<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 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. 64 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 66 [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
pursuant to paragraph (b) to paragraph (a)(1)
[X] on February 1, 1997 [ ] 75 days after filing
pursuant to paragraph (b) pursuant to paragraph (a)(2)
[ ] 60 days after filing [ ] on (date) pursuant
pursuant to paragraph (a)(1) to paragraph (a)(2).
If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
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.
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================
AMOUNT OF PROPOSED MAXIMUM PROPOSED AGGREGATE
TITLE OF SECURITIES SHARES BEING OFFERING PRICE MAXIMUM AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest 31,849,796 $10.34(1) $329,326,891(2) $0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Computed under Rule 457(d) on the basis of the maximum aggregate offering
price per share at the close of business on January 17, 1997.
(2) Registrant elects to calculate the maximum aggregate offering price
pursuant to Rule 24e-2 for those series with a fiscal year end of
September 30, 1996. $1,050,834,869 of shares were redeemed during the
fiscal year ended September 30, 1996. $721,507,974 of shares were used for
reductions pursuant to Paragraph (c) of Rule 24f-2 during such fiscal
year. $329,326,895 of shares redeemed are being used for the reduction of
the registration fee in this Amendment.
The Registrant has filed a Declaration pursuant to Rule 24f-2. On September
4, 1996, Registrant filed its "Notice" as required by that Rule for the series
of the Registrant with the fiscal year end of July 31, 1996, on October 15, 1996
filed its "Notice" for the series of the Registrant with the fiscal year end of
August 31, 1996, and on November 21, 1996 filed its "Notice" for the series of
the Registrant with the fiscal year end of September 30, 1996. Registrant
continues its election to register an indefinite number of shares of beneficial
interest pursuant to Rule 24f-2.
================================================================================
<PAGE>
This Amendment to the registration statement on Form N-1A consists of the
following documents and papers:
Cross Reference Sheets required by Rule 481(a) under Securities Act of
1933
Part A -- The Combined Prospectuses of:
<TABLE>
<CAPTION>
<C> <C>
EV Marathon California Municipals Fund EV Traditional California Municipals Fund
EV Marathon Florida Municipals Fund EV Traditional Florida Municipals Fund
EV Marathon Massachusetts Municipals Fund EV Traditional Massachusetts Municipals Fund
EV Marathon Mississippi Municipals Fund EV Traditional Mississippi Municipals Fund
EV Marathon New York Municipals Fund EV Traditional New York Municipals Fund
EV Marathon Ohio Municipals Fund EV Traditional Ohio Municipals Fund
EV Marathon Rhode Island Municipals Fund EV Traditional Rhode Island Municipals Fund
EV Marathon West Virginia Municipals Fund EV Traditional West Virginia Municipals Fund
The Prospectuses of:
EV Classic National Municipals Fund
EV Marathon National Municipals Fund
EV Traditional National Municipals Fund
Massachusetts Municipal Bond Portfolio
Part B -- The Combined Statements of Additional Information of:
EV Marathon California Municipals Fund EV Traditional California Municipals Fund
EV Marathon Florida Municipals Fund EV Traditional Florida Municipals Fund
EV Marathon Massachusetts Municipals Fund EV Traditional Massachusetts Municipals Fund
EV Marathon Mississippi Municipals Fund EV Traditional Mississippi Municipals Fund
EV Marathon New York Municipals Fund EV Traditional New York Municipals Fund
EV Marathon Ohio Municipals Fund EV Traditional Ohio Municipals Fund
EV Marathon Rhode Island Municipals Fund EV Traditional Rhode Island Municipals Fund
EV Marathon West Virginia Municipals Fund EV Traditional West Virginia Municipals Fund
The Statements of Additional Information of:
EV Classic National Municipals Fund
EV Marathon National Municipals Fund
EV Traditional National Municipals Fund
Massachusetts Municipal Bond Portfolio
</TABLE>
Part C -- Other Information
Signatures
Exhibit Index Required by Rule 483(b) under the Securities Act of 1933
Exhibits
This Amendment is not intended to amend the Prospectuses and Statements of
Additional Information of any other Series of the Registrant not identified
above.
Effective November 29, 1996, the Registrant terminated the operations of the
following series, the shares of which are registered pursuant to this
Registration Statement: EV Classic California Municipals Fund; EV Classic
Florida Municipals Fund; and EV Classic New York Municipals Fund.
<PAGE>
<TABLE>
<CAPTION>
EATON VANCE MUNICIPALS TRUST
CROSS REFERENCE SHEET
FOR ALL STATE MUNICIPAL FUNDS
ITEMS REQUIRED BY FORM N-1A
---------------------------
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- ------- ------------ ---------------------------------------------
<S> <C> <C>
1. ..................... Cover Page Cover Page
2. ..................... Synopsis Shareholder and Fund Expenses
3. ..................... Condensed Financial Information The Funds' Financial Highlights; Performance
Information
4. ..................... General Description of Registrant The Funds' Investment Objectives; Investment
Policies and Risks; Organization of the
Funds and the Portfolios
5. ..................... Management of the Fund Management of the Funds and the Portfolios
5A...................... Management's Discussion of Fund Not Applicable
Performance
6. ..................... Capital Stock and Other Securities Organization of the Funds and the Portfolios;
Reports to Shareholders; The Lifetime
Investing Account/Distribution Options;
Distributions and Taxes
7. ..................... Purchase of Securities Being Offered Valuing Fund Shares; How to Buy Fund Shares;
The Lifetime Investing Account/Distribution
Options; Distribution Plans (for Marathon
Funds) or Service Plans (for Traditional
Funds); The Eaton Vance Exchange Privilege;
Eaton Vance Shareholder Services
8. ..................... Redemption or Repurchase How to Redeem Fund 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; Fees and Expenses
15. ..................... Control Persons and Principal Holders of Control Persons and Principal Holders of Securities
16. ..................... Investment Advisory and Other Investment Adviser and Administrator;
Services Distribution Plan (for Marathon Funds) or
Service Plan (for Traditional Funds);
Custodian; Independent Certified Public
Accountants; Fees and Expenses
17. ..................... Brokerage Allocation and Other Portfolio Security Transactions; Fees and Practices
18. ..................... Capital Stock and Other Securities Other Information
19. ..................... Purchase, Redemption and Pricing of Determination of Net Asset Value; Principal
Securities Being Offered Underwriter; Service for Withdrawal;
Services for Accumulation (for Traditional
Funds only); Distribution Plan (for
Marathon Funds) or Service Plan (for
Traditional Funds); Fees and Expenses
20. ..................... Tax Status Taxes; Tax Equivalent Yield Table
21. ..................... Underwriters Principal Underwriter; Fees and Expenses
22. ..................... Calculation of Performance Data Investment Performance; Performance Information
23. ..................... Financial Statements Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EATON VANCE MUNICIPALS TRUST
CROSS REFERENCE SHEET FOR
EV CLASSIC NATIONAL MUNICIPALS FUND
EV MARATHON NATIONAL MUNICIPALS FUND
EV TRADITIONAL NATIONAL MUNICIPALS FUND
ITEMS REQUIRED BY FORM N-1A
-----------------------------------------
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 Fund Shares; How to Buy Fund Shares;
The Lifetime Investing Account/Distribution
Options; Distribution Plan (for Marathon
and Classic Funds) or Service Plan (for
Traditional Fund); The Eaton Vance
Exchange Privilege; Eaton Vance Shareholder
Services
8. ..................... Redemption or Repurchase How to Redeem Fund 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; Fees and Expenses
15. ..................... Control Persons and Principal Holders of Control Persons and Principal Holders of
Securities Securities
16. ..................... Investment Advisory and Other Investment Adviser and Administrator;
Services Distribution Plan (for Marathon and Classic
Funds) or Service Plan (for Traditional
Fund); Custodian; Independent Certified
Public Accountants; Fees and Expenses
17. ..................... Brokerage Allocation and Other Portfolio Security Transactions; Fees and
Practices Expenses
18. ..................... Capital Stock and Other Securities Other Information
19. ..................... Purchase, Redemption and Pricing of Determination of Net Asset Value; Principal
Securities Being Offered Underwriter; Service for Withdrawal;
Services for Accumulation (for Tradi-
tional Fund only); Distribution Plan (for
Marathon and Classic Funds) or Service Plan
(for Traditional Fund); Fees and Expenses
20. ..................... Tax Status Taxes; Tax Equivalent Yield Table
21. ..................... Underwriters Principal Underwriter; Fees and Expenses
22. ..................... Calculation of Performance Data Investment Performance; Performance Information
23. ..................... Financial Statements Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EATON VANCE MUNICIPALS TRUST
CROSS REFERENCE SHEET FOR
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
ITEMS REQUIRED BY FORM N-1A
---------------------------
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 Fund Shares; How to Buy Fund Shares;
The Lifetime Investing Account/Distribution
Options; Distribution Plan; The Eaton Vance
Exchange Privilege; Eaton Vance Shareholder
Services
8. ..................... Redemption or Repurchase How to Redeem Fund 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; 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;
Distribution Plan
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
EV MARATHON
MUNICIPAL FUNDS
- ------------------------------------------------------------------------------
<TABLE>
<C> <C>
EV MARATHON CALIFORNIA MUNICIPALS FUND EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND EV MARATHON WEST VIRGINIA MUNICIPALS FUND
</TABLE>
THE EV MARATHON MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND THE STATE
TAXES DESCRIBED UNDER "THE FUNDS" INVESTMENT OBJECTIVES'' IN THIS PROSPECTUS.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY DIRECTLY INVESTING IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES. EACH FUND IS A SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
combined Statement of Additional Information dated February 1, 1997 for the
Funds, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares .......................... 22
The Funds' Financial Highlights ........................ 4 Reports to Shareholders ............................ 23
The Funds' Investment Objectives ....................... 12 The Lifetime Investing Account/Distribution
Investment Policies and Risks .......................... 12 Options ......................................... 23
Organization of the Funds and the Portfolios ........... 16 The Eaton Vance Exchange Privilege ................. 24
Management of the Funds and the Portfolios ............. 17 Eaton Vance Shareholder Services ................... 25
Distribution Plans ..................................... 19 Distributions and Taxes ............................ 26
Valuing Fund Shares .................................... 20 Performance Information ............................ 27
How to Buy Fund Shares ................................. 21 Appendix - State Specific Information .............. 28
</TABLE>
- -------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
----------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on Redemption during
the First Seven Years (as a percentage of redemption proceeds exclusive of all
reinvestments and capital appreciation in the account) 5.00%-0%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
-----------------------------------------------------------------------------------------------------------------
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
---------- ------- ------------- -----------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any applicable fee
reduction) 0.50% 0.46% 0.46% 0.10%
Rule 12b-1 Distribution (and Service) Fees 0.96 0.93 0.92 0.93
Other Expenses 0.20 0.16 0.21 0.41
---- ---- ---- ----
Total Operating Expenses (after reduction) 1.66% 1.55% 1.59% 1.44%
==== ==== ==== ====
<CAPTION>
EXAMPLE
-----------------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each period:
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI
FUND FUND FUND FUND
---------- ------- ------------- -----------
<S> <C> <C> <C> <C>
1 Year $ 67 $ 66 $ 66 $ 65
3 Years 92 89 90 86
5 Years 110 104 107 99
10 Years 197 185 189 172
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b)
no redemptions:
1 Year $ 17 $ 16 $ 16 $ 15
3 Years 52 49 50 46
5 Years 90 84 87 79
10 Years 197 185 189 172
</TABLE>
<PAGE>
SHAREHOLDER AND FUND EXPENSES -- (CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
------------------------------------------------------------------------------------------------------------------
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
---------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any applicable fee
reduction) 0.46% 0.46% 0.13% 0.24%
Rule 12b-1 Distribution (and Service) Fees 0.92 0.93 0.89 0.95
Other Expenses 0.16 0.24 0.33 0.36
--- --- --- ---
Total Operating Expenses (after reduction) 1.54% 1.63% 1.35% 1.55%
==== ==== ==== ====
<CAPTION>
EXAMPLE
------------------------------------------------------------------------------------------------------------------
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment,
assuming (a) 5% annual return and (b) redemption at the end of each period:
NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND
---------- ------- ------------- ------------
<S> <C> <C> <C> <C>
1 Year $ 66 $ 67 $ 64 $ 66
3 Years 89 91 83 89
5 Years 104 109 94 104
10 Years 183 193 162 185
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b)
no redemptions:
1 Year $ 16 $ 17 $ 14 $ 16
3 Years 49 51 43 49
5 Years 84 89 74 84
10 Years 183 193 162 185
</TABLE>
NOTES:
The tables and Examples summarize the aggregate expenses of the Funds and the
Portfolios and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in a Fund. Information for
each Fund is based on its expenses for the most recent fiscal year. Absent a fee
reduction, the following Funds would have paid the following expenses (as a
percentage of average daily net assets): Mississippi Fund Investment Adviser Fee
and Total Operating Expenses would have been 0.20% and 1.54%, respectively and
Rhode Island Fund Investment Adviser Fee and Total Operating Expenses would have
been 0.25% and 1.47%, respectively.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Federal
regulations require the Examples to assume a 5% annual return, but actual return
may vary. For further information regarding the expenses of the Funds and the
Portfolios see "The Funds" Financial Highlights'', "Management of the Funds and
the Portfolios" and "How to Redeem Fund Shares". A long-term shareholder in a
Fund may pay more than the economic equivalent of the maximum front-end sales
charge permitted by a rule of the National Association of Securities Dealers,
Inc. See "Distribution Plans."
No contingent deferred sales charge is imposed on (a) shares purchased more than
six years prior to the redemption, (b) shares acquired through the reinvestment
of dividends and distributions and (c) any appreciation in value of other shares
in the account (see "How to Redeem Fund Shares"), and no such charge is imposed
on exchanges of Fund shares for shares of one or more other funds listed under
"The Eaton Vance Exchange Privilege".
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 17.
Each Fund invests exclusively in its corresponding Portfolio. Other investment
companies with different distribution arrangements and fees are investing in the
Portfolios and others may do so in the future. See "Organization of the Funds
and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Funds' annual report to shareholders,
which is incorporated by reference into the Statement of Additional
Information in reliance upon reports of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of a Fund is contained in its annual
report to shareholders which may be obtained without charge by contacting the
Principal Underwriter.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
CALIFORNIA FUND
-------------------------------------------------------------------------------------------------
YEAR ENDED
-------------------------------------------------------------------------------------------------
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
------------------------------------------------------------------------------------------------
1996 1995 1994++ 1994 1993 1992** 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.410 $ 9.290 $ 9.560 $10.200 $ 9.850 $10.000 $ 9.570 $ 9.880 $ 9.810 $ 9.490 $10.480
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.464 $ 0.475 $ 0.240 $ 0.480 $ 0.509 $ 0.264 $ 0.533 $ 0.558 $ 0.580 $ 0.590 $ 0.612
Net realized and unrealized
gain (loss) 0.135 0.253 (0.234) (0.395) 0.524 (0.100) 0.544 (0.203) 0.166 0.417 (0.886)
----- ----- ------ ------ ----- ------ ----- ------ ----- ----- ------
Total income (loss) from
operations $ 0.599 $ 0.728 $ 0.006 $ 0.085 $ 1.033 $ 0.164 $ 1.077 $ 0.355 $ 0.746 $ 1.007 $(0.274)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
From net investment income $(0.465) $(0.475) $(0.240) $(0.480) $(0.509) $(0.264) $(0.533) $(0.558) $(0.580) $(0.590) $(0.612)
In excess of net investment
income(3) (0.004) (0.016) (0.036) (0.092) (0.115) (0.050) (0.114) (0.107) (0.096) (0.097) (0.104)
From net realized gain -- -- -- (0.153) (0.059) -- -- -- -- -- --
In excess of net realized
gain(3) -- (0.117) -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total distributions $(0.469) $(0.608) $(0.276) $(0.725) $(0.683) $(0.314) $(0.647) $(0.665) $(0.676) $(0.687) $(0.716)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.540 $ 9.410 $ 9.290 $ 9.560 $10.200 $ 9.850 $10.000 $ 9.570 $ 9.880 $ 9.810 $ 9.490
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN (1) 6.49% 8.30% 0.06% 0.55% 10.82% 3.29% 11.59% 3.63% 7.80% 10.95% (2.93)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000 omitted) $361,255 $401,742 $439,591 $463,414 $438,938 $362,597 $353,990 $281,723 $260,306 $206,741 $190,774
Ratio of net expenses to
average daily net
assets(2)(4) 1.66% 1.65% 1.63%+ 1.67% 1.84% 1.87%+ 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) 1.65% 1.64% -- -- -- -- -- -- -- -- --
Ratio of net investment income
to average daily net assets 4.87% 5.19% 5.06%+ 4.64% 5.05% 5.28%+ 5.42% 5.65% 5.80% 6.06% 5.82%
PORTFOLIO TURNOVER(3) -- -- -- 5% 139% 65% 36% 13% 8% 29% 6%
(See footnotes on page 11.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
FLORIDA FUND
---------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990++
---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE,
<S> <C> <C> <C> <C> <C> <C> <C>
beginning of year $10.720 $10.270 $11.700 $10.940 $10.690 $ 9.990 $10.000
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.505 $ 0.514 $ 0.514 $ 0.516 $ 0.541 $ 0.573 $ 0.010
Net realized and
unrealized gain (loss) 0.067 0.469 (1.228) 1.040 0.434 0.838 (0.003)+++
------- ------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.572 $ 0.983 $(0.714) $ 1.556 $ 0.975 $ 1.411 $ 0.007
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.506) $(0.514) $(0.514) $(0.516) $(0.541) $(0.573) $(0.010)
In excess of net
investment income(5) (0.006) (0.019) (0.082) (0.121) (0.127) (0.138) (0.007)
From net realized gain -- -- -- (0.159) (0.057) -- --
In excess of net
realized gain(5) -- -- (0.120) -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total distributions $(0.512) $(0.533) $(0.716) $(0.796) $(0.725) $(0.711) $(0.017)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of
year $10.780 $10.720 $10.270 $11.700 $10.940 $10.690 $ 9.990
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 5.43% 9.90% (6.34)% 14.85% 9.41% 14.45% (0.10)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $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) 1.55% 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) 1.52% 1.51% -- -- -- -- --
Ratio of net investment
income to average
daily net assets 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, net investment income per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.561 $ 0.008
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.67% 1.25%+
Net investment income 5.22% 1.11%+
(See footnotes on page 11.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ---------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS FUND
-------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991++
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.270 $ 9.990 $11.250 $10.640 $10.250 $10.000
------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income $ 0.491 $ 0.499 $ 0.505 $ 0.514 $ 0.526 $ 0.245
Net realized and 0.305
unrealized gain (loss) 0.066 0.307 (1.108) 0.784 0.556 0.305+++
------- ------- ------- ------- ------- -------
Total income (loss)
from operations $ 0.557 $ 0.806 $(0.603) $ 1.298 $ 1.082 $ 0.550
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.492) $(0.499) $(0.505) $(0.514) $(0.526) $(0.245)
In excess of net
investment income(5) (0.005) (0.027) (0.087) (0.116) (0.142) (0.055)
From net realized gain -- -- -- (0.058) (0.024) --
In excess of net
realized gain(5) -- -- (0.065) -- -- --
------- ------- ------- ------- ------- -------
Total distributions $(0.497) $(0.526) $(0.657) $(0.688) $(0.692) $(0.300)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year $10.330 $10.270 $ 9.990 $11.250 $10.640 $10.250
======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 5.53% 8.38% (5.57)% 12.67% 10.88% 5.33%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $267,398 $291,114 $295,011 $286,801 $165,964 $35,532
Ratio of net expenses to
average daily net assets
(2)(4) 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) 1.58% 1.56% -- -- -- --
Ratio of net investment
income to average daily
net assets 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, net investment income per share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.226
=======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.68%+
Net investment income 4.75%+
(See footnotes on page 11.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------
MISSISSIPPI FUND
-----------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1996 1995 1994 1993++
---- ---- ---- ----
NET ASSET VALUE, beginning
of year $ 9.480 $ 9.110 $10.260 $10.000
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.451 $ 0.449 $ 0.453 $ 0.106
Net realized and unrealized
gain (loss) 0.122 0.379 (1.072) 0.300
------- ------- ------- -------
Total income (loss) from
operations $ 0.573 $ 0.828 $(0.619) $ 0.406
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.443) $(0.449) $(0.453) $(0.106)
In excess of net investment
income(5) -- (0.009) (0.071) (0.040)
From net realized gain -- -- -- --
In excess of net realized
gain(5) -- -- (0.007) --
------- ------- ------- -------
Total distributions $(0.443) $(0.458) $(0.531) $(0.146)
------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.610 $ 9.480 $ 9.110 $10.260
======= ======= ======= =======
TOTAL RETURN(1) 6.17% 9.40% (6.20)% 3.85%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $23,862 $26,756 $26,771 $11,810
Ratio of net expenses to
average daily net assets
(2)(4) 1.44% 1.36% 0.99% 0.75%+
Ratio of net expenses to
average daily net assets
after custodian fee
reduction(2)(4) 1.41% 1.33% -- --
Ratio of net investment
income to average daily
net assets 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, net investment income per share and the ratios would have
been as follows:
NET INVESTMENT INCOME
PER SHARE $ 0.440 $ 0.437 $ 0.407 $ 0.085
======= ======= ======= =======
RATIOS (As a percentage of
average daily net assets):
Expenses(2)(4) 1.55% 1.49% 1.45% 1.44%+
Expenses after custodian
fee reduction(2)(4) 1.52% 1.46% -- --
Net investment income 4.53% 4.76% 4.17% 2.81%+
(See footnotes on page 11.)
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -----------------------------------------------------------------------------------------------------------------------------------
NEW YORK FUND
---------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990++
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 10.830 $10.450 $ 11.880 $11.070 $10.740 $ 9.950 $ 10.000
-------- ------- -------- ------- ------- ------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.506 $ 0.523 $ 0.528 $ 0.535 $ 0.553 $ 0.563 $ 0.014
Net realized and
unrealized gain (loss) 0.116 0.406 (1.165) 1.014 0.524 0.929 (0.039)+++
-------- ------- -------- ------- ------- ------- --------
Total income (loss)
from operations $ 0.622 $ 0.929 $ (0.637) $ 1.549 $ 1.077 $ 1.492 $ (0.025)
-------- ------- -------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
From net investment
income $ (0.508) $(0.523) $ (0.528) $(0.535) $(0.553) $(0.563) $ (0.014)
In excess of net
investment income(5) (0.014) (0.026) (0.089) (0.120) (0.135) (0.139) (0.011)
From net realized gain -- -- -- (0.084) (0.059) -- --
In excess of net
realized gain(5) -- -- (0.176) -- -- -- --
-------- ------- -------- ------- ------- ------- --------
Total distributions $ (0.522) $(0.549) $(0.793) $(0.739) $(0.747) $(0.702) $ (0.025)
-------- ------- -------- ------- ------- ------- --------
NET ASSET VALUE, end of year $ 10.930 $10.830 $10.450 $11.880 $11.070 $10.740 $ 9.950
======== ======= ======= ======= ======= ======= ========
TOTAL RETURN(1) 5.87% 9.23% (5.62)% 14.53% 10.41% 15.58% (0.50)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $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) 1.54% 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) 1.51% 1.51% -- -- -- -- --
Ratio of net investment
income to average
daily net assets 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, net investment income per share and the ratios would have been as
follows:
NET INVESTMENT INCOME PER SHARE $ 0.556 $ 0.008
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.69% 1.52%+
Net investment income 5.21% 0.66%+
(See footnotes on page 11.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- ---------------------------------------------------------------------------------------------------------------------
OHIO FUND
-------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991++
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 10.510 $ 10.070 $ 11.300 $ 10.550 $ 10.210 $ 10.000
--------- --------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.494 $ 0.487 $ 0.494 $ 0.499 $ 0.509 $ 0.245
Net realized and
unrealized gain (loss) 0.071 0.461 (1.081) 0.901 0.495 0.261+++
--------- --------- --------- --------- --------- ---------
Total income (loss)
from operations $ 0.565 $ 0.948 $ (0.587) $ 1.400 $ 1.004 $ 0.506
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
From net investment income $ (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 -- -- -- (0.033) (0.018) --
In excess of net
realized gain(5) -- -- (0.065) -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions $ (0.485) $ (0.508) $ (0.643) $ (0.650) $ (0.664) $ (0.296)
========= ========= ========= ========= ========= =========
NET ASSET VALUE,
end of year $ 10.590 $ 10.510 $ 10.070 $ 11.300 $ 10.550 $ 10.210
========= ========= ========= ========= ========= =========
TOTAL RETURN(1) 5.48% 9.74% (5.39)% 13.74% 10.13% 4.88%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year
(000 omitted) $ 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% 1.59% 1.50% 1.58% 1.65% 1.47%+
Ratio of net expenses to
average daily net
assets after custodian
fee reduction(2)(4) 1.61% 1.57% -- -- -- --
Ratio of net investment
income to average
daily net assets 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, net investment income per share
and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.243
=======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.52%+
Net investment income 4.99%+
(See footnotes on page 11.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -------------------------------------------------------------------------------------------------------------
RHODE ISLAND FUND
-------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1996 1995 1994 1993++
--------- --------- ------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.400 $ 9.090 $10.330 $ 10.000
--------- --------- ------- ---------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.440 $ 0.452 $ 0.454 $ 0.113
Net realized and unrealized gain (loss) 0.125 0.332 (1.146) 0.361
--------- --------- ------- ---------
Total income (loss) from operations $ 0.565 $ 0.784 $(0.692) $ 0.474
--------- --------- ------- ---------
LESS DISTRIBUTIONS:
From net investment income $ (0.444) $ (0.452) $ (0.454) $ (0.113)
In excess of net investment income(5) (0.011) (0.022) (0.078) (0.008)
From net realized gain -- -- -- (0.023)
In excess of net realized gain(5) -- -- (0.016) --
--------- --------- ------- ---------
Total distributions $ (0.455) $ (0.474) $ (0.548) $ (0.144)
--------- --------- --------- ---------
NET ASSET VALUE, end of year $ 9.510 $ 9.400 $ 9.090 $ 10.330
========= ========= ========= =========
TOTAL RETURN(1) 6.14% 8.94% (6.91)% 4.53%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) $39,488 $39,864 $34,261 $17,680
Ratio of net expenses to average daily net assets(2)(4) 1.35% 1.33% 1.02% 0.75%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(2)(4) 1.32% 1.29% -- --
Ratio of net investment income to average daily net assets 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, net investment income per share and
the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.429 $ 0.440 $ 0.418 $ 0.096
========= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(4) 1.47% 1.46% 1.38% 1.30%+
Expenses after custodian fee reduction(2)(4) 1.44% 1.42% -- --
Net investment income 4.51% 4.79% 4.29% 3.15%+
(See footnotes on page 11.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS -- CONTINUED
- -------------------------------------------------------------------------------------------------------
WEST VIRGINIA FUND
-------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1996 1995 1994 1993++
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.500 $ 9.130 $10.220 $10.000
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.420 $ 0.436 $ 0.450 $ 0.103
Net realized and unrealized gain (loss) 0.147 0.393 (1.011) 0.262
------- ------- ------- -------
Total income (loss) from operations $ 0.567 $ 0.829 $(0.561) $ 0.365
--------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.427) $(0.436) $(0.450) $(0.103)
In excess of net investment income(5) (0.020) (0.023) (0.069) (0.042)
In excess of net realized gain(5) -- -- (0.010) --
------- ------- ------- -------
Total distributions $(0.447) $(0.459) $(0.529) $(0.145)
------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.620 $ 9.500 $ 9.130 $10.220
======= ======= ======= =======
TOTAL RETURN(1) 6.02% 9.39% (5.66)% 3.47%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000 omitted) $37,708 $39,569 $38,476 $25,717
Ratio of net expenses to average daily net assets(2)(4) 1.55% 1.40% 0.95% 0.75%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(2)(4) 1.51% 1.38% -- --
Ratio of net investment income to average daily net assets 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, net investment
income per share and the ratios would have been:
NET INVESTMENT INCOME PER SHARE $ 0.429 $ 0.414 $ 0.090
======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(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%+
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 years ended September 30, 1996 and 1995 have been adjusted to reflect a change in reporting
requirements. The new reporting guidelines require a Fund to increase its expense ratio by the effect of any expense offset
arrangements with its service providers. The expense ratios for each of the periods ended on or before September 30, 1994 have
not been adjusted to reflect this change.
(5)During the year ended September 30, 1993, (March 31, 1994 for the California Fund), the Fund adopted Statement of Position
(SOP) 93-2: Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. The SOP requires that differences in the recognition or classification of income
between the financial statements and tax earnings and profits that result in temporary over-distributions for financial
statement purposes, are classified as distributions in excess of net investment income or accumulated net realized gains.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio"). Each
Portfolio invests primarily in municipal obligations (as described below) which
are rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment Adviser.
Each Portfolio has the same investment objective as its corresponding Fund.
EV MARATHON CALIFORNIA MUNICIPALS FUND (the "California Fund") seeks to provide
current income exempt from regular federal income tax and California State
personal income taxes. The California Fund seeks to meet its objective by
investing its assets in the California Municipals Portfolio (the "California
Portfolio").
EV MARATHON FLORIDA MUNICIPALS FUND (the "Florida Fund") seeks to provide
current income exempt from regular federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Fund seeks to meet
its objective by investing its assets in the Florida Municipals Portfolio (the
"Florida Portfolio").
EV MARATHON MASSACHUSETTS MUNICIPALS FUND (the "Massachusetts Fund") seeks to
provide current income exempt from regular federal income tax and
Massachusetts state personal income taxes. The Massachusetts Fund seeks to
meet its objective by investing its assets in the Massachusetts Municipals
Portfolio (the "Massachusetts Portfolio").
EV MARATHON MISSISSIPPI MUNICIPALS FUND (the "Mississippi Fund") seeks to
provide current income exempt from regular federal income tax and Mississippi
State personal income taxes. The Mississippi Fund seeks to meet its objective
by investing its assets in the Mississippi Municipals Portfolio (the
"Mississippi Portfolio").
EV MARATHON NEW YORK MUNICIPALS FUND (the "New York Fund") seeks to provide
current income exempt from regular federal income tax and New York State and
New York City personal income taxes. The New York Fund seeks to meet its
objective by investing its assets in the New York Municipals Portfolio (the
"New York Portfolio").
EV MARATHON OHIO MUNICIPALS FUND (the "Ohio Fund") seeks to provide current
income exempt from regular federal income tax and Ohio State personal income
taxes. The Ohio Fund seeks to meet its objective by investing its assets in
the Ohio Municipals Portfolio (the "Ohio Portfolio").
EV MARATHON RHODE ISLAND MUNICIPALS FUND (the "Rhode Island Fund") seeks to
provide current income exempt from regular federal income tax and Rhode Island
State personal income taxes. The Rhode Island Fund seeks to meet its objective
by investing its assets in the Rhode Island Municipals Portfolio (the "Rhode
Island Portfolio").
EV MARATHON WEST VIRGINIA MUNICIPALS FUND (the "West Virginia Fund") seeks to
provide current income exempt from regular federal income tax and West
Virginia State personal income taxes. The West Virginia Fund seeks to meet its
objective by investing its assets in the West Virginia Municipals Portfolio
(the "West Virginia Portfolio").
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 the California Portfolio and Florida
Portfolio, at least 70% of the net assets of the Massachusetts Portfolio and New
York Portfolio, and at least 80% of the net assets of the Mississippi Portfolio,
Ohio Portfolio, Rhode Island Portfolio and West Virginia Portfolio will normally
be invested in obligations rated at least investment grade at the time of
investment (which are those rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB or higher by either Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service, Inc. ("Fitch")) or, if unrated, determined
by the Investment Adviser to be of at least investment grade quality. The
balance of each Portfolio's net assets may be invested in municipal obligations
rated below investment grade (but not lower than B by Moody's, S&P or Fitch) and
unrated municipal obligations considered to be of comparable quality by the
Investment Adviser. Municipal obligations rated Baa or BBB may have speculative
characteristics. Also, changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher rated obligations. Securities rated below
Baa or BBB are commonly known as "junk bonds". A Portfolio may retain an
obligation whose rating drops below B after its acquisition if such retention is
considered desirable by the Investment Adviser. See "Additional Risk
Considerations." For a description of municipal obligation ratings, see the
Statement of Additional Information.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public
and private purposes, the interest on which is, in the opinion of bond
counsel, exempt from regular federal income tax. Public purpose municipal
bonds include general obligation and revenue bonds. General obligation bonds
are backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility or from the proceeds of a
specific revenue source. Some revenue bonds are payable solely or partly from
funds which are subject to annual appropriations by a State's legislature and
the availability of monies for such payments. Municipal notes include bond
anticipation, tax anticipation and revenue anticipation notes. Bond, tax and
revenue anticipation notes are short-term obligations that will be retired
with the proceeds of an anticipated bond issue, tax revenue or facility
revenue, respectively. Under normal market conditions, a Portfolio will invest
at least 65% of its total assets in obligations issued by its respective State
or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax (the "AMT") for individual investors. As
at 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 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
issuers. For example, health care-related issuers are susceptible to medicaid
reimbursement policies, and national and State health care legislation. As a
Portfolio's concentration increases, so does the potential for fluctuation in
the value of the corresponding Fund's shares.
NON-DIVERSIFIED STATUS. As "non-diversified" investment companies, each
Portfolio may invest, with respect to 50% of its total assets, more than 5%
(but not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio is more susceptible to any single adverse economic or political
occurrence or development affecting issuers of the relevant State's municipal
obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive
their value from another instrument, security or index. In addition, each
Portfolio may temporarily borrow up to 5% of the value of its total assets to
satisfy redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a "when-
issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the
securities may fluctuate prior to delivery and upon delivery the securities
may be worth more or less than a Portfolio agreed to pay for them. Each
Portfolio may also purchase instruments that give the Portfolio the option to
purchase a municipal obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in
inverse floaters may involve greater risk than an investment in a fixed rate
bond. Because changes in the interest rate on the other security or index
inversely affect the residual interest paid on the inverse floater, the value
of an inverse floater is generally more volatile than that of a fixed rate
bond. Inverse floaters have interest rate adjustment formulas which generally
reduce or, in the extreme, eliminate the interest paid to a Portfolio when
short-term interest rates rise, and increase the interest paid to the
Portfolio when short-term interest rates fall. Inverse floaters have varying
degrees of liquidity, and the market for these securities is new and
relatively volatile. These securities tend to underperform the market for
fixed rate bonds in a rising interest rate environment, but tend to outperform
the market for fixed rate bonds when interest rates decline. Shifts in long-
term interest rates may, however, alter this tendency. Although volatile,
inverse floaters typically offer the potential for yields exceeding the yields
available on fixed rate bonds with comparable credit quality and maturity.
These securities usually permit the investor to convert the floating rate to a
fixed rate (normally adjusted downward), and this optional conversion feature
may provide a partial hedge against rising rates if exercised at an opportune
time. Inverse floaters are leveraged because they provide two or more dollars
of bond market exposure for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. Futures contracts may be based on various debt securities
(such as U.S. Government securities and municipal obligations) and securities
indices (such as the Municipal Bond Index traded on the Chicago Board of
Trade). Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not
purchase or sell futures contracts or related options, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of margin deposits and premiums paid on the Portfolio's outstanding positions
would exceed 5% of the market value of the Portfolio's net assets. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce a Fund's current yield.
Insurance generally will be obtained from insurers with a claims-paying
ability rated Aaa by Moody's or AAA by S&P or Fitch. The insurance does not
guarantee the market value of the insured obligations or the net asset value
of a Fund's shares.
ADDITIONAL RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, each Portfolio may invest in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which a Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations
may have some quality and protective characteristics, these characteristics
can be expected to be offset or outweighed by uncertainties or major risk
exposures to adverse conditions. Lower rated and comparable unrated municipal
obligations are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations (credit risk) and may also be subject
to greater price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated municipal obligations are also
more likely to react to real or perceived developments affecting market and
credit risk than are more highly rated obligations, which react primarily to
movements in the general level of interest rates. The Investment Adviser seeks
to minimize the risks of investing in below investment grade securities
through professional investment analysis and attention to current developments
in interest rates and economic conditions. When a Portfolio invests in lower
rated or unrated municipal obligations, the achievement of the Portfolio's
goals is more dependent on the Investment Adviser's ability than would be the
case if the Portfolio were investing in municipal obligations in the higher
rating categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by a Portfolio which
are rated below investment grade but which, subsequent to the assignment of
such rating, are backed by escrow accounts containing U.S. Government
obligations may be determined by the Investment Adviser to be of investment
grade quality for purposes of the Portfolio's investment policies. A Portfolio
may retain in its portfolio an obligation whose rating drops below B after its
acquisition, if such retention is considered desirable by the Investment
Adviser; provided, however, that holdings of obligations rated below Baa or
BBB will be less than 35% of net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the Investment Adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary
in order to comply with the Portfolio's credit quality limitations.
The net asset value of shares of a Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by its corresponding Portfolio. When interest rates decline,
the value of securities held by a Portfolio can be expected to rise.
Conversely, when interest rates rise, the value of most portfolio security
holdings can be expected to decline. Changes in the credit quality of the
issuers of municipal obligations held by a Portfolio will affect the principal
value of (and possibly the income earned on) such obligations. In addition,
the values of such securities are affected by changes in general economic
conditions and business conditions affecting the specific industries of their
issuers. Changes by recognized rating services in their ratings of a security
and in the ability of the issuer to make payments of principal and interest
may also affect the value of a Portfolio's investments. The amount of
information about the financial condition of an issuer of municipal
obligations may not be as extensive as that made available by corporations
whose securities are publicly traded. An investment in shares of a Fund will
not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other
accounts managed by the Investment Adviser and its affiliates, holds a major
portion or all of such securities. Under adverse market or economic conditions
or in the event of adverse changes in the financial condition of the issuer,
the Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain of the municipal
obligations in which a Portfolio may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, a Portfolio may be unable to dispose of
these municipal obligations at times when it would otherwise wish to do so at
the prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer redeems securities held by
the Portfolio during a time of declining interest rates, the Portfolio may not
be able to reinvest the proceeds in securities providing the same investment
return as the securities redeemed.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals during the
life of the security. Each Portfolio is required to accrue income from zero-
coupon bonds on a current basis, even though it does not receive that income
currently in cash and each Fund is required to distribute its share of the
Portfolio's income for each taxable year. Thus, a Portfolio may have to sell
other investments to obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such
leases is often subject to the appropriation by the appropriate legislative
body, on an annual or other basis, of funds for the payment of the
obligations. Investments in municipal leases are thus subject to the risk that
the legislative body will not make the necessary appropriation and the issuer
will not otherwise be willing or able to meet its obligation.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT FUNDAMENTAL
POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE
PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF A FUND'S SHAREHOLDERS OR THE
INVESTORS IN THE CORRESPONDING PORTFOLIO, AS THE CASE MAY BE.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- --------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST, A
BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF
TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL FUND -- AN
OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are
responsible for the overall management and supervision of its affairs. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series (such as the Funds). Each share represents an equal
proportionate beneficial interest in a Fund. When issued and outstanding, each
Fund's shares are fully paid and nonassessable by the Trust and redeemable as
described under "How to Redeem Fund Shares." 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 have no preemptive or conversion rights and are freely transferable. In
the event of the liquidation of a Fund, shareholders of that Fund are entitled
to share pro rata in the net assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that
Portfolio (e.g., other U.S. and foreign investment companies, and common and
commingled trust funds) will each be liable for all obligations of the
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
exists and the Portfolio itself is unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Funds nor
their shareholders will be adversely affected by reason of the Funds investing
in the Portfolios.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets
of the Portfolios, affords the potential for economies of scale for each Fund
(at least when the assets of its corresponding Portfolio exceed $500 million)
and may over time result in lower expenses for a Fund.
In addition to selling an interest to its corresponding Fund, a Portfolio may
sell interests to other affiliated and non-affiliated mutual funds or
institutional investors. Such investors will invest in a Portfolio on the same
terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not
required to sell their shares at the same public offering price as the
corresponding Fund due to variations in sales commissions and other operating
expenses. Therefore these differences may result in differences in returns
experienced by investors in the various funds that invest in its corresponding
Portfolio. Such differences in returns are also present in other mutual fund
structures, including funds that have multiple classes of shares. Information
regarding other pooled investment entities or funds which invest in a
Portfolio may be obtained by contacting the Principal Underwriter, 24 Federal
Street, Boston, MA 02110, (617) 482-8260.
Whenever a Fund as an investor in a Portfolio is requested to vote on matters
pertaining to the Portfolio (other than the termination of the Portfolio's
business, which may be determined by the Trustees of the Portfolio without
investor approval), the Fund will hold a meeting of Fund shareholders and will
vote its interest in the Portfolio for or against such matters proportionately
to the instructions to vote for or against such matters received from Fund
shareholders. A Fund shall vote shares for which it receives no voting
instructions in the same proportion as the shares for which it receives voting
instructions. Other investors in a Portfolio may alone or collectively acquire
sufficient voting interests in the Portfolio to control matters relating to
the operation of the Portfolio, which may require the corresponding Fund to
withdraw its investment in the Portfolio or take other appropriate action. Any
such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, a Fund could incur brokerage, tax or other charges
in converting the securities to cash. In addition, the distribution in kind
may result in a less diversified portfolio of investments or adversely affect
the liquidity of a Fund. Notwithstanding the above, there are other means for
meeting shareholder redemption requests, such as borrowing.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. In the event a Fund withdraws
all of its assets from its corresponding Portfolio, or the Board of Trustees
of the Trust determines that the investment objective of such Portfolio is no
longer consistent with the investment objective of the Fund, such Trustees
would consider what action might be taken, including investing the assets of
such Fund in another pooled investment entity or retaining an investment
adviser to manage the Fund's assets in accordance with its investment
objective. A Fund's investment performance may be affected by a withdrawal of
all its assets from its corresponding Portfolio.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
- --------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each Portfolio,
BMR manages each Portfolio's investments and affairs. BMR also furnishes for the
use of each Portfolio office space and all necessary office facilities,
equipment and personnel for servicing the investments of the Porfolios. Under
its investment advisory agreement with a Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in
each Category as indicated below. Categories (1) and (2) below do not
apply to the California Portfolio and Category (3) is for daily net
assets of the California Portfolio of up to $500 million.
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $20 million .......................................... 0.100% 1.00%
2 $20 million but less than $40 million ...................... 0.200% 2.00%
3 $40 million but less than $500 million ..................... 0.300% 3.00%
4 $500 million but less than $1 billion ...................... 0.275% 2.75%
5 $1 billion but less than $1.5 billion ...................... 0.250% 2.50%
6 $1.5 billion but less than $2 billion ...................... 0.225% 2.25%
7 $2 billion but less than $3 billion ........................ 0.200% 2.00%
8 $3 billion and over ........................................ 0.175% 1.75%
</TABLE>
Each Portfolio paid advisory fees for the fiscal year ended September 30, 1996
equivalent to the annualized 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
OVER $17 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 January 1994. Prior to joining Eaton Vance, she was a Vice
President and portfolio manager at Lazard Freres Asset Management (1992-1994)
and a Vice President and Manager -- Municipal Research at Roosevelt & Cross
(1978-1992).
Timothy T. Browse has acted as the portfolio manager of the West Virginia
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance and of BMR since 1993 and an employee of Eaton Vance since 1992. Prior
to joining Eaton Vance, he was a municipal bond trader at Fidelity Management
& Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Mississippi
Portfolio since it commenced operations and the California Portfolio since
February 1, 1996. She has been a Vice President of Eaton Vance and BMR since
1993 and an employee of Eaton Vance since 1985.
Thomas J. Fetter has acted as the portfolio manager of the Florida and Ohio
Portfolios since they commenced operations. He has been a Vice President of
Eaton Vance since 1987 and of BMR since inception.
Robert B. MacIntosh has acted as the portfolio manager of the Massachusetts
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance since joining the firm in 1991 and of BMR since its inception.
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject
to the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions. Each Fund, each
Portfolio and BMR have adopted Codes of Ethics relating to personal securities
transactions. The Codes permit Eaton Vance personnel to invest in securities
(including securities that may be purchased or held by a Portfolio) for their
own accounts, subject to certain pre-clearance, reporting and other
restrictions and procedures contained in such Codes.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by the Principal Underwriter under the
distribution agreement.
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE
"1940 ACT"). Rule 12b-1 permits a mutual fund, such as a Fund, to finance
distribution activities and bear expenses associated with the distribution of
its shares provided that any payments made by the fund are made pursuant to a
written plan adopted in accordance with the Rule. Each Plan is subject to, and
complies with, the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD Rule"). Each Fund's Plan is described further in the
Statement of Additional Information, and the following is a description of the
salient features of the Plans. Each Fund's Plan provides that the Fund, subject
to the NASD Rule, will pay sales commissions and distribution fees to the
Principal Underwriter only after and as a result of the sale of shares of the
Fund. On each sale of Fund shares (excluding reinvestment of distributions) a
Fund will pay the Principal Underwriter amounts representing (i) sales
commissions equal to 5% of the amount received by a Fund for each share sold and
(ii) distribution fees calculated by applying the rate of 1% over the prime rate
then reported in The Wall Street Journal to the outstanding balance of Uncovered
Distribution Charges (as described below) of the Principal Underwriter. The
Principal Underwriter currently expects to pay sales commissions (except on
exchange transactions and reinvestments) to a financial service firm (an
"Authorized Firm") at the time of sale equal to 4% of the purchase price of the
shares sold by such Firm. The Principal Underwriter will use its own funds
(which may be borrowed from banks) to pay such commissions. Because the payment
of the sales commissions and distribution fees to the Principal Underwriter is
subject to the NASD Rule described below, it will take the Principal Underwriter
a number of years to recoup the sales commissions paid by it to Authorized Firms
from the payments received by it from a Fund pursuant to a Plan.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE FUND'S
AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, a Fund accrues
daily an amount at the rate of 1/365 of .75% of the Fund's net assets, and pays
such accrued amounts monthly to the Principal Underwriter. Each Plan requires
such accruals to be automatically discontinued during any period in which there
are no outstanding Uncovered Distribution Charges under the Plan. Uncovered
Distribution Charges are calculated daily and, briefly, are equivalent to all
unpaid sales commissions and distribution fees to which the Principal
Underwriter is entitled under a Plan less all contingent deferred sales charges
theretofore paid to the Principal Underwriter. The Eaton Vance organization may
be considered to have realized a profit under a Fund's Plan if at any point in
time the aggregate amounts of all payments received by the Principal Underwriter
from the Fund pursuant to the Plan, including any contingent deferred sales
charges, have exceeded the total expenses theretofore incurred by such
organization in distributing shares of the Fund. Total expenses for this purpose
will include an allocable portion of the overhead costs of such organization and
its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of a Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under each Fund's Plan over an extended period would
result in the incurrence and payment of increased distribution fees under the
Plan.
During the fiscal year ended September 30, 1996, each Fund paid sales
commissions under its Plan equivalent to .75% of such Fund's average daily net
assets. As at September 30, 1996, the outstanding Uncovered Distribution
Charges of the Principal Underwriter on such day calculated under each Fund's
Plan amounted to approximately $4,643,000 (equivalent to 1.3% of net assets on
such day) in the case of the California Fund, $16,966,000 (equivalent to 2.8%
of net assets on such day) in the case of the Florida Fund, $8,088,000
(equivalent to 3.0% of net assets on such day) in the case of the
Massachusetts Fund, $1,007,000 (equivalent to 4.2% of net assets on such day)
in the case of the Mississippi Fund, $15,494,000 (equivalent to 2.6% of net
assets on such day) in the case of the New York Fund, $8,802,000 (equivalent
to 3.0% of net assets on such day) in the case of the Ohio Fund, $1,614,000
(equivalent to 4.1% of net assets on such day) in the case of the Rhode Island
Fund, and $1,448,000 (equivalent to 3.8% of net assets on such day) in the
case of the West Virginia Fund.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The Trustees
of the Trust have initially implemented this provision of each Fund's Plan by
authorizing the Fund to make quarterly payments of service fees to the
Principal Underwriter and Authorized Firms in amounts not expected to exceed
.20% (.25% for the California Fund) of the Fund's average daily net assets for
each fiscal year based on the value of Fund shares sold by such persons and
remaining outstanding for at least twelve months. Each Fund's Plan authorizes
the Trustees of the Trust on behalf of the Fund to increase payments to the
Principal Underwriter, Authorized Firms and other persons from time to time
without further action by shareholders of the Fund, provided that the
aggregate amount of payments made to such persons under the Plan in any fiscal
year of the Fund does not exceed .25% of the Fund's average daily net assets.
As permitted by the NASD Rule, such payments are made for personal services
and/or the maintenance of shareholder accounts. Service fees are separate and
distinct from the sales commissions and distribution fees payable by a Fund to
the Principal Underwriter, and as such are not subject to automatic
discontinuance when there are no outstanding Uncovered Distribution Charges of
the Principal Underwriter. For the fiscal year ended September 30, 1996, the
following Funds made service fee payments (as an annualized percentage of
average daily net assets): California Fund (0.21%); Florida Fund (0.18%);
Massachusetts Fund (0.17%); Mississippi Fund (0.18%); New York Fund (0.17%);
Ohio Fund (0.18%); Rhode Island Fund (0.14%); and West Virginia Fund (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.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant
factors, including without limitation the size of a Fund, the investment
climate and market conditions, the volume of sales and redemptions of Fund
shares, and the amount of Uncovered Distribution Charges of the Principal
Underwriter. Each Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of Fund shares; however, no Fund is contractually obligated to
continue its Plan for any particular period of time. Suspension of the
offering of Fund shares would not, of course, affect a shareholder's ability
to redeem shares.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, the Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter.
Each Portfolio's net asset value is also determined as of the close of regular
trading on the Exchange by IBT (as custodian and agent for the Portfolio) based
on market or fair value in the manner authorized by the Trustees of the
Portfolio. Net asset value is computed by subtracting the liabilities of a
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
For further information regarding the valuation of the Portfolios' assets, see
"Determination of Net Asset Value" in the Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
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Shares of a Fund may be purchased for cash or may be acquired in exchange for
securities.Investors may purchase shares of a Fund through Authorized Firms at
the net asset value per share of the Fund next determined after an order is
effective. An Authorized Firm may charge its customers a fee in connection with
transactions executed by that Firm. A Fund may suspend the offering of shares at
any time and may refuse an order for the purchase of shares. Shares of each Fund
are offered for sale only in States where such shares may be legally sold.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange
for Fund shares at their net asset value as determined above. The minimum
value of securities (or securities and cash) accepted for deposit is $5,000.
Securities accepted will be sold on the day of their receipt or as soon
thereafter as possible. The number of Fund shares to be issued in exchange for
securities will be the aggregate proceeds from the sale of such securities,
divided by the applicable net asset value per Fund share on the day such
proceeds are received. Eaton Vance will use reasonable efforts to obtain the
then current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities. Eaton Vance
reserves the right to reject any securities. Exchanging securities for Fund
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, State and local tax
consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
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A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per Fund share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. Good order means that all
relevant documents must be endorsed by the record owner(s) exactly as the
shares are registered and the signature(s) must be guaranteed by a member of
either the Securities Transfer Association's STAMP program or the New York
Stock Exchange's Medallion Signature Program, or certain banks, savings and
loan institutions, credit unions, securities dealers, securities exchanges,
clearing agencies and registered securities associations as required by a
regulation of the Securities and Exchange Commission (the "Commission") and
acceptable to the Transfer Agent. In addition, in some cases, good order may
require the furnishing of additional documents such as where shares are
registered in the name of a corporation, partnership or fiduciary.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: To sell shares at their net asset value
through an Authorized Firm (a repurchase), a shareholder can place a
repurchase order with the Authorized Firm, which may charge a fee. The value
of such shares is based upon the net asset value calculated after the
Principal Underwriter, as the Funds' agent, receives the order. It is the
Authorized Firm's responsibility to transmit promptly repurchase orders to the
Principal Underwriter. Throughout this Prospectus, the word "redemption" is
generally meant to include a repurchase.
Within seven days after receipt of a redemption request in good order by the
Transfer Agent, a Fund will make payment in cash for the net asset value of
the shares as of the date determined above, reduced by the amount of any
applicable contingent deferred sales charges (described below) and federal
income tax required to be withheld. Although each Fund normally expects to
make payment in cash for redeemed shares, the Trust, subject to compliance
with applicable regulations, has reserved the right to pay the redemption
price of shares of a Fund, either totally or partially, by a distribution in
kind of readily marketable securities withdrawn by that Fund from its
corresponding Portfolio. The securities so distributed would be valued
pursuant to the Portfolio's valuation procedures. If a shareholder received a
distribution in kind, the shareholder could incur brokerage or other charges
in converting the securities to cash.
If shares were recently purchased, the proceeds of redemption will not be sent
until the check (including a certified or cashier's check) received for the
shares purchased has cleared. Payment for shares tendered for redemption may
be delayed up to 15 days from the purchase date when the purchase check has
not yet cleared. Redemptions may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $750. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. However, no such redemption would be required by a Fund
if the cause of the low account balance was a reduction in the net asset value
of Fund shares. No contingent deferred sales charge will be imposed with
respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years of
their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales
charge ("CDSC"). This CDSC is imposed on any redemption the amount of which
exceeds the aggregate value at the time of redemption of (a) all shares in the
account purchased more than six years prior to the redemption, (b) all shares
in the account acquired through reinvestment of monthly distributions and
capital gains distributions, and (c) the increase, if any, in the value of all
other shares in the account (namely those purchased within the six years
preceding the redemption) over the purchase price of such shares. Redemptions
are processed in a manner to maximize the amount of redemption proceeds which
will not be subject to a CDSC. That is, each redemption will be assumed to
have been made first from the exempt amounts referred to in clauses (a), (b)
and (c) above, and second through liquidation of those shares in the account
referred to in clause (c) on a first-in-first-out basis. As described under
"Distribution Plans", the CDSC will be paid to the Principal Underwriter or a
Fund. Any CDSC which is required to be imposed on share redemptions will be
made in accordance with the following schedule:
YEAR OF REDEMPTION
AFTER PURCHASE CDSC
----------------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
In calculating the CDSC upon the redemption of shares acquired in an exchange
of shares of a fund currently listed under "The Eaton Vance Exchange
Privilege," the CDSC schedule applicable to the shares at the time of purchase
will apply and the purchase of shares acquired in the exchange is deemed to
have occurred at the time of the original purchase of exchanged shares.
No CDSC will be imposed on Fund shares which have been sold to Eaton Vance or
its affiliates, or to their respective employees or clients. The CDSC will
also be waived for shares redeemed (1) pursuant to a Withdrawal Plan (see
"Eaton Vance Shareholder Services"), (2) as part of a required distribution
from a tax-sheltered retirement plan or (3) following the death of all
beneficial owners of such shares, provided the redemption is requested within
one year of death (a death certificate and other applicable documents may be
required). In addition, shares acquired as a result of a merger or liquidation
of another Eaton Vance sponsored fund will have a CDSC imposed at the same
rate as would have been imposed in the prior fund.
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CDSC. ASSUME THAT AN
INVESTOR PURCHASES $10,000 OF A FUND'S SHARES AND THAT 16 MONTHS LATER THE
VALUE OF THE ACCOUNT HAS GROWN THROUGH INVESTMENT PERFORMANCE AND
REINVESTMENT OF DIVIDENDS TO $12,000. THE INVESTOR THEN MAY REDEEM UP TO
$2,000 OF SHARES WITHOUT INCURRING A CDSC. IF THE INVESTOR SHOULD REDEEM
$3,000 OF SHARES, A CHARGE WOULD BE IMPOSED ON $1,000 OF THE REDEMPTION. THE
RATE WOULD BE 5% BECAUSE IT WAS IN THE SECOND YEAR AFTER THE PURCHASE WAS
MADE AND THE CHARGE WOULD BE $50.
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing federal and State tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE TRANSFER AGENT
WILL SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE APPLICABLE
FUND'S RECORDS. This account is a complete record of all transactions between
the investor and the Fund which at all times shows the balance of shares owned.
A Fund will not issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. The
Lifetime Investing Account also permits a shareholder to make additional
investments in shares by sending a check for $50 or more to the Transfer Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA, 01581-5123 (please provide the name of
the Shareholder, the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Funds'
dividend disbursing agent, First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123. The currently effective option will appear on each
account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more
will be reinvested in the account in shares at the then current net asset
value. Furthermore, the distribution option on the account will be
automatically changed to the Share Option until such time as the shareholder
selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a
shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name" account
with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the
account, or to obtain information about the account. The transfer of shares in
a "street name" account to an account with another dealer or to an account
directly with a Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares in
the account from the Authorized Firm. Before establishing a "street name"
account with an investment firm, or transferring the account to another
investment firm, an investor wishing to reinvest distributions should
determine whether the firm which will hold the shares allows reinvestment of
distributions in "street name" accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of each Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (including Class I shares of
any EV Marathon Limited Maturity Fund) or Eaton Vance Money Market Fund, which
are subject to a CDSC. Shares of the Fund may also be exchanged for shares of
Eaton Vance Prime Rate Reserves, which are subject to an early withdrawal
charge, and shares of a money market fund sponsored by an Authorized Firm and
approved by 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
at the time of the exchange. Exchange offers are available only in States where
shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
The Transfer Agent makes exchanges at the next determined net asset value
after receiving an exchange request in good order (see "How to Redeem Fund
Shares"). Consult the Transfer Agent for additional information concerning the
exchange privilege. Applications and prospectuses of other funds are available
from Authorized Firms or the Principal Underwriter. The prospectus for each
fund describes its investment objectives and policies, and shareholders should
obtain a prospectus and consider these objectives and policies carefully
before requesting an exchange.
No CDSC is imposed on exchanges. For purposes of calculating the CDSC upon
redemption of shares acquired in an exchange, the CDSC schedule applicable to
the shares at the time of purchase will apply and the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of
the original purchase of the exchanged shares, except that time during which
shares are held in an Authorized Firm fund will not be credited toward
completion of the CDSC period. For the CDSC schedule applicable to the Eaton
Vance Marathon Group of Funds (except EV Marathon Strategic Income Fund, Eaton
Vance Prime Rate Reserves and Class I shares of any EV Marathon Limited
Maturity Fund), see "How to Redeem Fund Shares". The CDSC schedule applicable
to EV Marathon Strategic Income Fund, Eaton Vance Prime Rate Reserves and
Class I shares of any EV Marathon Limited Maturity Fund is 3%, 2.5%, 2% or 1%
in the event of a redemption occurring in the first, second, third or fourth
year, respectively, after the original share purchase.
Shares of the funds listed above may be exchanged for Fund shares on the basis
of the net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by the Transfer Agent provided the investor
has not disclaimed in writing the use of the privilege. To effect such
exchanges, call the Transfer Agent at 800-262-1122, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as
the shares being exchanged. Neither the Funds, the Principal Underwriter nor
the Transfer Agent will be responsible for the authenticity of exchange
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An
exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund being purchased may be mailed directly to the Transfer Agent, First Data
Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 at any time
- -- whether or not dividends are reinvested. The name of the shareholder, the
Fund and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a CDSC. See "How to Redeem Fund Shares". A
minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A shareholder who has 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 shares of a
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 a Fund (or by the Fund's Transfer Agent). To the
extent that any shares of a Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired)
within the period beginning 30 days before and ending 30 days after the date
of the redemption, some or all of the loss generally will not be allowed as a
tax deduction. Shareholders should consult their tax advisers concerning the
tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO (LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES) WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the fifteenth day of each month or
the next business day thereafter. Each Fund anticipates that for tax purposes
the entire distribution, whether paid in cash or reinvested in additional shares
of the Fund, will constitute tax-exempt income to shareholders, except for the
proportionate part of the distribution that may be considered taxable income if
the Fund has taxable income during the calendar year. Shareholders reinvesting
the monthly distribution should treat the amount of the entire distribution as
the tax cost basis of the additional shares acquired by reason of such
reinvestment. Daily distribution crediting will commence on the business day
after collected funds for the purchase of Fund shares are available at the
Transfer Agent. Shareholders of a Fund will receive timely federal income tax
information as to the tax-exempt or taxable status of all distributions made by
the Fund during the calendar year. A Fund's net realized capital gains, if any,
consist of the net realized capital gains allocated to the Fund by its
corresponding Portfolio for tax purposes, after taking into account any
available capital loss carryovers; a Fund's net realized capital gains, if any,
will be distributed at least once a year, usually in December.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
As a regulated investment company under the Code, each Fund does not pay
federal income or excise taxes to the extent that it distributes to
shareholders its net investment income and net realized capital gains in
accordance with the timing requirements imposed by the Code. As partnerships
under the Code, the Portfolios do not pay federal income or excise taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the 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 a Fund. Tax-exempt distributions
received from a Fund are includable in the tax base for determining the
taxability of social security and railroad retirement benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons
who are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE
TAXES. Shareholders should consult with their tax advisers concerning the
applicability of State, local and other taxes to an investment in a Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. A taxable- equivalent yield is computed by
using the tax-exempt yield figure and dividing by one minus the tax rate. Each
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods, assuming reinvestment of all
distributions. The average annual total return calculation assumes a complete
redemption of the investment and the deduction of any applicable CDSC at the end
of the period.
Each Fund may publish annual and cumulative total return figures from time to
time. Each Fund may also publish total return figures which do not take into
account any CDSC which may be imposed upon redemptions at the end of the
specified period. Any performance figure which does not take into account the
CDSC would be reduced to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Fund's yield or total return for any
prior period should not be considered a representation of what an investment
may earn or what the Fund's yield or total return may be in any future period.
If the expenses of a Fund or its corresponding Portfolio are allocated to
Eaton Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there
can be no assurance that particular bond issues may not be adversely affected
by changes in economic, political or other conditions. Unless stated otherwise
the ratings indicated are for obligations of the State. A State's political
subdivisions may have different ratings which are unrelated to the ratings
assigned to State obligations.
CALIFORNIA. 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.
As of the date of this Prospectus, general obligation bonds issued by the State
are rated A1, A and A by Moody's, S&P and Fitch.
CALIFORNIA TAXES. California law provides that dividends paid by the California
Fund and designated by the California Fund as tax-exempt are exempt from
California personal income tax on individuals who reside in California to the
extent such dividends are derived from interest payments on municipal
obligations exempt from regular federal income tax and California State personal
income taxes, provided that at least 50% of the assets of the California
Portfolio at the close of each quarter of its taxable year are invested in
obligations the interest on which is exempt under either federal or California
law from taxation by the State of California. Distributions of short-term
capital gains are treated as ordinary income, and distributions of long-term
capital gains are treated as long-term capital gains 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).
The State finished the 1995 fiscal year with a working capital reserve of
$161.5 million and $121 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 total $15.3 billion, a 3.3%
increase over fiscal year 1994-95. With combined General Revenue, Working
Capital Fund and Budget Stabilization Fund appropriations at $14.8 billion,
unencumbered reserves at the end of fiscal year 1995-96 are estimated at $0.5
billion. For fiscal year 1996-97, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available total $16.0 billion, a 4.5%
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 5.4% and 5.6%, respectively. The Florida and United States
unemployment rates for October, 1996 were 5.1% and 5.2%, respectively, and the
estimated Florida and United States unemployment rates for 1997 are 5.8%.
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 4.1% for 1996, while the national unemployment rate
was 5.2%.
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.
Fiscal 1995 expenditures for direct Local Aid were $2.976 billion, which is an
increase of approximately 9.1% above the fiscal 1994 level. It is estimated
that fiscal 1996 expenditures for direct Local Aid will be $3.241 billion,
which is an increase of approximately 8.9% above the fiscal 1995 level.
General obligations of Massachusetts are rated A1, A+ and A+ by Moody's, S&P
and Fitch, respectively.
MASSACHUSETTS TAXES. The Massachusetts Portfolio has received a letter ruling
(the "Ruling") from the Department of Revenue (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.
Beginning in 1996, long-term capital gains are generally taxed in Massachusetts
on a sliding scale at rates ranging from 5% to 0%, with the applicable tax rate
declining as the tax holding period of the asset (beginning on the later of
January 1, 1995 or the date of actual acquisition) increases from more than one
year to more than six years. It is not clear what Massachusetts tax rate is
currently applicable to capital gain dividends, but the Department is expected
to provide guidance on this issue.
Distributions from the Massachusetts Fund will be included in net income, and in
the case of intangible property corporations, shares of the Massachusetts Fund
will be included in net worth for purposes of determining the Massachusetts
excise tax on corporations subject to Massachusetts taxation.
MISSISSIPPI. The State's economic outlook can be characterized as 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. Also, the governmental and wholesale/retail trade and service sectors have
had modest gains in employment in 1996. In recent years, the State has
successfully expanded its economy through technology-based research and
education, and the Mississippi banking system has exhibited relative strength
and stability over the past several years, a period characterized by a growing
number of bank failures nationwide. The unemployment rate for November, 1996 was
5.5% as compared to the national average of 5.4%.
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. General obligations of Mississippi are rated AA and Aa by S&P
and Moody's. S&P has a positive outlook for the State.
MISSISSIPPI TAXES. Under existing Mississippi law, interest received by a
Mississippi resident individual upon the obligations of the State of Mississippi
or political subdivisions thereof ("Mississippi obligations") 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 (equal to
6.7% of the peak employment figure for 1989). Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer,
manufacturing, defense and banking industries. The State expects modest
economical employment growth in New York for 1996. In the 1992-1993 fiscal year,
however, the State began the process of financial reform. The State Financial
Plans for the 1992-1993 through 1995- 1996 fiscal years produced positive fund
balances at the end of all four fiscal years.
The State ended its 1995-1996 fiscal year in balance, with a reported 1995- 1996
General Fund cash surplus of $445 million after closing a previously projected
budget gap of approximately $5 billion. In conjunction with enactment of the
1995-1996 budget, legislation was enacted to reduce the State's personal income
tax by 20 percent over a three year period. Under such legislation, tax rates
will drop, tax brackets will accelerate, and standard deductions will be
increased.
On July 13, 1996, the State adopted its budget for the 1996-1997 fiscal year
which began on April 1, 1996. It is reasonable to expect press reports
describing the details of such budget.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies, authorities
and localities to meet their financial obligations and, in some cases, to
prevent or cure defaults. To the extent State agencies and local governments
require State assistance to meet their financial obligations, the ability of the
State to meet its own obligations as they become due or to obtain additional
financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in recent
years and currently continues to experience such difficulties owing, in part, to
lower than anticipated revenues. Because New York City taxes comprise
approximately 40% of the State's tax base, the City's difficulties adversely
affect the State.
New York's general obligations are rated A, A- and A+ by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as positive. As of July 11, 1996, New York City obligations 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+ and removed City bonds from CreditWatch. On February 28, 1996, Fitch
placed the City's general obligation bonds on Fitch Alert with negative
implications.
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.
The fiscal year 1994 budget was balanced, and the State's General Revenue Fund
had an ending fund balance of $560 million. The June 30, 1995 ending General
Revenue Fund balance was $928 million. The 1996 General Fund balance totalled
$1.6 billion, or 9.8% of appropriations. The fiscal 1997 budget is expected to
balance with no depletion in reserves.
General obligations of Ohio are rated Aa and AA by S&P and Moody's, respectively
(except that highway obligations are rated Aaa by S&P). Fitch does not currently
rate the State's general obligations.
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund, Squire,
Sanders & Dempsey, under Ohio law individuals who are otherwise subject to the
Ohio personal income tax will not be subject to such tax on dividends paid by
the Ohio Fund to the extent such dividends are properly attributable to interest
on obligations issued by or on behalf of the State of Ohio or its political
subdivisions, or the agencies or instrumentalities thereof ("Ohio obligations").
