule 2830 of the NASD Rules.
6. This Plan shall not take effect until after it has been approved by
both a majority of (i) the Rule 12b-1 Trustees and (ii) all of the Trustees then
in office, cast in person at a meeting (or meetings) called for the purpose of
voting on this Plan.
7. Any agreements between the Trust on behalf of the Funds and any
person relating to this Plan shall be in writing and shall not take effect until
approved in the manner provided for Trustee approval of this Plan in Section 6.
8. This Plan shall continue in effect with respect to each Class B
until April 28, 1998 (or, if applicable, the next April 28 which follows the day
on which the Fund has become a Fund hereunder by amendment to Schedule A
subsequent to April 28, 1998) and from year to year thereafter, but only for so
long as such continuance after April 28, 1998 (or if applicable, said next April
28) is specifically approved at least annually in the manner provided for
Trustee approval of this Plan in Section 6.
9. The persons authorized to direct the disposition of monies paid or
payable pursuant to this Plan or any related agreement shall be the President or
any Vice President or the Treasurer of the Trust. Such persons shall provide to
the Trustees of the Trust and the Trustees shall review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
10. This Plan may be terminated as to any Fund with respect to its
Class B shares at any time by vote of a majority of the Rule 12b-1 Trustees, or
by vote of a majority of the outstanding Class B voting securities of the Fund.
The Principal Underwriter shall also be entitled to receive all contingent
deferred sales charges paid or payable with respect to any day subsequent to
termination of this Plan on which there exist outstanding uncovered distribution
charges of the Principal Underwriter due from Class B shares.
11. This Plan may not be amended to increase materially the payments to
be made by the Class B shares of the Fund as provided in Sections 2, 3 and 5
unless such amendment is approved by a vote of at least a majority of the
outstanding voting securities of the Class B shares of the Fund. In addition,
all material amendments to this Plan shall be approved in the manner provided
for Trustee approval of this Plan in Section 6. Additional series of the Trust
which are to become a Fund hereunder will become subject to this Plan and
governed hereby upon approval by the Trustees of the Trust and amendment of
Schedule A. All references in this Plan to the "Original Plans" shall not be
applicable to any such additional series of the Trust which becomes a Fund
hereunder by amendment of Schedule A subsequent to June 23, 1997.
12. While this Plan is in effect, the selection and nomination of the
Rule 12b-1 Trustees shall be committed to the discretion of the Rule 12b-1
Trustees.
13. The Trust shall preserve copies of this Plan and any related
agreements made by the Trust and all reports made pursuant to Section 9, for a
period of not less than six years from the date of this Plan, the first two
years in an easily accessible place.
14. Consistent with the limitation of shareholder, officer and Trustee
liability as set forth in the Trust's Declaration of Trust, any obligations
assumed by the Class B shares of a Fund pursuant to this Plan shall be limited
in all cases to the assets of such Class B shares and no person shall seek
satisfaction thereof from the shareholders, officers or Trustees of the Trust or
any other class or series of the Trust.
15. When used in this Plan, the term "service fees" shall have the same
meaning as such term has in subsections (b) and (d) of Rule 2830 of the NASD
Rules. When used in this Plan, the term "vote of a majority of the outstanding
Class B voting securities of the Fund" shall mean the vote of the lesser of (a)
67 per centum or more of the Class B shares of the Fund present or represented
by proxy at the meeting if the holders of more than 50 per centum of the
outstanding Class B shares of the Fund are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Class B shares of
the Fund.
16. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or regulation of the Securities and Exchange
Commission or otherwise, the remainder of this Plan shall not be affected
thereby.
17. This Plan shall be effective with respect to a specific Fund on the
date that Fund begins offering its Class B shares. As of such effective date
this Plan shall amend, replace and be substituted for the Original Plans
previously applicable to the Class B assets of that Fund. The outstanding
uncovered distribution charges of the Principal Underwriter calculated under the
Original Plans as of the close of business on the day preceding the date a Fund
begins offering Class B shares shall be the outstanding uncovered distribution
charges of the Principal Underwriter with respect to such Class B calculated
under this Plan as of the opening of business on the date such shares are
offered.
Adopted June 23, 1997
* * *
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST
CLASS B DISTRIBUTION PLAN
EFFECTIVE: JUNE 23, 1997
<TABLE>
<CAPTION>
<S> <C>
Name of Fund Adopting This Plan Date of Original Plans (Inception Date)
- ------------------------------- ---------------------------------------
Eaton Vance Alabama Municipals Fund April 24, 1992/June 19, 1995 (June 20, 1995)
Eaton Vance Arizona Municipals Fund July 22, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Arkansas Municipals Fund October 1, 1992/June 19, 1995 (June 20, 1995)
Eaton Vance California Municipals Fund* December 19, 1985/September 29, 1995
Eaton Vance Colorado Municipals Fund August 20, 1992/June 19, 1995 (June 20, 1995)
Eaton Vance Connecticut Municipals Fund April 24, 1992/June 19, 1995 (June 20, 1995)
Eaton Vance Florida Municipals Fund August 20, 1990/June 19, 1995 (June 20, 1995)
Eaton Vance Georgia Municipals Fund December 16, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Kentucky Municipals Fund December 16, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Louisiana Municipals Fund October 1, 1992/June 19, 1995 (June 20, 1995)
Eaton Vance Maryland Municipals Fund December 16, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Massachusetts Municipals Fund April 15, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Michigan Municipals Fund April 15, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Minnesota Municipals Fund July 22, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Mississippi Municipals Fund June 7, 1993/June 19, 1995 (June 20, 1995)
Eaton Vance Missouri Municipals Fund April 24, 1992/June 19, 1995 (June 20, 1995)
Eaton Vance National Municipals Fund December 19, 1985/June 19, 1995 (June 20, 1995)
Eaton Vance New Jersey Municipals Fund January 7, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance New York Municipals Fund August 20, 1990/June 19, 1995 (June 20, 1995)
Eaton Vance North Carolina Municipals Fund October 10, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Ohio Municipals Fund April 15, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Oregon Municipals Fund December 16, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Pennsylvania Municipals Fund January 7, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance Rhode Island Municipals Fund June 7, 1993/June 19, 1995 (June 20, 1995)
Eaton Vance South Carolina Municipals Fund October 1, 1992/June 19, 1995 (June 20, 1995)
Eaton Vance Tennessee Municipals Fund August 20, 1992/June 19, 1995 (June 20, 1995)
Eaton Vance Texas Municipals Fund January 31, 1992/June 19, 1995 (June 20, 1995)
Eaton Vance Virginia Municipals Fund July 22, 1991/June 19, 1995 (June 20, 1995)
Eaton Vance West Virginia Municipals Fund June 7, 1993/June 19, 1995 (June 20, 1995)
</TABLE>
- -----------
* This fund is a successor in operations to a fund which was reorganized,
effective October 1, 1995, and the outstanding uncovered distribution charges
of the predecessor fund were assumed by the above fund.
