<PAGE>
[LOGO OF EATON Investing
VANCE APPEARS HERE]
for the
EDUCATION
21st [PHOTOGRAPH OF BUILDING
APPEARS HERE]
Century
Annual Report September 30, 1997
MASSACHUSETTS
[PHOTOGRAPH MUNICIPAL
OF ROAD BOND
APPEARS HERE] PORTFOLIO
Eaton Vance
Global Management-Global Distribution
[PICTURE OF BOSTON HARBOR APPEARS HERE]
<PAGE>
Massachusetts Municipal Bond Portfolio as of September 30, 1997
LETTER TO SHAREHOLDERS
[PHOTO OF THOMAS J. FETTER APPEARS HERE]
Thomas J. Fetter,
President
The municipal bond market continued to respond favorably in 1997 to an economic
climate of solid growth, yet with low inflation. Gross domestic product (GDP), a
widely-used measure of economic performance, grew 4.9% in the first quarter,
3.3% in the second, and 3.5% in the third. However, inflation remained in the
2-to-3% range due to higher productivity brought on by technology and an
increase in global competition. While the Federal Reserve elected to raise the
Fed Funds Rate -- the primary short-term interest rate benchmark -- 0.25% to
5.5% in March, it has since maintained a stable interest rate policy in response
to a benign inflation outlook. Not surprisingly, municipal bonds have turned in
solid returns, with the Lehman Brothers Municipal Bond Index* -- an unmanaged
index of municipal bonds -- rising 9.0% during the year ended September 30,
1997.
The municipal bond market has been characterized by heavy issuance and strong
investor demand.
According to Standard & Poor's, nearly $227 billion in municipal securities were
brought to market in 1996, a 14% increase from the prior year. Thus far in 1997,
municipal issuance has kept up that pace. Issuers have redeemed older bonds with
relatively high coupons and replaced them with new bonds bearing lower coupons.
This municipal refunding activity has been sparked in part by the strong market
rally of recent months that has seen yields for 30-year AAA-rated general
obligations decline to the 5.25% level at September 30. At that level, municipal
yields represent 82% of 30-year Treasury yields, making them an attractive
option for investors.
[BAR CHART APPEARS HERE]
Municipal Bond yield 82% of Treasury yields
5.25% 8.20%
30 - year AAA rated Taxable equivalent yield
General Obligation (GO) Bonds* in 36% tax bracket
6.40%
30 Year Treasury bond
Principal and interest payments of Treasury securities are guaranteed by the
U.S. government.
*GO yields are a compilation of a representative variety of general obligations
and are not necessarily representative of the Fund's yield. Statistics as of
September 30, 1997.
Past performance is no guarantee of future results.
Source: Bloomberg, L.P.
Amid Washington's newly found fiscal responsibility, the outlook for municipal
bonds appears bright.
We believe the long-term outlook for municipal bonds has improved in the past
year for several reasons. First, Congress and the Clinton Administration agreed
to balance the budget by 2002. This would sharply reduce the government's
borrowing needs, leading to lower interest rates and channeling investments into
more productive areas of the economy. Second, the marginal tax rates of many
taxpayers remain high. For them, municipal bonds may still be the best vehicle
for tax relief. And finally, a balanced investment portfolio features equities,
bonds, and cash. The stock market has shown higher-than-normal volatility this
year, capped by steep price declines in late October. Following three years of
stock market outperformance, we believe investors should consider reallocating a
portion of their portfolios to bonds to maintain a prudent asset allocation. For
these reasons, we believe that the municipal market will continue to attract
tax-conscious investors. Eaton Vance will continue its leadership role in
seeking high, tax-free income.
Sincerely,
/s/ Thomas J. Fetter
Thomas J. Fetter,
President
November 10, 1997
* It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
Mutual fund shares are not insured by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
- --------------------------------------------------------------------------------
2
<PAGE>
Massachusetts Municipal Bond Portfolio as of September 30, 1997
INVESTMENT UPDATE
[PHOTO OF ROBERT B. MACINTOSH APPEARS HERE]
Robert B. MacIntosh,
Portfolio Manager
The Economy
- --------------------------------------------------------------------------------
. Massachusetts' economy benefits from diverse sources of strength -- most
notably the high-technology and financial services industries -- which have
produced solid growth, high personal incomes, and low unemployment. The
unemployment rate for September, 1997, was 4.0%, well below the 4.9% national
rate.
. Massachusetts is one of the nation's leaders in several high-technology
businesses, which include software, biotechnology, and the Internet. In the
mutual funds industry, Boston is second only to New York, employing 45,000,
while in biotechnology, Massachusetts is also one of the nation's leading
employers.
. Despite the booming economy, however, Massachusetts has one of the highest
per capita debt levels in the nation. Major projects, such as a new
convention center and the Central Artery/Third Harbor Tunnel Project, could
create financial pressures in the years to come.
Management Discussion
- --------------------------------------------------------------------------------
. The past 12 months has been a good period for the bond market, with a general
decline in yields giving way to price increases. During this period, we have
had the right blend of coupons and call protection to take advantage of this
environment.
. We added some zero coupon bonds to the Portfolio, which are typically hard to
find. We have also replaced several older bonds having shorter call features
with newer, longer-call bonds. Both of these measures improved the
Portfolio's structure and added performance upside.
. Our staff of research analysts continued to do an outstanding job. In the
Massachusetts Portfolio, several credits had ratings upgrades. This not only
helped the Fund's performance, but also speaks well of our analysts' ability
to find value in the market.
The Fund
- --------------------------------------------------------------------------------
. The Massachusetts Municipal Bond Portfolio paid its shareholders monthly
income dividends totaling $0.532 per share during the year ended September
30, 1997./1/
. Based on the most recent dividend and the Portfolio's net asset value per
share of $9.89 on September 30, 1997, the Portfolio's distribution rate at
net asset value was 5.36%./2/
. To equal the Portfolio's distribution rate in a taxable investment, a couple
in the combined 43.68% federal and state tax bracket would have to receive a
yield of 9.52%.
Your Investment at Work
- --------------------------------------------------------------------------------
Massachusetts Health and Educational Facilities Authority Revenue Bonds --
North Adams Regional Hospital
[GRAPHIC OF MEDICAL SYMBOL APPEARS HERE]
. This bond issue refunded a previous issue, which had financed a major
renovation project at the North Adams Regional Hospital.
. The project included renovating 47,000 square feet in three floors of the
hospital's main building; converting the fourth floor from a medical/surgical
unit to an inpatient psychiatric unit; and constructing a two-story addition
to house outpatient facilities and office space.
. These high-yielding bonds not only give the Fund a solid income stream, but
are also backed by a sound medical institution fulfilling a vital community
need.
- --------------------------------------------------------------------------------
/1/A portion of the Fund's income may be subject to federal and state income
taxes and/or federal alternative minimum tax. /2/The Fund's distribution rate
represents actual distributions paid to shareholders and is calculated daily by
dividing the last distribution per share (annualized) by the net asset value.
