<PAGE>
As filed with the Securities and Exchange Commission on October 30, 1998
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. 74 [x]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 76 [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 pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] on January 1, 1999 pursuant to paragraph (a)(1)
[x] 60 days after filing pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant 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.
Alabama Municipals Portfolio, Arkansas Municipals Portfolio, Georgia
Municipals Portfolio, Kentucky Municipals Portfolio, Louisiana Municipals
Portfolio, Maryland Municipals Portfolio, Missouri Municipals Portfolio, North
Carolina Municipals Portfolio, Oregon Municipals Portfolio, South Carolina
Municipals Portfolio, Tennessee Municipals Portfolio and Virginia Municipals
Portfolio have also executed this Registration Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
LOGO
Mutual Funds
for
People
Who Pay
Taxes
EATON VANCE ALABAMA MUNICIPALS FUND
EATON VANCE ARKANSAS MUNICIPALS FUND
EATON VANCE GEORGIA MUNICIPALS FUND
EATON VANCE KENTUCKY MUNICIPALS FUND
EATON VANCE LOUISIANA MUNICIPALS FUND
EATON VANCE MARYLAND MUNICIPALS FUND
EATON VANCE MISSOURI MUNICIPALS FUND
EATON VANCE NORTH CAROLINA MUNICIPALS FUND
EATON VANCE OREGON MUNICIPALS FUND
EATON VANCE SOUTH CAROLINA MUNICIPALS FUND
EATON VANCE TENNESSEE MUNICIPALS FUND
EATON VANCE VIRGINIA MUNICIPALS FUND
MUTUAL FUNDS FOR INVESTORS SEEKING INCOME EXEMPT FROM REGULAR FEDERAL INCOME
TAX AND STATE TAXES
Prospectus Dated
January 1, 1999
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INFORMATION IN THIS PROSPECTUS
Page Page
- --------------------------------------------------------------------------------
Fund Summaries 2 Sales Charges 17
Investment Objectives, Policies and Risks 15 Redeeming Shares 19
Management and Organization 16 Shareholder Account Features 19
Valuing Shares 17 Tax Information 20
Purchasing Shares 17 Financial Highlights 26
- --------------------------------------------------------------------------------
THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE FUNDS AND THE SERVICES
AVAILABLE TO SHAREHOLDERS. PLEASE SAVE IT FOR REFERENCE.
<PAGE>
FUND SUMMARIES
This section summarizes the investment objectives, strategies and risks of
investing in an Eaton Vance Municipal Fund. You will find more specific
information about each Fund in the pages that follow.
INVESTMENT OBJECTIVES AND STRATEGIES
The purpose of each Fund is to provide current income exempt from regular
federal income tax and from state or local income or other taxes. Each Fund
concentrates its investments in investment grade municipal obligations. The
portfolio manager will purchase and sell securities to maintain a competitive
yield and to enhance return based upon the relative value of the securities in
the marketplace. The portfolio manager may also trade securities to minimize
taxable capital gains to shareholders.
RISK FACTORS
The value of Fund shares may change when interest rates change. When interest
rates rise, the value of Fund shares typically will decline. The Fund's yield
will also fluctuate over time.
Each Fund is non-diversified, which means that it may invest a large portion of
its assets (up to 25%) in obligations of one issuer. Because a significant
portion of assets is invested in obligations of issuers located in a single
state, the Fund is sensitive to factors affecting that state, such as changes in
the economy, decreases in tax collection or the tax base, legislation which
limits taxes and changes in issuer credit ratings. In addition, because up to
25% of assets may be obligations of below investment grade quality, Fund shares
are sensitive to the financial soundness of the issuers of the securities held.
The credit ratings assigned a state's general obligations (if any) by Standard &
Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and
Fitch/IBCA ("Fitch") are contained in the Fund-specific summaries that follow
this page.
Each Fund may concentrate in certain types of municipal obligations (such as
housing bonds, hospital bonds or utility bonds), so Fund shares could be
affected by events that adversely affect a particular sector. The Funds are not
a complete investment program and you may lose money by investing. An investment
in a Fund is not a deposit in a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
FEES OF EACH FUND
This table describes the fees that you may pay if you buy and hold Fund shares.
The operating expenses incurred by each Fund during its last fiscal year are set
forth on the pages that follow.
<TABLE>
<CAPTION>
Class A Class B
Shareholder Fees (fees paid directly from your investment) Shares Shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Contingent Deferred Sales Charge (as a percentage of the lower of net
asset value at the time of purchase or time of redemption) None 5.00%
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
</TABLE>
Each Fund offers Class A and Class B shares. Class A shares are sold subject to
a sales charge imposed at the time of purchase. Class B shares are sold subject
to a declining contingent deferred sales charge ("CDSC") (5.00% maximum) if
redeemed within six years of purchase.
2
<PAGE>
EATON VANCE ALABAMA MUNICIPALS FUND
The Alabama Fund seeks to provide current income exempt from regular federal
income taxes and Alabama state personal income taxes. Alabama general
obligations are currently rated AA, Aa and AA, by S&P, Moody's and Fitch,
respectively.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Alabama Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not a
reflect sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
One Five Life of
Average Annual Total Return as of December 31, 1997 Year Years Fund
- --------------------------------------------------------------------------------
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 7, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on May 1, 1992. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE ALABAMA FUND
This table describes the expenses that you may pay if you buy and hold share.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
- --------------------------------------------------------------------------------
<TABLE>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
3
<PAGE>
EATON VANCE ARKANSAS MUNICIPALS FUND
The Arkansas Fund seeks to provide current income exempt from regular federal
income taxes and Arkansas state personal income taxes. Arkansas general
obligation bonds are rated Aa and AA by Moody's and S&P. Fitch does not
currently rate Arkansas general obligation bonds.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Arkansas Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
ANNUAL TOTAL RETURNS
CLASS B SHARES
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to February 9, 1994 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on October 2, 1992. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE ARKANSAS FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
4
<PAGE>
EATON VANCE GEORGIA MUNICIPALS FUND
The Georgia Fund seeks to provide current income exempt from regular federal
income taxes and Georgia state personal income taxes. Georgia general obligation
bonds are rated AAA, Aaa and AAA by S&P, Moody's and Fitch, respectively.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Georgia Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 7, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on December 23, 1991. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE GEORGIA FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem you shares:
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
5
<PAGE>
EATON VANCE KENTUCKY MUNICIPALS FUND
The Kentucky Fund seeks to provide current income exempt from regular federal
income taxes and Kentucky state personal income taxes in the form of an
investment exempt from the Kentucky intangibles tax. There are currently no
Kentucky general obligations outstanding.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Kentucky Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 7, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on December 23, 1991. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE KENTUCKY FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
6
<PAGE>
EATON VANCE LOUISIANA MUNICIPALS FUND
The Louisiana Fund seeks to provide current income exempt from regular federal
income taxes and Louisiana state individual and corporate income taxes.
Louisiana general obligation bonds are rated A- (with a stable outlook) and A3
by S&P and Moody's, respectively.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Louisiana Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to February 14, 1993 is the performance of Class B shares, adjusted for
the sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on October 2, 1992. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE LOUISIANA FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
7
<PAGE>
EATON VANCE MARYLAND MUNICIPALS FUND
The Maryland Fund seeks to provide current income exempt from regular federal
income taxes and Maryland state and local income taxes. Maryland general
obligation bonds are rated AAA, Aaa and AAA by S&P, Moody's and Fitch,
respectively.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Maryland Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 10, 1993 is the performance of Class B shares, adjusted for
the sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on February 3, 1992. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE MARYLAND FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Years 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
8
<PAGE>
EATON VANCE MISSOURI MUNICIPALS FUND
The Missouri Fund seeks to provide current income exempt from regular federal
income taxes and Missouri state personal income taxes. Missouri general
obligation bonds are rated AAA, Aaa and AAA by S&P, Moody's and Fitch,
respectively.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Missouri Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 7, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on May 1, 1992. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE MISSOURI FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
9
<PAGE>
EATON VANCE NORTH CAROLINA MUNICIPALS FUND
The North Carolina Fund seeks to provide current income exempt from regular
federal income taxes and North Carolina state personal income taxes. North
Carolina general obligation bonds are rated Aaa, AAA and AAA by Moody's, S&P and
Fitch, respectively.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the North Carolina
Fund's performance. Although past performance is no guarantee of future results,
this performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 7, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on October 23, 1991. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE NORTH CAROLINA FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
10
<PAGE>
EATON VANCE OREGON MUNICIPALS FUND
The Oregon Fund seeks to provide current income exempt from regular federal
income taxes and Oregon state personal income taxes. Oregon general obligation
bonds are rated AA-, Aa and AA by S&P, Moody's and Fitch, respectively.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Oregon Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 28, 1993 is the performance of Class B shares, adjusted for
the sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on December 24, 1991. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE OREGON FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
11
<PAGE>
EATON VANCE SOUTH CAROLINA MUNICIPALS FUND
The South Carolina Fund seeks to provide current income exempt from regular
federal income taxes and South Carolina state personal income taxes. South
Carolina general obligation bonds are rated Aaa, AAA and AAA, by Moody's, S&P
and Fitch, respectively.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the South Carolina
Fund's performance. Although past performance is no guarantee of future results,
this performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to February 14, 1994 is the performance of Class B shares, adjusted for
the sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on October 2, 1992. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE SOUTH CAROLINA FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
12
<PAGE>
EATON VANCE TENNESSEE MUNICIPALS FUND
The Tennessee Fund seeks to provide current income exempt from regular federal
income taxes and Tennseess state personal income taxes. Tennessee's general
obligation bonds are rated AA+, Aaa and AAA, by S&P, Moody's and Fitch,
respectively.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Tennessee Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 9, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on August 25, 1992. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE TENNESSEE FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
13
<PAGE>
EATON VANCE VIRGINIA MUNICIPALS FUND
The Virginia Fund seeks to provide current income exempt from regular federal
income taxes and Virginia state personal income taxes. Virginia general
obligation bonds are rated Aaa, AAA and AAA by Moody's, S&P and Fitch,
respectively.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Virginia Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
Annual Total Returns
Class B shares
1993 1994 1995 1996 1997 1998
These returns are for each calendar year through December 31, 1997 and do not
reflect a sales charge. If the sales charge was included, the returns would be
lower. The Fund's highest quarterly total return was ___% for the quarter ended
__________, 199_, and its lowest quarterly total return was ___% for the quarter
ended _________, 199_. The total return through the most recent fiscal quarter
(August 31, 1997 to November 30, 1998) was __%. For the 30-days ended August 31,
1998, the yield and tax equivalent yield (assuming a combined state and federal
tax rate of %) for Class A shares were % and %, respectively, and for Class B
shares were % and %, respectively. For more current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
Average Annual Total Return as of December 31, 1997 One Five Life of
Year Years Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A shares % % %
Class B shares % % %
Lehman Brothers Municipal Bond Index % % %
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 17, 1993 is the performance of Class B shares, adjusted for
the sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on July 26, 1991. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE VIRGINIA FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
Example % %
</TABLE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------
Class A shares
Class B shares
</TABLE>
14
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective of each Fund is to provide current income exempt from
regular federal income tax and state or local income or other taxes. Each Fund
seeks to achieve its objective by investing 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. This is a fundamental policy of each Fund which only may be
changed with shareholder approval. Each Fund's investment objective and other
policies may be changed by the Trustees without shareholder approval. Each Fund
currently seeks to meet its investment objective by investing in a separate
open-end management company (a "Portfolio") that has the same objective and
policies as the Fund.
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 municipal obligations is (in the opinion of the issuer's counsel)
exempt from regular federal income tax. Interest income from certain types of
municipal obligations may be subject to the federal alternative minimum tax (the
"AMT") for individuals. Distributions to corporate investors may also be subject
to the AMT. The Funds may not be suitable for investors subject to the AMT.
At least 75% of net assets will normally be invested in municipal obligations
rated at least investment grade at the time of investment (which are those rated
Baa or higher by Moody's, or BBB or higher by either S&P or Fitch) or, if
unrated, are determined by the investment adviser to be of at least investment
grade quality. The balance of 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 in unrated municipal obligations considered to be of comparable
quality by the investment adviser. Municipal obligations rated Baa or BBB or
below may have speculative characteristics. Also, changes in economic conditions
or other circumstances are more likely to reduce the capacity of issuers of
lower-rated obligations to make principal and interest payments. Securities
rated below Baa or BBB are commonly known as "junk bonds".
Under normal conditions, each Portfolio invests at least 65% of its total assets
in obligations issued by its respective state or its political subdivisions.
Municipal obligations of issuers in a single state may be adversely affected by
economic developments (including insolvency of an issuer) and by legislation and
other governmental activities in that state. Each Portfolio may also invest in
municipal obligations issued by the governments of Puerto Rico, the U.S. Virgin
Islands and Guam. S&P rates Puerto Rico general obligations A, while Moody's
rates them Baa.
Each Portfolio may invest 25% or more of its total assets in municipal
obligations of the same type (such as lease rental obligations, housing finance
obligations, public housing obligations, municipal utility obligations, hospital
and health facility obligations, industrial development obligations and others).
This may make a Portfolio more susceptible to adverse economic, political or
regulatory occurrences affecting a particular category of issuer.
The net asset value will change in response to changes in prevailing interest
rates and changes in the value of securities held. The value of securities held
will be affected by the credit quality of the issuer of the obligation, general
economic conditions and business conditions that affect the specific industry of
the issuer. Changes by rating agencies in the rating assigned to an obligation
and in the ability of the issuer to make payments of principal and interest may
also affect the value of an obligation. Lower rated obligations may be subject
to greater price volatility than higher rated obligations. The amount of
information available about the financial condition of issuers of municipal
obligations generally is not as extensive as that available for publicly-traded
corporations.
Each Portfolio may purchase derivative instruments, which derive their value
from another instrument, security or index. For example, a 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").
Although they are volatile and may expose a Portfolio to leverage risk, inverse
floaters typically offer the potential for yields exceeding the yields available
on fixed rate bonds with comparable credit quality and maturity. Each Portfolio
may also purchase and sell various kinds of financial futures contracts and
options thereon to hedge against changes in interest rates and as a substitute
for the purchase of portfolio securities.
Each Portfolio may invest in zero coupon bonds, which do not pay income
currently. The values of these bonds are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. Each Portfolio may also temporarily borrow up to 5% of the value of
its total assets to satisfy redemption requests or settle securities
transactions.
The investment adviser's process for selecting securities for purchase and sale
is research intensive and emphasizes the creditworthiness of the issuer or other
person obligated to repay the obligation. The investment adviser seeks to invest
in obligations that it believes will retain their value in varying interest rate
climates.
15
<PAGE>
MANAGEMENT AND ORGANIZATION
MANAGEMENT. Each Portfolio's investment adviser is Boston Management and
Research ("BMR"), a subsidiary of Eaton Vance Management. Eaton Vance has been
managing assets since 1924 and managing mutual funds since 1931. Eaton Vance and
its subsidiaries currently manage over $27 billion on behalf of mutual funds,
institutional clients and individuals.