Note: All of the foregoing Funds except Eaton Vance Rhode Island Municipals
Fund, Eaton Vance Mississippi Municipals Fund and Eaton Vance West
Virginia Municipals Fund adopted an Amended Distribution Plan on July 7,
1993.
<PAGE>
EXHIBIT 15(c)
EATON VANCE MUNICIPALS TRUST
CLASS C DISTRIBUTION PLAN
WHEREAS, Eaton Vance Municipals Trust (the "Trust") engages in business
as an open-end investment company with multiple series (each with multiple
classes) and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, on June 23, 1997 the Trust adopted a Plan of Reorganization
and a Multiple Class Plan on behalf of its series and in connection therewith
the Trustees amended the Declaration of Trust to terminate certain series
(including its Classic series), and to establish four classes of shares
(including Class C shares) within each renamed series;
WHEREAS, the assets of each terminated Classic series will be converted
to Class C assets of the renamed series and the shares of each Classic series
will be converted to Class C shares of the renamed series pursuant to such
reorganization;
WHEREAS, the Trust adopted separate Distribution Plans and an Amended
Distribution Plan (collectively the "Original Plans") on behalf of its Classic
series which are the predecessors to its Class C shares pursuant to which each
Classic series made payments in connection with the distribution of its shares;
WHEREAS, the Trust employs Eaton Vance Distributors, Inc. to act as
Principal Underwriter (as defined in the Act) of Class C shares of each of its
series listed in Schedule A (a "Fund"), but does not intend to remunerate the
Principal Underwriter under this Class C Distribution Plan unless and until the
Principal Underwriter sells Class C shares of the Fund;
WHEREAS, each Fund will pay the Principal Underwriter sales commissions
and distribution fees out of Class C assets only in connection with the sale of
Class C shares;
WHEREAS, each Fund intends to pay service fees out of Class C assets as
contemplated in subsections (b) and (d) of Rule 2830 of the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD Rules");
WHEREAS, the Trustees of the Trust have determined that it is desirable
to adopt this Class C Distribution Plan as a successor to the Original Plans;
and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that adoption of this Class C Distribution Plan will
benefit the Trust, each Fund listed on Schedule A and the holders of Class C
shares of each such Fund.
NOW, THEREFORE, the Trust hereby adopts this Class C Distribution Plan
(this "Plan") on behalf of each Fund in accordance with Rule 12b-1 under the Act
and containing the following terms and conditions:
1. The Fund will pay sales commissions and distribution fees out of
Class C assets to the Principal Underwriter only after and as a result of the
sale of Class C shares. The Principal Underwriter will provide such distribution
services and facilities as the Trust may from time to time consider necessary to
accomplish the sale of Class C shares. It is understood that the Principal
Underwriter may pay such sales commissions and make such other payments to
Authorized Firms and other persons as it considers appropriate to encourage
distribution of such shares.
2. On each sale of Class C shares (excluding reinvestment of dividends
and distributions), the Fund shall pay the Principal Underwriter a sales
commission out of Class C assets in an amount not exceeding 6.25% of the price
received by the Fund therefor, such payment to be made in the manner set forth
and subject to the terms of this Plan. The amount of the sales commission shall
be established from time to time by vote or other action of a majority of (i)
those Trustees of the Trust who are not "interested persons" (as defined in the
Act) of the Trust and have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the "Rule 12b-1
Trustees") and (ii) all of the Trustees then in office. The Fund shall also pay
the Principal Underwriter out of Class C assets a separate distribution fee
(calculated in accordance with Section 3), such payment to be made in the manner
set forth and subject to the terms of this Plan.
3. The sales commissions and distribution fees referred to in Section 2
shall be accrued and paid in the following manner. Each Class C shall accrue
daily an amount calculated at the rate of .75% per annum of its daily net
assets, which net assets shall be computed in accordance with the governing
documents of the Trust and applicable votes and determinations of the Trustees
of the Trust. The daily amounts so accrued throughout the month shall be paid to
the Principal Underwriter on the last day of each month. The amount of such
daily accrual, as so calculated, shall first be applied and charged to all
unpaid sales commissions, and the balance, if any, shall then be applied and
charged to all unpaid distribution fees. No amount shall be accrued with respect
to any day on which there exist no outstanding uncovered distribution charges of
the Principal Underwriter due from Class C shares. The amount of such uncovered
distribution charges shall be calculated daily. For purposes of this
calculation, distribution charges of the Principal Underwriter shall include (a)
the aggregate of all sales commissions which the Principal Underwriter has been
paid pursuant to this Section 3 (and pursuant to Section 3 of the Original
Plans) plus all sales commissions which it is entitled to be paid pursuant to
Section 2 (and pursuant to Section 2 of the Original Plans) since inception of
the Original Plans through and including the day next preceding the date of
calculation, and (b) an amount equal to the aggregate of all distribution fees
referred to below which the Principal Underwriter has been paid pursuant to this
Section 3 (and pursuant to Section 3 of the Original Plans) plus all such fees
which it is entitled to be paid pursuant to Section 2 (and pursuant to Section 2
of the Original Plans) since inception of the Original Plans through and
including the day next preceding the date of calculation. From this sum
(distribution charges) there shall be subtracted (i) the aggregate amount paid
or payable to the Principal Underwriter pursuant to this Section 3 (and pursuant
to Section 3 of the Original Plans) since inception of the Original Plans
through and including the day next preceding the date of calculation and (ii)
the aggregate amount of all contingent deferred sales charges paid or payable to
the Principal Underwriter since inception of the Original Plans through and
including the day next preceding the date of calculation. If the result of such
subtraction is a positive amount, a distribution fee [computed at the rate of 1%
per annum above the prime rate (being the base rate on corporate loans posted by
at least 75% of the nation's 30 largest banks) then being reported in the
Eastern Edition of The Wall Street Journal or if such prime rate is not so
reported such other rate as may be designated from time to time by vote or other
action of a majority of (i) the Rule 12b-1 Trustees and (ii) all of the Trustees
then in office] shall be computed on such amount and added to such amount, with
the resulting sum constituting the amount of outstanding uncovered distribution
charges of the Principal Underwriter due from Class C shares with respect to
such day for all purposes of this Plan. In addition, the calculation shall
include amounts under the Original Plans when a predecessor principal
underwriter existed. If the result of such subtraction is a negative amount,
there shall exist no outstanding uncovered distribution charges of the Principal
Underwriter due from Class C shares with respect to such day and no amount shall
be accrued or paid to the Principal Underwriter with respect to such day. The
aggregate amounts accrued and paid pursuant to this Section 3 during any fiscal
year of the Fund shall not exceed .75% of the average daily net assets of Class
C for such year.