/3/Five Largest Sectors are subject to change due to active management. *Source:
Towers Data Systems, Bethesda, MD. Investment operations commenced on 6/17/93.
Index information is available only at month-end; therefore, the line comparison
begins at the next month-end following the commencement of the Fund's investment
operations. The chart compares the Fund's total return with that of the Lehman
Brothers Municipal Bond Index, a broad-based, unmanaged market index. Returns
are calculated by determining the percentage change in net asset value with all
distributions reinvested. The lines on the chart represent total returns of
$10,000 hypothetical investments in the Fund and the Index. The Index's total
return does not reflect commissions or expenses that would have been incurred if
an investor individually purchased or sold the securities represented in the
Index. It is not possible to invest directly in an Index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- --------------------------------------------------------------------------------
[BAR CHART APPEARS HERE]
Five Largest Sectors/3/
as of September 30, 1997
<TABLE>
<S> <C>
Hospitals 16.4%
Transportation 12.0%
Water & Sewer 10.6%
Housing 10.4%
Insured-Hospitals 8.5%
</TABLE>
Comparison of Change in Value of a $10,000 Investment in the Fund vs. the Lehman
Brothers Municipal Bond Index.*
From June 30, 1993 through September 30, 1997
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Massachusetts Municipal Lehman Brothers
Date Fund Bond Portfolio Municipal Bond Index
---- ------------------- --------------------
<S> <C> <C>
6/30/93 $10,000 $10,000
7/31/93 $9,930 $10,013
8/31/93 $10,215 $10,221
9/30/93 $10,332 $10,338
10/31/93 $10,338 $10,358
11/30/93 $10,234 $10,266
12/31/93 $10,455 $10,483
1/31/94 $10,567 $10,603
2/28/94 $10,314 $10,328
3/31/94 $9,799 $9,908
4/30/94 $9,785 $9,992
5/31/94 $9,876 $10,078
6/30/94 $9,786 $10,020
7/31/94 $9,975 $10,200
8/31/94 $10,021 $10,236
9/30/94 $9,837 $10,086
10/31/94 $9,588 $9,907
11/30/94 $9,301 $9,727
12/31/94 $9,587 $9,941
1/31/95 $9,955 $10,266
2/28/95 $10,276 $10,523
3/31/95 $10,377 $10,644
4/30/95 $10,376 $10,656
5/31/95 $10,655 $10,996
6/30/95 $10,473 $10,900
7/31/95 $10,536 $11,003
8/31/95 $10,675 $11,143
9/30/95 $10,759 $11,214
10/31/95 $10,958 $11,377
11/30/95 $11,179 $11,566
12/31/95 $11,344 $11,677
1/31/96 $11,373 $11,765
2/28/96 $11,252 $11,685
3/31/96 $11,093 $11,536
4/30/96 $11,076 $11,503
5/31/96 $11,092 $11,499
6/30/96 $11,208 $11,624
7/31/96 $11,290 $11,729
8/31/96 $11,284 $11,727
9/30/96 $11,435 $11,891
10/31/96 $11,522 $12,025
11/30/96 $11,733 $12,245
12/31/96 $11,667 $12,194
1/31/97 $11,709 $12,217
2/28/97 $11,806 $12,329
3/31/97 $11,658 $12,164
4/30/97 $11,771 $12,266
5/31/97 $11,949 $12,451
6/30/97 $12,093 $12,584
7/31/97 $12,458 $12,932
8/31/97 $12,326 $12,811
9/30/97 $12,496 $12,963
</TABLE>
- --------------------------------------------------------------------------------
Federal income tax information on distributions: For federal income tax
purposes, 98.77% of the total dividends paid by the Fund from net investment
income during the year ended September 30, 1997 is designated as an exempt-
interest dividend.
- --------------------------------------------------------------------------------
3
<PAGE>
Massachusetts Municipal Bond Portfolio as of September 30, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of September 30, 1997
<S> <C>
Assets
- --------------------------------------------------------------------------------
Investment in Massachusetts Municipals Portfolio, at
value (Note 1A) (identified cost, $7,805,761) $ 8,181,579
Receivable from Administrator (Note 4) 21,530
- --------------------------------------------------------------------------------
Total assets $ 8,203,109
- --------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------
Distributions payable $ 17,431
Payable to affiliate for Trustees' fees (Note 4) 42
Accrued expenses 15,556
- --------------------------------------------------------------------------------
Total liabilities $ 33,029
- --------------------------------------------------------------------------------
Net Assets for 825,783 shares of beneficial
interest outstanding $ 8,170,080
- --------------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------------
Paid-in capital $ 8,631,297
Accumulated net realized loss on investments from
Portfolio (computed on basis of identified cost) (828,180)
Accumulated distributions in excess of net investment
loss (8,855)
Net unrealized appreciation of investments from
Portfolio (computed on the basis of identified
cost) 375,818
- --------------------------------------------------------------------------------
Total $ 8,170,080
- --------------------------------------------------------------------------------
Net Asset Value, Offering and Redemption
Price Per Share
- --------------------------------------------------------------------------------
($8,170,080 / 825,783 shares of
beneficial interest outstanding) $ 9.89
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended
September 30, 1997
<S> <C>
Investment Income (Note 1B)
- --------------------------------------------------------------------------------
Interest income allocated from Portfolio $ 444,213
Expenses allocated from Portfolio (36,651)
- --------------------------------------------------------------------------------
Net investment income from Portfolio $ 407,562
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Compensation of Trustees not members of the
Administrator's organization (Note 4) $ 165
Legal and accounting services 13,360
Printing and postage 10,681
Custodian fee 9,399
Transfer and dividend disbursing agent fees 4,100
Registration fees 1,100
Amortization of organization expenses (Note 1D) 981
Miscellaneous 900
- --------------------------------------------------------------------------------
Total expenses $ 40,686
- --------------------------------------------------------------------------------
Deduct --
Allocation of expenses to the Administrator (Note 4) $ 21,530
- --------------------------------------------------------------------------------
Total expense reductions $ 21,530
- --------------------------------------------------------------------------------
Net expenses $ 19,156
- --------------------------------------------------------------------------------
Net investment income $ 388,406
- --------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) from Portfolio
- --------------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 102,037
Financial futures contracts (76,993)
- --------------------------------------------------------------------------------
Net realized gain on investments $ 25,044
- --------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investment transactions $ 230,094
Financial futures contracts 579
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 230,673
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 255,717
- --------------------------------------------------------------------------------
Net increase in net assets from operations $ 644,123
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
4
<PAGE>
Massachusetts Municipal Bond Portfolio as of September 30, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets September 30, 1997 September 30, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 388,406 $ 387,696
Net realized gain on investments 25,044 32,236
Net change in unrealized appreciation
of investments 230,673 28,150
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 644,123 $ 448,082
- --------------------------------------------------------------------------------
Distributions to shareholders (Note 2) --
From net investment income $ (388,406) $ (387,696)
In excess of net investment income (1,308) (506)
- --------------------------------------------------------------------------------
Total distributions to shareholders $ (389,714) $ (388,202)
- --------------------------------------------------------------------------------
Transactions in shares of beneficial
interest (Note 3) --
Proceeds from sale of shares $ 1,879,285 $ 629,549
Net asset value of shares issued to
shareholders in payment of
distributions declared 121,815 101,348