Dividends paid by the Ohio Fund also will be excluded from the net income base
of the Ohio corporation franchise tax to the extent such dividends are excluded
from gross income for federal income tax purposes or are properly attributable
to interest on Ohio obligations. However, the Ohio Fund's shares will be
included in the tax base for purposes of computing the Ohio corporation
franchise tax on the net worth basis. These conclusions regarding Ohio taxation
are based on the assumption that the Ohio Fund will continue to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Ohio Fund will consist of Ohio
obligations or similar obligations of other states or their subdivisions
determined, to the extent the Ohio Fund invests in the Ohio Portfolio, by
treating the Ohio Fund as owning its proportionate share of the assets owned by
the Ohio Portfolio.
RHODE ISLAND. 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.
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 August, 1996, the State unemployment rate was 6.9%
down from the August, 1995 level of 8.2%. 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 slowed during
fiscal years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several
factors, including the state of the U.S. economy and the relative stability in
the price of oil, the exchange rate of the U.S. dollar and the cost of
borrowing. Section 936 (a tax incentive that has encouraged economic growth in
Puerto Rico) will be phased out over a ten year period. At this time, it is
uncertain as to the implication the change will have on the Puerto Rico
economy. Although the Puerto Rico unemployment rate has declined substantially
since 1985, the seasonally adjusted unemployment rate for July, 1996 was
approximately 14.1%. The North American Free Trade Agreement (NAFTA), which
became effective January 1, 1994, could lead to the loss of Puerto Rico's
lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a negative outlook on Puerto Rico's rating on April 26, 1994 which
was still in place as of the date of this prospectus.
<PAGE>
[LOGO]
EATON VANCE
=============================
MUNICIPAL FUNDS
EV MARATHON MUNICIPAL FUNDS
- -----------------------------------------------------------
PROSPECTUS
FEBRUARY 1, 1997
EV MARATHON CALIFORNIA MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND
EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON WEST VIRGINIA MUNICIPALS FUND
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-TFC2/1P
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV TRADITIONAL
MUNICIPAL FUNDS
<TABLE>
- ---------------------------------------------------------------------------------------------
<C> <C>
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND EV TRADITIONAL NEW YORK MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND EV TRADITIONAL OHIO MUNICIPALS FUND
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND EV TRADITIONAL RHODE ISLAND MUNICIPALS FUND
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND
</TABLE>
THE EV TRADITIONAL MUNICIPAL FUNDS (THE "FUNDS") ARE MUTUAL FUNDS SEEKING TO
PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX AND 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 February 1,
1997 for the Funds, as supplemented from time to time, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
This Statement of Additional Information is available without charge from the
Funds' principal underwriter, Eaton Vance Distributors, Inc. (the "Principal
Underwriter"), 24 Federal Street, Boston, MA 02110 (telephone (800) 225-6265).
The Portfolios' investment adviser is Boston Management and Research (the
"Investment Adviser"), a wholly-owned subsidiary of Eaton Vance Management,
and Eaton Vance Management is the administrator (the "Administrator") of the
Funds. The offices of the Investment Adviser and the Administrator are located
at 24 Federal Street, Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE FOR
PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR YOUR
BROKER FOR FURTHER INFORMATION.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses ........................ 2 How to Redeem Fund Shares ......................... 15
The Funds' Financial Highlights ....................... 3 Reports to Shareholders ........................... 16
The Funds' Investment Objectives ...................... 5 The Lifetime Investing Account/Distribution
Investment Policies and Risks ......................... 5 Options ......................................... 16
Organization of the Funds and the Portfolios .......... 9 The Eaton Vance Exchange Privilege ................ 17
Management of the Funds and the Portfolios ............ 10 Eaton Vance Shareholder Services .................. 18
Service Plans ......................................... 12 Distributions and Taxes ........................... 19
Valuing Fund Shares ................................... 12 Performance Information ........................... 20
How to Buy Fund Shares ................................ 13 Appendix -- State Specific Information ............ 21
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED FEBRUARY 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 3.75%
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average net assets)
- ------------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND FUND FUND FUND FUND
---------- ------- ------------- ----------- -------- ---- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Adviser Fee (after any
applicable fee reduction) 0.50% 0.46% 0.46% 0.10% 0.46% 0.46% 0.13% 0.24%
Other Expenses (including
Service Plan Fees and after
expense allocation) 0.15 0.21 0.32 0.67 0.13 0.38 0.47 0.63
---- ---- ---- ---- ---- ---- ---- ----
Total Operating Expenses (after
reductions) 0.65% 0.67% 0.78% 0.77% 0.59% 0.84% 0.60% 0.87%
==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
EXAMPLE
- -----------------------------------------------------------------------------------------------------------------------------------
An investor would pay the following maximum initial sales charge and expenses on a $1,000 investment, assuming (a) 5% annual return
and (b) redemption at the end of each time period:
CALIFORNIA FLORIDA MASSACHUSETTS MISSISSIPPI NEW YORK OHIO RHODE ISLAND WEST VIRGINIA
FUND FUND FUND FUND FUND FUND FUND FUND
---------- ------- ------------- ----------- -------- ---- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 44 $ 44 $ 45 $ 45 $ 43 $ 46 $ 43 $ 46
3 Years 58 58 61 61 56 63 56 64
5 Years 72 73 79 79 69 82 70 84
10 Years 116 118 130 129 109 137 110 141
</TABLE>
NOTES:
The table and the Example summarize the aggregate expenses of the Funds and
the Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund.
Information for each Fund is based on its expenses for the most recent fiscal
year, except that the Service Plan Fees are estimated for the Massachusetts,
Mississippi, Ohio, Rhode Island and West Virginia Funds for the current
fiscal year ending September 30, 1997. Absent a fee reduction and an expense
allocation, the Investment Adviser Fee, Other Expenses and Total Operating
Expenses would have been: 0.20%, 1.62% and 1.82%, respectively, for the
Mississippi Fund and 0.25%, 1.15% and 1.40%, respectively, for the Rhode
Island Fund. Absent a fee reduction, Other Expenses and Total Operating
Expenses would have been 0.87% and 1.37%, respectively, for the California
Fund; 0.73% and 1.19%, respectively, for the Florida Fund; 0.97% and 1.43%,
respectively, for the Massachusetts Fund; 0.57% and 1.03%, respectively, for
the New York Fund; 1.31% and 1.77%, respectively, for the Ohio Fund and 1.94%
and 2.18%, respectively, for the West Virginia Fund.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Federal
regulations require the Example to assume a 5% annual return, but actual
return may vary. For further information regarding the expenses of the Funds
and the Portfolios see "The Funds' Financial Highlights," "Management of the
Funds and the Portfolios" and "Service Plans."
No sales charge is payable at the time of purchase on investments of $1
million or more. However, a contingent deferred sales charge of 0.50% will be
imposed on such investments in the event of certain redemptions within 12
months of purchase. See "How to Buy Fund Shares" and "How to Redeem Fund
Shares."
Each Portfolio's monthly advisory fee has two components, a fee based on daily
net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 10.
Each Fund invests exclusively in its corresponding Portfolio. Other investment
companies with different distribution arrangements and fees are investing in
the Portfolios and others may do so in the future. See "Organization of the
Funds and the Portfolios."
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Funds' annual report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon reports of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of a Fund is contained in its annual
report to shareholders which may be obtained without charge by contacting the
Principal Underwriter.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA FUND FLORIDA FUND MASSACHUSETTS FUND MISSISSIPPI FUND
------------------------- ------------------------- -------------------------- ---------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
------------------------- ------------------------- -------------------------- ---------------------------
1996 1995 1994* 1996 1995 1994* 1996 1995 1994* 1996 1995 1994*
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.180 $ 9.840 $10.000 $10.450 $10.020 $10.000 $ 9.260 $ 9.000 $10.000 $ 9.300 $ 8.920 $10.000
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income $ 0.601 $ 0.610 $ 0.209 $ 0.587 $ 0.587 $ 0.288 $ 0.490+++ $ 0.449 $ 0.350 $ 0.456+++ $ 0.426 $ 0.338
Net realized and
unrealized gain
(loss) 0.203 0.335 (0.158) 0.082 0.438 0.023++ 0.062+++ 0.283 (0.933) 0.140+++ 0.391 (1.024)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total income
(loss) from
operations $ 0.804 $ 0.945 $ 0.051 $ 0.669 $ 1.025 $ 0.311 $ 0.552 $ 0.732 $(0.583) $ 0.596 $ 0.817 $(0.686)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net
investment
income $(0.604) $(0.605)$(0.209) $(0.587)$(0.587) $(0.288) $(0.494) $(0.449)$(0.350) $(0.476) $(0.426) $(0.338)
In excess of net
investment
income(4) -- -- (0.002) (0.002) (0.008) (0.003) (0.018) (0.023) (0.067) -- (0.011) (0.056)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions $(0.604) $(0.605)$(0.211) $(0.589)$(0.595) $(0.291) $(0.512) $(0.472)$(0.417) $(0.476) $(0.437) $(0.394)
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
NET ASSET VALUE,
end of year $10.380 $10.180 $ 9.840 $10.530 $10.450 $10.020 $ 9.300 $ 9.260 $ 9.000 $ 9.420 $ 9.300 $ 8.920
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 8.05% 9.94% 0.50% 6.55% 10.59% 3.10% 6.19% 8.45% (6.02)% 6.64% 9.47% (6.96)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets,
end of year
(000 omitted) $ 6,168 $ 4,093 $ 3,101 $ 4,388 $ 3,548 $ 1,246 $ 6,045 $ 2,764 $ 3,743 $ 1,208 $ 2,330 $ 2,800
Ratio of net
expenses to
average daily
net assets(2)(3) 0.65% 0.63% 0.54%+ 0.67% 0.66% 0.50%+ 0.98% 1.53% 1.61%+ 1.13% 1.48% 1.24%+
Ratio of net
expenses to
average daily
net assets after
custodian fee
reduction(2)(3) 0.64% 0.62% -- 0.59% 0.61% -- 0.97% 1.51% -- 1.10% 1.44% --
Ratio of net
investment
income to
average daily
net assets 5.83% 6.08% 5.60%+ 5.57% 5.68% 5.30%+ 5.33% 5.05% 4.55%+ 4.88% 4.79% 4.42%+
**For the periods indicated, the operating expenses of the Funds and the Portfolios reflect an allocation of expenses to the
Investment Adviser and/ or the Administrator. Had such actions not been taken, net investment income per share and the ratios
would have been:
NET INVESTMENT
INCOME PER SHARE $ 0.527 $ 0.513 $ 0.158 $ 0.532 $ 0.497 $ 0.081 $ 0.430 $ 0.405 $ 0.260 $ 0.358 $ 0.364 $ 0.246
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(3) 1.37% 1.60% 1.92%+ 1.19% 1.53% 2.48%+ 1.63% 2.02% 2.78%+ 2.18% 2.18% 2.45%+
Expenses after
custodian fee
reduction(2)(3) 1.36% 1.59% -- 1.11% 1.48% -- 1.62% 2.00% -- 2.15% 2.14% --
Net investment
income 5.11% 5.11% 4.22%+ 5.05% 4.81% 3.32%+ 4.68% 4.56% 3.38%+ 3.83% 4.09% 3.21%+
(See footnotes on page 4.)
</TABLE>
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK FUND OHIO FUND RHODE ISLAND WEST VIRGINIA FUND
--------------------------------- ------------------------- ------------------------- ------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
--------------------------------- ------------------------- ------------------------- ------------------------
1996 1995 1994* 1996 1995 1994* 1996 1995 1994* 1996 1995 1994*
-------- -------- -------- -------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $10.150 $ 9.780 $10.000 $ 9.320 $ 8.940 $10.000 $ 9.210 $ 8.890 $10.000 $ 9.350 $ 8.980 $10.000
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income $ 0.570+++ $ 0.583 $ 0.271 $ 0.486 $ 0.428 $ 0.348 $ 0.431 $ 0.442 $ 0.347 $ 0.433 $ 0.427 $ 0.326
Net realized and
unrealized gain
(loss) 0.095+++ 0.390 (0.214) 0.064 0.404 (0.992) 0.106 0.331 (1.046) 0.139 0.385 (0.959)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total income
(loss) from
operations $ 0.665 $ 0.973 $ 0.057 $ 0.550 $ 0.832 $(0.644) $ 0.537 $ 0.773 $(0.699) $ 0.572 $ 0.812 $(0.633)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income $(0.571) $(0.583) $(0.271) $(0.486)$(0.428)$(0.348) $(0.437)$(0.442)$(0.347) $(0.456)$(0.427)$(0.326)
In excess of net
investment
income(4) (0.024) (0.017) (0.006) (0.004) (0.024) (0.068) -- (0.011) (0.064) (0.016) (0.015) (0.061)
In excess of net
realized gain(4) -- (0.003) -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions $(0.595) $(0.603) $(0.277) $(0.490)$(0.452)$(0.416) $(0.437)$(0.453)$(0.411) $(0.472)$(0.442)$(0.387)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
end of year $10.220 $10.150 $ 9.780 $ 9.380 $ 9.320 $ 8.940 $ 9.310 $ 9.210 $ 8.890 $ 9.450 $ 9.350 $ 8.980
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(1) 6.69% 10.32% 0.56% 6.12% 9.64% (6.75)% 5.95% 9.00% (7.29%) 6.45% 9.35% (6.53)%
RATIOS/SUPPLEMENTAL DATA**:
Net assets,
end of year
(000 omitted) $ 7,025 $ 4,427 $ 1,382 $ 1,959 $ 2,168 $ 2,111 $ 2,447 $ 3,034 $ 3,919 $ 1,585 $ 1,032 $ 1,897
Ratio of net
expenses to
average daily
net assets(2)(3) 0.59% 0.59% 0.44%+ 1.11% 1.56% 1.60%+ 1.35% 1.29% 1.23%+ 1.10% 1.35% 1.28%+
Ratio of net
expenses to
average daily
net assets after
custodian fee
reduction(2)(3) 0.56% 0.50% -- 1.06% 1.54% -- 1.32% 1.23% -- 1.06% 1.33% --
Ratio of net
investment
income to
average daily
net assets 5.55% 5.77% 5.36%+ 5.14% 4.76% 4.42%+ 4.58% 5.00% 4.50%+ 4.64% 4.81% 4.53%+
**For the periods indicated, the operating expenses of the Funds and the Portfolios reflects an allocation of expenses to the
Investment Adviser and/ or the Administrator. Had such actions not been taken, net investment income per share and the ratios
would have been:
NET INVESTMENT
INCOME PER SHARE $ 0.525 $ 0.512 $ 0.156 $ 0.397 $ 0.336 $ 0.241 $ 0.356 $ 0.377 $ 0.299 $ 0.310 $ 0.318 $ 0.204
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(3) 1.03% 1.29% 2.71%+ 2.05% 2.58% 2.96%+ 2.15% 2.03% 1.85%+ 2.41% 2.58% 2.66%+
Expenses after
custodian fee
reduction(2)(3) 1.00% 1.20% -- 2.00% 2.56% -- 2.12% 1.97% -- 2.37% 2.56% --
Net investment
income 5.11% 5.07% 3.09%+ 4.20% 3.74% 3.06%+ 3.78% 4.26% 3.88%+ 3.33% 3.58% 3.15%+
<FN>
Footnotes:
+Annualized.
++The per share amount is not in accord with the net realized and unrealized gain (loss) for the period because of the timing of s
ales of Fund shares and the amount of per share realized and unrealized gains and losses at such time.
+++Per share amounts have been calculated using average shares outstanding.
*For the California, Florida, Massachusetts, Mississippi, New York, Ohio, Rhode Island and West Virginia Funds, the Financial Hig
hlights are for the period from the start of business, May 27, 1994, April 5, 1994, December 7, 1993, December 7, 1993, April
15, 1994, December 7, 1993, December 7, 1993 and December 13, 1993, respectively, to September 30, 1994.
(1)Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset value on the
last day of each period reported. Distributions, if any, are assumed to be reinvested at the net asset value on the payable
date. Total r eturn is computed on a non-annualized basis.
(2)Includes the Fund's share of its corresponding Portfolio's allocated expenses.
(3)The expense ratios for the years ended September 30, 1996 and 1995 have been adjusted to reflect a change in reporting
requireme nts. The new reporting guidelines require the Fund to increase its expense ratio by the effect of any expense offset
arrangements with it s service providers. The expense ratios for the period ended September 30, 1994 have not been adjusted to
reflect this change.
(4)During the year ended September 30, 1993, (September 30, 1994 for the California Fund) the Fund adopted Statement of Position
(S OP) 93-2: Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distribution s by Investment Companies. The SOP requires that differences in the recognition or classification of income
between the financial sta tements and tax earnings and profits that result in temporary over-distributions for financial
statement purposes, are classified as distributions in excess of net investment income or accumulated net realized gains.
(5)Prior to February 1, 1996, the Massachusetts Fund, the Mississippi Fund, the Ohio Fund and the West Virginia Fund, each made
distribution fee payments pursuant to a Distribution Plan.
(6)Prior to November 29, 1996, the Rhode Island Fund made distribution fee payments pursuant to a Distribution Plan.
</FN>
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio"). Each
Portfolio invests primarily in municipal obligations (as described below) which
are rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment Adviser.
Each Portfolio has the same investment objective as its corresponding Fund.
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND (the "California Fund") seeks to
provide current income exempt from regular federal income tax and California
State personal income taxes. The California Fund seeks to meet its objective by
investing its assets in the California Municipals Portfolio (the "California
Portfolio").
EV TRADITIONAL FLORIDA MUNICIPALS FUND (the "Florida Fund") seeks to provide
current income exempt from regular federal income tax in the form of an
investment exempt from Florida intangibles tax. The Florida Fund seeks to meet
its objective by investing its assets in the Florida Municipals Portfolio (the
"Florida Portfolio").
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND (the "Massachusetts Fund") seeks to
provide current income exempt from regular federal income tax and Massachusetts
State personal income taxes. The Massachusetts Fund seeks to meet its objective
by investing its assets in the Massachusetts Municipals Portfolio (the
"Massachusetts Portfolio").
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND (the "Mississippi Fund") seeks to
provide current income exempt from regular federal income tax and Mississippi
State personal income taxes. The Mississippi Fund seeks to meet its objective by
investing its assets in the Mississippi Municipals Portfolio (the "Mississippi
Portfolio").
EV TRADITIONAL NEW YORK MUNICIPALS FUND (the "New York Fund") seeks to provide
current income exempt from regular federal income tax and New York State and New
York City personal income taxes. The New York Fund seeks to meet its objective
by investing its assets in the New York Municipals Portfolio (the "New York
Portfolio").
EV TRADITIONAL OHIO MUNICIPALS FUND (the "Ohio Fund") seeks to provide current
income exempt from regular federal income tax and Ohio State personal income
taxes. The Ohio Fund seeks to meet its objective by investing its assets in the
Ohio Municipals Portfolio (the "Ohio Portfolio").
EV TRADITIONAL 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").
EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND (the "West Virginia Fund") seeks to
provide current income exempt from regular federal income tax and West Virginia
State personal income taxes. The West Virginia Fund seeks to meet its objective
by investing its assets in the West Virginia Municipals Portfolio (the "West
Virginia Portfolio").
INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN MUNICIPAL OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND FROM THE STATE TAXES WHICH, IN ACCORDANCE WITH
ITS INVESTMENT OBJECTIVE, THE FUND SEEKS TO AVOID. The foregoing policy is a
fundamental policy of each Fund and its corresponding Portfolio, which may not
be changed unless authorized by a vote of the Fund's shareholders or that
Portfolio's investors, as the case may be.
At least 70% of the net assets of the Massachusetts Portfolio and New York
Portfolio, at least 75% of the net assets of the California Portfolio and
Florida Portfolio, and at least 80% of the net assets of the Mississippi
Portfolio, Ohio Portfolio, Rhode Island Portfolio and West Virginia Portfolio
will normally be invested in obligations rated at least investment grade at the
time of investment (which are those rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by either Standard & Poor's Ratings
Group ("S&P") or Fitch Investors Service, Inc. ("Fitch")) or, if unrated,
determined by the Investment Adviser to be of at least investment grade quality.
The balance of each Portfolio's net assets may be invested in municipal
obligations rated below investment grade (but not lower than B by Moody's, S&P
or Fitch) and unrated municipal obligations considered to be of comparable
quality by the Investment Adviser. Municipal obligations rated Baa or BBB may
have speculative characteristics. Also, changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher rated obligations. Securities
rated below Baa or BBB are commonly known as "junk bonds". A Portfolio may
retain an obligation whose rating drops below B after its acquisition if such
retention is considered desirable by the Investment Adviser. See "Additional
Risk Considerations." For a description of municipal obligation ratings, see the
Statement of Additional Information.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and commercial
paper issued by a municipality for a wide variety of both public and private
purposes, the interest on which is, in the opinion of bond counsel, exempt from
regular federal income tax. Public purpose municipal bonds include general
obligation and revenue bonds. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed by the revenues of a
project or facility or from the proceeds of a specific revenue source. Some
revenue bonds are payable solely or partly from funds which are subject to
annual appropriations by a State's legislature and the availability of monies
for such payments. Municipal notes include bond anticipation, tax anticipation
and revenue anticipation notes. Bond, tax and revenue anticipation notes are
short-term obligations that will be retired with the proceeds of an anticipated
bond issue, tax revenue or facility revenue, respectively. Under normal market
conditions, a Portfolio will invest at least 65% of its total assets in
obligations issued by its respective State or its political subdivisions.
Interest income from certain types of municipal obligations may be subject to
the federal alternative minimum tax (the "AMT") for individual investors. As at
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 issuers. For example,
health care-related issuers are susceptible to medicaid reimbursement policies,
and national and State health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
NON-DIVERSIFIED STATUS. As "non-diversified" investment companies, each
Portfolio may invest, with respect to 50% of its total assets, more than 5% (but
not more than 25%) of its total assets in the securities of any issuer. A
Portfolio is likely to invest a greater percentage of its assets in the
securities of a single issuer than would a diversified fund. Therefore, a
Portfolio is more susceptible to any single adverse economic or political
occurrence or development affecting issuers of the relevant State's municipal
obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of which
may be considered to involve "derivative" instruments because they derive their
value from another instrument, security or index. In addition, each Portfolio
may temporarily borrow up to 5% of the value of its total assets to satisfy
redemption requests or settle securities transactions.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities on a
"when-issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. Each Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in inverse
floaters may involve greater risk than an investment in a fixed rate bond.
Because changes in the interest rate on the other security or index inversely
affect the residual interest paid on the inverse floater, the value of an
inverse floater is generally more volatile than that of a fixed rate bond.
Inverse floaters have interest rate adjustment formulas which generally reduce
or, in the extreme, eliminate the interest paid to a Portfolio when short-term
interest rates rise, and increase the interest paid to the Portfolio when
short-term interest rates fall. Inverse floaters have varying degrees of
liquidity, and the market for these securities is new and relatively volatile.
These securities tend to underperform the market for fixed rate bonds in a
rising interest rate environment, but tend to outperform the market for fixed
rate bonds when interest rates decline. Shifts in long-term interest rates may,
however, alter this tendency. Although volatile, inverse floaters typically
offer the potential for yields exceeding the yields available on fixed rate
bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising rates if exercised at an opportune time. Inverse floaters
are leveraged because they provide two or more dollars of bond market exposure
for every dollar invested.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. Futures contracts may be based on various debt securities (such
as U.S. Government securities and municipal obligations) and securities indices
(such as the Municipal Bond Index traded on the Chicago Board of Trade). Such
transactions involve a risk of loss or depreciation due to unanticipated adverse
changes in securities prices, which may exceed a Portfolio's initial investment
in these contracts. A Portfolio may not purchase or sell futures contracts or
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits and premiums
paid on the Portfolio's outstanding positions would exceed 5% of the market
value of the Portfolio's net assets. These transactions involve transaction
costs. There can be no assurance that the Investment Adviser's use of futures
will be advantageous to a Portfolio. Distributions by a Fund of any gains
realized on its corresponding Portfolio's transactions in futures and options on
futures will be taxable.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of a Fund's shares.
ADDITIONAL RISK CONSIDERATIONS
Many municipal obligations offering current income are in the lowest investment
grade category (Baa or BBB), lower categories or may be unrated. As indicated
above, each Portfolio may invest in municipal obligations rated below investment
grade (but not lower than B by Moody's, S&P or Fitch) and comparable unrated
obligations. The lowest investment grade, lower rated and comparable unrated
municipal obligations in which a Portfolio may invest will have speculative
characteristics in varying degrees. While such obligations may have some quality
and protective characteristics, these characteristics can be expected to be
offset or outweighed by uncertainties or major risk exposures to adverse
conditions. Lower rated and comparable unrated municipal obligations are subject
to the risk of an issuer's inability to meet principal and interest payments on
the obligations (credit risk) and may also be subject to greater price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Lower rated or unrated municipal obligations are also more likely to
react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. The Investment Adviser seeks to minimize the
risks of investing in below investment grade securities through professional
investment analysis and attention to current developments in interest rates and
economic conditions. When a Portfolio invests in lower rated or unrated
municipal obligations, the achievement of the Portfolio's goals is more
dependent on the Investment Adviser's ability than would be the case if the
Portfolio were investing in municipal obligations in the higher rating
categories.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking recovery
of its investment. Municipal obligations held by a Portfolio which are rated
below investment grade but which, subsequent to the assignment of such rating,
are backed by escrow accounts containing U.S. Government obligations may be
determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. A Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will be less than
35% of net assets. In the event the rating of an obligation held by a Portfolio
is downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the
Portfolio's credit quality limitations.
The net asset value of shares of a Fund will change in response to fluctuations
in prevailing interest rates and changes in the value of the securities held by
its corresponding Portfolio. When interest rates decline, the value of
securities held by a Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of the issuers of municipal
obligations held by a Portfolio will affect the principal value of (and possibly
the income earned on) such obligations. In addition, the values of such
securities are affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of a security and in the ability of
the issuer to make payments of principal and interest may also affect the value
of a Portfolio's investments. The amount of information about the financial
condition of an issuer of municipal obligations may not be as extensive as that
made available by corporations whose securities are publicly traded. An
investment in shares of a Fund will not constitute a complete investment
program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by the Investment Adviser and its affiliates, holds a major portion or
all of such securities. Under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the issuer, the Portfolio
could find it more difficult to sell such securities when the Investment Adviser
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of such
securities for purposes of computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15% of
its net assets would be invested in securities that are not readily marketable.
No established resale market exists for certain of the municipal obligations in
which a Portfolio may invest. The market for obligations rated below investment
grade is also likely to be less liquid than the market for higher rated
obligations. As a result, a Portfolio may be unable to dispose of these
municipal obligations at times when it would otherwise wish to do so at the
prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its option to
"call", or redeem, its securities. If an issuer redeems securities held by the
Portfolio during a time of declining interest rates, the Portfolio may not be
able to reinvest the proceeds in securities providing the same investment return
as the securities redeemed.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. Each Portfolio is required to accrue income from zero-coupon bonds on
a current basis, even though it does not receive that income currently in cash
and each Fund is required to distribute its share of the Portfolio's income for
each taxable year. Thus, a Portfolio may have to sell other investments to
obtain cash needed to make income distributions.
Each Portfolio may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligation.
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT FUNDAMENTAL POLICIES
AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO
WITHOUT OBTAINING THE APPROVAL OF A FUND'S SHAREHOLDERS OR THE INVESTORS IN
THE CORRESPONDING PORTFOLIO, AS THE CASE MAY BE.
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
- --------------------------------------------------------------------------------
EACH FUND IS A NON-DIVERSIFIED SERIES OF EATON VANCE MUNICIPALS TRUST, A
BUSINESS TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF
TRUST DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL FUND -- AN
OPEN-END MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are
responsible for the overall management and supervision of its affairs. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series (such as the Funds). Each share represents an equal
proportionate beneficial interest in a Fund. When issued and outstanding, each
Fund's shares are fully paid and nonassessable by the Trust and redeemable as
described under "How to Redeem Fund Shares." 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 have no preemptive or conversion rights and are freely transferable. In
the event of the liquidation of a Fund, shareholders of that Fund are entitled
to share pro rata in the net assets available for distribution to shareholders.
EACH PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolios, as well as the Trust, intend to comply with all applicable federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that Portfolio
(e.g., other U.S. and foreign investment companies, and common and commingled
trust funds) will each be liable for all obligations of the Portfolio. However,
the risk of a Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios.
The Trustees of the Trust have considered the advantages and disadvantages of
investing the assets of each Fund in its corresponding Portfolio, as well as the
advantages and disadvantages of the two-tier format. The Trustees believe that
the structure offers opportunities for substantial growth in the assets of the
Portfolios, affords the potential for economies of scale for each Fund (at least
when the assets of its corresponding Portfolio exceed $500 million) and may over
time result in lower expenses for a Fund.
In addition to selling an interest to its corresponding Fund, a Portfolio may
sell interests to other affiliated and non-affiliated mutual funds or
institutional investors. Such investors will invest in a Portfolio on the same
terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the corresponding Fund
due to variations in sales commissions and other operating expenses. Therefore
these differences may result in differences in returns experienced by investors
in the various funds that invest in its corresponding Portfolio. Such
differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. Information regarding
other pooled investment entities or funds which invest in a Portfolio may be
obtained by contacting the Principal Underwriter, 24 Federal Street, Boston, MA
02110, (617) 482-8260.
Whenever a Fund as an investor in a Portfolio is requested to vote on matters
pertaining to the Portfolio (other than the termination of the Portfolio's
business, which may be determined by the Trustees of the Portfolio without
investor approval), the Fund will hold a meeting of Fund shareholders and will
vote its interest in the Portfolio for or against such matters proportionately
to the instructions to vote for or against such matters received from Fund
shareholders. A Fund shall vote shares for which it receives no voting
instructions in the same proportion as the shares for which it receives voting
instructions. Other investors in a Portfolio may alone or collectively acquire
sufficient voting interests in the Portfolio to control matters relating to the
operation of the Portfolio, which may require the corresponding Fund to withdraw
its investment in the Portfolio or take other appropriate action. Any such
withdrawal could result in a distribution "in kind" of portfolio securities (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, a Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of a
Fund. Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
A Fund may withdraw (completely redeem) all its assets from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interest of that Fund to do so. In the event a Fund withdraws all
of its assets from its corresponding Portfolio, or the Board of Trustees of the
Trust determines that the investment objective of such Portfolio is no longer
consistent with the investment objective of the Fund, such Trustees would
consider what action might be taken, including investing the assets of such Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. A Fund's
investment performance may be affected by a withdrawal of all its assets from
its corresponding Portfolio.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
- --------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each Portfolio,
BMR manages each Portfolio's investments and affairs. BMR also furnishes for the
use of each Portfolio office space and all necessary office facilities,
equipment and personnel for servicing the investments of the Portfolios. Under
its investment advisory agreement with a Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each Category as
indicated below, plus
(b) a daily income based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which portion
shall bear the same relationship to the total daily gross income on such day
as that portion of the total daily net assets in the same Category bears to
the total daily net assets on such day) in each Category as indicated below.
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
- ---------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
</TABLE>
Each Portfolio paid advisory fees for the fiscal year ended September 30, 1996
equivalent to the annualized percentage of average daily net assets stated
below:
NET ASSETS AS OF
PORTFOLIO SEPTEMBER 30, 1996 ADVISORY FEE
- ------------------------------------------------------------------------------
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%
(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
OVER $17 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 Portfolio and
the Rhode Island Portfolio since January, 1994. She joined Eaton Vance and BMR
as a Vice President in January 1994. Previously, she was a Vice President and
portfolio manager at Lazard Freres Asset Management (1992-1994).
Timothy T. Browse has acted as the portfolio manager of the West Virginia
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance and of BMR since 1993 and an employee of Eaton Vance since 1992. Prior to
joining Eaton Vance, he was a municipal bond trader at Fidelity Management &
Research Company (1987-1992).
Cynthia J. Clemson has acted as the portfolio manager of the Mississippi
Portfolio since it commenced operations and the California Portfolio since
February 1, 1996. She has been a Vice President of Eaton Vance and BMR since
1993 and an employee of Eaton Vance since 1985.
Thomas J. Fetter has acted as the portfolio manager of the Florida and Ohio
Portfolios since they commenced operations. He has been a Vice President of
Eaton Vance since 1987 and of BMR since inception.
Robert B. MacIntosh has acted as the portfolio manager of the Massachusetts
Portfolio since it commenced operations. He has been a Vice President of Eaton
Vance since joining the firm in 1991 and of BMR since its inception.
Municipal obligations are normally traded on a net basis (without commission)
through broker-dealers and banks acting for their own account. Such firms
attempt to profit from such transactions by buying at the bid price and selling
at the higher asked price of the market, and the difference is customarily
referred to as the spread. In selecting firms which will execute portfolio
transactions, BMR judges their professional ability and quality of service and
uses its best efforts to obtain execution at prices which are advantageous to
the Portfolios and at reasonably competitive spreads. Subject to the foregoing,
BMR may consider sales of shares of the Funds or of other investment companies
sponsored by BMR or Eaton Vance as a factor in the selection of firms to execute
portfolio transactions. Each Fund, each Portfolio and BMR have adopted Codes of
Ethics relating to personal securities transactions. The Codes permit Eaton
Vance personnel to invest in securities (including securities that may be
purchased or held by a Portfolio) for their own accounts, subject to certain
pre-clearance, reporting and other restrictions and procedures contained in such
Codes.
The Trust has retained the services of Eaton Vance to act as Administrator of
the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing its assets in the corresponding Portfolio. As Administrator, Eaton
Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible for
all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the administrative
services agreement, or by the Principal Underwriter under the distribution
agreement.
SERVICE PLANS
- --------------------------------------------------------------------------------
In addition to advisory fees and other expenses, each Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the service fee
requirements of the sales charge rule of the National Association of Securities
Dealers, Inc. EACH FUND'S PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE
PAYMENTS FOR PERSONAL SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO
THE PRINCIPAL UNDERWRITER, FINANCIAL SERVICE FIRMS ("AUTHORIZED FIRMS") AND
OTHER PERSONS IN AMOUNTS NOT EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET
ASSETS FOR ANY FISCAL YEAR. The Trustees of the Trust have initially implemented
each Fund's Plan by authorizing the Fund to make service fee payments to the
Principal Underwriter and Authorized Firms in amounts not expected to exceed
.20% (0.25% for the California Fund) of the Fund's average daily net assets for
any fiscal year which is based on the value of Fund shares sold by such persons
and remaining outstanding for at least twelve months. Each Fund's Plan
authorizes the Trustees of the Trust on behalf of the Fund to increase payments
to the Principal Underwriter, Authorized Firms and other persons from time to
time without further action by shareholders of the Fund, provided that the
aggregate amount of payments made to such persons under the Plan in any fiscal
year of the Fund does not exceed .25% of the Fund's average daily net assets.
For the fiscal year ended September 30, 1996, each Fund made service fee
payments (as a percentage of average daily net assets) as follows: California
Fund (0.10%); Florida Fund (0.07%); Massachusetts Fund (0.20% annualized);
Mississippi Fund (0.20% annualized); New York Fund (0.07%); Ohio Fund (0.20%
annualized); Rhode Island Fund (0.20%); and West Virginia Fund (0.20%
annualized). A portion of the service fee payments made by the Massachusetts,
Mississippi, Ohio, Rhode Island and West Virginia Funds were made pursuant to a
prior version of the Plan. The Plan is described further in the Statement of
Additional Information.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, the Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share and the public offering price
based thereon. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter.
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) in the
manner authorized by the Trustees of the Portfolio. Net asset value is computed
by subtracting the liabilities of a Portfolio from the value of its total
assets. Municipal obligations will normally be valued on the basis of valuations
furnished by a pricing service. For further information regarding the valuation
of the Portfolios' assets, see "Determination of Net Asset Value" in the
Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the effective public offering price, which price is based on the effective net
asset value per share plus the applicable sales charge. A Fund receives the net
asset value, while the sales charge is divided between the Authorized Firm and
the Principal Underwriter. An Authorized Firm may charge its customers a fee in
connection with transactions executed by that Firm. A Fund may suspend the
offering of shares at any time and may refuse an order for the purchase of
shares. Shares of each Fund are offered for sale only in States where such
shares may be legally sold.
The sales charge may vary depending on the size of the purchase and the number
of shares of Eaton Vance funds the investor may already own, any arrangement to
purchase additional shares during a 13-month period or special purchase
programs. Complete details of how investors may purchase shares at reduced sales
charges under a Statement of Intention or Right of Accumulation are available
from Authorized Firms or the Principal Underwriter.
<TABLE>
The current sales charges and dealer commissions are:
<CAPTION>
SALES CHARGE SALES CHARGE DEALER COMMISSION
AS PERCENTAGE OF AS PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 3.75% 3.90% 4.00%
$50,000 but less than $100,000 2.75 2.83 3.00
$100,000 but less than $250,000 2.25 2.30 2.50
$250,000 but less than $500,000 1.75 1.78 2.00
$500,000 but less than $1,000,000 1.25 1.27 1.50
$1,000,000 or more 0.00* 0.00* 0.50
*No sales charge is payable at the time of purchase on investments of $1 million or more, or where the amount invested represents
redemption proceeds from a mutual fund unaffiliated with Eaton Vance, if the redemption occurred no more than 60 days' prior to
the purchase of Fund shares and the redeemed shares were subject to a sales charge. A contingent deferred sales charge ("CDSC")
of 0.50% will be imposed on such investments (as described below) in the event of certain redemptions within 12 months of
purchase.
</TABLE>
The Principal Underwriter may at times allow discounts up to the full sales
charge. During periods when the discount includes the full sales charge,
Authorized Firms may be deemed to be underwriters as that term is defined in the
Securities Act of 1933. The Principal Underwriter may, from time to time, at its
own expense, provide additional incentives to Authorized Firms which employ
registered representatives who sell Fund shares and/or shares of other funds
distributed by the Principal Underwriter. In some instances, such additional
incentives may be offered only to certain Authorized Firms whose representatives
sell or are expected to sell significant amounts of shares.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: First
Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
Shares of a Fund may be sold at net asset value to current and retired Directors
and Trustees of Eaton Vance funds, including the Portfolios; to clients and
current and retired officers and employees of Eaton Vance, its affiliates and
other investment advisers of Eaton Vance sponsored funds; to registered
representatives and employees of Authorized Firms and bank employees who refer
customers to registered representatives of Authorized Firms; to officers and
employees of IBT and the Transfer Agent; and to such persons' spouses and
children under the age of 21 and their beneficial accounts. Shares may also be
issued at net asset value (1) in connection with the merger of an investment
company with a Fund, (2) to investors making an investment as part of a fixed
fee program whereby an entity unaffiliated with the Investment Adviser provides
multiple investment services, such as management, brokerage and custody, and (3)
to investment advisors, financial planners or other intermediaries who place
trades for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; clients of such
investment advisors, financial planners or other intermediaries who place trades
for their own accounts if the accounts are linked to the master account of such
investment advisor, financial planner or other intermediary on the books and
records of the broker or agent; and retirement and deferred compensation plans
and trusts used to fund those plans, including, but not limited to, those
defined in Section 401 (a), 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), and "rabbi trusts."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at the applicable public offering price as determined above. The
minimum value of securities (or securities and cash) accepted for deposit is
$5,000. Securities accepted will be sold on the day of their receipt or as soon
thereafter as possible. The number of Fund shares to be issued in exchange for
securities will be the aggregate proceeds from the sale of such securities,
divided by the applicable public offering price per Fund share on the day such
proceeds are received. Eaton Vance will use reasonable efforts to obtain the
then current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Traditional [State name] Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional [State name] Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a Fund,
or their representatives, must contact Eaton Vance to determine whether the
securities are acceptable before forwarding such securities. Eaton Vance
reserves the right to reject any securities. Exchanging securities for Fund
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, State and local tax
consequences of exchanging securities for Fund shares.
STATEMENT OF INTENTION AND ESCROW AGREEMENT. If the investor, on an application,
makes a Statement of Intention to invest a specified amount over a thirteen
month period, then out of the initial purchase (or subsequent purchases if
necessary) 5% of the dollar amount specified on the application shall be held in
escrow by the escrow agent in the form of shares (computed to the nearest full
share at the public offering price applicable to the initial purchase hereunder)
registered in the investor's name. All income dividends and capital gains
distributions on escrowed shares will be paid to the investor or to the
investor's order. When the minimum investment so specified is completed, the
escrowed shares will be delivered to the investor. If the investor has an
accumulation account the shares will remain on deposit under the investor's
account.
If total purchases under this Statement of Intention are less than the amount
specified, the investor will promptly remit to the Principal Underwriter any
difference between the sales charge on the amount specified and on the amount
actually purchased. If the investor does not within 20 days after written
request by the Principal Underwriter or the Authorized Firm pay such difference
in sales charge, the escrow agent will redeem an appropriate number of the
escrowed shares in order to realize such difference. Full shares remaining after
any such redemption together with any excess cash proceeds of the shares so
redeemed will be delivered to the investor or to the investor's order by the
escrow agent.
If total purchases made under this Statement are large enough to qualify for a
lower sales charge than that applicable to the amount specified, all
transactions will be computed at the expiration date of this Statement to give
effect to the lower charge. Any difference in sales charge will be refunded to
the investor in cash, or applied to the purchase of additional shares at the
lower charge if specified by the investor. This refund will be made by the
Authorized Firm and by the Principal Underwriter. If at the time of the
recomputation a firm other than the original firm is placing the orders, the
adjustment will be made only on those shares purchased through the firm then
handling the investor's account.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
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A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per Fund share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. Good order means that all
relevant documents must be endorsed by the record owner(s) exactly as the shares
are registered and the signature(s) must be guaranteed by a member of either the
Securities Transfer Association's STAMP program or the New York Stock Exchange's
Medallion Signature Program, or certain banks, savings and loan institutions,
credit unions, securities dealers, securities exchanges, clearing agencies and
registered securities associations as required by a regulation of the Securities
and Exchange Commission (the "Commission") and acceptable to the Transfer Agent.
In addition, in some cases, good order may require the furnishing of additional
documents such as where shares are registered in the name of a corporation,
partnership or fiduciary.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: To sell shares at their net asset value
through an Authorized Firm (a repurchase), a shareholder can place a repurchase
order with the Authorized Firm, which may charge a fee. The value of such shares
is based upon the net asset value calculated after the Principal Underwriter, as
the Funds' agent, receives the order. It is the Authorized Firm's responsibility
to transmit promptly repurchase orders to the Principal Underwriter. Throughout
this Prospectus, the word "redemption" is generally meant to include a
repurchase.
Within seven days after receipt of a redemption request in good order by the
Transfer Agent, a Fund will make payment in cash for the net asset value of the
shares as of the date determined above, reduced by the amount of any federal
income tax required to be withheld. Although each Fund normally expects to make
payment in cash for redeemed shares, the Trust, subject to compliance with
applicable regulations, has reserved the right to pay the redemption price of
shares of a Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by that Fund from its corresponding
Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
If shares were recently purchased, the proceeds of redemption will not be sent
until the check (including a certified or cashier's check) received for the
shares purchased has cleared. Payment for shares tendered for redemption may be
delayed up to 15 days from the purchase date when the purchase check has not yet
cleared. Redemptions may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the right
to redeem accounts with balances of less than $750. Prior to such a redemption,
shareholders will be given 60 days' written notice to make an additional
purchase. However, no such redemption would be required by a Fund if the cause
of the low account balance was a reduction in the net asset value of Fund
shares.
If shares have been purchased at net asset value with no initial sales charge by
virtue of the purchase having been in the amount of $1 million or more and are
redeemed within 12 months of purchase, a CDSC of 0.50% will be imposed on such
redemption. In addition, certain shares of the Rhode Island Fund purchased prior
to November 30, 1996 and redeemed within the first year of their purchase
(except shares acquired through the reinvestment of distributions) generally
will be subject to a CDSC equal to 1% of the net asset value of redeemed shares.
The CDSC will be imposed on an amount equal to the lesser of the current market
value or the original purchase price of the shares redeemed. Accordingly, no
CDSC will be imposed on increases in account value above the initial purchase
price, including any dividends or distributions that have been reinvested in
additional shares. In determining whether a CDSC is applicable to a redemption,
the calculation will be made in a manner that results in the lowest possible
rate being charged. It will be assumed that redemptions are made first from any
shares in the shareholder's account that are not subject to a CDSC. The CDSC
will be retained by the Principal Underwriter.
The CDSC is waived for redemptions involving certain liquidation, merger or
acquisition transactions involving other investment companies. If a shareholder
reinvests redemption proceeds within a 60-day period and in accordance with the
conditions set forth under "Eaton Vance Shareholder Services -- Reinvestment
Privilege," the shareholder's account will be credited with the amount of any
CDSC paid on such redeemed shares.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing federal and State tax returns.
Consistent with applicable law, duplicate mailings of shareholder reports and
certain other Fund information to shareholders residing at the same address may
be eliminated.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE TRANSFER AGENT
WILL SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE APPLICABLE
FUND'S RECORDS. This account is a complete record of all transactions between
the investor and the Fund which at all times shows the balance of shares owned.
A Fund will not issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE to the Transfer Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (please provide the name of the
shareholder, the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Funds'
dividend disbursing agent, First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123. The currently effective option will appear on each
account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal Service
as not deliverable or which remain uncashed for six months or more will be
reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name" account
with an Authorized Firm, all recordkeeping, transaction processing and payments
of distributions relating to the beneficial owner's account will be performed by
the Authorized Firm, and not by the Fund and its Transfer Agent. Since the Fund
will have no record of the beneficial owner's transactions, a beneficial owner
should contact the Authorized Firm to purchase, redeem or exchange shares, to
make changes in or give instructions concerning the account, or to obtain
information about the account. The transfer of shares in a "street name" account
to an account with another dealer or to an account directly with a Fund involves
special procedures and will require the beneficial owner to obtain historical
purchase information about the shares in the account from the Authorized Firm.
Before establishing a "street name" account with an investment firm, or
transferring the account to another investment firm, an investor wishing to
reinvest distributions should determine whether the firm which will hold the
shares allows reinvestment of distributions in "street name" accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of a Fund may currently be exchanged for shares of any of the following
funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of Boston,
Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any fund
in the Eaton Vance Traditional Group of Funds on the basis of the net asset
value per share of each fund at the time of the exchange (plus, in the case of
an exchange made within six months of the date of purchase of shares subject to
an initial sales charge, an amount equal to the difference, if any, between the
sales charge previously paid on the shares being exchanged and the sales charge
payable on the shares being acquired). Exchange offers are available only in
States where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
Shares of a Fund which are subject to a CDSC may be exchanged into any of the
above funds without incurring the CDSC. The shares acquired in an exchange may
be subject to a CDSC upon redemption. For purposes of computing the CDSC payable
upon redemption of shares acquired in an exchange, the holding period of the
original shares is added to the holding period of the shares acquired in the
exchange.
The Transfer Agent makes exchanges at the next determined net asset value after
receiving an exchange request in good order (see "How to Redeem Fund Shares").
Consult the Transfer Agent for additional information concerning the exchange
privilege. Applications and prospectuses of other funds are available from
Authorized Firms or the Principal Underwriter. The prospectus for each fund
describes its investment objectives and policies, and shareholders should obtain
a prospectus and consider these objectives and policies carefully before
requesting an exchange.
Shares of certain other funds advised or administered by Eaton Vance may be
exchanged for Fund shares on the basis of the net asset value per share of each
fund at the time of exchange (plus, in the case of an exchange made within six
months of the date of purchase of shares subject to an initial sales charge, an
amount equal to the difference, if any, between the sales charge previously paid
on the shares being exchanged and the sales charge payable on the shares being
acquired). Any such exchange is subject to any restrictions or qualifications
set forth in the current prospectus of any such fund.
Telephone exchanges are accepted by the Transfer Agent provided the investor has
not disclaimed in writing the use of the privilege. To effect such exchanges,
call the Transfer Agent at 800-262-1122, Monday through Friday, 9:00 a.m. to
4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange must be
registered in the same name(s) and with the same address as the shares being
exchanged. Neither the Funds, the Principal Underwriter nor the Transfer Agent
will be responsible for the authenticity of exchange instructions received by
telephone, provided that reasonable procedures to confirm that instructions
communicated are genuine have been followed. Telephone instructions will be tape
recorded. In times of drastic economic or market changes, a telephone exchange
may be difficult to implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to the Transfer Agent, First Data
Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 at any time
- -- whether or not dividends are reinvested. The name of the shareholder, the
Fund and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from the
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
STATEMENT OF INTENTION: Purchases of $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "How to Buy Fund Shares --
Statement of Intention and Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges when the
current market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Shares of the Eaton Vance funds listed under
"The Eaton Vance Exchange Privilege" may be combined under the Statement of
Intention and Right of Accumulation.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A minimum
deposit of $5,000 in shares is required. The maintenance of a withdrawal plan
concurrently with purchases of additional shares would be disadvantageous
because of the sales charge included in such purchases.
REINVESTMENT PRIVILEGE: A shareholder who has redeemed shares may reinvest any
portion or all of the redemption proceeds (plus that amount necessary to acquire
a fractional share to round off the purchase to the nearest full share) in
shares of a Fund, or, provided that the shares redeemed have been held for at
least 60 days, in shares of any of the other funds offered by the Principal
Underwriter subject to an initial sales charge, provided that the reinvestment
is effected within 60 days after such redemption, and the privilege has not been
used more than once in the prior 12 months. Shares are sold to a reinvesting
shareholder at the next determined net asset value following timely receipt of a
written purchase order by the Principal Underwriter or by the fund the shares of
which are being purchased (or by such fund's transfer agent). The privilege is
also available to shareholders of the funds listed under "The Eaton Vance
Exchange Privilege" who wish to reinvest such redemption proceeds in shares of a
Fund. If a shareholder reinvests redemption proceeds within the 60-day period
the shareholder's account will be credited with the amount of any CDSC paid on
such redeemed shares. To the extent that any shares of the Fund are sold at a
loss and the proceeds are reinvested in shares of the Fund (or other shares of
the Fund are acquired) within the period beginning 30 days before and ending 30
days after the date of the redemption some or all of the loss generally will not
be allowed as a tax deduction. Shareholders should consult their tax advisers
concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO (LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES) WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the last day of each month or the
next business day thereafter. Each Fund anticipates that for tax purposes the
entire distribution, whether paid in cash or reinvested in additional shares of
the Fund, will constitute tax-exempt income to shareholders, except for the
proportionate part of the distribution that may be considered taxable income if
the Fund has taxable income during the calendar year. Shareholders reinvesting
the monthly distribution should treat the amount of the entire distribution as
the tax cost basis of the additional shares acquired by reason of such
reinvestment. Daily distribution crediting will commence on the business day
after collected funds for the purchase of Fund shares are available at the
Transfer Agent. Shareholders of a Fund will receive timely federal income tax
information as to the tax-exempt or taxable status of all distributions made by
the Fund during the calendar year. A Fund's net realized capital gains, if any,
consist of the net realized capital gains allocated to the Fund by its
corresponding Portfolio for tax purposes, after taking into account any
available capital loss carryovers; a Fund's net realized capital gains, if any,
will be distributed at least once a year, usually in December.
Sales charges paid upon a purchase of Fund shares cannot be taken into account
for purposes of determining gain or loss on a redemption or exchange of the
shares before the 91st day after their purchase to the extent a sales charge is
reduced or eliminated in a subsequent acquisition of shares of a Fund or of
another fund pursuant to a Fund's reinvestment or exchange privilege. Any
disregarded amounts will result in an adjustment to the shareholder's tax basis
in some or all of any other shares acquired.
Each Fund intends to qualify as a regulated investment company under the Code,
and to satisfy all requirements necessary to be relieved of federal taxes on
income and gains it distributes to shareholders. In satisfying these
requirements, each Fund will treat itself as owning its proportionate share of
each of its corresponding Portfolio's assets and as entitled to the income of
the Portfolio properly attributable to such share.
As a regulated investment company under the Code, each Fund does not pay federal
income or excise taxes to the extent that it distributes to shareholders its net
investment income and net realized capital gains in accordance with the timing
requirements imposed by the Code. As partnerships under the Code, the Portfolios
do not pay federal income or excise taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the 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 a Fund. Tax-exempt distributions
received from a Fund are includable in the tax base for determining the
taxability of social security and railroad retirement benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible to the extent it is deemed related to
the Fund's distribution of tax-exempt interest. Further, entities or persons who
are "substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds should
consult their tax advisers before purchasing shares of a Fund. "Substantial
user" is defined in applicable Treasury regulations to include a "non-exempt
person" who regularly uses in trade or business a part of a facility financed
from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult with their tax advisers concerning the applicability
of State, local and other taxes to an investment in a Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share of the Fund on the last day of the period and annualizing the
resulting figure. A taxable-equivalent yield is computed by using the tax-exempt
yield figure and dividing by 1 minus the tax rate. Each Fund's average annual
total return is determined by computing the average annual percentage change in
value of $1,000 invested at the maximum public offering price (which includes
the maximum sales charge) for specified periods, assuming reinvestment of all
distributions. Each Fund may publish annual and cumulative total return figures
from time to time. Each Fund may also quote total return for the period prior to
commencement of operations which would reflect the Portfolio's total return (or
that of its predecessor) adjusted to reflect any applicable Fund sales charge.
Each Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which is
based on a Fund's net asset value per share would be lower if a sales charge
were taken into account. The Fund's performance may be compared in publications
to the performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information prepared
by recognized mutual fund statistical services.
Investors should note that the investment results of a Fund will fluctuate over
time, and any presentation of the Fund's current yield or total return for any
prior period should not be considered a representation of what an investment may
earn or what the Fund's yield or total return may be in any future period. If
the expenses of a Fund or its corresponding Portfolio are allocated to Eaton
Vance, the Fund's performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in the
obligations of issuers in its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this Prospectus
and are based on economic conditions which may not continue; moreover, there can
be no assurance that particular bond issues may not be adversely affected by
changes in economic, political or other conditions. Unless stated otherwise the
ratings indicated are for obligations of the State. A State's political
subdivisions may have different ratings which are unrelated to the ratings
assigned to State obligations.
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.
As of the date of this Prospectus, general obligation bonds issued by the State
are rated A1, A and A by Moody's, S&P and Fitch.
CALIFORNIA TAXES. California law provides that dividends paid by the California
Fund and designated by the California Fund as tax-exempt are exempt from
California personal income tax on individuals who reside in California to the
extent such dividends are derived from interest payments on municipal
obligations exempt from regular federal income tax and California State personal
income taxes, provided that at least 50% of the assets of the California
Portfolio at the close of each quarter of its taxable year are invested in
obligations the interest on which is exempt under either federal or California
law from taxation by the State of California. Distributions of short-term
capital gains are treated as ordinary income, and distributions of long-term
capital gains are treated as long-term capital gains 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).
The State finished the 1995 fiscal year with a working capital reserve of $161.5
million and $121 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 total $15.3 billion, a 3.3% increase over
fiscal year 1994-95. With combined General Revenue, Working Capital Fund and
Budget Stabilization Fund appropriations at $14.8 billion, unencumbered reserves
at the end of fiscal year 1995-96 are estimated at $0.5 billion. For fiscal year
1996-97, the estimated General Revenue plus Working Capital and Budget
Stabilization funds available total $16.0 billion, a 4.5% 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 5.4% and 5.6%,
respectively. The Florida and United States unemployment rates for October, 1996
were 5.1% and 5.2%, respectively, and the estimated Florida and United States
unemployment rates for 1997 are 5.8%.
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 the
Florida Fund owned by a Florida resident will be exempt from the Florida
Intangible Personal Property Tax so long as the Florida 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 4.1% for 1996, while the national unemployment rate was
5.2%.
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.
Fiscal 1995 expenditures for direct Local Aid were $2.976 billion, which is an
increase of approximately 9.1% above the fiscal 1994 level. It is estimated that
fiscal 1996 expenditures for direct Local Aid will be $3.241 billion, which is
an increase of approximately 8.9% above the fiscal 1995 level.
General obligations of Massachusetts are rated A1, A+ and A+ by Moody's, S&P and
Fitch, respectively.
MASSACHUSETTS TAXES. The Massachusetts Portfolio has received a letter ruling
(the "Ruling") from the Department of Revenue (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.
Beginning in 1996, long-term capital gains are generally taxed in Massachusetts
on a sliding scale at rates ranging from 5% to 0%, with the applicable tax rate
declining as the tax holding period of the asset (beginning on the later of
January 1, 1995 or the date of actual acquisition) increases from more than one
year to more than six years. It is not clear what Massachusetts tax rate is
currently applicable to capital gain dividends, but the Department is expected
to provide guidance on this issue.
Distributions from the Massachusetts Fund will be included in net income, and in
the case of intangible property corporations, shares of the Massachusetts Fund
will be included in net worth for purposes of determining the Massachusetts
excise tax on corporations subject to Massachusetts taxation.
MISSISSIPPI. The State's economic outlook can be characterized as 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 through
1996. The casino industry experienced a slow but steady growth in 1996. Also,
the governmental and wholesale/retail trade and service sectors have had modest
gains in employment in 1996. In recent years, the State has successfully
expanded its economy through technology-based research and education, and the
Mississippi banking system has exhibited relative strength and stability over
the past several years, a period characterized by a growing number of bank
failures nationwide. The unemployment rate for November, 1996 was 5.5% as
compared to the national average of 5.4%.
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.
General obligations of Mississippi are rated AA, and Aa by S&P and Moody's. S&P
has a positive outlook for the State.
MISSISSIPPI TAXES. Under existing Mississippi law, interest received by a
Mississippi resident individual upon the obligations of the State of Mississippi
or political subdivisions thereof ("Mississippi obligations") 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 (equal to
6.7% of the peak employment figure for 1989). Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer,
manufacturing, defense and banking industries. The State expects modest
economical employment growth in New York for 1996. In the 1992-1993 fiscal year,
however, the State began the process of financial reform. The State Financial
Plans for the 1992-1993 through 1995-1996 fiscal years produced positive fund
balances at the end of all four fiscal years.
The State ended its 1995-1996 fiscal year in balance, with a reported 1995-1996
General Fund cash surplus of $445 million after closing a previously projected
budget gap of approximately $5 billion. In conjunction with enactment of the
1995-1996 budget, legislation was enacted to reduce the State's personal income
tax by 20 percent over a three year period. Under such legislation, tax rates
will drop, tax brackets will accelerate, and standard deductions will be
increased.
On July 13, 1996, the State adopted its budget for the 1996-1997 fiscal year
which began on April 1, 1996. It is reasonable to expect press reports
describing the details of such budget.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies, authorities
and localities to meet their financial obligations and, in some cases, to
prevent or cure defaults. To the extent State agencies and local governments
require State assistance to meet their financial obligations, the ability of the
State to meet its own obligations as they become due or to obtain additional
financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in recent
years and currently continues to experience such difficulties owing, in part, to
lower than anticipated revenues. Because New York City taxes comprise
approximately 40% of the State's tax base, the City's difficulties adversely
affect the State.
New York's general obligations are rated A, A- and A+ by Moody's, S&P and Fitch,
respectively. S&P currently assesses the rating outlook for New York obligations
as positive. As of July 11, 1996, New York City obligations 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+ and
removed City bonds from CreditWatch. On February 28, 1996, Fitch placed the
City's general obligation bonds on Fitch Alert with negative implications.
NEW YORK TAXES. Based upon the advice of tax counsel, the management of the New
York Fund believes that under New York law dividends paid by the New York Fund
are exempt from New York State and New York City 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.
The fiscal year 1994 budget was balanced, and the State's General Revenue Fund
had an ending fund balance of $560 million. The June 30, 1995 ending General
Revenue Fund balance was $928 million. The 1996 General Fund balance totalled
$1.6 billion, or 9.8% of appropriations. The fiscal 1997 budget is expected to
balance with no depletion in reserves.
General obligations of Ohio are rated Aa and AA by S&P and Moody's, respectively
(except that highway obligations are rated Aaa by S&P). Fitch does not currently
rate the State's general obligations.
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund, Squire,
Sanders & Dempsey, under Ohio law individuals who are otherwise subject to the
Ohio personal income tax will not be subject to such tax on dividends paid by
the Ohio Fund to the extent such dividends are properly attributable to interest
on obligations issued by or on behalf of the State of Ohio or its political
subdivisions, or the agencies or instrumentalities thereof ("Ohio obligations").
Dividends paid by the Ohio Fund also will be excluded from the net income base
of the Ohio corporation franchise tax to the extent such dividends are excluded
from gross income for federal income tax purposes or are properly attributable
to interest on Ohio obligations. However, the Ohio Fund's shares will be
included in the tax base for purposes of computing the Ohio corporation
franchise tax on the net worth basis. These conclusions regarding Ohio taxation
are based on the assumption that the Ohio Fund will continue to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Ohio Fund will consist of Ohio
obligations or similar obligations of other states or their subdivisions
determined, to the extent the Ohio Fund invests in the Ohio Portfolio, by
treating the Ohio Fund as owning its proportionate share of the assets owned by
the Ohio Portfolio.
RHODE ISLAND. 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.
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 August, 1996, the State unemployment rate was 6.9% down
from the August, 1995 level of 8.2%. 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 generally accepted accounting procedure-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 slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Section
936 (a tax incentive that has encouraged economic growth in Puerto Rico) will be
phased out over a ten year period. At this time, it is uncertain as to the
implication the change will have on the Puerto Rico economy. Although the Puerto
Rico unemployment rate has declined substantially since 1985, the seasonally
adjusted unemployment rate for July, 1996 was approximately 14.1%. The North
American Free Trade Agreement (NAFTA), which became effective January 1, 1994,
could lead to the loss of Puerto Rico's lower salaried or labor intensive jobs
to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P assigned
a negative outlook on Puerto Rico's rating on April 26, 1994 which was still in
place as of the date of this prospectus.
<PAGE>
[logo]
EV TRADITIONAL EATON VANCE
================
MUNICIPAL Mutual Funds
FUNDS
PROSPECTUS
FEBRUARY 1, 1997
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND
EV TRADITIONAL NEW YORK MUNICIPALS FUND
EV TRADITIONAL OHIO MUNICIPALS FUND
EV TRADITIONAL RHODE ISLAND MUNICIPALS FUND
EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
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PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-TFC2/1P
<PAGE>
EV CLASSIC
NATIONAL MUNICIPALS FUND
- --------------------------------------------------------------------------------
EV CLASSIC 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 February 1, 1997 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's principal underwriter,
Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street,
Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's investment adviser
is Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Fund. The offices of the Investment
Adviser and the Administrator are located at 24 Federal Street, Boston, MA
02110.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
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PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares ......................... 12
The Fund's Financial Highlights ....................... 3 Reports to Shareholders ........................... 13
The Fund's Investment Objective ....................... 4 The Lifetime Investing Account/Distribution
Investment Policies and Risks ......................... 4 Options ......................................... 14
Organization of the Fund and the Portfolio ............ 7 The Eaton Vance Exchange Privilege ................ 14
Management of the Fund and the Portfolio .............. 8 Eaton Vance Shareholder Services .................. 15
Distribution Plan ..................................... 9 Distributions and Taxes ........................... 16
Valuing Fund Shares ................................... 11 Performance Information ........................... 17
How to Buy Fund Shares ................................ 11 Appendix .......................................... 18
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</TABLE>
PROSPECTUS DATED FEBRUARY 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charge Imposed on Redemption during the First Year
(as a percentage of redemption proceeds exclusive of all reinvestments and
capital appreciation in the account) 1.00%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Adviser Fee 0.44%
Rule 12b-1 Distribution (and Service) Fees 1.00
Other Expenses 0.30
----
Total Operating Expenses 1.74%
====
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses (including a contingent
deferred sales charge in the case of redemption during the first year
after purchase) on a $1,000 investment, assuming (a) 5% annual return
and (b) redemption at the end of each period: $28 $55 $94 $205
</TABLE>
NOTES:
The table and Example summarize the aggregate expenses of the Fund and the
Portfolio and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in the Fund. Information
for the Fund is based on its expenses for the most recent fiscal year.
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," "Management of the Fund and the Portfolio"
and "How to Redeem Fund Shares." A long-term shareholder in the Fund may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by a rule of the National Association of Securities Dealers, Inc. See
"Distribution Plan."
No contingent deferred sales charge is imposed on (a) shares purchased more than
one year prior to redemption, (b) shares acquired through the reinvestment of
distributions or (c) any appreciation in value of other shares in the account
(see "How to Redeem Fund Shares"), and no such charge is imposed on exchanges of
Fund shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege." In the Example above, expenses would be $10 less in the
first year if there was no redemption.
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 audited
financial statements included in the Fund's annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of the Fund is contained in its annual report to
shareholders which may be obtained without charge by contacting the Principal
Underwriter.
- -------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994*
------- ------- -------
NET ASSET VALUE, beginning of year $ 9.310 $ 8.980 $10.000
------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.511 $ 0.517 $ 0.425
Net realized and unrealized gain
(loss) on investments 0.100 0.356 (0.961)
------- ------- -------
Total income (loss) from operations $ 0.611 $ 0.873 $(0.536)
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.511) $(0.517) $(0.425)
In excess of net investment income(4) -- (0.026) (0.059)
------- ------- -------
Total distributions $(0.511) $(0.543) $(0.484)
------- ------- -------
NET ASSET VALUE, end of year $ 9.410 $ 9.310 $ 8.980
======= ======= =======
TOTAL RETURN(1) 6.73% 10.10% (5.60%)
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period (000 omitted) $67,376 $41,298 $33,982
Ratio of net expenses to average daily
net assets(2)(3) 1.74% 1.79% 1.60%+
Ratio of net expenses to average daily
net assets after custodian fee
reduction (2)(3) 1.73% 1.78% --
Ratio of net investment income to
average daily net assets 5.42% 5.71% 5.39%+
**For the period from the start of business, December 3, 1993, to September 30,
1994, the operating expenses of the Fund reflect an allocation of expenses to
the Administrator. Had such action not been taken, net investment income per
share and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.405
=======
RATIOS (As a percentage of average daily net assets):
Expenses(2)(3) 1.86%+
Net investment income 5.13%+
+Annualized.
(1)Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. 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)The expense ratios for the years ended September 30, 1996 and 1995 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 ratio for the period ended September 30, 1994
has not been adjusted to reflect this change.
(4)The Fund has followed the Statement of Position (SOP) 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The SOP requires
that differences in the recognition or classification of income between the
financial statements and tax earnings and profits that result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
*For the period from the start of business, December 3, 1993, to September 30,
1994.
<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
DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF STATES, TERRITORIES AND POSSESSIONS
OF THE UNITED STATES, AND THE DISTRICT OF COLUMBIA AND THEIR POLITICAL
SUBDIVISIONS, AGENCIES OR INSTRUMENTALITIES, 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 and the availability of monies
for such payments. Municipal notes include bond anticipation, tax anticipation
and revenue anticipation notes, which 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. Since municipal obligations are not voting
securities, there is no limit on the percentage of a single issuer's obligations
which the Portfolio may own so long as it does not invest more than 5% of its
total assets in the securities of that issuer. Consequently, the Portfolio may
invest in a greater percentage of the outstanding securities of a single issuer
than would an investment company which invests in voting securities. There is no
diversification requirement with respect to the remaining 25% of the Portfolio's
total assets, so that all of such assets may be invested in the securities of
any one issuer. To the extent that the Portfolio is less diversified than that
of other investment companies, it may be subject to an increased risk of loss if
the issuer is unable to make interest or principal payments or if the market
value of such securities declines.