4. The Principal Underwriter shall be entitled to receive all
contingent deferred sales charges paid or payable with respect to any day on
which there exist outstanding uncovered distribution charges of the Principal
Underwriter due from Class C shares. Class C shall be entitled to receive all
remaining contingent deferred sales charges paid or payable by Class C
shareholders with respect to any day on which there exist no outstanding
uncovered distribution charges of the Principal Underwriter due from Class C
shares, provided that no such sales charge which would cause the Class C to
exceed the maximum applicable cap imposed thereon by paragraph (2) of subsection
(d) of Rule 2830 of the NASD Rules shall be imposed.
5. The Fund may make payments of service fees out of Class C assets to
the Principal Underwriter, Authorized Firms and other persons. The aggregate of
such payments during any fiscal year of the Fund shall not exceed .25% of the
average daily net assets of Class C for such year. Appropriate adjustment of
service fee payments shall be made whenever necessary to ensure that no such
payment shall cause the Class C to exceed the applicable maximum cap imposed
thereon by paragraph (5) of subsection (d) of Rule 2830 of the NASD Rules.
6. This Plan shall not take effect until after it has been approved by
both a majority of (i) the Rule 12b-1 Trustees and (ii) all of the Trustees then
in office, cast in person at a meeting (or meetings) called for the purpose of
voting on this Plan.
7. Any agreements between the Trust on behalf of the Funds and any
person relating to this Plan shall be in writing and shall not take effect until
approved in the manner provided for Trustee approval of this Plan in Section 6.
8. This Plan shall continue in effect with respect to each Class C
until April 28, 1998 (or, if applicable, the next April 28 which follows the day
on which the Fund has become a Fund hereunder by amendment to Schedule A
subsequent to April 28, 1998) and from year to year thereafter, but only for so
long as such continuance after April 28, 1998 (or if applicable, said next April
28) is specifically approved at least annually in the manner provided for
Trustee approval of this Plan in Section 6.
9. The persons authorized to direct the disposition of monies paid or
payable pursuant to this Plan or any related agreement shall be the President or
any Vice President or the Treasurer of the Trust. Such persons shall provide to
the Trustees of the Trust and the Trustees shall review, at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
10. This Plan may be terminated as to any Fund with respect to its
Class C shares at any time by vote of a majority of the Rule 12b-1 Trustees, or
by vote of a majority of the outstanding Class C voting securities of the Fund.
The Principal Underwriter shall also be entitled to receive all contingent
deferred sales charges paid or payable with respect to any day subsequent to
termination of this Plan on which there exist outstanding uncovered distribution
charges of the Principal Underwriter due from Class C shares.
11. This Plan may not be amended to increase materially the payments to
be made by the Class C shares of the Fund as provided in Sections 2, 3 and 5
unless such amendment is approved by a vote of at least a majority of the
outstanding voting securities of the Class C shares of the Fund. In addition,
all material amendments to this Plan shall be approved in the manner provided
for Trustee approval of this Plan in Section 6. Additional series of the Trust
which are to become a Fund hereunder will become subject to this Plan and
governed hereby upon approval by the Trustees of the Trust and amendment of
Schedule A. All references in this Plan to the "Original Plans" shall not be
applicable to any such additional series of the Trust which becomes a Fund
hereunder by amendment of Schedule A subsequent to June 23, 1997.
12. While this Plan is in effect, the selection and nomination of the
Rule 12b-1 Trustees shall be committed to the discretion of the Rule 12b-1
Trustees.
13. The Trust shall preserve copies of this Plan and any related
agreements made by the Trust and all reports made pursuant to Section 9, for a
period of not less than six years from the date of this Plan, the first two
years in an easily accessible place.
14. Consistent with the limitation of shareholder, officer and Trustee
liability as set forth in the Trust's Declaration of Trust, any obligations
assumed by the Class C shares of a Fund pursuant to this Plan shall be limited
in all cases to the assets of such Class C shares and no person shall seek
satisfaction thereof from the shareholders, officers or Trustees of the Trust or
any other class or series of the Trust.
15. When used in this Plan, the term "service fees" shall have the same
meaning as such term has in subsections (b) and (d) of Rule 2830 of the NASD
Rules. When used in this Plan, the term "vote of a majority of the outstanding
Class C voting securities of the Fund" shall mean the vote of the lesser of (a)
67 per centum or more of the Class C shares of the Fund present or represented
by proxy at the meeting if the holders of more than 50 per centum of the
outstanding Class C shares of the Fund are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Class C shares of
the Fund.
16. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or regulation of the Securities and Exchange
Commission or otherwise, the remainder of this Plan shall not be affected
thereby.
17. This Plan shall be effective with respect to a specific Fund on the
date that Fund begins offering its Class C shares. As of such effective date
this Plan shall amend, replace and be substituted for the Original Plans
previously applicable to the Class C assets of that Fund. The outstanding
uncovered distribution charges of the Principal Underwriter calculated under the
Original Plans as of the close of business on the day preceding the date a Fund
begins offering its Class C shares shall be the outstanding uncovered
distribution charges of the Principal Underwriter with respect to such Class C
calculated under this Plan as of the opening of business on the date such shares
are offered.
Adopted June 23, 1997
* * *
<PAGE>
SCHEDULE A
EATON VANCE MUNICIPALS TRUST
CLASS C DISTRIBUTION PLAN
EFFECTIVE: JUNE 23, 1997
Name of Fund Adopting this Plan Date of Original Plan (Inception Date)
- ------------------------------- --------------------------------------
Eaton Vance National Municipals Fund November 22, 1993/January 27, 1995
(January 30, 1995)
<PAGE>
Exhibit 16
EV MARATHON CALIFORNIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $1,700,849
Plus Dividend Income Earned:
------
Equal Gross Income: $1,700,849
Minus Expenses: $469,649
------
Equal Net Investment Income: $1,231,200
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 35,219,420
------
Equal Net Investment Income Earned Per Share: $0.0350
Net Asset Value Per Share 3/31/97: $9.52
30 Day Yield*: 4.45%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.45%
Divided by one minus a tax rate of 37.90%: 0.6210
------
Equal Tax Equivalent Yield***: 7.17%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.035 /$9.52)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and California tax rate of 37.90%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON CALIFORNIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the 1, 5, and 10 year periods ended March 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/97 ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
03/31/97 03/31/87 $1,690.32 $1,690.32 69.03% 5.39% 69.03% 5.39%
5 YEARS ENDED
03/31/97 03/31/92 $1,314.06 $1,294.73 31.41% 5.61% 29.47% 5.30%
1 YEAR ENDED
03/31/97 03/31/96 $1,052.33 $1,002.33 5.23% 5.23% 0.23% 0.23%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $27,784
Plus Dividend Income Earned:
------
Equal Gross Income: $27,784
Minus Expenses: $4,574
------
Equal Net Investment Income: $23,210
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 529,298
------
Equal Net Investment Income Earned Per Share: $0.0438
Net Asset Value Per Share 3/31/97: $10.77
30 Day Yield*: 4.93%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.14%
Divided by one minus a tax rate of 37.90%: 0.6210
------
Equal Tax Equivalent Yield***: 7.94%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0438/$10.77)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and California tax rate of 37.90%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the 1, 5, and 10 year periods ended March 31, 1997. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
03/31/97 03/31/87 $952.64 $1,684.86 76.86% 5.87% 68.49% 5.36%
5 YEARS ENDED
03/31/97 03/31/92 $952.61 $1,309.77 37.49% 6.57% 30.98% 5.55%
1 YEAR ENDED
03/31/97 03/31/96 $952.07 $1,011.44 6.24% 6.24% 1.14% 1.14%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 4.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON FLORIDA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97
Interest Income Earned: $2,759,389
Plus Dividend Income Earned:
------
Equal Gross Income: $2,759,389
Minus Expenses: $724,394
------
Equal Net Investment Income: $2,034,996
Divided by Average daily number of shares
outstanding that were entitled
to receive dividend: 52,373,295
------
Equal Net Investment Income Earned Per Share: $0.0389
Net Asset Value Per Share 3/31/97 $10.62
30 Day Yield*: 4.44%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.43%
Divided by one minus a tax rate of 33.89% 0.6611
------
Equal Tax Equivalent Yield** 6.72%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0389/$10.62)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Florida tax rate of 33.89%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON FLORIDA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from August 28, 1990 through March 31, 1997 and for the 1 and 5 year periods ended
March 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/97 ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/28/90 $1,572.26 $1,572.26 57.23% 7.11% 57.23% 7.11%
5 YEARS ENDED
03/31/97 03/31/92 $1,334.18 $1,314.18 33.42% 5.94% 31.42% 5.62%
1 YEAR ENDED
03/31/97 03/31/96 $1,033.76 $984.46 3.38% 3.38% -1.55% -1.55%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL FLORIDA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97
Interest Income Earned: $26,192
Plus Dividend Income Earned:
------
Equal Gross Income: $26,192
Minus Expenses: $2,886
------
Equal Net Investment Income: $23,305
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 508,887
------
Equal Net Investment Income Earned Per Share: $0.0458
Net Asset Value Per Share 3/31/97 $10.78
30 Day Yield*: 5.15%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.46%
Divided by one minus a tax rate of 33.48%: 0.6652
------
Equal Tax Equivalent Yield**: 7.74%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0458/$10.78)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Florida tax rate of 33.48%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL FLORIDA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from August 28, 1990 through March 31, 1997 and for the 1 and 5 year periods ended
March 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/28/90 $952.75 $1,533.71 60.98% 7.49% 53.37% 6.71%
5 YEARS ENDED
03/31/97 03/31/92 $952.19 $1,300.74 36.60% 6.44% 30.07% 5.40%
1 YEAR ENDED
03/31/97 03/31/96 $952.86 $994.93 4.41% 4.41% -0.51% -0.51%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 4.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON MASSACHUSETTS MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $1,284,603
Plus Dividend Income Earned:
------
Equal Gross Income: $1,284,603
Minus Expenses: $331,759
------
Equal Net Investment Income: $952,844
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 24,385,941
------
Equal Net Investment Income Earned Per Share: $0.0391
Net Asset Value Per Share 3/31/97: $10.24
30 Day Yield*: 4.63%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.71%
Divided by one minus a tax rate of 39.28%: 0.6072
------
Equal Tax Equivalent Yield***: 7.63%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0391/$10.24)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Massachusetts tax rate of 39.28%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON MASSACHUSETTS MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from April 18, 1991 through March 31, 1997 and for the 1 and 5 year periods ended