Cost of shares redeemed (1,025,653) (1,036,510)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from Fund share transactions $ 975,447 $ (305,613)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets $ 1,229,856 $ (245,733)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of period $ 6,940,224 $ 7,185,957
- --------------------------------------------------------------------------------
At end of period $ 8,170,080 $ 6,940,224
- --------------------------------------------------------------------------------
Accumulated
distributions in excess of
net investment income
included in net assets
- --------------------------------------------------------------------------------
At end of period $ (8,855) $ (7,547)
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
5
<PAGE>
Massachusetts Municipal Bond Portfolio as of September 30, 1997
FINANCIAL STATEMENTS CONT'D
Financial Highlights
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value--Beginning of period $ 9.560 $ 9.510 $ 9.220 $10.260 $ 10.000
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.530 $ 0.534 $ 0.546 $ 0.548 $ 0.141
Net realized and unrealized gain (loss) on investments 0.332 0.051 0.290 (1.026) 0.284
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 0.862 $ 0.585 $ 0.836 $(0.478) $ 0.425
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.530) $(0.534) $(0.546) $(0.548) $ (0.141)
In excess of net investment income (0.002) (0.001) -- (0.004) (0.024)
In excess of net realized gain on investments -- -- -- (0.010) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions $(0.532) $(0.535) $(0.546) $(0.562) $ (0.165)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value--End of period $ 9.890 $ 9.560 $ 9.510 $ 9.220 $ 10.260
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 9.28% 6.28% 9.37% (4.79)% 4.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data++
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 8,170 $ 6,940 $ 7,186 $ 9,338 $ 5,063
Ratio of net expenses to average net assets/(2)(3)/ 0.80% 0.76% 0.63% 0.60% 1.21%+
Ratio of net expenses to average net assets after custodian
fee reduction/(2)/ 0.79% 0.75% 0.60% -- --
Ratio of net investment income to average net assets 5.49% 5.56% 5.93% 5.65% 4.80%+
</TABLE>
++ The operating expenses of the Fund may reflect an allocation of expenses to
the Administrator. Had such action not been taken, the ratios and net
investment income per share would have been as follows:
<TABLE>
<CAPTION>
Ratios (As a percentage of average daily net assets):
<S> <C> <C> <C> <C> <C>
Expenses/(2)(3)/ 1.10% 0.95% 0.88% 1.12% --
Expenses after custodian fee reduction/(2)/ 1.09% 0.94% 0.85% -- --
Net investment income 5.19% 5.37% 5.68% 5.13% --
Net investment income per share $ 0.503 $ 0.516 $ 0.523 $ 0.498 --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, June 17, 1993, to September 30,
1993.
/(1)/ Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the payable date. Total return is not
computed on an annualized basis.
/(2)/ Includes the Fund's share of the Portfolio's allocated expenses.
/(3)/ The expense ratios for the years ended September 30, 1995 and periods
thereafter have been adjusted to reflect a change in reporting
requirements. The new reporting guidelines require the Fund, as well as
its Portfolio, to increase its expense ratios by the effect of any expense
offset arrangements with its service providers. The expense ratios for the
prior periods have not been adjusted to reflect this change.
See notes to financial statements
6
<PAGE>
Massachusetts Municipal Bond Portfolio as of September 30, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
----------------------------------------------------------------------------
Massachusetts Municipal Bond Portfolio (the Fund) is a non-diversified
series of Eaton Vance Municipals Trust (the Trust). The Trust is an entity
of the type commonly known as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an
open-end, management investment company. The Fund invests all of its
investable assets in interests in Massachusetts Municipals Portfolio (the
Portfolio), a New York Trust, having the same investment objective as the
Fund. The value of the Fund's investment in the Portfolio reflects the
Fund's proportionate interest in the net assets of the Portfolio (3.2% at
September 30, 1997). The performance of the Fund is directly affected by the
performance of the Portfolio. The financial statements of the Portfolio,
including the portfolio of investments, are included elsewhere in this
report and should be read in conjunction with the Fund's financial
statements. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
A Investment Valuations -- Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report.
B Income -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally
accepted accounting principles.
C Federal Taxes -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable and tax-exempt
income, including any net realized gain on investments. Accordingly, no
provision for Federal income or excise tax is necessary. At September 30,
1997, the Fund, for Federal income tax purposes, had a capital loss
carryover of $757,444 which will reduce taxable income arising from future
net realized gain on investments, if any, to the extent permitted by the
Internal Revenue Code and thus will reduce the amount of distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income or excise tax. Such capital loss carryover will
expire on September 30, 2004 ($494,027) and September 30, 2003 ($263,417).
Dividends paid by the Fund from net interest on tax-exempt municipal bonds
allocated from the Portfolio are not includable by shareholders as gross
income for Federal income tax purposes because the Fund and the Portfolio
intend to meet certain requirements of the Internal Revenue Code applicable
to regulated investment companies which will enable the Fund to pay exempt-
interest dividends. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986 may be considered a tax
preference item to shareholders.
D Deferred Organization Expenses -- Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on
the straight-line basis over five years.
E Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could
differ from those estimates.
F Other -- Investment transactions are accounted for on a trade date basis.
G Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian to the Fund and the Portfolio. Pursuant to the respective
custodian agreements, IBT receives a fee reduced by credits which are
determined based on the average daily cash balances each Portfolio maintains
with IBT. All significant credit balances used to reduce the Portfolio's
custodian fees are reflected as a reduction of operating expenses on the
Statement of Operations.
2 Distributions to Shareholders
----------------------------------------------------------------------------
The net income of the Fund is determined daily and substantially all of the
net income so determined is declared as a dividend to shareholders of record
at the time of declaration. Distributions are paid monthly. Distributions of
allocated realized capital gains, if any, are made at least annually.
Shareholders may reinvest capital gain distributions in additional shares of
a Fund at the net asset value as of the ex-dividend date. Distributions are
7
<PAGE>
Massachusetts Municipal Bond Portfolio as of September 30, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
paid in the form of additional shares of the Fund or, at the election of the
shareholder, in cash. The Fund distinguishes between distributions on a tax
basis and a financial reporting basis. Generally accepted accounting
principles require that only distributions in excess of tax basis earnings
and profits be reported in the financial statements as a return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains. Permanent differences between book and tax accounting relating to
distributions are reclassified to paid-in capital. The tax treatment of
distributions for the calendar year will be reported to shareholders prior
to February 1, 1998 and will be based on tax accounting methods which may
differ from amounts determined for financial statement purposes.