The investment adviser manages the investments of each Portfolio and provides
related office facilities and personnel. Under its investment advisory agreement
with each Portfolio, BMR receives a monthly advisory fee equal to the aggregate
of a daily asset based fee and a daily income based fee. The fees are applied on
the basis of the following categories.
<TABLE>
<CAPTION>
Annual Daily
Category Daily Net Assets Asset Rate Income Rate
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
</TABLE>
For the fiscal year ended August 31, 1998, each Portfolio paid advisory fees
equivalent to the percentage of average daily net assets stated below.
Net Assets on
Portfolio August 31, 1998 Advisory Fee
- ---------------------------------------------------------------------
Alabama $ %
Arkansas %
Georgia %
Kentucky %
Louisiana %
Maryland %
Missouri %
North Carolina %
Oregon %
South Carolina %
Tennessee %
Virginia %
William H. Ahern is the portfolio manager of the Alabama Portfolio (since June
1, 1997).
Timothy T. Browse is the portfolio manager of the Arkansas and Maryland
Portfolios (since they commenced operations) and the Virginia Portfolio (since
November 1, 1996).
Cynthia J. Clemson is the portfolio manager of the Missouri and Tennessee
Portfolios (since they commenced operations) and the Georgia Portfolio (since
January 1, 1996) and the Kentucky Portfolio (since November 24, 1997).
Robert B. MacIntosh is the portfolio manager of the Louisiana and North Carolina
Portfolios (since January 1, 1996) .
Thomas M. Metzold is the portfolio manager of the Oregon Portfolio (since
November 1, 1996).
Thomas J. Fetter is the portfolio manager of the South Carolina Portfolio (since
January 1, 1996).
Each portfolio manager also manages other Eaton Vance portfolios and is a Vice
President of Eaton Vance and BMR.
Eaton Vance serves as administrator of each Fund, providing the Fund with
administrative services and related office facilities. Eaton Vance does not
currently receive a fee for serving as administrator.
Like most mutual funds, the Funds and Portfolios rely on computers in conducting
daily business and processing information. There is a concern that on January 1,
2000 some computer programs will be unable to recognize the new year and as a
consequence computer malfunctions will occur. Eaton Vance is taking steps that
it believes are reasonably designed to address this potential problem and to
obtain satisfactory assurance from other service providers to the Funds and
Portfolios that they are also taking steps to address the issue. There can,
however, be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds and Portfolios or shareholders.
16
<PAGE>
ORGANIZATION. Each Fund is a series of Eaton Vance Municipals Trust. The Funds
do not hold annual shareholder meetings, but may hold special meetings for
matters that require shareholder approval (like electing or removing trustees,
approving management contracts or changing investment policies that may only be
changed with shareholder approval). Because a Fund invests in a Portfolio, it
may be asked to vote on certain Portfolio matters (like changes in certain
Portfolio investment restrictions). When necessary, a Fund will hold a meeting
of its shareholders to consider the Portfolio matter and then vote its interest
in the Portfolio in proportion to the votes cast by its shareholders. A Fund can
withdraw from a Portfolio at any time.
Because the Funds use this combined prospectus, a Fund could be held liable for
a misstatement or omission made about another Fund. The Trust's Trustees
considered this in approving the use of a combined prospectus.
VALUING SHARES
Each Fund values its shares once each day the New York Stock Exchange is open
for trading (typically Monday through Friday), as of the close of regular
trading on the Exchange (normally 4:00 p.m. eastern time). The price of Fund
shares is their net asset value, which is derived from Portfolio holdings,
Municipal obligations will normally be valued on the basis of valuations
furnished by a pricing service. Your investment dealer must communicate your
order to the principal underwriter by a specific time each day to receive that
day's public offering price per share. It is the investment dealer's
responsibility to transmit orders promptly. Each Fund may accept purchase and
redemption orders as of the time of their receipt by certain investment dealers
or their designated intermediaries).
PURCHASING SHARES
You may purchase Fund shares through your investment dealer or by mailing the
account application form included in this prospectus to the transfer agent (see
back cover for address). Your initial investment must be at least $1,000. The
price of Class A shares is the net asset value plus a sales charge. The price of
Class B shares is the net asset value; however, you may be subject to a sales
charge (called a "contingent deferred sales charge" or "CDSC") if you redeem
your Class B shares within six years of purchase. The sales charges are
described below. Your investment dealer can help you decide which class of
shares better suits your investment needs.
You may purchase Fund shares for cash or in exchange for securities. Please call
1-800-225-6265 for information about exchanging securities for Fund shares. If
you purchase shares through an investment dealer (which includes brokers,
dealers and other financial institutions), that dealer may charge you a fee for
executing the purchase for you. A Fund may suspend the sale of its shares at any
time and any purchase order may be refused.
After your initial investment, additional investments of $50 or more may be made
at any time by sending a check payable to the order of the Fund or the transfer
agent directly to the transfer agent (see back cover for address). Please
include your name and account number and the name of the Fund and Class with
each investment.
You may also make automatic investments of $50 or more each month or quarter
from your bank account. You can establish bank automated investing on the
account application or by calling 1-800-262-1122. The minimum initial investment
amount and Fund policy of redeeming accounts with low account balances are
waived for bank automated investing accounts.
SALES CHARGES
FRONT-END SALES CHARGE. Class A shares are offered at net asset value per share
plus a sales charge that is determined by the amount of your investment. The
current sales charge schedule is:
17
<PAGE>
Sales Charge Sales Charge as
as Percentage of Percentage of Net
Amount of Purchase Offering Price Amount Invested
- --------------------------------------------------------------------------------
Less than $25,000 4.75% 4.99%
$25,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 3.00% 3.09%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,00,000 or more 0.00* 0.00*
CONTINGENT DEFERRED SALES CHARGE. Each Class of shares is subject to a CDSC on
certain redemptions. If Class A shares are purchased at net asset value because
the purchase amount is $1 million or more, they are subject to a 1.00% CDSC if
redeemed within 24 months of purchase. Class B shares are subject to the
following CDSC schedule:
Year of Redemption After Purchase CDSC
- --------------------------------------------------------------------------------
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
The CDSC is based on the lower of the net asset value at the time of purchase or
the time of redemption. Shares acquired through the reinvestment of
distributions are exempt. Redemptions are made first from shares which are not
subject to a CDSC.
REDUCING OR ELIMINATING SALES CHARGES. Front-end sales charges may be reduced
under the right of accumulation or under a statement of intention. Under the
right of accumulation, sales charges are reduced if the current market value of
your current holdings (shares at current offering price), plus your new
purchases, reach $25,000 or more. Class A shares of other Eaton Vance funds
owned by you can be included in your current holdings. Under a statement of
intention, purchases of $25,000 or more made over a 13-month period are eligible
for reduced sales charges. 5% of the dollar amount to be purchased will be held
in escrow in the form of shares registered in the investor's name until the
statement is satisfied or the thirteen-month period expires. See the account
application for details.
Class A shares are offered at net asset value through certain wrap fee programs
and other programs sponsored by investment dealers that charge fees for their
services. Ask your investment dealer for details. Certain persons associated
with Eaton Vance, other advisers to Eaton Vance funds, the transfer agent, the
custodian and investment dealers may purchase shares at net asset value.
The Class B CDSC is waived for redemptions pursuant to a Withdrawal Plan (see
"Shareholder Account Features"). The Class B CDSC is also waived following the
death of all beneficial owners of shares, but only if the redemption is
requested within one year after death (a death certificate and other applicable
documents may be required).
If you redeem shares, you may reinvest at net asset value any portion or all of
the redemption proceeds in the same class of shares of the Fund (or, for Class A
shares, in Class A shares of any other Eaton Vance fund), provided that the
reinvestment occurs within 60 days of the redemption, and the privilege has not
been used more than once in the prior 12 months. Your account will be credited
with any CDSC paid in connection with the redemption. Reinvestment requests must
be in writing. If you reinvest, you will be sold shares at the next determined
net asset value following receipt of your request.
DISTRIBUTION AND SERVICE FEES. Class B shares pay distribution expenses of .75%
of average daily net assets annually (so-called "12b-1 fees"). All classes pay
service fees for personal and/or account services not exceeding .20% of average
daily net assets annually. Services fees are paid on Class A and Class B shares
only after they have been outstanding for twelve months.
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REDEEMING SHARES
You can redeem shares in any of the following ways:
By Mail Send your request to the transfer agent along with
any certificates and stock powers. The request must be
signed exactly as your account is registered and
signature guaranteed. You can obtain a signature
guarantee at certain banks, savings and loan
institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered
securities associations. You may be asked to provide
additional documents if your shares are registered in
the name of a corporation, partnership or fiduciary.
By Telephone You can redeem up to $50,000 b y calling the transfer
agent at 800-262-1122 on Monday through Friday, 9:00 a.m.
to 4:00 p.m. (eastern time). Proceeds of a telephone
redemption can be mailed only to the account address.
Shares held by corporations, trusts or certain other
entities, or subject to fiduciary arrangements, cannot
be redeemed by telephone.
Through an Investment Your investment dealer is responsible for transmitting
Dealer the order promptly. A dealer may charge a fee for this
service.
If you redeem shares, your redemption price will be based on the net asset value
per share next computed after the redemption request is received. Your
redemption proceeds will be paid in cash within seven days, reduced by the
amount of any applicable CDSC and any federal income tax required to be
withheld. Payments will be sent by mail unless you complete the Bank Wire
Redemptions section of the account application.
If you recently purchased shares, the proceeds of a redemption will not be sent
until the check (including a certified or cashier's check) has cleared. If the
purchase check has not cleared, redemption proceeds may be delayed up to 15 days
from the purchase date. If your account value falls below $750, you may be asked
to either add to your account or redeem it within 60 days. If you take no
action, your account will be redeemed and the proceeds sent to you.
While redemption proceeds are normally paid in cash, redemptions may be paid by
distributing marketable securities. If you receive securities, you could incur
brokerage or other charges in converting the securities to cash.
SHAREHOLDER ACCOUNT FEATURES
Once you purchase shares, the transfer agent establishes a Lifetime Investing
Account for you. Share certificates are issued only on request.
DISTRIBUTIONS. You may have your Fund distributions paid in one of the following
ways:
*FULL REINVEST OPTION Dividends and capital gains are reinvested in
additional shares. This option will be assigned if you
do not specify an option.
*PARTIAL REINVEST OPION Dividends are paid in cash and capital gains are
reinvested in additional shares.
*CASH OPTION Dividends and capital gains are paid in cash.
*EXCHANGE OPTION Dividends and/or capital gains are reinvested in
additional shares of another Eaton Vance fund chosen by
you. Before selecting this option, you must obtain a
prospectus of the other fund and consider its
objectives and policies carefully.
INFORMATION FROM THE FUND. From time to time, you may be mailed the following:
*Annual and Semi-Annual Reports, containing performance information and
financial statements.
*Periodic account statements, showing recent activity and total value.
*Form 1099 and tax information needed to prepare your income tax returns.
*Proxy materials, in the event a shareholder vote is required.
*Special notices about significant events affecting your Fund.
WITHDRAWAL PLAN. You may draw on share holdings systematically with monthly or
quarterly checks. For Class B shares, your withdrawals will not be subject to a
CDSC if they do not in the aggregate exceed 12% annually of the account balance
at the time the plan is established. A minimum account size of $5,000 is
required. Because purchases of Class A shares are subject to a sales charge, you
should not make withdrawals from your account while you are making purchases.
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EXCHANGE PRIVILEGE. You may exchange your shares for shares of the same class of
another Eaton Vance fund. Exchanges are generally made at net asset value. If
you have held Class A shares for less than six months, an additional sales
charge may apply if you exchange. If your shares are subject to a CDSC, the CDSC
will continue to apply to your new shares at the same CDSC rate. For purposes of
the CDSC, your shares will continue to age from the date of your original
purchase.
Before exchanging, you should read the prospectus of the new fund carefully. If
you wish to exchange shares, you may write to the transfer agent (address on
back cover) or call at 1-800-262-1122. Periodic automatic exchanges are also
available. The exchange privilege may be changed or discontinued at any time.
You will receive 60 days' notice of any material change to the privilege. This
privilege may not be used for "market timing". If an account (or group of
accounts) makes more than two round trip exchanges within twelve months, it will
be deemed to be market timing. The exchange privilege may be terminated for
market timing accounts.
TELEPHONE TRANSACTIONS. You can redeem or exchange shares by telephone as
described in this prospectus. The transfer agent and the principal underwriter
have procedures in place(such as verifying personal account information) to
authenticate telephone instructions. As long as the transfer agent and principal
underwriter follow these procedures, they will not be responsible for
unauthorized telephone transactions and you bear the risk of possible loss
resulting from telephone transactions. You may decline the telephone redemption
option on the account application. Telephone instructions are tape recorded.
"STREET NAME" ACCOUNTS. If your shares are held in a "street name" account at an
investment dealer, that dealer (and not the Fund or its transfer agent) will
perform all recordkeeping, transaction processing and distribution payments.
Because the Fund will have no record of your transactions, you should contact
your investment dealer to purchase, redeem or exchange shares, to make changes
in your account, or to obtain account information. The transfer of shares in a
"street name" account to an account with another investment dealer or to an
account directly with the Fund involves special procedures and you will be
required to obtain historical information about your shares prior to the
transfer. Before establishing a "street name" account with an investment dealer,
you should determine whether that dealer allows reinvestment of distributions in
"street name" accounts.
ACCOUNT QUESTIONS. If you have any questions about your account or the services
available, please call Eaton Vance Shareholder Services at 1-800-225-6265, or
write to the transfer agent (see back cover for address).
TAX INFORMATION
Each Fund declares dividends daily. Each Fund ordinarily pays distributions each
month for Class A shares on the last business day and for Class B shares on the
fifteenth business day. If the payment date is not a business day, the payment
will be made on the business day thereafter. Your account will be credited with
dividends on the business day after the funds used to purchase your Fund shares
are collected by the transfer agent. For tax purposes the entire distribution,
whether paid in cash or reinvested in additional shares, ordinarily will
constitute tax-exempt income to you.
Distributions of any taxable income and net short-term capital gains will be
taxable as ordinary income. Distributions of any long-term capital gains are
taxable as such. Distributions of interest on certain municipal obligations are
a tax preference item under the AMT provisions applicable to individuals and
corporations.
Shareholders, particularly corporations and those subject to state alternative
minimum tax, should consult with their advisers concerning the applicability of
state, local and other taxes to an investment. Additional information about
state taxes is provided below.