March 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/97 ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $1,442.33 $1,432.33 44.23% 6.35% 43.23% 6.22%
5 YEARS ENDED
03/31/97 03/31/92 $1,311.99 $1,292.16 31.20% 5.58% 29.22% 5.26%
1 YEAR ENDED
03/31/97 03/31/96 $1,042.78 $993.07 4.28% 4.28% -0.69% -0.69%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $34,095
Plus Dividend Income Earned:
------
Equal Gross Income: $34,095
Minus Expenses: $4,259
------
Equal Net Investment Income: $29,836
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 719,248
------
Equal Net Investment Income Earned Per Share: $0.0415
Net Asset Value Per Share 3/31/97: $9.58
30 Day Yield*: 5.25%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.61%
Divided by one minus a tax rate of 39.28%: 0.6072
------
Equal Tax Equivalent Yield***: 8.65%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0415/$9.58)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Massachusetts tax rate of 39.28%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from April 19, 1991 through March 31, 1997 and for the 1 and 5 year periods ended
March 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/19/91 $952.40 $1,386.13 45.53% 6.51% 38.61% 5.64%
5 YEARS ENDED
03/31/97 03/31/92 $952.42 $1,260.86 32.38% 5.77% 26.09% 4.75%
1 YEAR ENDED
03/31/97 03/31/96 $952.77 $1,002.54 5.22% 5.22% 0.25% 0.25%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 4.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON MISSISSIPPI MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $109,575
Plus Dividend Income Earned:
------
Equal Gross Income: $109,575
Minus Expenses: $29,019
------
Equal Net Investment Income: $80,555
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 2,358,079
------
Equal Net Investment Income Earned Per Share: $0.0342
Net Asset Value Per Share 3/31/97: $9.62
30 Day Yield*: 4.30%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.23%
Divided by one minus a tax rate of 34.45%: 0.6555
------
Equal Tax Equivalent Yield***: 6.56%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0342/$9.62)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Mississippi tax rate of 34.45%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON MISSISSIPPI MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from June 11, 1993 through March 31, 1997 and for the 1 year period ended
March 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/97 ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,158.22 $1,129.36 15.82% 3.93% 12.94% 3.24%
1 YEAR ENDED
03/31/97 03/31/96 $1,057.75 $1,007.75 5.78% 5.78% 0.78% 0.78%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $5,388
Plus Dividend Income Earned:
------
Equal Gross Income: $5,388
Minus Expenses: $837
------
Equal Net Investment Income: $4,551
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 119,477
------
Equal Net Investment Income Earned Per Share: $0.0381
Net Asset Value Per Share 3/31/97: $9.80
30 Day Yield*: 4.71%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.83%
Divided by one minus a tax rate of 34.45%: 0.6555
------
Equal Tax Equivalent Yield***: 7.19%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0381/$9.8)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Mississippi tax rate of 34.45%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from June 11, 1993 through March 31, 1997 and for the 1 year period ended
March 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $952.76 $1,106.38 16.12% 4.00% 10.64% 2.69%
1 YEAR ENDED
03/31/97 03/31/96 $952.09 $1,013.42 6.44% 6.44% 1.34% 1.34%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 4.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV CLASSIC NATIONAL MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97
Interest Income Earned: $406,774
Plus Dividend Income Earned:
------
Equal Gross Income: $406,774
Minus Expenses: $107,080
------
Equal Net Investment Income: $299,694
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 7,624,709
------
Equal Net Investment Income Earned Per Share: $0.0393
Net Asset Value Per Share 3/31/97 $9.35
30 Day Yield*: 5.10%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.39%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0393/$9.35)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV CLASSIC NATIONAL MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the 1, 5, and 10 year periods ended March 31, 1997. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/97 ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
03/31/97 03/31/87 $1,843.87 $1,843.87 84.39% 6.31% 84.39% 6.31%
5 YEARS ENDED
03/31/97 03/31/92 $1,401.05 $1,401.05 40.10% 6.98% 40.10% 6.98%
1 YEAR ENDED
03/31/97 03/31/96 $1,056.86 $1,046.86 5.69% 5.69% 4.69% 4.69%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON NATIONAL MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97
Interest Income Earned: $11,406,019
Plus Dividend Income Earned:
------
Equal Gross Income: $11,406,019
Minus Expenses: $2,692,988
------
Equal Net Investment Income: $8,713,031
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 203,197,372
------
Equal Net Investment Income Earned Per Share: $0.0429
Net Asset Value Per Share 3/31/97 $9.84
30 Day Yield*: 5.29%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.67%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0429/$9.84)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON NATIONAL MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the 1, 5, and 10 year periods ended March 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/97 ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
03/31/97 03/31/87 $1,877.03 $1,877.03 87.70% 6.50% 87.70% 6.50%
5 YEARS ENDED
03/31/97 03/31/92 $1,426.38 $1,406.38 42.64% 7.36% 40.64% 7.06%
1 YEAR ENDED
03/31/97 03/31/96 $1,059.37 $1,009.37 5.94% 5.94% 0.94% 0.94%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL NATIONAL MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97
Interest Income Earned: $212,843
Plus Dividend Income Earned:
------
Equal Gross Income: $212,843
Minus Expenses: $28,189
------
Equal Net Investment Income: $184,654
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 3,546,376
------
Equal Net Investment Income Earned Per Share: $0.0521
Net Asset Value Per Share 3/31/97 $10.93
30 Day Yield*: 5.79%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 8.39%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0521/$10.93)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL NATIONAL MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the 1, 5, and 10 year periods ended March 31, 1997. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
03/31/97 03/31/87 $952.50 $1,831.17 92.25% 6.75% 83.12% 6.24%
5 YEARS ENDED
03/31/97 03/31/92 $952.28 $1,391.06 46.08% 7.87% 39.11% 6.82%
1 YEAR ENDED
03/31/97 03/31/96 $952.81 $1,014.78 6.51% 6.51% 1.48% 1.48%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 4.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON NEW YORK MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $2,603,793
Plus Dividend Income Earned:
------
Equal Gross Income: $2,603,793