3 Shares of Beneficial Interest
----------------------------------------------------------------------------
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1997 1996
----------------------------------------------------------------------
<S> <C> <C>
Sales 193,278 65,889
Issued to shareholders electing to
receive payments of distributions in
Fund shares 12,606 10,560
Redemptions (105,834) (106,480)
----------------------------------------------------------------------
Net increase (decrease) 100,050 (30,031)
----------------------------------------------------------------------
</TABLE>
4 Transactions with Affiliates
----------------------------------------------------------------------------
Eaton Vance Management (EVM) serves as the Administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM to render investment advisory services.
See Note 2 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report. To enhance the net income of the Fund for
the year ended September 30, 1997, $21,530 of expenses related to the
operation of the Fund were allocated to EVM. Except as to Trustees of the
Fund and the Portfolio who are not members of EVM's or BMR's organization,
officers and Trustees receive remuneration for their services to the Fund
out of the investment adviser fee earned by BMR.
Certain officers and Trustees of the Fund and the Portfolio are
directors/trustees of the above organizations.
5 Investment Transactions
----------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 1997 aggregated $1,893,006 and $1,318,410,
respectively.
8
<PAGE>
Massachusetts Municipal Bond Portfolio as of September 30, 1997
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders
of Eaton Vance Municipals Trust
- --------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of
Massachusetts Municipals Bond Portfolio (one of the series constituting Eaton
Vance Municipals Trust) as of September 30, 1997, and the related statement of
operations for year then ended, the statements of changes in net assets for the
years ended September 30, 1997 and 1996 and the financial highlights for each of
the years in the five year period ended September 30, 1997. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Massachusetts
Municipal Bond Portfolio at September 30, 1997, and the results of its
operations, the changes in net assets and financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 7, 1997
9
<PAGE>
Massachusetts Municipals Portfolio as of September 30, 1997
PORTFOLIO OF INVESTMENTS
Tax-Exempt Investments -- 100.0%
<TABLE>
<CAPTION>
Ratings (Unaudited)
- ----------------------- Principal
Amount
Standard (000
Moody's & Poor's omitted) Security Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assisted Living -- 0.7%
- ---------------------------------------------------------------------------------------
NR AAA $ 1,500 Massachusetts IFA (Briscoe
House) (FHA), 7.125%, 2/1/36 $ 1,709,655
- ---------------------------------------------------------------------------------------
$ 1,709,655
- ---------------------------------------------------------------------------------------
Education -- 3.6%
- ---------------------------------------------------------------------------------------
Aa1 AA+ $ 1,625 Massachusetts Health and
Educational Facilities
Authority (HEFA) (Amherst
College), 6.80%, 11/1/21 $ 1,770,974
NR AAA 3,400 Massachusetts HEFA (Merrimack
College), 7.125%, 7/1/12 3,853,934
A1 A+ 250 Massachusetts HEFA (Tufts
University), 7.75%, 8/1/13 262,558
Baa3 BBB- 1,250 Massachusetts IFA, (Dana
Hall), 5.90%, 7/1/27 1,274,513
A1 NR 2,000 New England Educational Loan
Marketing Corp., (AMT),
6.90%, 11/1/09 2,216,680
- ---------------------------------------------------------------------------------------
$ 9,378,659
- ---------------------------------------------------------------------------------------
Electric Utilities -- 6.2%
- ---------------------------------------------------------------------------------------
NR BBB $ 1,545 Guam Power Authority,
5.25%, 10/1/23 $ 1,475,475
Baa2 BBB+ 5,060 Massachusetts Municipal
Wholesale Electric Co.,
6.625%, 7/1/18 5,412,429
Baa2 BBB+ 3,500 Massachusetts Municipal
Wholesale Electric Co., 6.75%,
7/1/11 3,769,570
Baa1 BBB+ 3,000 Puerto Rico Electric Power
Authority, 0%, 7/1/17 1,061,370
Baa1 BBB+ 13,055 Puerto Rico Electric Power
Authority, 0%, 7/1/17 4,618,728
- ---------------------------------------------------------------------------------------
$ 16,337,572
- ---------------------------------------------------------------------------------------
Escrowed / Prerefunded -- 2.0%
- ---------------------------------------------------------------------------------------
NR AAA $ 11,825 Massachusetts General
Obligations Federal Assisted
Housing, Section 8, 0%, 2/1/23 $ 2,432,284
NR NR 2,400 Massachusetts HEFA (Fairview
Care Facilities), 10.25%,
1/1/21 2,894,424
- ---------------------------------------------------------------------------------------
$ 5,326,708
- ---------------------------------------------------------------------------------------
General Obligations -- 4.5%
- ---------------------------------------------------------------------------------------
A1 A+ $ 3,400 Commonwealth of Massachusetts,
5.00%, 1/1/12 $ 3,352,060
NR BBB 200 Government of Guam,
5.375%, 11/15/13 197,126
NR BBB 2,145 Government of Guam,
5.40%, 11/15/18 2,105,124
A1 A+ 3,015 Massachusetts Bay Transit
Authority, (MBTA),
5.50%, 3/1/21 3,020,427
A1 A+ 1,000 Massachusetts Bay Transit
Authority, (MBTA),
5.90%, 3/1/12 1,052,060
Aaa NR 1,700 Town of Nantucket,
6.80%, 12/1/11 1,896,945
A1 A+ 250 University of Massachusetts
Building Authority,
7.20%, 5/1/04 285,083
- ---------------------------------------------------------------------------------------
$ 11,908,825
- ---------------------------------------------------------------------------------------
Hospitals -- 16.4%
- ---------------------------------------------------------------------------------------
A1 A $ 3,000 Massachusetts HEFA (Charlton
Memorial Hospital),
7.25%, 7/1/13 $ 3,285,480
Aa2 AA+ 2,000 Massachusetts HEFA (Daughters
of Charity Health System),
6.10%, 7/1/14 2,119,320
NR A- 1,020 Massachusetts HEFA (Jordan
Hospital), 6.875%, 10/1/15 1,107,842
NR A- 2,870 Massachusetts HEFA (Jordan
Hospital), 6.875%, 10/1/22 3,110,563
Baa3 BB+ 5,500 Massachusetts HEFA (Milford-
Whitinsville Hospital),
7.75%, 7/15/17 6,014,635
Baa1 BBB+ 2,000 Massachusetts HEFA (New
England Baptist Hospital),
7.35%, 7/1/17 2,162,340
NR BBB- 2,600 Massachusetts HEFA (North
Adams Regional Hospital),
6.625%, 7/1/18 2,733,406
Baa2 BBB 5,255 Massachusetts HEFA (Sisters of