ALABAMA TAXES. In the opinion of Bradley, Arant, Rose & White, special Alabama
tax counsel to the Alabama Fund, under existing Alabama law, as long as the
Alabama Fund qualifies as a separate "regulated investment company" under the
Code, and provided the Alabama Fund is invested in the Alabama Portfolio, and
provided that the Alabama Portfolio is invested in obligations the interest on
which would be exempt from Alabama personal income taxes if held directly by an
individual shareholder (such as obligations of Alabama or its political
subdivisions, of the United States or of certain territories or possessions of
the United States), and further provided that the Alabama Portfolio is
characterized as a partnership for Federal income tax purposes, dividends
received by shareholders from the Alabama Fund that represent interest received
by the Alabama Portfolio on such obligations will be exempt from Alabama
personal income taxes. To the extent that distributions by the Alabama Fund are
derived from long-term or short-term capital gains on such obligations, or from
dividends or capital gains on other types of obligations, such distributions
will not be exempt from Alabama personal income tax. Capital gains or losses
realized from a redemption, sale or exchange of shares of the Alabama Fund by an
Alabama resident will be taken into account for Alabama personal income tax
purposes.
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ARKANSAS TAXES. In the opinion of special Arkansas tax counsel, under Arkansas
law, as long as the Arkansas Fund qualifies as a separate "regulated investment
company" under the Code, and provided the Arkansas Fund is invested in
obligations the interest on which would be exempt from Arkansas personal income
taxes if held directly by an individual shareholder (such as obligations of
Arkansas or its political subdivisions, of the United States or of certain
territories or possessions of the United States), dividends received from the
Arkansas Fund that represent interest received by the Arkansas Fund on such
obligations will be exempt from Arkansas personal income taxes. To the extent
that distributions by the Arkansas Fund are derived from long-term or short-term
capital gains on such obligations, or from dividends or capital gains on other
types of obligations, such distributions will not be exempt from Arkansas
personal income tax. The opinion addresses the tax consequences when the
Arkansas Fund invests directly in these obligations. The application of these
consequences to the Arkansas Fund when investing in interests of another
registered investment company was the subject of a favorable opinion from
Revenue Counsel for the Arkansas Department of Finance and Administration
obtained when the Portfolio commenced operations.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Arkansas Fund by an Arkansas resident will be taken into account for
Arkansas personal income tax purposes.
GEORGIA TAXES. In the opinion of Powell, Goldstein, Frazer & Murphy, special tax
counsel to the Georgia Fund, under existing law, shareholders who are otherwise
subject to the Georgia personal or corporate income tax will not be subject to
Georgia income tax on distributions with respect to shares of the Georgia Fund
to the extent such distributions represent "exempt-interest dividends" for
Federal income tax purposes that are attributable to interest on obligations
issued by or on behalf of the State of Georgia or its political subdivisions,
and by the governments of Puerto Rico, the U.S. Virgin Islands and Guam to the
extent that such obligations are exempt from State income tax pursuant to
Federal law. Distributions, if any, derived from capital gain or other sources
generally will be taxable to shareholders of the Georgia Fund for Georgia income
tax purposes. Shareholders who are subject to the Georgia corporate net worth
tax, a franchise tax that is based on net worth, will be subject to such tax
with respect to ownership of shares of the Georgia Fund and distributions with
respect thereto.
KENTUCKY TAXES. In the opinion of Wyatt, Tarrant & Combs, special Kentucky tax
counsel to the Kentucky Fund, shareholders of the Kentucky Fund who otherwise
are subject to individual or corporate income taxes of the Commonwealth of
Kentucky will not be subject to such taxes on distributions with respect to
their shares in the Kentucky Fund to the extent that such distributions are
attributable to interest on obligations of the Commonwealth of Kentucky or its
political subdivisions, obligations of the United States, or obligations of the
government of Puerto Rico, the U.S. Virgin Islands or Guam. To the extent that
distributions from the Kentucky Fund are included in a corporate shareholder's
surplus, they will be subject to the Kentucky license (franchise) tax that is
based on net worth. To the extent that the Portfolio's holdings consist of
obligations of the Commonwealth of Kentucky or its political subdivisions and
the balance are obligations of the United States, shares in the Kentucky Fund
will be exempt from the Kentucky Intangibles Tax. Shareholders will be required
to include the entire amount of capital gain dividends in income to the same
extent for state income tax purposes as for federal income tax purposes.
Many local governments in Kentucky, including Louisville, Jefferson County,
Lexington-Fayette Urban County, Bowling Green and Covington, impose taxes on the
net profits of businesses operating (in any form, including sole
proprietorships) within the local jurisdiction. Such taxes should not be imposed
on income derived from an investment in the Kentucky Fund. However, because of
differences in the provisions of the local ordinances, it is not possible to
address their specific impact.
LOUISIANA TAXES. In the opinion of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, L.L.P., special Louisiana tax counsel to the Louisiana Fund, under
existing Louisiana law as long as: (i) the Louisiana Fund qualifies as a
separate "regulated investment company" under the Code; (ii) the Louisiana
Portfolio will be treated as a partnership for federal and state tax purposes;
and (iii) the Louisiana Fund receives income from obligations, the interest on
which would be exempt from Louisiana individual and corporate income taxes if
held directly by an individual shareholder (such as obligations of Louisiana or
its political subdivisions, of the United States or of certain territories or
possessions of the United States), the dividends received from the Louisiana
Fund that represent interest received by the Louisiana Fund on such obligations
will be exempt from Louisiana individual and corporate income taxes. To the
extent that distributions by the Louisiana Fund are derived from long-term or
short-term capital gains on such obligations, or from dividends or capital gains
on other types of obligations, such distributions will not be exempt from
Louisiana individual and corporate income taxes.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Louisiana Fund by a Louisiana resident will be taken into account for
Louisiana individual and corporate income tax purposes. Distributions from and
investments in the Louisiana Fund by corporate shareholders who are otherwise
subject to the Louisiana corporate franchise tax will be included in the capital
of such corporations for Louisiana franchise tax purposes.
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MARYLAND TAXES. In the opinion of Piper & Marbury, L.L.P., special Maryland tax
counsel to the Maryland Fund, so long as the Maryland Fund qualifies to be taxed
as a regulated investment company in the manner set forth in Section 852(b) of
the Code holders of the Maryland Fund who are individuals, estates or trusts and
who are otherwise subject to Maryland State and local individual income taxes
will not be subject to such taxes on Maryland Fund dividends to the extent that
(a) such dividends qualify as exempt-interest dividends of a regulated
investment company under Section 852(b)(5) of the Code, which are attributable
to interest on tax-exempt obligations of the State of Maryland or its political
subdivisions or authorities, or obligations issued by the government of Puerto
Rico, U.S. Virgin Islands or Guam or their authorities ("Maryland tax-exempt
obligations"), (b) such dividends are attributable to interest on obligations of
the U.S. Government or obligations issued or guaranteed by the U.S. Government
and its agencies, instrumentalities and authorities ("U.S. obligations") or (c)
such dividends are attributable to gain realized by the Maryland Fund as a
result of the sale or exchange by the Maryland Portfolio of a bond issued by the
State of Maryland or a political subdivision thereof. To the extent that
distributions of the Maryland Fund are attributable to sources other than the
foregoing (such as short or long-term capital gain or interest on tax-exempt
obligations of states other than Maryland and their political subdivisions and
authorities), such distributions will not be exempt from Maryland State and
local individual income taxes.
Maryland presently includes in Maryland taxable income a portion of certain
items of tax preferences as defined in the Code. Interest paid on certain
private activity bonds constitutes such a tax preference. Accordingly, up to 50%
of any distributions of the Maryland Fund attributable to such private activity
bonds (other than private activity bonds issued by the State of Maryland, its
political subdivision, or authorities) may not be exempt from Maryland State and
local individual income taxes.
Shareholders of the Maryland Fund that are corporations otherwise subject to
Maryland corporate income tax will not be subject to such tax on Maryland Fund
dividends to the extent that (a) such dividends qualify as exempt-interest
dividends under Section 852(b)(5) of the Code which are attributable to Maryland
tax-exempt obligations, (b) such dividends are attributable to interest on U.S.
obligations or (c) such dividends are attributable to gain realized by the
Maryland Fund as a result of the sale or exchange by the Maryland Portfolio of a
bond issue by the State of Maryland or a political subdivision thereof. To the
extent that distributions of the Maryland Fund are attributable to sources other
than the foregoing (such as short or long-term capital gain or interest on
tax-exempt obligations of states other than Maryland and their political
subdivisions and authorities), such distributions will not be exempt from
Maryland corporate income tax.
Shareholders of the Maryland Fund that are financial institutions otherwise
subject to Maryland financial institution franchise taxes will probably be
subject to such taxes on all distributions received from the Maryland Fund
(including exempt-interest dividends). Interest on indebtedness incurred or
continued (directly or indirectly) by a shareholder of the Maryland Fund to
purchase or carry shares of the Maryland Fund will not be deductible for
Maryland State and local individual income tax purposes or corporate income tax
purposes to the extent such interest is allocable to exempt-interest dividends.
Shares of the Maryland Fund will not be subject to the Maryland personal
property tax.
MISSOURI TAXES. In the opinion of Bryan Cave, LLP, special Missouri tax counsel
to the Missouri Fund, so long as the Missouri Fund qualifies for Federal income
taxation as a regulated investment company and the Missouri Portfolio is treated
as a partnership for Federal tax purposes, dividends distributed to individual
shareholders of the Missouri Fund will be exempt from the Missouri personal
income tax imposed by Chapter 143 of the Missouri Revised Statutes to the extent
that such dividends qualify as exempt interest dividends of a regulated
investment company under Section 852(b)(5) of the Code and are derived form
interest on obligations of the United States, its authorities, commissions,
instrumentalities, possessions or territories to the extent exempt from Missouri
income taxes under the laws of the United States (including Puerto Rico, Guam
and the U.S. Virgin Islands), or of the State of Missouri or its political
subdivisions. Capital gain dividends, as defined in Section 852(b)(3) of the
Code, distributable by the Missouri Fund to individual resident shareholders of
the Missouri Fund, to the extent includable in Federal adjusted gross income,
will be subject to Missouri income taxation. Shares in the Missouri Fund are not
subject to Missouri personal property taxes.
NORTH CAROLINA TAXES. In the opinion of Hunton & Williams, special North
Carolina tax counsel to the North Carolina Fund, distributions from the North
Carolina Fund will not be subject to North Carolina individual, trust, or estate
income taxation to the extent that such distributions are either (i) excluded
from federal gross income and represent interest the North Carolina Fund, either
directly or through the North Carolina Portfolio, receives on obligations of
North Carolina or its political subdivisions, nonprofit educational institutions
organized or chartered under the laws of North Carolina, or Puerto Rico, U.S.
Virgin Islands, or Guam or (ii) represent interest the North Carolina Fund,
either directly or through the North Carolina Portfolio, receives on direct
obligations of the United States. These North Carolina income tax exemptions
will be available only if the North Carolina Fund complies with the requirement
of the Code that at least 50% of the value of its assets at the close of each
quarter of its taxable years is invested, either directly or through the North
Carolina Portfolio, in state, municipal, or other obligations described in
(S)103(a) of the Code. The North Carolina Fund intends to comply with that
requirement.
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Any capital gains distributed by the North Carolina Fund (except for capital
gain attributable to the sale by the North Carolina Fund or the North Carolina
Portfolio of an obligation the profit from which is exempt by North Carolina
statute) or gains realized by the shareholder from a redemption or sale of
shares of the North Carolina Fund will be subject to North Carolina individual,
trust, or estate income taxation. Interest on indebtedness incurred (directly or
indirectly) by a shareholder of the North Carolina Fund to purchase or carry
shares of the North Carolina Fund generally will not be deductible for North
Carolina income tax purposes.
The opinion of Hunton & Williams is based on a ruling of the North Carolina
Department of Revenue obtained by Hunton & Williams on behalf of the North
Carolina Fund. That ruling is subject to change.
OREGON TAXES. In the opinion of Oregon tax counsel, so long as the Oregon Fund
qualifies to be taxed as a separate "regulated investment company" under the
Code and the Oregon Portfolio is treated as a partnership (but not a "publicly
traded partnership") under the Code, and so long as the Oregon Fund is deemed
under the regulated investment company provisions of the Code to own its
proportionate share of the assets of the Oregon Portfolio and to be entitled to
the income of the Oregon Portfolio attributable to that share, under existing
Oregon law holders of the Oregon Fund who are individuals, estates or trusts
will not be subject to Oregon personal income tax on Oregon Fund dividends to
the extent that such dividends (i) qualify as "exempt-interest dividends" of a
regulated investment company under the Code and (ii) are attributable to
interest on tax-exempt obligations of the State of Oregon or its political
subdivisions or authorities, or obligations issued by the Governments of Puerto
Rico, U.S. Virgin Islands or Guam or their authorities ("Oregon tax-exempt
obligations").
To the extent that distributions of the Oregon Fund are attributable to certain
sources other than interest on Oregon tax-exempt obligations, including all
short-term and long-term capital gain and interest on tax-exempt obligations of
states other than Oregon and their political subdivisions and authorities, such
distributions will not be exempt from Oregon personal income tax for
individuals, estates or trusts otherwise subject to Oregon personal income tax.
Capital gains or losses realized from a redemption, sale or exchange of shares
of the Oregon Fund will be taken into account for Oregon personal income tax
purposes.
No portion of distributions from the Oregon Fund will be exempt from the Oregon
corporation excise tax, which generally applies to financial corporations
"located within" Oregon and other business corporations "doing or authorized to
do business within" Oregon. Oregon imposes a corporate income tax on
corporations not subject to the Oregon corporation excise tax. Corporations
subject to the Oregon corporation income tax should consult their tax advisors
regarding distributions from the Oregon Fund. Shares of the Oregon Fund will not
be subject to Oregon property tax.
SOUTH CAROLINA TAXES. In the opinion of Nelson, Mullins, Riley & Scarborough,
L.L.P., special South Carolina tax counsel to the South Carolina Fund, under
existing South Carolina law as long as the South Carolina Fund qualifies as a
separate "regulated investment company" under the Code, shareholders of the
South Carolina Fund will not be required to include in their South Carolina
gross income distributions from the South Carolina Fund to the extent such
distributions qualify as "exempt-interest dividends" as defined in the Code,
which are directly attributable to interest received by the South Carolina Fund
on tax-exempt obligations issued by the State of South Carolina or its political
subdivisions or the United States. In the event the South Carolina Fund fails to
qualify as a separate "regulated investment company," the foregoing exemption
may be unavailable or substantially limited. The opinion addresses the tax
consequences when the South Carolina Fund invests directly in these obligations.
The application of these consequences to the South Carolina Fund when investing
in interests of another registered investment company was ruled upon favorably
by the South Carolina Tax Commission.
Capital gains distributed by the South Carolina Fund, or gains realized by a
shareholder from a redemption or sale of shares of the South Carolina Fund, will
be subject to South Carolina income taxes. As intangible personal property, the
shares of the South Carolina Fund are exempt from any and all ad valorem
taxation in South Carolina.