Minus Expenses: $751,384
------
Equal Net Investment Income: $1,852,409
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 50,358,943
------
Equal Net Investment Income Earned Per Share: $0.0368
Net Asset Value Per Share 3/31/97: $10.86
30 Day Yield*: 4.10%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 5.94%
Divided by one minus a tax rate of 38.99%: 0.6101
------
Equal Tax Equivalent Yield***: 6.72%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0368/$10.86)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and New York tax rate of 38.99%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON NEW YORK MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from August 30, 1990 through March 31, 1997 and for the 1 and 5 year periods ended
March 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/97 ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/30/90 $1,613.79 $1,613.79 61.38% 7.53% 61.38% 7.53%
5 YEARS ENDED
03/31/97 03/31/92 $1,370.34 $1,350.34 37.03% 6.50% 35.03% 6.19%
1 YEAR ENDED
03/31/97 03/31/96 $1,048.38 $998.38 4.84% 4.84% -0.16% -0.16%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL NEW YORK MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $34,612
Plus Dividend Income Earned:
------
Equal Gross Income: $34,612
Minus Expenses: $4,578
------
Equal Net Investment Income: $30,034
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 716,858
------
Equal Net Investment Income Earned Per Share: $0.0419
Net Asset Value Per Share 3/31/97: $10.54
30 Day Yield*: 4.82%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.99%
Divided by one minus a tax rate of 38.99%: 0.6101
------
Equal Tax Equivalent Yield***: 7.90%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0419/$10.54)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and New York tax rate of 38.99%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL NEW YORK MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from August 30, 1990 through March 31, 1997 and for the 1 and 5 year periods ended
March 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/30/90 $952.76 $1,574.29 65.22% 7.92% 57.43% 7.13%
5 YEARS ENDED
03/31/97 03/31/92 $952.60 $1,336.51 40.30% 7.01% 33.65% 5.97%
1 YEAR ENDED
03/31/97 03/31/96 $952.25 $1,006.37 5.69% 5.69% 0.64% 0.64%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 4.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON OHIO MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97
Interest Income Earned: $1,394,547
Plus Dividend Income Earned:
------
Equal Gross Income: $1,394,547
Minus Expenses: $369,418
------
Equal Net Investment Income: $1,025,130
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 25,957,435
------
Equal Net Investment Income Earned Per Share: $0.0395
Net Asset Value Per Share 3/31/97 $10.55
30 Day Yield*: 4.54%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.58%
Divided by one minus a tax rate of 35.76%: 0.6424
------
Equal Tax Equivalent Yield***: 7.07%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0395/$10.55)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Ohio tax rate of 35.76%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON OHIO MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from April 18, 1991 through March 31, 1997 and for the 1 and 5 year periods ended
March 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/97 ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $1,466.06 $1,456.06 46.61% 6.64% 45.61% 6.52%
5 YEARS ENDED
03/31/97 03/31/92 $1,350.99 $1,330.99 35.10% 6.20% 33.10% 5.89%
1 YEAR ENDED
03/31/97 03/31/96 $1,047.92 $997.92 4.79% 4.79% -0.21% -0.21%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL OHIO MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97
Interest Income Earned: $9,952
Plus Dividend Income Earned:
------
Equal Gross Income: $9,952
Minus Expenses: $894
------
Equal Net Investment Income: $9,057
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 209,467
------
Equal Net Investment Income Earned Per Share: $0.0432
Net Asset Value Per Share 3/31/97 $9.70
30 Day Yield*: 5.40%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.83%
Divided by one minus a tax rate of 35.76%: 0.6424
------
Equal Tax Equivalent Yield***: 8.41%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0432/$9.7)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Ohio tax rate of 35.76%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL OHIO MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from April 18, 1991 through March 31, 1997 and for the 1 and 5 year periods ended
March 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $952.38 $1,392.30 46.19% 6.59% 39.23% 5.72%
5 YEARS ENDED
03/31/97 03/31/92 $952.94 $1,283.78 34.72% 6.14% 28.38% 5.12%
1 YEAR ENDED
03/31/97 03/31/96 $952.09 $1,005.39 5.59% 5.59% 0.54% 0.54%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 4.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON RHODE ISLAND MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $180,589
Plus Dividend Income Earned:
------
Equal Gross Income: $180,589
Minus Expenses: $41,772
------
Equal Net Investment Income: $138,816
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 3,968,906
------
Equal Net Investment Income Earned Per Share: $0.0350
Net Asset Value Per Share 3/31/97: $9.44
30 Day Yield*: 4.49%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.51%
Divided by one minus a tax rate of 36.88%: 0.6312
------
Equal Tax Equivalent Yield***: 7.11%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.035 /$9.44)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Rhode Island tax rate of 36.88%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON RHODE ISLAND MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from June 11, 1993 through March 31, 1997 and for the 1 year period ended
March 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/97 ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,142.52 $1,114.20 14.25% 3.56% 11.42% 2.88%
1 YEAR ENDED
03/31/97 03/31/96 $1,050.11 $1,000.11 5.01% 5.01% 0.01% 0.01%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL RHODE ISLAND MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $7,860
Plus Dividend Income Earned:
------
Equal Gross Income: $7,860
Minus Expenses: $635
------
Equal Net Investment Income: $7,225
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 177,628
------
Equal Net Investment Income Earned Per Share: $0.0407
Net Asset Value Per Share 3/31/97: $9.60
30 Day Yield*: 5.14%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.45%
Divided by one minus a tax rate of 36.88%: 0.6312
------
Equal Tax Equivalent Yield***: 8.14%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0407/$9.6)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Rhode Island tax rate of 36.88%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL RHODE ISLAND MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from June 11, 1993 through March 31, 1997 and for the 1 year period ended
March 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $952.74 $1,086.92 14.08% 3.52% 8.69% 2.21%
1 YEAR ENDED