Providence Health System),
6.50%, 11/15/08 5,538,770
Baa2 BBB 2,085 Massachusetts HEFA (Sisters of
Providence Health System),
6.625%, 11/15/22 2,203,470
A1 AA- 530 Massachusetts HEFA (Spaulding
Rehabilitation Hospital),
7.625%, 7/1/21 552,965
</TABLE>
See notes to financial statements
10
<PAGE>
Massachusetts Municipals Portfolio as of September 30, 1997
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited)
- --------------------- Principal
Amount
Standard (000
Moody's & Poor's omitted) Security Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hospitals (continued)
- ----------------------------------------------------------------------------------------
NR AA $ 1,475 Massachusetts HEFA, (FHA),
(Deutsches Altenheim),
7.70%, 11/1/31 $ 1,594,696
NR NR 8,000 Massachusetts IFA,
0%, 8/1/08 4,574,640
NR NR 9,000 Massachusetts IFA (Biomedical
Research Corp.), 0%, 8/1/09 4,831,650
NR NR 6,000 Massachusetts IFA (Biomedical
Research Corp.), 0%, 8/1/10 3,018,240
- ----------------------------------------------------------------------------------------
$ 42,848,017
- ----------------------------------------------------------------------------------------
Housing -- 10.4%
- ----------------------------------------------------------------------------------------
NR AAA $ 2,750 Framingham Housing Authority,
(GNMA), 6.65%, 2/20/32 $ 2,880,323
A1 A+ 5,000 Massachusetts HFA,
6.375%, 4/1/21 5,244,100
Aa A+ 7,160 Massachusetts HFA, (AMT),
6.60%, 12/1/26 7,562,177
Aa A+ 6,365 Massachusetts HFA, (AMT),
6.60%, 12/1/26 6,722,522
Aa A+ 2,195 Massachusetts HFA, (AMT),
8.10%, 6/1/20 2,258,304
Aa A+ 1,500 Massachusetts HFA, (AMT),
8.10%, 12/1/21 1,548,750
Aaa AAA 1,000 Massachusetts HFA, (FNMA),
6.875%, 11/15/11 1,084,630
- ----------------------------------------------------------------------------------------
$ 27,300,806
- ----------------------------------------------------------------------------------------
Industrial Development Revenue / Pollution
Control Revenue -- 3.6%
- ----------------------------------------------------------------------------------------
NR NR $ 2,075 Massachusetts IFA (Hingham
Water Co.), (AMT),
6.60%, 12/1/15 $ 2,227,865
NR NR 3,000 Massachusetts IFA (Hingham
Water Co.), (AMT),
6.90%, 12/1/29 3,261,060
Baa3 BBB- 3,750 Puerto Rico Port Authority
(American Airlines), (AMT),
6.25%, 6/1/26 4,013,475
- ----------------------------------------------------------------------------------------
$ 9,502,400
- ----------------------------------------------------------------------------------------
Insured-Colleges and Universities -- 0.4%
- ----------------------------------------------------------------------------------------
Aaa AAA $ 1,000 Massachusetts HEFA, (Berklee
College of Music), (MBIA),
5.10%, 10/1/27 $ 958,540
- ----------------------------------------------------------------------------------------
$ 958,540
- ----------------------------------------------------------------------------------------
Insured-Education -- 1.2%
- ----------------------------------------------------------------------------------------
Aaa AAA $ 1,950 Massachusetts Educational
Finance Authority, (AMBAC),
(AMT), 7.30%, 1/1/12 $ 2,109,647
Aaa AAA 290 Massachusetts Educational
Finance Authority, (MBIA),
(AMT), 7.25%, 1/1/09 312,095
Aaa AAA 400 Massachusetts HEFA (Boston
University) "RIBS", (MBIA),
Variable Rate, 10/1/31/(1)/ 468,500
Aaa AAA 250 Massachusetts HEFA
(Northeastern University),
(AMBAC), 7.50%, 10/1/08 263,398
- ----------------------------------------------------------------------------------------
$ 3,153,640
- ----------------------------------------------------------------------------------------
Insured-Electric Utilities -- 0.7%
- ----------------------------------------------------------------------------------------
Aaa AAA $ 2,000 Massachusetts Municipal
Wholesale Electric Co., (MBIA),
4.75%, 7/1/10 $ 1,940,280
- ----------------------------------------------------------------------------------------
$ 1,940,280
- ----------------------------------------------------------------------------------------
Insured-General Obligations -- 1.4%
- ----------------------------------------------------------------------------------------
Aaa AAA $ 1,795 City of Boston, (FSA),
4.875%, 9/1/09 $ 1,796,687
NR AAA 1,000 Commonwealth of Puerto Rico
"RIBS" (AMBAC), Variable
Rate, 7/1/15/(1)/ 1,090,000
Aaa AAA 600 Town of Tyngsborough, (AMBAC),
6.90%, 5/15/08 669,714
- ----------------------------------------------------------------------------------------
$ 3,556,401
- ----------------------------------------------------------------------------------------
Insured-Hospitals -- 8.5%
- ----------------------------------------------------------------------------------------
Aaa AAA $ 300 Massachusetts HEFA (Berkshire
Health Systems), (MBIA),
7.60%, 10/1/14 $ 316,827
</TABLE>
See notes to financial statements
11
<PAGE>
Massachusetts Municipals Portfolio as of September 30, 1997
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited)
- --------------------- Principal
Amount
Standard (000
Moody's & Poor's omitted) Security Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured-Hospitals (continued)
- -------------------------------------------------------------------------------------------
Aaa AAA $ 3,750 Massachusetts HEFA (Beth Israel
Hospital), (AMBAC), (AMT),
Variable Rate, 7/1/25/(1)/ $ 4,082,813
Aaa AAA 1,040 Massachusetts HEFA (Beverly
Hospital), (MBIA),
7.30%, 7/1/13 1,111,708
Aaa AAA 1,500 Massachusetts HEFA (Capital Assist
Program), (MBIA),
7.20%, 7/1/09 1,602,240
Aaa AAA 1,885 Massachusetts HEFA (Fallon
Healthcare System), (FSA),
6.75%, 6/1/20/(2)/ 2,078,778
Aaa AAA 2,000 Massachusetts HEFA (St. Elizabeth
Hospital Issue) "LEVRRS", (FSA),
Variable Rate, 8/12/21/(1)/ 2,340,000
Aaa AAA 2,600 Massachusetts HEFA (St. Luke's
Hospital) "Yield Curve Notes",
(MBIA), Variable
Rate, 8/15/13/(1)/ 2,756,000
Aaa AAA 2,600 Massachusetts HEFA (St. Luke's
Hospital) "Yield Curve Notes",
Variable Rate,
(MBIA), 8/15/23/(1)/ 2,700,750
Aaa AAA 3,000 Massachusetts HEFA (The Medical
Center of Central Massachusetts)
(AMBAC), "CARS", Variable
Rate, 6/23/22/(1)/ 3,618,750
Aaa AAA 700 Massachusetts HEFA (University
Hospital), (MBIA),
7.25%, 7/1/19 763,546
Aaa AAA 1,000 Massachusetts HEFA, (Lowell
General Hospital), Series B, (FSA),
5.25%, 6/1/16 983,570
- -------------------------------------------------------------------------------------------
$ 22,354,982
- -------------------------------------------------------------------------------------------
Insured-Housing -- 0.6%
- -------------------------------------------------------------------------------------------