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 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 in the lowest investment
grade category (Baa or BBB), lower categories or may be 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. The lowest
investment grade, lower rated and comparable unrated municipal obligations in
which the Portfolio may invest will have speculative characteristics in varying
degrees. While such obligations may have some quality and protective
characteristics, these characteristics can be expected to be offset or
outweighed by uncertainties or major risk exposures to adverse conditions. Lower
rated and comparable unrated municipal obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
(credit risk) and may also be subject to greater price volatility due to such
factors as interest rate sensitivity, market perception of the creditworthiness
of the issuer and general market liquidity (market risk). Lower rated or unrated
municipal obligations are also more likely to react to real or perceived
developments affecting market and credit risk than are more highly rated
obligations, which react primarily to movements in the general level of interest
rates. The Investment Adviser seeks to minimize the risks of investing in below
investment grade securities through professional investment analysis and
attention to current developments in interest rates and economic conditions.
When 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.
The Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by the Portfolio which
are rated below investment grade but which, subsequent to the assignment of such
rating, are backed by escrow accounts containing U.S. Government obligations may
be determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. The Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will not exceed 35%
of net assets. In the event the rating of an obligation held by 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.
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 SERIES OF EATON VANCE MUNICIPALS TRUST, A BUSINESS TRUST
ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST DATED
SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL FUND -- AN OPEN-END
MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are responsible for the
overall management and supervision of its affairs. The Trust may issue an
unlimited number of shares of beneficial interest (no par value per share) in
one or more series (such as the Fund). Each share represents an equal
proportionate beneficial interest in the Fund. When issued and outstanding, the
shares are fully paid and nonassessable by the Trust and redeemable as described
under "How to Redeem Fund 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 have no
preemptive or conversion rights and are freely transferable. In the event of the
liquidation of the Fund, shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Trust, intends to comply with all applicable federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio itself
is unable to meet its obligations. Accordingly, the Trustees of the Trust
believe that neither the Fund nor its shareholders will be adversely affected by
reason of the Fund investing in the Portfolio.
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 substantial growth in the assets of the Portfolio,
affords 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.
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. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. Information regarding other pooled investment entities or funds which
invest in 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 of the Trust 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:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- ---------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
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%
</TABLE>
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
OVER $17 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 has been a Vice President of Eaton Vance since 1991 and of
BMR since 1992, and an employee of Eaton Vance since 1987.
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 Fund, 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
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 PLAN
- --------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. Rule 12b-1 permits a
mutual fund, such as the Fund, to finance distribution activities and bear
expenses associated with the distribution of its shares provided that any
payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. The Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plan. The Plan provides that the Fund, subject to the NASD Rule, will pay sales
commissions and distribution fees to the Principal Underwriter only after and as
a result of the sale of shares of the Fund. On each sale of Fund shares
(excluding reinvestment of distributions) the Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 6.25% 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. On sales of shares made prior
to January 30, 1995, the Principal Underwriter currently pays monthly sales
commissions to a financial service firm (an "Authorized Firm") in amounts
anticipated to be equivalent to .75%, annualized, of the assets maintained in
the Fund by the customers of such Firm. On sales of shares made on January 30,
1995 and thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .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. The Plan is designed to permit an
investor to purchase Fund shares through an Authorized Firm without incurring an
initial sales charge and at the same time permit the Principal Underwriter to
compensate Authorized Firms in connection with the sale of Fund shares.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE FUND'S
AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, the Fund accrues
daily an amount at the rate of 1/365 of .75% of its net assets, and pays such
accrued amounts monthly to the Principal Underwriter. The Plan requires such
accruals to be automatically discontinued during any period in which there are
no outstanding Uncovered Distribution Charges under the Plan. Uncovered
Distribution Charges are calculated daily and, briefly, are equivalent to all
unpaid sales commissions and distribution fees to which the Principal
Underwriter is entitled under the Plan less all contingent deferred sales
charges theretofore paid to the Principal Underwriter. The Eaton Vance
organization may be considered to have realized a profit under the Plan if at
any point in time the aggregate amounts of all payments received by the
Principal Underwriter pursuant to the Plan, including any contingent deferred
sales charges, have exceeded the total expenses theretofore incurred by such
organization in distributing shares of the Fund. Total expenses for this purpose
will include an allocable portion of the overhead costs of such organization and
its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of the Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under the Plan over an extended period would result in the
incurrence and payment of increased distribution fees under the Plan. During the
fiscal year ended September 30, 1996, the Fund paid sales commissions under the
Plan to the Principal Underwriter equivalent to 0.75% of the Fund's average
daily net assets for such year. As at September 30, 1996, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $5,994,000 (which amount was equivalent to 8.9%
of the Fund's net assets on such day).
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Trust have initially implemented this provision of the Plan by
authorizing the Fund to make monthly service fee payments to the Principal
Underwriter in amounts not expected to exceed .25% of the Fund's average daily
net assets for any fiscal year. The Fund accrues the service fee daily at the
rate of 1/365 of .25% of the Fund's net assets. On sales of shares made prior to
January 30, 1995, the Principal Underwriter currently makes monthly service fee
payments to an Authorized Firm in amounts anticipated to be equivalent to .25%,
annualized, of the assets maintained in the Fund by the customers of such Firm.
On sales of shares made on January 30, 1995 and thereafter, the Principal
Underwriter currently expects to pay to an Authorized Firm (a) a service fee
(except on exchange transactions and reinvestments) at the time of sale equal to
.25% of the purchase price of the shares sold by such Firm, and (b) monthly
service fees approximately equivalent to 1/12 of .25% 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 Fund shares, the Principal Underwriter will
retain the service fee as reimbursement for the service fee payment made to the
Authorized Firm at the time of sale. As permitted by the NASD Rule, all service
fee payments are made for personal services and/or the maintenance of
shareholder accounts. Service fees are separate and distinct from the sales
commissions and distribution fees payable by the Fund to the Principal
Underwriter, and as such are not subject to automatic discontinuance when there
are no outstanding Uncovered Distribution Charges of the Principal Underwriter.
For the fiscal year ended September 30, 1996, the Fund paid or accrued service
fees under the Plan equivalent to 0.25% (annualized) of the Fund's 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 Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant factors,
including without limitation the size of the Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. The Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, the Fund is not contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter.
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) in the
manner authorized by the Trustees of the Portfolio. Net asset value is computed
by subtracting the liabilities of the Portfolio from the value of its total
assets. Municipal obligations will normally be valued on the basis of valuations
furnished by a pricing service. For further information regarding the valuation
of the Portfolio's assets, see "Determination of Net Asset Value" in the
Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. An Authorized Firm may charge its customers a fee in connection with
transactions executed by that Firm. The Fund may suspend the offering of shares
at any time and may refuse an order for the purchase of shares.
An initial investment in the Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Fund'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."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold on the day of their receipt or as soon thereafter as
possible. The number of Fund shares to be issued in exchange for securities will
be the aggregate proceeds from the sale of such securities, divided by the
applicable net asset value per Fund share on the day such proceeds are received.
Eaton Vance will use reasonable efforts to obtain the then current price for
such securities but does not guarantee the best available price. Eaton Vance
will absorb any transaction costs, such as commissions, on the sale of the
securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Classic National Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic National Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities. Eaton Vance
reserves the right to reject any securities. Exchanging securities for Fund
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, state and local tax
consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per Fund share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. Good order means that all
relevant documents must be endorsed by the record owner(s) exactly as the shares
are registered and the signature(s) must be guaranteed by a member of either the
Securities Transfer Association's STAMP program or the New York Stock Exchange's
Medallion Signature Program, or certain banks, savings and loan institutions,
credit unions, securities dealers, securities exchanges, clearing agencies and
registered securities associations as required by a regulation of the Securities
and Exchange Commission (the "Commission") and acceptable to the Transfer Agent.
In addition, in some cases, good order may require the furnishing of additional
documents such as where shares are registered in the name of a corporation,
partnership or fiduciary.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: To sell shares at their net asset value
through an Authorized Firm (a repurchase), a shareholder can place a repurchase
order with the Authorized Firm, which may charge a fee. The value of those
shares is based upon the net asset value calculated after the Principal
Underwriter, as the Fund'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 Fund will make payment in cash for the net asset value of
the shares as of the date determined above, reduced by the amount of any
applicable contingent deferred sales charges (described below) and any federal
income tax required to be withheld. Although 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 by the Fund
if the cause of the low account balance was a reduction in the net asset value
of Fund shares. No contingent deferred sales charge will be imposed with respect
to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first year of their
purchase (except shares acquired through the reinvestment of distributions)
generally will be subject to a contingent deferred sales charge ("CDSC") equal
to 1% of the net asset value of the redeemed shares. This CDSC is imposed on any
redemption the amount of which exceeds the aggregate value at the time of
redemption of (a) all shares in the account purchased more than one year prior
to the redemption, (b) all shares in the account acquired through reinvestment
of distributions, and (c) the increase, if any, of value in the other shares in
the account (namely those purchased within the year preceding the redemption)
over the purchase price of such shares. Redemptions are processed in a manner to
maximize the amount of redemption proceeds which will not be subject to a CDSC.
That is, each redemption will be assumed to have been made first from the exempt
amounts referred to in clauses (a), (b) and (c) above, and second through
liquidation of those shares in the account referred to in clause (c) on a
first-in-first-out basis. As described under "Distribution Plan," the CDSC will
be paid to the Principal Underwriter or the Fund.
In calculating the CDSC upon the redemption of Fund shares acquired in an
exchange for shares of a fund currently listed under "The Eaton Vance Exchange
Privilege," the purchase of Fund shares acquired in the exchange is deemed to
have occurred at the time of the original purchase of exchanged shares.
No CDSC will be imposed on Fund shares which have been sold to Eaton Vance or
its affiliates, or to their respective employees or clients. The CDSC will also
be waived for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton
Vance Shareholder Services"), (2) as part of a distribution from a retirement
plan qualified under Section 401, 403(b) or 457 of the Internal Revenue Code, as
amended (the "Code") or (3) as part of a minimum required 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.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE TRANSFER AGENT
WILL SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS.
This account is a complete record of all transactions between the investor and
the Fund which at all times shows the balance of shares owned. The Fund will not
issue share certificates except upon request.
At least quarterly, 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 the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Fund's
dividend disbursing agent, First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123. The currently effective option will appear on each
account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal Service
as not deliverable or which remain uncashed for six months or more will be
reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Classic Group of Funds or Eaton Vance Money Market
Fund, which are distributed subject to a CDSC (or equivalent early withdrawal
charge), on the basis of the net asset value per share of each fund at the time
of the exchange, provided that such exchange offers are available only in states
where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund 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 Fund Shares").
Consult the Transfer Agent for additional information concerning the exchange
privilege. Applications and prospectuses of the other funds are available from
Authorized Firms or the Principal Underwriter. The prospectus for each fund
describes its investment objectives and policies, and shareholders should obtain
a prospectus and consider these objectives and policies carefully before
requesting an exchange.
No CDSC is imposed on exchanges. For purposes of calculating the CDSC upon the
redemption of shares acquired in an exchange, the purchase of shares acquired in
one or more exchanges is deemed to have occurred at the time of the original
purchase of the exchanged shares.
Shares of the other funds in the Eaton Vance Classic Group of Funds (and shares
of Eaton Vance Money Market Fund acquired as a result of an exchange from an EV
Classic fund) may be exchanged for Fund shares on the basis of the net asset
value per share of each fund at the time of exchange, but subject to any
restrictions or qualifications set forth in a current prospectus of any such
fund.
Telephone exchanges are accepted by the Transfer Agent provided the investor has
not disclaimed in writing the use of the privilege. To effect such exchanges,
call the Transfer Agent at 800-262-1122, Monday through Friday, 9:00 a.m. to
4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange must be
registered in the same name(s) and with the same address as the shares being
exchanged. Neither the 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.
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 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 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 EV
Classic National Municipals Fund may be mailed directly to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 at
any time -- whether or not dividends are reinvested. The name of the
shareholder, the Fund and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the plan is established. Such amount will
not be subject to a CDSC. See "How to Redeem Fund Shares." A minimum deposit of
$5,000 in shares is required.
REINVESTMENT PRIVILEGE: A shareholder who has 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 shares of the 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 Fund (or by the Fund's Transfer Agent). To the extent that
any shares of the Fund are sold at a loss and the proceeds are reinvested in
shares of the Fund (or other shares of the Fund are acquired) within the period
beginning 30 days before and ending 30 days after the date of 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) WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid monthly 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 additional shares of the Fund, will
constitute tax-exempt income to shareholders, except for the proportionate part
of the distribution that may be considered taxable income if the Fund has
taxable income during the calendar year. Shareholders reinvesting the monthly
distribution should treat the amount of the entire distribution as the tax cost
basis of the additional shares acquired by reason of such reinvestment. Daily
distribution crediting will commence on the business day after collected funds
for the purchase of Fund 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.
The Fund intends to qualify as a regulated investment company under the Code and
to satisfy all requirements relating to the sources of its income, the
distribution of its income, and the diversification of its assets. In satisfying
these requirements, the Fund will treat itself as owning its proportionate share
of each of the Portfolio's assets and as entitled to the income of the Portfolio
properly 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 its net
investment income and net realized capital gains in accordance with the timing
requirements imposed by the Code. As a partnership under the Code, the Portfolio
also does not pay federal income or excise taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the 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 included therein 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.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Fund is not deductible. Further, entities or persons who are
"substantial users" (or persons related to "substantial users") of facilities
financed by industrial development or private activity bonds should consult
their tax advisers before purchasing shares of the Fund. "Substantial user" is
defined in applicable Treasury regulations to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of industrial development bonds and would likely be interpreted to
include private activity bonds issued to finance similar facilities.
Shareholders should consult with their tax advisers concerning the applicability
of state, local and other taxes to an investment in the Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by 1 minus the tax rate. The
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods, assuming reinvestment of all
distributions. The average annual total return calculation assumes a complete
redemption of the investment and the deduction of any applicable CDSC at the end
of the period. The Fund may publish annual and cumulative total return figures
from time to time. The Fund may quote total return for the period prior to
commencement of operations which would reflect the Portfolio's total return (or
that of its predecessor) adjusted to reflect any applicable Fund sales charge.
The Fund may also publish total return figures which do not take into account
any CDSC which may be imposed upon redemptions at the end of the specified
period. Any performance figure which does not take into account the CDSC would
be reduced to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's yield or total return for any
prior period should not be considered a representation of what an investment may
earn or what the Fund's yield or total return may be in any future period.
The following chart reflects the annual investment returns of the Fund for one
year periods ending September 30 and does not take into account any sales charge
which investors may bear. The total return for the period prior to the Fund's
commencement of operations on December 3, 1993 reflects the total return of the
Portfolio (or that of its predecessor) which had different operating expenses.
5 YEAR AVERAGE ANNUAL TOTAL RETURN -- 7.27%
10 YEAR AVERAGE ANNUAL TOTAL RETURN -- 6.81%
1987 (1.64%)
1988 11.94%
1989 7.96%
1990 2.83%
1991 11.33%
1992 11.67%
1993 14.90%
1994* (5.80%)
1995 10.10%
1996 6.73%
*If a portion of the Fund's expenses had not been allocated to the
Administrator, the Fund would have had lower returns.
<PAGE>
APPENDIX
NATIONAL MUNICIPALS PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
RATINGS OF RATINGS OF
MUNICIPAL BONDS MUNICIPAL BONDS
BY MOODY'S BY S&P
PERCENT OF PERCENT OF
NET ASSETS NET ASSETS
---------- ----------
<S> <C> <C> <C>
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 ...................................... 5.26% 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%
</TABLE>
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's 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
EV CLASSIC NATIONAL
MUNICIPALS FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
FEBRUARY 1, 1997
EV CLASSIC
NATIONAL MUNICIPALS FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
C-HMP
<PAGE>
EV MARATHON
NATIONAL MUNICIPALS FUND
- --------------------------------------------------------------------------------
EV MARATHON 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 February 1, 1997 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's principal underwriter,
Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street,
Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's investment adviser
is Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Fund. The offices of the Investment
Adviser and the Administrator are located at 24 Federal Street, Boston, MA
02110.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares ......................... 12
The Fund's Financial Highlights ....................... 3 Reports to Shareholders ........................... 14
The Fund's Investment Objective ....................... 4 The Lifetime Investing Account/Distribution
Investment Policies and Risks ......................... 4 Options ......................................... 14
Organization of the Fund and the Portfolio ............ 7 The Eaton Vance Exchange Privilege ................ 15
Management of the Fund and the Portfolio .............. 8 Eaton Vance Shareholder Services .................. 16
Distribution Plan ..................................... 9 Distributions and Taxes ........................... 16
Valuing Fund Shares ................................... 11 Performance Information ........................... 17
How to Buy Fund Shares ................................ 11 Appendix .......................................... 19
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on Redemption
during the First Seven Years (as a percentage of redemption proceeds
exclusive of all reinvestments and capital appreciation in the account) 5.00%-0%
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- ----------------------------------------------------------------------------------------------------------------
Investment Adviser Fee 0.44%
Rule 12b-1 Distribution (and Service) Fees 0.96
Other Expenses 0.15
----
Total Operating Expenses 1.55%
====
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Aninvestor would pay the following contingent deferred sales charge and
expenses on a $1,000 investment, assuming (a) 5%
annual return and (b) redemption at the end of each period: $66 $89 $104 $185
An investor would pay the following expenses on the same
investment, assuming (a) 5% annual return and (b) no
redemptions: $16 $49 $ 84 $185
</TABLE>
NOTES:
The table and Example summarize the aggregate expenses of the Fund and the
Portfolio and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in the Fund. Information
for the Fund is based on its expenses for the most recent fiscal year.
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," "Management of the Fund and the Portfolio"
and "How to Redeem Fund Shares." A long-term shareholder in the Fund may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by a rule of the National Association of Securities Dealers, Inc. See
"Distribution Plan."
No contingent deferred sales charge is imposed on (a) shares purchased more than
six years prior to redemption, (b) shares acquired through the reinvestment of
distributions or (c) any appreciation in value of other shares in the account
(see "How to Redeem Fund Shares"), and no such charge is imposed on exchanges of
Fund shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege."
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."
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of the Fund is contained in its annual report to
shareholders which may be obtained without charge by contacting the Principal
Underwriter.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993(1) 1992 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year $ 9.800 $ 9.410 $10.570 $ 9.820 $ 9.430 $ 9.120 $ 9.570 $ 9.570 $ 9.260 $10.180
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income $ 0.557 $ 0.570 $ 0.556 $ 0.553 $ 0.568 $ 0.586 $ 0.613 $ 0.642 $ 0.659 $ 0.684
Net realized and
unrealized
gain (loss) on
investments 0.096 0.395 (1.043) 0.856 0.490 0.413 (0.348) 0.095 0.404 (0.819)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total income
(loss) from
operations $ 0.653 $ 0.965 $(0.487) $ 1.409 $ 1.058 $ 0.999 $ 0.265 $ 0.737 $ 1.063 $(0.135)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net
investment
income $(0.553) $(0.570) $(0.556) $(0.553) $(0.568) $(0.586) $(0.613) $(0.643) $(0.658) $(0.684)
In excess of net
investment
income(1) -- (0.005) (0.077) (0.106) (0.100) (0.103) (0.102) (0.094) (0.095) (0.101)
In excess of net
realized gain
on investment
transactions(1) -- -- (0.040) -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions $(0.553) $(0.575) $(0.673) $(0.659) $(0.668) $(0.689) $(0.715) $(0.737) $(0.753) $(0.785)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
end of year $ 9.900 $ 9.800 $ 9.410 $10.570 $ 9.820 $ 9.430 $ 9.120 $ 9.570 $ 9.570 $ 9.260
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(2) 6.84% 10.60% (4.82)% 14.90% 11.67% 11.33% 2.83% 7.96% 11.94% (1.64)%
RATIOS/SUPPLEMENTAL DATA:
Net assets,
end of year
(000 omitted) $2,101,632 $2,191,240 $2,171,901 $2,090,482 $1,491,904 $1,178,454 $1,063,131 $988,267 $849,875 $860,547
Ratio of net
expenses to
average net
assets(3)(4) 1.55% 1.53% 1.51% 1.67% 1.79% 1.86% 1.90% 1.91% 1.93% 1.78%+
Ratio of net
expenses to
average net
assets after
custodian fee
reduction(3)(4) 1.54% 1.52% -- -- -- -- -- -- -- --
Ratio of net
investment
income to
average net
assets 5.62% 6.00% 5.54% 5.43% 5.88% 6.31% 6.50% 6.66% 6.98% 6.78%+
PORTFOLIO TURNOVER(5) -- -- -- 10% 54% 54% 15% 10% 19% 15%
<FN>
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 years ended September 30, 1996 and 1995 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 each of the periods ended on or
before September 30, 1994 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.
</FN>
</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
DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF STATES, TERRITORIES AND POSSESSIONS
OF THE UNITED STATES, AND THE DISTRICT OF COLUMBIA AND THEIR POLITICAL
SUBDIVISIONS, AGENCIES OR INSTRUMENTALITIES, 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 and the availability of monies
for such payments. Municipal notes include bond anticipation, tax anticipation
and revenue anticipation notes, which 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. Since municipal obligations are not voting
securities, there is no limit on the percentage of a single issuer's obligations
which the Portfolio may own so long as it does not invest more than 5% of its
total assets in the securities of that issuer. Consequently, the Portfolio may
invest in a greater percentage of the outstanding securities of a single issuer
than would an investment company which invests in voting securities. There is no
diversification requirement with respect to the remaining 25% of the Portfolio's
total assets, so that all of such assets may be invested in the securities of
any one issuer. To the extent that the Portfolio is less diversified than that
of other investment companies, it may be subject to an increased risk of loss if
the issuer is unable to make interest or principal payments or if the market
value of such securities declines.
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 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 in the lowest investment
grade category (Baa or BBB), lower categories or may be 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. The lowest
investment grade, lower rated and comparable unrated municipal obligations in
which the Portfolio may invest will have speculative characteristics in varying
degrees. While such obligations may have some quality and protective
characteristics, these characteristics can be expected to be offset or
outweighed by uncertainties or major risk exposures to adverse conditions. Lower
rated and comparable unrated municipal obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
(credit risk) and may also be subject to greater price volatility due to such
factors as interest rate sensitivity, market perception of the creditworthiness
of the issuer and general market liquidity (market risk). Lower rated or unrated
municipal obligations are also more likely to react to real or perceived
developments affecting market and credit risk than are more highly rated
obligations, which react primarily to movements in the general level of interest
rates. The Investment Adviser seeks to minimize the risks of investing in below
investment grade securities through professional investment analysis and
attention to current developments in interest rates and economic conditions.
When 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.
The Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by the Portfolio which
are rated below investment grade but which, subsequent to the assignment of such
rating, are backed by escrow accounts containing U.S. Government obligations may
be determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. The Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will not exceed 35%
of net assets. In the event the rating of an obligation held by 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.
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 SERIES OF EATON VANCE MUNICIPALS TRUST, A BUSINESS TRUST
ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST DATED
SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL FUND -- AN OPEN-END
MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are responsible for the
overall management and supervision of its affairs. The Trust may issue an
unlimited number of shares of beneficial interest (no par value per share) in
one or more series (such as the Fund). Each share represents an equal
proportionate beneficial interest in the Fund. When issued and outstanding, the
shares are fully paid and nonassessable by the Trust and redeemable as described
under "How to Redeem Fund 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 have no
preemptive or conversion rights and are freely transferable. In the event of the
liquidation of the Fund, shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Trust, intends to comply with all applicable federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio itself
is unable to meet its obligations. Accordingly, the Trustees of the Trust
believe that neither the Fund nor its shareholders will be adversely affected by
reason of the Fund investing in the Portfolio.
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 substantial growth in the assets of the Portfolio,
affords 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.
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. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. Information regarding other pooled investment entities or funds which
invest in 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 of the Trust 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:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- ------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
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%
</TABLE>
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
OVER $17 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 has been a Vice President of Eaton Vance since 1991 and of
BMR since 1992, and an employee of Eaton Vance since 1987.
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 Fund, 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
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 PLAN
- --------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. Rule 12b-1 permits a
mutual fund, such as the Fund, to finance distribution activities and bear
expenses associated with the distribution of its shares provided that any
payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. The Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plan. The Plan provides that the Fund, subject to the NASD Rule, will pay sales
commissions and distribution fees to the Principal Underwriter only after and as
a result of the sale of shares of the Fund. On each sale of Fund shares
(excluding reinvestment of distributions) 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 Principal Underwriter
currently expects to pay sales commissions (except on exchange transactions and
reinvestments) to a financial services firm (an "Authorized Firm") at the time
of sale equal to 4% of the purchase price of the shares sold by such Firm. The
Principal Underwriter will use its own funds (which may be borrowed from banks)
to pay such commissions. Because the payment of the sales commissions and
distribution fees to the Principal Underwriter is subject to the NASD Rule
described below, it will take the Principal Underwriter a number of years to
recoup the sales commissions paid by it to Authorized Firms from the payments
received by it from the Fund pursuant to the Plan.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO AN AMOUNT NOT EXCEEDING .75% OF THE FUND'S
AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. Under its Plan, the Fund accrues
daily an amount at the rate of 1/365 of .75% of its net assets, and pays such
accrued amounts monthly to the Principal Underwriter. The Plan requires such
accruals to be automatically discontinued during any period in which there are
no outstanding Uncovered Distribution Charges under the Plan. Uncovered
Distribution Charges are calculated daily and, briefly, are equivalent to all
unpaid sales commissions and distribution fees to which the Principal
Underwriter is entitled under the Plan less all contingent deferred sales
charges theretofore paid to the Principal Underwriter. The Eaton Vance
organization may be considered to have realized a profit under the Plan if at
any point in time the aggregate amounts of all payments received by the
Principal Underwriter pursuant to the Plan, including any contingent deferred
sales charges, have exceeded the total expenses theretofore incurred by such
organization in distributing shares of the Fund. Total expenses for this purpose
will include an allocable portion of the overhead costs of such organization and
its branch offices.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid during any fiscal year, a high level of sales of Fund
shares during the initial years of the Fund's operations would cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the Principal Underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under the Plan over an extended period would result in the
incurrence and payment of increased distribution fees under the Plan. During the
fiscal year ended September 30, 1996, the Fund paid sales commissions under the
Plan to the Principal Underwriter equivalent to 0.75% of the Fund's average
daily net assets for such year. 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).
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Trust have initially implemented this provision of the Plan by
authorizing the Fund to make quarterly payments of service fees to the Principal
Underwriter and Authorized Firms in amounts not exceeding .25% of the Fund's
average daily net assets for each fiscal year based on the value of Fund shares
sold by such persons and remaining outstanding for at least twelve months. As
permitted by the NASD Rule, such payments are made for personal services and/or
the maintenance of shareholder accounts. Service fees are separate and distinct
from the sales commissions and distribution fees payable by the Fund to the
Principal Underwriter, and as such are not subject to automatic discontinuance
when there are no outstanding Uncovered Distribution Charges of the Principal
Underwriter. For the fiscal year ended September 30, 1996, the Fund made service
fee payments to Authorized Firms in an amount equivalent to 0.21% of the Fund's
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 Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant factors,
including without limitation the size of the Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. The Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, the Fund is not contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter.
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) in the
manner authorized by the Trustees of the Portfolio. Net asset value is computed
by subtracting the liabilities of the Portfolio from the value of its total
assets. Municipal obligations will normally be valued on the basis of valuations
furnished by a pricing service. For further information regarding the valuation
of the Portfolio's assets, see "Determination of Net Asset Value" in the
Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. An Authorized Firm may charge its customers a fee in connection with
transactions executed by that Firm. The Fund may suspend the offering of shares
at any time and may refuse an order for the purchase of shares.
An initial investment in the Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Fund'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."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold on the day of their receipt or as soon thereafter as
possible. The number of Fund shares to be issued in exchange for securities will
be the aggregate proceeds from the sale of such securities, divided by the
applicable net asset value per Fund share on the day such proceeds are received.
Eaton Vance will use reasonable efforts to obtain the then current market price
for such securities but does not guarantee the best available price. Eaton Vance
will absorb any transaction costs, such as commissions, on the sale of the
securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon National Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon National Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities. Eaton Vance
reserves the right to reject any securities. Exchanging securities for Fund
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, state and local tax
consequences of exchanging securities for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per Fund share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. Good order means that all
relevant documents must be endorsed by the record owner(s) exactly as the shares
are registered and the signature(s) must be guaranteed by a member of either the
Securities Transfer Association's STAMP program or the New York Stock Exchange's
Medallion Signature Program, or certain banks, savings and loan institutions,
credit unions, securities dealers, securities exchanges, clearing agencies and
registered securities associations as required by a regulation of the Securities
and Exchange Commission (the "Commission") and acceptable to the Transfer Agent.
In addition, in some cases, good order may require the furnishing of additional
documents such as where shares are registered in the name of a corporation,
partnership or fiduciary.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: To sell shares at their net asset value
through an Authorized Firm (a repurchase), a shareholder can place a repurchase
order with the Authorized Firm, which may charge a fee. The value of those
shares is based upon the net asset value calculated after the Principal
Underwriter, as the Fund'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 Fund will make payment in cash for the net asset value of
the shares as of the date determined above, reduced by the amount of any
applicable contingent deferred sales charges (described below) and any federal
income tax required to be withheld. Although 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 by the Fund
if the cause of the low account balance was a reduction in the net asset value
of Fund shares. No contingent deferred sales charge will be imposed with respect
to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares redeemed within the first six years of
their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales charge
("CDSC"). This CDSC is imposed on any redemption the amount of which exceeds the
aggregate value at the time of redemption of (a) all shares in the account
purchased more than six years prior to the redemption, (b) all shares in the
account acquired through reinvestment of monthly distributions and capital gains
distributions, and (c) the increase, if any, in the value of all other shares in
the account (namely those purchased within the six years preceding the
redemption) over the purchase price of such shares. Redemptions are processed in
a manner to maximize the amount of redemption proceeds which will not be subject
to a CDSC. That is, each redemption will be assumed to have been made first from
the exempt amounts referred to in clauses (a), (b) and (c) above, and second
through liquidation of those shares in the account referred to in clause (c) on
a first-in-first-out basis. As described under "Distribution Plan", the CDSC
will be paid to the Principal Underwriter or the Fund. Any CDSC which is
required to be imposed on share redemptions will be made in accordance with the
following schedule:
YEAR OF REDEMPTION AFTER PURCHASE CDSC
- --------------------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
In calculating the CDSC upon the redemption of shares acquired in an exchange of
shares of a fund currently listed under "The Eaton Vance Exchange Privilege",
the CDSC schedule applicable to the shares at the time of purchase will apply
and the purchase of shares acquired in the exchange is deemed to have occurred
at the time of the original purchase of the exchanged shares.
No CDSC will be imposed on shares of the Fund which have been sold to Eaton
Vance or its affiliates, or to their respective employees or clients. The CDSC
will also be waived for shares redeemed (1) pursuant to a Withdrawal Plan (see
"Eaton Vance Shareholder Services"), (2) as part of a required distribution from
a tax-sheltered retirement plan or (3) following the death of all beneficial
owners of such shares, provided the redemption is requested within one year of
death (a death certificate and other applicable documents may be required). In
addition, shares acquired as a result of a merger or liquidation of another
Eaton Vance sponsored fund will have a CDSC imposed at the same rate as would
have been imposed in the prior fund.
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CDSC. ASSUME THAT AN
INVESTOR PURCHASES $10,000 OF THE FUND'S SHARES AND THAT 16 MONTHS LATER THE
VALUE OF THE ACCOUNT HAS GROWN THROUGH INVESTMENT PERFORMANCE AND REINVESTMENT
OF DIVIDENDS TO $12,000. THE INVESTOR THEN MAY REDEEM UP TO $2,000 OF SHARES
WITHOUT INCURRING A CDSC. IF THE INVESTOR SHOULD REDEEM $3,000 OF SHARES, A
CHARGE WOULD BE IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE WOULD BE 5%
BECAUSE THE REDEMPTION WAS MADE IN THE SECOND YEAR AFTER THE PURCHASE WAS MADE
AND THE CHARGE WOULD BE $50.
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.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE TRANSFER AGENT
WILL SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS.
This account is a complete record of all transactions between the investor and
the Fund which at all times shows the balance of shares owned. The Fund will not
issue share certificates except upon request.
At least quarterly, 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 the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Fund's
dividend disbursing agent, First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123. The currently effective option will appear on each
account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under the federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or capital
gains distribution checks which are returned by the United States Postal Service
as not deliverable or which remain uncashed for six months or more will be
reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (including Class I shares of
any EV Marathon Limited Maturity Fund) or Eaton Vance Money Market Fund which
are subject to a CDSC. Shares of the Fund may also be exchanged for shares of
Eaton Vance Prime Rate Reserves, which are subject to an early withdrawal
charge, and shares of a money market fund sponsored by an Authorized Firm and
approved by the Principal Underwriter (an "Authorized Firm fund"). Any such
exchange will be made on the basis of net asset value per share of each fund at
the time of the exchange. Exchange offers are available only in states where
shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund 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 Fund Shares").
Consult the Transfer Agent for additional information concerning the exchange
privilege. Applications and prospectuses of the other funds are available from
Authorized Firms or the Principal Underwriter. The prospectus for each fund
describes its investment objectives and policies, and shareholders should obtain
a prospectus and consider these objectives and policies carefully before
requesting an exchange.
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 the time during which
shares are held in an Authorized Firm fund will not be credited toward
completion of the CDSC period. For the CDSC schedule applicable to the Eaton
Vance Marathon Group of Funds (except EV Marathon Strategic Income Fund, Eaton
Vance Prime Rate Reserves and Class I shares of any EV Marathon Limited Maturity
Fund), see "How to Redeem Fund Shares". The CDSC or early withdrawal charge
schedule applicable to EV Marathon Strategic Income Fund, Eaton Vance Prime Rate
Reserves and Class I shares of any EV Marathon Limited Maturity Fund is 3%,
2.5%, 2% or 1% in the event of a redemption occurring in the first, second,
third or fourth year, respectively, after the original share purchase.
Shares of the funds listed above may be exchanged for Fund shares on the basis
of the net asset value per share of each fund at the time of the exchange, but
subject to any restrictions or qualifications set forth in the current
prospectus of any such fund.
Telephone exchanges are accepted by the Transfer Agent provided the investor has
not disclaimed in writing the use of the privilege. To effect such exchanges,
call the Transfer Agent at 800-262-1122, Monday through Friday, 9:00 a.m. to
4:00 p.m. (Eastern Standard Time). Shares acquired by telephone exchange must be
registered in the same name(s) and with the same address as the shares being
exchanged. Neither the 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.
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 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 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 EV
Marathon National Municipals Fund may be mailed directly to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123 at
any time -- whether or not dividends are reinvested. The name of the
shareholder, the Fund and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a CDSC. See "How to Redeem Fund Shares". A
minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A shareholder who has 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 shares of the 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 Fund (or by the Fund's Transfer Agent). To the extent that
any shares of the Fund are sold at a loss and the proceeds are reinvested in
shares of the Fund (or other shares of the Fund are acquired) within the period
beginning 30 days before and ending 30 days after the date of 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) WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid monthly on the fifteenth 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 additional shares of the Fund, will
constitute tax-exempt income to shareholders, except for the proportionate part
of the distribution that may be considered taxable income if the Fund has
taxable income during the calendar year. Shareholders reinvesting the monthly
distribution should treat the amount of the entire distribution as the tax cost
basis of the additional shares acquired by reason of such reinvestment. Daily
distribution crediting will commence on the business day after collected funds
for the purchase of Fund 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.
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
relating to the sources of its income, the distribution of its income, and the
diversification of its assets. In satisfying these requirements, the Fund will
treat itself as owning its proportionate share of each of the Portfolio's assets
and as entitled to the income of the Portfolio properly 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 its net
investment income and net realized capital gains in accordance with the timing
requirements imposed by the Code. As a partnership under the Code, the Portfolio
also does not pay federal income or excise taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the 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 included therein 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.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Fund is not deductible. Further, entities or persons who are
"substantial users" (or persons related to "substantial users") of facilities
financed by industrial development or private activity bonds should consult
their tax advisers before purchasing shares of the Fund. "Substantial user" is
defined in applicable Treasury regulations to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of industrial development bonds and would likely be interpreted to
include private activity bonds issued to finance similar facilities.
Shareholders should consult with their tax advisers concerning the applicability
of state, local and other taxes to an investment in the Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by 1 minus the tax rate. The
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods, assuming reinvestment of all
distributions. The average annual total return calculation assumes a complete
redemption of the investment and the deduction of any applicable CDSC at the end
of the period. The Fund may publish annual and cumulative total return figures
from time to time.
The Fund may also publish total return figures which do not take into account
any CDSC which may be imposed upon redemptions at the end of the specified
period. Any performance figure which does not take into account the CDSC would
be reduced to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's yield or total return for any
prior period should not be considered a representation of what an investment may
earn or what the Fund's yield or total return may be in any future period.
<PAGE>
The following chart reflects the annual investment returns of the Fund for one
year periods ending September 30 and does not take into account any sales charge
which investors may bear.
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
<TABLE>
<CAPTION>
RATINGS OF RATINGS OF
MUNICIPAL BONDS MUNICIPAL BONDS
BY MOODY'S BY S&P
PERCENT OF PERCENT OF
NET ASSETS NET ASSETS
---------- ----------
<S> <C> <C> <C>
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%
</TABLE>
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's 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
EV MARATHON
NATIONAL MUNICIPALS
FUND
- --------------------------------------------------------------------------------
PROSPECTUS
FEBRUARY 1, 1997
EV MARATHON 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, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-HMP
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
EV TRADITIONAL
NATIONAL MUNICIPALS FUND
- --------------------------------------------------------------------------------
EV TRADITIONAL 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 February 1, 1997 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's principal underwriter,
Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street,
Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's investment adviser
is Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Fund. The offices of the Investment
Adviser and the Administrator are located at 24 Federal Street, Boston, MA
02110.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Shareholder and Fund Expenses ......................... 2 How to Redeem Fund Shares ......................... 12
The Fund's Financial Highlights ....................... 3 Reports to Shareholders ........................... 13
The Fund's Investment Objective ....................... 4 The Lifetime Investing Account/
Investment Policies and Risks ......................... 4 Distribution Options ............................ 13
Organization of the Fund and the Portfolio ............ 7 The Eaton Vance Exchange Privilege ................ 14
Management of the Fund and the Portfolio .............. 8 Eaton Vance Shareholder Services .................. 15
Service Plan .......................................... 9 Distributions and Taxes ........................... 16
Valuing Fund Shares ................................... 10 Performance Information ........................... 17
How to Buy Fund Shares ................................ 10 Appendix .......................................... 19
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS DATED FEBRUARY 1, 1997
<PAGE>
SHAREHOLDER AND FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
<S> <C>
(as a percentage of offering price) 3.75%
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fee 0.44%
Other Expenses (including Service Plan Fees) 0.42
----
Total Operating Expenses 0.86%
====
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses and maximum
initial sales charge on a $1,000 investment, assuming (a) 5%
annual return and (b) redemption at the end of each
period: $46 $64 $83 $140
</TABLE>
NOTES:
The table and Example summarize the aggregate expenses of the Portfolio and 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 the
Fund is based on its expenses for the most recent fiscal year.
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," "Management of the Fund and the Portfolio"
and "Service Plan."
No sales charge is payable at the time of purchase on investments of $1 million
or more. However, a contingent deferred sales charge of 0.50% will be imposed on
such investments in the event of certain redemptions within 12 months of
purchase. See "How to Buy Fund Shares" and "How to Redeem Fund Shares".
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."
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of the Fund is contained in its annual report to
shareholders which may be obtained without charge by contacting the Principal
Underwriter.
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------
1996 1995 1994*
------- ------- -------
NET ASSET VALUE, beginning of year $10.470 $10.000 $10.000
------- ------- -------
INCOME FROM OPERATIONS:
Net investment income $ 0.668 $ 0.691 $ 0.334
Net realized and unrealized gain on
investments 0.108 0.471 0.002++
------- ------- -------
Total income from operations $ 0.776 $ 1.162 $ 0.336
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.666) $(0.691) $(0.334)
In excess of net investment income(4) -- (0.001) (0.002)
------- ------- -------
Total distributions $(0.666) $(0.692) $(0.336)
------- ------- -------
NET ASSET VALUE, end of year $10.580 $10.470 $10.000
======= ======= =======
TOTAL RETURN(2) 7.59% 12.05% 3.34%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period (000 omitted) $35,111 $26,524 $ 4,281
Ratio of net expenses to average daily
net assets(1)(3) 0.86% 0.67% 0.43%+
Ratio of net expenses to average daily
net assets after custodian fee
reduction(1)(3) 0.85% 0.66% --
Ratio of net investment income to
average daily net assets 6.28% 6.60% 5.97%+
**For the period from the start of business, April 5, 1994, to September 30,
1994, and for the year ended September 30, 1995, the operating expenses of
the Fund reflect an allocation of expenses to the Administrator. Had such
action not been taken, net investment income per share and the ratios would
have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.646 $ 0.255
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses (1)(3) 1.10% 1.84%+
Ratio of expenses to average net assets
after custodian fee reduction (1)(3) 1.09% --
Net investment income 6.17% 4.56%+
+Annualized.
++The per share amount is not in accord with the net realized and unrealized
gains and losses for the period because of the timing of sales of Fund shares
and the amount of per share realized and unrealized gains and losses at such
time.
(1)Includes the Fund's share of the Portfolio's allocated expenses.
(2)Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period
reported. Distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Total return is computed on a non-annualized
basis.
(3)The expense ratios for the years ended September 30, 1996 and 1995 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 ratio for the period ended September 30, 1994
has not been adjusted to reflect this change.
(4)The Fund has followed the Statement of Position (SOP) 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The SOP requires
that differences in the recognition or classification of income between the
financial statements and tax earnings and profits that result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains.
*For the period from the start of business, April 5, 1994, to September 30,
1994.
<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
DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF STATES, TERRITORIES AND POSSESSIONS
OF THE UNITED STATES, AND THE DISTRICT OF COLUMBIA AND THEIR POLITICAL
SUBDIVISIONS, AGENCIES OR INSTRUMENTALITIES, 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, and 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 and the availability of monies
for such payments. Municipal notes include bond anticipation, tax anticipation
and revenue anticipation notes, which 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. Since municipal obligations are not voting
securities, there is no limit on the percentage of a single issuer's obligations
which the Portfolio may own so long as it does not invest more than 5% of its
total assets in the securities of that issuer. Consequently, the Portfolio may
invest in a greater percentage of the outstanding securities of a single issuer
than would an investment company which invests in voting securities. There is no
diversification requirement with respect to the remaining 25% of the Portfolio's
total assets, so that all of such assets may be invested in the securities of
any one issuer. To the extent that the Portfolio is less diversified than that
of other investment companies, it may be subject to an increased risk of loss if
the issuer is unable to make interest or principal payments or if the market
value of such securities declines.
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 varous 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 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 in the lowest investment
grade category (Baa or BBB), lower categories or may be 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. The lowest
investment grade, lower rated and comparable unrated municipal obligations in
which the Portfolio may invest will have speculative characteristics in varying
degrees. While such obligations may have some quality and protective
characteristics, these characteristics can be expected to be offset or
outweighed by uncertainties or major risk exposures to adverse conditions. Lower
rated and comparable unrated municipal obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
(credit risk) and may also be subject to greater price volatility due to such
factors as interest rate sensitivity, market perception of the creditworthiness
of the issuer and general market liquidity (market risk). Lower rated or unrated
municipal obligations are also more likely to react to real or perceived
developments affecting market and credit risk than are more highly rated
obligations, which react primarily to movements in the general level of interest
rates. The Investment Adviser seeks to minimize the risks of investing in below
investment grade securities through professional investment analysis and
attention to current developments in interest rates and economic conditions.
When 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.
The Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by the Portfolio which
are rated below investment grade but which, subsequent to the assignment of such
rating, are backed by escrow accounts containing U.S. Government obligations may
be determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. The Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will not exceed 35%
of net assets. In the event the rating of an obligation held by 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.
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 SERIES OF EATON VANCE MUNICIPALS TRUST (THE "TRUST"), A BUSINESS
TRUST ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST
DATED SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL FUND -- AN OPEN-END
MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are responsible for the
overall management and supervision of its affairs. The Trust may issue an
unlimited number of shares of beneficial interest (no par value per share) in
one or more series (such as the Fund). Each share represents an equal
proportionate beneficial interest in the Fund. When issued and outstanding, the
shares are fully paid and nonassessable by the Trust and redeemable as described
under "How to Redeem Fund 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 have no
preemptive or conversion rights and are freely transferable. In the event of the
liquidation of the Fund, shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF NEW YORK
AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES. The
Portfolio, as well as the Trust, intends to comply with all applicable federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the Fund and other entities permitted to invest in the Portfolio (e.g., other
U.S. and foreign investment companies, and common and commingled trust funds)
will each be liable for all obligations of the Portfolio. However, the risk of
the Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio itself
is unable to meet its obligations. Accordingly, the Trustees of the Trust
believe that neither the Fund nor its shareholders will be adversely affected by
reason of the Fund investing in the Portfolio.
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 substantial growth in the assets of the Portfolio,
affords 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.
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. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. Information regarding other pooled investment entities or funds which
invest in 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 of the Trust 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:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
- ---------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
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%
</TABLE>
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
OVER $17 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 has been a Vice President of Eaton Vance since 1991 and of
BMR since 1992, and an employee of Eaton Vance since 1987.
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 Fund, 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
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.
SERVICE PLAN
- --------------------------------------------------------------------------------
In addition to advisory fees and other expenses, the Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the service fee
requirements of the revised sales charge rule of the National Association of
Securities Dealers, Inc. THE PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE
PAYMENTS FOR PERSONAL SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO
THE PRINCIPAL UNDERWRITER, FINANCIAL SERVICE FIRMS ("AUTHORIZED FIRMS") AND
OTHER PERSONS IN AMOUNTS NOT EXCEEDING .25% OF ITS AVERAGE DAILY NET ASSETS FOR
ANY FISCAL YEAR. The Trustees of the Trust have initially implemented the Plan
by authorizing the Fund to make service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .25% of that
portion of the Fund's average daily net assets for any fiscal year based on the
value of shares sold by such persons and remaining outstanding for at least
twelve months. For the fiscal year ended September 30, 1996, the Fund paid or
accrued service fees under the Plan equivalent to 0.07% of its average daily net
assets for such year. The Plan is further described in the Statement of
Additional Information.
VALUING FUND SHARES
- --------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
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 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) in the
manner authorized by the Trustees of the Portfolio. Net asset value is computed
by subtracting the liabilities of the Portfolio from the value of its total
assets. Municipal obligations will normally be valued on the basis of valuations
furnished by a pricing service. For further information regarding the valuation
of the Portfolio's assets, see "Determination of Net Asset Value" in the
Statement of Additional Information.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
- --------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the effective public offering price, which price is based on the effective
net asset value per share plus the applicable sales charge. The Fund receives
the net asset value, while the sales charge is divided between the Authorized
Firm and the Principal Underwriter. An Authorized Firm may charge its customers
a fee in connection with transactions executed by that Firm. The Fund may
suspend the offering of shares at any time and may refuse an order for the
purchase of shares.
The sales charge may vary depending on the size of the purchase and the number
of shares of Eaton Vance funds the investor may already own, any arrangement to
purchase additional shares during a 13-month period or special purchase
programs. Complete details of how investors may purchase shares at reduced sales
charges under a Statement of Intention, 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 AMOUNT INVESTED OFFERING PRICE OFFERING PRICE
- ------------------ --------------- -------------- --------------
<C> <C> <C> <C>
Less than $50,000 3.90% 3.75% 4.00%
$50,000 but less than $100,000 2.83% 2.75% 3.00%
$100,000 but less than $250,000 2.30% 2.25% 2.50%
$250,000 but less than $500,000 1.78% 1.75% 2.00%
$500,000 but less than $1,000,000 1.27% 1.25% 1.50%
$1,000,000 or more 0.00%* 0.00%* 0.50%
*No sales charge is payable at the time of purchase on investments of $1 million or more or where the amount
invested represents redemption proceeds from a mutual fund unaffiliated with Eaton Vance, if the redemption
occurred no more than 60 days prior to the purchase of Fund shares and the redeemed shares were subject to a sales
charge. A contingent deferred sales charge ("CDSC") of 0.50% will be imposed on such investments (as described
below) in the event of certain redemptions within 12 months of purchase.
</TABLE>
The Principal Underwriter may at times allow discounts up to the full sales
charge. During periods when the discount includes the full sales charge,
Authorized Firms may be deemed to be underwriters as that term is defined in the
Securities Act of 1933. The Principal Underwriter may, from time to time, at its
own expense, provide additional incentives to Authorized Firms which employ
registered representatives who sell Fund shares and/or shares of other funds
distributed by the Principal Underwriter. In some instances, such additional
incentives may be offered only to certain Authorized Firms whose representatives
sell or are expected to sell significant amounts of shares.
An initial investment in the Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Fund'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."
Shares of the Fund 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; to bank employees who refer
customers to registered representatives of Authorized Firms; to officers and
employees of IBT and the Transfer Agent; and to such persons' spouses and
children under the age of 21 and their beneficial accounts. Shares may also be
issued at net asset value (1) in connection with the merger of an investment
company with 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."
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Fund shares at the applicable public offering price as determined above. The
minimum value of securities (or securities and cash) accepted for deposit is
$5,000. Securities accepted will be sold on the day of their receipt or as soon
thereafter as possible. The number of Fund shares to be issued in exchange for
securities will be the aggregate proceeds from the sale of such securities,
divided by the applicable public offering price per Fund share on the day such
proceeds are received. Eaton Vance will use reasonable efforts to obtain the
then current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities.
Securities determined to be acceptable should be transferred via book entry or
physically delivered, in proper form for transfer, through an Authorized Firm,
together with a completed and signed Letter of Transmittal in approved form
(available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Traditional National Municipals Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional National Municipals Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, must contact Eaton Vance to determine whether
the securities are acceptable before forwarding such securities. Eaton Vance
reserves the right to reject any securities. Exchanging securities for Fund
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, state and local tax
consequences of exchanging securities for Fund shares.
STATEMENT OF INTENTION AND ESCROW AGREEMENT. If the investor, on an application,
makes a Statement of Intention to invest a specified amount over a
thirteen-month period, then out of the initial purchase (or subsequent purchases
if necessary) 5% of the dollar amount specified on the application shall be held
in escrow by the escrow agent in the form of shares (computed to the nearest
full share at the public offering price applicable to the initial purchase
hereunder) registered in the investor's name. All income dividends and capital
gains distributions on escrowed shares will be paid to the investor or to the
investor's order. When the minimum investment so specified is completed, the
escrowed shares will be delivered to the investor. If the investor has an
accumulation account the shares will remain on deposit under the investor's
account.
If total purchases under this Statement of Intention are less than the amount
specified, the investor will promptly remit to the Principal Underwriter any
difference between the sales charge on the amount specified and on the amount
actually purchased. If the investor does not within 20 days after written
request by the Principal Underwriter or the Authorized Firm pay such difference
in sales charge, the escrow agent will redeem an appropriate number of the
escrowed shares in order to realize such difference. Full shares remaining after
any such redemption together with any excess cash proceeds of the shares so
redeemed will be delivered to the investor or to the investor's order by the
escrow agent.
If total purchases made under this Statement are large enough to qualify for a
lower sales charge than that applicable to the amount specified, all
transactions will be computed at the expiration date of this Statement to give
effect to the lower charge. Any difference in sales charge will be refunded to
the investor in cash, or applied to the purchase of additional shares at the
lower charge if specified by the investor. This refund will be made by the
Authorized Firm and by the Principal Underwriter. If at the time of the
recomputation a firm other than the original firm is placing the orders, the
adjustment will be made only on those shares purchased through the firm then
handling the investor's account.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
- --------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES IN ONE OF THREE WAYS -- BY MAIL, BY
TELEPHONE OR THROUGH AN AUTHORIZED FIRM. The redemption price will be based on
the net asset value per Fund share next computed after a redemption request is
received in the proper form as described below.
REDEMPTION BY MAIL: Shares may be redeemed by delivering to the Transfer Agent,
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123,
during its business hours a written request for redemption in good order, plus
any share certificates with executed stock powers. Good order means that all
relevant documents must be endorsed by the record owner(s) exactly as the shares
are registered and the signature(s) must be guaranteed by a member of either the
Securities Transfer Association's STAMP program or the New York Stock Exchange's
Medallion Signature Program, or certain banks, savings and loan institutions,
credit unions, securities dealers, securities exchanges, clearing agencies and
registered securities associations as required by a regulation of the Securities
and Exchange Commission (the "Commission") and acceptable to the Transfer Agent.
In addition, in some cases, good order may require the furnishing of additional
documents such as where shares are registered in the name of a corporation,
partnership or fiduciary.
REDEMPTION BY TELEPHONE: Shares may be redeemed by telephone provided the
investor has not disclaimed in writing the use of the privilege. Such
redemptions can be effected by calling the Transfer Agent at 800-262-1122,
Monday through Friday, 9:00 a.m. to 4:00 p.m. (Eastern Standard Time). The
proceeds of a telephone redemption may be no greater than the maximum amount
established by the Principal Underwriter (currently $50,000) and may be mailed
only to the account address of record. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary arrangements, may not be
redeemed by telephone. Neither the Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone redemption may be difficult to
implement.
REDEMPTION THROUGH AN AUTHORIZED FIRM: To sell shares at their net asset value
through an Authorized Firm (a repurchase), a shareholder can place a repurchase
order with the Authorized Firm, which may charge a fee. The value of those
shares is based upon the net asset value calculated after the Principal
Underwriter, as the Fund'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 Fund will make payment in cash for the net asset value of
the shares as of the date determined above, reduced by the amount of any federal
income tax required to be withheld. Although the Fund normally expects to make
payment in cash for redeemed shares, the Trust, subject to compliance with
applicable regulations, has reserved the right to pay the redemption price of
shares of the Fund, either totally or partially, by a distribution in kind of
readily marketable securities withdrawn by the Fund from the Portfolio. The
securities so distributed would be valued pursuant to the Portfolio's valuation
procedures. If a shareholder received a distribution in kind, the shareholder
could incur brokerage or other charges in converting the securities to cash.
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 by the Fund
if the cause of the low account balance was a reduction in the net asset value
of Fund shares.
If shares have been purchased at net asset value with no initial sales charge by
virtue of the purchase having been in the amount of $1 million or more and are
redeemed within 12 months of purchase, a CDSC of 0.50% will be imposed on such
redemption. The CDSC will be imposed on an amount equal to the lesser of the
current market value or the original purchase price of the shares redeemed.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any distributions that have been reinvested in
additional shares. In determining whether a CDSC is applicable to a redemption,
the calculation will be made in a manner that results in the lowest possible
rate being charged. It will be assumed that redemptions are made first from any
shares in the shareholder's account that are not subject to a CDSC. The CDSC
will be retained by the Principal Underwriter.
The CDSC is waived for redemptions involving certain liquidation, merger or
acquisition transactions involving other investment companies. If a shareholder
reinvests redemption proceeds within a 60-day period and in accordance with the
conditions set forth under "Eaton Vance Shareholder Services -- Reinvestment
Privilege," the shareholder's account will be credited with the amount of any
CDSC paid on such redeemed shares.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
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 FUND SHARES, THE TRANSFER AGENT
WILL SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS.
This account is a complete record of all transactions between the investor and
the Fund which at all times shows the balance of shares owned. The Fund will not
issue share certificates except upon request.
At least quarterly, 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 IN SHARES BY SENDING A CHECK FOR $50 OR MORE to the Transfer Agent.
Any questions concerning a shareholder's account or services available may be
directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to the Transfer Agent, First Data Investor Services
Group, P.O. Box 5123, Westborough, MA 01581-5123 (please provide the name of the
shareholder, the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME INVESTING
ACCOUNTS and may be changed as often as desired by written notice to the Fund'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 of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
THE EATON VANCE EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of any of the following
funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of Boston,
Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any fund
in the Eaton Vance Traditional Group of Funds on the basis of the net asset
value per share of each fund at the time of the exchange (plus, in the case of
an exchange made within six months of the date of purchase of shares subject to
an initial sales charge, an amount equal to the difference, if any, between the
sales charge previously paid on the shares being exchanged and the sales charge
payable on the shares being acquired). 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 privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
Shares of the Fund which are subject to a CDSC may be exchanged into any of the
above funds without incurring the CDSC. The shares acquired in an exchange may
be subject to a CDSC upon redemption. For purposes of computing the CDSC payable
upon redemption of shares acquired in an exchange, the holding period of the
original shares is added to the holding period of the shares acquired in the
exchange.
The Transfer Agent makes exchanges at the next determined net asset value after
receiving an exchange request in good order (see "How to Redeem Fund Shares").
Consult the Transfer Agent for additional information concerning the exchange
privilege. Applications and prospectuses of the other funds are available from
Authorized Firms or 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.
Shares of certain other funds for which Eaton Vance acts as investment adviser
or administrator may be exchanged for Fund shares on the basis of the net asset
value per share of each fund at the time of the exchange (plus, in the case of
an exchange made within six months of the date of purchase of shares subject to
an initial sales charge, an amount equal to the difference, if any, between the
sales charge previously paid on the shares being exchanged and the sales charge
payable on the shares being acquired). Any such exchange is subject to any
restrictions or qualifications set forth in the current prospectus of any such
fund.
Telephone exchanges are accepted by the Transfer Agent provided that 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 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.
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 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 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 EV
Traditional National Municipals Fund may be mailed directly to the Transfer
Agent, First Data Investor Services Group, P.O. Box 5123, Westborough, MA
01581-5123 at any time -- whether or not dividends are reinvested. The name
of the shareholder, the Fund and the account number should accompany each
investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
STATEMENT OF INTENTION: Purchases of $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "How to Buy Fund Shares --
Statement of Intention and Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges when the
current market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Shares of the Eaton Vance funds listed under
"The Eaton Vance Exchange Privilege" may be combined under the Statement of
Intention and Right of Accumulation.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A minimum
deposit of $5,000 in shares is required. The maintenance of a withdrawal plan
concurrently with purchases of additional shares would be disadvantageous
because of the sales charge included in such purchases.
REINVESTMENT PRIVILEGE: A shareholder who has redeemed shares may reinvest at
net asset value, any portion or all of the redemption proceeds (plus that amount
necessary to acquire a fractional share to round off the purchase to the nearest
full share) in shares of the Fund, or, provided that the shares redeemed have
been held for at least 60 days, in shares of any of the other funds offered by
the Principal Underwriter subject to an initial sales charge, provided that the
reinvestment is effected within 60 days after such redemption and the privilege
has not been used more than once in the prior 12 months. Shares are sold to a
reinvesting shareholder at the next determined net asset value following timely
receipt of a written purchase order by the Principal Underwriter or by the fund
the shares of which are to be purchased (or by such fund's transfer agent). The
privilege is also available to shareholders of the Funds listed under "The Eaton
Vance Exchange Privilege" who wish to reinvest such redemption proceeds in
shares of the Fund. If a shareholder reinvests redemption proceeds within the
60-day period, the shareholder's account will be credited with the amount of any
CDSC paid on such redeemed shares. To the extent that any shares of the Fund are
sold at a loss and the proceeds are reinvested in shares of the Fund (or other
shares of the Fund are acquired) within the period beginning 30 days before and
ending 30 days after the date of 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) WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid monthly on the last 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 additional shares of the Fund, will
constitute tax-exempt income to shareholders, except for the proportionate part
of the distribution that may be considered taxable income if the Fund has
taxable income during the calendar year. Shareholders reinvesting the monthly
distribution should treat the amount of the entire distribution as the tax cost
basis of the additional shares acquired by reason of such reinvestment. Daily
distribution crediting will commence on the business day after collected funds
for the purchase of Fund 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 Fund shares cannot be taken into account
for purposes of determining gain or loss on a redemption or exchange of the
shares before the 91st day after their purchase to the extent a sales charge is
reduced or eliminated in a subsequent acquisition of shares of 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 relating to the sources of its income, the
distribution of its income, and the diversification of its assets. In satisfying
these requirements, the Fund will treat itself as owning its proportionate share
of each of the Portfolio's assets and as entitled to the income of the Portfolio
properly 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 its net
investment income and net realized capital gains in accordance with the timing
requirements imposed by the Code. As a partnership under the Code, the Portfolio
also does not pay federal income or excise taxes.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the 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 included therein 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.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Fund is not deductible. Further, entities or persons who are
"substantial users" (or persons related to "substantial users") of facilities
financed by industrial development or private activity bonds should consult
their tax advisers before purchasing shares of the Fund. "Substantial user " is
defined in applicable Treasury regulations to include a "non-exempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of industrial development bonds and would likely be interpreted to
include private activity bonds issued to finance similar facilities.
Shareholders should consult with their tax advisers concerning the applicability
of state, local and other taxes to an investment in the Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Current yield is calculated by dividing the net investment income per
share earned during a recent 30-day period by the maximum offering price per
share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by 1 minus the tax rate. The
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (which includes the maximum sales charge) for specified periods, assuming
reinvestment of all distributions. The Fund may publish annual and cumulative
total return figures from time to time. The Fund may also quote total return for
the period prior to commencement of operations which would reflect the
Portfolio's total return (or that of its predecessor) adjusted to reflect any
applicable Fund sales charge.
The Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which is
based on the Fund's net asset value per share would be lower if a sales charge
were taken into account. The Fund's performance may be compared in publications
to the performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information prepared
by recognized mutual fund statistical services.
Investors should note that the investment results of 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 the Fund's yield or total return may be in any future period.
<PAGE>
The following chart reflects the annual investment returns of the Fund for one
year periods ending September 30 and does not take into account any sales charge
which investors may bear. The total return for the period prior to the Fund's
commencement of operations on April 5, 1994 reflects the total return of the
Portfolio (or that of its predecessor) which had different operating expenses.
5 YEAR AVERAGE ANNUAL TOTAL RETURN -- 8.07%
10 YEAR AVERAGE ANNUAL TOTAL RETURN -- 7.21%
1987 (1.64%)
1988 11.94%
1989 7.96%
1990 2.83%
1991 11.33%
1992 11.67%
1993 14.90%
1994* (4.68%)
1995* 12.05%
1996 7.59%
*If a portion of the Fund's expenses had not been allocated to the
Administrator, the Fund would have had lower returns.
<PAGE>
APPENDIX
NATIONAL MUNICIPALS PORTFOLIO
ASSET COMPOSITION INFORMATION
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
RATINGS OF RATINGS OF
MUNICIPAL BONDS MUNICIPAL BONDS
BY MOODY'S BY S&P
PERCENT OF PERCENT OF
NET ASSETS NET ASSETS
---------- ----------
<S> <C> <C> <C>
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 ...................................... 5.26% 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%
</TABLE>
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's 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
EV TRADITIONAL
NATIONAL
MUNICIPALS FUND
PROSPECTUS
FEBRUARY 1, 1997
EV TRADITIONAL 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, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-HMP
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO (THE "FUND") IS A NO-LOAD MUTUAL
FUND SEEKING TO PROVIDE CURRENT INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX
AND MASSACHUSETTS STATE PERSONAL INCOME TAXES. THE FUND INVESTS ITS ASSETS IN
MASSACHUSETTS MUNICIPALS PORTFOLIO (THE "PORTFOLIO"), 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").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should
know before investing. Please retain this document for future reference. A
Statement of Additional Information for the Fund dated February 1, 1997, as
supplemented from time to time, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's principal underwriter,
Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street,
Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's investment adviser
is Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Fund. The offices of the Investment
Adviser and the Administrator are located at 24 Federal Street, Boston, MA
02110.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Shareholder and Fund Expenses ... 2 How to Buy Fund Shares .......... 13
The Fund's Financial Highlights . 3 How to Redeem Fund Shares ....... 15
The Fund's Investment Objective . 5 Reports to Shareholders ......... 16
Investment Policies and Risks ... 5 The Lifetime Investing Account/
Organization of the Fund and the Distribution Options ......... 16
Portfolio ..................... 10 Eaton Vance Shareholder Services 17
Management of the Fund and the Distributions and Taxes ......... 18
Portfolio ..................... 11 Performance Information ...... 20
Valuing Fund Shares ............. 13
- -------------------------------------------------------------------------------
PROSPECTUS DATED FEBRUARY 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
(as a percentage of average daily net assets)
Investment Adviser Fee 0.46%
Other Expenses (after expense reduction) 0.30%
----
Total Operating Expenses (after reduction) 0.76%
====
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: $8 $24 $42 $94
Notes:
The table and Example summarize the aggregate expenses of the Fund and
the Portfolio and are designated to help investors understand the costs
and expenses they will bear, directly or indirectly, by investing in
the Fund. Information for the Fund is based on its expenses for the
most recent fiscal year. Absent an expense allocation to the
Administrator, Other Expenses would have been 0.49% and Total Operating
Expenses would have been 0.95% of the Fund's average daily net assets.
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 both 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 audited
financial statements included in the Fund's annual report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of the Fund is contained in the Fund's annual report
to shareholders which may be obtained without charge by contacting the Fund's
Principal Underwriter.
<TABLE>
<CAPTION>
Year Ended September 30
------------------------------------------------------------
1996 1995 1994 1993*
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.510 $ 9.220 $10.260 $10.000
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.534 $ 0.546 $ 0.548 $ 0.141
Net realized and unrealized gain (loss) 0.051 0.290 (1.026) 0.284
------- ------- ------- -------
Total income (loss) from operations $ 0.585 $ 0.836 $(0.478) $ 0.425
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.534) $(0.546) $(0.548) $(0.141)
In excess of net investment income(3) (0.001) -- (0.004) (0.024)
In excess of net realized gain(3) -- -- (0.010) --
------- ------- ------- -------
Total distributions $(0.535) $(0.546) $(0.562) $(0.165)
------- ------- ------- -------
NET ASSET VALUE, end of year $ 9.560 $ 9.510 $ 9.220 $10.260
======= ======= ======= =======
TOTAL RETURN(2) 6.28% 9.37% (4.79%) 4.04%
RATIOS/SUPPLEMENTAL DATA**
Net assets, end of year (000 omitted) $6, 940 $ 7,186 $ 9,338 $ 5,063
Ratio of net expenses to average
daily net assets (1)(4) 0.76% 0.63% 0.60% 1.21%+
Ratio of net expenses to average
net assets after custodian fee
reduction(1)(4) 0.75% 0.60% -- --
Ratio of net investment income to
average daily net assets 5.56% 5.93% 5.65% 4.80%+
** For the years ended September 30, 1996, 1995 and 1994, the operating expenses of the Fund reflect a
reduction of expenses by the Administrator. Had such action not been taken, net investment income per share
and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE $ 0.516 $ 0.523 $ 0.498
======= ======= =======
RATIOS (As a percentage of average net assets):
Expenses(1)(4) 0.95% 0.88% 1.12%
Expenses after custodian fee
reduction(1)(4) 0.94% 0.85% --
Net investment income 5.37% 5.68% 5.13%
<PAGE>
* For the period from the start of business, June 17, 1993, to September 30, 1993.
+ Annualized
(1) Includes the Fund's share of the Portfolio's allocated expenses.
(2) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at the net
asset value on the last day of each period reported. Distributions, if any, are assumed to be reinvested at
the net asset value on the payable date. Total return is computed on a non-annualized basis.
(3) The Fund has followed the Statement of Position (SOP) 93-2: Determination, Disclosure and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies.