03/31/97 03/31/96 $952.48 $1,002.73 5.28% 5.28% 0.27% 0.27%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 4.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV MARATHON WEST VIRGINIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97
Interest Income Earned: $173,671
Plus Dividend Income Earned:
------
Equal Gross Income: $173,671
Minus Expenses: $46,441
------
Equal Net Investment Income: $127,230
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 3,699,930
------
Equal Net Investment Income Earned Per Share: $0.0344
Net Asset Value Per Share 3/31/97 $9.57
30 Day Yield*: 4.35%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.30%
Divided by one minus a tax rate of 35.49%: 0.6451
------
Equal Tax Equivalent Yield***: 6.74%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0344/$9.57)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and West Virginia tax rate of 35.49%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV MARATHON WEST VIRGINIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from June 11, 1993 through March 31, 1997 and for the 1 year period ended
March 31, 1997.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 03/31/97 ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,150.86 $1,122.15 15.09% 3.76% 12.22% 3.07%
1 YEAR ENDED
03/31/97 03/31/96 $1,047.69 $997.69 4.77% 4.77% -0.23% -0.23%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
Exhibit 16
EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97
Interest Income Earned: $8,115
Plus Dividend Income Earned:
------
Equal Gross Income: $8,115
Minus Expenses: $812
------
Equal Net Investment Income: $7,302
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 176,916
------
Equal Net Investment Income Earned Per Share: $0.0413
Net Asset Value Per Share 3/31/97 $9.77
30 Day Yield*: 5.13%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.43%
Divided by one minus a tax rate of 35.49%: 0.6451
------
Equal Tax Equivalent Yield***: 7.95%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0413/$9.77)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and West Virginia tax rate of 35.49%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from June 11, 1993 through March 31, 1997 and for the 1 year period ended
March 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 03/31/97 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $952.83 $1,097.64 15.19% 3.78% 9.76% 2.48%
1 YEAR ENDED
03/31/97 03/31/96 $952.33 $1,005.56 5.59% 5.59% 0.56% 0.56%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 4.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 4.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 4.75%.
</TABLE>
<PAGE>
Exhibit 16
EV MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 3/31/97:
Interest Income Earned: $34,250
Plus Dividend Income Earned:
------
Equal Gross Income: $34,250
Minus Expenses: $4,712
------
Equal Net Investment Income: $29,538
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 703,066
------
Equal Net Investment Income Earned Per Share: $0.0420
Net Asset Value Per Share 3/31/97: $9.48
30 Day Yield*: 5.38%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.80%
Divided by one minus a tax rate of 39.28%: 0.6072
------
Equal Tax Equivalent Yield***: 8.86%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.042 /$9.48)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Massachusetts tax rate of 39.28%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- EATON VANCE MASSACHUSETTS MUNICIPALS FUND - CLASS I SHARES
The table below indicates the total return (capital changes plus reinvestment of all distributions) on a hypothetical investment of
$1,000 in the Fund covering the period from April 18, 1991 through March 31, 1997 and for the 1 and 5 year periods ended
March 31, 1997. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF
INVESTMENT INVESTMENT INVESTMENT TOTAL RETURN
PERIOD DATE ON 03/31/97 CUMULATIVE ANNUALIZED
<S> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $1,483.93 48.39% 6.86%
5 YEARS ENDED
03/31/97 03/31/92 $1,349.82 34.98% 6.18%
1 YEAR ENDED
03/31/97 03/31/96 $1,050.91 5.09% 5.09%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 65
<NAME> EV MARATHON CALIFORNIA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 311532
<INVESTMENTS-AT-VALUE> 332801
<RECEIVABLES> 196
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 332997
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2049
<TOTAL-LIABILITIES> 2049
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 339604
<SHARES-COMMON-STOCK> 34755
<SHARES-COMMON-PRIOR> 40202
<ACCUMULATED-NII-CURRENT> (502)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (29423)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21269
<NET-ASSETS> 330948
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 10212
<EXPENSES-NET> 1940
<NET-INVESTMENT-INCOME> 8272
<REALIZED-GAINS-CURRENT> 3763
<APPREC-INCREASE-CURRENT> (3954)
<NET-CHANGE-FROM-OPS> 8081
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8272)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (118)
<NUMBER-OF-SHARES-SOLD> 910
<NUMBER-OF-SHARES-REDEEMED> 4379
<SHARES-REINVESTED> 347
<NET-CHANGE-IN-ASSETS> (30307)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1940
<AVERAGE-NET-ASSETS> 349740
<PER-SHARE-NAV-BEGIN> 9.54
<PER-SHARE-NII> .226
<PER-SHARE-GAIN-APPREC> (.016)
<PER-SHARE-DIVIDEND> (.227)
<PER-SHARE-DISTRIBUTIONS> (.003)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.52
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> EV MARATHON FLORIDA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 532230
<INVESTMENTS-AT-VALUE> 551389
<RECEIVABLES> 21
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 551410
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2862
<TOTAL-LIABILITIES> 2862
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 548122
<SHARES-COMMON-STOCK> 51653
<SHARES-COMMON-PRIOR> 61577
<ACCUMULATED-NII-CURRENT> (1231)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (17501)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19158
<NET-ASSETS> 548548
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 16369
<EXPENSES-NET> 3089
<NET-INVESTMENT-INCOME> 13280
<REALIZED-GAINS-CURRENT> 6241
<APPREC-INCREASE-CURRENT> (14008)
<NET-CHANGE-FROM-OPS> 5513
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13255)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (468)
<NUMBER-OF-SHARES-SOLD> 1568
<NUMBER-OF-SHARES-REDEEMED> 7153
<SHARES-REINVESTED> 425
<NET-CHANGE-IN-ASSETS> (63891)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3101
<AVERAGE-NET-ASSETS> 588384
<PER-SHARE-NAV-BEGIN> 10.78
<PER-SHARE-NII> .241
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.242)
<PER-SHARE-DISTRIBUTIONS> (.009)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> EV MARATHON MASSACHUSETTS MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 236257
<INVESTMENTS-AT-VALUE> 248430
<RECEIVABLES> 48
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 248478
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1511
<TOTAL-LIABILITIES> 1511
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 251237
<SHARES-COMMON-STOCK> 24129