Aaa AAA $ 1,500 Massachusetts HFA, (AMBAC),
6.45%, 1/1/36 $ 1,586,565
- -------------------------------------------------------------------------------------------
$ 1,586,565
- -------------------------------------------------------------------------------------------
Insured-Life Care -- 0.9%
- -------------------------------------------------------------------------------------------
Aaa AAA $ 2,465 Massachusetts HEFA, (Partners
Healthcare), (MBIA),
5.375%, 7/1/17 $ 2,448,485
- -------------------------------------------------------------------------------------------
$ 2,448,485
- -------------------------------------------------------------------------------------------
Insured-Transportation -- 5.5%
- -------------------------------------------------------------------------------------------
Aaa AAA $ 5,860 Massachusetts Port Authority,
(AMT), (FGIC), 7.50%, 7/1/20 $ 6,397,538
Aaa NR 26,970 Massachusetts Turnpike Authority,
(MBIA), 0%, 1/1/28 5,162,867
Aaa NR 2,970 Massachusetts Turnpike Authority,
(MBIA), 5.00%, 1/1/37 2,749,775
- -------------------------------------------------------------------------------------------
$ 14,310,180
- -------------------------------------------------------------------------------------------
Insured-Water and Sewer -- 0.9%
- -------------------------------------------------------------------------------------------
Aaa AAA $ 2,500 Massachusetts Water Resources
Authority, (MBIA),
4.75%, 12/1/21 $ 2,266,275
- -------------------------------------------------------------------------------------------
$ 2,266,275
- -------------------------------------------------------------------------------------------
Lease Revenue / Certificates of Participation -- 3.8%
- -------------------------------------------------------------------------------------------
NR A- $ 7,800 Plymouth County, MA (Plymouth
County Correctional Facility),
7.00%, 4/1/22 $ 8,733,738
NR BBB 1,200 Puerto Rico Industrial, Tourist,
Educational, Medical and
Environmental Control Authority
(Guaynabo Municipal Government
Center Lease), 5.625%, 7/1/22 1,201,320
- -------------------------------------------------------------------------------------------
$ 9,935,058
- -------------------------------------------------------------------------------------------
Life Care -- 0.8%
- -------------------------------------------------------------------------------------------
NR AAA $ 2,000 Boston, MA, Industrial
Development Financing Authority,
6.00%, 2/1/37 $ 2,056,140
- -------------------------------------------------------------------------------------------
$ 2,056,140
- -------------------------------------------------------------------------------------------
Nursing Homes -- 1.3%
- -------------------------------------------------------------------------------------------
NR NR $ 3,225 Massachusetts IFA (Age Institute
of Massachusetts),
8.05%, 11/1/25 $ 3,405,439
- -------------------------------------------------------------------------------------------
$ 3,405,439
- -------------------------------------------------------------------------------------------
Solid Waste -- 0.5%
- -------------------------------------------------------------------------------------------
NR NR $ 1,145 City of Pittsfield, Vicon Recovery
Associates, 7.95%, 11/1/04 $ 1,193,285
- -------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
12
<PAGE>
Massachusetts Municipals Portfolio as of September 30, 1997
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited)
- --------------------- Principal
Amount
Standard (000
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Solid Waste (continued)
- --------------------------------------------------------------------------------------
$ 1,193,285
- --------------------------------------------------------------------------------------
Special Tax Revenue -- 3.5%
- --------------------------------------------------------------------------------------
Baa1 A $ 3,300 Commonwealth of Puerto Rico
Highway and Transportation
Authority, 5.00%, 7/1/36 $ 3,081,243
Aa3 AA 3,500 State of Massachusetts,
5.00%, 6/1/17 3,372,425
NR NR 2,350 Virgin Islands Public Finance
Authority, 7.25%, 10/1/18 2,624,856
- --------------------------------------------------------------------------------------
$ 9,078,524
- --------------------------------------------------------------------------------------
Transportation -- 12.0%
- --------------------------------------------------------------------------------------
NR BBB $ 5,950 Guam Airport Authority, (AMT),
6.70%, 10/1/23 $ 6,450,871
Aa3 AA- 3,000 Massachusetts Port Authority,
(AMT), 5.375%, 7/1/27 2,915,190
A1 NR 22,535 Massachusetts Turnpike
Authority, 5.00%, 1/1/20 22,059,285
- --------------------------------------------------------------------------------------
$ 31,425,346
- --------------------------------------------------------------------------------------
Water and Sewer -- 10.6%
- --------------------------------------------------------------------------------------
Baa1 BBB $12,185 City of Boston (Harbor Electric
Energy Co.), (AMT),
7.375%, 5/15/15 $ 13,281,283
A2 A 7,175 Massachusetts Water Resources
Authority, 5.00%, 3/1/22 6,704,894
A2 A 1,500 Massachusetts Water Resources
Authority, 5.25%, 3/1/13 1,495,230
A2 A 4,165 Massachusetts Water Resources
Authority, 5.25%, 12/1/15 4,174,371
NR NR 2,000 Virgin Islands Water and Power
Authority, 7.60%, 1/1/12 2,238,140
- --------------------------------------------------------------------------------------
$ 27,893,918
- --------------------------------------------------------------------------------------
Total Tax-Exempt Investments -- 100.0%
(identified cost $238,584,146) $261,875,700
- --------------------------------------------------------------------------------------
</TABLE>
AMT - Interest earned from these securities may be considered a tax preference
item for purposes of the Federal Alternative Minimum Tax.
The portfolio invests primarily in debt securities issued by Massachusetts
municipalities. The ability of the issuers of the debt securities to meet their
obligations may be affected by the economic developments in a specific industry
or municipality. In order to reduce the risk associated with such economic
developments, at September 30, 1997, 20.1% of the securities in the portfolio of
investments are backed by bond insurance of various financial institutions and
financial guaranty assurance agencies. The aggregate percentage insured by
financial institutions ranged from 2.4% to 9.8% of total investments.
/(1)/ Security has been issued as an inverse floater bond.