The SOP requires that differences in the recognition or classification of income between the financial
statements and tax 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.
(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 each of the
periods ended on or before September 30, 1994 have not been adjusted to reflect this change.
</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 shareholders of the
Fund or the investors in the Portfolio, as the case may be.
At least 70% of the Portfolio's net assets will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or by Fitch
Investors Service, Inc. ("Fitch")) or, if unrated, determined by the Investment
Adviser to be of at least investment grade quality. The balance of the
Portfolio's net assets may be invested in obligations rated below investment
grade (but not lower than B by Moody's, S&P or Fitch) and unrated obligations
considered to be of comparable quality by the Investment Adviser. Municipal
obligations rated Baa or BBB may have speculative characteristics. Also, changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case of
higher rated obligations. Securities rated below 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
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 legislature and the availability of monies for such
payments. Municipal notes include bond anticipation, tax anticipation, revenue
anticipation notes. Bond, tax and revenue anticipation notes are short-term
obligations that will be retired with the proceeds of an anticipated bond issue,
tax revenue or facility revenue, respectively.
Interest income from certain 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, therefore, is susceptible to
factors affecting 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 by the
state's legislature for payment are also subject to the risk that the necessary
amounts will not be appropriated or that other action necessary to permit the
issuer to make payments will not be taken. 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 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 4.1% as of 1996, while the national unemployment rate was
5.2%.
Effective July 1, 1990, limitations were placed on the amount of direct
bonds the Commonwealth could have outstanding in a fiscal year, and the amount
of the total appropriation in any fiscal year that may be expended for debt
service on general obligation debt of the Commonwealth (other than certain debt
incurred to pay the fiscal 1990 deficit, certain Medicaid reimbursement payments
for prior years and refunding bonds) was limited 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 the Commonwealth 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 slowed during fiscal
years 1991, 1992 and 1993. Growth in fiscal 1994 will depend on several factors,
including the state of the U.S. economy and the relative stability in the price
of oil, the exchange rate of the U.S. dollar and the cost of borrowing. Section
936 (a tax incentive that has encouraged economic growth in Puerto Rico) will be
phased out over a ten year period. At this time, it is uncertain as to the
implication the change will have on the Puerto Rico economy. Although the Puerto
Rico unemployment rate has declined substantially since 1985, the seasonally
adjusted unemployment rate for July, 1996 was approximately 14.1%. The North
American Free Trade Agreement (NAFTA), which became effective January 1, 1994,
could lead to the loss of Puerto Rico's lower salaried or labor intensive jobs
to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates
it Baa1; these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a stable outlook on Puerto Rico on April 26, 1994.
NON-DIVERSIFIED STATUS. As a "non-diversified" investment company, the Portfolio
may invest, with respect to 50% of its assets, more than 5% (but not more than
25%) of its assets in the securities of any issuer. The Portfolio is likely to
invest a greater percentage of its assets in the securities of a single issuer
than would a diversified fund. Therefore, the Portfolio 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
alter this tendency, however. Although volatile, inverse floaters typically
offer the potential for yields exceeding the yields available on fixed rate
bonds with comparable credit quality and maturity. These securities usually
permit the investor to convert the floating rate to a fixed rate (normally
adjusted downward), and this optional conversion feature may provide a partial
hedge against rising interest rates if exercised at an opportune time. Inverse
floaters are leveraged because they provide two or more dollars of bond market
exposure for every dollar invested.
FUTURES TRANSACTIONS. The Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. Futures contracts may be based on various debt securities (such
as U.S. Government securities) and securities indices (such as the Municipal
Bond Index traded on the Chicago Board of Trade). Such transactions involve a
risk of loss or depreciation due to unanticipated adverse changes in securities
prices, which may exceed the Portfolio's initial investment in these contracts.
The Portfolio may not purchase or sell futures contracts or related options,
except for closing purchase or sale transactions, if immediately thereafter the
sum of the amount of margin deposits and premiums paid on the Portfolio's
outstanding positions would exceed 5% of the market value of the Portfolio's net
assets. These transactions involve transaction costs. There can be no assurance
that the Investment Adviser's use of futures will be advantageous to the
Portfolio. Distributions by the Fund of any gains realized on its corresponding
Portfolio's transactions in futures and options on futures will be taxable.
INSURED OBLIGATIONS. The Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of the Fund's shares.
ADDITIONAL RISKS CONSIDERATIONS
Many municipal obligations offering current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. The
Portfolio may invest up to 30% of its net assets in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which the Portfolio may invest will
have speculative characteristics in varying degrees. While such obligations may
have some quality and protective characteristics, these characteristics can be
expected to be offset or outweighed by uncertainties or major risk exposures to
adverse conditions. Lower rated and comparable unrated municipal obligations are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to greater
price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
(market risk). Lower rated or unrated municipal obligations are also more likely
to react to real or perceived developments affecting market and credit risk than
are more highly rated obligations, which react primarily to movements in the
general level of interest rates. The Investment Adviser seeks to minimize the
risks of investing in below investment grade securities through professional
investment analysis and attention to current developments in interest rates and
economic conditions. When a Portfolio invests in lower rated or unrated
municipal obligations, the achievement of the Portfolio's goals is more
dependent on the Investment Adviser's ability than would be the case if the
Portfolio were investing in municipal obligations in the higher rating
categories.
The Portfolio may retain defaulted obligations in its portfolio when
such retention is considered desirable by the Investment Adviser. In the case of
a defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by the Portfolio which
are rated below investment grade but which, subsequent to the assignment of such
rating, are backed by escrow accounts containing U.S. Government obligations may
be determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. The Portfolio's holdings of
obligations rated below investment grade generally will be less than 35% of its
net assets. In the event the rating of an obligation held by the Portfolio is
downgraded, causing the Portfolio to exceed this limitation, the Investment
Adviser will (in an orderly fashion within a reasonable period of time) dispose
of such obligations as it deems necessary in order to comply with the foregoing
limitation.
The net asset value of shares of the Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by the Portfolio. When interest rates decline, the value of
securities held by the Portfolio can be expected to rise. Conversely, when
interest rates rise, the value of most portfolio security holdings can be
expected to decline. Changes in the credit quality of the issuers of municipal
obligations held by the Portfolio will affect the principal value of (and
possibly the income earned on) such obligations. In addition, the values of such
securities are affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of a security and in the ability of
the issuer to make payments of principal interest may also affect the value of
the Portfolio's investments. The amount of information about he financial
condition of an issuer of municipal obligations may not be as extensive as that
made available by corporations whose securities are publicly traded. An
investment in share of the Fund will not constitute a complete investment
program.
At times, a substantial portion of the Portfolio's assets may be
invested in securities as to which the Portfolio, by itself or together with
other accounts managed by the Investment Adviser and its affiliates, holds a
major portion of such securities. Under adverse market or economic conditions or
in the event of adverse changes in the financial condition of the issuer, the
Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may also be more difficult
to determine the fair value of such securities for purposes of computing the
Portfolio's net asset value.
The secondary market for some municipal obligations (including issues
which are privately placed with the Portfolio) is less liquid than that for
taxable debt obligations or other more widely traded municipal obligations. The
Portfolio will not invest in illiquid securities if more than 15% of its net
assets would be invested in securities that are not readily marketable. No
established resale market exists for certain of the municipal obligations in
which the Portfolio may invest. The market for obligations rated below
investment grade is also likely to be less liquid than the market for higher
rated obligations. As a result, a Portfolio may be unable to dispose of these
municipal obligations at times when it would otherwise wish to do so at the
prices at which they are valued.
Certain securities held by the Portfolio may permit the issuer at its
option to "call", or redeem, its securities. If an issuer redeems securities
held by the Portfolio during a time of declining interest rates, the Portfolio
may not 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 SERIES OF EATON VANCE MUNICIPALS TRUST, A BUSINESS TRUST
ESTABLISHED UNDER MASSACHUSETTS LAW PURSUANT TO A DECLARATION OF TRUST DATED
SEPTEMBER 30, 1985, AS AMENDED. THE TRUST IS A MUTUAL FUND - AN OPEN-END
MANAGEMENT INVESTMENT COMPANY. The Trustees of the Trust are responsible for the
overall management and supervision of its affairs. The Trust may issue an
unlimited number of shares of beneficial interest (no par value per share) in
one or more series (such as the Fund). Each share represents an equal
proportionate beneficial interest in the Fund. When issued and outstanding, the
shares are fully paid and nonassessable by the Fund and redeemable as described
under "How to Redeem Fund Shares." 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 are entitled to share pro rate in the net
assets of the Fund available for distribution to shareholders.
THE PORTFOLIO IS ORGANIZED AS A TRUST UNDER THE LAWS OF THE STATE OF
NEW YORK AND INTENDS TO BE TREATED AS A PARTNERSHIP FOR FEDERAL TAX PURPOSES.
The Portfolio, as well as the Trust, intends to comply with all applicable
federal and state securities laws. The Portfolio's Declaration of Trust provides
that the Fund and other entities permitted to invest in the Portfolio (e.g.,
other U.S. and foreign investment companies, and common and commingled trust
funds) will each be liable for all obligations of the Portfolio. However, the
risk of the Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance exists and the
Portfolio itself is unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
The Trustees of the Trust have considered the advantages and
disadvantages of investing the assets of the Fund in the Portfolio, as will as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for substantial growth in the assets of
the Portfolio, affords 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.
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. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. Information regarding other pooled investment entities or funds which
invest in 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
OVER $17 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 has been a Vice President of Eaton
Vance since 1991 and of BMR since its inception.
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the 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 Fund, 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
reporting and other restrictions and procedures contained in such Codes.
The Trust has retained the services of Eaton Vance to act as its
Administrator. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing its assets in the Portfolio. As Administrator, Eaton Vance provides
the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
The Portfolio and the Fund, as the case may be, will each be
responsible for all respective costs and expenses not expressly stated to be
payable by BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by the Principal Underwriter under the
distribution agreement.
VALUING FUND SHARES
- -------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Orders must be received by the Principal Underwriter prior to the close
of the Principal Underwriter's business day to receive that day's net asset
value per Fund share.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio), based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of the Portfolio from the value of its total assets. Municipal
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolio's assets, see "Determination of Net Asset Value" in the Statement of
Additional Information.
HOW TO BUY FUND SHARES
- -------------------------------------------------------------------------------
The Trustees of the Trust have determined that shares of the Fund shall only be
available to employees of Eaton Vance Corp. (and its affiliates, including
subsidiaries), clients of Eaton Vance Corp. (and its affiliates, including
subsidiaries) and certain institutional investors.
Investors may purchase shares of the Fund without a sales charge at the
net asset value per share of the Fund next determined after an order is
effective as described under "Other Purchase Procedures" below. An initial
investment in the Fund must be at least $1,000. Once an account has been
established the investor may send investment of $50 or more at any time. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services". The Fund may suspend the offering of shares at any
time and may refuse an order for the purchase of shares.
PURCHASES BY WIRE: Investors may purchase shares by requesting their bank to
transmit immediately available funds (federal funds) by wire to: ABA #011001438,
Federal Reserve Bank of Boston, A/C Investors Bank & Trust Company, Further
Credit Massachusetts Municipal Bond Portfolio, A/C #[Insert your account number
- - see below].
Upon making an initial investment by wire, you must first telephone the
Order Department of the Fund (800-225-6265, extension 3) to advise of your
action and to be assigned an account number. If you neglect to make the
telephone call, it may not be possible to process your order promptly. In
addition, the Account Application form which accompanies this Prospectus should
be promptly forwarded to First Data Investor Services Group (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 received by wire by 4:00 P.M. on any business day are
invested at the net asset value determined at 4:00 P.M. the same day.
PURCHASES BY MAIL: For an initial purchase by mail, the Account Application form
which accompanies this Prospectus should be completed, signed and mailed with a
check, Federal Reserve Draft, or other negotiable bank draft, drawn on a U.S.
bank and payable in U.S. dollars, to the order of Massachusetts Municipal Bond
Portfolio to: First Data Investor Services Group, 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 Massachusetts Municipal Bond Portfolio
at the above address. The account to which the subsequent purchase is to be
credited should be identified as to the name(s) of the registered owner(s) and
by account number.
PURCHASES IN EXCHANGE FOR SECURITIES: IBT, as escrow agent, will receive
securities acceptable to Eaton Vance, as Administrator, in exchange for Fund
shares at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold on the day of their receipt or as soon thereafter as
possible. The number of Fund shares to be issued in exchange for securities will
be the aggregate proceeds from the sale of such securities, divided by the
applicable net asset value per Fund share on the day such proceeds are received.
Eaton Vance will use reasonable efforts to obtain the current market price for
such securities but does not guarantee the best available price. Eaton Vance
will absorb any transaction costs, such as commissions, on the sale of the
securities.
Securities determined to be acceptable should be transferred via book
entry or physically delivered, in proper form for transfer, together with a
completed and signed Letter of Transmittal in approved form, as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C Massachusetts Municipal Bond Portfolio
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: Massachusetts Municipal Bond Portfolio
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of
the Fund, or their representatives, must contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
Fund shares may create a taxable gain or loss. Each investor should consult his
or her tax adviser with respect to the particular federal, state and local tax
consequences of exchanging securities for Fund shares.
OTHER PURCHASE PROCEDURES: The Fund intends at all times to be as fully invested
as is feasible in order to maximize its earnings. Accordingly, purchase orders
will be executed at the net asset value next determined after their receipt by
the Fund only if the Fund has received payment in cash or in federal funds. If
remitted in other than the foregoing manner, such as by money order or personal
check, purchase orders will be executed as of the close of business on the
second Boston business day after receipt. Information on how to procure a
Federal Reserve Draft or to transmit federal funds by wire is available at your
bank. The bank may charge for these services.
HOW TO REDEEM FUND SHARES
- -------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO 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. The redemption price will be
based on the net asset value per share of the Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission and
acceptable to 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.
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 Fund, the Principal Underwriter nor the
Transfer Agent will be responsible for the authenticity of redemption
instructions received by telephone, provided that reasonable procedures to
confirm that instructions communicated by telephone are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market charges, a telephone redemption may be difficult to
implement.
Within seven days after receipt of a written or telephone redemption
request in good order by the Transfer Agent, the Fund will make payment in cash
for the net asset value of the shares as of the date determined above, reduced
by the amount of any federal income tax required to be withheld. Although the
Fund normally expects to make payment in cash for redeemed shares, the Trust,
subject to compliance with applicable regulations, has reserved the right to pay
the redemption price of shares of the Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn by the Fund from
the Portfolio. The securities so distributed would be valued pursuant to the
Portfolio's valuation procedures. If a shareholder received a distribution in
kind, the shareholder could incur brokerage or other charges in converting the
securities to cash.
REDEMPTIONS BY WIRE: Shareholders who have given authorization in advance may
request that redemption proceeds of $1,000 or more be wired directly to their
bank account. This request may generally be made by letter or telephone to the
Fund Order Department at 800-225-6265, extension 3. However, shareholders
holding certificates for shares in the Fund must return such certificates in
properly endorsed form requesting redemption prior to being eligible to have
redemption proceeds wired directly to their bank account. To use this service a
shareholder must designate his bank and bank account number on the Account
Application form used to open an account. The bank designated may be any bank in
the United States.
Redemption requests received will be processed at 4:00 P.M. and the
redemption proceeds will be wired on the next business day. The shareholder may
be required to pay any costs of such transaction; however, no such costs are
currently charged. The Fund will limit this method of paying redemptions to
shares purchased with cash, Federal Reserve Draft, by wire with federal funds,
or by other means when payment for shares purchased has been assured. The Fund
reserves the right at any time to suspend or terminate the expedited payment
procedure; however, the Fund would provide reasonable advance notice (in no
event less than 30 days) of its intention to suspend or terminate this
procedure.
REDEMPTIONS BY CHECK: To sell shares by writing a check, shareholders holding
shares for which certificates have not been issued may appoint Boston Safe
Deposit and Trust Company ("Boston Safe") their agent and may request on the
Account Application form that Boston Safe provide them with special forms of
checks drawn on Boston Safe. These checks may be made payable by the shareholder
to the order of any person in any amount of $500 or more. When a check is
presented to Boston Safe for payment, the number of full and fractional shares
required to cover the amount of the check will be redeemed from the
shareholder's account by Boston Safe as the shareholder's agent. Through this
procedure the shareholder will continue to be entitled to distributions paid on
shares up to the time the check is presented to Boston Safe for payment. If the
amount of the check is greater than the value of the shares held in the
shareholder's account for which the Fund has collected payment, the check will
be returned and the shareholder may be subject to extra charges.
The shareholder will be required to execute signature cards and will be
subject to Boston Safe's rules and regulations governing such checking accounts.
There is no charge to shareholders for this service. This service may be
terminated or suspended at any time by the Fund or Boston Safe.
If shares were recently purchased, the proceeds of 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 FUND SHARES, THE TRANSFER AGENT
WILL SET UP A LIFETIME INVESTING ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS.
This account is a complete record of all transactions between the investor and
the Fund which at all times shows the balance of shares owned. The Fund will not
issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing
complete details of any transaction and the current share balance in the
account. THE LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE
ADDITIONAL INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to 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 the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Fund's dividend disbursing agent, First Data 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
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
account number should accompany each investment.
BANK AUTOMATED INVESTING - FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A minimum
deposit of $5,000 in shares is required.
EXCHANGE PRIVILEGE: You may currently exchange your Fund shares for shares of
any of the following funds at their respective net asset value per share: Eaton
Vance Cash Management Fund, Eaton Vance Income Fund of Boston, Eaton Vance
Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any fund in the
Eaton Vance Traditional Group of Funds on the basis of the net asset value per
share of each fund at the time of the exchange (plus, in the case of an exchange
made within six months of the date of purchase, the sales charge payable on the
shares being acquired). 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.
Shares of certain other open-end funds for which Eaton Vance acts as
investment adviser or administrator may be exchanged for Fund shares at their
respective net asset value per share, but subject to any restrictions or
qualifications set forth in the current prospectus of any such fund.
Telephone exchanges are accepted by 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) WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid on the fifteenth day of each month or the next business
day thereafter. The Fund anticipates that for tax purposes the entire
distribution, whether taken in cash or reinvested in additional shares of the
Fund, will constitute tax-exempt income to shareholders for federal income tax
purposes, except for the proportionate part of the distribution that may be
considered taxable income if the Fund has taxable income during the calendar
year. Shareholders reinvesting the monthly distribution should treat the amount
of the entire distribution as the tax cost basis of the additional shares
acquired by reason of such reinvestment. Daily distribution crediting will
commence on the 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 relating to the sources of its income, the distribution of its
income, and the diversification of its assets. In satisfying these requirements,
the Fund will treat itself as owning its proportionate share of each of the
Portfolio's assets and as entitled to the income of the Portfolio properly
attribute to such share.
As a regulated investment company under the Code, the Fund does not pay
federal income or excise taxes to the extent that it distributes to shareholders
its net investment income and net realized capital gains in accordance with the
timing requirements imposed by the Code. As a partnership under the Code, the
Portfolio also does not pay federal income or excise taxes.
Distributions of interest on certain municipal obligations constitute a
tax preference item under the 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.
Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of the Fund is not deductible. Further, entities or
persons who are "substantial users" (or persons related to "substantial users")
of facilities financed by industrial development or private activity bonds
should consult their tax advisers before purchasing shares of the Fund.
"Substantial user" is defined in applicable Treasury regulations to include a
"non-exempt person" who regularly uses in trade or business a part of a facility
financed from the proceeds of industrial development bonds and would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
MASSACHUSETTS TAXES. The Portfolio has received a letter ruling (the "Ruling")
from the Department of Revenue of The Commonwealth of Massachusetts to the
effect that it will be classified as a partnership for Massachusetts tax
purposes. The Ruling provides that, consequently, interest income received by
the Portfolio on (1) debt obligations issued by The Commonwealth of
Massachusetts or its political subdivisions, including agencies or
instrumentalities thereof ("Massachusetts Obligations"), (2) the Governments of
Puerto Rico, Guam, or the United States Virgin Islands ("Possessions
Obligations"), or (3) the United States ("United States Obligations") will be
treated as if realized directly by investors in the Portfolio. The Ruling
concludes that, provided that an investor in the Portfolio qualifies as a
regulated investment company ("RIC") under the Code and satisfies certain notice
requirements of Massachusetts law, (1) dividends paid by such a RIC that are
treated as tax-exempt interest under the Code and that are directly attributable
to interest on Massachusetts Obligations (including the RIC's allocable share of
interest earned by the Portfolio on such obligations) and (2) dividends paid by
such a RIC that are directly attributable to interest on Possessions Obligations
or United States Obligations (including the RIC's allocable share of interest
earned by the Portfolio on such obligations) will, in each case, be excluded
from Massachusetts gross income. Because the Fund intends to continue to invest
in the Portfolio, qualify for treatment as a RIC under the Code, and satisfy the
applicable notice requirements, the Fund's distributions to its shareholders of
its allocable share of the interest received by the Portfolio that is
attributable to Massachusetts Obligations, Possessions Obligations or United
States Obligations should consequently be excluded from Massachusetts gross
income for individuals, estates and trusts that are subject to Massachusetts
taxation. Distributions properly designated as capital gain dividends under the
Code and attributable to gains realized by the Portfolio and allocated to the
Fund on the sale of certain Massachusetts tax-exempt obligations issued pursuant
to statutes that specifically exempt such gains from Massachusetts taxation will
also be exempt from Massachusetts personal income tax. Other distributions from
the Fund included in a shareholder's federal gross income, including
distributions derived from net long-term capital gains not described in the
preceding sentence and net short-term capital gains, are generally not exempt
from Massachusetts personal income tax.
Beginning in 1996, long-term capital gains are generally taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. It is not clear what
Massachusetts tax rate will be applicable to capital gain dividends, but the
Department is expected to provide guidance on this issue.
Distributions from the Fund will be included in net income, and in the
case of intangible property corporations, shares of the Fund will be included in
net worth for purposes of determining the Massachusetts excise tax on
corporations subject to Massachusetts taxation.
Shareholders should consult their own tax advisers concerning the
applicability of state, local and other taxes to an investment in the Fund.
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The current yield for the Fund will be calculated by dividing the net
investment income per share earned during a recent 30-day period by the maximum
offering price per share (net asset value) of the Fund on the last day of the
period and annualizing the resulting figure. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by one minus the tax
rate. The Fund's average annual total return is determined by computing the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (net asset value) for specified periods ending with the
most recent calendar quarter, assuming reinvestment of all distributions. The
total return calculation assumes a complete redemption of the investment. The
Fund may also publish annual and cumulative total return figures from time to
time. The Fund may also quote total return for the period prior to commencement
of operations which would reflect the Portfolio's total return (or that of its
predecessor) adjusted to reflect any difference in sales charge. 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 the expenses of the Fund are allocated to Eaton Vance, the
Fund's performance will be higher.
<PAGE>
INVESTMENT ADVISER OF MASSACHUSETTS MUNICIPAL
MASSACHUSETTS MUNICIPALS PORTFOLIO
Boston Management and Research BOND PORTFOLIO
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF MASSACHUSETTS
MUNICIPAL BOND PORTFOLIO
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN PROSPECTUS
Investors Bank & Trust Company
89 South Street FEBRUARY 1, 1997
Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group
P.O. Box 5123
Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
24 FEDERAL STREET
BOSTON, MA 02110
MMBP
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1997
<TABLE>
EV MARATHON MUNICIPAL FUNDS
<C> <C>
EV MARATHON CALIFORNIA MUNICIPALS FUND EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND EV MARATHON WEST VIRGINIA MUNICIPALS FUND
</TABLE>
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund"), its
corresponding Portfolio and certain other series of Eaton Vance Municipals Trust
(the "Trust"). Each Part II provides information solely about a Fund and its
corresponding Portfolio. Where appropriate, Part I includes cross-references to
the relevant sections of Part II that provide additional Fund-specific
information. This Statement of Additional Information is sometimes referred to
herein as the "SAI".
TABLE OF CONTENTS
PART I Page
Additional Information about Investment Policies .................... 1
Investment Restrictions ............................................. 7
Trustees and Officers ............................................... 9
Investment Adviser and Administrator ................................ 10
Custodian ........................................................... 13
Service for Withdrawal .............................................. 14
Determination of Net Asset Value .................................... 14
Investment Performance .............................................. 14
Taxes ............................................................... 16
Principal Underwriter ............................................... 18
Distribution Plan ................................................... 19
Portfolio Security Transactions ..................................... 21
Other Information ................................................... 22
Independent Certified Public Accountants ............................ 23
Financial Statements ................................................ 23
Appendix ............................................................ 24
PART II
EV Marathon California Municipals Fund .............................. a-1
EV Marathon Florida Municipals Fund ................................. b-1
EV Marathon Massachusetts Municipals Fund ........................... c-1
EV Marathon Mississippi Municipals Fund ............................. d-1
EV Marathon New York Municipals Fund ................................ e-1
EV Marathon Ohio Municipals Fund .................................... f-1
EV Marathon Rhode Island Municipals Fund ............................ g-1
EV Marathon West Virginia Municipals Fund ........................... h-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED FEBRUARY 1, 1997, AS SUPPLEMENTED
FROM TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS COMBINED
STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH
PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON
VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR
ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this SAI and not
otherwise defined have the meanings given them in the Fund's Prospectus. The
Fund is subject to the same investment policies as those of the Portfolio. The
Fund currently seeks to achieve its objective by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations the interest on
which is exempt from federal income taxes and is not a tax preference item for
purposes of the 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 the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the AMT. For corporate shareholders, the Fund's distributions
derived from interest on all municipal obligations (whenever issued) is included
in "adjusted current earnings" for purposes of the AMT as applied to
corporations (to the extent not already included in alternative minimum taxable
income as income attributable to private activity bonds).
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (i.e., obligations with a term of more than one
year) purchased after April 30, 1993 other than, in general, at their original
issue, is taxable as ordinary income. A long-term debt obligation is generally
treated as acquired at a market discount if purchased after its original issue
at a price less than (i) the stated principal amount payable at maturity, in the
case of an obligation that does have original issue discount or (ii) in the case
of an obligation that does have original issue discount, the sum of the issue
price and any original issue discount that accrued before the obligation was
purchased, subject to a de minimis exclusion.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds are in most cases revenue
bonds and are generally not secured by the taxing power of the municipality, but
are usually secured by the revenues derived by the authority from payments of
the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of the Investment Adviser) to evaluate or protect
any real estate, facilities or other assets securing any such obligation or
acquired by the Portfolio as a result of any such event, and the Portfolio may
also manage (or engage other persons to manage) or otherwise deal with any real
estate, facilities or other assets so acquired. The Portfolio anticipates that
real estate consulting and management services may be required with respect to
properties securing various municipal obligations in its portfolio or
subsequently acquired by the Portfolio. The Portfolio will incur additional
expenditures in taking protective action with respect to portfolio obligations
in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of the municipal obligations which they undertake to rate. It should be
emphasized, however, that ratings are based on judgment and are not absolute
standards of quality. Consequently, municipal obligations with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield. In
addition, the market price of such obligations will normally fluctuate with
changes in interest rates, and therefore the net asset value of the Portfolio
will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations of a Particular State. For a discussion of the risks
associated with the Portfolio's policy of concentrating its investments in
particular State issuers of municipal obligations, see "Risks of Concentration"
in the Fund's Part II.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of the same type. In particular, investments in industrial revenue
bonds might involve (without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state and local authorities. Since
the bonds are normally secured only by the revenues of each facility and not by
state or local government tax payments, they are subject to a wide variety of
risks. Primarily, the projects must maintain adequate occupancy levels to be
able to provide revenues sufficient to meet debt service payments. Moreover,
since a portion of housing, medical care and other services may be financed by
an initial deposit, it is important that the facility maintain adequate
financial reserves to secure estimated actuarial liabilities. The ability of
management to accurately forecast inflationary cost pressures is an important
factor in this process. The facilities may also be affected adversely by
regulatory cost restrictions applied to health care delivery in general,
particularly state regulations or changes in Medicare and Medicaid payments or
qualifications, or restrictions imposed by medical insurance companies. They may
also face competition from alternative health care or conventional housing
facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
Accordingly, the Portfolio may be adversely affected by local political and
economic conditions and developments within Puerto Rico, 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 39%, 11% and 39%, respectively, of the
gross domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
The North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the federal government. Most federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Code was amended and provided for two alternative limitations
to the Section 936 credit. The first option will limit the credit against such
income to 40% of the credit allowable under current law, with a five year
phase-in period starting at 60% of the allowable credit. The second option is a
wage and depreciation based credit. The reduction of the tax benefits to those
U.S. companies with operations in Puerto Rico may lead to slower growth in the
future. Furthermore, federal policymakers have proposed the total elimination of
Section 936, phased out over ten years, as a budget-balancing measure. There can
be no assurance that these modifications will not lead to a weakened economy, a
lower rating on Puerto Rico's debt or lower prices for Puerto Rican bonds that
may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. 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. As of
June, 1996, unemployment stood at 4.7%. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe.
An important component of the USVI revenue base is the federal excise tax on
rum exports. Tax revenues rebated by the federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI is periodically hit by hurricanes.
During this past hurricane season, several hurricanes caused extensive damage,
which has had a negative impact on revenue collections. There is currently no
rated, unenhanced Virgin Islands debt outstanding although there is unrated debt
outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. The
Naval Air Station, one of several U.S. military facilities on the island, has
been slated for closure by the Defense Base Closure and Realignment Committee;
however, the administration plans to use these facilities to expand the Island's
commercial airport. Guam is also heavily reliant on tourists, particularly the
Japanese. For 1995, the government realized a General Fund operating surplus.
The administration has taken steps to improve its financial position; however,
there are no guarantees that an improvement will be realized. Guam's general
obligation debt is rated BBB by S&P with a negative outlook.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to these
arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Such arrangements are, therefore, subject to the risk that
the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value. In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this SAI with respect to any defaulted obligations held by the
Portfolio.
SHORT-TERM TRADING
The Portfolio may sell (and later purchase) securities in anticipation of a
market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the same
time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, such as changes
in the overall demand for or supply of various types of municipal obligations or
changes in the investment objectives of investors. Such trading may be expected
to increase the portfolio turnover rate, which may increase capital gains and
the expenses incurred in connection with such trading. The Portfolio anticipates
that its annual portfolio turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
WHEN-ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-issued"
basis, that is, delivery and payment for the securities normally taking place
within a specified number of days after the date of the Portfolio's commitment
and are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Portfolio may also purchase securities on a when-issued basis
pursuant to refunding contracts in connection with the refinancing of an
issuer's outstanding indebtedness. Refunding contracts generally require the
issuer to sell and the Portfolio to buy such securities on a settlement date
that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. When the Portfolio commits to purchase a security on a
when-issued basis it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by the Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the issuer
and changes in the level of interest rates (i.e., appreciation when interest
rates decline and depreciation when interest rates rise). Therefore, to the
extent that the Portfolio remains substantially fully invested at the same time
that it has purchased securities on a when-issued basis, there will be greater
fluctuations in the Portfolio's net asset value than if it solely set aside cash
to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940 (the "1940 Act") and Rule 5b-2 thereunder. The Portfolio would
anticipate using these obligations as cash equivalents pending longer term
investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Longer term fixed-rate bonds may give the holder a right to
request redemption at certain times (often annually after the lapse of an
intermediate term). These bonds are more defensive than conventional long term
bonds (protecting to some degree against a rise in interest rates) while
providing greater opportunity than comparable intermediate term bonds, because
the Portfolio may retain the bond if interest rates decline. By acquiring these
kinds of obligations the Portfolio obtains the contractual right to require the
issuer of the security or some other person (other than a broker or dealer) to
purchase the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement with the seller or some
other person. Because this right is assignable with the security, which is
readily marketable and valued in the customary manner, the Portfolio will not
assign any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put or demand features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. The Portfolio
would have the right to call a loan and obtain the securities loaned at any time
on up to five business days' notice. During the existence of a loan, the
Portfolio will continue to receive the equivalent of the interest paid by the
issuer on the securities loaned and will also receive a fee, or all or a portion
of the interest on investment of the collateral, if any. However, the Portfolio
may pay lending fees to such borrowers. The Portfolio would not have the right
to vote any securities having voting rights during the existence of the loan,
but would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the securities
loaned if the borrower of the securities fails financially. However, the loans
will be made only to organizations deemed by the Portfolio's management to be of
good standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Securities lending involves administration expenses,
including finders' fees. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of the
securities loaned would not exceed 30% of the Portfolio's total assets. The
Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities and (ii) futures
contracts on securities indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States exchange or
board of trade. The Portfolio will be required, in connection with transactions
in futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit of the
futures commission merchant through whom the Portfolio engages in such futures
and options transactions.
Some futures contracts and options thereon may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit transactions in an exchange-traded instrument,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or futures option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Portfolio from closing out
positions and limiting its losses.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio will determine that the price fluctuations in the futures
contracts and options on futures are substantially related to price fluctuations
in securities held by the Portfolio or which it expects to purchase. The
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold to protect against a decline
in the price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities in the cash market at the time when the
futures (or option) position is closed out. However, in particular cases, when
it is economically advantageous for the Portfolio to do so, a long futures
position may be terminated (or an option may expire) without the corresponding
purchase of securities. The Portfolio will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Code for maintaining qualification of the Fund as a
regulated investment company for federal income tax purposes (see "Taxes").
ASSET COVERAGE REQUIREMENT
Transactions involving when-issued securities, the lending of 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 coverage or segregation is outstanding,
unless they are replaced with other appropriate assets. As a result, the
commitment of a large portion of the Portfolio's assets to segregated accounts
or cover could impede portfolio management or the Portfolio's ability to meet
redemption requests or other current obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of the Fund present or
represented by proxy at a meeting if the holders of more than 50% of the shares
are present or represented at the meeting or (b) more than 50% of the shares of
the Fund. Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial or maintenance margin
in connection with futures contracts or related options transactions is not
considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate, (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments. (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short, and unless not more than
25% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund and the Portfolio will make such sales
only for the purposes of deferring realization of gain or loss for federal
income tax purposes); (c) invest more than 15% of net assets in investments
which are not readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial paper
issued pursuant to Section 4(2) of said Act that the Board of Trustees of the
Trust or the Portfolio, or its delegate, determines to be liquid; or (d)
purchase or retain in its portfolio any securities issued by an issuer any of
whose officers, directors, trustees or security holders is an officer or Trustee
of the Trust or the Portfolio or is a member, officer, director or trustee of
any investment adviser of the Trust or the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities of
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value).
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease resulting
from a change in values, assets or other circumstances, other than a subsequent
rating change below investment grade made by a rating service, will not compel
the Fund or the Portfolio, as the case may be, to dispose of such security or
other asset. Where applicable and notwithstanding the foregoing, under normal
market conditions the Fund and the Portfolio must take actions necessary to
comply with the policy of investing at least 65% of total assets in a particular
State. Moreover, the Fund and Portfolio must always be in compliance with the
borrowing policy set forth above.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), a wholly-owned subsidiary of
Eaton Vance Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance
Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those Trustees who
are "interested persons" of the Trust 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 (65), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (55), Vice President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and a
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (61), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (61), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (70), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (66), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (53), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected President of
the Trust and the Portfolio on December 13, 1993.
ROBERT B. MACINTOSH (40), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV. Officer
of various investment companies managed by Eaton Vance or BMR. Mr. MacIntosh
was elected Vice President of the Trust on March 22, 1993.
JAMES L. O'CONNOR (51), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (65), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (61), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (34), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993). Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (39), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoads. Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Woodubury was elected Assistant Secretary on June 19,
1995.
For additional officers of the Portfolio, see "Additional Officer
Information" in the Fund's Part II.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Fund, including administrative
services, transfer agency, custodial and fund accounting and distribution
services, and (ii) all other matters in which Eaton Vance or its affiliates has
any actual or potential conflict of interest with the Fund or its shareholders.
The Nominating Committee is comprised of four Trustees who are not
"interested persons" as that term is defined under the 1940 Act ("noninterested
Trustees"). The Committee has four-year staggered terms, with one member
rotating off the Committee to be replaced by another noninterested Trustee of
the Trust. The purpose of the Committee is to recommend to the Board nominees
for the position of noninterested Trustee and to assure that at least a majority
of the Board of Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the 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
Fund and of the Portfolio.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"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 those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of over $17 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to over 150 mutual funds,
individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Bombay. Together Eaton Vance and Lloyd George manage over
$18 billion in assets. Eaton Vance mutual funds are distributed by Eaton Vance
Distributors both within the United States and offshore.
Eaton Vance Distributors believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 32 long-term state portfolios, 5
national portfolios and 10 limited maturity portfolios, which serve as
investment vehicles for over 100 mutual funds with varying pricing options. A
staff of 32 (including 9 portfolio managers and 9 credit specialists) is
responsible for the day-to-day management of over 3,500 issues in 47 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The investment philosophy of the municipal investment group is to:
seek value by avoiding unnecessary credit risk; build portfolios one security at
a time; and take a long-term approach to managing market risk. Over the
long-term, the group seeks to maximize tax-free income by keeping portfolios
fully invested (rather than trying to "time the market" for short-term results)
and reduce potential capital losses due to poor credit quality. Diligent and
continuing research and analysis are a critical component of the municipal
investment group's investment philosophy and long-term strategy.
The following persons manage one or more of the Eaton Vance tax-free
portfolios. For the identity of the Portfolio's portfolio manager, see the
Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and BMR and the
portfolio manager of single-state, tax-exempt funds in six states: Hawaii,
Louisiana, Massachusetts, Minnesota, New Jersey and North Carolina. He also
serves as economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and any legal obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto, to the extent not covered by
insurance.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part
II.
The Investment Advisory Agreement with BMR 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 currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the Fund,
Eaton Vance has been engaged to administer the Fund's affairs, subject to the
supervision of the Trustees of the Trust, and shall furnish for the use of the
Fund office space and all necessary office facilities, equipment and personnel
for administering the affairs of the Fund. For additional information about the
Administrator, see "Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and any legal obligation of the Trust to indemnify its Trustees and
officers with respect thereto to the extent not covered by insurance.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, M. Dozier Gardner, James B. Hawkes and
Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons and
John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman, Mr. Gardner is
vice chairman and Mr. Hawkes is president and chief executive officer of EVC,
BMR, Eaton Vance and EV. All of the issued and outstanding shares of Eaton
Vance and EV are owned by EVC. All of the issued and outstanding shares of BMR
are owned by Eaton Vance. All shares of the outstanding Voting Common Stock of
EVC are deposited in a Voting Trust which expires on December 31, 1997, the
Voting Trustees of which are Messrs. Clay, Gardner, Hawkes 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 January 1, 1997, Messrs. Clay, Gardner and Hawkes each owned 24% of such
voting trust receipts, and Messrs. Rowland and Faust owned 15% and 13%,
respectively, of such voting trust receipts. Mr. Otis is an officer of the
Trust and the Portfolio and is a member of the EVC, BMR, Eaton Vance and EV
organizations. Messrs. Browse, Fetter, MacIntosh, Murphy, O'Connor, and
Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders, are officers of the
Trust and/or the Portfolio and are also members of the BMR, Eaton Vance and EV
organizations. BMR will receive the fees paid under the Investment Advisory
Agreement.
EVC owns all of the stock of Energex Energy Corporation, which is engaged in
oil and gas exploration and development. In addition, Eaton Vance owns all of
the stock of Northeast Properties, Inc., which is engaged in real estate
investment. EVC owns all the stock of Fulcrum Management, Inc., and MinVen Inc.,
which are engaged in precious metal mining, venture investment and management.
EVC also owns 24% of the Class A shares of Lloyd George Management (B.V.I.)
Limited, a registered investment adviser. EVC, BMR, Eaton Vance and EV may also
enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, IBT. It is Eaton Vance's opinion that the terms and conditions of
such transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund or the Portfolio and such
banks.
CUSTODIAN
IBT acts as custodian for the Fund and the Portfolio. IBT has the custody of
all cash and securities representing the Fund's interest in the Portfolio, has
custody of all the Portfolio's assets, maintains the general ledger of the
Portfolio and the Fund and computes the daily net asset value of interests in
the Portfolio and the net asset value of shares of the Fund. In such capacity it
attends to details in connection with the sale, exchange, substitution, transfer
or other dealings with the Portfolio's investments, receives and disburses all
funds and performs various other ministerial duties upon receipt of proper
instructions from the Fund and the Portfolio. IBT charges fees which are
competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of Fund and
Portfolio net assets and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then reduced by a
credit for cash balances of the particular investment company at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
particular investment company's average daily collected balances for the week.
Landon T. Clay, a Director of EVC and an officer, Trustee or Director of other
entities in the Eaton Vance organization, owns approximately 13% of the voting
stock of Investors Financial Services Corp., the holding company parent of IBT.
Management believes that such ownership does not create an affiliated person
relationship between the Fund or the Portfolio and IBT under the 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.
SERVICE FOR WITHDRAWAL
The Trust's Transfer Agent will send to the shareholder regular monthly or
quarterly payments of any permitted amount designated by the shareholder (see
"Eaton Vance Shareholder Services -- Withdrawal Plan" in the Fund's current
Prospectus) based upon the value of the shares held. The checks will be drawn
from share redemptions and hence, are a return of principal. Income dividends
and capital gains distributions in connection with withdrawal accounts will be
credited at net asset value as of the record date for each distribution.
Continued withdrawals in excess of current income will eventually use up
principal, particularly in a period of declining market prices. A shareholder
may not have a withdrawal plan in effect at the same time he or she has
authorized Bank Automated Investing or is otherwise making regular purchases of
Fund shares. The shareholder, the Transfer Agent or the Principal Underwriter
will be able to terminate the withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the Portfolio is also
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transation prices for most municipal obligations held by the Portfolio, and such
obligations, including those purchaed on a when-issued basis, will normally be
valued on the basis of valuations furnished by a pricing service. The pricing
services uses information with respect to transactions in bonds, quotations from
bond dealers, market transactions in comparable securities, various
relationships between securities, and yield to maturity in determining value.
Taxable obligations for which price quotations are readily available normally
will be valued at the mean between the latest available bid and asked prices.
Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by or at the direction of the Trustees of the
Portfolio. The Fund and the Portfolio will be closed for business and will not
price their respective shares or interests on the following business holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage, determined on the prior Portfolio Business Day, which
represented that investor's share of the aggregate interests in the Portfolio on
such prior day. Any additions or withdrawals for the current Portfolio Business
Day will then be recorded. Each investor's percentage of the aggregate interest
in the Portfolio will then be recomputed as a percentage equal to a fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the Portfolio Valuation Time on the prior Portfolio Business Day
plus or minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio on the current Portfolio
Business Day and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the Portfolio Valuation Time on the prior Portfolio
Business Day plus or minus, as the case may be, the amount of the net additions
to or withdrawals from the aggregate investment in the Portfolio on the current
Portfolio Business Day by all investors in the Portfolio. The percentage so
determined will then be applied to determine the value of the investor's
interest in the Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and distributions paid and
reinvested) for the stated period and annualizing the result. The calculation
assumes that all distributions are reinvested at net asset value on the
reinvestment dates during the period, a complete redemption of the investment
and the deduction of the CDSC at the end of the period. For further information
concerning the total return of the Fund, see "Performance Information" in the
Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing net
investment income per share earned during a recent thirty-day period by the
maximum offering price (net asset value) per share on the last day of the period
and annualizing the resulting figure. Net investment income per share is
calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for the
period with the resulting number being divided by the average daily number of
Fund shares outstanding and entitled to receive distributions during the period.
This yield figure does not reflect the deduction of any CDSC which are imposed
upon certain redemptions at the rates set forth under "How to Redeem Fund
Shares" in the Fund's current Prospectus. A taxable-equivalent yield is computed
by dividing the tax-exempt yield figure by 1 minus a stated rate. For the yield
and taxable equivalent yield of the Fund, see "Performance Information" in the
Fund's Part II.
The Principal Underwriter may publish to Authorized Firms the Fund's
distribution rate and/or the effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current net asset value per share. The Fund's
effective distribution rate is computed by dividing the distribution rate by the
ratio (the days in a year divided by the accrual days of the monthly period)
used to annualize the most recent monthly distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investor's should note that the
Fund's yield is calculated using a standardized formula, the income component of
which is computed from the yields to maturity of all debt obligations held by
the Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
The Fund's total return may be compared to relevant indices, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
other investment companies.
The Fund may provide investors with information on municipal bond investing,
which may include comparative performance information, evaluations of Fund
performance, charts and/or illustrations prepared by independent sources (such
as Lipper Analytical Services, CDA/Wiesenberger and Morningstar, Inc.; The Bond
Buyer, the Federal Reserve Board or The Wall Street Journal). The Fund may also
refer in investor publications to Tax Freedom Day, as computed by the Tax
Foundation, Washington, DC 20005, to help illustrate the value of tax free
investing, as well as other tax-related information. Information, charts and
illustrations showing the effects of inflation and taxes (including their effect
on the dollar and the return on various investments) and compounding earnings,
may also be included in advertisements and materials furnished to present and
prospective investors.
Information about portfolio allocation and holdings of the Portfolio at a
particular date (including ratings assigned by independent ratings services such
as Moody's, S&P and Fitch) may be included in advertisements and other material
furnished to present and prospective shareholders. Such information may be
stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield or distribution rate of the Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. Such information may also compare the tax equivalent
yield (or value) of the Fund to the after-tax yield (or value) of such other
investment vehicles. A bank certificate of deposit, unlike the Fund's shares,
pays a fixed rate of interest and entitles the depositor to receive the face
amount of the certificate of deposit at maturity. A bank money market deposit
account is a form of savings account which pays a variable rate of interest.
Unlike the Fund's shares, bank certificates of deposit and bank money market
deposit accounts are insured by the Federal Deposit Insurance Corporation. A
money market mutual fund is designed to maintain a constant value of $1.00 per
share and, thus, a money market fund's shares are subject to less price
fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
-- cost associated with aging parents;
-- funding a college education (including its actual and estimated
cost);
-- health care expenses (including actual and projected expenses);
-- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
-- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in municipal bond
funds. Such information may describe the following advantages of investing in a
municipal bond mutual fund versus individual municipal bonds: regular monthly
income; free reinvestment of distributions; potential for increased income; bond
diversification; liquidity; low-cost easy access; and active management and in
depth analysis by investment professionals; In addition, by investing in a
municipal bond fund instead of individual bonds, an investor can avoid dealing
with the complexities of the municipal bond market, while benefitting from the
market access and lower transactions costs enjoyed by municipal bond funds.
The Fund may provide information about Eaton Vance, its affiliates and other
investment advisers to the funds in the Eaton Vance Family of Funds in sales
material or advertisements provided to investors or prospective investors. Such
material or advertisements may also provide information on the use of investment
professionals by such investors.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated, and intends to qualify each
year, as a regulated investment company ("RIC") under the Code. Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains in accordance with
the timing requirements imposed by the Code, so as to avoid any federal income
or excise tax on the Fund. The Fund so qualified for its fiscal year ended
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 satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, each investor's distributive share of the Portfolio's net taxable (if any)
and tax-exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a RIC
for federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions 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 qualification as a RIC for federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net
long-term capital gains with respect to such shares. In addition, a loss
realized on a redemption or other disposition of Fund shares may be disallowed
to the extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain certifications required by the Internal Revenue Service ("IRS"), as well
as shareholders with respect to whom the Fund has received notification from the
IRS or a broker, may be subject to "backup" withholding of federal income tax
from the Fund's taxable dividends and distributions and the proceeds of
redemptions (including repurchases and exchanges), at a rate of 31%. An
individual's taxpayer identification number is generally his or her social
security number.
Non-resident alien individuals, certain foreign corporations and certain
other foreign entities generally will be subject to a U.S. withholding tax at a
rate of 30% on the Fund's distributions from its ordinary income and the excess
of its net short-term capital gain over its net long-term capital loss, unless
the tax is reduced or eliminated by an applicable tax treaty. Distributions from
the excess of the Fund's net long-term capital gain over its net short-term
capital loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to Authorized Firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under federal and state securities laws
is borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the Fund's Distribution Plan relating to such
payments are included in the Distribution Agreement. The Distribution Agreement
is renewable annually by the Trust's Board of Trustees (including a majority of
its Trustees who are not interested persons of the Trust and who have no direct
or indirect financial interest in the operation of the Fund's Distribution Plan
or the Distribution Agreement), may be terminated on sixty days' notice either
by such Trustees or by vote of a majority of the outstanding voting securities
of the Fund or on six months' notice by the Principal Underwriter and is
automatically terminated upon assignment. The Principal Underwriter distributes
Fund shares on a "best efforts" basis under which it is required to take and pay
for only such shares as may be sold.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
the Fund's Part II.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the NASD
Rule. The purpose of the Plan is to compensate the Principal Underwriter for its
distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments made by its corresponding
Portfolio, the expenses of the Fund and of its corresponding Portfolio accrued
and allocated to the Fund on such day, income on portfolio investments of its
corresponding Portfolio accrued and allocated to the Fund on such day, and any
dividends and distributions declared on Fund shares. The Fund does not accrue
possible future payments as a liability of the Fund or reduce the Fund's current
net assets in respect of unknown amounts which may become payable under the Plan
in the future because the standards for accrual of such a liability under
accounting principles have not been satisfied.
The Plan provides that the Fund will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding Uncovered Distribution Charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Fund to the Principal Underwriter
whenever there exist Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of CDSCs will
tend to increase the time during which there will exist Uncovered Distribution
Charges of the Principal Underwriter. Conversely, periods with a low level of
sales of Fund shares accompanied by a high level of early redemptions of Fund
shares resulting in the imposition of CDSCs will tend to reduce the time during
which there will exist Uncovered Distribution Charges of the Principal
Underwriter.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and CDSCs theretofore
paid or payable to the Principal Underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding Uncovered Distribution
Charges with respect to such day. The amount of outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a CDSC will be imposed, the level and timing of redemptions of Fund shares upon
which no CDSC will be imposed (including redemptions involving exchanges of Fund
shares pursuant to the exchange privilege which result in a reduction of
Uncovered Distribution Charges), changes in the level of the net assets of the
Fund, and changes in the interest rate used in the calculation of the
distribution fee under the Plan.
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal Underwriter
and service fees to the Principal Underwriter and Authorized Firms which may be
equivalent, on an aggregate basis during any fiscal year of the Fund, to .95% of
the Fund's average daily net assets for such year. For the sales commission and
service fee payments made by the Fund and the outstanding Uncovered Distribution
Charges of the Principal Underwriter, see "Fees and Expenses -- Distribution
Plan" in the Fund's Part II of this SAI. The Fund believes that the combined
rate of all these payments may be higher than the rate of payments made under
distribution plans adopted by other investment companies pursuant to Rule 12b-1.
Although the Principal Underwriter will use its own funds (which may be borrowed
from banks) to pay sales commissions at the time of sale, it is anticipated that
the Eaton Vance organization will profit by reason of the operation of the Plan
through an increase in the Fund's assets (thereby increasing the advisory fee
payable to BMR by the Portfolio) resulting from sale of Fund shares and through
amounts paid to the Principal Underwriter, including CDSCs pursuant to the Plan.
The Eaton Vance organization may be considered to have realized a profit under
the Plan if at any point in time the aggregate amounts theretofore received by
the Principal Underwriter pursuant to the Plan and from CDSCs have exceeded the
total expenses theretofore incurred by such organization in distributing shares
of the Fund. Total expenses for this purpose will include an allocable portion
of the overhead costs of such organization and its branch offices, which costs
will include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and supplies,
literature and sales aids, interest expense, data processing fees, consulting
and temporary help costs, insurance, taxes other than income taxes, legal and
auditing expense and other miscellaneous overhead items. Overhead is calculated
and allocated for such purpose by the Eaton Vance organization in a manner
deemed equitable to the Fund.
The Plan provides that it shall continue in effect from year to year so long
as such continuance is approved at least annually by the vote of both a majority
of (i) the Trustees of the Trust who are not interested persons of the Trust and
who have no direct or indirect financial interest in the operation of the Plan
or any agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all
of the Trustees then in office, and the Distribution Agreement contains a
similar provision. The Plan and Distribution Agreement may be terminated at any
time by a vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the outstanding voting securities of the Fund. The provisions of the
Plan relating to payments of sales commissions and distribution fees to the
Principal Underwriter are also included in the Distribution Agreement between
the Trust on behalf of the Fund and the Principal Underwriter. Under the Plan
the President or a Vice President of the Trust shall provide to the Trustees for
their review, and the Trustees shall review at least quarterly, a written report
of the amount expended under the Plan and the purposes for which such
expenditures were made. The Plan may not be amended to increase materially the
payments described therein without approval of the shareholders of the Fund, and
all material amendments of the Plan must also be approved by the Trustees as
required by Rule 12b-1. So long as the Plan is in effect, the selection and
nomination of the Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which will benefit the Fund and its shareholders. Payments for sales
commissions and distribution fees made to the Principal Underwriter under the
Plan will compensate the Principal Underwriter for its services and expenses in
distributing shares of the Fund. Service fee payments made to the Principal
Underwriter and Authorized Firms under the Plan provide incentives to provide
continuing personal services to investors and the maintenance of shareholder
accounts. By providing incentives to the Principal Underwriter and Authorized
Firms, the Plan is expected to result in the maintenance of, and possible future
growth in, the assets of the Fund. Based on the foregoing and other relevant
factors, the Trustees have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any broker-dealer firm with whom portfolio orders may
be placed the fact that such firm has sold or is selling shares of the Fund or
of other investment companies sponsored by BMR or Eaton Vance. This policy is
not inconsistent with a rule of the NASD, which rule provides that no firm which
is a member of the Association shall favor or disfavor the distribution of
shares of any particular investment company or group of investment companies on
the basis of brokerage commissions received or expected by such firm from any
source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate in a manner it deems equitable portfolio security
transactions among the Portfolio and the portfolios of its other investment
accounts whenever decisions are made to purchase or sell securities by the
Portfolio and one or more of such other accounts simultaneously. In making such
allocations, the main factors to be considered are the respective investment
objectives of the Portfolio and such other accounts, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment by the Portfolio and such accounts, the size of investment
commitments generally held by the Portfolio and such accounts and the opinions
of the persons responsible for recommending investments to the Portfolio and
such accounts. However, there may be instances when the Portfolio will not
participate in a securities transaction that is allocated among other accounts.
While this procedure could have a detrimental effect on the price or amount of
the securities available to the Portfolio from time to time, it is the opinion
of the Trustees of the Trust and the Portfolio that the benefits available from
the BMR organization outweigh any disadvantage that may arise from exposure to
simultaneous transactions. For the brokerage commissions paid by the Portfolio
on portfolio transactions, see "Fees and Expenses" in the Fund's Part II.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" and "EV" in the Fund's name and may use the words "Eaton
Vance" 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 as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for federal income tax purposes.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this SAI and have been so incorporated in reliance on the report of Deloitte &
Touche LLP, independent certified public accountants, as experts in accounting
and auditing. A copy of the Fund's most recent Annual Report accompanies this
SAI.
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
EV Marathon Florida Municipals Fund
EV Marathon Massachusetts Municipals Fund
EV Marathon Mississippi Municipals Fund
EV Marathon New York Municipals Fund
EV Marathon Ohio Municipals Fund
EV Marathon Rhode Island Municipals Fund
EV Marathon West Virginia Municipals Fund
(Accession No. 0000950135-96-005156)
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- ----------
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
p: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON CALIFORNIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax in the form of an investment exempt from
California State personal income taxes. The Fund currently seeks to achieve its
investment objective by investing its assets in the California Municipals
Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain California considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in California issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
California issuers. Neither the Trust nor the Portfolio has independently
verified this information.
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
percent 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. Reflecting the belief shared by many analysts that the
California economy would remain strong, the 1996-1997 Budget Act established a
State budget of some $63 billion. Relying on the 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.
The ultimate impact of these and other budgetary allocations is impossible to
predict. Indeed, constant fluctuations in other factors affecting the State --
including changes in welfare caseloads, property tax receipts and federal
funding -- will undoubtedly create new budget challenges.
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.
The voters will be presented with a new initiative constitutional amendment
on the November 1996 ballot. The Right to Vote on Taxes Act, sponsored by the
Howard Jarvis Taxpayers Association, seeks to strengthen Proposition 62 by
requiring majority voter approval for general taxes, two-thirds voter approval
for special taxes (including taxes imposed for specific purposes but placed in
the general fund), voter approval of existing local taxes enacted after January
1, 1995, and placing other restrictions on fees and assessments. As a
constitutional amendment, the provisions would clearly apply to charter cities.
Another initiative on the November 1996 ballot, a statutory initiative
sponsored by the California Tax Reform Association, would reimpose the now
sunseted temporary 10 and 11 percent tax brackets and use the revenues from the
increase to replace a portion of the property tax revenue shifted from cities,
counties and special districts to schools on an ongoing basis since 1992.
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.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $370,590,195. For
the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory fees
of $1,942,811 (equivalent to 0.50% 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 $2,121,262 (equivalent to 0.50% of the Portfolio's average
daily net assets for such year). For the six month period ended September 30,
1994, the Portfolio paid BMR advisory fees of $1,141,013 (equivalent to 0.50%
(annualized) of the Portfolio's average daily net assets for such period). For
the period from the Portfolio's start of business, May 3, 1993, to the fiscal
year ended March 31, 1994, the Portfolio paid BMR advisory fees of $2,149,273
(equivalent to 0.49% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and may be continued as described under "Investment
Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended September 30, 1996, the Principal
Underwriter paid to Authorized Firms sales commissions of $370,287 on sales of
Fund shares. During the same period, the Fund made sales commission payments
under the Plan to the Principal Underwriter aggregating $2,883,653 and the
Principal Underwriter received approximately $928,000 in CDSCs imposed on early
redeeming shareholders. The sales commissions and CDSCs paid to the Principal
Underwriter reduced Uncovered Distribution Charges under the Plan. As at
September 30, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$4,643,000 (which amount was equivalent to 1.3% of the Fund's net assets on such
date). During the fiscal year ended September 30, 1996, the Fund paid or accrued
service fees under the Plan aggregating $817,797, of which $807,971 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 $3,955.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $5,115 on portfolio security transactions aggregating $503,
688,461 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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------------
Donald R. Dwight ............. $687 $3,530(2) $142,500(4)
Samuel L. Hayes, III ......... 625 3,537(3) 153,750(5)
Norton H. Reamer ............. 619 3,459 142,500
John L. Thorndike ............ 634 3,599 147,500
Jack L. Treynor .............. 695 3,685 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $1,376 of deferred compensation.
(3) Includes $1,236 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Cynthia J. Clemson (33) is a Vice
President of the Portfolio. Ms. Clemson has served as a Vice President of the
Portfolio since February 1, 1996. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and an employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the ten-, five- and
one-year periods ended September 30, 1996.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER DEDUCTING
DEDUCTING THE DEDUCTING THE DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC*
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC* -------------------------- ----------------------------
PERIOD DATE INVESTMENT ON 9/30/96 ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------- ------------- -------------- ------------ ------------ ------------ --------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
10 Years
Ended
9/30/96** 9/30/86 $1,000 $1,754.29 $1,754.29 75.43% 5.78% 75.43% 5.78%
5 Years
Ended
9/30/96** 9/30/91 $1,000 $1,306.57 $1,287.49 30.66% 5.49% 28.75% 5.18%
1 Year
Ended
9/30/96 9/30/95 $1,000 $1,064.87 $1,014.87 6.49% 6.49% 1.49% 1.49%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 4.56%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.56% would be 7.34%,
assuming a combined federal and State tax rate of 37.90%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 12.6% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the 1997 regular federal income tax
rates and California State income tax laws and tax rates applicable for 1996.
<TABLE>
<CAPTION>
A FEDERAL AND CALIFORNIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- CA STATE --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------------------- ------------ --------------------------------------------------------------------
<C> <C> <C> <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 combined tax brackets are calculated using the highest California State rate within the bracket. Taxpayers with taxable
income within each bracket may have a lower combined tax bracket and taxable equivalent yield than indicated above. The
combined tax brackets assume that California taxes are itemized deductions for federal income tax purposes. Investors who do
not itemize deductions on their federal income tax return will have a higher combined tax bracket and taxable equivalent
yield than those indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36%
and 39.6% over the same ranges of income.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including California State income taxes)
for taxpayers with adjusted gross income in excess of $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 California personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for California personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON FLORIDA MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax in the form of an investment exempt from Florida
intangibles tax. The Fund currently seeks to achieve its investment objective by
investing its assets in the Florida Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Florida issuers. Such information supplements the information in the Prospectus.
It is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Florida issuers. Neither
the Trust nor the Portfolio has independently verified this information.
Florida is 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 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.
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 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).
For fiscal year 1995-96, the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $15.3 billion, a 3.3% increase
over fiscal year 1994-95. With combined General Revenue, Working Capital Fund
and Budget Stabilization Fund appropriations at $14.8 billion, unencumbered
reserves at the end of fiscal year 1995-96 are estimated at $0.5 billion. For
fiscal year 1996-97, the estimated General Revenue plus Working Capital and
Budget Stabilization funds available total $16.0 billion, a 4.5% increase over
fiscal year 1995-96. The Florida and United States unemployment rates for 1995
were 5.4% and 5.6%, respectively. The estimated Florida and United States
unemployment rates for 1996 and 1997 are 5.9% and 5.8%, respectively.
Florida's general obligation bonds have been rated Aa/AA by both rating
agencies for over two decades.
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.
In 1993, the Florida constitution was amended to limit the annual growth in
the assessed valuation of residential property which, over time, could constrain
growth in property taxes, a major source of revenue for local governments. In
1994, the Florida constitution was amended to limit state revenue collections in
any fiscal year to, subject to exception, that which was allowed in the prior
fiscal year plus a growth factor, to be determined by reference to the average
annual growth rate in Florida personal income over the previous five years.
Florida tourism appears to be suffering the effects of negative publicity
regarding crime against tourists in the state, "product maturity," higher prices
and more aggressive marketing by competing vacation destinations. Tourist
arrivals are expected to decrease 4.7% this fiscal year (1995-96) and rebound by
4.5% in fiscal year 1996-97. The total number of visiting tourists is expected
to reach 39.4 million and 41.2 million during fiscal years 1995-96 and 1996-97,
respectively.
There has been a decline in Florida's dependency on highly cyclical
construction and construction-related manufacturing sectors. For example, the
total contract construction employment as a share of total non-farm employment
reached a peak of over 10% in 1973. In 1980, the share was roughly 7.5%, and in
1995, the share had edged downward to nearly 5%. This trend is expected to
continue as Florida's economy continues to diversify.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $624,374,001. For
the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory fees
of $3,123,150 (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 $3,433,489 (equivalent to 0.47% of the Portfolio's average
daily net assets for such year). For the fiscal year ended September 30, 1994,
the Portfolio paid BMR advisory fees of $3,644,215 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). The Portfolio's Investment
Advisory Agreement with BMR is dated October 13, 1992 and may be continued as
described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended September 30, 1996, the Principal
Underwriter paid to Authorized Firms sales commissions of $628,527 on sales of
Fund shares. During the same period, the Fund made sales commission payments
under the Plan to the Principal Underwriter aggregating $4,996,054, and the
Principal Underwriter received approximately $2,658,000 in CDSCs imposed on
early redeeming shareholders. The sales commissions and CDSCs paid to the
Principal Underwriter reduced Uncovered Distribution Charges under the Plan. As
at September 30, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$16,966,000 (which amount was equivalent to 2.8% of the Fund's net assets on
such date). During the fiscal year ended September 30, 1996, the Fund paid or
accrued service fees under the Plan aggregating $1,176,534, of which $1,167,094
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 $7,395.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $21,746 on portfolio security transactions aggregating
$1,978,955,352 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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------------
Donald R. Dwight ............. $687 $4,155(2) $142,500(4)
Samuel L. Hayes, III ......... 625 4,103(3) 153,750(5)
Norton H. Reamer ............. 619 4,018 142,500
John L. Thorndike ............ 634 4,173 147,500
Jack L. Treynor .............. 679 4,301 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $1,635 of deferred compensation.
(3) Includes $1,361 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from August 28, 1990 through September 30, 1996 and for the five- and one-year
periods ended September 30, 1996.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER DEDUCTING
DEDUCTING THE DEDUCTING THE DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- ----------------------------
PERIOD DATE INVESTMENT ON 9/30/96 ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------- ------------- -------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 8/28/90* $1,000 $1,559.29 $1,559.29 55.93% 7.57% 55.93% 7.57%
5 Years
Ended
9/30/96*** 9/30/91 $1,000 $1,363.71 $1,343.71 36.37% 6.40% 34.37% 6.09%
1 Year
Ended
9/30/96 9/30/95 $1,000 $1,054.33 $1,004.33 5.43% 5.43% 0.43% 0.43%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on August 28, 1990.
** No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 4.54%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.54% would be 6.86%,
assuming a combined federal and State intangibles tax rate of 33.82%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 15.9% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Florida Tax Free Fund to EV
Marathon Florida Tax Free Fund on February 1, 1994 and to EV Marathon Florida
Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below give the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and the
Florida intangibles tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
YOU ARE IN
THIS
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON FEDERAL IN YOUR BRACKET, A TAX-FREE YIELD OF
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> <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> <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.
</TABLE>
Note: The federal income tax brackets do not take into account the effect of a
reduction in the deductibility of itemized deductions for taxpayers with
adjusted gross income in excess of $121,200. The tax brackets also do not show
the effects of phaseout of personal exemptions for single and joint filers with
adjusted gross incomes in excess of $121,200 and $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 the Florida
intangibles tax, state or local taxes, if any, payable on Fund distributions to
individuals who are not Florida residents, or intangibles taxes, if any, imposed
under the laws of other states. It should also be noted that the interest earned
on certain "private activity bonds" issued after August 7, 1986, while exempt
from the regular federal income tax, is treated as a tax preference item which
could subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MASSACHUSETTS MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Massachusetts state personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Massachusetts Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Massachusetts considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Massachusetts issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of Massachusetts issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Beginning in 1989, the Commonwealth's economy slowed significantly. Most of
the employment growth during this period was experienced in the services and
trade sectors of the economy, while the manufacturing sector continues to suffer
employment losses. Like most other industrial states, Massachusetts has seen a
shift in employment from manufacturing to more technology and service-based
industries. Between 1993 and 1994, per capita personal income in Massachusetts
increased 3.6%, as compared to 1.7% for the nation as a whole. The unemployment
rate for the Commonwealth fell from 5.4% in 1995 to 5.0% for February, 1996. The
national unemployment rate for February 1996 was 5.6%.
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.
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 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, it should be noted
that no significant challenge has been raised since it took effect. Any fiscal
problems encountered by the state amplify the economic and fiscal problems
encountered by cities and towns throughout the Commonwealth. Any Commonwealth
fiscal problems which result in local aid reductions could, in the absence of
overrides, result in payment defaults by local cities and towns and/or ratings
downgrades resulting in an erosion of their market value.