<SHARES-COMMON-PRIOR> 27192
<ACCUMULATED-NII-CURRENT> (494)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (15950)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12174
<NET-ASSETS> 246967
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 7501
<EXPENSES-NET> 1386
<NET-INVESTMENT-INCOME> 6115
<REALIZED-GAINS-CURRENT> 1756
<APPREC-INCREASE-CURRENT> (3851)
<NET-CHANGE-FROM-OPS> 4020
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6115)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (7)
<NUMBER-OF-SHARES-SOLD> 481
<NUMBER-OF-SHARES-REDEEMED> 2534
<SHARES-REINVESTED> 285
<NET-CHANGE-IN-ASSETS> (20431)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1386
<AVERAGE-NET-ASSETS> 259919
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> .242
<PER-SHARE-GAIN-APPREC> (.088)
<PER-SHARE-DIVIDEND> (.244)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 26
<NAME> EV MARATHON MISSISSIPPI MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 21424
<INVESTMENTS-AT-VALUE> 22582
<RECEIVABLES> 0
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22583
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 77
<TOTAL-LIABILITIES> 77
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23322
<SHARES-COMMON-STOCK> 2339
<SHARES-COMMON-PRIOR> 2652
<ACCUMULATED-NII-CURRENT> 64
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2037)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1158
<NET-ASSETS> 22506
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 649
<EXPENSES-NET> 141
<NET-INVESTMENT-INCOME> 508
<REALIZED-GAINS-CURRENT> 70
<APPREC-INCREASE-CURRENT> (14)
<NET-CHANGE-FROM-OPS> 564
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (510)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (13)
<NUMBER-OF-SHARES-SOLD> 60
<NUMBER-OF-SHARES-REDEEMED> 229
<SHARES-REINVESTED> 24
<NET-CHANGE-IN-ASSETS> (1356)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 141
<AVERAGE-NET-ASSETS> 23340
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> .212
<PER-SHARE-GAIN-APPREC> .015
<PER-SHARE-DIVIDEND> (.212)
<PER-SHARE-DISTRIBUTIONS> (.005)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.62
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> EV MARATHON NATIONAL MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 1849855
<INVESTMENTS-AT-VALUE> 1996974
<RECEIVABLES> 1138
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1998111
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8564
<TOTAL-LIABILITIES> 8564
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1937424
<SHARES-COMMON-STOCK> 202223
<SHARES-COMMON-PRIOR> 212308
<ACCUMULATED-NII-CURRENT> 2033
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (97029)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 147119
<NET-ASSETS> 1989547
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 67905
<EXPENSES-NET> 11201
<NET-INVESTMENT-INCOME> 56704
<REALIZED-GAINS-CURRENT> (3582)
<APPREC-INCREASE-CURRENT> (7074)
<NET-CHANGE-FROM-OPS> 46048
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 57294
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11411
<NUMBER-OF-SHARES-REDEEMED> 23610
<SHARES-REINVESTED> 2114
<NET-CHANGE-IN-ASSETS> (112084)
<ACCUMULATED-NII-PRIOR> 2623
<ACCUMULATED-GAINS-PRIOR> (93447)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11201
<AVERAGE-NET-ASSETS> 2072569
<PER-SHARE-NAV-BEGIN> 9.90
<PER-SHARE-NII> 0.274
<PER-SHARE-GAIN-APPREC> (0.058)
<PER-SHARE-DIVIDEND> 0.276
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.84
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EV MARATHON NEW YORK MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 520427
<INVESTMENTS-AT-VALUE> 544256
<RECEIVABLES> 283
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 544539
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2453
<TOTAL-LIABILITIES> 2453
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 532329
<SHARES-COMMON-STOCK> 49935
<SHARES-COMMON-PRIOR> 57135
<ACCUMULATED-NII-CURRENT> (1210)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12862)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23828
<NET-ASSETS> 542086
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 16129
<EXPENSES-NET> 2990
<NET-INVESTMENT-INCOME> 13138
<REALIZED-GAINS-CURRENT> 6517
<APPREC-INCREASE-CURRENT> (9810)
<NET-CHANGE-FROM-OPS> 9844
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13138)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (150)
<NUMBER-OF-SHARES-SOLD> 1287
<NUMBER-OF-SHARES-REDEEMED> 6029
<SHARES-REINVESTED> 649
<NET-CHANGE-IN-ASSETS> (48312)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2990
<AVERAGE-NET-ASSETS> 572801
<PER-SHARE-NAV-BEGIN> 10.93
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<PAGE>
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<NAME> EV MARATHON OHIO MUNICIPALS FUND
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<PAGE>
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<NAME> EV MARATHON RHODE ISLAND MUNICIPALS FUND
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<TABLE> <S> <C>
<PAGE>
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<NAME> EV MARATHON WEST VIRGINIA MUNICIPALS FUND
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<TABLE> <S> <C>
<PAGE>
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<NAME> EV CALIFORNIA PORTFOLIO
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<TABLE> <S> <C>
<PAGE>
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<NAME> EV FLORIDA PORTFOLIO
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<PAGE>
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<NAME> EV MASSACHUSETTS PORTFOLIO
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<NAME> EV MISSISSIPPI PORTFOLIO
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<PAGE>
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<NAME> EV NATIONAL MUNICIPALS PORTFOLIO
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<PAGE>
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<NAME> EV NEW YORK PORTFOLIO
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<NAME> EV OHIO PORTFOLIO
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<TABLE> <S> <C>
<PAGE>
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<NAME> EV RHODE ISLAND PORTFOLIO
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 148
<NAME> EV WEST VIRGINIA PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
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<PERIOD-END> MAR-31-1997
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 65
<NAME> EV MARATHON CALIFORNIA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> EV MARATHON FLORIDA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> EV MARATHON MASSACHUSETTS MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 26
<NAME> EV MARATHON MISSISSIPPI MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> EV MARATHON NATIONAL MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EV MARATHON NEW YORK MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NUMBER> 8
<NAME> EV MARATHON OHIO MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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