/(2)/ Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
See notes to financial statements
13
<PAGE>
Massachusetts Municipals Portfolio as of September 30, 1997
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of September 30, 1997
Assets
- ------------------------------------------------------------------------------
<S> <C>
Investments, at value (Note 1A)
(identified cost basis $238,584,146) $261,875,700
Cash 1,204,933
Interest receivable 4,168,799
Receivable for daily variation margin
on open financial futures contracts (Note 1E) 26,125
Deferred organization expenses (Note 1D) 2,001
- ------------------------------------------------------------------------------
Total assets $267,277,558
- ------------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------------
Payable for investments purchased $ 13,594,370
Payable to affiliate for Trustees' fees (Note 2) 3,867
Accrued expenses 4,560
- ------------------------------------------------------------------------------
Total liabilities $ 13,602,797
- ------------------------------------------------------------------------------
Net Assets applicable to investors' interest in Portfolio $253,674,761
- ------------------------------------------------------------------------------
Sources of Net Assets
- ------------------------------------------------------------------------------
Net proceeds from capital contributions and withdrawals $230,616,384
Net unrealized appreciation of investments and financial
futures contracts (computed on basis of identified cost) 23,058,377
- ------------------------------------------------------------------------------
Total $253,674,761
- ------------------------------------------------------------------------------
<CAPTION>
Statement of Operations
For the Year Ended September 30, 1997
Investment Income (Note 1B)
- ------------------------------------------------------------------------------
<S> <C>
Interest income $ 16,713,453
- ------------------------------------------------------------------------------
Total income $ 16,713,453
- ------------------------------------------------------------------------------
Expenses
- ------------------------------------------------------------------------------
Investment adviser fee (Note 2) $ 1,203,548
Compensation of Trustees not members of the Investment
Adviser's organization (Note 2) 15,444
Custodian fee (Note 1J) 135,200
Legal and accounting services 30,911
Amortization of organization expenses (Note 1D) 5,208
Miscellaneous 42,327
- ------------------------------------------------------------------------------
Total expenses $ 1,432,638
- ------------------------------------------------------------------------------
Less Allocations--
Reduction of custodian fee (Note 1J) $ 38,619
- ------------------------------------------------------------------------------
Total expense reductions $ 38,619
- ------------------------------------------------------------------------------
Net expenses $ 1,394,019
- ------------------------------------------------------------------------------
Net investment income $ 15,319,434
- ------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
- ------------------------------------------------------------------------------
Net realized gain (loss)--
Investment transactions (identified cost basis) $ 5,018,545
Financial futures contracts (2,898,402)
- ------------------------------------------------------------------------------
Net realized gain on investments $ 2,120,143
- ------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)--
Investments (identified cost basis) $ 6,730,261
Financial futures contracts 75,551
- ------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
of investments $ 6,805,812
- ------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 8,925,955
- ------------------------------------------------------------------------------
Net increase in net assets from operations $ 24,245,389
- ------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
14
<PAGE>
Massachusetts Municipals Portfolio as of September 30, 1997
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets September 30, 1997 September 30, 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 15,319,434 $ 16,966,016
Net realized gain on investments 2,120,143 3,096,278
Net change in unrealized appreciation
(depreciation) of investments 6,805,812 (1,167,330)
- -----------------------------------------------------------------------------------
Net increase in net assets from operations $ 24,245,389 $ 18,894,964
- -----------------------------------------------------------------------------------
Capital transactions --
Contributions $ 12,526,247 $ 16,336,133
Withdrawals (64,226,111) (56,272,108)
- -----------------------------------------------------------------------------------
Net decrease in net assets resulting from
capital transactions $(51,699,864) $(39,935,975)
- -----------------------------------------------------------------------------------
Total decrease in net assets $(27,454,475) $(21,041,011)
- -----------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------
At beginning of period $281,129,236 $302,170,247
- -----------------------------------------------------------------------------------
At end of period $253,674,761 $281,129,236
- -----------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
15
<PAGE>
Massachusetts Municipals Portfolio as of September 30, 1997
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------
1997 1996 1995 1994 1993*
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average daily net assets
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Expenses/(1)/ 0.54% 0.55% 0.56% 0.51% 0.49%+
Net expenses, after custodian fee reduction 0.52% 0.54% 0.53% -- --
Net investment income 5.75% 5.77% 6.00% 5.74% 5.72%+
Portfolio Turnover 35% 51% 87% 53% 38%
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $253,675 $281,129 $302,170 $308,540 $290,613
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
* For the period from the start of business, February 1, 1993 to September
30, 1993.
/(1)/ The expense ratios for the year ended September 30, 1995 and periods
thereafter have been adjusted to reflect a change in reporting
requirements. The new reporting guidelines require the Portfolio to
increase its expense ratio by the effect of any expense offset
arrangements with its service providers. The expense ratios for the prior
periods have not been adjusted to reflect this change.
See notes to financial statements
16
<PAGE>
Massachusetts Municipals Portfolio as of September 30, 1997
NOTES TO FINANCIAL STATEMENTS
1 Significant Accounting Policies
------------------------------------------------------------------------------
Massachusetts Municipals Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a non-diversified, open-end management
investment company which was organized as a trust under the laws of the State
of New York on May 1, 1992. The Declaration of Trust permits the Trustees to
issue interests in the Portfolio. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation
of its financial statements. The policies are in conformity with generally
accepted accounting principles.
A Investment Valuations -- Municipal bonds are normally valued on the basis of
valuations furnished by a pricing service. Taxable obligations, if any, for
which price quotations are readily available are normally valued at the mean
between the latest bid and asked prices. Futures contracts and options on
futures contracts listed on commodity exchanges are valued at closing
settlement prices. Options on futures contracts which are traded over the
counter are valued at the mean between the latest bid and asked prices.
Short-term obligations, maturing in sixty days or less, are valued at
amortized cost, which approximates value. Investments for which valuations or
market quotations are unavailable are valued at fair market value using
methods determined in good faith by or at the direction of the Trustees.
B Income -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for Federal
income tax purposes.
C Income Taxes -- The Portfolio has elected to be treated as a partnership for
Federal tax purposes. No provision is made by the Portfolio for Federal or
state taxes on any taxable income of the Portfolio because each investor in
the Portfolio is ultimately responsible for the payment of any taxes on its
share of such income. Since some of the Portfolio's investors are regulated
investment companies that invest all or substantially all of their assets in
the Portfolio, the Portfolio normally must satisfy the applicable source of
income and diversification requirements (under the Internal Revenue Code) in
order for its investors to satisfy them. The Portfolio will allocate, at least
annually among its investors, each investor's distributive share of the
Portfolio's net taxable (if any) and tax-exempt investment income, net
realized capital gains, and any other items of income, gain, loss, deduction
or credit. Interest income received by the Portfolio on investments in
municipal bonds which is excludable from gross income under the Internal
Revenue Code, will retain its status as income exempt from Federal income tax
when allocated to the Portfolio's investors. The portion of such interest, if
any, earned on private activity bonds issued after August 7, 1986, may be
considered a tax preference item for investors.
D Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
E Financial Futures Contracts -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in
cash or securities an amount equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by the Portfolio ("margin maintenance") each day, dependent
on the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by the Portfolio. The
Portfolio's investment in financial futures contracts is designed only to
hedge against anticipated future changes in interest rates. Should interest
rates move unexpectedly, the Portfolio may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss.