TENNESSEE TAXES. In the opinion of Hunton & Williams, special Tennessee tax
counsel to the Tennessee Fund, individual shareholders of the Tennessee Fund
will not be subject to Tennessee individual income tax on distributions received
from the Tennessee Fund to the extent such distributions are attributable to
interest the Tennessee Fund, either directly or through the Tennessee Portfolio,
receives on (i) bonds or securities of the U.S. Government or any agency or
instrumentality thereof, (ii) bonds of the State of Tennessee or any county,
municipality or political subdivision thereof, including any agency, board,
authority or commission, or (iii) bonds of Puerto Rico, U.S. Virgin Islands or
Guam.
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The opinion of Hunton & Williams is based on a ruling of the Tennessee
Department of Revenue obtained by Hunton & Williams on behalf of the Tennessee
Fund. That ruling is subject to change. The Tennessee Fund will report annually
to its shareholders the percentage and source, on a state-by-state basis, of
interest income received by the Tennessee Fund on municipal bonds during the
preceding year.
On March 16, 1994, the Tennessee Fund received a letter ruling from the
Department of Revenue of the State of Tennessee to the effect that distributions
of capital gains from the Tennessee Fund attributable to tax-exempt securities
are exempt from Tennessee income tax. Tennessee Fund management believes that
Eaton Vance is the only mutual fund sponsor that has obtained such a ruling. The
ruling is subject to change under certain conditions.
VIRGINIA TAXES. In the opinion of Hunton & Williams, special Virginia tax
counsel to the Virginia Fund, under existing Virginia law, distributions from
the Virginia Fund will not be subject to Virginia individual, trust, estate, or
corporate income taxation to the extent that such distributions are either (i)
excluded from federal gross income and attributable to interest the Virginia
Fund, either directly or through the Virginia Portfolio, receives on obligations
of Virginia, its political subdivisions, or its instrumentalities, or Puerto
Rico, U.S. Virgin Islands, or Guam or (ii) attributable to interest the Virginia
Fund, either directly or through the Virginia Portfolio, receives on direct
obligations of the United States. These Virginia income tax exemptions will be
available only if the Virginia Fund complies with the requirement of the Code
that at least 50% of the value of its assets at the close of each quarter of its
taxable year is invested, either directly or through the Virginia Portfolio, in
state, municipal, or other obligations described in (S)103(a) of the Code. The
Virginia Fund intends to comply with that requirement. Other distributions from
the Virginia Fund, including capital gains, generally will not be exempt from
Virginia income taxation.
Interest on indebtedness incurred (directly or indirectly) by shareholders to
purchase or carry shares of the Virginia Fund generally will not be deductible
for Virginia income tax purposes. Neither the Trust nor the Virginia Fund will
be subject to any Virginia intangible property tax on any obligations in the
Virginia Portfolio. In addition, shares of the Virginia Fund held for investment
purposes will not be subject to any Virginia intangible personal property tax.
THE U.S. TERRITORIES. The economy of Puerto Rico is dominated by the
manufacturing and service sectors. Although the economy of Puerto Rico expanded
significantly from fiscal 1984 through fiscal 1990, the rate of this expansion
has slowed through 1996. Growth is dependent on the state of the U.S. economy
and the relative stability in the price of oil, the exchange rate of the U.S.
dollar and the cost of borrowing. Section 936 (a tax incentive that has
encouraged economic growth in Puerto Rico) will be phased out over a ten year
period. At this time, it is uncertain as to the implication the change will have
on the Puerto Rican economy. Although the Puerto Rico unemployment rate has
declined substantially since 1985, the seasonally adjusted unemployment rate for
1996 was approximately 13.8%. The North American Free Trade Agreement (NAFTA),
which became effective January 1, 1994, has led to the loss of lower wage jobs
such as textiles, but economic growth in other areas, particularly the high
technology area has compensated for that loss.
The United States Virgin Islands (USVI) are made up of St. Croix, St. Thomas and
St. John. The economy of the U.S. Virgin Islands is heavily reliant on the
tourism industry, with roughly 43% of non-agricultural employment in
tourist-related trade and services. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe. 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 on 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 after NAFTA.
Increased competition from Mexican rum producers could reduce USVI rum imported
to the U.S., decreasing excise tax revenues generated. The USVI is periodically
hit by hurricanes. Several hurricanes have caused extensive damage, which has
had a negative impact on revenue collections.
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.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it Baa1;
these ratings have been in place since 1956 and 1976, respectively. S&P assigned
a negative outlook on Puerto Rico's rating on April 26, 1994 which was changed
to stable on December 16, 1996. There is currently no rated, unenhanced Virgin
Islands debt outstanding (although there is unrated debt outstanding). Guam's
general obligation debt is rated BBB by S&P with a negative outlook.
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FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years. Certain information in the tables
reflects the financial results for a single Fund share. The total returns in the
tables represent the rate an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all distributions and not
taking into account a sales charge). This information has been audited by
______________, independent accountants. The report of _______________ and each
Fund's financial statements are included in the annual report, which is
available on request. Each Fund began offering two classes of shares on
September 1, 1997.
<TABLE>
<CAPTION>
Alabama Fund
--------------------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994*
- -------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.460 $ 10.440 $ 10.210 $ 11.060
------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.469 $ 0.470 $ 0.479 $ 0.425
Net realized and unrealized gain (loss) on investments 0.386 0.030 0.244 (0.769)
------- -------- -------- --------
Total income (loss) from operations $ 0.855 $ 0.500 $ 0.723 $ (0.344)
------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $(0.465) $ (0.480) $ (0.479) $ (0.425)
In excess of net investment income(4) -- -- (0.014) (0.081)
Total distributions $(0.465) $ (0.480) $ (0.493) $ (0.506)
------- -------- -------- --------
NET ASSET VALUE, end of year $10.850 $ 10.460 $ 10.440 $ 10.210
======= ======== ======== ========
TOTAL RETURN(2) 8.33% 4.85% 7.38% (3.18)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $96,154 $101,692 $108,642 $105,553
Ratio of net expenses to average daily net assets(1)(3) 1.60% 1.57% 1.51% 1.43%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.59% 1.52% -- --
Ratio of net investment income to average daily net assets 4.39% 4.44% 4.74% 4.35%+
PORTFOLIO TURNOVER OF THE PORTFOLIO 23% 52% 51% 26%
(See footnotes on page 37)
</TABLE>
25
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Arkansas Fund
--------------------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994*
- -------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.190 $ 10.250 $ 10.140 $ 10.910
------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.445 $ 0.450 $ 0.460 $ 0.431
Net realized and unrealized gain (loss) on investments 0.324 (0.038) 0.132 (0.703)
------- -------- -------- --------
Total income (loss) from operations $ 0.769 $ 0.412 $ 0.592 $ (0.272)
------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $(0.445) $ (0.471) $ (0.460) $ (0.431)
In excess of net investment income(4) (0.004) (0.001) (0.022) (0.067)
------- -------- -------- --------
Total distributions $(0.449) $ (0.472) $ (0.482) $ (0.498)
------- -------- -------- --------
NET ASSET VALUE, end of year $10.510 $ 10.190 $ 10.250 $ 10.140
======= ======== ======== ========
TOTAL RETURN(2) 7.70% 4.05% 6.15% (2.53)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000's omitted) $61,322 $ 72,868 $ 80,823 $ 82,436
Ratio of net expenses to average daily net assets(1)(3) 1.60% 1.56% 1.50% 1.17%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.59% 1.54% -- --
Ratio of net investment income to average daily net assets 4.31% 4.34% 4.67% 4.47%+
PORTFOLIO TURNOVER OF THE PORTFOLIO 17% 11% 23% 16%
*For the period indicated, the operating expenses of the Arkansas Fund reflect an allocation of expenses to the Administrator
and/or the Investment Adviser. Had such actions not been taken, net investment income per share and the ratiors would have
been as follows:
NET INVESTMENT INCOME PER SHARE $0.409
====== ====== ======
RATIOS (as a percentage of average daily net assets):
EXPENSES(1)(3) 1.40%
Net Investment income 4.24%
(See footnotes on page 37)
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Georgia Fund
------------------------------------------------------------------
Year Ended August 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994*
- ----------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.810 $ 9.790 $ 9.800 $ 10.750
------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.449 $ 0.451 $ 0.450 $ 0.413
Net realized and unrealized gain (loss) on investments 0.336 0.024 0.007++ (0.841)
------- -------- -------- --------
Total income (loss) from operations $ 0.785 $ 0.475 $ 0.457 $ (0.428)
------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $(0.455) $ (0.455) $ (0.450) $ (0.413)
In excess of net investment income(4) -- -- (0.017) (0.065)
In excess of net realized gain on investment transactions -- -- -- (0.044)
------- -------- -------- --------
Total distributions $(0.455) $ (0.455) $ (0.467) $ (0.522)
------- -------- -------- --------
NET ASSET VALUE, end of year $10.140 $ 9.810 $ 9.790 $ 9.800
======= ======== ======== ========
TOTAL RETURN(2) 8.16% 4.91% 4.90% (4.08)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $93,128 $106,992 $120,143 $134,481
Ratio of net expenses to average daily net assets(1)(3) 1.59% 1.58% 1.49% 1.41%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.57% 1.52% -- --
Ratio of net investment income to average daily net assets 4.48% 4.55% 4.72% 4.39%+
PORTFOLIO TURNOVER OF THE PORTFOLIO 13% 21% 48% 45%
(See footnotes on page 37)
</TABLE>
27
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Kentucky Fund
------------------------------------------------------------------
Year Ended August 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.970 $ 9.990 $ 9.850 $ 10.780
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.456 $ 0.450 $ 0.458 $ 0.415
Net realized and unrealized gain (loss)on investments 0.435 (0.009)++ 0.163 (0.811)
-------- -------- -------- --------
Total income (loss) from operations $ 0.891 $ 0.441 $ 0.621 $ (0.396)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.451) $ (0.450) $ (0.458) $ (0.415)
In excess of net investment income(4) -- (0.011) (0.023) (0.075)
From net realized gain on investment transactions -- -- -- (0.028)
Total distributions $ (0.451) $ (0.461) $ (0.481) $ (0.534)
-------- -------- -------- --------
NET ASSET VALUE, end of year $ 10.410 $ 9.970 $ 9.990 $ 9.850
======== ======== ======== ========
TOTAL RETURN(2) 9.12% 4.45% 6.61% (3.78)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (00's omitted) $121,376 $131,357 $143,106 $141,994
Ratio of net expenses to average daily net assets(1)(3) 1.60% 1.57% 1.52% 1.44%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.57% 1.54% -- --
Ratio of net investment income to average daily net assets 4.50% 4.45% 4.74% 4.39%
PORTFOLIO TURNOVER OF THE PORTFOLIO 28% 28% 30% 21%
(See footnotes on page 37)
</TABLE>
28
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Louisiana Fund
--------------------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994*
- -------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.960 $ 9.980 $ 10.010 $ 11.130
------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.482 $ 0.486 $ 0.487 $ 0.447
Net realized and unrealized gain (loss) on investments 0.350 (0.016) (0.006)++ (0.937)
------- -------- -------- --------
Total income (loss) from operations $ 0.832 $ 0.470 $ 0.481 $ (0.490)
------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $(0.482) $ (0.490) $ (0.487) $ (0.447)
In excess of net investment income(3) -- -- (0.024) (0.074)
From net realized gain on investment transaction -- -- -- (0.109)
Total distributions $(0.482) $ (0.490) $ (0.511) $ (0.630)
------- -------- -------- --------
NET ASSET VALUE, end of year $10.310 $ 9.960 $ 9.980 $ 10.010
======= ======== ======== ========
TOTAL RETURN(2) 8.52% 4.77% 5.08% (4.56)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of year (000's omitted) $31,996 $ 32,994 $ 31,836 $ 29,020
Ratio of net expenses to average daily net assets(1)(3) 1.54% 1.41% 1.31% 1.08%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.52% 1.34% -- --
Ratio of net investment income to average daily net assets 4.74% 4.82% 4.97% 4.62%
PORTFOLIO TURNOVER OF THE PORTFOLIO 27% 99% 46% 21%
*For the period indicated, the operating expenses of the Louisiana Fund reflect an allocation of expenses to the Administrator
and/or the Investment Adviser. Had such actions not been taken, net investment income per share and the ratiors would have
been as follows:
NET INVESTMENT INCOME PER SHARE $0.474 $0.470 $0.412
====== ====== ======
RATIOS (as a percentage of average daily net assets):
EXPENSES(1)(3) 1.53% 1.42% 1.44%
EXPENSES AFTER CUSTODIAN FEE REDUCTION(1) 1.45% -- --
Net Investment income 4.70% 4.86% 4.26%
(See footnotes on page 37)
</TABLE>
29
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Maryland Fund
------------------------------------------------------------------
Year Ended August 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 10.300 $ 10.230 $ 10.070 $ 11.070
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.453 $ 0.464 $ 0.476 $ 0.428
Net realized and unrealized gain (loss) on investments 0.419 0.086 0.169 (0.922)
-------- -------- -------- --------
Total income (loss) from operations $ 0.872 $ 0.550 $ 0.645 $ (0.494)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.462) $ (0.480) $ (0.476) $ (0.428)
In excess of net investment income(4) -- -- (0.009) (0.070)
In excess of net realized gain on investment transactions -- -- -- (0.008)
-------- -------- -------- --------
Total distributions $ (0.462) $ (0.480) $ (0.485) $ (0.506)
-------- -------- -------- --------
NET ASSET VALUE, end of year $ 10.710 $ 10.300 $ 10.230 $ 10.070
======== ======== ======== ========
TOTAL RETURN(2) 8.64% 5.44% 6.71% (4.56)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $105,671 $109,243 $113,826 $116,721
Ratio of net expenses to average daily net assets(1)(3) 1.57% 1.57% 1.50% 1.43%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.54% 1.55% -- --
Ratio of net investment income to average daily net assets 4.30% 4.46% 4.82% 4.44%
PORTFOLIO TURNOVER OF THE PORTFOLIO 30% 33% 30% 41%
(See footnotes of page 37)
</TABLE>
30
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Missouri Fund
---------------------------------------------------------------
Year Ended August 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994*
- --------------------------------------------------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.510 $10.510 $10.240 $11.250
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.478 $ 0.476 $ 0.477 $ 0.423
Net realized and unrealized gain (loss) on investments 0.493 0.003 0.289 (0.904)
------- ------- ------- -------
Total income (loss) from operations $ 0.971 $ 0.479 $ 0.766 $(0.481)
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.471) $(0.476) $(0.477) $(0.423)
In excess of net investment income(4) -- (0.003) (0.019) (0.084)
In excess of net realized gain on investment transactions -- -- -- (0.022)
------- ------- ------- -------
Total distributions $(0.471) $(0.479) $(0.496) $(0.529)
------- ------- ------- -------
NET ASSET VALUE, end of year $11.010 $10.510 $10.510 $10.240
======= ======= ======= =======
TOTAL RETURN(2) 9.42% 4.60% 7.28% (4.33)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $77,479 $82,385 $89,811 $91,227
Ratio of net expenses to average daily net assets(1)(3) 1.57% 1.56% 1.53% 1.49%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.56% 1.54% -- --
Ratio of net investment income to average daily net assets 4.44% 4.47% 4.72% 4.30%
PORTFOLIO TURNOVER OF THE PORTFOLIO 5% 36% 24% 28%
(See footnotes on page 37)
</TABLE>
31