FEES AND EXPENSES
INVESTMENT ADVISER
As 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 year). For the fiscal year ended September 30, 1994,
the Portfolio paid BMR advisory fees of $1,397,963 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). The Portfolio's Investment
Advisory Agreement with BMR is dated October 13, 1992 and may be continued as
described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended September 30, 1996, the Principal
Underwriter paid to Authorized Firms sales commissions of $317,361 on sales of
Fund shares. During the same period, the Fund made sales commission payments
under the Plan to the Principal Underwriter aggregating $2,125,998, and the
Principal Underwriter received approximately $963,000 in CDSCs imposed on early
redeeming shareholders. The sales commissions and CDSCs paid to the Principal
Underwriter reduced Uncovered Distribution Charges under the Plan. As at
September 30, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$8,088,000 (which amount was equivalent to 3.0% of the Fund's net assets on such
date). During the fiscal year ended September 30, 1996, the Fund paid or accrued
service fees under the Plan aggregating $485,320, of which $481,472 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 $3,467.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------------
Donald R. Dwight ............. $687 $3,118(2) $142,500(4)
Samuel L. Hayes, III ......... 625 3,162(3) 153,750(5)
Norton H. Reamer ............. 619 3,087 142,500
John L. Thorndike ............ 634 3,218 147,500
Jack L. Treynor .............. 679 3,278 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $1,214 of deferred compensation.
(3) Includes $1,111 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from April 18, 1991 through September 30, 1996 and for the five- and one-year
periods ended September 30, 1996.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
TOTAL RETURN BEFORE
VALUE BEFORE VALUE AFTER DEDUCTING TOTAL RETURN AFTER DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** ------------------------------------------------------
PERIOD DATE INVESTMENT ON 9/30/96 ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------- ------------- -------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund*** 4/18/91* $1,000 $1,421.25 $1,411.25 42.12% 6.65% 41.12% 6.51%
5 Years
ended
9/30/96*** 9/30/91 $1,000 $1,349.43 $1,329.43 34.94% 6.18% 32.94% 5.86%
1 Year
Ended
9/30/96 9/30/95 $1,000 $1,055.30 $1,005.30 5.53% 5.53% 0.53% 0.53%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on April 18, 1991.
** No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 4.84%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.84% would be 7.97%,
assuming a combined federal and State tax rate of 39.28%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 9.3% of the outstanding shares, which were
held on behalf of its customers who are the beneficial owners of such shares,
and as to which it had voting power under certain limited circumstances. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Massachusetts Tax Free Fund to EV
Marathon Massachusetts Tax Free Fund on February 1, 1994. The Fund changed its
name from EV Marathon Massachusetts Tax Free Fund to EV Marathon Massachusetts
Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Massachusetts State income tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
A FEDERAL AND MASSACHUSETTS STATE
TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ----------------- MA STATE ---------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------------------- ------------ ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <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.
</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 phase out 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 federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MISSISSIPPI MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Mississippi State personal income taxes. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Mississippi Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Mississippi considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Mississippi issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from the Mississippi Employment Security Commission and from
official statements relating to securities offerings of Mississippi issuers.
Neither the Trust nor the Portfolio has independently verified this information.
Funding of the various State operations is derived principally from the
General Fund revenues and Special Fund receipts. For the fiscal year ending June
30, 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 has 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.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $25,279,561. For
the fiscal year ended September 30, 1996, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $55,976 (equivalent to 0.20% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$27,990. For the fiscal year ended September 30, 1995, absent a fee reduction,
the Portfolio would have paid BMR advisory fees of $65,442 (equivalent to 0.22%
of the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of its advisory fee in the amount
of $36,759. For the fiscal year ended September 30, 1994, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $45,841
(equivalent to 0.19% of the Portfolio's average daily net assets for such year).
To enhance the net income of the Portfolio, BMR made a reduction of the full
amount of its advisory fee and BMR was allocated a portion of expenses related
to the operation of the Portfolio in the amount of $19,780. The Portfolio's
Investment Advisory Agreement with BMR is dated June 7, 1993 and may be
continued as described under "Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal year ended September 30, 1994, $42,290 of
the Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's initial
sole shareholder (Eaton Vance) and by the Board of Trustees of the Trust, as
required by Rule 12b-1. During the fiscal year ended September 30, 1996, the
Principal Underwriter paid to Authorized Firms sales commissions of $41,308 on
sales of Fund shares. During the same period, the Fund made sales commission
payments under the Plan to the Principal Underwriter aggregating $192,340, and
the Principal Underwriter received approximately $122,000 in CDSCs imposed on
early redeeming shareholders. The sales commissions and CDSCs paid to the
Principal Underwriter reduced Uncovered Distribution Charges under the Plan. As
at September 30, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$1,007,000 (which amount was equivalent to 4.2% of the Fund's net assets on such
date). During the fiscal year ended September 30, 1996, the Fund paid or accrued
service fees under the Plan aggregating $45,430, of which $45,368 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 $367.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $4,552 on portfolio security transactions aggregating $40,485,462
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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------------
Donald R. Dwight ............. $34 $344(2) $142,500(4)
Samuel L. Hayes, III ......... 31 313(3) 153,750(5)
Norton H. Reamer ............. 31 310 142,500
John L. Thorndike ............ 32 317 147,500
Jack L. Treynor .............. 34 339 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $135 of deferred compensation.
(3) Includes $104 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Cynthia J. Clemson (33) is a Vice
President of the Portfolio. Ms. Clemson has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and an employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from June 11, 1993 through September 30, 1996 and for the one-year period ended
September 30, 1996.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
TOTAL RETURN BEFORE
VALUE BEFORE VALUE AFTER DEDUCTING TOTAL RETURN AFTER DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** ------------------------- -----------------------------
PERIOD DATE INVESTMENT ON 9/30/96 ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------- ------------- -------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund*** 6/11/93* $1,000 $1,131.43 $1,102.60 13.14% 3.80% 10.26% 3.00%
1 Year
Ended
9/30/96*** 9/30/95 $1,000 $1,061.66 $1,011.66 6.17% 6.17% 1.17% 1.17%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on June 11, 1993.
** No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 4.71%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.71% would be 7.19%,
assuming a combined federal and State tax rate of 34.45%. If a portion of the
Portfolio's expenses had not been allocated to the Investment Adviser, the Fund
would have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 25.8% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Mississippi Tax Free Fund to EV
Marathon Mississippi Tax Free Fund on December 21, 1993 and to EV Marathon
Mississippi Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Mississippi State income tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
A FEDERAL AND MISSISSIPPI STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ----------------- MS STATE -----------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------- ------------ -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Mississippi State income taxes)
for taxpayers with adjusted gross income in excess of $121,200. The tax brackets
also do not show the effects of phase out of personal exemptions for single
filers with adjusted gross income in excess of $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 Mississippi personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Mississippi personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NEW YORK MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New York City and New York State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the New York Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
New York issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
York issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been below
the national average primarily due to significant cutbacks in the computer,
manufacturing, defense and banking industries. New York's economy is expected to
continue to expand modestly during 1996. The unemployment rate for the State for
1995 was 6.3%, compared to the national unemployment rate of 5.6%. New York
City's unemployment rate was 8.2% for 1995, down from 8.5% a year earlier.
For fiscal year 1994-1995, the State's GAAP deficit grew by $1.43 billion
from $1.88 billion to $3.31 billion. The deficit was largely due to a draw down
of the prior year's cash balance of $1 billion to fund operating expenses. The
State's accumulated deficit would have been $7.5 billiion if it was not for an
LGAC issuance in 1995.
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.
On July 13, 1996, the State adopted its budget for the 1996-1997 fiscal year
which began on April 1, 1996. Prior to the adoption of the 1996-1997 budget,
legislation making interim appropriations for State personal service costs,
various grants to local governments and certain other items for such fiscal year
were enacted by the State. It is reasonable to expect press reports describing
the details of such budget.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7 billion
dollar cap, net of LGAC proceeds, on the seasonal borrowing program. As of June
1995, LGAC had issued bonds and notes to provide net proceeds of $4.7 billion
completing the program. This cap may be exceeded in cases where the Governor and
the legislature have certified the need for additional borrowing and have
devised a method for reducing it back to the cap no later than the fourth fiscal
year after the limit is exceeded. If this cap were to be exceeded, it could
result in action by the rating agencies which could adversely affect prices of
bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each of
the 1981 through 1995 fiscal years, the City achieved balanced operating results
as reported in accordance with generally accepted accounting principles.
Pursuant to the laws of the State, the City prepares a four-year annual
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City
implemented various actions to close projected budget gaps of $3.3 billion, $2.3
billion and $3.1 billion for the 1994, 1995 and 1996 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 1997 fiscal year, the City
previously projected a budget gap of $2.7 billion and has implemented and will
implement various gap-closing actions to balance the 1997 fiscal year budget
including, among others, substantial reductions in entitlement programs, service
and personnel reductions, cost saving initiatives related to debt services and
pension costs and the sale of certain City assets. The City currently projects
budget gaps of $1.7 billion, $2.7 billion and $3.4 billion for its 1998, 1999
and 2000 fiscal years, respectively. The City's gap-closing plans for the 1998
through 2000 fiscal years include reductions in City agency expenditures,
additional State and federal 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 1997 through 2000 fiscal years. The fiscal health of New
York City, which is the largest issuer of municipal bonds in the country and a
leading international commercial center, exerts a significant influence upon the
fiscal health and bond values of issues throughout the State. Bond values of the
Municipal Assistance Corporation, the State of New York, the New York Local
Government Assistance Corporation, the New York State Dormitory Authority --
City University, the New York City Municipal Water Finance Authority and The
Metropolitan Transportation Authority would be particularly affected by serious
financial difficulties encountered by New York City. The Portfolio could be
expected to hold bonds issued by many, if not all of these issuers, at any given
time.
As of July 11, 1996, 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. 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," 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. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $604,529,520. For
the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory fees
of $2,932,032 (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 $3,031,508 (equivalent to 0.47% of the Portfolio's average
daily net assets for such year). For the fiscal year ended September 30, 1994,
the Portfolio paid BMR advisory fees of $3,073,565 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). The Portfolio's Investment
Advisory Agreement with BMR is dated October 13, 1992 and may be continued as
described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended September 30, 1996, the Principal
Underwriter paid to Authorized Firms sales commissions of $847,919 on sales of
Fund shares. During the same period, the Fund made sales commission payments
under the Plan to the Principal Underwriter aggregating $4,673,407, and the
Principal Underwriter received approximately $2,011,000 in CDSCs imposed on
early redeeming shareholders. The sales commissions and CDSCs paid to the
Principal Underwriter reduced Uncovered Distribution Charges under the Plan. As
at September 30, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$15,494,000 (which amount was equivalent to 2.6% of the Fund's net assets on
such date). During the fiscal year ended September 30, 1996, the Fund paid or
accrued service fees under the Plan aggregating $1,038,619, of which $1,035,541
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 $6,607.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $94,192 on portfolio security transactions aggregating
$703,948,362 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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------------
Donald R. Dwight ............. $687 $4,155(2) $142,500(4)
Samuel L. Hayes, III ......... 625 4,103(3) 153,750(5)
Norton H. Reamer ............. 619 4,018 142,500
John L. Thorndike ............ 634 4,173 147,500
Jack L. Treynor .............. 679 4,301 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $1,635 of deferred compensation.
(3) Includes $1,361 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (35) has served as a Vice
President of the Portfolio since June 19, 1995. Ms. Anderes has been a Vice
President of BMR and Eaton Vance since 1994, and is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Ms. Anderes was Vice President and portfolio manager, Lazard Freres Asset
Management (1992-1994) and Vice President and Manager -- Municipal Research,
Roosevelt & Cross (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average total return on a
hypothetical investment of $1,000 in the Fund covering the life of the Fund from
August 30, 1990 through September 30, 1996 and for the five- and one-year
periods ended September 30, 1996.
<PAGE>
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN BEFORE TOTAL RETURN AFTER
MENT BEFORE MENT AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- -------------------------
PERIOD DATE INVESTMENT ON 9/30/96 ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------- --------------- --------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 8/30/90* $1,000 $1,587.05 $1,587.05 58.70% 7.88% 58.70% 7.88%
5 Years
Ended
9/30/96 9/30/91 $1,000 $1,380.08 $1,360.08 38.01% 6.66% 36.01% 6.34%
1 Year
Ended
9/30/96 9/30/95 $1,000 $1,058.66 $1,008.66 5.87% 5.87% 0.87% 0.87%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on August 30, 1990.
** No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 4.31%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.31% would be 7.06%,
assuming a combined Federal and State tax rate of 38.99%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 12.6% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance New York Tax Free Fund to EV
Marathon New York Tax Free Fund on February 1, 1994 and to EV Marathon New York
Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLES
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and New
York State and New York City income tax laws in effect for 1997.
<TABLE>
<CAPTION>
COMBINED
FEDERAL,
SINGLE RETURN JOINT RETURN NY STATE A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
- ------------------- ------------------- AND NY CITY ---------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------------- ------------ ---------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<C> <C> <C> <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.
</TABLE>
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and New
York State income tax laws in effect for 1997.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND NEW YORK STATE TAX EXEMPT YIELD OF:
- ------------------- ------------------- NY STATE ---------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -----------------------------------------------------------------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<C> <C> <C> <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.
</TABLE>
Note: Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that the Fund will
achieve any specific tax exempt yield. While it is expected that the Portfolio
will invest principally in obligations, the interest from which is exempt from
the regular federal income tax and New York State and New York City personal
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. The table does not take into account state or local taxes, if
any, payable on Fund distributions except for New York State and New York City
personal income taxes. It should also be noted that the interest earned on
certain "private activity bonds" issued after August 7, 1986, while exempt from
the regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The illustrations
assume that the federal alternative minimum tax is not applicable and do not
take into account any tax credits that may be available.
The above-indicated combined federal and New York State/City income brackets
assume State and City taxes are itemized deductions and do not take into account
the effect of a reduction in the deductibility of itemized deductions (including
New York State and City Income Taxes) for taxpayers with adjusted gross income
in excess of $121,200, nor do they reflect phaseout of personal exemptions for
single and joint filers with adjusted gross income in excess of $121,200 and
$181,800, respectively. The effective combined tax brackets and equivalent
taxable yields of taxpayers who do not itemize or who are subject to such
limitations will be higher than those indicated above. In addition, investors
who do not itemize deductions on their federal income tax returns will have
higher combined brackets and equivalent taxable yields than indicated above.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON OHIO MUNICIPALS FUND.
The investment objective of the Fund is to provide current income exempt from
regular federal income tax and Ohio State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Ohio Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Ohio considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Ohio issuers. Such information supplements the information in the Prospectus. It
is derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary, does
not purport to be a complete description and is based on information from
official statements relating to securities offerings of Ohio issuers. Neither
the Trust nor the Portfolio has independently verified this information.
The State of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. The State is effectively prohibited by law from
ending a fiscal year or a biennium in a deficit position. The Governor has the
power to order State agencies to operate within the State's means. The State
carries out most of its operations through the General Revenue Fund ("GRF")
which receives general State revenues not otherwise dedicated. GRF revenues are
derived mainly from personal income and sales taxes and corporate franchise
taxes. State GRF figures generally show a pattern related to national economic
conditions, evident in growth and depletion of its GRF ending fund balances,
with the June 30 (end of fiscal year) GRF fund balance reduced during less
favorable national economic periods and increased during more favorable economic
periods.
The general appropriations act for the 1994-95 biennium was signed by the
Governor on July 1, 1993. This act appropriated $30.7 billion for GRF purposes.
Appropriations for the first fiscal year of the biennium were approximately 9.2%
above those for fiscal year 1993 while those for the second year were
approximately 6.6% higher than those for fiscal year 1994. These additional
appropriations were mainly for increased costs in most State financed programs
such as education, Medicaid, mental health and corrections. During the 1992-1993
biennium, the national economic downturn required a $200 million transfer from
the Budget Stabilization Fund ("BSF") to the GRF (the BSF has been replenished,
and has a current balance of over $828 million). As fiscal year 1992 progressed,
reduced tax collections led to a revenue shortfall. This, in combination with
additional expenditures produced a projected budget deficit. The State addressed
this deficit through a combination of budget cuts, tax payment accelerations and
a depletion of the BSF. A projected fiscal year 1993 gap of $520 million was
covered through a combination of tax increases and a reduction in
appropriations. The fiscal year 1994 budget was balanced. The 1996-97 biennial
budget calls for GRF expenditures to increase 9.1% over the 1995-96 biennium.
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 120 of the State's 600+ local school districts. A small
number of local school districts have in any year required emergency loan
approval from the State in order to avoid year-end deficits. Forty-four school
districts borrowed $68.6 million in fiscal year 1992 and 27 districts borrowed
$94.5 million in 1993, including Cleveland which borrowed $75 million.
Twenty-eight districts borrowed $41.1 million in fiscal year 1994 and
twenty-nine districts borrowed $71.1 million in fiscal year 1995. Schools were
affected by budget-balancing expenditure reductions discussed above.
Litigation, similar to that in other states, is pending questioning the
constitutionality of Ohio's system of school funding. The trial court concluded
that aspects of the system (including basic operating assistance) are
unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State appealed and a court of appeals
reversed the trial court's findings for plaintiff districts. The case is now
pending on appeal in the Ohio Supreme Court. At this time, it is not possible to
determine either the outcome or the financial burden which an unfavorable
decision would have on either the State's or the local school districts'
financial health.
Resolutions have been introduced in both houses of the General Assembly that
would submit a consitutional amendment relating to State debt that would
authorize, among other things, the issuance of State general obligation debt for
a variety of purposes and without additional vote of the people to the extent
that debt service on all State general obligation debt and GRF-supported
obligations not to exceed 5% of the preceding fiscal year's GRF expenditures. It
cannot be predicted whether the proposed amendment will in fact be submitted,
or, if submitted, approved by the electors.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $292,670,816. For
the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory fees
of $1,404,951 (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 $1,463,895 (equivalent to 0.46% of the Portfolio's average
daily net assets for such year). For the fiscal year ended September 30, 1994,
the Portfolio paid BMR advisory fees of $1,454,208 (equivalent to 0.45% of the
Portfolio's average daily net assets for such year). The Portfolio's Investment
Advisory Agreement with BMR is dated October 13, 1992 and may be continued as
described under "Investment Adviser and Administrator" in Part I.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended September 30, 1996, the Principal
Underwriter paid to Authorized Firms sales commissions of $332,448 on sales of
Fund shares. During the same period, the Fund made sales commission payments
under the Plan to the Principal Underwriter aggregating $2,288,285 and the
Principal Underwriter received approximately $1,045,000 in CDSCs imposed on
early redeeming shareholders. The sales commissions and CDSCs paid to the
Principal Underwriter reduced Uncovered Distribution Charges under the Plan. As
at September 30, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$8,802,000 (which amount was equivalent to 3.0% of the Fund's net assets on such
date). During the fiscal year ended September 30, 1996, the Fund paid or accrued
service fees under the Plan aggregating $542,013, of which $537,806 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 $3,957.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal years ended September 30, 1996, 1995 and 1994, the Portfolio
paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------------
Donald R. Dwight ............. $687 $3,224(2) $142,500(4)
Samuel L. Hayes, III ......... 625 3,257(3) 153,750(5)
Norton H. Reamer ............. 619 3,181 142,500
John L. Thorndike ............ 634 3,313 147,500
Jack L. Treynor .............. 679 3,380 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $1,266 of deferred compensation.
(3) Includes $1,111 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from April 18, 1991 through September 30, 1996 and for the five- and one-year
periods ended September 30, 1996.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN BEFORE TOTAL RETURN AFTER
MENT BEFORE MENT AFTER DEDUCTING THE DEDUCTING THE
DEDUCTING THE DEDUCTING THE MAXIMUM CDSC MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 9/30/96 ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------- ------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 4/18/91* $1,000 $1,438.79 $1,428.79 43.88% 6.89% 42.88% 6.75%
5 Years
Ended
9/30/96 9/30/91 $1,000 $1,371.84 $1,351.84 37.18% 6.53% 35.18% 6.22%
1 Year
Ended
9/30/96 9/30/95 $1,000 $1,054.85 $1,004.85 5.48% 5.48% 0.48% 0.48%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on April 18, 1991.
** No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
***If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 4.66%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.66% would be 7.25%,
assuming a combined federal and State tax rate of 35.76%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 20.2% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
TAXES
In the opinion of special tax counsel to the Fund, Squire, Sanders &
Dempsey, under Ohio law, provided that the Fund continues to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Fund consists of obligations issued by
or on behalf of Ohio, political subdivisions thereof or agencies or
instrumentalities of Ohio or its political subdivisions ("Ohio Obligations"), or
similar obligations of other states or their subdivisions (a fund satisfying
such requirements being referred to herein as an "Ohio fund"), (i) dividends
paid by the Fund will be exempt from the Ohio personal income tax and any
municipal or school district income taxes in Ohio to the extent such dividends
are properly attributable to interest on Ohio Obligations, and (2) distributions
of "capital gain dividends," as defined in the Internal Revenue Code, which are
properly attributable to the Fund's capital gains on the sale or other
disposition of Ohio Obligations, will not be subject to the Ohio personal income
tax or municipal or school district income taxes in Ohio. Other distributions
from the Fund will generally not be exempt from the Ohio personal income tax or
municipal or school district income taxes in Ohio.
Provided the Fund qualifies as an Ohio fund, (1) distributions from the Fund
will be excluded from the net income base of the Ohio corporation franchise tax
to the extent that such distributions are excludable from gross income for
Federal income tax purposes or are properly attributable to interest on Ohio
Obligations, and (2) distributions which are derived from the Fund's capital
gains on the sale or other disposition of Ohio Obligations, also will be
excluded from the net income base of the Ohio corporation franchise tax.
However, shares of the Fund will not be excluded from the tax base for purposes
of computing such tax on the net worth basis.
Distributions by the Fund properly attributable to interest on obligations
of the United States or the governments of Puerto Rico, the Virgin Islands or
Guam or their authorities or municipalities are exempt from the Ohio personal
income tax and municipal and school district income taxes in Ohio, and are
excluded from the net income base of the Ohio corporate franchise tax to the
same extent that such interest would be so exempt or excluded if the obligations
were held directly by the shareholders.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Ohio Tax Free Fund to EV Marathon
Ohio Tax Free Fund on February 1, 1994 and to EV Marathon Ohio Municipals Fund
on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Ohio State income tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND OHIO STATE TAX EXEMPT YIELD OF:
- ------------------- ------------------- OHIO STATE --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------------- ------------- --------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<C> <C> <C> <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.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Ohio State income taxes) for
taxpayers with adjusted gross income in excess of $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 Ohio personal income taxes, other income received
by the Portfolio and allocated to the Fund may be taxable. The table does not
take into account state or local taxes, if any, payable on Fund distributions
except for Ohio personal income taxes. It should also be noted that the interest
earned on certain "private activity bonds" issued after August 7, 1986, while
exempt from the regular federal income tax, is treated as a tax preference item
which could subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON RHODE ISLAND MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Rhode Island State personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Rhode Island Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Rhode Island considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Rhode Island issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to investors
and is believed to be accurate. Such information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of Rhode
Island issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The economic slowdown beginning in 1989 resulted in significant State budget
constraints. Declining State revenues, combined with increased demand for
certain governmental services, such as public assistance, have occurred as a
result of the difficult general economic conditions. State law requires that the
State end each year with a balanced budget and does not permit a deficit to
continue into the next fiscal year. In response to this legal mandate and
overall budgetary pressures, the State has undertaken a variety of strong
financial management controls and initiatives, including reducing expenditures,
improving revenue estimating procedures and increasing taxes.
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.
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 would further modify the
allocation formula with the result that 21 communities would receive less State
assistance in fiscal year 1994 than they were allocated in fiscal year 1993. In
addition to school aid, the State provides a general revenue sharing program for
local governments which is intended for direct property tax relief and
incorporates a distribution formula based upon relative population, tax effort
and personal income of each municipality. In addition, the State provides
municipal aid programs which include reimbursement to local governments for
their cost of carrying out certain State mandates. For fiscal year 1992, $6.0
million was appropriated. No funds were appropriated for fiscal year 1993.
However, the 1991 General Assembly passed legislation that provides that
commencing in the fiscal year 1994, municipalities will receive 1% of total
State tax revenues. The formula for the 1995 education aid budget established a
Poverty Weight Fund (PWF). Of the $414.7 million budgeted for educational aid,
$46.1 million was distributed through the PWF. The Governor's recommended budget
for fiscal year 1996 increases school aid by $22.9 million (5.3%), including
$20.7 million in operations aid, which will be distributed through the PWF.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $42,167,179. For
the fiscal year ended September 30, 1996, absent a fee reduction, the Portfolio
would have paid BMR advisory fees of $108,803 (equivalent to 0.25% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$53,561. For the fiscal year ended September 30, 1995, absent a fee reduction,
the Portfolio would have paid BMR advisory fees of $100,476 (equivalent to 0.25%
of the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of its advisory fee in the amount
of $50,721. For the fiscal year ended September 30, 1994, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $63,773
(equivalent to 0.21% of the Portfolio's average daily net assets for such year).
To enhance the net income of the Portfolio, BMR made a reduction of the full
amount of its advisory fee. The Portfolio's Investment Advisory Agreement with
BMR is dated June 7, 1993 and may be continued as described under "Investment
Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal year ended September 30, 1994, $44,682 of
the Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's initial
shareholder (Eaton Vance) and by the Board of Trustees of the Trust, as required
by Rule 12b-1. During the fiscal year ended September 30, 1996, the Principal
Underwriter paid to Authorized Firms sales commissions of $187,415 on sales of
Fund shares. During the same period, the Fund made sales commission payments
under the Plan to the Principal Underwriter aggregating $299,958 and the
Principal Underwriter received approximately $187,000 in CDSCs imposed on early
redeeming shareholders. The sales commissions and CDSCs paid to the Principal
Underwriter reduced Uncovered Distribution Charges under the Plan. As at
September 30, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$1,614,000 (which amount was equivalent to 4.1% of the Fund's net assets on such
date). During the fiscal year ended September 30, 1996, the Fund paid or accrued
service fees under the Plan aggregating $54,463, of which $54,229 was paid to
Authorized Firms and the balance of which was paid by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended September 30, 1996, the Fund paid the Principal
Underwriter $637.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $8,186 on portfolio security transactions aggregating $63,027,171
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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------------
Donald R. Dwight ............. $34 $446(2) $142,500(4)
Samuel L. Hayes, III ......... 31 313(3) 153,750(5)
Norton H. Reamer ............. 31 310 142,500
John L. Thorndike ............ 32 317 147,500
Jack L. Treynor .............. 34 339 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $135 of deferred compensation.
(3) Includes $104 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (35) has served as a Vice
President of the Portfolio since June 19, 1995. Ms. Anderes has been a Vice
President of BMR and Eaton Vance since 1994, and is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Ms. Anderes was Vice President and portfolio manager, Lazard Freres Asset
Management (1992-1994) and Vice President and Manager -- Municipal Research,
Roosevelt & Cross (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from June 11, 1993 through September 30, 1996 and for the one-year period ended
September 30, 1996.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
TOTAL RETURN BEFORE TOTAL RETURN AFTER
VALUE BEFORE VALUE AFTER DEDUCTING DEDUCTING
DEDUCTING THE DEDUCTING THE THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -----------------------------------------------------
PERIOD DATE INVESTMENT ON 9/30/96 ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------- ------------- -------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund*** 6/11/93* $1,000 $1,125.14 $1,096.61 12.51% 3.63% 9.66% 2.82%
1 Year
Ended
9/30/96*** 9/30/95 $1,000 $1,061.44 $1,011.44 6.14% 6.14% 1.14% 1.14%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on June 11, 1993.
** No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
***If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 4.80%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.80% would be 7.60%,
assuming a combined federal and State tax rate of 36.88%. If a portion of the
Portfolio's expenses had not been allocated to the Investment Adviser the Fund
would have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 24.2% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance Rhode Island Tax Free Fund to EV
Marathon Rhode Island Tax Free Fund on December 21, 1993 and to EV Marathon
Rhode Island Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
Rhode Island State income tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
A FEDERAL AND RHODE ISLAND STATE
SINGLE RETURN JOINT RETURN COMBINED TAX EXEMPT YIELD OF:
- ------------------- ------------------- FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
RI STATE --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------------------- ------------ --------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 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.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Rhode Island State income taxes)
for taxpayers with adjusted gross income in excess of $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 Rhode Island personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Rhode Island personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON WEST VIRGINIA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and West Virginia state personal income taxes.
The Fund currently seeks to achieve its investment objective by investing its
assets in the West Virginia Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain West Virginia considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in West Virginia issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of West Virginia issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The economy of the State is based primarily on manufacturing, mining and
tourism. 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 over 80% of the revenue for the
General Revenue Fund in the fiscal year ended June 30, 1995. 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.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1996, the Portfolio had net assets of $39,500,791. For
the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory fees
of $95,361 (equivalent to 0.24% of the Portfolio's average daily net assets for
such year). For the fiscal year ended September 30, 1995, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $98,033
(equivalent to 0.24% of the Portfolio's average daily net assets for such year).
To enhance the net income of the Portfolio, BMR made a reduction of its advisory
fee in the amount of $32,526. For the fiscal year ended September 30, 1994, BMR
would have earned, absent a fee reduction, advisory fees of $82,158 (equivalent
to 0.23% of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of the full amount
of its advisory fee. The Portfolio's Investment Advisory Agreement with BMR is
dated June 7, 1993 and may be continued as described under "Investment Adviser
and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal year ended September 30, 1994, $49,009 of
the Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1997 and may be continued as described under "Distribution Plan" in
Part I. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, as required by Rule
12b-1. During the fiscal year ended September 30, 1996, the Principal
Underwriter paid sales commissions of $95,669 to Authorized Firms on sales of
Fund shares. During the same period, the Fund made sales commission payments
under the Plan to the Principal Underwriter aggregating $289,676, and the
Principal Underwriter received approximately $193,000 in CDSCs imposed on early
redeeming shareholders. The sales commissions and CDSCs paid to the Principal
Underwriter reduced Uncovered Distribution Charges under the Plan. As at
September 30, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$1,448,000 (which amount was equivalent to 3.8% of the Fund's net assets on such
date). During the fiscal year ended September 30, 1996, the Fund paid or accrued
service fees under the Plan aggregating $76,217, of which $76,148 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 $590.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $10,423 on portfolio security transactions aggregating
$75,888,648 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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the funds in the
Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- -----------------
Donald R. Dwight ............. $34 $344(2) $142,500(4)
Samuel L. Hayes, III ......... 31 313(3) 153,750(5)
Norton H. Reamer ............. 31 310 142,500
John L. Thorndike ............ 32 317 147,500
Jack L. Treynor .............. 34 339 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $135 of deferred compensation.
(3) Includes $104 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (37) has served as a
Vice President of the Portfolio since it commenced operations. Mr. Browse has
been a Vice President of BMR and Eaton Vance since 1993 and an employee of
Eaton Vance since 1992. Mr. Browse is an officer of various investment
companies managed by Eaton Vance or BMR. Prior to joining Eaton Vance, Mr.
Browse was a Municipal Bond Trader -- Fidelity Management & Research Company
(1987-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from June 11, 1993 through September 30, 1996 and for the one-year period ended
September 30, 1996.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE BEFORE VALUE AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER DEDUCTING
DEDUCTING THE DEDUCTING THE DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC**
INVESTMENT INVESTMENT AMOUNT OF MAXIMUM CDSC MAXIMUM CDSC** -------------------------- ---------------------------
PERIOD DATE INVESTMENT ON 9/30/96 ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------- ------------- -------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund*** 6/11/93* $1,000 $1,132.15 $1,103.29 13.22% 3.82% 10.33% 3.01%
1 Year
Ended
9/30/96 9/30/95 $1,000 $1,060.24 $1,010.24 6.02% 6.02% 1.02% 1.02%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
* Investment operations began on June 11, 1993.
** No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
*** If a portion of the Portfolio's and the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 4.38%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.38% would be 6.79%,
assuming a combined federal and State tax rate of 35.49%.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
was the record owner of approximately 15.5% of the outstanding shares, which
were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from Eaton Vance West Virginia Tax Free Fund to EV
Marathon West Virginia Tax Free Fund on December 21, 1993. The Fund changed its
name from EV Marathon West Virginia Tax Free Fund to EV Marathon West Virginia
Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% under the regular federal income tax and
West Virginia state income tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
A FEDERAL AND WEST VIRGINIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------- ------------------- WV STATE -------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------------------- ------------ -------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 12.10% 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 two lowest federal income brackets are calculated using the highest West Virginia tax rate
within the bracket. Taxpayers with taxable income within this bracket may have a lower combined bracket and taxable
equivalent yield than indicated above. The combined tax rates assume that West Virginia taxes are itemized deductions for
federal income tax purposes. Investors who do not itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated above. The state rate is at its maximum (6.5%)
throughout all other brackets. The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36%, and 39.6%, over
the same ranges of income.
</TABLE>
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including West Virginia state income
taxes) for taxpayers with adjusted gross income in excess of $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 West Virginia personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for West Virginia personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax and the West
Virginia personal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax and the West
Virginia minimum tax. The illustrations assume that the federal alternative
minimum tax and the West Virginia minimum tax are not applicable and do not take
into account any tax credit that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult with their tax adviser for additional information.
<PAGE>
[logo]
EV MARATHON MUNICIPAL FUNDS
- -------------------------------------------------------------------------------
STATEMENT OF
ADDITIONAL INFORMATION
FEBRUARY 1, 1997
EV MARATHON CALIFORNIA MUNICIPALS FUND
EV MARATHON FLORIDA MUNICIPALS FUND
EV MARATHON MASSACHUSETTS MUNICIPALS FUND
EV MARATHON MISSISSIPPI MUNICIPALS FUND
EV MARATHON NEW YORK MUNICIPALS FUND
EV MARATHON OHIO MUNICIPALS FUND
EV MARATHON RHODE ISLAND MUNICIPALS FUND
EV MARATHON WEST VIRGINIA MUNICIPALS FUND
EV MARATHON
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- -------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(617) 482-8260
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-TFC2/1SAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1997
<TABLE>
EV TRADITIONAL MUNICIPAL FUNDS
<C> <C>
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND EV TRADITIONAL NEW YORK MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND EV TRADITIONAL OHIO MUNICIPALS FUND
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND EV TRADITIONAL RHODE ISLAND MUNICIPALS FUND
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND
</TABLE>
24 Federal Street
Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund"), its
corresponding Portfolio and certain other series of Eaton Vance Municipals Trust
(the "Trust"). Each Part II provides information solely about a Fund and its
corresponding Portfolio. Where appropriate, Part I includes cross-references to
the relevant sections of Part II that provide additional Fund-specific
information. This Statement of Additional Information is sometimes referred to
herein as the "SAI".
TABLE OF CONTENTS Page
PART I
Additional Information about Investment Policies .................. 1
Investment Restrictions ........................................... 7
Trustees and Officers ............................................. 9
Investment Adviser and Administrator .............................. 10
Custodian ......................................................... 13
Services for Accumulation ......................................... 14
Service for Withdrawal ............................................ 14
Determination of Net Asset Value .................................. 14
Investment Performance ............................................ 15
Taxes ............................................................. 17
Principal Underwriter ............................................. 19
Service Plan ...................................................... 20
Portfolio Security Transactions ................................... 20
Other Information ................................................. 22
Independent Certified Public Accountants .......................... 23
Financial Statements .............................................. 23
Appendix .......................................................... 24
PART II
EV Traditional California Municipals Fund ......................... a-1
EV Traditional Florida Municipals Fund ............................ b-1
EV Traditional Massachusetts Municipals Fund ...................... c-1
EV Traditional Mississippi Municipals Fund ........................ d-1
EV Traditional New York Municipals Fund ........................... e-1
EV Traditional Ohio Municipals Fund ............................... f-1
EV Traditional Rhode Island Municipals Fund ....................... g-1
EV Traditional West Virginia Municipals Fund ...................... h-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED FEBRUARY 1, 1997, AS SUPPLEMENTED
FROM TIME TO TIME, WHICH IS INCORPORATED HEREIN BY REFERENCE. THIS COMBINED
STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH SUCH
PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING EATON
VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE BACK COVER FOR
ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The following provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this SAI and not
otherwise defined have the meanings given them in the Fund's Prospectus. The
Fund is subject to the same investment policies as those of the Portfolio. The
Fund currently seeks to achieve its objective by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations the interest on
which is exempt from federal income taxes and is not a tax preferred item for
purposes of the 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 the Fund derived from such interest) is treated as a tax
preference item which could subject the recipient to or increase the recipient's
liability for the AMT. For corporate shareholders, the Fund's distributions
derived from interest on all municipal obligations (whenever issued) is included
in "adusted current earnings" for purposes of the AMT as applied to corporations
(to the extent not already included in alternative minimum taxable income as
income attributable to private activity bonds).
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (i.e., obligations with a term of more than one
year) purchased after April 30, 1993 other than, in general, at their original
issue, is taxable as ordinary income. A long-term debt obligation is generally
treated as acquired at a market discount if purchased after its original issue
at a price less than (i) the stated principal amount payable at maturity, in the
case of an obligation that does have original issue discount or (ii) in the case
of an obligation that does have original issue discount, the sum of the issue
price and any original issue discount that accrued before the obligation was
purchased, subject to a de minimis exclusion.
Issuers of general obligation bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate and amount.
The principal security for a revenue bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways, bridges
and tunnels; port, airport and parking facilities; transportation systems;
housing facilities, colleges and universities and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may be used to
make principal and interest payments on the issuer's obligations. Housing
finance authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without legal obligation) to make up deficiencies in the debt service
reserve fund. Lease rental revenue bonds issued by a state or local authority
for capital projects are normally secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality.
Industrial development and pollution control bonds, although nominally
issued by municipal authorities, are in most cases revenue bonds and are
generally not secured by the taxing power of the municipality, but are usually
secured by the revenues derived by the authority from payments of the industrial
user or users.
The Portfolio may on occasion acquire revenue bonds which carry warrants or
similar rights covering equity securities. Such warrants or rights may be held
indefinitely, but if exercised, the Portfolio anticipates that it would, under
normal circumstances, dispose of any equity securities so acquired within a
reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. The Portfolio will take whatever action it considers appropriate in
the event of anticipated financial difficulties, default or bankruptcy of either
the issuer of any municipal obligation or of the underlying source of funds for
debt service. Such action may include retaining the services of various persons
or firms (including affiliates of the Investment Adviser) to evaluate or protect
any real estate, facilities or other assets securing any such obligation or
acquired by the Portfolio as a result of any such event, and the Portfolio may
also manage (or engage other persons to manage) or otherwise deal with any real
estate, facilities or other assets so acquired. The Portfolio anticipates that
real estate consulting and management services may be required with respect to
properties securing various municipal obligations in its portfolio or
subsequently acquired by the Portfolio. The Portfolio will incur additional
expenditures in taking protective action with respect to portfolio obligations
in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of the municipal obligations which they undertake to rate. It should be
emphasized, however, that ratings are based on judgment and are not absolute
standards of quality. Consequently, municipal obligations with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield. In
addition, the market price of such obligations will normally fluctuate with
changes in interest rates, and therefore the net asset value of the Portfolio
will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations of a Particular State. For a discussion of the risks
associated with the Portfolio's policy of concentrating its investments in
particular State issuers of municipal obligations, see "Risks of Concentration"
in the Fund's Part II.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of the same type. In particular, investments in industrial revenue
bonds might involve (without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state and local authorities. Since
the bonds are normally secured only by the revenues of each facility and not by
state or local government tax payments, they are subject to a wide variety of
risks. Primarily, the projects must maintain adequate occupancy levels to be
able to provide revenues sufficient to meet debt service payments. Moreover,
since a portion of housing, medical care and other services may be financed by
an initial deposit, it is important that the facility maintain adequate
financial reserves to secure estimated actuarial liabilities. The ability of
management to accurately forecast inflationary cost pressures is an important
factor in this process. The facilities may also be affected adversely by
regulatory cost restrictions applied to health care delivery in general,
particularly state regulations or changes in Medicare and Medicaid payments or
qualifications, or restrictions imposed by medical insurance companies. They may
also face competition from alternative health care or conventional housing
facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in the Prospectus, the Portfolio may
invest in the obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
Accordingly, the Portfolio may be adversely affected by local political and
economic conditions and developments within Puerto Rico, 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 39%, 11% and 39%, respectively, of the
gross domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
The North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it differs from the states
in its relationship with the federal government. Most federal taxes, except
those such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Code was amended and provided for two alternative limitations
to the Section 936 credit. The first option will limit the credit against such
income to 40% of the credit allowable under current law, with a five year
phase-in period starting at 60% of the allowable credit. The second option is a
wage and depreciation based credit. The reduction of the tax benefits to those
U.S. companies with operations in Puerto Rico may lead to slower growth in the
future. Furthermore, federal policymakers have proposed the total elimination of
Section 936, phased out over ten years, as a budget-balancing measure. There can
be no assurance that these modifications will not lead to a weakened economy, a
lower rating on Puerto Rico's debt or lower prices for Puerto Rican bonds that
may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. 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. As of
June, 1996, unemployment stood at 4.7%. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe.
An important component of the USVI revenue base is the federal excise tax on
rum exports. Tax revenues rebated by the federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI is periodically hit by hurricanes.
During this past hurricane season, several hurricanes caused extensive damage,
which has had a negative impact on revenue collections. There is currently no
rated, unenhanced Virgin Islands debt outstanding although there is unrated debt
outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. The
Naval Air Station, one of several U.S. military facilities on the island, has
been slated for closure by the Defense Base Closure and Realignment Committee;
however, the administration plans to use these facilities to expand the Island's
commercial airport. Guam is also heavily reliant on tourists, particularly the
Japanese. For 1995, the government realized a General Fund operating surplus.
The administration has taken steps to improve its financial position; however,
there are no guarantees that an improvement will be realized. Guam's general
obligation debt is rated BBB by S&P with a negative outlook.
MUNICIPAL LEASES
The Portfolio may invest in municipal leases and participations therein,
which arrangements frequently involve special risks. Municipal leases are
obligations in the form of a lease or installment purchase arrangement which is
issued by state or local governments to acquire equipment and facilities.
Interest income from such obligations is generally exempt from local and state
taxes in the state of issuance. "Participations" in such leases are undivided
interests in a portion of the total obligation. Participations entitle their
holders to receive a pro rata share of all payments under the lease. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the Government issuer) have
evolved as a means for Governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. State debt-issuance limitations are deemed to be inapplicable to these
arrangements because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. Such arrangements are, therefore, subject to the risk that
the governmental issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the Investment Adviser, pursuant to
guidelines adopted by the Trustees of the Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the Investment Adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by the Portfolio. In
the event the Portfolio acquires an unrated municipal lease obligation, the
Investment Adviser will be responsible for determining the credit quality of
such obligation on an on-going basis, including an assessment of the likelihood
that the lease may or may not be cancelled.
ZERO COUPON BONDS
Zero coupon bonds are debt obligations which do not require the periodic
payment of interest and are issued at a significant discount from face value.
The discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. In evaluating
the credit quality of a particular issue, whether rated or unrated, the
Investment Adviser will normally take into consideration, among other things,
the financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The Investment Adviser will attempt to reduce the risks of investing in
the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this SAI with respect to any defaulted obligations held by the
Portfolio.
SHORT-TERM TRADING
The Portfolio may sell (and later purchase) securities in anticipation of a
market decline (a rise in interest rates) or purchase (and later sell)
securities in anticipation of a market rise (a decline in interest rates). In
addition, a security may be sold and another purchased at approximately the same
time to take advantage of what the Portfolio believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, such as changes
in the overall demand for or supply of various types of municipal obligations or
changes in the investment objectives of investors. Such trading may be expected
to increase the portfolio turnover rate, which may increase capital gains and
the expenses incurred in connection with such trading. The Portfolio anticipates
that its annual portfolio turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
WHEN-ISSUED SECURITIES
New issues of municipal obligations are sometimes offered on a "when-issued"
basis, that is, delivery and payment for the securities normally taking place
within a specified number of days after the date of the Portfolio's commitment
and are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Portfolio may also purchase securities on a when-issued basis
pursuant to refunding contracts in connection with the refinancing of an
issuer's outstanding indebtedness. Refunding contracts generally require the
issuer to sell and the Portfolio to buy such securities on a settlement date
that could be several months or several years in the future.
The Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Portfolio enters into the
purchase commitment. When the Portfolio commits to purchase a security on a
when-issued basis it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by the Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the issuer
and changes in the level of interest rates (i.e. appreciation when interest
rates decline and depreciation when interest rates rise). Therefore, to the
extent that the Portfolio remains substantially fully invested at the same time
that it has purchased securities on a when-issued basis, there will be greater
fluctuations in the Portfolio's net asset value than if it solely set aside cash
to pay for when-issued securities.
VARIABLE RATE OBLIGATIONS
The Portfolio may purchase variable rate obligations. Variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semi-annually, etc.). The revised rates are usually set at the
issuer's discretion, in which case the investor normally enjoys the right to
"put" the security back to the issuer or his agent. Rate revisions may
alternatively be determined by formula or in some other contractual fashion.
Variable rate obligations normally provide that the holder can demand payment of
the obligation on short notice at par with accrued interest and are frequently
secured by letters of credit or other credit support arrangements provided by
banks. To the extent that such letters of credit or other arrangements
constitute an unconditional guarantee of the issuer's obligations, a bank may be
treated as the issuer of a security for the purpose of complying with the
diversification requirements set forth in Section 5(b) of the Investment Company
Act of 1940 (the " 1940 Act") and Rule 5b-2 thereunder. The Portfolio would
anticipate using these obligations as cash equivalents pending longer term
investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Longer term fixed-rate bonds may give the holder a right to
request redemption at certain times (often annually after the lapse of an
intermediate term). These bonds are more defensive than conventional long term
bonds (protecting to some degree against a rise in interest rates) while
providing greater opportunity than comparable intermediate term bonds, because
the Portfolio may retain the bond if interest rates decline. By acquiring these
kinds of obligations the Portfolio obtains the contractual right to require the
issuer of the security or some other person (other than a broker or dealer) to
purchase the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement with the seller or some
other person. Because this right is assignable with the security, which is
readily marketable and valued in the customary manner, the Portfolio will not
assign any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also enter into a separate agreement with the seller of
the security or some other person granting the Portfolio the right to put the
security to the seller thereof or the other person at an agreed upon price. The
Portfolio intends to limit this type of transaction to institutions (such as
banks or securities dealers) which the Investment Adviser believes present
minimal credit risks and would engage in this type of transaction to facilitate
portfolio liquidity or (if the seller so agrees) to hedge against rising
interest rates. There is no assurance that this kind of put option will be
available to the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The Portfolio does not expect to assign
any value to any separate put option which may be acquired to facilitate
portfolio liquidity, inasmuch as the value (if any) of the put will be reflected
in the value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated security,
the difference between the market price of the associated security and the
exercise price of the put, the creditworthiness of the issuer of the put and the
market prices of comparable put options. Interest income generated by certain
bonds having put or demand features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. The Portfolio
would have the right to call a loan and obtain the securities loaned at any time
on up to five business days' notice. During the existence of a loan, the
Portfolio will continue to receive the equivalent of the interest paid by the
issuer on the securities loaned and will also receive a fee, or all or a portion
of the interest on investment of the collateral, if any. However, the Portfolio
may pay lending fees to such borrowers. The Portfolio would not have the right
to vote any securities having voting rights during the existence of the loan,
but would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the securities
loaned if the borrower of the securities fails financially. However, the loans
will be made only to organizations deemed by the Portfolio's management to be of
good standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Securities lending involves administration expenses,
including finders' fees. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of the
securities loaned would not exceed 30% of the Portfolio's total assets. The
Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities and (ii) futures
contracts on securities indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States exchange or
board of trade. The Portfolio will be required, in connection with transactions
in futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit of the
futures commission merchant through whom the Portfolio engages in such futures
and options transactions.
Some futures contracts and options thereon may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit transactions in an exchange-traded instrument,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or futures option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Portfolio from closing out
positions and limiting its losses.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio will determine that the price fluctuations in the futures
contracts and options on futures are substantially related to price fluctuations
in securities held by the Portfolio or which it expects to purchase. The
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold to protect against a decline
in the price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities in the cash market at the time when the
futures (or option) position is closed out. However, in particular cases, when
it is economically advantageous for the Portfolio to do so, a long futures
position may be terminated (or an option may expire) without the corresponding
purchase of securities. The Portfolio will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Code for maintaining qualification of the Fund as a
regulated investment company for federal income tax purposes (see "Taxes").
ASSET COVERAGE REQUIREMENTS
Transactions involving when-issued securities, the lending of 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 coverage or segregation is outstanding
unless they are replaced with other appropriate assets. As a result, the
commitment of a large portion of the Portfolio's assets to segregated accounts
or cover could impede portfolio management or the Portfolio's ability to meet
redemption requests or other current obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of the Fund present or
represented by proxy at a meeting if the holders of more than 50% of the shares
are present or represented at the meeting or (b) more than 50% of the shares of
the Fund. Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities). The deposit or payment by the Fund of initial or maintenance margin
in connection with futures contracts or related options transactions is not
considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate, (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) engage in
options, futures or forward transactions if more than 5% of its net assets, as
measured by the aggregate of the premiums paid by the Fund or the Portfolio,
would be so invested; (b) make short sales of securities or maintain a short
position, unless at all times when a short position is open it owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short and unless not more than
25% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund and the Portfolio will make such sales
only for the purpose of deferring realization of gain or loss for federal income
tax purposes; (c) invest more than 15% of net assets in investments which are
not readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial paper
issued pursuant to Section 4(2) of said Act that the Board of Trustees of the
Trust or the Portfolio, or its delegate, determines to be liquid; or (d)
purchase or retain in its portfolio any securities issued by an issuer any of
whose officers, directors, trustees or security holders is an officer or Trustee
of the Trust or the Portfolio or is a member, officer, director or trustee of
any investment adviser of the Trust or the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value).
For purposes of the Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's Investment Adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease resulting
from a change in values, assets or other circumstances, other than a subsequent
rating change below investment grade made by a rating service, will not compel
the Fund or the Portfolio, as the case may be, to dispose of such security or
other asset. Where applicable and notwithstanding the foregoing, under normal
market conditions the Fund and the Portfolio must take actions necessary to
comply with the policy of investing at least 65% of total assets in a particular
State. Moreover, the Fund and Portfolio must always be in compliance with the
borrowing policy set forth above.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR"), a wholly-owned subsidiary of
Eaton Vance Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance
Corp. ("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those Trustees who
are "interested persons" of the Trust 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 (65), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (55), Vice President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and a
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (61), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (61), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (70), Trustee
Director, Fiduciary Company Incorporated, Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (66), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (53), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected President of
the Trust and the Portfolio on December 13, 1993.
ROBERT B. MACINTOSH (40), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV. Officer
of various investment companies managed by Eaton Vance or BMR. Mr. MacIntosh
was elected Vice President of the Trust on March 22, 1993.
JAMES L. O'CONNOR (51), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (65), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (61), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (34), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993). Mr. Murphy was elected Assistant Secretary of the
Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (39), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoads. Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Woodubury was elected Assistant Secretary on June 19,
1995.
For any additional officers of the Portfolio, see "Additional Officer
Information" in the Fund's Part II.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Fund, including administrative
services, transfer agency, custodial and fund accounting and distribution
services, and (ii) all other matters in which Eaton Vance or its affiliates has
any actual or potential conflict of interest with the Fund or its shareholders.
The Nominating Committee is comprised of four Trustees who are not
"interested persons" as that term is defined under the 1940 Act ("noninterested
Trustees"). The Committee has four-year staggered terms, with one member
rotating off the Committee to be replaced by another noninterested Trustee of
the Trust. The purpose of the Committee is to recommend to the Board nominees
for the position of noninterested Trustee and to assure that at least a majority
of the Board of Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing matters relative
to trading and brokerage policies and practices, accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the custodian and transfer agent of the Fund and of
the Portfolio.
Trustees of the Portfolio who are not affiliated with the Investment Adviser
may elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the
"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 those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of over $17 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to over 150 mutual funds,
individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Bombay. Together Eaton Vance and Lloyd George manage over
$18 billion in assets. Eaton Vance mutual funds are distributed by Eaton Vance
Distributors both within the United States and offshore.
Eaton Vance Distributors believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 32 long-term state portfolios, 5
national portfolios and 10 limited maturity portfolios, which serve as
investment vehicles for over 100 mutual funds with varying pricing options. A
staff of 32 (including 9 portfolio managers and 9 credit specialists) is
responsible for the day-to-day management of over 3,500 issues in 47 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The investment philosophy of the municipal investment group is to:
seek value by avoiding unnecessary credit risk; build portfolios one security at
a time; and take a long-term approach to managing market risk. Over the
long-term, the group seeks to maximize tax-free income by keeping portfolios
fully invested (rather than trying to "time the market" for short-term results)
and reduce potential capital losses due to poor credit quality. Diligent and
continuing research and analysis are a critical component of the municipal
investment group's investment philosophy and long-term strategy.
The following persons manage one or more of the Eaton Vance tax-free
portfolios. For the identity of the Portfolio's portfolio manager, see the
Fund's current Propectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and BMR and the
portfolio manager of single-state, tax-exempt funds in six states: Hawaii,
Louisiana, Massachusetts, Minnesota, New Jersey and North Carolina. He also
serves as economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and any legal obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto, to the extent not covered by
insurance.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part
II.
The Investment Advisory Agreement with BMR 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 currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the Fund,
Eaton Vance has been engaged to administer the Fund's affairs, subject to the
supervision of the Trustees of the Trust, and shall furnish for the use of the
Fund office space and all necessary office facilities, equipment and personnel
for administering the affairs of the Fund. For additional information about the
Administrator, see "Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and any legal obligation of the Trust to indemnify its Trustees and
officers with respect thereto, to the extent not covered by insurance.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, M. Dozier Gardner, James B. Hawkes and
Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons and
John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman, Mr. Gardner is
vice chairman and Mr. Hawkes is president and chief executive officer of EVC,
BMR, Eaton Vance and EV. All of the issued and outstanding shares of Eaton
Vance and EV are owned by EVC. All of the issued and outstanding shares of BMR
are owned by Eaton Vance. All shares of the outstanding Voting Common Stock of
EVC are deposited in a Voting Trust, which expires on December 31, 1997, the
Voting Trustees of which are Messrs. Clay, Gardner, Hawkes 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 January 1, 1997, Messrs. Clay, Gardner and Hawkes each owned 24% of such
voting trust receipts, and Messrs. Rowland and Faust owned 15% and 13%,
respectively, of such voting trust receipts. Mr. Otis is an officer of the
Trust and the Portfolio and is a member of the EVC, BMR, Eaton Vance and EV
organizations. Messrs. Browse, Fetter, MacIntosh, Murphy, O'Connor and
Woodbury and Ms. Anderes, Ms. Clemson and Ms. Sanders are officers of the
Trust and/or the Portfolio and are also members of the BMR, Eaton Vance and EV
organizations. BMR will receive the fees paid under the Investment Advisory
Agreement.
EVC owns all of the stock of Energex Energy Corporation, which is engaged in
oil and gas exploration and development. In addition, Eaton Vance owns all of
the stock of Northeast Properties, Inc., which is engaged in real estate
investment. EVC owns all of the stock of Fulcrum Management, Inc. and MinVen
Inc., which are engaged in precious metal mining, venture investment and
management. EVC also owns 24% of the Class A shares of Lloyd George Management
(B.V.I.) Limited, a registered investment adviser. EVC, BMR, Eaton Vance and EV
may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, IBT. It is Eaton Vance's opinion that the terms and conditions of
such transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund or the Portfolio and such
banks.
CUSTODIAN
IBT acts as custodian for the Fund and the Portfolio. IBT has the custody of
all cash and securities representing the Fund's interest in the Portfolio, has
custody of all the Portfolio's assets, maintains the general ledger of the
Portfolio and the Fund, and computes the daily net asset value of interests in
the Portfolio and the net asset value of shares of the Fund. In such capacity it
attends to details in connection with the sale, exchange, substitution, transfer
or other dealings with the Portfolio's investments, receives and disburses all
funds and performs various other ministerial duties upon receipt of proper
instructions from the Fund and the Portfolio. IBT charges fees which are
competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of Fund and
Portfolio net assets and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then reduced by a
credit for cash balances of the particular investment company at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
particular investment company's average daily collected balances for the week.
Landon T. Clay, a Director of EVC and an officer, Trustee or Director of other
entities in the Eaton Vance organization, owns approximately 13% of the voting
stock of Investors Financial Services Corp., the holding company parent of IBT.
Management believes that such ownership does not create an affiliated person
relationship between the Fund or the Portfolio and IBT under the 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
The following services are voluntary, involve no extra charge, other than
the sales charge included in the offering price, and may be changed or
discontinued without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is anticipated
that $50,000 or more of Fund shares and shares of the other continuously offered
open-end funds listed under "The Eaton Vance Exchange Privilege" in the current
Prospectus of the Fund will be purchased within a 13-month period, a Statement
of Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum. Shares
held under Right of Accumulation (see below) as of the date of the Statement
will be included toward the completion of the Statement. The Statement
authorizes the Transfer Agent to hold in escrow sufficient shares (5% of the
dollar amount specified in the Statement) which can be redeemed to make up any
difference in sales charge on the amount intended to be invested and the amount
actually invested. Execution of a Statement does not obligate the shareholder to
purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. For sales
charges and other information on quantity purchases, see "How to Buy Fund
Shares" in the Fund's current Prospectus. Any investor considering signing a
Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable sales
charge level for the purchase of Fund shares is calculated by taking the dollar
amount of the current purchase and adding it to the value (calculated at the
maximum current offering price) of the shares the shareholder owns in his
account(s) in the Fund and in the other continuously offered open-end funds
listed under "The Eaton Vance Exchange Privilege" in the current Prospectus of
the Fund for which Eaton Vance acts as investment adviser or administrator at
the time of purchase. The sales charge on the shares being purchased will then
be at the rate applicable to the aggregate. For example, if the shareholder
owned shares valued at $30,000 of the Fund, and purchased an additional $20,000
of Fund shares, the sales charge for the $20,000 purchase would be at the rate
of 2.75% of the offering price (2.83% of the net amount invested) which is the
rate applicable to single transactions of $50,000. For sales charges on quantity
purchases, see "How to Buy Fund Shares" in the Fund's current Prospectus. Shares
purchased (i) by an individual, his or her spouse and their children under the
age of twenty-one, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for the Right of
Accumulation and if qualifying, the applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her Authorized Firm must provide the Principal Underwriter
(in the case of a purchase made through an Authorized Firm) or the Transfer
Agent (in the case of an investment made by mail) with sufficient information to
permit verification that the purchase order qualifies for the accumulation
privilege. Confirmation of the order is subject to such verification. The Right
of Accumulation privilege may be amended or terminated at any time as to
purchases occurring thereafter.
SERVICE FOR WITHDRAWAL
The Trust's Transfer Agent will send to the shareholder regular monthly or
quarterly payments of any permitted amount designated by the shareholder (see
"Eaton Vance Shareholder Services -- Withdrawal Plan" in the Fund's current
Prospectus) based upon the value of the shares held. The checks will be drawn
from share redemptions and hence, are a return of principal. Income dividends
and capital gains distributions in connection with withdrawal 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 shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the Portfolio is also
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transaction prices for most municipal obligations held by the Portfolio, and
such obligations, including those purchased on a when-issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing services uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by or at the direction of the Trustees of the
Portfolio. The Fund and the Portfolio will be closed for business and will not
price their respective shares or interests on the following business holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage, determined on the prior Portfolio Business Day, which
represented that investor's share of the aggregate interests in the Portfolio on
such prior day. Any additions or withdrawals for the current Portfolio Business
Day will then be recorded. Each investor's percentage of the aggregate interest
in the Portfolio will then be recomputed as a percentage equal to a fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the Portfolio Valuation Time on the prior Portfolio Business Day
plus or minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio on the current Portfolio
Business Day and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the Portfolio Valuation Time on the prior Portfolio
Business Day plus or minus, as the case may be, the amount of the net additions
to or withdrawals from the aggregate investment in the Portfolio on the current
Portfolio Business Day by all investors in the Portfolio. The percentage so
determined will then be applied to determine the value of the investor's
interest in the Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and distributions paid and
reinvested) for the stated period and annualizing the result. The calculation
assumes the maximum sales charge is deducted from the initial $1,000 purchase
order and that all distributions are reinvested at net asset value on the
reinvestment dates during the period. For further information concerning the
total return of the Fund, see "Performance Information" in the Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing the net
investment income per share earned during a recent thirty-day period by the
maximum offering price (which includes the maximum sales charge) per share on
the last day of the period and annualizing the resulting figure. Net investment
income per share is calculated from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods, reduced by
accrued Fund expenses for the period with the resulting number being divided by
the average daily number of Fund shares outstanding and entitled to receive
distributions during the period. Yield calculations will assume a maximum sales
charge equal to 3.75% of the public offering price. A taxable-equivalent yield
is computed by dividing the tax-exempt yield by 1 minus a stated rate. For the
yield and taxable-equivalent yield of the Fund, see "Performance Information" in
the Fund's Part II.
The Principal Underwriter may publish to Authorized Firms the Fund's
distribution rate and/or the effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current maximum offering price per share. The
Fund's effective distribution rate is computed by dividing the distribution rate
by the ratio (the days in a year divided by the accrual days of the monthly
period) used to annualize the most recent monthly distribution and reinvesting
the resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investors should note that the
Fund's yield is calculated using a standardized formula, the income component of
which is computed from the yields to maturity of all debt obligations held by
the Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
The Fund's total return may be compared to relevant indices, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
other investment companies.
The Fund may provide investors with information on municipal bond investing,
which may include comparative performance information, evaluations of Fund
performance, charts and/or illustrations prepared by independent sources (such
as Lipper Analytical Services, CDA/Wiesenberger and Morningstar, Inc.; The Bond
Buyer, the Federal Reserve Board or The Wall Street Journal). The Fund may also
refer in investor publications to Tax Freedom Day, as computed by the Tax
Foundation, Washington, DC 20005, to help illustrate the value of tax free
investing, as well as other tax-related information. Information, charts, and
illustrations showing the effects of inflation and taxes (including their
effects on the dollar and the return on various investments) and compounding
earnings, may also be included in advertisements and materials furnished to
present and prospective investors.
Information about portfolio allocation and holdings of the Portfolio at a
particular date (including ratings assigned by independent ratings services such
as Moody's, S&P and Fitch) may be included in advertisements and other material
furnished to present and prospective shareholders. Such information may be
stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield or distribution rate of the Fund and
about average rates of return on certificates of deposit, bank money market
deposit accounts, money market mutual funds and other short-term investments may
also be included in advertisements, supplemental sales literature or
communications of the Fund. Such information may also compare the tax equivalent
yield (or value) of the Fund to the after-tax yield (or value) of such other
investment vehicles. Such information may be in the form of hypothetical
illustrations. A bank certificate of deposit, unlike the Fund's shares, pays a
fixed rate of interest and entitles the depositor to receive the face amount of
the certificate of deposit at maturity. A bank money market deposit account is a
form of savings account which pays a variable rate of interest. Unlike the
Fund's shares, bank certificates of deposit and bank money market deposit
accounts are insured by the Federal Deposit Insurance Corporation. A money
market mutual fund is designed to maintain a constant value of $1.00 per share
and, thus, a money market fund's shares are subject to less price fluctuation
than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
-- cost associated with aging parents;
-- funding a college education (including its actual and estimated
cost);
-- health care expenses (including actual and projected expenses);
-- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
-- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in municipal bond
funds. Such information may describe the following advantages of investing in a
municipal bond mutual fund versus individual municipal bonds: regular monthly
income; free reinvestment of distributions; potential for increased income; bond
diversification; liquidity; low-cost easy access; and active management and in
depth credit analysis by investment professionals. In addition, by investing in
a municipal bond fund instead of individual bonds, and investor can avoid
dealing with the complexities of the municipal bond market, while benefitting
from the market access and lower transactions costs enjoyed by municipal bond
funds.
The Fund may provide information about Eaton Vance, its affiliates and other
investment advisers to the funds in the Eaton Vance Family of Funds in sales
material or advertisements provided to investors or prospective investors. Such
material or advertisements may also provide information on the use of investment
professionals by such investors.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated, and intends to qualify each
year, as a regulated investment company ("RIC") under the Code. Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains in accordance with
the timing requirements imposed by the Code, so as to avoid any federal income
or excise tax on the Fund. The Fund so qualified for its fiscal year ended
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 satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, each investor's distributive share of the Portfolio's net taxable (if any)
and tax-exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a RIC
for federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular federal income tax under Code Section
103(a). For purposes of applying this 50% requirement, the Fund will be deemed
to own its proportionate share of each of the assets of the Portfolio, and the
Portfolio currently intends to invest its assets in a manner such that the Fund
can meet this 50% requirement. Interest on certain municipal obligations is
treated as a tax preference item for purposes of the AMT. Shareholders of the
Fund are required to report tax-exempt interest on their federal income tax
returns.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-issued
securities and options and futures transactions. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of discount with respect to certain stripped municipal obligations or
their stripped coupons, and certain realized gains or income attributable to
accrued market discount. Any distributions by the Fund of its share of such
capital gains (after reduction by any capital loss carryforwards) or taxable
income would be taxable to shareholders of the Fund. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to the
tax exempt interest earned by the Portfolio and allocated to the Fund. Certain
distributions 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 qualification as a RIC for federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net
long-term capital gains with respect to such shares. In addition, a loss
realized on a redemption or other disposition of Fund shares may be disallowed
to the extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain certifications required by the Internal Revenue Service (the "IRS"), as
well as shareholders with respect to whom the Fund has received notification
from the IRS or a broker, may be subject to "backup" withholding of Federal
income tax from the Fund's taxable dividends and distributions and the proceeds
of redemptions (including repurchases and exchanges), at a rate of 31%. An
individual's taxpayer identification number is generally his or her social
security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. Federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through Authorized Firms which have agreements with the Principal
Underwriter. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
The public offering price is the net asset value next computed after receipt
of the order, plus, where applicable, a variable percentage (sales charge)
depending upon the amount of purchase as indicated by the sales charge table set
forth in the Fund's current Prospectus (see "How to Buy Fund Shares"). Such
table is applicable to purchases of the Fund alone or in combination with
purchases of the other funds offered by the Principal Underwriter, made at a
single time by (i) an individual, or an individual, his spouse and their
children under the age of twenty-one, purchasing shares for his or their own
account, and (ii) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account.
The table is also presently applicable to (1) purchases of Fund shares,
alone or in combination with purchases of any of the other funds offered by the
Principal Underwriter, through one dealer aggregating $50,000 or more made by
any of the persons enumerated above within a thirteen-month period starting with
the first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of the
Fund pursuant to the Right of Accumulation and declared as such at the time of
purchase.