F Options on Financial Futures Contracts -- Upon the purchase of a put option
on a financial futures contract by the Portfolio, the premium paid is recorded
as an investment, the value of which is marked-to-market daily. When a
purchased option expires, the Portfolio will realize a loss in the amount of
the cost of the option. When the Portfolio enters into a closing sales
transaction, the Portfolio will realize a gain or loss depending on whether
the sales proceeds from the closing sale transaction are greater or less than
the cost of the option. When the Portfolio exercises a put option, settlement
is made in cash. The risk associated with purchasing options is limited to the
premium originally paid.
G When-issued and Delayed Delivery Transactions -- The Portfolio may engage in
when-issued and delayed delivery transactions. The Portfolio records
when-issued securities on trade date and maintains security positions such
that sufficient liquid assets will be available to make payments for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked-to-market daily and begin earning interest on
settlement date.
H Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
17
<PAGE>
Massachusetts Municipals Portfolio as of September 30, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
of assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates.
I Other -- Investment transactions are accounted for on a trade date basis.
J Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT receives
a fee reduced by credits which are determined based on the average daily cash
balance the Portfolio maintains with IBT. All significant credit balances used
to reduce the Portfolio's custodian fees are reflected as a reduction of
operating expense on the Statement of Operations.
2 Investment Adviser Fee and Other Transactions with Affiliates
------------------------------------------------------------------------------
The investment adviser fee is earned by Boston Management and Research (BMR),
a wholly-owned subsidiary of Eaton Vance Management (EVM), as compensation for
management and investment advisory services rendered to the Portfolio. The fee
is based upon a percentage of average daily net assets plus a percentage of
gross income (i.e., income other than gains from the sale of securities). For
the year ended September 30, 1997, the fee was equivalent to 0.45%
(annualized) of the Portfolio's average net assets and amounted to $1,203,548.
Except as to Trustees of the Portfolio who are not members of EVM's or BMR's
organization, officers and Trustees receive remuneration for their services to
the Portfolio out of such investment adviser fee.
Trustees of the Portfolio that are not affiliated with the Investment Adviser
may elect to defer receipt of all or a portion of their annual fees in
accordance with the terms of the Trustees Deferred Compensation Plan. For the
year ended September 30, 1997, no significant amounts have been deferred.
Certain of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations.
3 Investments
------------------------------------------------------------------------------
For the year ended September 30, 1997, purchases and sales of investments,
other than U.S. Government securities, purchased option transactions, and
short-term obligations, aggregated $91,051,927 and $118,236,663, respectively.
4 Federal Income Tax Basis of Investments
------------------------------------------------------------------------------
The cost and unrealized appreciation/depreciation in value of the investments
owned by the Portfolio at September 30, 1997, as computed on a federal income
tax basis, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate cost $ 238,584,146
------------------------------------------------------------------------------
Gross unrealized appreciation $ 23,368,596
Gross unrealized depreciation (77,042)
------------------------------------------------------------------------------
Net unrealized appreciation $ 23,291,554
------------------------------------------------------------------------------
</TABLE>
5 Line of Credit
------------------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR and
EVM and its affiliates in a $120 million unsecured line of credit agreement
with a group of banks. The Portfolio may temporarily borrow from the line of
credit to satisfy redemption requests or settle investment transactions.
Interest is charged to each portfolio or fund based on its borrowings at an
amount above the banks' adjusted certificate of deposit rate, eurodollar rate
or federal funds rate. In addition, a fee computed at an annual rate of 0.15%
on the daily unused portion of the line of credit is allocated among the
participating portfolios and funds at the end of each quarter. The Portfolio
did not have any significant borrowings or allocated fees during the year
ended September 30, 1997.
6 Financial Instruments
------------------------------------------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments
and does not necessarily represent the amounts potentially subject to risk.
The measurement of the risks associated with these instruments is meaningful
only when all related and offsetting transactions are considered.
18
<PAGE>
Massachusetts Municipals Portfolio as of September 30, 1997
NOTES TO FINANCIAL STATEMENTS CONT'D
A summary of obligations under these financial instruments at September 30,
1997, is as follows:
<TABLE>
<CAPTION>
Futures
Contracts Net
Expiration Unrealized
Date Contracts Position Depreciation
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<S> <C> <C> <C>
12/97 76 U.S. Treasury Bonds Short $(233,177)
- ---------------------------------------------------------------
</TABLE>
At September 30, 1997, the Portfolio had sufficient cash and/or securities to
cover margin requirements on open futures contracts.
19
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EV Massachusetts Municipals Portfolio as of September 30, 1997
INDEPENDENT AUDITORS' REPORT
To the Trustees and Investors
of Massachusetts Municipals Portfolio
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We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Massachusetts Municipals Portfolio as of
September 30, 1997, the related statement of operations for year then ended, the
statements of changes in net assets for the years ended September 30, 1997 and
1996 and the supplementary data for each of the four years in the period ended
September 30, 1997 and for the period from the start of business, February 1,
1993, to September 30, 1993. These financial statements and supplementary data
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and supplementary data based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities held as of
September 30, 1997 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other audit procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of the Portfolio at September
30, 1997, and the results of its operations, the changes in net assets and
supplementary data for the respective stated periods, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 7, 1997
20
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Massachusetts Municipal Bond Portfolio as of September 30, 1997
INVESTMENT MANAGEMENT
<TABLE>
<CAPTION>
Massachusetts Municipal Bond Portfolio
<S> <C>
Officers Independent Trustees
Thomas J. Fetter Donald R. Dwight
President President, Dwight Partners, Inc.
Chairman, Newspapers of New England, Inc.
James B. Hawkes
Vice President and Trustee Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Robert B. MacIntosh Banking, Harvard University Graduate School
Vice President of Business Administration
James L. O'Connor Norton H. Reamer
Treasurer President and Director, United Asset
Management Corporation
Alan R. Dynner
Secretary John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
<CAPTION>
Massachusetts Municipals Portfolio
<S> <C>
Officers Independent Trustees
Thomas J. Fetter Donald R. Dwight
President President, Dwight Partners, Inc.
Chairman, Newspapers of New England, Inc.
James B. Hawkes
Vice President and Trustee Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment
Robert B. MacIntosh Banking, Harvard University Graduate School of
Vice President and Business Administration
Portfolio Manager
Norton H. Reamer
James L. O'Connor President and Director, United Asset
Treasurer Management Corporation
Alan R. Dynner John L. Thorndike
Secretary Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
</TABLE>
21
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Portfolio Investment Advisor
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
200 Clarendon Street
Boston, MA 02116
Transfer Agent
First Data Investor Services Group, Inc.
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
Eaton Vance Municipals Trust
24 Federal Street
Boston, MA 02110
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This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its sales charges and
expenses. Please read the prospectus carefully before you invest or send money.
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MMBSRC-12/97