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
North Carolina Fund
-----------------------------------------------------------------
Year Ended August 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 9.970 $ 9.960 $ 9.970 $ 10.490
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.452 $ 0.452 $ 0.466 $ 0.423
Net realized and unrealized gain (loss) on investments 0.378 0.026 0.011++ (0.895)
-------- -------- -------- --------
Total income (loss) from operations $ 0.830 $ 0.478 $ 0.477 $ (0.472)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.455) $ (0.455) $ (0.466) $ (0.423)
In excess of net investment income(4) (0.005) (0.013) (0.021) (0.075)
Total distributions $ (0.460) $ (0.468) $ (0.487) $ (0.498)
-------- -------- -------- --------
NET ASSET VALUE, end of year $ 10.340 $ 9.970 $ 9.960 $ 9.970
======== ======== ======== ========
TOTAL RETURN(2) 8.50% 4.83% 5.03% (4.40)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $151,564 $169,889 $188,450 $192,667
Ratio of net expenses to average daily net assets(1)(3) 1.60% 1.59% 1.51% 1.42%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.58% 1.54% -- --
Ratio of net investment income to average daily net assets 4.48% 4.47% 4.78% 4.43%+
PORTFOLIO TURNOVER OF THE PORTFOLIO 42% 54% 33% 37%
(See footnotes on page 37)
</TABLE>
32
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Oregon Fund
------------------------------------------------------------------
Year Ended August 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 10.240 $ 10.310 $ 10.090 $ 11.130
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.456 $ 0.450 $ 0.455 $ 0.415
Net realized and unrealized gain (loss) on investments 0.266 (0.061) 0.241 (0.869)
-------- -------- -------- --------
Total income (loss) from operations $ 0.722 $ 0.389 $ 0.696 $ (0.454)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.452) $ (0.457) $ (0.455) $ (0.415)
In excess of net investment income(4) -- (0.002) (0.021) (0.078)
From net realized gain on investments -- -- -- (0.093)
Total distributions $ (0.452) $ (0.459) $ (0.476) $ (0.586)
-------- -------- -------- --------
NET ASSET VALUE, end of year $ 10.510 $ 10.240 $ 10.310 $ 10.090
======== ======== ======== ========
TOTAL RETURN(2) 7.20% 3.80% 7.22% (4.21)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $112,586 $128,580 $145,056 $151,127
Ratio of net expenses to average daily net assets(1)(3) 1.63% 1.56% 1.53% 1.43%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.63% 1.53% -- --
Ratio of net investment income to average daily net assets 4.41% 4.33% 4.59% 4.28%+
PORTFOLIO TURNOVER OF THE PORTFOLIO 22% 28% 22% 15%
(See footnotes on page 37)
</TABLE>
33
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
South Carolina Fund
-----------------------------------------------------------------
Year Ended August 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.020 $10.000 $ 9.940 $10.890
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.463 $ 0.467 $ 0.460 $ 0.408
Net realized and unrealized gain (loss) on investments 0.364 0.021 0.071 (0.870)
------- ------- ------- -------
Total income (loss) from operations $ 0.827 $ 0.488 $ 0.531 $(0.462)
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.467) $(0.468) $(0.460) $(0.408)
In excess of net investment income(4) -- -- (0.011) (0.080)
------- ------- ------- -------
Total distributions $(0.467) $(0.468) $(0.471) $(0.488)
------- ------- ------- -------
NET ASSET VALUE, end of year $10.380 $10.020 $10.000 $ 9.940
======= ======= ======= =======
TOTAL RETURN(2) 8.41% 4.92% 5.64% (4.33)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $52,686 $57,217 $59,955 $59,878
Ratio of net expenses to average daily net assets(1)(3) 1.63% 1.60% 1.49% 1.36%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.62% 1.58% -- --
Ratio of net investment income to average daily net assets 4.50% 4.60% 4.77% 4.27%+
PORTFOLIO TURNOVER OF THE PORTFOLIO 8% 36% 75% 23%
(See footnotes on page 37)
</TABLE>
34
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Tennessee Fund
-----------------------------------------------------------------
Year Ended August 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $10.150 $10.110 $10.020 $11.070
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.453 $ 0.457 $ 0.468 $ 0.426
Net realized and unrealized gain (loss) on investments 0.436 0.059 0.115 (0.848)
------- ------- ------- -------
Total income (loss) from operations $ 0.889 $ 0.516 $ 0.583 $(0.422)
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income $(0.453) $(0.475) $(0.468) $(0.426)
In excess of net investment income(4) (0.006) (0.001) (0.025) (0.071)
From net realized gain on investments -- -- -- (0.094)
In excess of net realized gain on investments(4) -- -- -- (0.037)
------- ------- ------- -------
Total distributions $(0.459) $(0.476) $(0.493) $(0.628)
------- ------- ------- -------
NET ASSET VALUE, end of year $10.580 $10.150 $10.110 $10.020
======= ======= ======= =======
TOTAL RETURN(2) 8.95% 5.16% 6.12% (3.93)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $51,712 $54,533 $57,484 $55,379
Ratio of net expenses to average daily net assets(1)(3) 1.54% 1.53% 1.47% 1.37%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.53% 1.51% -- --
Ratio of net investment income to average daily net assets 4.39% 4.45% 4.77% 4.44%+
PORTFOLIO TURNOVER OF THE PORTFOLIO 3% 39% 20% 10%
(See footnotes on page 37)
</TABLE>
35
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Virginia Fund
----------------------------------------------------------------
Year Ended August 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year $ 10.260 $ 10.260 $ 10.120 $ 11.060
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS:
Net investment income $ 0.467 $ 0.471 $ 0.479 $ 0.438
Net realized and unrealized gain (loss) on investments 0.369 0.006 0.161 (0.864)
-------- -------- -------- --------
Total income (loss) from operations $ 0.836 $ 0.477 $ 0.640 $ (0.426)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income $ (0.466) $ (0.471) $ (0.479) $ (0.438)
In excess of net investment income(4) -- (0.006) (0.021) (0.076)
-------- -------- -------- --------
Total distributions $ (0.466) $ (0.477) $ (0.500) $ (0.514)
-------- -------- -------- --------
NET ASSET VALUE, end of year $ 10.630 $ 10.260 $ 10.260 $ 10.120
======== ======== ======== ========
TOTAL RETURN(2) 8.31% 4.67% 6.62% (3.95)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's omitted) $159,603 $175,918 $189,535 $193,420
Ratio of net expenses to average daily net assets(1)(3) 1.60% 1.56% 1.50% 1.44%+
Ratio of net expenses to average daily net assets after
custodian fee reduction(1) 1.57% 1.53% -- --
Ratio of net investment income to average daily net assets 4.47% 4.52% 4.81% 4.51%+
PORTFOLIO TURNOVER OF THE PORTFOLIO 25% 30% 38% 48%
(See footnotes on page 37)
</TABLE>
* For the eleven months ended August 31, 1994.
+ Annualized.
++ The per share amount is not in accord with the net realized and unrealized
gain (loss) for the period because of the timing of sales of the Fund
shares and the amount of per share realized and unrealized gains and losses
at such time.
(1) Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
(2) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. 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 year ended August 31, 1996 and periods
thereafter have been adjusted to reflect a change in reporting
requirements. The new reporting guidelines require the Fund, as well as its
corresponding Portfolio, to increase its expense ratio by the effect of any
expense offset arrangements with its service providers. The expense ratios
for each of the prior periods have not been adjusted to reflect this
change.
(4) The Funds have followed the Statement of Position (SOP) 93-2:
Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distribution 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.
36
<PAGE>
LOGO
Mutual Funds
for
People
Who Pay
Taxes
MORE INFORMATION
- --------------------------------------------------------------------------------
ABOUT THE FUNDS: More information is available in the statement of
additional information. The statement of additional information is
incorporated by reference into this prospectus. Additional
information about each Portfolio's investments is available in the
annual and semi-annual reports to shareholders. In the annual
report, you will find a discussion of the market conditions and
investment strategies that significantly affected each Fund's
performance during the past year. You may obtain free copies of the
statement of additional information and the shareholder report by
contacting:
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
1-800-225-6265
website: www.eatonvance.com
You will find and may copy information about each Fund at the
Securities and Exchange Commission's public reference room in
Washington, DC (call 1-800-SEC-0330 for information); on the SEC's
Internet site (http://www.sec.gov); or upon payment of copying fees
by writing to the SEC's public reference room in Washington, DC
20549-6009.
ABOUT SHAREHOLDER ACCOUNTS: You can obtain more information from
Eaton Vance Shareholder Services (1-800-225-6265). If you own
shares and would like to add to, redeem or change your account,
please write or call the transfer agent:
- --------------------------------------------------------------------------------
First Data Investor Services Group
P.O. Box 5123
Westborough, MA 01581-5123
1-800-262-1122
SEC File No. 811-4409 12MUNI1/1P
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
January 1, 1999
EATON VANCE ALABAMA MUNICIPALS FUND
EATON VANCE ARKANSAS MUNICIPALS FUND
EATON VANCE GEORGIA MUNICIPALS FUND
EATON VANCE KENTUCKY MUNICIPALS FUND
EATON VANCE LOUISIANA MUNICIPALS FUND
EATON VANCE MARYLAND MUNICIPALS FUND
EATON VANCE MISSOURI MUNICIPALS FUND
EATON VANCE NORTH CAROLINA MUNICIPALS FUND
EATON VANCE OREGON MUNICIPALS FUND
EATON VANCE SOUTH CAROLINA MUNICIPALS FUND
EATON VANCE TENNESSEE MUNICIPALS FUND
EATON VANCE VIRGINIA MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information ("SAI") provides general
information about the Funds listed above and their corresponding Portfolios.
Each Fund is a series of Eaton Vance Municipals Trust. Capitalized terms used in
this SAI and not otherwise defined have the meanings given to them in the
prospectus. This SAI contains additional information about:
Page
Strategies and Risks ........................................... 1
Investment Restrictions ........................................ 6
Management and Organization .................................... 7
Investment Advisory and Administrative Services ................ 11
Other Service Providers ........................................ 14
Purchasing and Redeeming Shares ................................ 14
Sales Charges .................................................. 16
Performance .................................................... 19
Taxes .......................................................... 20
Portfolio Trading .............................................. 22
Financial Statements ........................................... 24
Appendices:
A: Class A Fees, Performance and Ownership ..................... a-1
B: Class B Fees, Performance and Ownership ..................... b-1
C: State Specific Information .................................. c-1
D: Yield Tables ................................................ d-1
E: Description of Municipal Obligation Ratings ................. e-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund (or Class) might become liable for a misstatement or
omission in this SAI regarding another Fund (or Class) because the Funds use
this combined SAI. The Trustees of the Trust have considered this factor in
approving the use of a combined SAI.
THIS IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED JANUARY
1, 1999, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED HEREIN BY
REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS, WHICH MAY
BE OBTAINED BY CALLING 1-800-225-6265.
<PAGE>
STRATEGIES AND RISKS
MUNICIPAL OBLIGATIONS. Municipal obligations are issued to obtain funds for
various public and private purposes. Municipal 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. 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.
In general, there are three categories of municipal obligations the interest
on which is exempt from federal income tax and is not a tax preference item for
purposes of the AMT: (i) certain "public purpose" obligations (whenever issued),
which include obligations issued directly by state and local governments or
their agencies to fulfill essential governmental functions; (ii) certain
obligations issued before August 8, 1986 for the benefit of non-governmental
persons or entities; and (iii) certain "private activity bonds" issued after
August 7, 1986 which include "qualified Section 501(c)(3) bonds" or refundings
of certain obligations included in the second category. Interest on certain
"private activity bonds" issued after August 7, 1986 is exempt from regular
federal income tax, but such interest (including a distribution by a Fund
derived from such interest) is treated as a tax preference item which could
subject the recipient to or increase the recipient's liability for the AMT. For
corporate shareholders, a Fund's distributions derived from interest on all
municipal obligations (whenever issued) is included in "adjusted current
earnings" for purposes of the AMT as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds). In assessing the federal income tax treatment of
interest on any municipal obligation, the Portfolios 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. 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.
Revenue bonds are generally secured by the net revenues derived from a
particular facility or group of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. Revenue bonds have been
issued to fund a wide variety of capital projects including: electric, gas,
water, sewer and solid waste disposal systems; highways, bridges and tunnels;
port, airport and parking facilities; transportation systems; housing
facilities, colleges and universities and hospitals. Although the principal
security behind these bonds varies widely, many provide additional security in
the form of a debt service reserve fund whose monies may be used to make
principal and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security including partially or fully insured,
rent subsidized and/or collateralized mortgages, and/or the net revenues from
housing or other public projects. In addition to a debt service reserve fund,
some authorities provide further security in the form of a state's ability
(without legal obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are normally secured by annual lease rental payments from the
state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality. Industrial development and pollution
control bonds, although nominally issued by municipal authorities, are in most
cases revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users. Each Portfolio may on occasion
acquire revenue bonds which carry warrants or similar rights covering equity
securities. Such warrants or rights may be held indefinitely, but if exercised,
the Portfolio anticipates that it would, under normal circumstances, dispose of
any equity securities so acquired within a reasonable period of time.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. Each Portfolio will take whatever action it considers appropriate
in the event of anticipated financial difficulties, default or bankruptcy of
either the issuer of any municipal obligation or of the underlying source of
funds for debt service. Such action may include retaining the services of
various persons or firms (including affiliates of the investment adviser) to
evaluate or protect any real estate, facilities or other assets securing any
such obligation or acquired by a Portfolio as a result of any such event, and a
Portfolio may also manage (or engage other persons to manage) or otherwise deal
with any real estate, facilities or other assets so acquired. The Portfolio
anticipates that real estate consulting and management services may be required
with respect to properties securing various municipal obligations in its
portfolio or subsequently acquired by the Portfolio. The Portfolio will incur
additional expenditures in taking protective action with respect to portfolio
obligations in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of the municipal obligations which they undertake to rate. It should be
emphasized, however, that ratings are based on judgment and are not absolute
standards of quality. Consequently, municipal obligations with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield. In
addition, the market price of such obligations will normally fluctuate with
changes in interest rates, and therefore the net asset value of a Portfolio will
be affected by such changes.