Subject to the applicable provisions of the 1940 Act, the Fund may issue
shares at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is merged
or consolidated with or acquired by the Fund. Normally no sales charges will be
paid in connection with an exchange of Fund shares for the assets of such
investment company. Shares may be sold at net asset value to any officer,
director, trustee, general partner or employee of the Fund, the Portfolio or any
investment company for which Eaton Vance or BMR acts as investment adviser, any
investment advisory, agency, custodial or trust account managed or administered
by Eaton Vance or by any parent, subsidiary or other affiliate of Eaton Vance,
or any officer, director or employee of any parent, subsidiary or other
affiliate of Eaton Vance. The terms "officer," "director," "trustee," "general
partner" or "employee" as used in this paragraph include any such person's
spouse and minor children, and also retired officers, directors, trustees,
general partners and employees and their spouses and minor children. Shares of
the Fund may also be sold at net asset value to registered representatives and
employees of Authorized Firms and to the spouses and children under the age of
21 and beneficial accounts of such persons.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to Authorized
Firms or investors and other selling literature and of advertising are borne by
the Principal Underwriter. The fees and expenses of qualifying and registering
and maintaining qualifications and registrations of the Fund and its shares
under federal and state securities laws are borne by the Fund. The Distribution
Agreement is renewable annually by the Board of Trustees of the Trust (including
a majority of its Trustees who are not interested persons of the Principal
Underwriter or the Trust), may be terminated on six months' notice by either
party and is automatically terminated upon assignment. The Principal Underwriter
distributes Fund shares on a "best efforts" basis under which it is required to
take and pay for only such shares as may be sold. The Principal Underwriter
allows Authorized Firms discounts from the applicable public offering price
which are alike for all Authorized Firms. The Principal Underwriter may allow,
upon notice to all Authorized Firms with whom it has agreements, discounts up to
the full sales charge during the periods specified in the notice. See "How to
Buy Fund Shares" in the Fund's current Prospectus for the discounts allowed to
Authorized Firms on the sale of Fund shares. During periods when the discount
includes the full sales charge, such Authorized Firms may be deemed to be
underwriters as that term is defined in the Securities Act of 1933. For the
amount of sales charges for sales of Fund shares paid to the Principal
Underwriter (and Authorized Firms), see "Fees and Expenses" in the Fund's Part
II.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
the Fund's Part II.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet the service fee requirements of the revised sales charge rule
of the National Association of Securities Dealers, Inc. (the "NASD") (Management
believes service fee payments are not distribution expenses governed by Rule
12b-1 under the 1940 Act, but has chosen to have the Plan approved as if the
Rule were applicable.) The following supplements the discussion of the Plan
contained in the Fund's Prospectus.
The Plan remains in effect from year to year, provided such continuance is
approved by a vote of both a majority of (i) those Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the
"Noninterested Trustees") and (ii) all of the Trustees then in office, cast in
person at a meeting (or meetings) called for the purpose of voting on this Plan.
The Plan may be terminated any time by vote of the Noninterested Trustees or by
a vote of a majority of the outstanding voting securities of the Fund. The Plan
has been approved by the Board of Trustees of the Trust, including the
Noninterested Trustees.
Under the Plan, the President or a Vice President of the Trust shall provide
to the Trustees for their review, and the Trustees shall review at least
quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. The Plan may not be amended to
increase materially the payments described herein without approval of the
shareholders of the Fund, and all material amendments of the Plan must also be
approved by the Trustees of the Trust as prescribed by the Rule. So long as the
Plan is in effect, the selection and nomination of Trustees who are not
interested persons of the Trust shall be committed to the discretion of the
Trustees who are not such interested persons. The Trustees have determined that
in their judgment there is a reasonable likelihood that the Plan will benefit
the Fund and its shareholders. For the service fees paid by the Fund under the
Plan, see "Fees and Expenses" in the Fund's Part II.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including State obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any broker-dealer firm with whom portfolio orders may
be placed the fact that such firm has sold or is selling shares of the Fund or
of other investment companies sponsored by BMR or Eaton Vance. This policy is
not inconsistent with a rule of the NASD, which rule provides that no firm which
is a member of the NASD shall favor or disfavor the distribution of shares of
any particular investment company or group of investment companies on the basis
of brokerage commissions received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate in a manner it deems equitable portfolio security
transactions among the Portfolio and the portfolios of its other investment
accounts whenever decisions are made to purchase or sell securities by the
Portfolio and one or more of such other accounts simultaneously. In making such
allocations, the main factors to be considered are the respective investment
objectives of the Portfolio and such other accounts, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment by the Portfolio and such accounts, the size of investment
commitments generally held by the Portfolio and such accounts and the opinions
of the persons responsible for recommending investments to the Portfolio and
such accounts. However, there may be instances when the Portfolio will not
participate in a securities transaction that is allocated among other accounts.
While these procedures could have a detrimental effect on the price or amount of
the securities available to the Portfolio from time to time, it is the opinion
of the Trustees of the Trust and the Portfolio that the benefits available from
the BMR organization outweigh any disadvantage that may arise from exposure to
simultaneous transactions. For the brokerage commissions paid by the Portfolio
on portfolio transactions, see "Fees and Expenses" in the Fund's Part II.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" 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 as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for federal income tax purposes.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this SAI and have been so incorporated in reliance on the report of Deloitte &
Touche, LLP, independent certified public accountants, as experts in accounting
and auditing. A copy of the Funds' most recent Annual Report accompanies this
SAI.
Registrant incorporates by reference the audited financial information for
the Funds and the Portfolios listed below for the fiscal year ended September
30, 1996, as previously filed electronically with the Commission:
EV Traditional California Municipals Fund
EV Traditional Florida Municipals Fund
EV Traditional Massachusetts Municipals Fund
EV Traditional Mississippi Municipals Fund
EV Traditional New York Municipals Fund
EV Traditional Ohio Municipals Fund
EV Traditional West Virginia Municipals Fund
(Accession No. 0000950135-96-005148)
EV Traditional Rhode Island Municipals Fund
(formerly EV Classic Rhode Island Municipals Fund)
(Accession No. 0000928816-96-000346)
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- ----------
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated "F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL CALIFORNIA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax in the form of an investment
exempt from California State personal income taxes. The Fund currently seeks
to meet its investment objective by investing its assets in the California
Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain California considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in California issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of California issuers. Neither the Trust nor the
Portfolio has independently verified this information.
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 percent 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. Reflecting the belief shared by many analysts that
the California economy would remain strong, the 1996-1997 Budget Act
established a State budget of some $63 billion. Relying on the 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. The ultimate impact of these and other
budgetary allocations is impossible to predict. Indeed, constant fluctuations
in other factors affecting the State -- including changes in welfare
caseloads, property tax receipts and federal funding -- will undoubtedly
create new budget challenges.
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.
The voters will be presented with a new initiative constitutional
amendment on the November 1996 ballot. The Right to Vote on Taxes Act,
sponsored by the Howard Jarvis Taxpayers Association, seeks to strengthen
Proposition 62 by requiring majority voter approval for general taxes, two-
thirds voter approval for special taxes (including taxes imposed for specific
purposes but placed in the general fund), voter approval of existing local
taxes enacted after January 1, 1995, and placing other restrictions on fees
and assessments. As a constitutional amendment, the provisions would clearly
apply to charter cities.
Another initiative on the November 1996 ballot, a statutory initiative
sponsored by the California Tax Reform Association, would reimpose the now
sunseted temporary 10 and 11 percent tax brackets and use the revenues from
the increase to replace a portion of the property tax revenue shifted from
cities, counties and special districts to schools on an ongoing basis since
1992.
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.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $370,590,195.
For the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory
fees of $1,942,811 (equivalent to 0.50% 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 $2,121,262 (equivalent to 0.50% of the
Portfolio's average daily net assets for such year). For the six month period
ended September 30, 1994, the Portfolio paid BMR advisory fees of $1,141,013
(equivalent to 0.50% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and may be continued as described under "Investment
Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended September 30, 1996 and 1995
and for the period from the start of business, May 3, 1993, to the fiscal year
ended September 30, 1994, $25,389, $35,928 and $4,429, respectively, of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. During the fiscal year
ended September 30, 1996, the Fund paid or accrued service fees under the Plan
aggregating $3,551, of which $2,503 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the fiscal
years ended September 30, 1996 and 1995 and for the period from the start of
business, April 4, 1994, to the fiscal year ended September 30, 1994 were
$28,166, $48,718 and $25,031, respectively, which amounts were paid to
Authorized Firms. For the fiscal year ended September 30, 1996, the Fund paid
the Principal Underwriter $47.50 for repurchase transactions handled by the
Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $5,115 on portfolio security transactions aggregating
$503,688,461 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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1996, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ............. $0 $3,530(2) $142,500(4)
Samuel L. Hayes, III ......... 0 3,537(3) 153,750(5)
Norton H. Reamer ............. 0 3,459 142,500
John L. Thorndike ............ 0 3,599 147,500
Jack L. Treynor .............. 0 3,685 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $1,376 of deferred compensation.
(3) Includes $1,236 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Cynthia J. Clemson (33) is a Vice
President of the Portfolio. Ms. Clemson has served as a Vice President of the
Portfolio since February 1, 1996. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and an employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the ten-, five-
and one-year periods ended September 30, 1996. The total return for the period
prior to the Fund's commencement of operations on April 5, 1994 reflects the
Portfolio's total return (or that of its predecessor) adjusted to reflect any
applicable Fund sales charge. The total return for such prior period has not
been adjusted to reflect the Fund's distribution fees and certain other
expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ------------------------------ ------------------------------
PERIOD DATE INVESTMENT* ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 Years
Ended
9/30/96 09/30/86 $962.10 $1,757.86 82.72% 6.21% 75.79% 5.80%
5 Years
Ended
9/30/96** 9/30/91 $962.68 $1,310.08 36.08% 6.36% 31.01% 5.55%
1 Year
Ended
9/30/96** 9/30/95 $962.50 $1,039.95 8.05% 8.05% 3.96% 3.96%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
*Initial investment less the current maximum sales charge of 3.75%.
**If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended September 30, 1996, 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 8.66%,
assuming a combined federal and State tax rate of 37.90%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 8.8% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. In addition, as of such date, the following
shareholders owned beneficially and of record the percentage of outstanding
shares of the Fund indicated after their name: Cal Rosevear & Joyce A.
Rosevear, Trustees u/a dtd. 8/21/92, Walnut Creek, CA 94596 (34.1%); Liz
Thompson, Healdsburg, CA (7.1%); and Jack Spann TOD Jacqueline Spann, Jennifer
Spann and Janis Spann subject to STA rules, Clovis, CA (5.9%). To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
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 1997 regular federal income
tax rates and California State income tax laws and tax rates applicable for
1996.
<TABLE>
<CAPTION>
A FEDERAL AND CALIFORNIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------------------------------- CA STATE --------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -------------------------------------------------------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
*Net amount subject to federal and California personal income tax after
deductions and exemptions.
+The combined tax brackets are calculated using the highest California State
rate within the bracket. Taxpayers with taxable income within each bracket
may have a lower combined tax bracket and taxable equivalent yield than
indicated above. The combined tax brackets assume that California taxes are
itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher
combined tax bracket and taxable equivalent yield than those indicated above.
The applicable federal tax rates within the brackets set forth above are 15%,
28%, 31%, 36% and 39.6% over the same ranges of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including California State income taxes)
for taxpayers with adjusted gross income in excess of $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 California personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for California personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL FLORIDA MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax in the form of an investment exempt from
Florida intangibles tax. The Fund currently seeks to meet its investment
objective by investing its assets in the Florida Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Florida issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of
Florida issuers. Neither the Trust nor the Portfolio has independently
verified this information.
Florida is 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 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.
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 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).
For fiscal year 1995-96, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available total $15.3 billion, a 3.3%
increase over fiscal year 1994-95. With combined General Revenue, Working
Capital Fund and Budget Stabilization Fund appropriations at $14.8 billion,
unencumbered reserves at the end of fiscal year 1995-96 are estimated at $0.5
billion. For fiscal year 1996-97, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available total $16.0 billion, a 4.5%
increase over fiscal year 1995-96. The Florida and United States unemployment
rates for 1995 were 5.4% and 5.6%, respectively. The estimated Florida and
United States unemployment rates for 1996 and 1997 are 5.9% and 5.8%,
respectively.
Florida's general obligation bonds have been rated Aa/AA by both rating
agencies for over two decades.
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.
In 1993, the Florida constitution was amended to limit the annual growth
in the assessed valuation of residential property which, over time, could
constrain growth in property taxes, a major source of revenue for local
governments. In 1994, the Florida constitution was amended to limit state
revenue collections in any fiscal year to, subject to exception, that which
was allowed in the prior fiscal year plus a growth factor, to be determined by
reference to the average annual growth rate in Florida personal income over
the previous five years.
Florida tourism appears to be suffering the effects of negative publicity
regarding crime against tourists in the state, "product maturity," higher
prices and more aggressive marketing by competing vacation destinations.
Tourist arrivals are expected to decrease 4.7% this fiscal year (1995-96) and
rebound by 4.5% in fiscal year 1996-97. The total number of visiting tourists
is expected to reach 39.4 million and 41.2 million during fiscal years 1995-96
and 1996-97, respectively.
There has been a decline in Florida's dependency on highly cyclical
construction and construction-related manufacturing sectors. For example, the
total contract construction employment as a share of total non-farm employment
reached a peak of over 10% in 1973. In 1980, the share was roughly 7.5%, and
in 1995, the share had edged downward to nearly 5%. This trend is expected to
continue as Florida's economy continues to diversify.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $624,374,001.
For the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory
fees of $3,123,150 (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 $3,433,489 (equivalent to 0.47% of the
Portfolio's average daily net assets for such year). For the fiscal year ended
September 30, 1994, the Portfolio paid BMR advisory fees of $3,644,215
(equivalent to 0.46% of the Portfolio's average daliy net assets for such
year). The Portfolio's Investment Advisory Agreement with BMR is dated October
13, 1992 and may be continued as described under "Investment Adviser and
Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I. The
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended September 30, 1996 and 1995
and for the period from the start of business, April 5, 1994, to the fiscal
year ended September 30, 1994, $20,337, $18,478 and $5,625, respectively, of
the Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. During the fiscal year
ended September 30, 1996, the Fund paid or accrued service fees under the Plan
aggregating $2,650, of which $2,645 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the fiscal
years ended September 30, 1996 and 1995 were $42,577 and $71,781,
respectively, which amounts were paid to Authorized Firms. For the period from
the start of business, April 5, 1994, to the fiscal year ended September 30,
1994, total sales charges for sale of shares of the Fund were $54,438, of
which $53,164 was received by Authorized Firms and the balance of which was
received by the Principal Underwriter. For the fiscal year ended September 30,
1996, the Fund paid the Principal Underwriter $35.00 for repurchase
transactions handled by the Principal Underwriter (being $2.50 for each such
transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $21,746 on portfolio security transactions aggregating
$1,978,955,352 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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1996, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
the funds in the Eaton Vance fund complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
- ---- --------- --------- ------------
Donald R. Dwight .......... $26 $4,155(2) $142,500(4)
Samuel L. Hayes, III ...... 23 4,103(3) 153,750(5)
Norton H. Reamer .......... 23 4,018 142,500
John L. Thorndike ......... 23 4,173 147,500
Jack L. Treynor ........... 25 4,301 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $1,635 of deferred compensation.
(3) Includes $1,361 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from August 28, 1990
through September 30, 1996 and for the five- and one-year periods ended
September 30, 1996. The total return for the period prior to the Fund's
commencement of operations on April 5, 1994 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. The total return for such prior period has not been adjusted to
reflect the Fund's distribution fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ------------------------------ ------------------------------
PERIOD DATE INVESTMENT* ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 8/28/90 $962.16 $1,528.56 58.87% 7.90% 52.86% 7.22%
5 Years
Ended
9/30/96** 9/30/91 $962.90 $1,337.84 38.95% 6.80% 33.78% 5.99%
1 Year
Ended
9/30/96** 9/30/95 $962.50 $1,025.50 6.55% 6.55% 2.52% 2.52%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
*Initial investment less the current maximum sales charge of 3.75%.
**If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 5.11%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.11% would be 7.68%,
assuming a combined federal and State intangibles tax rate of 33.50%. If a
portion of the Fund's expenses had not been allocated to the Administrator,
the Fund would have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996, Smith Barney Inc., New York, NY and Merrill,
Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL, were the record owners
of approximately 22.2% and 6.3%, respectively, of the outstanding shares which
were held on behalf of their customers who are beneficial owners of such
shares, and as to which they have voting power under certain limited
circumstances. To the knowledge of the Trust, no other person owned of record
or beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Traditional Florida Tax Free Fund to EV
Traditional Florida Municipals Fund on December 8, 1995.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below give the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and the Florida intangibles tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
YOU ARE IN
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON THIS FEDERAL IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE RETURN IS* 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
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:**
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
</TABLE>
*Net amount subject to federal personal income tax after deductions and
exemptions.
**A Florida intangibles tax on personal property of $2.00 per $1,000 is
generally imposed after exemptions on the value of stocks, bonds, other
evidences of indebtedness and mutual fund shares. An example of the effect
of the Florida intangibles tax on the tax brackets of Florida taxpayers is
as follows. A $10,000 investment subject to the tax would require payment of
$20 annually in intangibles taxes. If the investment yielded 5.5% annually
or $550, the intangibles tax as a percentage of income would be $20/$500 or
3.64%. If a taxpayer were in the 36% federal income tax bracket, assuming
the intangibles taxes were deducted as an itemized deduction on the federal
return, the taxpayer would be on a combined federal and Florida State tax
bracket of 38.33% [36% + (1 - .36) X 3.64%] with respect to such investment.
A Florida taxpayer whose intangible personal property is exempt or partially
exempt from tax due to the availability of exemptions will have a lower
taxable equivalent yield than indicated above.
Note: The federal income tax brackets do not take into account the effect of a
reduction in the deductibility of itemized deductions for taxpayers with
adjusted gross income in excess of $121,200. The tax brackets also do not show
the effects of phaseout of personal exemptions for single and joint filers
with adjusted gross incomes in excess of $121,200 and $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
the Florida intangibles tax, state or local taxes, if any, payable on Fund
distributions to individuals who are not Florida residents, or intangibles
taxes, if any, imposed under the laws of other states. It should also be noted
that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax is treated as
a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits
that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL MASSACHUSETTS
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Massachusetts state personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Massachusetts Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Massachusetts considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Massachusetts issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of Massachusetts issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Beginning in 1989, the Commonwealth's economy slowed significantly. Most
of the employment growth during this period was experienced in the services
and trade sectors of the economy, while the manufacturing sector continues to
suffer employment losses. Like most other industrial states, Massachusetts has
seen a shift in employment from manufacturing to more technology and service-
based industries. Between 1993 and 1994, per capita personal income in
Massachusetts increased 3.6%, as compared to 1.7% for the nation as a whole.
The unemployment rate for the Commonwealth fell from 5.4% in 1995 to 5.0% for
February 1996. The national unemployment rate for February 1996 was 5.6%.
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.
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 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, it
should be noted that no significant challenge has been raised since it took
effect. Any fiscal problems encountered by the state amplify the economic and
fiscal problems encountered by cities and towns throughout the Commonwealth.
Any Commonwealth fiscal problems which result in local aid reductions could,
in the absence of overrides, result in payment defaults by local cities and
towns and/or ratings downgrades resulting in an erosion of their market value.
FEES AND EXPENSES
INVESTMENT ADVISER
As 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 year). For the fiscal year ended
September 30, 1994, the Portfolio paid BMR advisory fees of $1,397,963
(equivalent to 0.46% of the Portfolio's average daily net assets for such
year). The Portfolio's Investment Advisory Agreement with BMR is dated October
13, 1992 and may be continued as described under "Investment Adviser and
Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended September 30, 1996 and 1995
and for the period from the start of business, December 7, 1993, to the fiscal
year ended September 30, 1994, $22,401, $13,833 and $26,572, respectively, of
the Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. Prior to February 1,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the period from October 1,
1995 to January 31, 1996 the Principal Underwriter paid to Authorized Firms
sales commissions of $5,173 under that Plan on sales of Fund shares. During
the same period, the Fund paid sales commissions under that Plan to the
Principal Underwriter aggregating $7,134. During the fiscal year ended
September 30, 1996, CDSCs aggregating approximately $660 were imposed on early
redeeming shareholders and paid to the Principal Underwriter. The CDSCs and
sales commissions paid to the Principal Underwriter reduced Uncovered
Distribution Charges. As at September 30, 1996, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $337,000 (which amount was
equivalent to 5.6% of the Fund's net assets on such date). This charge will be
extinguished at no expense to the Fund on January 31, 1997. During the fiscal
year ended September 30, 1996, the Fund paid or accrued service fees under the
Plan aggregating $6,750, of which $6,212 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter. A portion of such
fee was paid under the service fee provisions of the Distribution Plan and the
balance was paid under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to September 30, 1996 was $25,341, which amount was paid
to Authorized Firms. For the fiscal year ended September 30, 1996, the Fund
made no payments to the Principal Underwriter for repurchase transactions.
BROKERAGE
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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1996, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ............. $0 $3,118(2) $142,500(4)
Samuel L. Hayes, III ......... 0 3,162(3) 153,750(5)
Norton H. Reamer ............. 0 3,087 142,500
John L. Thorndike ............ 0 3,218 147,500
Jack L. Treynor .............. 0 3,278 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $1,214 of deferred compensation.
(3) Includes $1,111 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from April 19, 1991 through
September 30, 1996 and for the five- and one-year periods ended September 30,
1996. The total return for the period prior to the Fund's commencement of
operations on December 7, 1993 reflects the Portfolio's total return (or that
of its predecessor) adjusted to reflect any applicable Fund sales charge. The
total return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the Fund's
sales charge effective February 1, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------------------------------------------
PERIOD DATE INVESTMENT* ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 4/19/91 $962.64 $1,373.52 42.67% 6.72% 37.35% 5.98%
5 Years
Ended
9/30/96** 9/30/91 $962.89 $1,304.31 35.46% 6.26% 30.43% 5.46%
1 Year
Ended
9/30/96** 9/30/95 $962.50 $1,022.14 6.19% 6.19% 2.22% 2.22%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%. This sales
charge is effective February 1, 1996. Prior thereto, Fund shares redeemed
within one year of purchase are subject to a CDSC of 1%.
** If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 5.46%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.46% would be 8.99%,
assuming a combined federal and State tax rate of 39.28%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rate and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996, Cambridge Savings Bank, Trust Dept., Cambridge,
MA and Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL were the
record owners of approximately 46.5% and 5.1%, respectively, of the
outstanding shares, which were held on behalf of their customers who are the
beneficial owners of such shares, and as to which they had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Massachusetts Tax Free Fund to
EV Classic Massachusetts Municipals Fund on December 8, 1995 and to EV
Traditional Massachusetts Municipals Fund on February 1, 1996.
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>
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
</TABLE>
*Net amount subject to federal and Massachusetts personal income tax after
deductions and exemptions.
+The combined tax rates include a Massachusetts tax rate of 12% applicable to
taxable bond interest and dividends, and assume that Massachusetts taxes are
itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets are 15%, 28%,
31%, 36%, and 39.6%, over the same ranges of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Massachusetts state income
taxes) for taxpayers with Adjusted Gross Income in excess of $121,200. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with Adjusted Gross Income in excess of $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"
Massachusetts obligations issued after August 7, 1986, while exempt from the
regular federal income tax, is treated as a tax preference item which could
subject the recipient to the federal alternative minimum tax. The
illustrations assume that the federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL MISSISSIPPI
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Mississippi State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Mississippi Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Mississippi considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Mississippi issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from the Mississippi Employment
Security Commission and from official statements relating to securities
offerings of Mississippi issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Funding of the various State operations is derived principally from the
General Fund revenues and Special Fund receipts. For the fiscal year ending
June 30, 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 $1.18 billion for public health and welfare and $381.2 million for
public education. Funding for the General Fund is derived principally from
revenues generated by income, corporate, excise and sales taxes as well as
profits from the wholesale sales of alcoholic beverages, interest earned on
investments, proceeds from sales of various supplies and services, and
licensing fees. As of fiscal year ending June 30, 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 has experienced cash flow problems in the 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.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $25,279,561. For
the fiscal year ended September 30, 1996, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $55,976 (equivalent to 0.20% of
the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of its advisory fee in the
amount of $27,990. For the fiscal year ended September 30, 1995, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $65,442
(equivalent to 0.22% of the Portfolio's average daily net assets for such
year). To enhance the net income of the Portfolio, BMR made a reduction of its
advisory fee in the amount of $36,759. For the fiscal year ended September 30,
1994, absent a fee reduction, the Portfolio would have paid BMR advisory fees
of $45,841 (equivalent to 0.19% of the Portfolio's average daily net assets
for such year). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee and BMR was allocated a
portion of expenses related to the operation of the Portfolio in the amount of
$19,780. The Portfolio's Investment Advisory Agreement with BMR is dated June
7, 1993 and may be continued as described under "Investment Adviser and
Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended September 30, 1996 and 1995
and for the period from the start of business, December 7, 1993, to the fiscal
year ended September 30, 1994, $15,479, $14,260 and $19,179, respectively, of
the Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. Prior to February 1,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the period from October 1,
1995 to January 31, 1996, the Principal Underwriter paid to Authorized Firms
sales commissions of $4,678 under that Plan on sales of Fund shares. During
the same period, the Fund paid sales commissions under that Plan to the
Principal Underwriter aggregating $5,938. During the fiscal year ended
September 30, 1996, there were no CDSCs imposed on early redeeming
shareholders and paid to the Principal Underwriter. The sales commissions paid
to the Principal Underwriter reduced Uncovered Distribution Charges. As at
September 30, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Distribution Plan amounted to
approximately $287,000 (which amount was equivalent to 23.7% of the Fund's net
assets on such date). This charge will be extinguished at no expense to the
Fund on January 31, 1997. During the fiscal year ended September 30, 1996, the
Fund paid or accrued service fees under the Plan aggregating $3,247, of which
$2,911 was paid to Authorized Firms and the balance of which was retained by
the Principal Underwriter. A portion of such fee was paid under the service
fee provisions of the Distribution Plan and the balance was paid under the
existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to September 30, 1996 was $424, which amount was paid to
Authorized Firms. For the fiscal year ended September 30, 1996, the Fund made
no payments to the Principal Underwriter for repurchase transactions.
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $4,552 on portfolio security transactions aggregating
$40,485,462 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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1996, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ----------- -------------- ------------------
Donald R. Dwight ............. $0 $344(2) $142,500(4)
Samuel L. Hayes, III ......... 0 313(3) 153,750(5)
Norton H. Reamer ............. 0 310 142,500
John L. Thorndike ............ 0 317 147,500
Jack L. Treynor .............. 0 339 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment companies
or series thereof.
(2) Includes $135 of deferred compensation.
(3) Includes $104 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Cynthia J. Clemson (33) is a Vice
President of the Portfolio. Ms. Clemson has served as a Vice President of the
Portfolio since June 19, 1995. Ms. Clemson has been a Vice President of BMR
and Eaton Vance since 1993 and an employee of Eaton Vance since 1985. Ms.
Clemson is an officer of various investment companies managed by Eaton Vance
or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from June 11, 1993 through
September 30, 1996 and for the one-year period ended September 30, 1996. The
total return for the period prior to the Fund's commencement of operations on
December 7, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT -----------------------------------------------------------
PERIOD DATE INVESTMENT* ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/11/93 $962.11 $1,087.28 13.01% 3.76% 8.73% 2.56%
1 Year Ended
9/30/96** 9/30/95 $962.50 $1,026.40 6.64% 6.64% 2.66% 2.66%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%.
** If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 5.02%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.02% would be 7.66%,
assuming a combined federal and State tax rate of 34.45%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 58.0% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of such date, the following
shareholders owned beneficially and of record the percentage of outstanding
shares of the Fund indicated after their name: Merchants & Farmers Bank
trustee for Jordan Funeral Home Trust, Kosciusko, MS (9.7%); Prudential
Securities FBO Mrs. Grace P. Lee, Jackson, MS (5.0%) and Phyllis P. McGehee,
Long Beach, MS (5.0%). To the knowledge of the Trust, no other person owned of
record or beneficially 5% or more of the Fund's outstanding shares as of such
date.
OTHER INFORMATION
The Fund changed its name from EV Classic Mississippi Tax Free Fund to EV
Classic Mississippi Municipals Fund on December 8, 1995 and to EV Traditional
Mississippi Municipals Fund on February 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Mississippi State income tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
A FEDERAL AND MISSISSIPPI STATE
SINGLE RETURN JOINT RETURN COMBINED TAX EXEMPT YIELD OF:
- -------------------------------------- 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
</TABLE>
*Net amount subject to federal and Mississippi personal income tax after
deductions and exemptions.
+The first combined tax bracket is calculated using the highest Mississippi
tax rate within the bracket. Taxpayers with taxable income within this
bracket may have a lower combined bracket and taxable equivalent yield than
indicated above. The combined tax brackets assume that Mississippi taxes are
itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets set forth above
are 15%, 28%, 31%, 36% and 39.6% over the same ranges of income. The assumed
Mississippi State income tax rate is 5%.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Mississippi State income
taxes) for taxpayers with adjusted gross income in excess of $121,200. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with adjusted gross income in excess of $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 Mississippi personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Mississippi personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL NEW YORK MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and New York State and New York City personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the New York Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in New York issuers. Such information supplements the information
in the Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of New
York issuers. Neither the Trust nor the Portfolio has independently verified
this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been
below the national average primarily due to significant cutbacks in the
computer, manufacturing, defense and banking industries. New York's economy is
expected to continue to expand modestly during 1996. The unemployment rate for
the State for 1995 was 6.3%, compared to the national unemployment rate of
5.6%. New York City's unemployment rate was 8.2% for 1995, down from 8.5% a
year earlier.
For fiscal year 1994-1995, the State's GAAP deficit grew by $1.43 billion
from $1.88 billion to $3.31 billion. The deficit was largely due to a draw
down of the prior year's cash balance of $1 billion to fund operating
expenses. The State's accumulated deficit would have been $7.5 billiion if it
was not for an LGAC issuance in 1995.
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.
On July 13, 1996, the State adopted its budget for the 1996-1997 fiscal
year which began on April 1, 1996. Prior to the adoption of the 1996-1997
budget, legislation making interim appropriations for State personal service
costs, various grants to local governments and certain other items for such
fiscal year were enacted by the State. It is reasonable to expect press
reports describing the details of such budget.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7
billion dollar cap, net of LGAC proceeds, on the seasonal borrowing program.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion completing the program. This cap may be exceeded in cases where
the Governor and the legislature have certified the need for additional
borrowing and have devised a method for reducing it back to the cap no later
than the fourth fiscal year after the limit is exceeded. If this cap were to
be exceeded, it could result in action by the rating agencies which could
adversely affect prices of bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each
of the 1981 through 1995 fiscal years, the City achieved balanced operating
results as reported in accordance with generally accepted accounting
principles. Pursuant to the laws of the State, the City prepares a four-year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City implemented various actions to close projected budget gaps of $3.3
billion, $2.3 billion and $3.1 billion for the 1994, 1995 and 1996 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 1997 fiscal
year, the City previously projected a budget gap of $2.7 billion and has
implemented and will implement various gap-closing actions to balance the 1997
fiscal year budget including, among others, substantial reductions in
entitlement programs, service and personnel reductions, cost saving
initiatives related to debt services and pension costs and the sale of certain
City assets. The City currently projects budget gaps of $1.7 billion, $2.7
billion and $3.4 billion for its 1998, 1999 and 2000 fiscal years,
respectively. The City's gap-closing plans for the 1998 through 2000 fiscal
years include reductions in City agency expenditures, additional State and
federal 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 1997 through 2000 fiscal years. The fiscal health of
New York City, which is the largest issuer of municipal bonds in the country
and a leading international commercial center, exerts a significant influence
upon the fiscal health and bond values of issues throughout the State. Bond
values of the Municipal Assistance Corporation, the State of New York, the New
York Local Government Assistance Corporation, the New York State Dormitory
Authority -- City University, the New York City Municipal Water Finance
Authority and The Metropolitan Transportation Authority would be particularly
affected by serious financial difficulties encountered by New York City. The
Portfolio could be expected to hold bonds issued by many, if not all of these
issuers, at any given time.
As of July 11, 1996, 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. 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," 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. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $604,529,520.
For the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory
fees of $2,932,032 (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 $3,031,508 (equivalent to 0.47% of the
Portfolio's average daily net assets for such year). For the fiscal year ended
September 30, 1994, the Portfolio paid BMR advisory fees of $3,073,565
(equivalent to 0.46% of the Portfolio's average daily net assets for such
year). The Portfolio's Investment Advisory Agreement with BMR is dated October
13, 1992 and may be continued as described under "Investment Adviser and
Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator receives no compensation for providing administrative services
to the Fund. For the fiscal years ended September 30, 1996 and 1995 and for
the period from the start of business, April 15, 1994, to the fiscal year
ended September 30, 1994, $25,729, $20,316 and $5,466, respectively, of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. During the fiscal year
ended September 30, 1996, the Fund paid or accrued service fees under the Plan
aggregating $4,127, of which $3,819 was paid to Authorized Firms and the
balance of which was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the fiscal
years ended September 30, 1996 and 1995 were $77,234 and $115,728,
respectively, which amounts were received by Authorized Firms. For the period
from the start of business, April 15, 1994, to the fiscal year ended September
30, 1994 total sales charges for sale of shares of the Fund were $46,724, of
which $46,487 was received by Authorized Firms and the balance of which was
received by the Principal Underwriter.
For the fiscal year ended September 30, 1996, the Fund paid the Principal
Underwriter $87.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $94,192 on portfolio security transactions aggregating
$703,948,362 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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended September 30, 1996, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- --------- -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight .............................. $53 $4,155(2) $142,500(4)
Samuel L. Hayes, III .......................... 47 4,103(3) 153,750(5)
Norton H. Reamer .............................. 47 4,018 142,500
John L. Thorndike ............................. 48 4,173 147,500
Jack L. Treynor ............................... 51 4,301 147,500
</TABLE>
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $1,635 of deferred compensation.
(3) Includes $1,361 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (35) has served as a Vice
President of the Portfolio since June 19, 1995. Ms. Anderes has been a Vice
President of BMR and Eaton Vance since 1994, and is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Ms. Anderes was Vice President and portfolio manager, Lazard Freres
Asset Management (1992-1994).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from August 30, 1990
through September 30, 1996 and for the five- and one-year periods ended
September 30, 1996. The total return for the period prior to the Fund's
commencement of operations on April 15, 1994 reflects the Portfolio's total
return (or that of its predecessor) adjusted to reflect any applicable Fund
sales charge. The total return for such prior period has not been adjusted to
reflect the Fund's service fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ------------------------------ ----------------------------
PERIOD DATE INVESTMENT* ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund 8/30/90 $962.59 $1,556.94 61.73% 8.22% 55.69% 7.54%
5 Years
Ended
9/30/96 9/30/91 $962.38 $1,353.55 40.65% 7.06% 35.36% 6.24%
1 Year
Ended
9/30/96** 9/30/95 $962.50 $1,026.94 6.69% 6.69% 2.65% 2.65%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
*Initial investment less the maximum sales charge of 3.75%.
**If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 5.03%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.03% would be 8.24%,
assuming a combined federal and State tax rate of 38.99%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL, was the record owner of approximately 5.8% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of the same date the following
shareholder owned of record the percentage of outstanding shares of the Fund
indicated after his name: Olindo Genetelli, Flushing, NY 11370-1933 (5.6%). To
the knowledge of the Trust, no other person owned of record or beneficially 5%
or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Traditional New York Tax Free Fund to EV
Traditional New York Municipals Fund on December 8, 1995.
TAX EQUIVALENT YIELD TABLES
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and New York State and New York City income tax laws in effect for 1997.
<TABLE>
<CAPTION>
COMBINED A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL, NY STATE
- ----------------------------------------------- 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
</TABLE>
*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.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND NEW YORK STATE TAX EXEMPT YIELD OF:
- ----------------------------------------------- NY STATE ---------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -----------------------------------------------------------------------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
*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.
Note: Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield. No assurance can be given that the Fund
will achieve any specific tax exempt yield. While it is expected that the
Portfolio will invest principally in obligations, the interest from which is
exempt from the regular federal income tax and New York State and New York
City personal income taxes, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for New
York State and New York City personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated
as a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credits
that may be available.
The above-indicated combined federal and New York State/City income brackets
assume State and City taxes are itemized deductions and do not take into
account the effect of a reduction in the deductibility of itemized deductions
(including New York State and City Income Taxes) for taxpayers with adjusted
gross income in excess of $121,200, nor do they reflect phaseout of personal
exemptions for single and joint filers with adjusted gross income in excess of
$121,200 and $181,800, respectively. The effective combined tax brackets and
equivalent taxable yields of taxpayers who do not itemize or who are subject
to such limitations will be higher than those indicated above. In addition,
investors who do not itemize deductions on their federal income tax returns
will have higher combined brackets and equivalent taxable yields than
indicated above.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL OHIO MUNICIPALS
FUND. The investment objective of the Fund is to provide current income exempt
from regular federal income tax and Ohio State personal income taxes. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Ohio Municipals Portfolio (the "Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Ohio considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Ohio issuers. Such information supplements the information in the
Prospectus. It is derived from sources that are generally available to
investors and is believed to be accurate. Such information constitutes only a
brief summary, does not purport to be a complete description and is based on
information from official statements relating to securities offerings of Ohio
issuers. Neither the Trust nor the Portfolio has independently verified this
information.
The State of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. The State is effectively prohibited by law
from ending a fiscal year or a biennium in a deficit position. The Governor
has the power to order State agencies to operate within the State's means. The
State carries out most of its operations through the General Revenue Fund
("GRF") which receives general State revenues not otherwise dedicated. GRF
revenues are derived mainly from personal income and sales taxes and corporate
franchise taxes. State GRF figures generally show a pattern related to
national economic conditions, evident in growth and depletion of its GRF
ending fund balances, with the June 30 (end of fiscal year) GRF fund balance
reduced during less favorable national economic periods and increased during
more favorable economic periods.
The general appropriations act for the 1994-95 biennium was signed by the
Governor on July 1, 1993. This act appropriated $30.7 billion for GRF
purposes. Appropriations for the first fiscal year of the biennium were
approximately 9.2% above those for fiscal year 1993 while those for the second
year were approximately 6.6% higher than those for fiscal year 1994. These
additional appropriations were mainly for increased costs in most State
financed programs such as education, Medicaid, mental health and corrections.
During the 1992-1993 biennium, the national economic downturn required a $200
million transfer from the Budget Stabilization Fund ("BSF") to the GRF (the
BSF has been replenished, and has a current balance of over $828 million). As
fiscal year 1992 progressed, reduced tax collections led to a revenue
shortfall. This, in combination with additional expenditures produced a
projected budget deficit. The State addressed this deficit through a
combination of budget cuts, tax payment accelerations and a depletion of the
BSF. A projected fiscal year 1993 gap of $520 million was covered through a
combination of tax increases and a reduction in appropriations. The fiscal
year 1994 budget was balanced. The 1996-97 biennial budget calls for GRF
expenditures to increase 9.1% over the 1995-96 biennium.
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 120 of the State's 600+ local
school districts. A small number of local school districts have in any year
required emergency loan approval from the State in order to avoid year-end
deficits. Forty-four school districts borrowed $68.6 million in fiscal year
1992 and 27 districts borrowed $94.5 million in 1993, including Cleveland
which borrowed $75 million. Twenty-eight districts borrowed $41.1 million in
fiscal year 1994 and twenty-nine borrowed $71.1 million in fiscal year 1995.
Schools were affected by budget-balancing expenditure reductions discussed
above.
Litigation, similar to that in other states, is pending questioning the
constitutionality of Ohio's system of school funding. The trial court
concluded that aspects of the system (including basic operating assistance)
are unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State appealed and a court of
appeals reversed the trial court's findings for plaintiff districts. The case
is now pending on appeal in the Ohio Supreme Court. At this time, it is not
possible to determine either the outcome or the financial burden which an
unfavorable decision would have on either the State's or the local school
districts' financial health.
Resolutions have been introduced in both houses of the General Assembly
that would submit a constitutional amendment relating to certain other aspects
of State debt that would authorize, among other things, the issuance of State
general obligation debt for a variety of purposes and without additional vote
of the people to the extent that debt service on all State general obligation
debt and GRF-supported obligations not to exceed 5% of the preceding fiscal
year's GRF expenditures. It cannot be predicted whether the proposed amendment
will in fact be submitted, or, if submitted, approved by the electors.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $292,670,816.
For the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory
fees of $1,404,951 (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 $1,463,895 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). For the fiscal year ended
September 30, 1994, the Portfolio paid BMR advisory fees of $1,454,208
(equivalent to 0.45% of the Portfolio's average daily net assets for such
year). The Portfolio's Investment Advisory Agreement with BMR is dated October
13, 1992 and may be continued as described under "Investment Adviser and
Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator receives no compensation for providing administrative services
to the Fund. For the fiscal years ended September 30, 1996 and 1995 and for
the period from the start of business, December 7, 1993, to the fiscal year
ended September 30, 1994, $19,500, $20,605 and $20,643, respectively, of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. Prior to February 1,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the period from October 1,
1995 to January 31, 1996, the Principal Underwriter paid to Authorized Firms
sales commissions of $4,739 under that Plan on sales of fund shares. During
the same period, the Fund paid sales commissions under that Plan to the
Principal Underwriter aggregating $5,747. During the fiscal year ended
September 30, 1996, CDSCs aggregating approximately $350 were imposed on early
redeeming shareholders and paid to the Principal Underwriter. The CDSCs and
sales commissions paid to the Principal Underwriter reduced Uncovered
Distribution Charges. As at September 30, 1996, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the
Distribution Plan amounted to approximately $251,000 (which amount was
equivalent to 12.8% of the Fund's net assets on such date). This charge will
be extinguished at no expense to the Fund on January 31, 1997. During the
fiscal year ended September 30, 1996, the Fund paid or accrued service fees
under the Plan aggregating $4,183, of which $3,909 was paid to Authorized
Firms and the balance of which was retained by the Principal Underwriter. A
portion of such fee was paid under the service fee provisions of the
Distribution Plan and the balance was paid under the existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to September 30, 1996 was $4,450, which amount was paid
to Authorized Firms. For the fiscal year ended September 30, 1996, the Fund
paid the Principal Underwriter $87.50 for repurchase transactions handled by
the Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal years ended September 30, 1996, 1995, and 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended September 30, 1996, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight ................................. $0 $3,224(2) $142,500(4)
Samuel L. Hayes, III ............................. 0 3,257(3) 153,750(5)
Norton H. Reamer ................................. 0 3,181 142,500
John L. Thorndike ................................ 0 3,313 147,500
Jack L. Treynor 0 3,380 147,500
</TABLE>
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $1,266 of deferred compensation.
(3) Includes $1,111 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from April 18, 1991 through
September 30, 1996 and for the five- and one-year periods ended September 30,
1996. The total return for the period prior to the Fund's commencement of
operations on December 7, 1993 reflects the Portfolio's total return (or that
of its predecessor) adjusted to reflect any applicable Fund sales charge. The
total return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT --------------------------------------------------------
PERIOD DATE INVESTMENT* ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/18/91 $962.67 $1,375.75 42.91% 6.76% 37.58% 6.02%
5 Years Ended
9/30/96** 9/30/91 $962.09 $1,311.02 36.26% 6.38% 31.10% 5.56%
1 Year Ended
9/30/96** 9/30/95 $962.50 $1,021.46 6.12% 6.12% 2.18% 2.18%
</TABLE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
- ------------
*Initial investment less the maximum sales charge of 3.75%.
**If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 5.20%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.20% would be 8.09%,
assuming a combined federal and State tax rate of 35.76%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 35.1% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of the same date, the following
shareholders owned of record the percentages of outstanding shares indicated
after their names: Wheat First FBO A/C 3041-5225, Ellis Brothers Inc., Mt.
Vernon, OH 43050 (10.1%); Paine Webber FBO Mary Alice Wilson, Lucasville, OH
45648-9806 (8.0%) and NFSC FEBO # BMA-162957, Edna M. Terry, Lois Miller POA,
Punta Gorda, FL (5.2%). To the knowledge of the Trust, no other person owned of
record or beneficially 5% or more of the Fund's outstanding shares as of such
date.
TAXES
In the opinion of special tax counsel to the Fund, Squire, Sanders &
Dempsey, under Ohio law, provided that the Fund continues to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Fund consists of obligations issued by
or on behalf of Ohio, political subdivisions thereof or agencies or
instrumentalities of Ohio or its political subdivisions ("Ohio Obligations"),
or similar obligations of other states or their subdivisions (a fund
satisfying such requirements being referred to herein as an "Ohio fund"), (i)
dividends paid by the Fund will be exempt from the Ohio personal income tax
and any municipal or school district income taxes in Ohio to the extent such
dividends are properly attributable to interest on Ohio Obligations, and (2)
distributions of "capital gain dividends," as defined in the Internal Revenue
Code, which are properly attributable to the Fund's capital gains on the sale
or other disposition of Ohio Obligations, will not be subject to the Ohio
personal income tax or municipal or school district income taxes in Ohio.
Other distributions from the Fund will generally not be exempt from the Ohio
personal income tax or municipal or school district income taxes in Ohio.
Provided the Fund qualifies as an Ohio fund, (1) distributions from the
Fund will be excluded from the net income base of the Ohio corporation
franchise tax to the extent that such distributions are excludable from gross
income for Federal income tax purposes or are properly attributable to
interest on Ohio Obligations, and (2) distributions which are derived from the
Fund's capital gains on the sale or other disposition of Ohio Obligations,
also will be excluded from the net income base of the Ohio corporation
franchise tax. However, shares of the Fund will not be excluded from the tax
base for purposes of computing such tax on the net worth basis.
Distributions by the Fund properly attributable to interest on obligations
of the United States or the governments of Puerto Rico, the Virgin Islands or
Guam or their authorities or municipalities are exempt from the Ohio personal
income tax and municipal and school district income taxes in Ohio, and are
excluded from the net income base of the Ohio corporate franchise tax to the
same extent that such interest would be so exempt or excluded if the
obligations were held directly by the shareholders.
OTHER INFORMATION
The Fund changed its name from EV Classic Ohio Tax Free Fund to EV Classic
Ohio Municipals Fund on December 8, 1995 and to EV Traditional Ohio Municipals
Fund on February 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Ohio State income tax laws and tax rates applicable for 1997.
<PAGE>
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND OHIO STATE TAX EXEMPT YIELD OF:
- ------------------------------------------------ OHIO STATE ----------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
- -----------------------------------------------------------------------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
*Net amount subject to federal and Ohio personal income tax after deductions
and exemptions.
+The combined tax brackets are calculated using the highest Ohio State rate
within the bracket. The combined tax brackets assume that Ohio taxes are
itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6% over the same ranges of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Ohio State income taxes) for
taxpayers with adjusted gross income in excess of $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 Ohio personal income taxes, other income
received by the Portfolio and allocated to the Fund may be taxable. The table
does not take into account state or local taxes, if any, payable on Fund
distributions except for Ohio personal income taxes. It should also be noted
that the interest earned on certain "private activity bonds" issued after
August 7, 1986, while exempt from the regular federal income tax, is treated
as a tax preference item which could subject the recipient to the federal
alternative minimum tax. The illustrations assume that the federal alternative
minimum tax is not applicable and do not take into account any tax credit that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above. Investors should consult with their tax adviser for
additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL RHODE ISLAND
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and Rhode Island State personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the Rhode Island Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain Rhode Island considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Rhode Island issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of Rhode Island issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The economic slowdown beginning in 1989 resulted in significant State
budget constraints. Declining State revenues, combined with increased demand
for certain governmental services, such as public assistance, have occurred as
a result of the difficult general economic conditions. State law requires that
the State end each year with a balanced budget and does not permit a deficit
to continue into the next fiscal year. In response to this legal mandate and
overall budgetary pressures, the State has undertaken a variety of strong
financial management controls and initiatives, including reducing
expenditures, improving revenue estimating procedures and increasing taxes.
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.
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 would further
modify the allocation formula with the result that 21 communities would
receive less State assistance in fiscal year 1994 than they were allocated in
fiscal year 1993. In addition to school aid, the State provides a general
revenue sharing program for local governments which is intended for direct
property tax relief and incorporates a distribution formula based upon
relative population, tax effort and personal income of each municipality. In
addition, the State provides municipal aid programs which include
reimbursement to local governments for their cost of carrying out certain
State mandates. For fiscal year 1992, $6.0 million was appropriated. No funds
were appropriated for fiscal year 1993. However, the 1991 General Assembly
passed legislation that provides that commencing in the fiscal year 1994,
municipalities will receive 1% of total State tax revenues. The formula for
the 1995 education aid budget established a Poverty Weight Fund (PWF). Of the
$414.7 million budgeted for educational aid, $46.1 million was distributed
through the PWF. The Governor's recommended budget for fiscal year 1996
increases school aid by $22.9 million (5.3%), including $20.7 million in
operations aid, which will be distributed through the PWF.
FEES AND EXPENSES
INVESTMENT ADVISER
As of September 30, 1996, the Portfolio had net assets of $42,167,179. For
the fiscal year ended September 30, 1996, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $108,803 (equivalent to 0.25%
of the Portfolio's average daily net assets for such year). To enhance the net
income of the Portfolio, BMR made a reduction of its advisory fee in the
amount of $53,561. For the fiscal year ended September 30, 1995, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $100,476
(equivalent to 0.25% of the Portfolio's average daily net assets for such
year). To enhance the net income of the Portfolio, BMR made a reduction of its
advisory fee in the amount of $50,721. For the fiscal year ended September 30,
1994, absent a fee reduction, the Portfolio would have paid BMR advisory fees
of $63,773 (equivalent to 0.21% of the Portfolio's average daily net assets
for such year). To enhance the net income of the Portfolio, BMR made a
reduction of the full amount of its advisory fee. The Portfolio's Investment
Advisory Agreement with BMR is dated June 7, 1993 and may be continued as
described under "Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator receives no compensation for providing administrative services
to the Fund. For fiscal years ended September 30, 1996 and 1995 and for the
period from the start of business, December 7, 1993, to the fiscal year ended
September 30, 1994, $17,127, $20,429 and $18,025, respectively, of the Fund's
operating expenses were allocated to the Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1997 and may be
continued as described under "Service Plan" in Part I. Prior to November 29,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the fiscal year ended
September 30, 1996, the Principal Underwriter paid to Authorized Firms sales
commissions of $16,229 on sales of Fund shares. During the same period, the
Fund paid sales commissions under the Plan to the Principal Underwriter
aggregating $19,299. Such payments reduced Uncovered Distribution Charges.
During the fiscal year ended September 30, 1996, CDSCs aggregating
approximately $300 were imposed on early redeeming shareholders and paid to
the Principal Underwriter. The CDSCs and sales commissions paid to the
Principal Underwriter reduced Uncovered Distribution Charges. As at September
30, 1996, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $362,000
(which amount was equivalent to 14.8% of the Fund's net assets on such date).
This charge will be extinguished at no expense to the Fund on November 29,
1997. During the fiscal year ended September 30, 1996, the Fund paid service
fee payments under the Plan aggregating $5,146, of which $4,341 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 $62.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $8,186 on portfolio security transactions aggregating
$63,027,171 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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Fund or the Portfolio.) During the fiscal year ended September 30, 1996, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight .............................. $0 $446(2) $142,500(4)
Samuel L. Hayes, III .......................... 0 313(3) 153,750(5)
Norton H. Reamer .............................. 0 310 142,500
John L. Thorndike ............................. 0 317 147,500
Jack L. Treynor 0 339 147,500
</TABLE>
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $135 of deferred compensation.
(3) Includes $104 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Nicole Anderes (35) has served as a Vice
President of the Portfolio since June 19, 1995. Ms. Anderes has been a Vice
President of BMR and Eaton Vance since 1994, and is an officer of various
investment companies managed by Eaton Vance or BMR. Prior to joining Eaton
Vance, Ms. Anderes was Vice President and portfolio manager, Lazard Freres
Asset Management (1992-1994) and Vice President and Manager -- Municipal
Research, Roosevelt & Cross (1978-1992).
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from June 11, 1993 through
September 30, 1996 and for the one-year period ended September 30, 1996. The
total return for the period prior to the Fund's commencement of operations on
December 7, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses. The performance reflects the Fund's
sales charge effective November 29, 1996.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ---------------------------------------------------------------
PERIOD DATE INVESTMENT* ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 6/11/93 $962.14 $1,077.91 12.03% 3.49% 7.79% 2.29%
1 Year
Ended
9/30/96** 9/30/95 $962.38 $1,019.66 5.95% 5.95% 1.97% 1.97%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
* Initial investment less the maximum sales charge of 3.75%. This sales
charge is effective November 29, 1996. Fund shares purchased prior thereto
and redeemed within one year of purchase are subject to a CDSC of 1%.
**If a portion of the Fund's and/or Portfolio's expenses had not been
subsidized, the Fund would have had lower returns.
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 4.65%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 4.65% would be 7.37%,
assuming a combined federal and State tax rate of 36.88%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, respectively, the Fund would have had a lower
yield. The yield reflects the Fund's sales charge effective November 29, 1996.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 63.2% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. In addition, as of the same date, the following
shareholder owned of record the percentage of outstanding shares indicated
after her name: Aline H. Hoelzel, Wakefield, RI (5.3%). To the knowledge of
the Trust, no other person owned of record or beneficially 5% or more of the
Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic Rhode Island Tax Free Fund to EV
Classic Rhode Island Municipals Fund on December 8, 1995 and to EV Traditional
Rhode Island Municipals Fund on November 29, 1996.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Rhode Island State income tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
A FEDERAL AND RHODE ISLAND STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------------ RI STATE ----------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -----------------------------------------------------------------------------------------------------------------------------------
<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
</TABLE>
*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.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Rhode Island State income
taxes) for taxpayers with adjusted gross income in excess of $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 Rhode Island personal income taxes, other
income received by the Portfolio and allocated to the Fund may be taxable. The
table does not take into account state or local taxes, if any, payable on Fund
distributions except for Rhode Island personal income taxes. It should also be
noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the
federal alternative minimum tax. The illustrations assume that the federal
alternative minimum tax is not applicable and do not take into account any tax
credit that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult with their tax adviser for additional information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL WEST VIRGINIA
MUNICIPALS FUND. The investment objective of the Fund is to provide current
income exempt from regular federal income tax and West Virginia state personal
income taxes. The Fund currently seeks to achieve its investment objective by
investing its assets in the West Virginia Municipals Portfolio (the
"Portfolio").
RISKS OF CONCENTRATION
The following information as to certain West Virginia considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in West Virginia issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of West Virginia issuers. Neither the Trust nor the
Portfolio has independently verified this information.
The economy of the State is based primarily on manufacturing, mining and
tourism. New growth has occurred in home construction, retail trade and the
service sectors. 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 over 80% of the revenue
for the General Revenue Fund in the fiscal year ended June 30, 1995. 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.
FEES AND EXPENSES
INVESTMENT ADVISER
As at September 30, 1996, the Portfolio had net assets of $39,500,791. For
the fiscal year ended September 30, 1996, the Portfolio paid BMR advisory fees
of $95,361 (equivalent to 0.24% of the Portfolio's average daily net assets
for such year). For the fiscal year ended September 30, 1995, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $98,033
(equivalent to 0.24% of the Portfolio's average daily net assets for such
year). To enhance the net income of the Portfolio, BMR made a reduction of its
advisory fee in the amount of $32,526. For the fiscal year ended September 30,
1994, BMR would have earned, absent a fee reduction, advisory fees of $82,158
(equivalent to 0.23% of the Portfolio's average daily net assets for such
period). To enhance the net income of the Portfolio, BMR made a reduction of
the full amount of its advisory fee. The Portfolio's Investment Advisory
Agreement with BMR is dated June 7, 1993 and may be continued as described
under "Investment Adviser and Administrator" in Part I.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I, the
Administrator currently receives no compensation for providing administrative
services to the Fund. For the fiscal years ended September 30, 1996 and 1995
and for the period from the start of business, December 13, 1993, to the
fiscal year ended September 30, 1994, $15,088, $16,838 and $17,812,
respectively, of the Fund's operating expenses were allocated to the
Administrator.
SERVICE PLAN
The Service Plan remains in effect until April 28, 1996 and may be
continued as described under "Service Plan" in Part I. Prior to February 1,
1996, the Fund made sales commission, distribution fee and service fee
payments pursuant to a Distribution Plan. During the period from October 1,
1995 to January 31, 1996, the Principal Underwriter paid to Authorized Firms
sales commissions of $2,488 under that Plan on sales of Fund shares. During
the same period, the Fund paid sales commissions under that Plan to the
Principal Underwriter aggregating $2,622. During the fiscal year ended
September 30, 1996, there were no CDSCs imposed on early redeeming
shareholders and paid to the Principal Underwriter. The sales commissions paid
to the Principal Underwriter reduced Uncovered Distribution Charges. As at
September 30, 1996, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Distribution Plan amounted to
approximately $169,000 (which amount was equivalent to 10.6% of the Fund's net
assets on such date). This charge will be extinguished at no expense to the
Fund on January 31, 1997. During the fiscal year ended September 30, 1996, the
Fund paid or accrued service fees under the Plan aggregating $2,289, of which
$2,253 was paid to Authorized Firms and the balance of which was retained by
the Principal Underwriter. A portion of such fee was paid under the service
fee provisions of the Distribution Plan and the balance was paid under the
existing Plan.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund during the period
from February 1, 1996 to September 30, 1996 was $24,754, which amount was paid
to Authorized Firms. For the fiscal year ended September 30, 1996, the Fund
paid the Principal Underwriter $590.00 for repurchase transactions handled by
the Principal Underwriter (being $2.50 for each such transaction).
BROKERAGE
For the fiscal year ended September 30, 1996, the Portfolio paid brokerage
commissions of $10,423 on portfolio security transactions aggregating
$75,888,648 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.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Fund
or the Portfolio.) During the fiscal year ended September 30, 1996, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
- ---- ------------ -------------- ------------------
Donald R. Dwight ............. $0 $344(2) $142,500(4)
Samuel L. Hayes, III ......... 0 313(3) 153,750(5)
Norton H. Reamer ............. 0 310 142,500
John L. Thorndike ............ 0 317 147,500
Jack L. Treynor .............. 0 339 147,500
- ----------
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $135 of deferred compensation.
(3) Includes $104 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
In addition to the officers of the Portfolio listed under "Officers of the
Trust and the Portfolio" in Part I, Timothy T. Browse (37) has served as a
Vice President of the Portfolio since it commenced operations. Mr. Browse has
been a Vice President of BMR and Eaton Vance since 1993 and an employee of
Eaton Vance since 1992. Mr. Browse is an officer of various investment
companies managed by Eaton Vance or BMR.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund from June 11, 1993 through
September 30, 1996 and for the one-year period ended September 30, 1996. The
total return for the period prior to the Fund's commencement of operations on
December 13, 1993 reflects the Portfolio's total return (or that of its
predecessor) adjusted to reflect any applicable Fund sales charge. The total
return for such prior period has not been adjusted to reflect the Fund's
service fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF VALUE ON ----------------------------------------------------------
PERIOD DATE INVESTMENT* 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/11/93 $962.13 $1,085.29 12.79% 3.70% 8.53% 2.50%
1 Year Ended
9/30/96** 9/30/95 $962.50 $1,024.56 6.45% 6.45% 2.50% 2.50%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
- ----------
*Initial investment less the maximum sales charge of 3.75%.
**If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 5.10%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.10% would be 7.91%,
assuming a combined federal and State tax rate of 35.49%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
See the Tax Equivalent Yield Table in this Part II for information
concerning applicable tax rate and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL was the record owner of approximately 9.2% of the outstanding
shares, which were held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain
limited circumstances. In addition, as of the same date, the following
shareholders owned beneficially and of record the percentages of outstanding
shares of the Fund indicated after their names: Fred G. Warner, Jr. and Doris
S. Warner Jt. Ten, Old Field, WV (6.5%); Joseph M. Sanders, Jr., Bluefield, WV
(6.4%); Dean Witter FBO Richard A. Fliess, Daniels, WV (6.3%); Dean Witter FBO
Lessie P. Donnelly Brown, Oakhill, WV (6.3%); Wheat First FBO John A.
Singleton, Charleston, WV (6.3%); Prudential Securities Inc. FBO Faye A.
Stennett, Charleston, WV (5.9%) and Smith Barney Inc. 00119312392, New York,
NY (5.5%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
OTHER INFORMATION
The Fund changed its name from EV Classic West Virginia Tax Free Fund to
EV Classic West Virginia Municipals Fund on December 8, 1995 and to EV
Traditional West Virginia Municipals Fund on February 1, 1996.
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and West Virginia state income tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
A FEDERAL AND WEST VIRGINIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------- ------------ WV STATE ---------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 12.10% 5.01% 5.63% 6.12% 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
</TABLE>
*Net amount subject to federal and West Virginia personal income tax after
deductions and exemptions.
+The combined tax rate for the two lowest federal income tax brackets are
calculated using the highest West Virginia tax rate within the bracket.
Taxpayers with taxable income within this bracket may have a lower combined
bracket and taxable equivalent yield than indicated above. The combined tax
rates assume that West Virginia taxes are itemized deductions for federal
income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above. The state rate is at
its maximum (6.5%) throughout all other brackets. The applicable federal tax
rates within the brackets are 15%, 28%, 31%, 36%, and 39.6%, over the same
ranges of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including West Virginia state income
taxes) for taxpayers with Adjusted Gross Income in excess of $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 West Virginia personal income taxes, other
income received by the Portfolio and allocated to the Fund may be taxable. The
table does not take into account state or local taxes, if any, payable on Fund
distributions except for West Virginia personal income taxes. It should also
be noted that the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax and the
West Virginia personal income tax, is treated as a tax preference item which
could subject the recipient to the federal alternative minimum tax and the
West Virginia minimum tax. The illustrations assume that the federal
alternative minimum tax and the West Virginia minimum tax are not applicable
and do not take into account any tax credit that may be available.
The information set forth above is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult with their tax adviser for additional information.
<PAGE>
[Logo]
EATON VANCE
=================
Mutual Funds
EV TRADITIONAL
MUNICIPAL
FUNDS
STATEMENT OF ADDITIONAL
INFORMATION
FEBRUARY 1, 1997
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
EV TRADITIONAL FLORIDA MUNICIPALS FUND
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND
EV TRADITIONAL NEW YORK MUNICIPALS FUND
EV TRADITIONAL OHIO MUNICIPALS FUND
EV TRADITIONAL RHODE ISLAND MUNICIPALS FUND
EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND
EV TRADITIONAL
MUNICIPAL FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research, 24 Federal Street, Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street,
Boston, MA 02110 (800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123 (800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-TFC2/1SAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1997
EV CLASSIC NATIONAL MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides information about EV Classic National Municipals Fund (the "Fund"),
National Municipals Portfolio (the "Portfolio") and certain other series of
Eaton Vance Municipals Trust (the "Trust"). Part II provides information solely
about the Fund. Where appropriate, Part I includes cross-references to the
relevant sections of Part II, that provide additional Fund-specific information.
This Statement of Additional Information is sometimes referred to herein as the
"SAI."
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies ..................... 1
Investment Restrictions .............................................. 6
Trustees and Officers ................................................ 8
Investment Adviser and Administrator ................................. 10
Custodian ............................................................ 12
Service for Withdrawal ............................................... 13
Determination of Net Asset Value ..................................... 13
Investment Performance ............................................... 14
Taxes ................................................................ 15
Portfolio Security Transactions ...................................... 17
Other Information .................................................... 19
Independent Certified Public Accountants ............................. 20
Financial Statements ................................................. 20
Tax Equivalent Yield Table ........................................... 21
Appendix ............................................................. 22
PART II
Fees and Expenses .................................................... a-1
Principal Underwriter ................................................ a-1
Distribution Plan .................................................... a-2
Performance Information .............................................. a-3
Control Persons and Principal Holders of Securities .................. a-4
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 FEBRUARY 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>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund, certain other series of the
Trust and the Portfolio. Capitalized terms used in this SAI and not otherwise
defined have the meanings given them in the Fund's Prospectus. The Fund is
subject to the same investment policies as those of the Portfolio. The Fund
currently seeks to achieve its objective by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such obligations include bonds as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years. In
general, there are three categories of municipal obligations, the interest 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 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 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 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.
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 justifies
the attendant risk. Securities lending involves administration expenses,
including finders' fees. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of the
securities loaned would not exceed 30% of the Portfolio's total assets. The
Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities, and (ii) futures
contracts on securities indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or foreign
exchange or board of trade. The Portfolio will be required, in connection with
transactions in futures contracts and the writing of options on futures, to make
margin deposits, which will be held by the Portfolio's custodian for the benefit
of the futures commission merchant through whom the Portfolio engages in such
futures and options transactions.
Some futures contracts and options thereon may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit transactions in an exchange-traded instrument,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or futures option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Portfolio from closing out
positions and limiting its losses.
The Portfolio will engage in futures and related options transactions only
for bona fide hedging purposes as defined in or permitted by CFTC regulations.
The Portfolio will determine that the price fluctuations in the futures
contracts and options on futures are substantially related to price fluctuations
in securities held by the Portfolio or which it expects to purchase. The
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold to protect against a decline
in the price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities in the cash market at the time when the
futures (or option) position is closed out. However, in particular cases, when
it is economically advantageous for the Portfolio to do so, a long futures
position may be terminated (or an option may expire) without the corresponding
purchase of securities. The Portfolio will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Code for maintaining qualification of the Fund as a
regulated investment company for federal income tax purposes (see "Taxes").
ASSET COVERAGE REQUIREMENTS
Transactions involving when-issued securities, the lending of 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 by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. Neither the Fund nor the
Portfolio may 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. Neither the Fund nor the Portfolio
may 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. In addition, neither the Fund nor the
Portfolio will 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 Portfolio's investment
adviser, Boston Management and Research ("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 (65), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (55), Vice President and Trustee*
President and Chief Executive Officer of BMR, Eaton Vance, EVC and EV, and a
Director of EVC and EV. Director, Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (61), Trustee
Jacob H. Schiff, Professor of Investment Banking at 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 (61), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (70), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (66), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (53), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected President of
the Trust and the Portfolio on December 13, 1993.
ROBERT B. MACINTOSH (40), Vice President of the Portfolio
Vice President of Eaton Vance and EV, and BMR (since August 11, 1992). 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 (38), Vice President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Metzold was elected Vice
President of the Portfolio on June 19, 1995.
JAMES L. O'CONNOR (51), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (65), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (61), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (34), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. 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 of the Trust
and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (39), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Fund, including administrative
services, transfer agency, custodial and fund accounting and distribution
services, and (ii) all other matters in which Eaton Vance or its affiliates has
any actual or potential conflict of interest with the Fund or its shareholders.
The Nominating Committee is comprised of four Trustees who are not
"interested persons" as that term is defined under the 1940 Act ("noninterested
Trustees"). The Committee has four-year staggered terms, with one member
rotating off the Committee to be replaced by another noninterested Trustee of
the Trust. The purpose of the Committee is to recommend to the Board nominees
for the position of noninterested Trustee and to assure that at least a majority
of the Board of Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing 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 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 those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation received by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement dated October 13, 1992. BMR or Eaton Vance acts as investment
adviser to investment companies and various individual and institutional clients
with combined assets under management of over $17 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment- grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to over 150 mutual funds,
individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Bombay. Together Eaton Vance and Lloyd George manage over
$18 billion in assets. Eaton Vance mutual funds are distributed by Eaton Vance
Distributors both within the United States and offshore.
Eaton Vance Distributors believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 32 long-term state portfolios, 5
national portfolios and 10 limited maturity portfolios, which serve as
investment vehicles for over 100 mutual funds with varying pricing options. A
staff of 32 (including 9 portfolio managers and 9 credit specialists) is
responsible for the day-to-day management of over 3,500 issues in 47 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The investment philosophy of the municipal investment group is to:
seek value by avoiding unnecessary credit risk; build portfolios one security at
a time; and take a long-term approach to managing market risk. Over the
long-term, the group seeks to maximize tax-free income by keeping portfolios
fully invested (rather than trying to "time the market" for short-term results)
and reduce potential capital losses due to poor credit quality. Diligent and
continuing research and analysis are a critical component of the municipal
investment group's investment philosophy and long-term strategy.
The following persons manage one or more of the Eaton Vance municipal
portfolios. For the identity of the Portfolio's portfolio manager, see the
Fund's current Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and BMR, and the
portfolio manager of single-state tax-exempt funds in six states: Hawaii,
Louisiana, Massachusetts, Minnesota, New Jersey and North Carolina. He also
serves as economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
investment research, advice and supervision, furnishes an investment program and
determines what securities will be purchased, held or sold by the Portfolio and
what portion, if any, of the Portfolio's assets will be held uninvested. The
Investment Advisory Agreement requires BMR to pay the salaries and fees of all
officers and Trustees of the Portfolio who are members of the BMR organization
and all personnel of BMR performing services relating to research and investment
activities. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and any legal obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto, to the extent not covered by
insurance.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. 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 Trustees of the Portfolio who are not interested persons of
the Portfolio or of BMR cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Portfolio or by vote of a majority of the outstanding voting securities of the
Portfolio. The Agreement may be terminated at any time without penalty on sixty
(60) days' written notice by the Board of Trustees of either party, or by vote
of the majority of the outstanding voting securities of the Portfolio, and the
Agreement will terminate automatically in the event of its assignment. The
Agreement provides that BMR may render services to others. The Agreement also
provides that BMR shall not be liable for any loss incurred in connection with
the performance of its duties, or action taken or omitted under that Agreement,
in the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
As indicated in the Prospectus, Eaton Vance serves as administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its Administrative Services Agreement with the Fund,
Eaton Vance has been engaged to administer the Fund's affairs, subject to the
supervision of the Trustees of the Trust, and shall furnish for the use of the
Fund office space and all necessary office facilities, equipment and personnel
for administering the affairs of the Fund. For additional information about the
Administrator, see "Fees and Expenses" in the Fund's Part II.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and any legal obligation of the Trust to indemnify its Trustees and
officers with respect thereto, to the extent not covered by insurance.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, M. Dozier Gardner, James B. Hawkes and Benjamin A.
Rowland, Jr. The Directors of EVC consist of the same persons and John G.L.
Cabot and Ralph Z. Sorenson. Mr. Clay is chairman, Mr. Gardner is vice chairman
and Mr. Hawkes is president and chief executive officer of EVC, BMR, Eaton Vance
and EV. All of the issued and outstanding shares of Eaton Vance and EV are owned
by EVC. All of the issued and outstanding shares of BMR are owned by Eaton
Vance. All shares of the outstanding Voting Common Stock of EVC are deposited in
a Voting Trust which expires on December 31, 1997, the Voting Trustees of which
are Messrs. Clay, Gardner, Hawkes 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 January 1, 1997, Messrs.
Clay, Gardner and Hawkes each owned 24% of such voting trust receipts, and
Messrs. Rowland and Faust owned 15% and 13%, respectively, of such voting trust
receipts. Messrs. Hawkes and Otis are officers or Trustees of the Trust and the
Portfolio and are members of the EVC, BMR, Eaton Vance and EV organizations.
Messrs. Fetter, MacIntosh, Metzold, Murphy, O'Connor and Woodbury, and Ms.
Sanders who are officers or Trustees of the Trust and/or the Portfolio and are
also members of the BMR, Eaton Vance and EV organizations. BMR will receive the
fees paid under the Investment Advisory Agreement
EVC owns all of the stock of Energex Energy Corporation, which is engaged in
oil and gas exploration and development. In addition, Eaton Vance owns all of
the stock of Northeast Properties, Inc., which is engaged in real estate
investment. EVC owns all 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. 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 Fund 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.
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, are a return of principal. Income dividends and capital
gain distributions in connection with withdrawal accounts will be credited at
net asset value as of the record date for each distribution. Continued
withdrawals in excess of current income will eventually use up principal,
particularly in a period of declining market prices. A shareholder may not have
a withdrawal plan in effect at the same time he or she has authorized Bank
Automated Investing or is otherwise making regular purchases of Fund shares. The
shareholder, the Transfer Agent or the Principal Underwriter will be able to
terminate the withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current prospectus. The net asset value of the Portfolio
is also computed by IBT (as agent and custodian for the Portfolio) by
subtracting the liabilities of the Portfolio from the value of its total assets.
Inasmuch as the market for municipal obligations is a dealer market with no
central trading location or continuous quotation system, it is not feasible to
obtain last transaction prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchased on a when- issued
basis, will normally be valued on the basis of valuations furnished by a pricing
service. The pricing services 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, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage, determined on the prior Portfolio Business Day, which
represented that investor's share of the aggregate interests in the Portfolio on
such prior day. Any additions or withdrawals for the current Portfolio Business
Day will then be recorded. Each investor's percentage of the aggregate interest
in the Portfolio will then be recomputed as a percentage equal to a fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the Portfolio Valuation Time on the prior Portfolio Business Day
plus or minus, as the case may be, the amount of any additions to or withdrawals
from the investor's investment in the Portfolio on the current Portfolio
Business Day and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the Portfolio Valuation Time on the prior Portfolio
Business Day plus or minus, as the case may be, the amount of the net additions
to or withdrawals from the aggregate investment in the Portfolio on the current
Portfolio Business Day by all investors in the Portfolio. The percentage so
determined will then be applied to determine the value of the investor's
interest in the Portfolio for the current Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and distributions paid and
reinvested) for the stated period and annualizing the results. The calculation
assumes that all distributions are reinvested at net asset value on the
reinvestment dates during the period, and either (i) the deduction of the
maximum initial sales charge from the initial $1,000 purchase order or (ii) a
complete redemption of the investment and, if applicable, the deduction of the
CDSC at the end of the period. For further information concerning the total
return of the Fund, see "Performance Information" in the Fund's Part II.
Yield is computed pursuant to a standardized formula by dividing net
investment income per share earned during a recent thirty-day period by the
maximum offering price (including, if applicable, the maximum initial sales
charge) per share on the last day of the period and annualizing the resulting
figure. Net investment income per share is calculated from the yields to
maturity of all debt obligations held by the Portfolio based on prescribed
methods, reduced by accrued Fund expenses for the period with the resulting
number being divided by the average daily number of Fund shares outstanding and
entitled to receive distributions during the period. This yield figure does not
reflect the deduction of any CDSC (if applicable) imposed on certain redemptions
at the rate set forth under "How to Redeem Fund Shares" in the Fund's current
Prospectus. Yield calculations assume the current maximum initial sales charge
(if applicable) set forth under "How to Buy Fund Shares" in the Fund's current
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 Fund, see "Performance Information" in the Fund's Part II.
The Principal Underwriter may publish to Authorized Firms the Fund's
distribution rate and/or its effective distribution rate. The Fund's
distribution rate is computed by dividing the most recent monthly distribution
per share annualized, by the current net asset value per share or, where
applicable, the maximum public offering price per share (which includes the
maximum initial sales charge). The Fund's effective distribution rate is
computed by dividing the distribution rate by the ratio (the days in a year
divided by the accrual days of the monthly period) used to annualize the most
recent monthly distribution and reinvesting the resulting amount for a full year
on the basis of such ratio. The effective distribution rate will be higher than
the distribution rate because of the compounding effect of the assumed
reinvestment. Investors should note that the Fund's yield is calculated using a
standardized formula, the income component of which is computed from the yields
to maturity of all debt obligations held by the Portfolio based on prescribed
methods (with all purchases and sales of securities during such period included
in the income calculation on a settlement date basis), whereas the distribution
rate is based on the Fund's last monthly distribution which tends to be
relatively stable and may be more or less than the amount of net investment
income and short-term capital gain actually earned by the Fund during the month.
The Fund's total return may be compared to relevant indices, such as the
Consumer Price Index, the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
other investment companies.
The Fund may provide investors with information on municipal bond investing,
which may include comparative performance information, evaluations of Fund
performance, charts and/or illustrations prepared by independent sources (such
as Lipper Analytical Services Inc., CDA/Wiesenberger, Morningstar, Inc., The
Bond Buyer, the Federal Reserve Board or The Wall Street Journal). The Fund may
also refer in investor publications to Tax Freedom Day, as computed by the Tax
Foundation, Washington, DC 20005, to help illustrate the value of tax free
investing, as well as other tax-related information. Information, charts and
illustrations showing the effects of inflation and taxes (including their
effects on the dollar and the return on various investments) and compounding
earnings may also be included in advertisements and materials furnished to
present and prospective investors.
Information about 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 Fund may provide information about Eaton Vance, its affiliates and other
investment advisers to the funds in the Eaton Vance Family of Funds in sales
material or advertisements provided to investors or prospective investors. Such
material or advertisements may also provide information on the use of investment
professionals by such investors.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for federal income
tax purposes. The Fund has elected to be treated, has qualified and intends to
continue to qualify each year as a regulated investment company ("RIC") under
the Code. Accordingly, the Fund intends to satisfy certain requirements relating
to sources of its income and diversification of its assets and to distribute its
net investment income (including tax-exempt income) and net realized capital
gains in accordance with the timing requirements imposed by the Code, so as to
avoid any federal income or excise tax on the Fund. The Fund so qualified for
its fiscal year ended September 30, 1996. Because the Fund invests substantially
all of its assets in the Portfolio, the Portfolio normally must satisfy the
applicable source of income and diversification requirements in order for the
Fund to satisfy them. The Portfolio will allocate at least annually among its
investors, including the Fund, each investor's distributive share of the
Portfolio's net taxable (if any) and tax-exempt investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or credit.
For purposes of applying the requirements of the Code regarding qualification as
a regulated investment company, the Fund will be deemed (i) to own its
proportionate share of each of the assets of the Portfolio and (ii) to be
entitled to the gross income of the Portfolio attributable to such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a
regulated investment company for federal income tax purposes and the Portfolio
is treated as a partnership for Massachusetts and federal tax purposes, neither
the Fund nor the Portfolio is liable for any income, corporate excise or
franchise tax in the Commonwealth of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio, and in order to enable the Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount, when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions 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 qualification as a RIC for federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net
long-term capital gains with respect to such shares. In addition, a loss
realized on a redemption or other disposition of Fund shares may be disallowed
to the extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain certifications, required by the Internal Revenue Service (the "IRS"), as
well as shareholders with respect to whom the Fund has received notification
from the IRS or a broker, may be subject to "backup" withholding of federal
income tax from the Fund's taxable dividends and distributions and the proceeds
of redemptions (including repurchases and exchanges), at a rate of 31%. An
individual's taxpayer identification number is generally his or her social
security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local or foreign tax consequences of investing
in the Fund.
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.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of Portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it.
BMR places the portfolio security transactions of the Portfolio and of all
other accounts managed by it for execution with many firms. BMR uses its best
efforts to obtain execution of portfolio security transactions at prices which
are advantageous to the Portfolio and at reasonably competitive spreads or (when
a disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, BMR will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal obligations,
including state obligations, purchased and sold by the Portfolio are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, on occasion it may be necessary or appropriate to
purchase or sell a security through a broker on an agency basis, in which case
the Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either that particular transaction or on the basis of
overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assist such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which such broker-dealers have arrangements. Consistent
with this practice, BMR receives Research Services from many broker-dealer firms
with which BMR places the Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which BMR
believes are useful or of value to it in rendering investment advisory services
to its clients.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any broker-dealer firm with whom Portfolio orders may
be placed the fact that such firm has sold or is selling shares of the Fund or
of other investment companies sponsored by BMR or Eaton Vance. This policy is
not inconsistent with a rule of the National Association of Securities Dealers,
Inc. ("NASD"), which rule provides that no firm which is a member of the NASD
shall favor or disfavor the distribution of shares of any particular investment
company or group of investment companies on the basis of brokerage commissions
received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate in a manner it deems equitable portfolio security
transactions among the Portfolio and the portfolios of its other investment
accounts whenever decisions are made to purchase or sell securities by the
Portfolio and one or more of such other accounts simultaneously. In making such
allocations, the main factors to be considered are the respective investment
objectives of the Portfolio and such other accounts, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment by the Portfolio and such accounts, the size of investment
commitments generally held by the Portfolio and such accounts and the opinions
of the persons responsible for recommending investments to the Portfolio and
such accounts. However, there may be instances when the Portfolio will not
participate in a securities transaction that is allocated among other accounts.
While these procedures could have a detrimental effect on the price or amount of
the securities available to the Portfolio from time to time, it is the opinion
of the Trustees of the Trust and the Portfolio that the benefits available from
the BMR organization outweigh any disadvantage that may arise from exposure to
simultaneous transactions. 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 as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the Shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the Shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
In accordance with the Declaration of Trust of the Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding 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 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 financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this SAI and have been so incorporated in reliance on the report of Deloitte &
Touche LLP, independent certified public accountants, as experts in accounting
and auditing. A copy of the Fund's most recent Annual Report accompanies this
SAI.
Registrant incorporates by reference the audited financial information for
the Funds and the Portfolio listed below for the fiscal year ended September 30,
1996 as previously filed electronically with the Commission:
EV Classic National Municipals Fund
National Municipals Portfolio
(Accession No. 0000950156-96-000900)
EV Marathon National Municipals Fund
National Municipals Portfolio
(Accession No. 0000950156-96-000901)
EV Traditional National Municipals Fund
National Municipals Portfolio
(Accession No. 0000950156-96-000902)
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields 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%
- --------------------------------------------------------------------------------------------------------------------------
Equivalent Taxable Yield
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,65 Up to $ 41,20 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 24,651-$ 59,75 $ 41,201-$ 99,60 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 59,751-$124,65 $ 99,601-$151,75 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$124,651-$271,05 $151,751-$271,05 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $271,05 Over $271,05 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
- --------------------------------------------------------------------------------------------------------------------------
*Net amount subject to federal personal income tax after deductions and exemptions.
</TABLE>
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
DESCRIPTION OF SECURITIES RATINGSsd
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
- ----------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
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.
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>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC NATIONAL MUNICIPALS FUND.
FEES AND EXPENSES
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" Part I of this SAI,
the Administrator currently receives no compensation for providing
administrative services to the Fund. For the period from the start of business,
December 3, 1993 to the fiscal year ended September 30, 1994, $54,470 of the
Fund's expenses were allocated to the Administrator.
DISTRIBUTION PLAN
During the fiscal year ended September 30, 1996, the Principal Underwriter
paid to Authorized Firms sales commissions of $294,378 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 $433,828 and the Principal
Underwriter received approximately $79,200 in CDSCs which were 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 $5,994,000 (which amount was
equivalent to 8.9% 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 $144,609 of which $97,924 was paid
to Authorized Firms and the balance was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. the Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the fiscal year ended September 30,
1996, the Fund paid the Principal Underwriter $557.50 for repurchase
transactions handled by the Principal Underwriter.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the funds in the
Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- --------------
<S> <C> <C> <C>
Donald R. Dwight .............................. $273 $5,942(2) $142,500(4)
Samuel L. Hayes, III .......................... 246 5,728 153,750(5)
Norton H. Reamer .............................. 243 5,629 142,500
John L. Thorndike ............................. 248 5,820 147,500
Jack L. Treynor ............................... 267 6,065 147,500
(1) The Eaton Vance fund complex consists of 228 registered investment companies or series thereof.
(2) Includes $2,339 of deferred compensation.
(3) Includes $1,901 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
</TABLE>
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to Authorized Firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under federal and state securities laws
is borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the Fund's Distribution Plan relating to such
payments are included in the Distribution Agreement. The Distribution Agreement
is renewable annually by the Trust's Board of Trustees (including a majority of
its Trustees who are not interested persons of the Trust and who have no direct
or indirect financial interest in the operation of the Fund's Distribution Plan
or the Distribution Agreement), may be terminated on sixty days' notice either
by such Trustees or by vote of a majority of the outstanding voting securities
of the Fund or on six months' notice by the Principal Underwriter and is
automatically terminated upon assignment. The Principal Underwriter distributes
Fund shares on a "best efforts" basis under which it is required to take and pay
for only such shares as may be sold.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the NASD
Rule. The purpose of the Plan is to compensate the Principal Underwriter for its
distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of such a liability under accounting principles have not been satisfied.
The Plan provides that the Fund will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding Uncovered Distribution Charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Fund to the Principal Underwriter
whenever there exist Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of CDSCs will
tend to increase the time during which there will exist Uncovered Distribution
Charges of the Principal Underwriter. Conversely, periods with a low level of
sales of Fund shares accompanied by a high level of early redemptions of Fund
shares resulting in the imposition of CDSCs will tend to reduce the time during
which there will exist Uncovered Distribution Charges of the Principal
Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and CDSCs theretofore
paid or payable to the Principal Underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding Uncovered Distribution
Charges with respect to such day. The amount of outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a CDSC will be imposed, the level and timing of redemptions of Fund shares upon
which no CDSC will be imposed (including redemptions involving exchanges of Fund
shares pursuant to the exchange privilege which result in a reduction of
Uncovered Distribution Charges), changes in the level of the net assets of the
Fund, and changes in the interest rate used in the calculation of the
distribution fee under the Plan. (For shares sold prior to January 30, 1995,
Plan payments are as follows: the Principal Underwriter pays monthly sales
commissions and service fee payments to Authorized Firms equivalent to
approximately .75% and .25%, respectively, annualized of the assets maintained
in the Fund by their customers beginning at the time of sale. No payments were
made at the time of sale and there is no CDSC.)
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to the Principal Underwriter and Authorized Firms which may be equivalent,
on an aggregate basis during any fiscal year of the Fund, to 1% of the Fund's
average daily net assets for such year. For the sales commissions and service
fee payments made by the Fund and the outstanding Uncovered Distribution Charges
of the Principal Underwriter, see "Fees and Expenses -- Distribution Plan" in
this Part II. The Fund believes that the combined rate of all these payments may
be higher than the rate of payments made under distribution plans adopted by
other investment companies pursuant to Rule 12b- 1. Although the Principal
Underwriter will use its own funds (which may be borrowed from banks) to pay
sales commissions at the time of sale, it is anticipated that the Eaton Vance
organization will profit by reason of the operation of the Plan through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from sale of Fund shares and through 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 shares
of the Fund. Total expenses for this purpose will include an allocable portion
of the overhead costs of such organization and its branch offices, which costs
will include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and supplies,
literature and sales aids, interest expense, data processing fees, consulting
and temporary help costs, insurance, taxes other than income taxes, legal and
auditing expense and other miscellaneous overhead items. Overhead is calculated
and allocated for such purpose by the Eaton Vance organization in a manner
deemed equitable to the Fund.
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. The Plan continues 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 Trustees of the Trust who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to the Plan (the "Rule 12b-1
Trustees") and (ii) all of the Trustees then in office, and the Distribution
Agreement contains a similar provision. The Plan and Distribution Agreement may
be terminated at any time by vote of a majority of the Rule 12b- 1 Trustees or
by vote of a majority of the outstanding voting securities of the Fund. The
provisions of the Plan relating to payments of sales commissions and
distribution fees to the Principal Underwriter are also included in the
Distribution Agreement between the Trust on behalf of the Fund and the Principal
Underwriter. Under the Plan, the President or a Vice President of the Trust
shall provide to the Trustees for their review, and the Trustees shall review at
least quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. The Plan may not be amended to
increase materially the payments described therein without approval of the
shareholders of the Fund, and all material amendments of the Plan must also be
approved by the Trustees as required by Rule 12b-1. So long as the Plan is in
effect, the selection and nomination of Trustees who are not interested persons
of the Trust shall be committed to the discretion of the Trustees who are not
such interested persons.
The Trustees of the Trust believe that the Plan will be a significant factor
in the expected growth of the Fund's assets, resulting in increased investment
flexibility and advantages which will benefit the Fund and its shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plan will compensate the Principal Underwriter for its
services and expenses in distributing shares of the Fund. Service fee payments
made to the Principal Underwriter and Authorized Firms under the Plan provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the one-, five- and
ten-year periods ended September 30, 1996. The total return for the period prior
to the Fund's commencement of operations on December 3, 1993 reflects the
Portfolio's total return (or that of its predecessor) adjusted to reflect any
applicable Fund CDSC. The total return for this time period has not been
adjusted to reflect the Fund's distribution and/or service fees and certain
other expenses. If such an adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
Value before Value after Total Return Total Return after
deducting the deducting the before deducting the CDSC deducting the CDSC*
Investment Investment Amount of CDSC on CDSC* on -------------------------- --------------------------
Period Date Investment 9/30/96 9/30/96 Cumulative Annualized Cumulative Annualized
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
9/30/96 9/30/86 $1,000 $1,932.90 $1,932.90 93.29% 6.81% 93.29% 6.81%
5 Years Ended
9/30/96 9/30/91 $1,000 $1,420.37 $1,420.37 42.04% 7.27% 42.04% 7.27%
1 Year Ended
9/30/96 9/30/95 $1,000 $1,067.29 $1,057.29 6.73% 6.73% 5.73% 5.73%
- ----------
*No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 5.06%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.06% would be 7.33%,
assuming a federal tax rate of 31%.
See the Tax Equivalent Yield Table in Part I for information concerning
applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996, the following shareholders owned of record the
percentages of outstanding shares indicated after their names: Merrill Lynch,
Pierce, Fenner & Smith, Inc., Jacksonville, FL 32246 (36.3%), 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; and June M. and
Henry S. Lesh, Trustees, June M. Lesh Trust, u/a 6/20/91, Naples, FL 33940
(6.1%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
<PAGE>
[logo]
EATON VANCE
==================== EV CLASSIC
Mutual Funds NATIONAL MUNICIPALS FUND
- -------------------------------------------------------------------------------
STATEMENT OF
ADDITIONAL INFORMATION
FEBRUARY 1, 1997
EV CLASSIC
NATIONAL MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF NATIONAL MUNICIPALS PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EV CLASSIC NATIONAL MUNICIPALS FUND
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
C-HMSAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1997
EV MARATHON NATIONAL MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides information about EV Marathon National Municipals Fund (the "Fund"),
National Municipals Portfolio (the "Portfolio") and certain other series of
Eaton Vance Municipals Trust (the "Trust"). Part II provides information solely
about the Fund. Where appropriate, Part I includes cross-references to the
relevant sections of Part II, that provide additional Fund-specific information.
This Statement of Additional Information is sometimes referred to herein as the
"SAI."
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies .................... 1
Investment Restrictions ............................................. 6
Trustees and Officers ............................................... 8
Investment Adviser and Administrator ................................ 10
Custodian ........................................................... 12
Service for Withdrawal .............................................. 13
Determination of Net Asset Value .................................... 13
Investment Performance .............................................. 14
Taxes ............................................................... 15
Portfolio Security Transactions ..................................... 17
Other Information ................................................... 19
Independent Certified Public Accountants ............................ 20
Financial Statements ................................................ 20
Tax Equivalent Yield Table .......................................... 21
Appendix ............................................................ 22
PART II
Fees and Expenses ................................................... a-1
Principal Underwriter ............................................... a-1
Distribution Plan ................................................... a-2
Performance Information ............................................. a-4
Control Persons and Principal Holders of Securities ................. a-4
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 FEBRUARY 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).
FOR EDGAR FILING PURPOSES ONLY: REGISTRANT INCORPORATES BY REFERENCE FOR
EV MARATHON NATIONAL MUNICIPALS FUND THE PART I FOUND IN THE STATEMENT OF
ADDITIONAL INFORMATION OF EV CLASSIC NATIONAL MUNICIPALS FUND CONTAINED IN
THIS AMENDMENT.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NATIONAL MUNICIPALS
FUND.
FEES AND EXPENSES
DISTRIBUTION PLAN
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
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the fiscal year ended September 30,
1996, the Fund paid the Principal Underwriter $21,967.50 for repurchase
transactions handled by the Principal Underwriter.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the funds in the
Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- --------------
<S> <C> <C> <C>
Donald R. Dwight .............................. $687 $5,942(2) $142,500(4)
Samuel L. Hayes, III .......................... 625 5,728(3) 153,750(5)
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) Includes $2,339 of deferred compensation.
(3) Includes $1,901 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
</TABLE>
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to Authorized Firms or investors and other selling
literature and of advertising is borne by the Principal Underwriter. The fees
and expenses of qualifying and registering and maintaining qualifications and
registrations of the Fund and its shares under federal and state securities laws
is borne by the Fund. In addition, the Fund makes payments to the Principal
Underwriter pursuant to its Distribution Plan as described in the Fund's current
Prospectus; the provisions of the Fund's Distribution Plan relating to such
payments are included in the Distribution Agreement. The Distribution Agreement
is renewable annually by the Trust's Board of Trustees (including a majority of
its Trustees who are not interested persons of the Trust and who have no direct
or indirect financial interest in the operation of the Fund's Distribution Plan
or the Distribution Agreement), may be terminated on sixty days' notice either
by such Trustees or by vote of a majority of the outstanding voting securities
of the Fund or on six months' notice by the Principal Underwriter and is
automatically terminated upon assignment. The Principal Underwriter distributes
Fund shares on a "best efforts" basis under which it is required to take and pay
for only such shares as may be sold.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the NASD
Rule. The purpose of the Plan is to compensate the Principal Underwriter for its
distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of such a liability under accounting principles have not been satisfied.
The Plan provides that the Fund will receive all CDSCs and will make no
payments to the Principal Underwriter in respect of any day on which there are
no outstanding Uncovered Distribution Charges of the Principal Underwriter.
CDSCs and accrued amounts will be paid by the Fund to the Principal Underwriter
whenever there exist Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of CDSCs will
tend to increase the time during which there will exist Uncovered Distribution
Charges of the Principal Underwriter. Conversely, periods with a low level of
sales of Fund shares accompanied by a high level of early redemptions of Fund
shares resulting in the imposition of CDSCs will tend to reduce the time during
which there will exist Uncovered Distribution Charges of the Principal
Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund to the Principal Underwriter and CDSCs theretofore
paid or payable to the Principal Underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding Uncovered Distribution
Charges with respect to such day. The amount of outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of Uncovered Distribution Charges of the Principal Underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a CDSC will be imposed, the level and timing of redemptions of Fund shares upon
which no CDSC will be imposed (including redemptions involving exchanges of Fund
shares pursuant to the exchange privilege which result in a reduction of
Uncovered Distribution Charges), changes in the level of the net assets of the
Fund, and changes in the interest rate used in the calculation of the
distribution fee under the Plan.
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to the Principal Underwriter and Authorized Firms which may be equivalent,
on an aggregate basis during any fiscal year of the Fund, to 1% of the Fund's
average daily net assets for such year. For the sales commissions and service
fee payments made by the Fund and the outstanding Uncovered Distribution Charges
of the Principal Underwriter, see "Fees and Expenses -- Distribution Plan" in
this Part II. The Fund believes that the combined rate of all these payments may
be higher than the rate of payments made under distribution plans adopted by
other investment companies pursuant to Rule 12b- 1. Although the Principal
Underwriter will use its own funds (which may be borrowed from banks) to pay
sales commissions at the time of sale, it is anticipated that the Eaton Vance
organization will profit by reason of the operation of the Plan through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from sale of Fund shares and through 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 shares
of the Fund. Total expenses for this purpose will include an allocable portion
of the overhead costs of such organization and its branch offices, which costs
will include without limitation leasing expense, depreciation of building and
equipment, utilities, communication and postage expense, compensation and
benefits of personnel, travel and promotional expense, stationery and supplies,
literature and sales aids, interest expense, data processing fees, consulting
and temporary help costs, insurance, taxes other than income taxes, legal and
auditing expense and other miscellaneous overhead items. Overhead is calculated
and allocated for such purpose by the Eaton Vance organization in a manner
deemed equitable to the Fund.
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. The Plan continues 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 Trustees of the Trust who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to the Plan (the "Rule 12b-1
Trustees") and (ii) all of the Trustees then in office, and the Distribution
Agreement contains a similar provision. The Plan and Distribution Agreement may
be terminated at any time by vote of a majority of the Rule 12b- 1 Trustees or
by a vote of a majority of the outstanding voting securities of the Fund. The
provisions of the Plan relating to payments of sales commissions and
distribution fees to the Principal Underwriter are also included in the
Distribution Agreement between the Trust on behalf of the Fund and the Principal
Underwriter. Under the Plan, the President or a Vice President of the Trust
shall provide to the Trustees for their review, and the Trustees shall review at
least quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. The Plan may not be amended to
increase materially the payments described therein without approval of the
shareholders of the Fund, and all material amendments of the Plan must also be
approved by the Trustees as required by Rule 12b-1. So long as the Plan is in
effect, the selection and nomination of Trustees who are not interested persons
of the Trust shall be committed to the discretion of the Trustees who are not
such interested persons.
The Trustees of the Trust believe that the Plan will be a significant factor
in the expected growth of the Fund's assets, resulting in increased investment
flexibility and advantages which will benefit the Fund and its shareholders.
Payments for sales commissions and distribution fees made to the Principal
Underwriter under the Plan will compensate the Principal Underwriter for its
services and expenses in distributing shares of the Fund. Service fee payments
made to the Principal Underwriter and Authorized Firms under the Plan provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the Principal
Underwriter and Authorized Firms, the Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based on
the foregoing and other relevant factors, the Trustees have determined that in
their judgment there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average total return on a
hypothetical investment of $1,000 in the Fund covering the one-, five- and
ten-year periods ended September 30, 1996.
<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 9/30/96 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
9/30/96 9/30/86 $1,000 $1,964.47 $1,964.47 96.45% 6.98% 96.45% 6.98%
5 Years Ended
9/30/96 9/30/91 $1,000 $1,443.61 $1,423.61 44.36% 7.62% 42.36% 7.32%
1 Year Ended
9/30/96 9/30/95 $1,000 $1,068.35 $1,018.35 6.84% 6.84% 1.84% 1.84%
</TABLE>
- ----------
*No CDSC is imposed on certain redemptions. See the Fund's current Prospectus.
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 5.34%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.34% would be 7.74%,
assuming a federal tax rate of 31%.
See the Tax Equivalent Yield Table in Part I for information concerning
applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Jacksonville, FL 32246 was the record owner of approximately 26.4% of the
outstanding shares, which were held on behalf of its customers who are the
beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances. To the knowledge of the Trust, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
<PAGE>
[logo]
EATON VANCE
====================
Mutual Funds
- -------------------------------------------------------------------------------
EV MARATHON
NATIONAL
MUNICIPALS FUND
STATEMENT OF
ADDITIONAL INFORMATION
FEBRUARY 1, 1997
EV MARATHON NATIONAL
MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF NATIONAL MUNICIPALS PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EV MARATHON NATIONAL MUNICIPALS FUND
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
M-HMSAI
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1997
EV TRADITIONAL NATIONAL MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides information about EV Traditional National Municipals Fund (the "Fund"),
National Municipals Portfolio (the "Portfolio") and certain other series of
Eaton Vance Municipals Trust (the "Trust"). Part II provides information solely
about the Fund. Where appropriate, Part I includes cross-references to the
relevant sections of Part II that provide additional Fund- specific information.
This Statement of Additional Information is sometimes referred to herein as the
"SAI."
TABLE OF CONTENTS
Page
PART I
Additional Information about Investment Policies .................... 1
Investment Restrictions ............................................. 6
Trustees and Officers ............................................... 8
Investment Adviser and Administrator ................................ 10
Custodian ........................................................... 12
Service for Withdrawal .............................................. 13
Determination of Net Asset Value .................................... 13
Investment Performance .............................................. 14
Taxes ............................................................... 15
Portfolio Security Transactions ..................................... 17
Other Information ................................................... 19
Independent Certified Public Accountants ............................ 20
Financial Statements ................................................ 20
Tax Equivalent Yield Table .......................................... 21
Appendix ............................................................ 22
PART II
Fees and Expenses ................................................... a-1
Services for Accumulation ........................................... a-1
Principal Underwriter ............................................... a-2
Service Plan ........................................................ a-3
Performance Information ............................................. a-3
Control Persons and Principal Holders of Securities ................. a-4
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 FEBRUARY 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).
FOR EDGAR FILING PURPOSES ONLY: REGISTRANT INCORPORATES BY REFERENCE FOR
EV TRADITIONAL NATIONAL MUNICIPALS FUND THE PART I FOUND IN THE STATEMENT OF
ADDITIONAL INFORMATION OF EV CLASSIC NATIONAL MUNICIPALS FUND CONTAINED IN
THIS AMENDMENT.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL NATIONAL MUNICIPALS
FUND.
FEES AND EXPENSES
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I the
Administrator receives no compensation for providing administrative services to
the Fund. For the period from the start of business, April 5, 1994, to the
fiscal year ended September 30, 1994 and for the fiscal year ended September 30,
1995, $10,747 and $63,405, respectively, of the Fund's expenses were allocated
to the Administrator.
SERVICE PLAN
During the fiscal year ended September 30, 1996, the Fund made service fee
payments under the Plan aggregating $23,338 of which $23,135 was paid to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the fiscal year
ended September 30, 1996 were $335,817 of which $335,778 was paid to Authorized
Firms and $39 was paid to the Principal Underwriter. Total sales charges for
sale of shares of the Fund for the fiscal year ended September 30, 1995 were
$562,644, all of which was received by Authorized Firms and for the period from
the start of business, April 5, 1994, to the fiscal year ended September 30,
1994 total sales charges were $142,563 of which $139,068 was paid to Authorized
Firms and $3,494 was paid to the Principal Underwriter.
The Fund has authorized the Principal Underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the Principal Underwriter. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the fiscal year ended September 30,
1996, the Fund paid the Principal Underwriter $312.50 for repurchase
transactions handled by the Principal Underwriter.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Fund or the
Portfolio.) During the fiscal year ended September 30, 1996, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the funds in the
Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- --------------
<S> <C> <C> <C>
Donald R. Dwight .............................. $34 $5,942(2) $142,500(4)
Samuel L. Hayes, III .......................... 31 5,728(3) 153,750(5)
Norton H. Reamer .............................. 31 5,629 142,500
John L. Thorndike ............................. 32 5,820 147,500
Jack L. Treynor ............................... 34 6,065 147,500
(1) The Eaton Vance fund complex consists of 228 registered investment companies or series thereof.
(2) Includes $2,339 of deferred compensation.
(3) Includes $1,901 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
</TABLE>
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge other than the
sales charge included in the offering price, and may be changed or discontinued
without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is anticipated
that $50,000 or more of Fund shares and shares of the other continuously offered
open-end funds listed under "The Eaton Vance Exchange Privilege" in the current
Prospectus of the Fund will be purchased within a 13-month period, a Statement
of Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum. Shares
held under Right of Accumulation (see below) as of the date of the Statement
will be included toward the completion of the Statement. The Statement
authorizes the Transfer Agent to hold in escrow sufficient shares (5% of the
dollar amount specified in the Statement) which can be redeemed to make up any
difference in sales charge on the amount intended to be invested and the amount
actually invested. Execution of a Statement does not obligate the shareholder to
purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. For sales
charges and other information on quantity purchases, see "How to Buy Fund
Shares" in the Fund's current Prospectus. Any investor considering signing a
Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable sales
charge level for the purchase of Fund shares is calculated by taking the dollar
amount of the current purchase and adding it to the value (calculated at the
maximum current offering price) of the shares the shareholder owns in his
account(s) in the Fund and in the other continuously offered open-end funds
listed under "The Eaton Vance Exchange Privilege" in the current Prospectus of
the Fund for which Eaton Vance acts as investment adviser or administrator at
the time of purchase. The sales charge on the shares being purchased will then
be at the rate applicable to the aggregate. For example, if the shareholder
owned shares valued at $30,000 and purchased an additional $20,000 of shares,
the sales charge for the $20,000 purchase would be at the rate of 2.75% of the
offering price (2.83% of the net amount invested) which is the rate applicable
to single transactions of $50,000. For sales charges on quantity purchases, see
"How to Buy Fund Shares" in the Fund's current Prospectus. Shares purchased (i)
by an individual, his or her spouse and their children under the age of
twenty-one, and (ii) by a trustee, guardian or other fiduciary of a single trust
estate or a single fiduciary account, will be combined for the purpose of
determining whether a purchase will qualify for the Right of Accumulation and if
qualifying, the applicable sales charge level.
For any such discount to be made available, at the time of purchase a
purchaser or his or her Authorized Firm must provide the Principal Underwriter
(in the case of a purchase made through an Authorized Firm) or the Transfer
Agent (in the case of an investment made by mail) with sufficient information to
permit verification that the purchase order qualifies for the accumulation
privilege. Corfirmation 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.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through Authorized Firms which have agreements with the Principal
Underwriter. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance.
The public offering price is the net asset value next computed after receipt
of the order, plus, where applicable, a variable percentage (sales charge)
depending upon the amount of purchase as indicated by the sales charge table set
forth in the Fund's current Prospectus. Such table is applicable to purchases of
Fund shares alone or in combination with purchases of the other funds offered by
the Principal Underwriter, made at a single time by (i) an individual, or an
individual, his or her spouse and their children under the age of twenty-one,
purchasing shares for his or their own account; and (ii) a trustee or other
fiduciary purchasing shares for a single trust estate or a single fiduciary
account.
The table is also presently applicable to (1) purchases of Fund shares,
alone or in combination with purchases of any of the other funds offered by the
Principal Underwriter through one dealer aggregating $100,000 or more made by
any of the persons enumerated above within a thirteen-month period starting with
first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of Fund
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 Fund may issue
shares at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is merged
or consolidated with or acquired by the Fund. Normally no sales charges will be
paid in connection with an exchange of Fund shares for the assets of such
investment company.
Shares may be sold at net asset value to any officer, director, trustee,
general partner or employee of the Fund, the Portfolio or any investment company
for which Eaton Vance or BMR acts as investment adviser, any investment
advisory, agency, custodial or trust account managed or administered by Eaton
Vance or by any parent, subsidiary or other affiliate of Eaton Vance, or any
officer, director or employee of any parent, subsidiary or other affiliate of
Eaton Vance. The terms "officer," "director," "trustee," "general partner" or
"employee" as used in this paragraph include any such person's spouse and minor
children, and also retired officers, directors, trustees, general partners and
employees and their spouses and minor children. Shares of the Fund may also be
sold at net asset value to registered representatives and employees of certain
Authorized Firms and to such persons' spouses and children under the age of 21
and their beneficial accounts.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the distribution agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to Authorized
Firms or investors and other selling literature and of advertising are borne by
the Principal Underwriter. The fees and expenses of qualifying and registering
and maintaining qualifications and registrations of the Fund and its shares
under federal and state securities laws are borne by the Fund. The distribution
agreement is renewable annually by the Board of Trustees of the Trust (including
a majority of its Trustees who are not interested persons of the Principal
Underwriter or the Trust), may be terminated on six months' notice by either
party, and is automatically terminated upon assignment. The Principal
Underwriter distributes Fund shares on a "best efforts" basis under which it is
required to take and pay for only such shares as may be sold. The Principal
Underwriter allows Authorized Firms discounts from the applicable public
offering price which are alike for all Authorized Firms. See "How to Buy Fund
Shares" in the Fund's current Prospectus for the discount allowed to Authorized
Firms on the sale of Fund shares. 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.
See "Fees and Expenses" in this Part II for the sales charge paid to the
Principal Underwriter and Authorized Firms.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet the service fee requirements of the NASD Rule. (Management
believes service fee payments are not distribution expenses governed by Rule
12b-1 under the 1940 Act, but has chosen to have the Plan approved as if that
Rule were applicable.) The following supplements the discussion of the Plan
contained in the Fund's Prospectus.
The Plan continues in effect from year to year, provided such continuance is
approved by a vote of the Board of Trustees and by both a majority of (i) those
Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to it (the "Non-interested 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
Non-interested Trustees or by a vote of a majority of the outstanding voting
securities of the Fund. Pursuant to such Rule, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, including the Non-interested Trustees.
Under the Plan, the President or a Vice President of the Trust shall provide
to the Trustees for their review, and the Trustees shall review at least
quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. The Plan may not be amended to
increase materially the payments described herein without approval of the
shareholders of the Fund, and all material amendments of the Plan must also be
approved by the Trustees of the Trust 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
the Fund and its shareholders. For the service fees paid by the Fund under the
Plan, see "Fees and Expenses" in this Part II.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return on
a hypothetical investment of $1,000 in the Fund covering the one-, five- and
ten-year periods ended September 30, 1996. The total return for the period prior
to the Fund's commencement of operations on April 5, 1994 reflects the
Portfolio's total return (or that of its predecessor) adjusted to reflect any
applicable Fund sales charge. The total return for such prior period has not
been adjusted to reflect the Fund's service fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN EXCLUDING TOTAL RETURN INCLUDING
VALUE OF VALUE OF MAXIMUM SALES CHARGE MAXIMUM SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ------------------------------ ------------------------------
PERIOD DATE INVESTMENT* ON 9/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 Years Ended
9/30/96 9/30/86 $962.31 $1,930.57 100.63% 7.21% 93.06% 6.80%
5 Years Ended
9/30/96** 9/30/91 $962.56 $1,419.08 47.42% 8.07% 41.91% 7.25%
1 Year Ended
9/30/96 9/30/95 $962.32 $1,035.32 7.59% 7.59% 3.53% 3.53%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
- ----------
*Initial investment less the maximum sales charge of 3.75%.
**If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended September 30, 1996, the yield of the Fund
was 5.62%. The yield required of a taxable security that would produce an
after-tax yield equivalent to that earned by the Fund of 5.62% would be 8.14%,
assuming a federal tax rate of 31%.
See the Tax Equivalent Yield Table in Part I for information concerning
applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
December 31, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL
32246 was the record owner of approximately 21.4% of the outstanding shares,
which were held on behalf of its customers who are the beneficial owners of such
shares, and as to which it had voting power under certain limited circumstances.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
<PAGE>
[logo]
EATON VANCE
====================
Mutual Funds
EV TRADITIONAL
NATIONAL
MUNICIPALS FUND
STATEMENT OF
ADDITIONAL INFORMATION
FEBRUARY 1, 1997
EV TRADITIONAL NATIONAL
MUNICIPALS FUND
24 FEDERAL STREET
BOSTON, MA 02110
- --------------------------------------------------------------------------------
INVESTMENT ADVISER OF NATIONAL MUNICIPALS PORTFOLIO
Boston Management and Research, 24 Federal Street, Boston, MA 02110
ADMINISTRATOR OF EV TRADITIONAL NATIONAL MUNICIPALS FUND
Eaton Vance Management, 24 Federal Street, Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc., 24 Federal Street, Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company, 89 South Street, Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group, P.O. Box 5123, Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110
T-HMSAI
<PAGE>
Part B
Information Required in a
Statement of Additional Information
STATEMENT OF
ADDITIONAL INFORMATION
February 1, 1997
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
- ------------------------------------------------------------------------------
TABLE OF CONTENTS Page
Additional Information About Investment Policies.......................... 2
Investment Restrictions................................................... 13
Trustees and Officers..................................................... 14
Control Persons and Principal Holders of Securities....................... 17
Investment Adviser and Administrator...................................... 18
Custodian................................................................. 21
Service for Withdrawal.................................................... 22
Determination of Net Asset Value.......................................... 22
Investment Performance.................................................... 23
Taxes..................................................................... 25
Principal Underwriter..................................................... 28
Portfolio Security Transactions........................................... 28
Other Information......................................................... 31
Independent Certified Public Accountants.................................. 32
Financial Statements...................................................... 32
Tax Equivalent Yield Table................................................ 33
Appendix.................................................................. 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 OF MASSACHUSETTS MUNICIPAL BOND PORTFOLIO (THE
"FUND") DATED FEBRUARY 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 5.4% in 1995 to 5.0% for 1996.
The national unemployment rate for February, 1996 was 5.6%.
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 39%, 11% and 39%, respectively, of the gross
domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
The North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
The 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.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether to retain their Commonwealth status, become a state or
establish an independent nation. Puerto Ricans voted to retain Commonwealth
status, leaving intact the current relationship with the federal government.
There can be no assurance that the statehood issue will not be brought to a vote
in the future. A successful statehood vote in Puerto Rico would then require
ratification by the U.S. Congress.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. The economy is heavily reliant on the tourism industry, with roughly 43%
of non-agricultural employment in tourist-related trade and services. As of
June, 1996, unemployment stood at 4.7%. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe.
An important component of the USVI revenue base is the federal excise
tax on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than 90%
of the rum distilled in the USVI is distilled at one plant, any interruption in
its operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. During this past hurricane season, several
hurricanes caused extensive damage in the USVI, 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.
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. As evidence of this hedging
intent, the Portfolio expects that on 75% or more of the occasions on which it
takes a long futures (or option) position (involving the purchase of futures
contracts), the Portfolio will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures (or option) position is closed out. However, in particular
cases, when it is economically advantageous for the Portfolio to do so, a long
futures position may be terminated (or an option may expire) without the
corresponding purchase of securities. The Portfolio will engage in transactions
in futures and related options contracts only to the extent such transactions
are consistent with the requirements of the Code for maintaining qualification
of the Fund as a regulated investment company for federal income tax purposes
(see "Taxes").
ASSET COVERAGE REQUIREMENTS
Transactions involving when-issued securities, the lending of
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 cannot be sold
while the position requiring the cover 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 cover or segregated accounts could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
INVESTMENT RESTRICTIONS
The following investment restrictions are designated as fundamental
policies and as such cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities, which as used in this SAI
means the lesser of (a) 67% of the shares of the Fund present or represented by
proxy at a meeting if the holders of more than 50% of the shares are present or
represented at the meeting or (b) more than 50% of the shares of the Fund.
Accordingly, the Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(2) Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities). The deposit or payment by the Fund of initial or maintenance
margin in connection with futures contracts or related options transactions is
not considered the purchase of a security on margin;
(3) Underwriter or participate in the marketing of securities of
others, except insofar as it may technically be deemed to be an underwriter in
selling a portfolio security under circumstances which may require the
registration of the same under the Securities Act of 1933;
(4) Purchase or sell real estate, (including limited partnership
interests in real estate, but excluding readily marketable interests in real
estate investment trusts or readily marketable securities of companies which
invest or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase
or sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund;
the Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio.
The Fund and the Portfolio have adopted the following investment
policies which may be changed by the Trust with respect to the Fund without
approval by the Fund's shareholders or by the Portfolio without approval by the
Fund or its other investors. As a matter of nonfundamental policy, the Fund and
the Portfolio will not: (a) engage in options, futures or forward transactions
if more than 5% of its net assets, as measured by the aggregate of the premiums
paid by the Fund or the Portfolio, would be so invested; (b) make short sales of
securities or maintain a short position, unless at all times when a short
position is open it owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further consideration,
for securities of the same issue as, and equal in amount to, the securities sold
short and unless not more than 25% of the Fund's net assets (taken at current
value) is held as collateral for such sales at any one time. (The fund will make
such sales only for the purpose of deferring realization of gain or loss for
federal income tax purposes); (c) invest more than 15% of net assets in
investments which are not readily marketable, including restricted securities
and repurchase agreements maturing in more than seven days. Restricted
securities for the purposes of this limitation do not include securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933 and
commercial paper issued pursuant to Section 4(2) of said Act that the Board of
Trustees of the Trust or the Portfolio, or their delegate, determines to be
liquid; 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 (65), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed by
Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (55), 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 (61), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard Business School, Soldiers Field Road, Boston, Massachusetts
02134
NORTON H. REAMER (61), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, UAM Funds (mutual funds). Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (70), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (66), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (53), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected President of
the Trust and the Portfolio on December 13, 1993. Officer of various investment
companies managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (40), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV. Officer
of various investment companies managed by Eaton Vance or BMR. Mr. MacIntosh was
elected Vice President of the Trust on March 22, 1993.
JAMES L. O'CONNOR (51), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (65), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (61), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (34), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993). Mr. Murphy was elected Assistant Secretary on March
27, 1995.
ERIC G. WOODBURY (39), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate attorney
at Dechert, Price & Rhoads. Officer of various investment companies managed by
Eaton Vance or BMR. Mr. 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 or its shareholders.
The Nominating Committee 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
Fund and of the Portfolio.
Trustees of the Portfolio that are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"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 those Trustees of the Trust and of the
Portfolio who are not members of the Eaton Vance organization are paid by the
Fund (and the other series of the Trust) and the Portfolio, respectively. During
the fiscal year ended September 30, 1996, the Trustees of the Trust and the
Portfolio earned the following compensation in their capacities as Trustees from
the Fund, the Portfolio and the funds in the Eaton Vance fund complex:
Aggregate Aggregate Total Compensation
Compensation Compensation from Trust and
Name from Fund from Portfolio Fund Complex(1)
Donald R. Dwight $ 34 $ 3,118(2) $142,500(4)
Samuel L. Hayes 31 3,162(3) 153,750(5)
Norton H. Reamer 32 3,087 142,500
John L. Thorndike 32 3,218 147,500
Jack L. Treynor 34 3,278 147,500
(1) The Eaton Vance fund complex consists of 228 registered investment
companies or series thereof.
(2) Includes $1,214 of deferred compensation.
(3) Includes $1,111 of deferred compensation.
(4) Includes $42,500 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at December 31, 1996 the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Fund. As of December 31, 1996 Mars & Co., Boston, MA and Jupiter & Co., Boston,
MA were the record owners of approximately 42.2% and 17.3%, respectively, of the
outstanding shares which were held on behalf of their customers who are the
beneficial owners of such shares, and as to which they had voting power under
certain limited circumstances, and Charles C. Cunningham, Boston, MA held of
record and beneficially owned 5.9% of the outstanding shares of the Fund. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an
Investment Advisory Agreement dated October 13, 1992. BMR or Eaton Vance acts as
investment adviser to investment companies and various individual and
institutional clients with combined assets under management of over $17 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 32 is
responsible for the day-to-day management of over 3,500 issues in 47 mutual fund
portfolios. Assets managed by the municipal investment group are currently over
$9.1 billion. The following persons manage one or more of the Eaton Vance
municipal portfolios. For the identity of the Portfolio's portfolio manger, see
the Prospectus.
Nicole Anderes is a Vice President of Eaton Vance and BMR. Ms. Anderes
graduated from Brown University with a B.A. in Women's Studies/Economics. She
has been an active member of MAGNY/National Federation of Municipal Analysts,
the Public Securities Association and the Municipal Forum, and served as the
General Secretary of MAGNY from 1992 to 1993.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr.
Browse graduated from St. Lawrence University in 1981 and received his M.B.A.
degree from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms.
Clemson graduated from Mount Holyoke College with a B.A. in 1985 and received
her M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Securities Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and
Director of Municipal Investments. Mr. Fetter graduated with a degree in
Business Administration from Kent State University. He is a Chartered Financial
Analyst and member of the Boston Security Analysts Society. He is also a member
of the Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance Management and
the portfolio manager of single-state, tax-exempt funds in five states: Hawaii,
Louisiana, Massachusetts, New Jersey and North Carolina. He also serves as
economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
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. For the fiscal years ended September 30, 1996, 1995 and 1994, $13,670,
$18,261 and $46,085, respectively, of the Fund's operating expenses were
allocated to the Administrator. As Administrator, Eaton Vance administers the
Fund's affairs, subject to the supervision of the Trustees of the Trust, and
shall furnish for the use of the Fund office space and all necessary office
facilities, equipment and personnel for administering the affairs of the Fund.
The Fund pays all of its own expenses including, without limitation,
(i) expenses of maintaining the Fund and continuing its existence, (ii) its pro
rata share of registration of the Trust under the 1940 Act, (iii) commissions,
fees and other expenses connected with the purchase or sale of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and 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 January 1, 1997,
Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust receipts,
and Messrs. Rowland and Faust owned 15% and 13%, respectively, of such voting
trust receipts. Messrs. Hawkes and Otis are officers or Trustees of the Trust
and the Portfolio and are members of the EVC, BMR, Eaton Vance and EV
organizations. Messrs. Fetter, MacIntosh, Murphy, O'Connor, Woodbury and Ms.
Sanders, are officers of the Trust and the Portfolio and are also members of the
BMR, Eaton Vance and EV organizations. BMR will receive the fees paid under the
Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Energy Corporation, which
is engaged in oil and gas exploration and development. In addition, Eaton Vance
owns all the stock of Northeast Properties, Inc., which is engaged in real
estate investment. EVC owns all the stock of Fulcrum Management, Inc. and MinVen
Inc., which are engaged in precious metal mining, venture investment and
management. EVC also owns 24% of the Class A shares of Lloyd George Management
(B.V.I.) Limited, a registered investment adviser. EVC, BMR, Eaton Vance and EV
may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to
time have transactions with various banks, including the custodian of the Fund
and the Portfolio, IBT. It is Eaton Vance's opinion that the terms and
conditions of such transactions were not and will not be influenced by existing
or potential custodial or other relationships between the Fund or the Portfolio
and such banks.
CUSTODIAN
IBT acts as custodian for the Fund and the Portfolio. IBT has the
custody of all cash and securities representing the Fund's interest in the
Portfolio, has custody of all the Portfolio's assets, maintains the general
ledger of the Portfolio and the Fund and computes the daily net asset value of
interests in the Portfolio and the net asset value of shares of the Fund. In
such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolio's investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Fund and the Portfolio. IBT charges
fees which are competitive within the industry. A portion of the fee relates to
custody, bookkeeping and valuation services and is based upon a percentage of
Fund and Portfolio net assets and a portion of the fee relates to activity
charges, primarily the number of portfolio transactions. These fees are then
reduced by a credit for cash balances of the particular investment company at
the custodian equal to 75% of the 91-day, U.S. Treasury Bill auction rate
applied to the particular investment company's average daily collected balances
for the week. Landon T. Clay, a Director of EVC and an officer, Trustee or
Director of other 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, are a return of principal. Income dividends
and capital gains distributions in connection with withdrawal accounts will be
credited at net asset value as of the record date for each distribution.
Continued withdrawals in excess of current income will eventually use up
principal, particularly in a period of declining market prices. A shareholder
may not have a withdrawal plan in effect at the same time he has authorized Bank
Automated Investing or is otherwise making regular purchases of Fund shares. The
shareholder, the Transfer Agent or the Principal Underwriter will be able to
terminate the withdrawal plan at any time without penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current Prospectus. The net asset value of the Portfolio
is also computed by IBT (as agent and custodian for the Portfolio) by
subtracting the liabilities of the Portfolio from the value of its total assets.
Inasmuch as the market for municipal obligations is a dealer market with no
central trading location or continuous quotation system, it is not feasible to
obtain last transaction prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchased on a when-issued
basis, will normally be valued on the basis of valuations furnished by a pricing
service. The pricing services uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities, various relationships between securities, and yield to maturity in
determining value. Taxable obligations for which price quotations are readily
available normally will be valued at the mean between the latest available bid
and asked prices. Open futures positions on debt securities are valued at the
most recent settlement prices, unless such price does not reflect the fair value
of the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by the Trustees. The Fund and the
Portfolio will be closed for business and will not price their respective shares
or interests on the following business holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day the New York Stock Exchange
(the "Exchange") is open for trading ("Portfolio Business Day") as of the close
of regular trading on the Exchange (the "Portfolio Valuation Time"). The value
of each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. The investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to the fraction (i) the numerator of which is the value of
such investor's investment in the Portfolio as of the Portfolio Valuation Time
on the prior Portfolio Business Day plus or minus, as the case may be, the
amount of any additions to or withdrawals from the investor's investment in the
Portfolio on the current Portfolio Business Day and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investment in the Portfolio on the current Portfolio Business Day by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio for the current
Portfolio Business Day.
INVESTMENT PERFORMANCE
Average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the results. The
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period, and a complete
redemption of the investment at the end of the period.
Yield is computed pursuant to a standardized formula by dividing its
net investment income per share earned during a recent thirty-day period by the
maximum offering price (net asset value) per share on the last day of the period
and annualizing the resulting figure. Net investment income per share is
calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund expenses for the
period with the resulting number being divided by the average daily number of
Fund shares outstanding and entitled to receive dividends during the period. A
taxable-equivalent yield is computed by using the tax-exempt yield figure and
dividing by one minus a stated rate. For the thirty-day period ended September
30, 1996 the yield of the Fund was 5.57%. The yield required of a taxable
security that would produce an after-tax yield equivalent to that earned by the
Fund of 5.57% would be 9.17% assuming a combined federal and Massachusetts tax
rate of 39.28%. If a portion of the Fund's expenses had not been allocated to
the Administrator, the Fund would have had a lower yield.
The Principal Underwriter may publish to certain financial services
firms the Fund's distribution rate and/or the effective distribution rate. The
Fund's distribution rate is computed by dividing the most recent monthly
distribution per share annualized, by the current net asset value per share. The
Fund's effective distribution rate is computed by dividing the distribution rate
by the ratio used to annualize the most recent monthly distribution and
reinvesting the resulting amount for a full year on the basis of such ratio. The
effective distribution rate will be higher than the distribution rate because of
the compounding effect of the assumed reinvestment. The Fund's yield is
calculated using a standardized formula, the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
The table below indicate the cumulative and average annual total return
on a hypothetical investment of $1,000 in the Fund covering the life of the Fund
from April 18, 1991 through September 30, 1996 and for the five - and one-year
periods ended September 30, 1996. The total return for the period prior to the
Fund's commencement of operations on June 17, 1993 reflects the Portfolio's
total return (or that of its predecessor) adjusted to reflect the Fund's method
of distribution (i.e., selling at net asset value). This total return has not
been adjusted to reflect certain other expenses imposed by the Portfolios or its
predecessor.
VALUE OF A $1,000 INVESTMENT
Value of
Investment Investment Amount of Investment Total Return
Period Date Investment on 9/30/96 Cumulative Annualized
------ ----- ---------- ---------- ---------- ----------
Life of the Fund 4/18/91 $1,000 $1,455.61 45.56% 7.12%
5 Years Ended
9/30/96 9/30/91 $1,000 $1,381.95 38.20% 6.68%
1 Year Ended
9/30/96* 9/30/95 $1,000 $1,062.84 6.28% 6.28%
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.
* If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
The Fund's total return may be compared to relevant indices, such as
the Consumer Price Index, of the Bond Buyer 25 Revenue Bond Index and the Lehman
Brothers Municipal Bond Index, which may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio, including
other investment companies.
The Fund may provide investors with information on municipal bond
investing, which may include comparative performance information, evaluations of
Fund performance, charts and/or illustrations prepared by independent sources
(such as Lipper Analytical Services, Inc., CDA/Wiesenberger or Morningstar,
Inc.). The Fund may also refer in investor publications to Tax Freedom Day, as
computed by the Tax Foundation, Washington, DC 20005, to help illustrate the
value of tax free investing, as well as other tax-related information.
Information, charts and illustrations relating to inflation and 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
FEDERAL INCOME TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund has elected to be treated, has qualified, and
intends to qualify each year, as a regulated investment company ("RIC") under
the Code. Accordingly, the Fund intends to satisfy certain requirements relating
to sources of its income and diversification of its assets and to distribute its
net investment income (including tax-exempt income) and net realized capital
gains in accordance with the timing requirements imposed by the Code, so as to
avoid any federal income or excise tax on the Fund. The Fund so qualified for
its fiscal year ended September 30, 1996 (see the Notes to the Financial
Statements incorporated by reference in this SAI). Because the Fund invests its
assets in the Portfolio, the Portfolio normally must satisfy the applicable
source of income and diversification requirements in order for the Fund to
satisfy them. The Portfolio will allocate at least annually among its investors,
including the Fund, each investor's distributive share of the Portfolio's net
taxable (if any) and tax-exempt investment income, net realized capital gains,
and any other items of income, gain, loss, deduction or credit. For purposes of
applying the requirements of the Code regarding qualification as a regulated
investment company, the Fund will be deemed (i) to own its proportionate share
of each of the assets of the Portfolio and (ii) to be entitled to the gross
income of the Portfolio attributable to such share.
In order to avoid federal excise tax, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its ordinary income (not including tax-exempt income) for
such year, at least 98% of the excess of its realized capital gains over its
realized capital losses, generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that the Fund qualifies as a RIC
for federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The Portfolio's investment in zero coupon and certain other securities
will cause it to realize income prior to the receipt of cash payments with
respect to these securities. Such income will be allocated daily to interests in
the Portfolio and, in order to enable the Fund to distribute its proportionate
share of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special
tax issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the Portfolio as exempt-interest dividends to its
shareholders, the Fund must and intends to satisfy certain requirements,
including the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consists of obligations the
interest on which is exempt from regular federal income tax 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 into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC.
Any loss realized upon the sale or exchange of shares of the Fund with
a tax holding period of 6 months or less will be 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
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 distributions and the proceeds
of redemptions (including repurchases and exchanges), at a rate of 31%. An
individual's taxpayer identification number is generally his or her social
security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless the
tax is reduced or eliminated by an applicable tax treaty. Distributions from the
excess of the Fund's net long-term capital gain over its net short-term capital
loss received by such shareholders and any gain from the sale or other
disposition of shares of the Fund generally will not be subject to U.S. federal
income taxation, provided that non-resident alien status has been certified by
the shareholder. Different U.S. tax consequences may result if the shareholder
is engaged in a trade or business in the United States, is present in the United
States for a sufficient period of time during a taxable year to be treated as a
U.S. resident, or fails to provide any required certifications regarding status
as a non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in the
Fund.
The foregoing discussion does not address the special tax rules
applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Shareholders should consult
their own tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as
principal in selling shares of the Fund. The expenses of printing copies of
prospectuses used to offer shares to investors and other selling literature and
of advertising is borne by the Principal Underwriter. The fees and expenses of
qualifying and registering and maintaining qualifications and registrations of
the Fund and its shares under federal and state securities laws 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 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" and "EV" in the Fund's name and may use the words
"Eaton Vance" and "EV" in other connections and for other purposes.
As permitted by Massachusetts law, there will normally be no meetings
of shareholders for the purpose of electing Trustees unless and until such time
as less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's By-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
In accordance with the Declaration of Trust of the Portfolio, there
will normally be no meetings of the investors for the purpose of electing
Trustees unless and until such time as less than a majority of the Trustees
holding office have been elected by investors. In such an event the Trustees of
the Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
The 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.
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 financial statements of the Fund and the Portfolio, which are
included in the Fund's Annual Report to Shareholders, are incorporated by
reference into this SAI and have been so incorporated in reliance on the report
of Deloitte & Touche LLP, independent certified public accountants, as experts
in accounting and auditing. A copy of the Fund's most recent Annual Report
accompanies this SAI.
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).
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must
earn at various income brackets to produce after-tax yields equivalent to those
of tax exempt bonds yielding from 4% to 7% under the regular federal income tax
and Massachusetts state income tax laws and tax rates applicable for 1997.
<TABLE>
<CAPTION>
A Federal and Massachusetts State
Combined tax exempt yield of:
Single Return Joint Return Federal and 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------- ------------- MA State ----------------------------------------------------------
(Taxable Income*) tax bracket+ is equivalent to a fully taxable yield of:
- ------------------------------------------- ------------ ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $24,650 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
</TABLE>
* Net amount subject to federal and Massachusetts personal income tax after
deductions and exemptions.
+ The combined tax rates include a Massachusetts tax rate of 12% applicable to
taxable bond interest and dividends, and assume that Massachusetts taxes are
itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher
combined bracket and higher taxable equivalent yield than those indicated above.
The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36% and
39.6%, over the same range of income.
Note: The federal income tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of itemized deductions (including Massachusetts State income
taxes) for taxpayers with Adjusted Gross Income in excess of $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
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which would be given to these securities on the
date of the Portfolio's fiscal year end.
<PAGE>
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a
plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and
'AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated 'F-1+'.
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. 'DDD'
represents the highest potential for recovery on these bonds, and 'D' represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
'F-1+'.
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
'F-1+' and 'F-1' categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. The Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
INVESTMENT ADVISER OF MASSACHUSETTS MASSACHUSETTS MUNICIPAL
MUNICIPALS PORTFOLIO
Boston Management and Research BOND PORTFOLIO
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF MASSACHUSETTS
MUNICIPAL BOND PORTFOLIO
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN STATEMENT OF
Investors Bank & Trust Company
89 South Street ADDITIONAL INFORMATION
Boston, MA 02111
TRANSFER AGENT
First Data Investor Services Group FEBRUARY 1, 1997
P.O. Box 5123
Westborough, MA 01581-5123
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
MASSACHUSETTS MUNICIPAL
BOND PORTFOLIO
24 FEDERAL STREET
BOSTON, MA 02110 MMBPSAI
<PAGE>
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"
FROM THE DATE INDICATED TO THE FISCAL YEAR ENDED SEPTEMBER 30, 1996:
EV Marathon California Municipals Fund (from October 1, 1996)
EV Marathon Florida Municipals Fund (from start of business August
28, 1990)
EV Marathon Massachusetts Municipals Fund (from start of business
April 18, 1991)
EV Marathon Mississippi Municipals Fund (from start of business
June 11, 1993)
EVMarathon New York Municipals Fund (from start of business August
30, 1990)
EV Marathon Ohio Municipals Fund (from start of business April 18,
1991)
EVMarathon Rhode Island Municipals Fund (from start of business
June 11, 1993)
EVMarathon West Virginia Municipals Fund (from start of business
June 11, 1993)
EV Traditional California Municipals Fund (from start of business
May 27, 1994)
EV Traditional Florida Municipals Fund (from start of business
April 5, 1994)
EV Traditional Massachusetts Municipals Fund (from start of
business December 7, 1993)
EV Traditional Mississippi Municipals Fund (from start of business
December 7, 1993)
EVTraditional New York Municipals Fund (from start of business
April 15, 1994)
EV Traditional Ohio Municipals Fund (from start of business
December 7, 1993)
EVTraditional Rhode Island Municipals Fund (from start of business
December 7, 1993)
EVTraditional West Virginia Municipals Fund (from start of business
December 13, 1993)
EV Classic National Municipals Fund (from start of business
December 3, 1993)
EV Marathon National Municipals Fund (from October 1, 1996) EV
Traditional National Municipals Fund (from start of business
April 4, 1994)
Massachusetts Municipal Bond Portfolio (from start of business
June 17, 1993)
INCORPORATED BY REFERENCE INTO PART B ARE THE FINANCIAL STATEMENTS
CONTAINED IN THE ANNUAL REPORTS FOR THE FOLLOWING FUNDS, EACH 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>
EV Marathon California Municipals Fund EV Traditional California Municipals Fund
EV Marathon Florida Municipals Fund EV Traditional Florida Municipals Fund
EV Marathon Massachusetts Municipals Fund EV Traditional Massachusetts Municipals Fund
EV Marathon Mississippi Municipals Fund EV Traditional Mississippi Municipals Fund
EV Marathon New York Municipals Fund EV Traditional New York Municipals Fund
EV Marathon Ohio Municipals Fund EV Traditional Ohio Municipals Fund
EV Marathon Rhode Island Municipals Fund EV Traditional West Virginia Municipals Fund
EV Marathon West Virginia Municipals Fund (Accession No. 0000950135-96-005148)
(Accession No. 0000950135-96-005156)
</TABLE>
EV Traditional Rhode Island Municipals Fund
(Accession No. 0000928816-96-000346)
EV Classic National Municipals Fund
(Accession No. 0000950156-96-000900)
EV Marathon National Municipals Fund
(Accession No. 0000950156-96-000901)
EV Traditional National Municipals Fund
(Accession No. 0000950156-96-000902)
Massachusetts Municipal Bond Portfolio
(Accession No. 0000928816-96-000336)
THE FINANCIAL STATEMENTS CONTAINED IN EACH FUND'S ANNUAL REPORT ARE AS
FOLLOWS:
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
ALSO INCORPORATED BY REFERENCE INTO PART B ARE THE FINANCIAL STATEMENTS
OF 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 REPORT
DATED SEPTEMBER 30, 1996 OF THE CORRESPONDING FUNDS. THE FINANCIAL
STATEMENTS FOR EACH PORTFOLIO CONTAINED IN EACH FUND'S ANNUAL REPORT ARE
AS FOLLOWS:
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements
Independent Auditors' Report
(B) EXHIBITS:
(1)(a) Amended and Restated Declaration of Trust of Eaton Vance
Municipals Trust dated January 11, 1993, filed as Exhibit
(1)(a) to Post-Effective Amendment No. 55 and incorporated
herein by reference.