STATE-SPECIFIC CONCENTRATION. For a discussion of the risks associated with
investing in municipal obligations of a particular state's issuers, see "Risks
of Concentration" in Appendix C. Each Portfolio may also invest up to 35% of its
net assets in the obligations of Puerto Rico and up to 5% of its net assets in
obligations of each of 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. Information about some of these conditions and
developments is included in Appendix C.
ISSUER CONCENTRATION. Each Portfolio may invest 25% or more of its total assets
in municipal obligations of the same type. There could be economic, business or
political developments which might affect all municipal obligations of the same
type. In particular, investments in industrial revenue bonds might involve
(without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Bonds to finance life care facilities 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. Each Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment purchase
arrangement which is issued by state or local governments to acquire equipment
and facilities. Interest income from such obligations is generally exempt from
local and state taxes in the state of issuance. "Participations" in such leases
are undivided interests in a portion of the total obligation. Participations
entitle their holders to receive a pro rata share of all payments under the
lease. 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.
Certain municipal lease obligations owned by each Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the investment adviser, pursuant to
guidelines adopted by the Trustees of a Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the investment adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
investment adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by a Portfolio. In the
event a Portfolio acquires an unrated municipal lease obligation, the investment
adviser will be responsible for determining the credit quality of such
obligation on an on-going basis, including an assessment of the likelihood that
the lease may or may not be cancelled.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations which do not require
the periodic payment of interest and are issued at a significant discount from
face value. The discount approximates the total amount of interest the bonds
will accrue and compound over the period until maturity at a rate of interest
reflecting the market rate of the security at the time of issuance. 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.
CREDIT QUALITY. While municipal obligations rated investment grade or below and
comparable unrated municipal 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.
Municipal obligations held by a Portfolio which are rated below investment
grade but which, subsequent to the assignment of such rating, are backed by
escrow accounts containing U.S. Government obligations may be determined by the
investment adviser to be of investment grade quality for purposes of the
Portfolio's investment policies. A Portfolio may retain in its portfolio an
obligation whose rating drops below B after its acquisition, including defaulted
obligations, if such retention is considered desirable by the investment
adviser; provided, however, that holdings of obligations rated below Baa or BBB
will be less than 35% of net assets. In the event the rating of an obligation
held by a Portfolio is downgraded, causing the Portfolio to exceed this
limitation, the investment adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary in
order to comply with the Portfolio's credit quality limitations. In the case of
a defaulted obligation, a Portfolio may incur additional expense seeking
recovery of its investment. See "Portfolio of Investments" in the "Financial
Statements" incorporated by reference into this SAI with respect to any
defaulted obligations held by a Portfolio.
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. 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.
WHEN-ISSUED SECURITIES. New issues of municipal obligations are sometimes
offered on a "when-issued" basis, that is, delivery and payment for the
securities normally take place within a specified number of days after the date
of a Portfolio's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. Each Portfolio may also purchase
securities on a when-issued basis pursuant to refunding contracts in connection
with the refinancing of an issuer's outstanding indebtedness. Refunding
contracts generally require the issuer to sell and a Portfolio to buy such
securities on a settlement date that could be several months or several years in
the future. Each Portfolio may also purchase instruments that give the Portfolio
the option to purchase a municipal obligation when and if issued.
Each Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time a Portfolio enters into the
purchase commitment. When a Portfolio commits to purchase a security on a
when-issued basis it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by a Portfolio are subject to changes
in value based upon the perception of the creditworthiness of the issuer and
changes in the level of interest rates (i.e., appreciation when interest rates
decline and depreciation when interest rates rise). Therefore, to the extent
that a Portfolio remains substantially fully invested at the same time that it
has purchased securities on a when-issued basis, there will be greater
fluctuations in the Portfolio's net asset value than if it solely set aside cash
to pay for when-issued securities.
REDEMPTION, DEMAND AND PUT FEATURES AND PUT OPTIONS. Issuers of municipal
obligations reserve the right to call (redeem) the bond. 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. 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.
LIQUIDITY AND PROTECTIVE PUT OPTIONS. Each Portfolio may enter into a separate
agreement with the seller of the security or some other person granting the
Portfolio the right to put the security to the seller thereof or the other
person at an agreed upon price. Each Portfolio intends to limit this type of
transaction to institutions (such as banks or securities dealers) which the
investment adviser believes present minimal credit risks and would engage in
this type of transaction to facilitate portfolio liquidity or (if the seller so
agrees) to hedge against rising interest rates. There is no assurance that this
kind of put option will be available to a Portfolio or that selling institutions
will be willing to permit a Portfolio to exercise a put to hedge against rising
interest rates. A 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 be taxable.
ILLIQUID OBLIGATIONS. 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.
SECURITIES LENDING. Each Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers.
Distributions by a Fund of any income realized by a Portfolio from securities
loans will be taxable. If the management of a Portfolio decides to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of a Portfolio's total assets. Each Portfolio has no present
intention of engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A change in the level of
interest rates may affect the value of the securities held by a Portfolio (or of
securities that a Portfolio expects to purchase). To hedge against changes in
rates or as a substitute for the purchase of securities, a Portfolio may enter
into (i) futures contracts for the purchase or sale of debt securities and (ii)
futures contracts on securities indices. All futures contracts entered into by a
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or foreign
exchange or board of trade. The Portfolio will be required, in connection with
transactions in futures contracts and the writing of options on futures, to make
margin deposits, which will be held by the Portfolio's custodian for the benefit
of the futures commission merchant through whom the Portfolio engages in such
futures and options transactions.
Some futures contracts and options thereon may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit transactions in an exchange-traded instrument,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or futures option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Portfolio from closing out
positions and limiting its losses.
Each Portfolio will engage in futures and related options transactions for
bona fide hedging purposes or non-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 used for hedging purposes are
substantially related to price fluctuations in securities held by the Portfolio
or which it expects to purchase. Each Portfolio will engage in transactions in
futures and related options contracts only to the extent such transactions are
consistent with the requirements of the Code for maintaining qualification of a
Fund as a regulated investment company for federal income tax purposes (see
"Taxes").
ASSET COVERAGE REQUIREMENTS. Transactions involving when-issued securities or
futures contracts and options (other than options that the Portfolio has
purchased) expose the Portfolio to an obligation to another party. A Portfolio
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options or futures
contracts, or (2) cash or liquid securities (such as readily marketable
obligations and money market instruments) with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. Each
Portfolio will comply with Securities and Exchange Commission ("SEC") guidelines
regarding cover for these instruments and, if the guidelines so require, set
aside cash or liquid securities in a segregated account with its custodian in
the prescribed amount. The securities in the segregated account will be marked
to market daily.
Assets used as cover or held in a segregated account maintained by the
custodian cannot be sold while the position requiring coverage or segregation is
outstanding unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of a Portfolio's assets to segregated accounts
or to cover could impede portfolio management or a Portfolio's ability to meet
redemption requests or other current obligations.
PORTFOLIO TURNOVER. Each Portfolio may sell (and later purchase) securities in
anticipation of a market decline (a rise in interest rates) or purchase (and
later sell) securities in anticipation of a market rise (a decline in interest
rates). In addition, a security may be sold and another purchased at
approximately the same time to take advantage of what a Portfolio believes to be
a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, such as changes in the overall demand for or supply of various types of
municipal obligations or changes in the investment objectives of investors. Such
trading may be expected to increase the portfolio turnover rate, which may
increase capital gains and the expenses incurred in connection with such
trading. A Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual portfolio turnover rate will generally not
exceed 100% (excluding turnover of securities having a maturity of one year or
less). A 100% annual turnover rate could occur, for example, if all the
securities held by a Portfolio were replaced once in a period of one year. A
high turnover rate (100% or more) necessarily involves greater expenses to the
Portfolio. Each Portfolio engages in portfolio trading (including short-term
trading) if it believes that a transaction including all costs will help in
achieving its investment objective.
INVESTMENT RESTRICTIONS
The following investment restrictions of each Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of a Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of a Fund present or
represented by proxy at a meeting if the holders of more than 50% of the shares
are present or represented at the meeting or (b) more than 50% of the shares of
a Fund. Accordingly, each Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940 (the "1940 Act");
(2) Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities). The deposit or payment by the Fund of initial or
maintenance margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in
selling a portfolio security under circumstances which may require the
registration of the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership
interests in real estate but excluding readily marketable interests in real
estate investment trusts or readily marketable securities of companies which
invest or deal in real estate or securities which are secured by real
estate);
(5) Purchase or sell physical commodities or contracts for the purchase
or sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of each Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
Each Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by each Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of a Portfolio.
The Funds and the Portfolios have adopted the following investment policies
which may be changed by the Trustees with respect to a Fund without approval by
that Fund's shareholders or with respect to the Portfolio without approval of a
Fund or its other investors. Each Fund and each 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; or
(c) invest more than 15% of its net assets in investments which are not
readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial paper
issued pursuant to Section 4(2) of said Act that the Board of Trustees of
the Trust or the Portfolio, or its delegate, determines to be liquid.
For purposes of a Portfolio's investment restrictions, the determination of
the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's investment adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease resulting
from a change in values, assets or other circumstances, or any subsequent rating
change below investment grade made by a rating service, will not compel the Fund
or the Portfolio, as the case may be, to dispose of such security or other
asset. Where applicable and notwithstanding the foregoing, under normal market
conditions the Fund and the Portfolio must take actions necessary to comply with
the policy of investing at least 65% of total assets in a particular state and
not investing more than 15% of net assets in illiquid securities. Moreover, the
Fund and Portfolio must always be in compliance with the borrowing policies set
forth above.
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees of the Trust are responsible for the overall
management and supervision of the Trust's affairs. The Trustees and officers of
the Trust and the Portfolios are listed below. Except as indicated, each
individual has held the office shown or other offices in the same company for
the last five years. Unless otherwise noted, the business address of each
Trustee and officer is 24 Federal Street, Boston, Massachusetts 02110. Those
Trustees who are "interested persons" of the Trust or a Portfolio, as defined in
the 1940 Act, are indicated by an asterisk(*).
DONALD R. DWIGHT (67), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee of various investment companies managed by Eaton Vance or
BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (57), Vice President and Trustee*
Chairman, President and Chief Executive Officer of BMR, Eaton Vance and their
corporate parent and trustee (EVC and EV); Director of EVC and EV. Trustee and
officer of various investment companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (63), Trustee
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of the Kobrick - Cendant
Investment Trust (mutual funds). Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 345 Nahatan Road, Westwood, Massachusetts 02090
NORTON H. REAMER (63), Trustee
Chairman of the Board and Chief Executive Officer, United Asset Management
Corporation (a holding company owning institutional investment management
firms); Chairman, President and Director, UAM Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (72), Trustee
Formerly Director of Fiduciary Company Incorporated. Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (68), Trustee
Investment Adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
THOMAS J. FETTER (55), President
Vice President of BMR and Eaton Vance. Officer of various investment
companies managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (41), Vice President
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (53), Treasurer
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ALAN R. DYNNER (58), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance and EVC since
November 1, 1996. Previously, he was a Partner of the law firm of Kirkpatrick
& Lockhart LLP, New York and Washington, D.C., and was Executive Vice
President of Neuberger & Berman Management, Inc., a mutual fund management
company. Officer of various investment companies managed by Eaton Vance or
BMR.
JANET E. SANDERS (63), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (35), Assistant Secretary
Assistant Vice President of BMR and Eaton Vance. Officer of various investment
companies managed by Eaton Vance or BMR.
ERIC G. WOODBURY (41), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
In addition, William H. Ahern, Jr. (39), Vice President of Eaton Vance and
BMR, is a Vice President of the Colorado and Connecticut Portfolios. Timothy
T. Browse (39), Vice President of Eaton Vance and BMR, is a Vice President of
the Michigan and Pennsylvania Portfolios. Cynthia J. Clemson (35), Vice
President of Eaton Vance and BMR, is a Vice President of the Arizona
Portfolio. Thomas M. Metzhold (40), Vice President of Eaton Vance and BMR, is
a Vice President of the Texas Portfolio. Ms. Clemson, and Messrs. Ahern,
Browse and Metzold are officers of various investment companies managed by
Eaton Vance or BMR.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolios. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Funds and the Portfolios, including
investment advisory (Portfolio only), administrative, transfer agency, custodial
and fund accounting and distribution services, and (ii) all other matters in
which Eaton Vance or its affiliates has any actual or potential conflict of
interest with the Funds, the Portfolios or investors therein.
The Nominating Committee of the Board of Trustees of the Trust and the
Portfolios is comprised of four Trustees who are not "interested persons" as
that term is defined under the 1940 Act ("noninterested Trustees"). The
Committee has four-year staggered terms, with one member rotating off the
Committee to be replaced by another noninterested Trustee. The purpose of the
Committee is to recommend to the Board nominees for the position of
noninterested Trustee and to assure that at least a majority of the Board of
Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolios. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent accountants, and reviewing matters relative to trading and
brokerage policies and practices, accounting and auditing practices and
procedures, accounting records, internal accounting controls, and the functions
performed by the custodian, transfer agent and dividend disbursing agent of the
Trust and of the Portfolios.
Trustees of the Portfolios who are not affiliated with the investment
adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Trustees" Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by a Portfolio in the shares of one or more
funds in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolios' assets, liabilities, and net
income per share, and will not obligate a Portfolio to retain the services of
any Trustee or obligate a Portfolio to pay any particular level of compensation
to the Trustee. Neither the Portfolios nor the Trust has a retirement plan for
its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and of the
Portfolios are paid by the Funds (and the other series of the Trust) and the
Portfolios, respectively. (The Trustees of the Trust and the Portfolios who are
members of the Eaton Vance organization receive no compensation from the Trust
or the Portfolios). During the fiscal year ended August 31, 1998, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Trust, the Portfolio and
the Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
SAMUEL L.
DONALD R. HAYES, III NORTON H. JOHN L. JACK L.
SOURCE OF COMPENSATION DWIGHT(3) (4) REAMER THORNDIKE(5) TREYNOR
<S> <C> <C> <C> <C> <C>
Trust(2) $ $ $ $ $
Alabama Portfolio
Arkansas Portfolio
Georgia Portfolio
Kentucky Portfolio
Louisiana Portfolio
Maryland Portfolio
Missouri Portfolio
North Carolina Portfolio
Oregon Portfolio
South Carolina Portfolio
Tennessee Portfolio
Virginia Portfolio
Trust and Fund Complex $ (6) $ (7) $ $ (8) $
- ----------
(1) As of January 1, 1999, the Eaton Vance fund complex consists of 143 registered investment companies or series thereof.
(2) The Trust consisted of 29 Funds as of August 31, 1998. (3) Mr. Dwight received deferred compensation from each Portfolio
as follows: Alabama - $ ; Arkansas - $ ; Georgia - $ ; Kentucky - $ ; Louisiana - $ ; Maryland - $ ; Missouri - $ ;
North Carolina - $ ; Oregon - $ ; South Carolina - $ ; Tennessee - $ ; and Virginia - $ .
(4) Mr. Hayes received deferred compensation from each Portfolio as follows: Alabama - $ ; Arkansas - $ ; Georgia - $ ;
Kentucky - $ ; Louisiana - $ ; Maryland - $ ; Missouri - $ ; North Carolina - $ ; Oregon - $ ; South Carolina - $ ;
Tennessee - $ ; and Virginia - $ .
(5) Mr. Thorndike received deferred compensation from each Portfolio as follows: Alabama - $ ; Arkansas - $ ; Georgia - $ ;
Kentucky - $ ; Louisiana - $ ; Maryland - $ ; Missouri - $ ; North Carolina - $ ; Oregon - $ ; South Carolina - $ ;
Tennessee - $ ; and Virginia - $ .
(6) Includes $ of deferred compensation.
(7) Includes $ of deferred compensation.
(8) Includes $ of deferred compensation.
</TABLE>
ORGANIZATION. Each Fund is a series of the Trust, which is organized under
Massachusetts law and is operated as an open-end management investment company.
Each Fund changed its name from Eaton Vance [state name] Tax Free Fund to EV
Marathon [state name] Tax Free Fund on February 1, 1994 and to EV Marathon
[state name] Municipals Fund on December 1, 1994. Each Fund was reorganized into
multiple classes and changed its name to Eaton Vance [state name] Municipals
Fund on September 1, 1997. The operations of the Class B reflect the operations
of a Fund prior to September 1, 1997. Class A is a successor to the operations
of a separate series of the Trust.
The Trust may issue an unlimited number of shares of beneficial interest (no
par value per share) in one or more series (such as the Funds). The Trustees of
the Trust have divided the shares of each Fund into multiple classes. Each class
represents an interest in a Fund, but is subject to different expenses, rights
and privileges. The Trustees have the authority under the Declaration of Trust
to create additional classes of shares with differing rights and privileges.
When issued and outstanding, shares are fully paid and nonassessable by the
Trust. Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares of a Fund will be voted
together except that only shareholders of a particular class may vote on matters
affecting only that class. Shares have no preemptive or conversion rights and
are freely transferable. In the event of the liquidation of a Fund, shareholders
of each class are entitled to share pro rata in the net assets attributable to
that class available for distribution to shareholders.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for growth in the assets of the
Portfolios, may afford the potential for economies of scale for each Fund and
may over time result in lower expenses for a Fund.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's By-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes (such as reclassifying series of classes of shares or restructuring the
Trust) as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such liability
has been imposed. The Trust's Declaration of Trust contains an express
disclaimer of liability on the part of the Fund shareholders and the Trust's
By-laws provide that the Trust shall assume the defense on behalf of any Fund
shareholders. The Declaration of Trust also contains provisions limiting the
liability of a series or class to that series or class. Moreover, the Trust's
By-laws also provide for indemnification out of the property of the Fund of any
shareholder held personally liable solely by reason of being or having been a
shareholder for all loss or expense arising from such liability. The assets of
the Fund are readily marketable and will ordinarily substantially exceed its
liabilities. In light of the nature of the Fund's business and the nature of its
assets, management believes that the possibility of the Fund's liability
exceeding its assets, and therefore the shareholder's risk of personal
liability, is remote.
Each Portfolio is organized as a trust under the laws of the state of New
York and intends to be treated as a partnership for federal tax purposes. In
accordance with the Declaration of Trust of each Portfolio, there will normally
be no meetings of the investors for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees of the Portfolio holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of each Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
Each Portfolio's Declaration of Trust provides that a Fund and other
entities permitted to invest in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance exists and the Portfolio itself is unable to meet its
obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund
investing in the Portfolio.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for federal income tax purposes.
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 Fund to withdraw its
investment in the Portfolio or take other appropriate action. Any such
withdrawal could result in a distribution "in kind" of portfolio securities (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, a Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of a
Fund. Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
A Fund may withdraw (completely redeem) all its assets from its
corresponding Portfolio at any time if the Board of Trustees of the Trust
determines that it is in the best interest of that Fund to do so. In the event a
Fund withdraws all of its assets from its corresponding Portfolio, or the Board
of Trustees of the Trust determines that the investment objective of such
Portfolio is no longer consistent with the investment objective of the Fund, the
Trustees would consider what action might be taken, including investing the
assets of such Fund in another pooled investment entity or retaining an
investment adviser to manage the Fund's assets in accordance with its investment
objective. A Fund's investment performance may be affected by a withdrawal of
all its assets (or the assets of another investor in the Portfolio) from its
corresponding Portfolio.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISORY SERVICES. BMR manages the investments and affairs of each
Portfolio subject to the supervision of the Portfolio's Board of Trustees. BMR
furnishes to the Portfolios investment research, advice and supervision,
furnishes an investment program and determines what securities will be
purchased, held or sold by the Portfolio and what portion, if any, of the
Portfolio's assets will be held uninvested. Each Investment Advisory Agreement
requires BMR to pay the salaries and fees of all officers and Trustees of the
Portfolio who are members of the BMR organization and all personnel of BMR
performing services relating to research and investment activities.
For a description of the compensation that each Portfolio pays BMR, see the
prospectus. The following table sets forth the net assets of each Portfolio and
the advisory fees earned during the three fiscal years ended August 31, 1998.
<TABLE>
<CAPTION>
ADVISORY FEE FOR FISCAL YEARS ENDED
----------------------------------------------------------------
NET ASSETS
PORTFOLIO AT 8/31/98 AUGUST 31, 1998 AUGUST 31, 1997 AUGUST 31, 1996
- --------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Alabama $ $ $ 412,072 $ 455,711
Arkansas 231,998 280,071
Georgia 393,961 473,056
Kentucky 519,193 577,479
Louisiana(1) 80,898 81,468
Maryland 423,543 454,842
Missouri 297,922 339,243
North Carolina 764,004 832,564
Oregon 488,080 574,189
South Carolina 177,252 201,026
Tennessee 167,958 181,502
Virginia 726,536 811,731
- ----------
(1) To enhance the net income of the Louisiana Portfolio, BMR made a reduction of its advisory fee for the period ended August 31,
1996 in the amount of $40,000.
</TABLE>
Each Investment Advisory Agreement with BMR continues in effect from year to
year so long as such continuance is approved at least annually (i) by the vote
of a majority of the noninterested Trustees of the Portfolio cast in person at a
meeting specifically called for the purpose of voting on such approval and (ii)
by the Board of Trustees of the Portfolio or by vote of a majority of the
outstanding voting securities of the Portfolio. Each Agreement may be terminated
at any time without penalty on sixty (60) days' written notice by the Board of
Trustees of either party, or by vote of the majority of the outstanding voting
securities of the Portfolio, and the Agreement will terminate automatically in
the event of its assignment. Each Agreement provides that BMR may render
services to others. Each Agreement also provides that BMR shall not be liable
for any loss incurred in connection with the performance of its duties, or
action taken or omitted under that Agreement, in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties thereunder, or
for any losses sustained in the acquisition, holding or disposition of any
security or other investment.
ADMINISTRATIVE SERVICES. As indicated in the prospectus, Eaton Vance serves as
administrator of each Fund, but currently receives no compensation for providing
administrative services to the Fund. Under its Administrative Services Agreement
with the Trust, Eaton Vance has been engaged to administer the Funds' affairs,
subject to the supervision of the Trustees of the Trust, and shall furnish for
the use of the Funds' office space and all necessary office facilities,
equipment and personnel for administering the affairs of the Funds.
INFORMATION ABOUT BMR AND EATON VANCE. BMR and Eaton Vance are business
trusts organized under Massachusetts law. Eaton Vance, Inc. ("EV") serves as
trustee of BMR and Eaton Vance. BMR, Eaton Vance and EV are wholly-owned
subsidiaries of Eaton Vance Corporation ("EVC"), a Maryland corporation and
publicly-held holding company. EVC through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities. The Directors of EVC are M. Dozier Gardner, James B. Hawkes,
Benjamin A. Rowland, Jr., John G.L. Cabot, John M. Nelson, Vincent M. O'Reilly
and Ralph Z. Sorenson. All of the issued and outstanding shares of Eaton Vance
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, the Voting Trustees of which are Messrs. Gardner,
Hawkes and Rowland, Alan R. Dynner, Thomas E. Faust, Jr., William M. Steul,
and Wharton P. Whitaker. 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 indicated under "Management and Organization", all of the officers
of the Trust (as well as Mr. Hawkes who is also a Trustee) hold positions in
the Eaton Vance organization.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment- grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to a family of mutual funds,
and individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Mumbai. Together Eaton Vance and Lloyd George manage over
$28 billion in assets. Eaton Vance mutual funds are distributed by the principal
underwriter both within the United States and offshore.
The principal underwriter believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 32 long-term state portfolios, 4
national portfolios and 9 limited maturity portfolios, which serve as investment
vehicles for over 44 mutual funds with varying pricing options. A staff of 26
(including portfolio managers and 11 credit specialists) is responsible for the
day-to-day management of over 3,500 issues in 45 mutual fund portfolios. Assets
managed by the municipal investment group are currently over $7.6 billion. The
investment philosophy of the municipal investment group is to: seek value by
avoiding unnecessary credit risk; build portfolios one security at a time; and
take a long-term approach to managing market risk. Over the long-term, the group
seeks to maximize tax-free income by keeping portfolios fully invested (rather
than trying to "time the market" for short-term results) and reduce potential
capital losses due to poor credit quality. Diligent and continuing research and
analysis are a critical component of the municipal investment group's investment
philosophy and long-term strategy.
The following persons manage one or more of the Eaton Vance municipal
portfolios. For the identity of a Portfolio's portfolio manager, see the
prospectus.
William H. Ahern, Jr. is a Vice President of Eaton Vance and BMR. Mr.
Ahern graduated from Boston College in 1981 with a B.A. in Economics, and
received his M.B.A. degree in Finance from Babson College in 1987. Mr. Ahern
is a member of the Boston Security Analysts Society.
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 Security 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.
EXPENSES. Each Fund and Portfolio is responsible for all expenses not expressly
stated to be payable by another party (such as the investment adviser under the
Investment Advisory Agreement, Eaton Vance under the Administrative Services
Agreement or the principal underwriter under the Distribution Agreement). In the
case of expenses incurred by the Trust, each Fund is responsible for its pro
rata share of those expenses. The only expenses of a Fund allocated to a
particular class are those incurred under the Distribution or Service Plan
applicable to that class and those resulting from the fee paid to the principal
underwriter for repurchase transactions.
OTHER SERVICE PROVIDERS
PRINCIPAL UNDERWRITER. Eaton Vance Distributors, Inc. ("EVD"), 24 Federal
Street, Boston, MA 02110, is the Funds' principal underwriter. The principal
underwriter acts as principal in selling Class A shares under a Distribution
Agreement with the Trust. The expenses of printing copies of prospectuses used
to offer shares 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 a Fund and its shares under
federal and state securities laws are borne by that Fund. The Distribution
Agreement as it applies to Class A shares is renewable annually by the Board of
Trustees of the Trust (including a majority of the noninterested Trustees) may
be terminated on six months' notice by either party and is automatically
terminated upon assignment. The Distribution Agreement as it applies to Class B
shares is renewable annually by the Trust's Board of Trustees (including a
majority of the noninterested Trustees who have no direct or indirect financial
interest in the operation of the Distribution Plan or the Distribution
Agreement), may be terminated on sixty days' notice either by such Trustees or
by vote of a majority of the outstanding Class B shares or on six months' notice
by the principal underwriter and is automatically terminated upon assignment.
The principal underwriter distributes 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 investment dealers discounts from the applicable
public offering price which are alike for all investment dealers. See "Sales
Charges." EVD is a wholly-owned subsidiary of EVC. M. Hawkes is a Vice President
and Director and Messrs. Dynner and O'Connor are Vice Presidents of EVD.
CUSTODIAN. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
MA 02116, serves as custodian to the Funds and Portfolios. IBT has the custody
of all cash and securities representing a Fund's interest in a Portfolio, has
custody of each Portfolio's assets, maintains the general ledger of each
Portfolio and each Fund and computes the daily net asset value of interests in
each Portfolio and the net asset value of shares of the Fund. In such capacity
it attends to details in connection with the sale, exchange, substitution,
transfer or other dealings with the Portfolios' investments, receives and
disburses all funds and performs various other ministerial duties upon receipt
of proper instructions from the Trust and the Portfolios. IBT also provides
services in connection with the preparation of shareholder reports and the
electronic filing of such reports with the SEC. EVC and its affiliates and their
officers and employees from time to time have transactions with various banks,
including 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.
INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 125 Summer Street, Boston,
Massachusetts, are the independent accountants of the Funds and the Portfolios,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC.
TRANSFER AGENT. First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123, serves as transfer and dividend disbursing agent
for the Funds.
PURCHASING AND REDEEMING SHARES
CALCULATION OF NET ASSET VALUE. The net asset value of each Portfolio is
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transation prices for most municipal obligations held by the Portfolio, and such
obligations, including those purchased on a when-issued basis, will normally be
valued on the basis of valuations furnished by a pricing service. The pricing
service uses information with respect to transactions in bonds, quotations from
bond dealers, market transactions in comparable securities, various
relationships between securities, and yield to maturity in determining value.
Taxable obligations for which price quotations are readily available normally
will be valued at the mean between the latest available bid and asked prices.
Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by or at the direction of the Trustees of the
Portfolio. The Funds and the Portfolios will be closed for business and will not
price their respective shares or interests on the following business holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in a Portfolio, including a Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
ADDITIONAL INFORMATION ABOUT PURCHASES. Fund shares are continuously offered
through investment dealers which have entered agreements with the principal
underwriter. The public offering price is the net asset value next computed
after receipt of the order, plus, in the case of Class A shares, a variable
percentage (sales charge) depending upon the amount of purchase as indicated by
the sales charge table set forth in the prospectus. The sales charge is divided
between the principal underwriter and the investment dealer. The sales charge
table is applicable to purchases of a Fund alone or in combination with
purchases of certain other funds offered by the principal underwriter, made at a
single time by (i) an individual, or an individual, his spouse and their
children under the age of twenty-one, purchasing shares for his or their own
account, and (ii) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account. The table is also presently
applicable to (1) purchases of Class A shares pursuant to a written Statement of
Intention; or (2) purchases of Class A shares pursuant to the Right of
Accumulation and declared as such at the time of purchase. See "Sales Charges".
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. The right to redeem shares of a 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
SEC, or during any emergency as determined by the SEC which makes it
impracticable for a Portfolio to dispose of its securities or value its assets,
or during any other period permitted by order of the SEC for the protection of
investors.
While normally payments will be made in cash for redeemed shares, the Trust,
subject to compliance with applicable regulations, has reserved the right to pay
the redemption price of shares of a Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn from its
corresponding Portfolio. The securities so distributed would be valued pursuant
to the Portfolio's valuation procedures. If a shareholder received a
distribution in kind, the shareholder could incur brokerage or other charges in
converting the securities to cash.