(b) Amendment and Restatement of Establishment and Designation of
Series dated October 18, 1996 filed as Exhibit (1)(b) to
Post-Effective Amendment No. 61 and incorporated herein by
reference.
(c) Establishment and Designation of Classes of Shares of
Beneficial Interest, without Par Value, dated November 18,
1996 filed as Exhibit (1)(c) to Post-Effective Amendment No.
62 and incorporated herein by reference.
(2)(a) By-Laws as amended October 21, 1987 filed as Exhibit (2)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Amendment to By-Laws of Eaton Vance Municipals Trust dated
December 13, 1993 filed as Exhibit (2)(b) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(3) Not applicable
(4) Not applicable
(5) Not applicable
(6)(a)(1) Distribution Agreement between Eaton Vance Municipals Trust
(on behalf of its Classic Series) and Eaton Vance
Distributors, Inc. effective November 1, 1996 with attached
Schedule A effective November 1, 1996) filed as Exhibit
(6)(a)(1) to Post- Effective Amendment No. 61 and incorporated
herein by reference.
(2) Distribution Agreement between Eaton Vance Municipals Trust
(on behalf of its Marathon Series) and Eaton Vance
Distributors, Inc. effective November 1, 1996 with attached
Schedule A effective November 1, 1996) filed as Exhibit
(6)(a)(2) to Post- Effective Amendment No. 61 and incorporated
herein by reference.
(3) Distribution Agreement between Eaton Vance Municipals Trust
(on behalf of its Traditional Series) and Eaton Vance
Distributors, Inc. effective November 1, 1996 with attached
Schedule A effective November 1, 1996) filed as Exhibit
(6)(a)(3) to Post-Effective Amendment No. 61 and incorporated
herein by reference.
(4) Distribution Agreement between Eaton Vance Municipals Trust on
behalf of Massachusetts Municipal Bond Portfolio and Eaton
Vance Distributors, Inc. effective November 1, 1996 filed as
Exhibit (6)(a)(4) to Post-Effective Amendment No. 61 and
incorporated herein by reference.
(b) Selling Group Agreement between Eaton Vance Distributors, Inc.
and Authorized Dealers filed as Exhibit (6)(b) to
Post-Effective Amendment No. 61 to the Registration Statement
of Eaton Vance Growth Trust (File Nos. 2-22019, 811-1241) and
incorporated herein by reference.
(c) Schedule of Dealer Discounts and Sales Charges filed as
Exhibit (6)(c) to Post- Effective Amendment No. 61 to the
Registration Statement of Eaton Vance Growth Trust (File Nos.
2-22019, 811-1241) and incorporated herein by reference.
(7) The Securities and Exchange Commission has granted the
Registrant an exemptive order that permits the Registrant to
enter into deferred compensation arrangements with its
independent Trustees. See in the Matter of Capital Exchange
Fund, Inc., Release No. IC-20671 (November 1, 1994).
(8)(a) Custodian Agreement with Investors Bank & Trust Company dated
October 15, 1992 filed as Exhibit (8) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(b) Amendment to Custodian Agreement with Investors Bank & Trust
Company dated October 23, 1995 filed as Exhibit (8)(b) to
Post-Effective Amendment No. 57 and incorporated herein by
reference.
(9)(a) Amended Administrative Services Agreement between Eaton Vance
Municipals Trust (on behalf of each of its series) and Eaton
Vance Management with attached schedules (including Amended
Schedule A dated September 29, 1995) filed as Exhibit (9)(a)
to Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Transfer Agency Agreement dated June 7, 1989 filed as Exhibit
9(d) to Post- Effective Amendment No. 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) Opinion of Counsel dated January 22, 1997 filed herewith.
(11)(a) Consent of Independent Auditors for 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 filed herewith.
(b) Consent of Independent Auditors for EV Traditional California
Municipals Fund, EV Traditional Florida Municipals Fund, EV
Traditional Massachusetts Municipals Fund, EV Traditional
Mississippi Municipals Fund, EV Traditional New York
Municipals Fund, EV Traditional Ohio Municipals Fund, EV
Traditional Rhode Island Municipals Fund and EV Traditional
West Virginia Municipals Fund filed herewith.
(c) Consent of Independent Auditors for EV Classic National
Municipals Fund filed herewith.
(d) Consent of Independent Auditors for EV Marathon National
Municipals Fund filed herewith.
(e) Consent of Independent Auditors for EV Traditional National
Municipals Fund filed herewith.
(f) Consent of Independent Auditors for Massachusetts Municipal
Bond Portfolio filed herewith.
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15)(a) Amended Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust (on behalf of its Classic Series) dated
January 27, 1995 with attached schedules (including Amended
Schedule A dated February 1, 1996) filed as Exhibit (15)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(b) Amendment to Amended Distribution Plan for Eaton Vance
Municipals Trust (on behalf of its Classic Series) adopted
June 24, 1996 filed as Exhibit (15)(b) to Post- Effective
Amendment No. 61 and incorporated herein by reference.
(c) Amended Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust (on behalf of its Marathon series) dated June
19, 1995 with attached schedules (including Amended Schedule A
dated September 29, 1995) filed as Exhibit (15)(b) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(d) Amendment to Amended Distribution Plan for Eaton Vance
Municipals Trust (on behalf of its Marathon Series) adopted
June 24, 1996 filed as Exhibit (15)(d) to Post- Effective
Amendment No. 61 and incorporated herein by reference.
(e) Amended Service Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, for Eaton Vance
Municipals Trust (on behalf of its Traditional series) dated
June 19, 1995 with attached schedules (including Amended
Schedule A dated February 1, 1996) filed as Exhibit (15)(c) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(f) Amendment to Amended Service Plan for Eaton Vance Municipals
Trust (on behalf of its Traditional Series) adopted June 24,
1996 filed as Exhibit (15)(f) to Post- Effective Amendment No.
61 and incorporated herein by reference.
(16) Schedule for Computation of Performance Quotations filed
herewith.
(17)(a) Power of Attorney for Eaton Vance Municipals Trust dated
December 29, 1993 filed as Exhibit (17)(a) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(b) Power of Attorney for Alabama Tax Free Portfolio, Arizona Tax
Free Portfolio, Arkansas Tax Free Portfolio, Colorado Tax Free
Portfolio, Connecticut Tax Free Portfolio, Florida Tax Free
Portfolio, Georgia Tax Free Portfolio, Kentucky Tax Free
Portfolio, Louisiana Tax Free Portfolio, Maryland Tax Free
Portfolio, Massachusetts Tax Free Portfolio, Michigan Tax Free
Portfolio, Minnesota Tax Free Portfolio, Mississippi Tax Free
Portfolio, Missouri Tax Free Portfolio, National Municipals
Portfolio, New Jersey Tax Free Portrfolio, New York Tax Free
Portfolio, North Carolina Tax Free Portfolio, Ohio Tax Free
Portfolio, Oregon Tax Free Portfolio, Pennsylvania Tax Free
Portfolio, Rhode Island Tax Free Portfolio, South Carolina Tax
Free Portfolio, Tennessee Tax Free Portfolio, Texas Tax Free
Portfolio, Virginia Tax Free Portfolio and West Virginia Tax
Free Portfolio dated December 29, 1993 filed as Exhibit
(17)(b) to Post-Effective Amendment No. 55 and incorporated
herein by reference.
(c) Power of Attorney for California Tax Free Portfolio dated June
19, 1995 filed as Exhibit (17)(c) to Post-Effective Amendment
No. 55 and incorporated herein by reference.
(18) Multiple Class Plan for Institutional Shares dated November
18, 1996 filed as Exhibit (18) to Post-Effective Amendment No.
62 and incorporated herein by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Shares of beneficial interest as of December 31, 1996
EV Classic National Municipals Fund 1,072
EV Marathon Alabama Municipals Fund 1,866
EV Marathon Arizona Municipals Fund 2,697
EV Marathon Arkansas Municipals Fund 1,913
EV Marathon California Municipals Fund 6,781
EV Marathon Colorado Municipals Fund 1,080
EV Marathon Connecticut Municipals Fund 4,193
EV Marathon Florida Municipals Fund 11,831
EV Marathon Georgia Municipals Fund 2,439
EV Marathon Kentucky Municipals Fund 3,262
EV Marathon Louisiana Municipals Fund 569
EV Marathon Maryland Municipals Fund 2,863
EV Marathon Massachusetts Municipals Fund 6,420
EV Marathon Michigan Municipals Fund 3,902
EV Marathon Minnesota Municipals Fund 2,252
EV Marathon Mississippi Municipals Fund 598
EV Marathon Missouri Municipals Fund 2,460
EV Marathon National Municipals Fund 40,438
EV Marathon New Jersey Municipals Fund 9,839
EV Marathon New York Municipals Fund 13,935
EV Marathon North Carolina Municipals Fund 4,156
EV Marathon Ohio Municipals Fund 6,890
EV Marathon Oregon Municipals Fund 3,282
EV Marathon Pennsylvania Municipals Fund 12,169
EV Marathon Rhode Island Municipals Fund 800
EV Marathon South Carolina Municipals Fund 1,290
EV Marathon Tennessee Municipals Fund 1,446
EV Marathon Texas Municipals Fund 410
EV Marathon Virginia Municipals Fund 4,535
EV Marathon West Virginia Municipals Fund 1,116
EV Traditional Alabama Municipals Fund 55
EV Traditional Arizona Municipals Fund 47
EV Traditional Arkansas Municipals Fund 34
EV Traditional California Municipals Fund 52
EV Traditional Colorado Municipals Fund 77
EV Traditional Connecticut Municipals Fund 62
EV Traditional Florida Municipals Fund 111
EV Traditional Georgia Municipals Fund 49
EV Traditional Kentucky Municipals Fund 32
EV Traditional Louisiana Municipals Fund 31
EV Traditional Maryland Municipals Fund 51
EV Traditional Massachusetts Municipals Fund 75
EV Traditional Michigan Municipals Fund 37
EV Traditional Minnesota Municipals Fund 71
EV Traditional Mississippi Municipals Fund 28
EV Traditional Missouri Municipals Fund 90
EV Traditional National Municipals Fund 719
EV Traditional New Jersey Municipals Fund 112
EV Traditional New York Municipals Fund 178
EV Traditional North Carolina Municipals Fund 93
EV Traditional Ohio Municipals Fund 39
EV Traditional Oregon Municipals Fund 44
EV Traditional Pennsylvania Municipals Fund 112
EV Traditional Rhode Island Municipals Fund 35
EV Traditional South Carolina Municipals Fund 24
EV Traditional Tennessee Municipals Fund 32
EV Traditional Texas Municipals Fund 8
EV Traditional Virginia Municipals Fund 39
EV Traditional West Virginia Municipals Fund 43
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 Statements of Additional Information, which
information is incorporated herein by reference.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(A) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the investment companies named below:
<TABLE>
<S> <C>
EV Classic Florida Limited Maturity EV Marathon Maryland Municipals Fund
Municipals Fund EV Marathon Massachusetts Limited Maturity
EV Classic Government Obligations Fund Municipals Fund
EV Classic Greater China Growth Fund EV Marathon Massachusetts Municipals Fund
EV Classic Growth Fund EV Marathon Michigan Limited Maturity
EV Classic High Income Fund Municipals Fund
EV Classic Information Age Fund EV Marathon Michigan Municipals Fund
EV Classic Investors Fund EV Marathon Minnesota Municipals Fund
EV Classic Massachusetts Limited Maturity EV Marathon Mississippi Municipals Fund
Municipals Fund EV Marathon Missouri Municipals Fund
EV Classic National Limited Maturity EV Marathon National Limited Maturity
Municipals Fund Municipals Fund
EV Classic National Municipals Fund EV Marathon National Municipals Fund
EV Classic New York Limited Maturity EV Marathon New Jersey Limited Maturity
Municipals Fund Municipals Fund
EV Classic Senior Floating-Rate Fund EV Marathon New Jersey Municipals Fund
EV Classic Strategic Income Fund EV Marathon New York Limited Maturity
EV Classic Special Equities Fund Municipals Fund
EV Classic Stock Fund EV Marathon New York Municipals Fund
EV Classic Tax-Managed Growth Fund EV Marathon North Carolina Municipals Fund
EV Classic Total Return Fund EV Marathon Ohio Limited Maturity
EV Marathon Alabama Municipals Fund Municipals Fund
EV Marathon Arizona Municipals Fund EV Marathon Ohio Municipals Fund
EV Marathon Arkansas Municipals Fund EV Marathon Oregon Municipals Fund
EV Marathon Asian Small Companies Fund EV Marathon Pennsylvania Limited Maturity
EV Marathon California Limited Maturity Municipals Fund
Municipals Fund EV Marathon Pennsylvania Municipals Fund
EV Marathon California Municipals Fund EV Marathon Rhode Island Municipals Fund
EV Marathon Colorado Municipals Fund EV Marathon Strategic Income Fund
EV Marathon Connecticut Limited Maturity EV Marathon South Carolina Municipals Fund
Municipals Fund EV Marathon Special Equities Fund
EV Marathon Connecticut Municipals Fund EV Marathon Stock Fund
EV Marathon Emerging Markets Fund EV Marathon Tax-Managed Growth Fund
EV Marathon Florida Insured Municipals Fund EV Marathon Tennessee Municipals Fund
EV Marathon Florida Limited Maturity EV Marathon Texas Municipals Fund
Municipals Fund EV Marathon Total Return Fund
EV Marathon Florida Municipals Fund EV Marathon Virginia Municipals Fund
EV Marathon Georgia Municipals Fund EV Marathon West Virginia Municipals Fund
EV Marathon Gold & Natural Resources Fund EV Marathon Worldwide Health
EV Marathon Government Obligations Fund Sciences Fund
EV Marathon Greater China Growth Fund EV Traditional Alabama Municipals Fund
EV Marathon Greater India Fund EV Traditional Arizona Municipals Fund
EV Marathon Growth Fund EV Traditional Arkansas Municipals Fund
EV Marathon Hawaii Municipals Fund EV Traditional Asian Small Companies Fund
EV Marathon High Income Fund EV Traditional California Limited Maturity
EV Marathon High Yield Municipals Fund Municipals Fund
EV Marathon Information Age Fund EV Traditional California Municipals Fund
EV Marathon Investors Fund EV Traditional Colorado Municipals Fund
EV Marathon Kansas Municipals Fund EV Traditional Connecticut Limited Maturity
EV Marathon Kentucky Municipals Fund Municipals Fund
EV Marathon Louisiana Municipals Fund EV Traditional Connecticut Municipals Fund
<PAGE>
EV Traditional Emerging Growth Fund EV Traditional New Jersey Limited Maturity
EV Traditional Emerging Markets Fund Municipals Fund
EV Traditional Florida Insured Municipals Fund EV Traditional New Jersey Municipals Fund
EV Traditional Florida Limited Maturity EV Traditional New York Limited Maturity
Municipals Fund Municipals Fund
EV Traditional Florida Municipals Fund EV Traditional New York Municipals Fund
EV Traditional Georgia Municipals Fund EV Traditional North Carolina Municipals Fund
EV Traditional Government Obligations Fund EV Traditional Ohio Limited
EV Traditional Greater China Growth Fund Maturity Municipals Fund
EV Traditional Greater India Fund EV Traditional Ohio Municipals Fund
EV Traditional Growth Fund EV Traditional Oregon Municipals Fund
EV Traditional Hawaii Municipals Fund EV Traditional Pennsylvania Municipals Fund
EV Traditional High Yield Municipals Fund EV Traditional Rhode Island Municipals Fund
Eaton Vance Income Fund of Boston EV Traditional South Carolina Municipals Fund
EV Traditional Information Age Fund EV Traditional Special Equities Fund
EV Traditional Investors Fund EV Traditional Stock Fund
EV Traditional Kansas Municipals Fund EV Traditional Tax-Managed Growth Fund
EV Traditional Kentucky Municipals Fund EV Traditional Tennessee Municipals Fund
EV Traditional Louisiana Municipals Fund EV Traditional Texas Municipals Fund
EV Traditional Maryland Municipals Fund EV Traditional Total Return Fund
EV Traditional Massachusetts Municipals Fund EV Traditional Virginia Municipals Fund
EV Traditional Michigan Limited Maturity EV Traditional West Virginia Municipals Fund
Municipals Fund EV Traditional Worldwide Health
EV Traditional Michigan Municipals Fund Sciences Fund, Inc.
EV Traditional Minnesota Municipals Fund Eaton Vance Cash Management Fund
EV Traditional Mississippi Municipals Fund Eaton Vance Liquid Assets Fund
EV Traditional Missouri Municipals Fund Eaton Vance Money Market Fund
Eaton Vance Municipal Bond Fund L.P. Eaton Vance Prime Rate Reserves
EV Traditional National Limited Maturity Eaton Vance Short-Term Treasury Fund
Municipals Fund Eaton Vance Tax Free Reserves
EV Traditional National Municipals Fund Massachusetts Municipal Bond Portfolio
(b)
<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
James S. Comforti Vice President None
Raymond Cox Vice President None
Mark P. Doman Vice President None
Alan Dynner Vice President None
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
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 Secretary
George D. Owen II Vice President None
F. Anthony Robinson Vice President None
Jay S. Rosoff Vice President None
Benjamin A. Rowland, Jr. Vice President, None
Treasurer and Director
John P. Rynne Vice President None
Kevin Schrader Vice President None
George V.F. Schwab, Jr. Vice President None
Cornelius J. Sullivan Vice President None
David M. Thill Vice President None
Chris Volf Vice President None
Sue Wilder Vice President None
- ----------
*Address is 24 Federal Street, Boston, MA 02110
</TABLE>
(c) Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 89 South Street, Boston,
MA 02111 and its transfer agent, First Data Investor Services Group, 4400
Computer Drive, Westborough, MA 01581-5123, with the exception of certain
corporate documents and portfolio trading documents which are in the possession
and custody, Eaton Vance Management, 24 Federal Street, Boston, MA 02110.
Registrant is informed that all applicable accounts, books and documents
required to be maintained by registered investment advisers are in the custody
and possession of Eaton Vance Management and Boston Management and Research.
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the latest annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, and the
Commonwealth of Massachusetts, on the 22nd day of January, 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.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief
/s/ THOMAS J. FETTER Executive Officer) January 22, 1997
- ---------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer January 22, 1997
- ---------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 22, 1997
- ---------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 22, 1997
- ---------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 22, 1997
- ---------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 22, 1997
- ---------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 22, 1997
- ---------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 22, 1997
- ---------------------------------
JACK L. TREYNOR
*By: /s/ THOMAS J. FETTER
----------------------------
THOMAS J. FETTER
As attorney-in-fact
<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 22nd day of
January, 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.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief
/s/ THOMAS J. FETTER Executive Officer) January 22, 1997
- ---------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer January 22, 1997
- ---------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 22, 1997
- ---------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 22, 1997
- ---------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 22, 1997
- ---------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 22, 1997
- ---------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 22, 1997
- ---------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 22, 1997
- ---------------------------------
JACK L. TREYNOR
*By: /s/ THOMAS J. FETTER
----------------------------
THOMAS J. FETTER
As attorney-in-fact
<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 22nd day of
January, 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.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief
/s/ THOMAS J. FETTER Executive Officer) January 22, 1997
- ---------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer January 22, 1997
- ---------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 22, 1997
- ---------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 22, 1997
- ---------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 22, 1997
- ---------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 22, 1997
- ---------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 22, 1997
- ---------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 22, 1997
- ---------------------------------
JACK L. TREYNOR
*By: /s/ THOMAS J. FETTER
----------------------------
THOMAS J. FETTER
As attorney-in-fact
<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 22nd day of
January, 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.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief
/s/ THOMAS J. FETTER Executive Officer) January 22, 1997
- ---------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer January 22, 1997
- ---------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 22, 1997
- ---------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 22, 1997
- ---------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 22, 1997
- ---------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 22, 1997
- ---------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 22, 1997
- ---------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 22, 1997
- ---------------------------------
JACK L. TREYNOR
*By: /s/ THOMAS J. FETTER
----------------------------
THOMAS J. FETTER
As attorney-in-fact
<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 22nd day of
January, 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.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief
/s/ THOMAS J. FETTER Executive Officer) January 22, 1997
- ---------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer January 22, 1997
- ---------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 22, 1997
- ---------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 22, 1997
- ---------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 22, 1997
- ---------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 22, 1997
- ---------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 22, 1997
- ---------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 22, 1997
- ---------------------------------
JACK L. TREYNOR
*By: /s/ THOMAS J. FETTER
----------------------------
THOMAS J. FETTER
As attorney-in-fact
<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 22nd day of
January, 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.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief
/s/ THOMAS J. FETTER Executive Officer) January 22, 1997
- ---------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer January 22, 1997
- ---------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 22, 1997
- ---------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 22, 1997
- ---------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 22, 1997
- ---------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 22, 1997
- ---------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 22, 1997
- ---------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 22, 1997
- ---------------------------------
JACK L. TREYNOR
*By: /s/ THOMAS J. FETTER
----------------------------
THOMAS J. FETTER
As attorney-in-fact
<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 22nd day of
January, 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.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief
/s/ THOMAS J. FETTER Executive Officer) January 22, 1997
- ---------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer January 22, 1997
- ---------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 22, 1997
- ---------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 22, 1997
- ---------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 22, 1997
- ---------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 22, 1997
- ---------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 22, 1997
- ---------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 22, 1997
- ---------------------------------
JACK L. TREYNOR
*By: /s/ THOMAS J. FETTER
----------------------------
THOMAS J. FETTER
As attorney-in-fact
<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 22nd day of January,
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.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief
/s/ THOMAS J. FETTER Executive Officer) January 22, 1997
- ---------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer January 22, 1997
- ---------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 22, 1997
- ---------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 22, 1997
- ---------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 22, 1997
- ---------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 22, 1997
- ---------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 22, 1997
- ---------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 22, 1997
- ---------------------------------
JACK L. TREYNOR
*By: /s/ THOMAS J. FETTER
----------------------------
THOMAS J. FETTER
As attorney-in-fact
<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 22nd day of
January, 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.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief
/s/ THOMAS J. FETTER Executive Officer) January 22, 1997
- ---------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer January 22, 1997
- ---------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 22, 1997
- ---------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 22, 1997
- ---------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 22, 1997
- ---------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 22, 1997
- ---------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 22, 1997
- ---------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 22, 1997
- ---------------------------------
JACK L. TREYNOR
*By: /s/ THOMAS J. FETTER
----------------------------
THOMAS J. FETTER
As attorney-in-fact
<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 22nd day of
January, 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.
SIGNATURE TITLE DATE
--------- ----- ----
President (Chief
/s/ THOMAS J. FETTER Executive Officer) January 22, 1997
- ---------------------------------
THOMAS J. FETTER
Treasurer and Principal
Financial and
/s/ JAMES L. O'CONNOR Accounting Officer January 22, 1997
- ---------------------------------
JAMES L. O'CONNOR
DONALD R. DWIGHT* Trustee January 22, 1997
- ---------------------------------
DONALD R. DWIGHT
/s/ JAMES B. HAWKES Trustee January 22, 1997
- ---------------------------------
JAMES B. HAWKES
SAMUEL L. HAYES, III* Trustee January 22, 1997
- ---------------------------------
SAMUEL L. HAYES, III
NORTON H. REAMER* Trustee January 22, 1997
- ---------------------------------
NORTON H. REAMER
JOHN L. THORNDIKE* Trustee January 22, 1997
- ---------------------------------
JOHN L. THORNDIKE
JACK L. TREYNOR* Trustee January 22, 1997
- ---------------------------------
JACK L. TREYNOR
*By: /s/ THOMAS J. FETTER
----------------------------
THOMAS J. FETTER
As attorney-in-fact
<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.
PAGE IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION SYSTEM
- ----------- ----------- ----------
(10) Opinion of Counsel dated January 22, 1997.
(11)(a) Consent of Independent Auditors for 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.
(b) Consent of Independent Auditors for EV Traditional
California Municipals Fund, EV Traditional
Florida Municipals Fund, EV Traditional
Massachusetts Municipals Fund, EV Traditional
Mississippi Municipals Fund, EV Traditional New
York Municipals Fund, EV Traditional Ohio
Municipals Fund, EV Traditional Rhode Island
Municipals Fund and EV Traditional West Virginia
Municipals Fund.
(c) Consent of Independent Auditors for EV Classic
National Municipals Fund.
(d) Consent of Independent Auditors for EV Marathon
National Municipals Fund.
(e) Consent of Independent Auditors for EV Traditional
National Municipals Fund.
(f) Consent of Independent Auditors for Massachusetts
Municipal Bond Portfolio.
(16) Schedule for Computation of Performance Quotations.
<PAGE>
EXHIBIT 10
Eaton Vance Management
24 Federal Street
Boston, MA 02110
(617) 482-8260
January 22, 1997
Eaton Vance Municipals Trust
24 Federal Street
Boston, MA 02110
Gentlemen:
Eaton Vance Municipals Trust (the "Trust") is a Massachusetts business
trust created under a Declaration of Trust dated September 30, 1985 executed and
delivered in Boston, Massachusetts and currently operating under an Amended and
Restated Declaration of Trust dated January 11, 1993 (the "Declaration of
Trust"). I am of the opinion that all legal requirements have been complied with
in the creation of the Trust, and that said Declaration of Trust is legal and
valid.
The Trustees of the Trust have the powers set forth in the Declaration
of Trust, subject to the terms, provisions and conditions therein provided. As
provided in the Declaration of Trust, the interest of shareholders is divided
into shares of beneficial interest without par value, and the number of shares
that may be issued is unlimited. The Trustees may from time to time issue and
sell or cause to be issued and sold shares for cash or for property. All such
shares, when so issued, shall be fully paid and nonassessable by the Trust.
By votes duly adopted, the Trustees of the Trust have authorized the
issuance of shares of beneficial interest, without par value. The Trust intends
to register under the Securities Act of 1933, as amended, 31,849,796 of its
shares of beneficial interest with Post-Effective Amendment No. 64 to its
Registration Statement on Form N-1A (the "Amendment") with the Securities and
Exchange Commission.
I have examined originals, or copies, certified or otherwise identified
to my satisfaction, of such certificates, records and other documents as I have
deemed necessary or appropriate for the purpose of this opinion, including the
Declaration of Trust and votes adopted by the Trustees. Based upon the
foregoing, and with respect to Massachusetts law (other than the Massachusetts
Uniform Securities Act), only to the extent that Massachusetts law may be
applicable and without reference to the laws of the other several states or of
the United States of America, I am of the opinion that under existing law:
1. The Trust is a trust with transferable shares of beneficial
interest organized in compliance with the laws of The Commonwealth of
Massachusetts, and the Declaration of Trust is legal and valid under the laws of
The Commonwealth of Massachusetts.
2. Shares of beneficial interest registered by the Amendment
may be legally and validly issued in accordance with the Declaration of Trust
upon receipt by the Trust of payment in compliance with the Declaration of Trust
and, when so issued and sold, will be fully paid and nonassessable by the Trust.
I am a member of the Massachusetts bar and I hereby consent to the
filing of this opinion with the Securities and Exchange Commission as an exhibit
thereto.
Very truly yours,
/s/ Eric G. Woodbury
----------------------
Eric G. Woodbury, Esq.
Vice President, Eaton Vance Management
a:\muni1296.opn
<PAGE>
EXHIBIT (11)(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 64 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Marathon California Municipals Fund, EV Marathon Florida
Municipals Fund, EV Marathon Masachusetts 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 of our report dated November 1, 1996 relating to
such Funds, 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 captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
January 22, 1997
Boston, Massachusetts
<PAGE>
EXHIBIT (11)(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 64 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Traditional California Municipals Fund, EV Traditional
Florida Municipals Fund, EV Traditional Massachusetts Municipals Fund, EV
Traditional Mississippi Municipals Fund, EV Traditional New York Municipals
Fund, EV Traditional Ohio Municipals Fund, EV Traditional Rhode Island
Municipals Fund and EV Traditional West Virginia Municipals Fund of our reports
dated November 1, 1996 relating to EV Traditional California Municipals Fund, EV
Traditional Florida Municipals Fund, EV Traditional Massachusetts Municipals
Fund, EV Traditional Mississippi Municipals Fund, EV Traditional New York
Municipals Fund, EV Traditional Ohio Municipals Fund, EV Classic Rhode Island
Municipals Fund and EV Traditional 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. (The Rhode
Island Fund changed its name from "EV Classic Rhode Island Municipals Fund" to
"EV Traditional Rhode Island Municipals Fund" on November 29, 1996.)
We also consent to the reference to our Firm under the heading "The Funds"
Financial Highlights" in the Prospectus and under the captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
January 22, 1997
Boston, Massachusetts
EXHIBIT (11)(C)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 64 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Classic National Municipals Fund of our report dated
November 1, 1996 relating to such 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 captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
January 22, 1997
Boston, Massachusetts
EXHIBIT (11)(D)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 64 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Marathon National Municipals Fund of our report dated
November 1, 1996 relating to such 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 captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
January 22, 1997
Boston, Massachusetts
EXHIBIT (11)(E)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 64 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of EV Traditional National Municipals Fund of our report dated
November 1, 1996 relating to such 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 captions "Independent
Certified Public Accountants" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
January 22, 1997
Boston, Massachusetts
<PAGE>
EXHIBIT (11)(F)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 64 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No. 33-
572) on behalf of Massachusetts Municipal Bond Portfolio of our report dated
November 1, 1996 relating to such Fund, and of our report dated November 1,
1996, relating to Massachusetts 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" and "Financial Statements" in the Statement of
Additional Information of the Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
January 22, 1997
Boston, Massachusetts
<PAGE>
Exhibit 16
<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 September 30, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/96 ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
09/30/96 09/30/86 $1,754.29 $1,754.29 75.43% 5.78% 75.43% 5.78%
5 YEARS ENDED
09/30/96 09/30/91 $1,306.57 $1,287.49 30.66% 5.49% 28.75% 5.18%
1 YEAR ENDED
09/30/96 09/30/95 $1,064.87 $1,014.87 6.49% 6.49% 1.49% 1.49%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period 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>
EV MARATHON CALIFORNIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: 1,865,273
Plus Dividend Income Earned:
------
Equal Gross Income: 1,865,273
Minus Expenses: $495,633
------
Equal Net Investment Income: 1,369,640
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 38,132,119
------
Equal Net Investment Income Earned Per Share: $0.0359
Net Asset Value Per Share 9/30/96: $9.54
30 Day Yield*: 4.56%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.61%
Divided by one minus a tax rate of 37.90%: 0.6210
------
Equal Tax Equivalent Yield***: 7.34%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0359/$9.54)+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 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 September 30, 1996 and for the 1 and 5 year periods ended
September 30, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/96 ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/28/90 $1,559.29 $1,559.29 55.93% 7.57% 55.93% 7.57%
5 YEARS ENDED
09/30/96 09/30/91 $1,363.71 $1,343.71 36.37% 6.40% 34.37% 6.09%
1 YEAR ENDED
09/30/96 09/30/95 $1,054.33 $1,004.33 5.43% 5.43% 0.43% 0.43%
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>
EV MARATHON FLORIDA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $3,103,183
Plus Dividend Income Earned:
------
Equal Gross Income: $3,103,183
Minus Expenses: $786,627
------
Equal Net Investment Income: $2,316,556
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 57,387,073
------
Equal Net Investment Income Earned Per Share: $0.0404
Net Asset Value Per Share 9/30/96: $10.78
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 33.82%: 0.6618
------
Equal Tax Equivalent Yield***: 6.86%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0404/$10.78)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Florida tax rate of 33.82%
<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 September 30, 1996 and for the 1 and 5 year periods ended
September 30, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/96 ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $1,421.25 $1,411.25 42.12% 6.65% 41.12% 6.51%
5 YEARS ENDED
09/30/96 09/30/91 $1,349.43 $1,329.43 34.94% 6.18% 32.94% 5.86%
1 YEAR ENDED
09/30/96 09/30/95 $1,055.30 $1,005.30 5.53% 5.53% 0.53% 0.53%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period 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>
EV MARATHON MASSACHUSETTS MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $1,423,095
Plus Dividend Income Earned:
------
Equal Gross Income: $1,423,095
Minus Expenses: $348,543
------
Equal Net Investment Income: $1,074,552
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 26,052,823
------
Equal Net Investment Income Earned Per Share: $0.0412
Net Asset Value Per Share 9/30/96: $10.33
30 Day Yield*: 4.84%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.01%
Divided by one minus a tax rate of 39.28%: 0.6072
------
Equal Tax Equivalent Yield***: 7.97%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0412/$10.33)+1)-1]6
** Assuming a tax rate of 31%
*** Assuming a combined federal and Massachusetts tax rate of 39.28%
<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 September 30, 1996 and for the 1 year period ended
September 30, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/96 ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,131.43 $1,102.60 13.14% 3.80% 10.26% 3.00%
1 YEAR ENDED
09/30/96 09/30/95 $1,061.66 $1,011.66 6.17% 6.17% 1.17% 1.17%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC *
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period after
deducting the CDSC **
P = an initial investment of $1,000
* The average annual total return not including the CDSC is calculated based on the ending investment value
before deducting the CDSC.
** The cumulative total return not including the CDSC is calculated based on the ending investment value before
deducting the CDSC.
</TABLE>
<PAGE>
EV MARATHON MISSISSIPPI MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $120,720
Plus Dividend Income Earned:
------
Equal Gross Income: $120,720
Minus Expenses: $27,050
------
Equal Net Investment Income: $93,670
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 2,505,173
------
Equal Net Investment Income Earned Per Share: $0.0374
Net Asset Value Per Share 9/30/96: $9.61
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[(($0.0374/$9.61)+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 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 September 30, 1996 and for the 1 and 5 year periods ended
September 30, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/96 ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/30/90 $1,587.05 $1,587.05 58.70% 7.88% 58.70% 7.88%
5 YEARS ENDED
09/30/96 09/30/91 $1,380.08 $1,360.08 38.01% 6.66% 36.01% 6.34%
1 YEAR ENDED
09/30/96 09/30/95 $1,058.66 $1,008.66 5.87% 5.87% 0.87% 0.87%
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>
EV MARATHON NEW YORK MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $2,860,563
Plus Dividend Income Earned:
------
Equal Gross Income: $2,860,563
Minus Expenses: $745,311
------
Equal Net Investment Income: $2,115,252
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 54,304,273
------
Equal Net Investment Income Earned Per Share: $0.0390
Net Asset Value Per Share 9/30/96: $10.93
30 Day Yield*: 4.31%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.25%
Divided by one minus a tax rate of 38.99%: 0.6101
------
Equal Tax Equivalent Yield***: 7.06%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0390/$10.93)+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 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 September 30, 1996 and for the 1 and 5 year periods ended
September 30, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/96 ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $1,438.79 $1,428.79 43.88% 6.89% 42.88% 6.75%
5 YEARS ENDED
09/30/96 09/30/91 $1,371.84 $1,351.84 37.18% 6.53% 35.18% 6.22%
1 YEAR ENDED
09/30/96 09/30/95 $1,054.85 $1,004.85 5.48% 5.48% 0.48% 0.48%
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 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>
EV MARATHON OHIO MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $1,513,060
Plus Dividend Income Earned:
------
Equal Gross Income: $1,513,060
Minus Expenses: $393,312
------
Equal Net Investment Income: $1,119,748
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 27,503,864
------
Equal Net Investment Income Earned Per Share: $0.0407
Net Asset Value Per Share 9/30/96: $10.59
30 Day Yield*: 4.66%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.75%
Divided by one minus a tax rate of 35.76%: 0.6424
------
Equal Tax Equivalent Yield***: 7.25%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0407/$10.59)+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 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 September 30, 1996 and for the 1 year period ended
September 30, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/96 ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,125.14 $1,096.61 12.51% 3.63% 9.66% 2.82%
1 YEAR ENDED
09/30/96 09/30/95 $1,061.44 $1,011.44 6.14% 6.14% 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 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>
EV MARATHON RHODE ISLAND MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $198,731
Plus Dividend Income Earned:
------
Equal Gross Income: $198,731
Minus Expenses: $42,024
------
Equal Net Investment Income: $156,707
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 4,152,772
------
Equal Net Investment Income Earned Per Share: $0.0377
Net Asset Value Per Share 9/30/96: $9.51
30 Day Yield*: 4.80%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.96%
Divided by one minus a tax rate of 36.88%: 0.6312
------
Equal Tax Equivalent Yield***: 7.60%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0377/$9.51)+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 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 September 30, 1996 and for the 1 year period ended
September 30, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/96 ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $1,132.15 $1,103.29 13.22% 3.82% 10.33% 3.01%
1 YEAR ENDED
09/30/96 09/30/95 $1,060.24 $1,010.24 6.02% 6.02% 1.02% 1.02%
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>
EV MARATHON WEST VIRGINIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $184,268
Plus Dividend Income Earned:
------
Equal Gross Income: $184,268
Minus Expenses: $47,967
------
Equal Net Investment Income: $136,301
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 3,920,285
------
Equal Net Investment Income Earned Per Share: $0.0348
Net Asset Value Per Share 9/30/96: $9.62
30 Day Yield*: 4.38%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.35%
Divided by one minus a tax rate of 35.49%: 0.6451
------
Equal Tax Equivalent Yield***: 6.79%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0348/$9.62)+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 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 September 30, 1996. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
09/30/96 09/30/86 $962.10 $1,757.86 82.72% 6.21% 75.79% 5.80%
5 YEARS ENDED
09/30/96 09/30/91 $962.68 $1,310.08 36.08% 6.36% 31.01% 5.55%
1 YEAR ENDED
09/30/96 09/30/95 $962.50 $1,039.95 8.05% 8.05% 3.96% 3.96%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $27,844
Plus Dividend Income Earned:
------
Equal Gross Income: $27,844
Minus Expenses: $2,382
------
Equal Net Investment Income: $25,462
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 532,361
------
Equal Net Investment Income Earned Per Share: $0.0478
Net Asset Value Per Share 9/30/96: $10.78
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 37.90%: 0.6210
------
Equal Tax Equivalent Yield***: 8.66%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0478/$10.78)+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 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 September 30, 1996 and for the 1 and 5 year periods ended
September 30, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/28/90 $962.16 $1,528.56 58.87% 7.90% 52.86% 7.22%
5 YEARS ENDED
09/30/96 09/30/91 $962.90 $1,337.84 38.95% 6.80% 33.78% 5.99%
1 YEAR ENDED
09/30/96 09/30/95 $962.50 $1,025.50 6.55% 6.55% 2.52% 2.52%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
EV TRADITIONAL FLORIDA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $21,795
Plus Dividend Income Earned:
------
Equal Gross Income: $21,795
Minus Expenses: $2,679
------
Equal Net Investment Income: $19,116
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 414,339
------
Equal Net Investment Income Earned Per Share: $0.0461
Net Asset Value Per Share 9/30/96: $10.94
30 Day Yield*: 5.11%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.41%
Divided by one minus a tax rate of 33.5%: 0.6650
------
Equal Tax Equivalent Yield***: 7.68%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0461/$10.94)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Florida tax rate of 33.50%
<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 September 30, 1996 and for the 1 and 5 year periods ended
September 30, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/19/91 $962.64 $1,373.52 42.67% 6.72% 37.35% 5.98%
5 YEARS ENDED
09/30/96 09/30/91 $962.89 $1,304.31 35.46% 6.26% 30.43% 5.46%
1 YEAR ENDED
09/30/96 09/30/95 $962.50 $1,022.14 6.19% 6.19% 2.22% 2.22%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $30,670
Plus Dividend Income Earned:
------
Equal Gross Income: $30,670
Minus Expenses: $3,512
------
Equal Net Investment Income: $27,158
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 625,005
------
Equal Net Investment Income Earned Per Share: $0.0435
Net Asset Value Per Share 9/30/96: $9.66
30 Day Yield*: 5.46%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.91%
Divided by one minus a tax rate of 39.28%: 0.6072
------
Equal Tax Equivalent Yield***: 8.99%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0435/$9.66)+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 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 September 30, 1996 and for the 1 year period ended
September 30, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $962.13 $1,085.29 13.01% 3.76% 8.73% 2.56%
1 YEAR ENDED
09/30/96 09/30/95 $962.50 $1,024.56 6.64% 6.64% 2.66% 2.66%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $5,958
Plus Dividend Income Earned:
------
Equal Gross Income: $5,958
Minus Expenses: $773
------
Equal Net Investment Income: $5,185
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 127,970
------
Equal Net Investment Income Earned Per Share: $0.0405
Net Asset Value Per Share 9/30/96: $9.79
30 Day Yield*: 5.02%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.28%
Divided by one minus a tax rate of 34.45%: 0.6555
------
Equal Tax Equivalent Yield***: 7.66%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0405/$9.79)+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 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 September 30, 1996 and for the 1 and 5 year periods ended
September 30, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 08/30/90 $962.13 $1,085.29 61.73% 8.22% 55.69% 7.54%
5 YEARS ENDED
09/30/96 09/30/91 $962.38 $1,353.55 40.65% 7.06% 35.36% 6.24%
1 YEAR ENDED
09/30/96 09/30/95 $962.50 $1,024.56 6.69% 6.69% 2.65% 2.65%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
EV TRADITIONAL NEW YORK MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $31,913
Plus Dividend Income Earned:
------
Equal Gross Income: $31,913
Minus Expenses: $3,310
------
Equal Net Investment Income: $28,603
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 648,997
------
Equal Net Investment Income Earned Per Share: $0.0441
Net Asset Value Per Share 9/30/96: $10.62
30 Day Yield*: 5.03%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.29%
Divided by one minus a tax rate of 38.99%: 0.6101
------
Equal Tax Equivalent Yield***: 8.24%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0441/$10.62)+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 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 September 30, 1996 and for the 1 and 5 year periods ended
September 30, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $962.13 $1,085.29 42.91% 6.76% 37.58% 6.02%
5 YEARS ENDED
09/30/96 09/30/91 $962.09 $1,311.02 36.26% 6.38% 31.10% 5.56%
1 YEAR ENDED
09/30/96 09/30/95 $962.50 $1,024.56 6.12% 6.12% 2.18% 2.18%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
EV TRADITIONAL OHIO MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $10,048
Plus Dividend Income Earned:
------
Equal Gross Income: $10,048
Minus Expenses: $1,309
------
Equal Net Investment Income: $8,739
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 209,042
------
Equal Net Investment Income Earned Per Share: $0.0418
Net Asset Value Per Share 9/30/96: $9.75
30 Day Yield*: 5.20%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.54%
Divided by one minus a tax rate of 35.76%: 0.6424
------
Equal Tax Equivalent Yield***: 8.09%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0418/$9.75)+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 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 September 30, 1996 and for the 1 year period ended
September 30, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $962.14 $1,077.91 12.03% 3.49% 7.79% 2.29%
1 YEAR ENDED
09/30/96 09/30/95 $962.38 $1,019.66 5.95% 5.95% 1.97% 1.97%
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 0.00%.
** 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 0.00%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 0.00%.
</TABLE>
<PAGE>
EV TRADITIONAL RHODE ISLAND MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $12,039
Plus Dividend Income Earned:
------
Equal Gross Income: $12,039
Minus Expenses: $2,421
------
Equal Net Investment Income: $9,618
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 259,395
------
Equal Net Investment Income Earned Per Share: $0.0371
Net Asset Value Per Share 9/30/96: $9.67
30 Day Yield*: 4.65%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 6.74%
Divided by one minus a tax rate of 36.88%: 0.6312
------
Equal Tax Equivalent Yield***: 7.37%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0371/$9.67)+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 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 September 30, 1996 and for the 1 year period ended
September 30, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LIFE OF
FUND 06/11/93 $962.13 $1,085.29 12.79% 3.70% 8.53% 2.50%
1 YEAR ENDED
09/30/96 09/30/95 $962.50 $1,024.56 6.45% 6.45% 2.50% 2.50%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
EV TRADITIONAL WEST VIRGINIA MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $7,596
Plus Dividend Income Earned:
------
Equal Gross Income: $7,596
Minus Expenses: $713
------
Equal Net Investment Income: $6,883
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 166,560
------
Equal Net Investment Income Earned Per Share: $0.0413
Net Asset Value Per Share 9/30/96: $9.82
30 Day Yield*: 5.10%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.39%
Divided by one minus a tax rate of 35.49%: 0.6451
------
Equal Tax Equivalent Yield***: 7.91%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0413/$9.82)+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 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 September 30, 1996. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/96 ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
09/30/96 09/30/86 $1,932.90 $1,932.90 93.29% 6.81% 93.29% 6.81%
5 YEARS ENDED
09/30/96 09/30/91 $1,420.37 $1,420.37 42.04% 7.27% 42.04% 7.27%
1 YEAR ENDED
09/30/96 09/30/95 $1,067.29 $1,057.29 6.73% 6.73% 5.73% 5.73%
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>
EV CLASSIC NATIONAL MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $378,318
Plus Dividend Income Earned:
------
Equal Gross Income: $378,318
Minus Expenses: $98,954
------
Equal Net Investment Income: $279,364
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 7,109,947
------
Equal Net Investment Income Earned Per Share: $0.0393
Net Asset Value Per Share 9/30/96: $9.41
30 Day Yield*: 5.06%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.33%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0393/$9.41)+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 September 30, 1996.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT BEFORE CDSC AFTER CDSC BEFORE DEDUCTING CDSC AFTER DEDUCTING CDSC
PERIOD DATE ON 09/30/96 ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
09/30/96 09/30/86 $1,964.47 $1,964.47 96.45% 6.98% 96.45% 6.98%
5 YEARS ENDED
09/30/96 09/30/91 $1,443.61 $1,423.61 44.36% 7.62% 42.36% 7.32%
1 YEAR ENDED
09/30/96 09/30/95 $1,068.35 $1,018.35 6.84% 6.84% 1.84% 1.84%
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>
EV MARATHON NATIONAL MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $11,958,993
Plus Dividend Income Earned:
------
Equal Gross Income: $11,958,993
Minus Expenses: $2,682,807
------
Equal Net Investment Income: $9,276,186
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 212,903,263
------
Equal Net Investment Income Earned Per Share: $0.0436
Net Asset Value Per Share 9/30/96: $9.90
30 Day Yield*: 5.34%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 7.74%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0436/$9.90)+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 September 30, 1996. Total return for the period prior to the
Fund's commencement of operations is for the Portfolio (or its predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT INVESTMENT INITIAL INVESTMENT EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
PERIOD DATE INVESTMENT* ON 09/30/96 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
10 YEARS ENDED
09/30/96 09/30/86 $962.31 $1,930.57 100.63% 7.21% 93.06% 6.80%
5 YEARS ENDED
09/30/96 09/30/91 $962.56 $1,419.08 47.42% 8.07% 41.91% 7.25%
1 YEAR ENDED
09/30/96 09/30/95 $962.32 $1,035.32 7.59% 7.59% 3.53% 3.53%
Average annual total return is calculated using the following formula:
n
P(1+T) = ERV
where P = an initial investment of $1,000 **
T = average annual total return
n = number of years
ERV = ending redeemable value of $1,000 initial investment at the end of the period
Cumulative total return is calculated using the following formula:
T = ( ERV / P ) - 1
where T = cumulative total return including the maximum sales charge
ERV = ending redeemable value of $1,000 initial investment at the end of the period
P = an initial investment of $1,000 ***
* Initial investment less the current maximum sales charge of 3.75%.
** The average annual total return including the sales charge is calculated based on an initial investment of $1,000 less the
maximum initial sales charge of 3.75%.
*** The cumulative total return including the sales charge is calculated based on an initial investment of $1,000 less
maximum initial sales charge of 3.75%.
</TABLE>
<PAGE>
EV TRADITIONAL NATIONAL MUNICIPALS FUND
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $197,194
Plus Dividend Income Earned:
------
Equal Gross Income: $197,194
Minus Expenses: $29,936
------
Equal Net Investment Income: $167,258
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 3,287,591
------
Equal Net Investment Income Earned Per Share: $0.0509
Net Asset Value Per Share 9/30/96: $10.99
30 Day Yield*: 5.62%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 8.14%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0509/$10.99)+1)-1]
** Assuming a tax rate of 31%
<PAGE>
<TABLE>
INVESTMENT PERFORMANCE -- MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
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 September 30, 1996 and for the 1 and 5 year periods ended
September 30, 1996. Total return for the period prior to the Fund's commencement of operations is for the Portfolio (or its
predecessor) adjusted for the Fund's sales charge.
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF
INVESTMENT INVESTMENT INVESTMENT TOTAL RETURN
PERIOD DATE ON 09/30/96 CUMULATIVE ANNUALIZED
- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
LIFE OF
FUND 04/18/91 $1,455.61 45.56% 7.12%
5 YEARS ENDED
09/30/96 09/30/91 $1,381.95 38.20% 6.68%
1 YEAR ENDED
09/30/96 09/30/95 $1,062.84 6.28% 6.28%
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>
<PAGE>
MASSACHUSETTS MUNICIPAL BOND PORTFOLIO
30-DAY AND TAX EQUIVALENT YIELD CALCULATIONS
For the 30 days ended 9/30/96:
Interest Income Earned: $36,665
Plus Dividend Income Earned:
------
Equal Gross Income: $36,665
Minus Expenses: $4,824
------
Equal Net Investment Income: $31,841
Divided by Average daily number of shares
outstanding that were entitled
to receive dividends: 725,933
------
Equal Net Investment Income Earned Per Share: $0.0439
Net Asset Value Per Share 9/30/96: $9.56
30 Day Yield*: 5.57%
Divided by One minus the Tax Rate of 31%: 0.69
------
Equal Tax Equivalent Yield **: 8.07%
Divided by one minus a tax rate of 39.28%: 0.6072
------
Equal Tax Equivalent Yield***: 9.17%
* Yield is calculated on a bond equivalent rate as follows:
6
2[(($0.0439/$9.56)+1)-1]
** Assuming a tax rate of 31%
*** Assuming a combined federal and Massachusetts tax rate of 39.28%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 30
<NAME> EV CLASSIC NATIONAL MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 65297
<INVESTMENTS-AT-VALUE> 67330
<RECEIVABLES> 220
<ASSETS-OTHER> 22
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67572
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 196
<TOTAL-LIABILITIES> 196
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68335
<SHARES-COMMON-STOCK> 7163
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 37
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2399)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1403
<NET-ASSETS> 67376
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 3862
<EXPENSES-NET> 722
<NET-INVESTMENT-INCOME> 3140
<REALIZED-GAINS-CURRENT> (106)
<APPREC-INCREASE-CURRENT> 372
<NET-CHANGE-FROM-OPS> 3406
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3130)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9061
<NUMBER-OF-SHARES-REDEEMED> 6545
<SHARES-REINVESTED> 213
<NET-CHANGE-IN-ASSETS> 26078
<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> 722
<AVERAGE-NET-ASSETS> 57884
<PER-SHARE-NAV-BEGIN> 9.31
<PER-SHARE-NII> .511
<PER-SHARE-GAIN-APPREC> .100
<PER-SHARE-DIVIDEND> (.511)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.41
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 56
<NAME> EV CLASSIC RHODE ISLAND MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 2465
<INVESTMENTS-AT-VALUE> 2429
<RECEIVABLES> 17
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2450
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 4
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2782
<SHARES-COMMON-STOCK> 263
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (303)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (37)
<NET-ASSETS> 2446
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 146
<EXPENSES-NET> 28
<NET-INVESTMENT-INCOME> 118
<REALIZED-GAINS-CURRENT> (45)
<APPREC-INCREASE-CURRENT> 94
<NET-CHANGE-FROM-OPS> 167
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (121)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28
<NUMBER-OF-SHARES-REDEEMED> 103
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> (588)
<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> 45
<AVERAGE-NET-ASSETS> 2570
<PER-SHARE-NAV-BEGIN> 9.21
<PER-SHARE-NII> .431
<PER-SHARE-GAIN-APPREC> .106
<PER-SHARE-DIVIDEND> (.437)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.31
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> EV MARATHON NATIONAL MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 1955789
<INVESTMENTS-AT-VALUE> 2109982
<RECEIVABLES> 1463
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2111445
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9813
<TOTAL-LIABILITIES> 9813
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2038263
<SHARES-COMMON-STOCK> 212308
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2623
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (93447)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 154192
<NET-ASSETS> 2101631
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 144761
<EXPENSES-NET> 22935
<NET-INVESTMENT-INCOME> 121826
<REALIZED-GAINS-CURRENT> 1459
<APPREC-INCREASE-CURRENT> 20708
<NET-CHANGE-FROM-OPS> 143993
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (121100)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 39934
<NUMBER-OF-SHARES-REDEEMED> 55966
<SHARES-REINVESTED> 4686
<NET-CHANGE-IN-ASSETS> (89608)
<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> 22935
<AVERAGE-NET-ASSETS> 2169269
<PER-SHARE-NAV-BEGIN> 9.80
<PER-SHARE-NII> .557
<PER-SHARE-GAIN-APPREC> .096
<PER-SHARE-DIVIDEND> (.553)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.90
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 65
<NAME> EV MARATHON CALIFORNIA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 337284
<INVESTMENTS-AT-VALUE> 362507
<RECEIVABLES> 212
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 362719
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1464
<TOTAL-LIABILITIES> 1464
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 369602
<SHARES-COMMON-STOCK> 37877
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (384)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (33186)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 25223
<NET-ASSETS> 361255
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 22864
<EXPENSES-NET> 4162
<NET-INVESTMENT-INCOME> 18702
<REALIZED-GAINS-CURRENT> 4470
<APPREC-INCREASE-CURRENT> 1381
<NET-CHANGE-FROM-OPS> 24553
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18702)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (151)
<NUMBER-OF-SHARES-SOLD> 1500
<NUMBER-OF-SHARES-REDEEMED> 7129
<SHARES-REINVESTED> 801
<NET-CHANGE-IN-ASSETS> (40396)
<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> 4162
<AVERAGE-NET-ASSETS> 384098
<PER-SHARE-NAV-BEGIN> 9.41
<PER-SHARE-NII> .464
<PER-SHARE-GAIN-APPREC> .135
<PER-SHARE-DIVIDEND> (.465)
<PER-SHARE-DISTRIBUTIONS> (.004)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.54
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> EV MARATHON FLORIDA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 582110
<INVESTMENTS-AT-VALUE> 615276
<RECEIVABLES> 250
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 615526
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3087
<TOTAL-LIABILITIES> 3087
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 603803
<SHARES-COMMON-STOCK> 56812
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (788)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23742)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33166
<NET-ASSETS> 612439
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 37894
<EXPENSES-NET> 6841
<NET-INVESTMENT-INCOME> 31053
<REALIZED-GAINS-CURRENT> 5714
<APPREC-INCREASE-CURRENT> (598)
<NET-CHANGE-FROM-OPS> 36169
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (31052)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (389)
<NUMBER-OF-SHARES-SOLD> 2877
<NUMBER-OF-SHARES-REDEEMED> 12531
<SHARES-REINVESTED> 990
<NET-CHANGE-IN-ASSETS> (89127)
<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> 6841
<AVERAGE-NET-ASSETS> 665401
<PER-SHARE-NAV-BEGIN> 10.72
<PER-SHARE-NII> .505
<PER-SHARE-GAIN-APPREC> .067
<PER-SHARE-DIVIDEND> (.506)
<PER-SHARE-DISTRIBUTIONS> (.006)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.78
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> EV MARATHON MASSACHUSETTS MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 252128
<INVESTMENTS-AT-VALUE> 268152
<RECEIVABLES> 114
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 268266
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 868
<TOTAL-LIABILITIES> 868
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 269566
<SHARES-COMMON-STOCK> 25898
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (486)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (17706)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16024
<NET-ASSETS> 267398
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 16361
<EXPENSES-NET> 2955
<NET-INVESTMENT-INCOME> 13406
<REALIZED-GAINS-CURRENT> 3059
<APPREC-INCREASE-CURRENT> (1226)
<NET-CHANGE-FROM-OPS> 15239
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13406)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (125)
<NUMBER-OF-SHARES-SOLD> 1007
<NUMBER-OF-SHARES-REDEEMED> 4108
<SHARES-REINVESTED> 650
<NET-CHANGE-IN-ASSETS> (23715)
<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> 2955
<AVERAGE-NET-ASSETS> 282405
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> .491
<PER-SHARE-GAIN-APPREC> .066
<PER-SHARE-DIVIDEND> (.492)
<PER-SHARE-DISTRIBUTIONS> (.005)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.33
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 26
<NAME> EV MARATHON MISSISSIPPI MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 22798
<INVESTMENTS-AT-VALUE> 23969
<RECEIVABLES> 2
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23975
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113
<TOTAL-LIABILITIES> 113
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24719
<SHARES-COMMON-STOCK> 2484
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 79
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2107)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1171
<NET-ASSETS> 23862
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1483
<EXPENSES-NET> 295
<NET-INVESTMENT-INCOME> 1188
<REALIZED-GAINS-CURRENT> 281
<APPREC-INCREASE-CURRENT> 119
<NET-CHANGE-FROM-OPS> 1588
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1176)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 121491
<NUMBER-OF-SHARES-REDEEMED> 522
<SHARES-REINVESTED> 61
<NET-CHANGE-IN-ASSETS> (2894)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 295
<AVERAGE-NET-ASSETS> 25619
<PER-SHARE-NAV-BEGIN> 9.48
<PER-SHARE-NII> .451
<PER-SHARE-GAIN-APPREC> .122
<PER-SHARE-DIVIDEND> (.443)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.61
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EV MARATHON NEW YORK MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 558801
<INVESTMENTS-AT-VALUE> 592440
<RECEIVABLES> 363
<ASSETS-OTHER> 0
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<TOTAL-ASSETS> 592803
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2406
<TOTAL-LIABILITIES> 2406
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 577197
<SHARES-COMMON-STOCK> 54027
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (1060)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19378)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33638
<NET-ASSETS> 590397
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 35230
<EXPENSES-NET> 6330
<NET-INVESTMENT-INCOME> 28900
<REALIZED-GAINS-CURRENT> 3977
<APPREC-INCREASE-CURRENT> 2585
<NET-CHANGE-FROM-OPS> 35462
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (23899)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (793)
<NUMBER-OF-SHARES-SOLD> 2718
<NUMBER-OF-SHARES-REDEEMED> 9324
<SHARES-REINVESTED> 1476
<NET-CHANGE-IN-ASSETS> (50207)
<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> 6372
<AVERAGE-NET-ASSETS> 622537
<PER-SHARE-NAV-BEGIN> 10.83
<PER-SHARE-NII> .506
<PER-SHARE-GAIN-APPREC> .116
<PER-SHARE-DIVIDEND> (.508)
<PER-SHARE-DISTRIBUTIONS> (.014)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.93
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> EV MARATHON OHIO MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 278462
<INVESTMENTS-AT-VALUE> 290733
<RECEIVABLES> 110
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 290843
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1014
<TOTAL-LIABILITIES> 1014
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 283516
<SHARES-COMMON-STOCK> 27366
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 92
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6050)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12271
<NET-ASSETS> 289829
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 17409
<EXPENSES-NET> 3215
<NET-INVESTMENT-INCOME> 14194
<REALIZED-GAINS-CURRENT> 2117
<APPREC-INCREASE-CURRENT> 272
<NET-CHANGE-FROM-OPS> 16583
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28899)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (793)
<NUMBER-OF-SHARES-SOLD> 928
<NUMBER-OF-SHARES-REDEEMED> 4331
<SHARES-REINVESTED> 699
<NET-CHANGE-IN-ASSETS> (26062)
<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> 3215
<AVERAGE-NET-ASSETS> 304796
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> .494
<PER-SHARE-GAIN-APPREC> .071
<PER-SHARE-DIVIDEND> (.485)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.59
<EXPENSE-RATIO> 1.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 27
<NAME> EV MARATHON RHODE ISLAND MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 38864
<INVESTMENTS-AT-VALUE> 39621
<RECEIVABLES> 74
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39698
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 210
<TOTAL-LIABILITIES> 210
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40562
<SHARES-COMMON-STOCK> 4151
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (48)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1784)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 758
<NET-ASSETS> 39488
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 2279
<EXPENSES-NET> 427
<NET-INVESTMENT-INCOME> 1852
<REALIZED-GAINS-CURRENT> (82)
<APPREC-INCREASE-CURRENT> 614
<NET-CHANGE-FROM-OPS> 2384
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1867)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (48)
<NUMBER-OF-SHARES-SOLD> 508
<NUMBER-OF-SHARES-REDEEMED> 718
<SHARES-REINVESTED> 121
<NET-CHANGE-IN-ASSETS> (375)
<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> 427
<AVERAGE-NET-ASSETS> 39964
<PER-SHARE-NAV-BEGIN> 9.40
<PER-SHARE-NII> .440
<PER-SHARE-GAIN-APPREC> .125
<PER-SHARE-DIVIDEND> (.444)
<PER-SHARE-DISTRIBUTIONS> (.011)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.51
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 28
<NAME> EV MARATHON WEST VIRGINIA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 37197
<INVESTMENTS-AT-VALUE> 37816
<RECEIVABLES> 1
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 37820
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 112
<TOTAL-LIABILITIES> 112
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38818
<SHARES-COMMON-STOCK> 3919
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (63)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1666)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 619
<NET-ASSETS> 37708
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 2095
<EXPENSES-NET> 436
<NET-INVESTMENT-INCOME> 1659
<REALIZED-GAINS-CURRENT> (112)
<APPREC-INCREASE-CURRENT> 757
<NET-CHANGE-FROM-OPS> 2304
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1688)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (79)
<NUMBER-OF-SHARES-SOLD> 248
<NUMBER-OF-SHARES-REDEEMED> 592
<SHARES-REINVESTED> 95
<NET-CHANGE-IN-ASSETS> (1861)
<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> 436
<AVERAGE-NET-ASSETS> 38591
<PER-SHARE-NAV-BEGIN> 9.50
<PER-SHARE-NII> .420
<PER-SHARE-GAIN-APPREC> .147
<PER-SHARE-DIVIDEND> (.427)
<PER-SHARE-DISTRIBUTIONS> (.020)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.62
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 59
<NAME> EV TRADITIONAL NATIONAL MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 34139
<INVESTMENTS-AT-VALUE> 35166
<RECEIVABLES> 53
<ASSETS-OTHER> 20
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35239
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 128
<TOTAL-LIABILITIES> 128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34249
<SHARES-COMMON-STOCK> 3320
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (170)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1027
<NET-ASSETS> 35111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 2099
<EXPENSES-NET> 116
<NET-INVESTMENT-INCOME> 1983
<REALIZED-GAINS-CURRENT> (39)
<APPREC-INCREASE-CURRENT> 269
<NET-CHANGE-FROM-OPS> 2213
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1977)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1539
<NUMBER-OF-SHARES-REDEEMED> 819
<SHARES-REINVESTED> 66
<NET-CHANGE-IN-ASSETS> 8587
<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> 116
<AVERAGE-NET-ASSETS> 31554
<PER-SHARE-NAV-BEGIN> 10.47
<PER-SHARE-NII> .668
<PER-SHARE-GAIN-APPREC> .108
<PER-SHARE-DIVIDEND> (.666)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.58
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 66
<NAME> EV TRADITIONAL CALIFORNIA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 5917
<INVESTMENTS-AT-VALUE> 6148
<RECEIVABLES> 25
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6178
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10
<TOTAL-LIABILITIES> 10
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5953
<SHARES-COMMON-STOCK> 594
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (17)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 231
<NET-ASSETS> 6168
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 211
<EXPENSES-NET> 3
<NET-INVESTMENT-INCOME> 208
<REALIZED-GAINS-CURRENT> 37
<APPREC-INCREASE-CURRENT> 69
<NET-CHANGE-FROM-OPS> 314
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (208)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 410
<NUMBER-OF-SHARES-REDEEMED> 228
<SHARES-REINVESTED> 10
<NET-CHANGE-IN-ASSETS> 2076
<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> 29
<AVERAGE-NET-ASSETS> 3570
<PER-SHARE-NAV-BEGIN> 10.18
<PER-SHARE-NII> .601
<PER-SHARE-GAIN-APPREC> .203
<PER-SHARE-DIVIDEND> (.604)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 58
<NAME> EV TRADITIONAL FLORIDA MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 4264
<INVESTMENTS-AT-VALUE> 4383
<RECEIVABLES> 20
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 4404
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16
<TOTAL-LIABILITIES> 16
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4279
<SHARES-COMMON-STOCK> 417
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (3)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 119
<NET-ASSETS> 4388
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 220
<EXPENSES-NET> 4
<NET-INVESTMENT-INCOME> 216
<REALIZED-GAINS-CURRENT> 30
<APPREC-INCREASE-CURRENT> 3
<NET-CHANGE-FROM-OPS> 249
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (216)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (1)
<NUMBER-OF-SHARES-SOLD> 173
<NUMBER-OF-SHARES-REDEEMED> 102
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 841
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26
<AVERAGE-NET-ASSETS> 3886
<PER-SHARE-NAV-BEGIN> 10.45
<PER-SHARE-NII> .587
<PER-SHARE-GAIN-APPREC> .082
<PER-SHARE-DIVIDEND> (.587)
<PER-SHARE-DISTRIBUTIONS> (.002)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> .59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 35
<NAME> EV TRADITIONAL MASSACHUSETTS MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 5954
<INVESTMENTS-AT-VALUE> 6033
<RECEIVABLES> 22
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6059
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15
<TOTAL-LIABILITIES> 15
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6289
<SHARES-COMMON-STOCK> 650
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (7)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (316)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 78
<NET-ASSETS> 6044
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 199
<EXPENSES-NET> 15
<NET-INVESTMENT-INCOME> 184
<REALIZED-GAINS-CURRENT> 3
<APPREC-INCREASE-CURRENT> 31
<NET-CHANGE-FROM-OPS> 218
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (184)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (7)
<NUMBER-OF-SHARES-SOLD> 503
<NUMBER-OF-SHARES-REDEEMED> 165
<SHARES-REINVESTED> 14
<NET-CHANGE-IN-ASSETS> 3281
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38
<AVERAGE-NET-ASSETS> 3451
<PER-SHARE-NAV-BEGIN> 9.26
<PER-SHARE-NII> .490
<PER-SHARE-GAIN-APPREC> .062
<PER-SHARE-DIVIDEND> (.494)
<PER-SHARE-DISTRIBUTIONS> (.018)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.30
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 55
<NAME> EV TRADITIONAL MISSISSIPPI MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 1092
<INVESTMENTS-AT-VALUE> 1193
<RECEIVABLES> 15
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1213
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6
<TOTAL-LIABILITIES> 6
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1363
<SHARES-COMMON-STOCK> 128
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (262)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 101
<NET-ASSETS> 1207
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 93
<EXPENSES-NET> 14
<NET-INVESTMENT-INCOME> 79
<REALIZED-GAINS-CURRENT> 24
<APPREC-INCREASE-CURRENT> 27
<NET-CHANGE-FROM-OPS> 130
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (81)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7
<NUMBER-OF-SHARES-REDEEMED> 136
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> (1122)
<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> 29
<AVERAGE-NET-ASSETS> 1633
<PER-SHARE-NAV-BEGIN> 9.30
<PER-SHARE-NII> .456
<PER-SHARE-GAIN-APPREC> .140
<PER-SHARE-DIVIDEND> (.476)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.42
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 60
<NAME> EV TRADITIONAL NEW YORK MUNICIPALS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 6812
<INVESTMENTS-AT-VALUE> 6966
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<NAME> EV TRADITIONAL OHIO MUNICIPALS FUND
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<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <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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