The Trust may, in its absolute discretion, suspend, discontinue or limit the
offering of one or more of its classes of shares at any time. In determining
whether any such action should be taken, the Trust's management intends to
consider all relevant factors, including (without limitation) the size of a Fund
or class, the investment climate and market conditions, the volume of sales and
redemptions of shares, and in the case of Class B shares, the amount of
uncovered distribution charges of the principal underwriter. The Class B Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of shares;
however, there is no contractual obligation to continue any Plan for any
particular period of time. Suspension of the offering of shares would not, of
course, affect a shareholder's ability to redeem shares.
SYSTEMATIC WITHDRAWAL PLAN. The transfer agent will send to the shareholder
regular monthly or quarterly payments of any permitted amount designated by the
shareholder based upon the value of the shares held. The checks will be drawn
from share redemptions and hence, although they are a return of principal, may
require the recognition of taxable gain or loss. Income dividends and capital
gains distributions in connection with withdrawal plan accounts will be credited
at net asset value as of the record date for each distribution. Continued
withdrawals in excess of current income will eventually use up principal,
particularly in a period of declining market prices. A shareholder may not have
a withdrawal plan in effect at the same time he or she has authorized Bank
Automated Investing or is otherwise making regular purchases of Fund shares. The
shareholder, the transfer agent or the principal underwriter will be able to
terminate the withdrawal plan at any time without penalty.
SALES CHARGES
DEALER COMMISSIONS. Upon the sale of Class A shares, investment dealers will
be paid the following dealer commission:
DEALER COMMISSION
AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE
- ------------------ -----------------
Less than $25,000 4.50%
$25,000 but less than $100,000 4.25
$100,000 but less than $250,000 3.50
$250,000 but less than $500,000 2.75
$500,000 but less than $1,000,000 2.00
$1,000,000 or more 1.00
The principal underwriter may, from time to time, at its own expense,
provide additional incentives to investment dealers 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 investment dealers 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 investment dealers. The principal underwriter may allow, upon notice
to all investment dealers 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 investment dealers may be deemed
to be underwriters as that term is defined in the Securities Act of 1933.
SALES CHARGE WAIVERS. Class A shares may be sold at net asset value to current
and retired Directors and Trustees of Eaton Vance funds, including the
Portfolios; to clients and current and retired officers and employees of Eaton
Vance, its affiliates and other investment advisers of Eaton Vance sponsored
funds; to registered representatives and employees of investment dealers and
bank employees who refer customers to registered representatives of invetment
dealers; to officers and employees of IBT and the transfer agent; and to such
persons' spouses, parents, siblings and children and their beneficial accounts.
Class A shares may also be issued at net asset value (1) in connection with the
merger of an investment company or series thereof with a Fund, (2) to investors
making an investment as part of a fixed fee program whereby an entity
unaffiliated with the investment adviser provides multiple investment services,
such as management, brokerage and custody, and (3) to investment advisors,
financial planners or other intermediaries who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; clients of such investment advisors,
financial planners or other intermediaries who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisor, financial planner or other intermediary on the books and records of the
broker or agent; and retirement and deferred compensation plans and trusts used
to fund those plans, including, but not limited to, those defined in Section
401(a), 403(b) or 457 of the Internal Revenue Code of 1986, as amended (the
"Code") and "rabbi trusts". Subject to the applicable provisions of the 1940
Act, the Trust may issue Class A shares at net asset value in the event that an
investment company (whether a regulated or private investment company or a
personal holding company) is merged or consolidated with or acquired by the
Class. Normally no sales charges will be paid in connection with an exchange of
Class A shares for the assets of such investment company. Class A shares may be
sold at net asset value to any investment advisory, agency, custodial or trust
account managed or administered by Eaton Vance or by any parent, subsidiary or
other affiliate of Eaton Vance. Class A shares are offered at net asset value to
the foregoing persons and in the foregoing situations because either (i) there
is no sales effort involved in the sale of shares or (ii) the investor is paying
a fee (other than the sales charge) to the investment dealer involved in the
sale.
The CDSC applicable to Class B shares will be waived in connection with
minimum required distributions from tax-sheltered retirement plans by applying
the rate required to be withdrawn under the applicable rules and regulations of
the Internal Revenue Service to the balance of Class B shares in your account.
STATEMENT OF INTENTION. If it is anticipated that $25,000 or more of Class A
shares and shares of other funds exchangeable for Class A shares of another
Eaton Vance 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. Any
investor considering signing a Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION. The applicable sales charge level for the purchase of
Class A shares is calculated by taking the dollar amount of the current purchase
and adding it to the value (calculated at the maximum current offering price) of
the Class A shares the shareholder owns in his or her account(s) in the Fund,
and shares of other funds exchangeable for Class A shares. The sales charge on
the shares being purchased will then be at the rate applicable to the aggregate.
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
investment dealer must provide the principal underwriter (in the case of a
purchase made through an investment dealer) 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.
DISTRIBUTION AND SERVICE PLANS. The Trust has adopted a Service Plan (the "Class
A Plan") for each Fund's Class A shares that is designed to meet the service fee
requirements of the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD"). (Management believes service fee payments are not
distribution expenses governed by Rule 12b-1 under the 1940 Act, but has chosen
to have the Plan approved as if that Rule were applicable.) The Class A Plan
provides that each Class A may make service fee payments for personal services
and/or the maintenance of shareholder accounts to the principal underwriter,
investment dealers and other persons in amounts not exceeding .25% of its
average daily net assets for any fiscal year. The Trustees of the Trust have
initially implemented the Class A Plan by authorizing Class A to make quarterly
service fee payments to the principal underwriter and investment dealers in
amounts not expected to exceed .20% of its average daily net assets for any
fiscal year which is based on the value of Class A shares sold by such persons
and remaining outstanding for at least twelve months. However, the Class A Plan
authorizes the Trustees of the Trust to increase payments without action by
Class A shareholders of any Fund, provided that the aggregate amount of payments
made in any fiscal year does not exceed .25% of average daily net assets. For
the service fees paid by Class A shares, see Appendix A.
The Trust has also adopted a compensation-type Distribution Plan ("Class B
Plan") pursuant to Rule 12b-1 under the 1940 Act for each Fund's Class B shares.
The Plan is designed to permit an investor to purchase shares through an
investment dealer without incurring an initial sales charge and at the same time
permit the principal underwriter to compensate investment dealers in connection
therewith.
The Class B Plan provides that each Fund will pay sales commissions and
distribution fees to the principal underwriter only after and as a result of the
sale of Class B shares of the Fund. On each sale of Fund shares (excluding
reinvestment of distributions) each Fund will pay the principal underwriter
amounts representing (i) sales commissions equal to 5% of the amount received by
the Fund for each Class B 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. To pay these amounts, each Class
B pays the principal underwriter a fee, accrued daily and paid monthly, at an
annual rate not exceeding .75% of its average daily net assets to finance the
distribution of its shares. Such fees compensate the principal underwriter for
sales commissions paid by it to investment dealers on the sale of Class B shares
and for interest expenses. The principal underwriter uses its own funds to pay
sales commissions (except on exchange transactions and reinvestments) to
investment dealers at the time of sale equal to 4% of the purchase price of the
Class B shares sold by such dealers. CDSCs paid to the principal underwriter
will be used to reduce amounts owed to it. The Class B Plan provides that the
Fund will make no payments to the principal underwriter in respect of any day on
which there are no outstanding uncovered distribution charges of the principal
underwriter. CDSCs and accrued amounts will be paid by the Trust to the
principal underwriter whenever there exist uncovered distribution charges.
Because payments to the principal underwriter under the Class B Plan are
limited, uncovered distribution charges (sales commissions paid by the principal
underwriter plus interest, less the above fees and CDSCs received by it) may
exist indefinitely. For the sales commissions and CDSCs paid on (and uncovered
distribution charges of) Class B shares, see Appendix B.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the principal underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Trust to the principal underwriter and CDSCs theretofore
paid or payable to the principal underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding uncovered distribution
charges with respect to such day. The amount of outstanding uncovered
distribution charges of the principal underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of uncovered distribution charges of the principal underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
investment dealers), the level and timing of redemptions of shares upon which a
CDSC will be imposed, the level and timing of redemptions of shares upon which
no CDSC will be imposed (including redemptions of shares pursuant to the
exchange privilege which result in a reduction of uncovered distribution
charges), changes in the level of the net assets of the Class, and changes in
the interest rate used in the calculation of the distribution fee under the
Plan.
The Class B Plan also authorizes each Class B to make payments of service
fees to the principal underwriter, investment dealers and other persons in
amounts not exceeding .25% of its average daily net assets for personal
services, and/or the maintenance of shareholder accounts. The Trustees of the
Trust have initially implemented this provision of the Class B Plan by
authorizing each Class B to make quarterly service fee payments to the principal
underwriter and investment dealers in amounts not expected to exceed .20% of the
average daily net assets for any fiscal year which is based on the value of
Class B shares sold by such persons and remaining outstanding for at least 12
months. This fee is paid quarterly in arrears based on the value of Class B
shares sold by such persons and remaining outstanding for at least twelve
months. For the service fees paid by Class B shares, see Appendix B.
Currently, payments of sales commissions and distribution fees and of
service fees may equal 1% of a Class's average daily net assets per annum. The
Trust believes that the combined rate of all these payments may be higher than
the rate of payments made under distribution plans adopted by other investment
companies pursuant to Rule 12b-1. Although the principal underwriter will use
its own funds (which may be borrowed from banks) to pay sales commissions at the
time of sale, it is anticipated that the Eaton Vance organization will profit by
reason of the operation of the Plan through an increase in the Fund's assets
(thereby increasing the advisory fee payable to BMR by the Portfolio) resulting
from sale of shares and through the amounts paid to the principal underwriter,
including CDSCs, pursuant to the Plan. The Eaton Vance organization may be
considered to have realized a profit under the Plan if at any point in time the
aggregate amounts theretofore received by the principal underwriter pursuant to
the Plan and from CDSCs have exceeded the total expenses theretofore incurred by
such organization in distributing Class B shares of the Fund. Total expenses for
this purpose will include an allocable portion of the overhead costs of such
organization and its branch offices, which costs will include without limitation
leasing expense, depreciation of building and equipment, utilities,
communication and postage expense, compensation and benefits of personnel,
travel and promotional expense, stationery and supplies, literature and sales
aids, interest expense, data processing fees, consulting and temporary help
costs, insurance, taxes other than income taxes, legal and auditing expense and
other miscellaneous overhead items. Overhead is calculated and allocated for
such purpose by the Eaton Vance organization in a manner deemed equitable to the
Trust.
The Service and Distribution Plans 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 noninterested Trustees of the Trust who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan (the "Plan Trustees") and (ii) all of the Trustees then in
office. Each Plan may be terminated at any time by vote of a majority of the
Plan Trustees or by a vote of a majority of the outstanding voting securities of
the applicable Class. Each Plan requires quarterly Trustee review of a written
report of the amount expended under the Plan and the purposes for which such
expenditures were made. The Plans may not be amended to increase materially the
payments described therein without approval of the shareholders of the affected
Class and the Trustees. So long as a Plan is in effect, the selection and
nomination of the noninterested Trustees shall be committed to the discretion of
such Trustees. The Class A and Class B Plans were approved by the Trustees,
including the Plan Trustees, on June 23, 1997.
The Trustees of the Trust believe that each Plan will be a significant
factor in the expected growth of each Fund's assets, and will result in
increased investment flexibility and advantages which have benefitted and will
continue to benefit the Fund and its shareholders. Payments for sales
commissions and distribution fees made to the principal underwriter under the
Class B Plan will compensate the principal underwriter for its services and
expenses in distributing Class B shares of the Fund. Service fee payments made
to the principal underwriter and investment dealers provide incentives to
provide continuing personal services to investors and the maintenance of
shareholder accounts. By providing incentives to the principal underwriter and
investment dealers, each Plan is expected to result in the maintenance of, and
possible future growth in, the assets of the Fund. Based on the foregoing and
other relevant factors, the Trustees of the Trust have determined that in their
judgment there is a reasonable likelihood that each Plan will benefit the Fund
and its shareholders.
PERFORMANCE
Average annual total return is determined separately for each Class of a
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the result. The calculation assumes (i) that all distributions are
reinvested at net asset value on the reinvestment dates during the period, (ii)
the deduction of the maximum sales charge from the initial $1,000 purchase order
for Class A shares, (iii) a complete redemption of the investment and, (iv) the
deduction of any CDSC at the end of the period. For further information
concerning the total return of the Classes of a Fund, see Appendix A and
Appendix B.
Yield is computed separately for each Class of a Fund pursuant to a
standardized formula by dividing the net investment income per share earned
during a recent thirty-day period by the maximum offering price (including the
maximum initial sales charge for Class A shares) per share on the last day of
the period and annualizing the resulting figure. Net investment income per share
is calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund and Class
expenses for the period with the resulting number being divided by the average
daily number of Class shares outstanding and entitled to receive distributions
during the period. This yield figure does not reflect the deduction of any CDSCs
which (if applicable) are imposed upon certain redemptions at the rates set
forth under "Sales Charges" in the prospectus. Yield calculations assume the
current maximum initial sales charge for Class A shares set forth under "Sales
Charges" in the prospectus. (Actual yield may be affected by variations in sales
charges on investments). A taxable-equivalent yield is computed by using the
tax-exempt yield and dividing by 1 minus a stated rate.
Each Fund may also publish total return figures for each Class which do not
take into account any sales charge. Any performance figure which does not take
into account a sales charge would be reduced to the extent such charge is
imposed. Each Fund's performance may be compared in publications to the
performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information prepared
by recognized mutual fund statistical services. A Fund's performance may differ
from that of other investors in its corresponding Portfolio, including other
investment companies.
The Trust (or principal underwriter) may provide investors with information
on municipal bond investing, which may include comparative performance
information, evaluations of Fund performance, charts and/or illustrations
prepared by independent sources (such as Lipper Analytical Services Inc.,
CDA/Wiesenberger, Morningstar, Inc., The Bond Buyer, the Federal Reserve Board
or The Wall Street Journal). The Trust may also refer in investor publications
to Tax Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to
help illustrate the value of tax free investing, as well as other tax-related
information. Information, charts and illustrations showing the effects of
inflation and taxes (including their effects on the dollar and the return on
various investments) and compounding earnings may also be included in
advertisements and materials furnished to present and prospective investors.
Information about portfolio allocation and holdings of a Portfolio at a
particular date (including ratings assigned by independent ratings services such
as Moody's, S&P and Fitch) may be included in advertisements and other material
furnished to present and prospective shareholders. Such information may be
stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield of a Fund and about average rates of
return on certificates of deposit, bank money market deposit accounts, money
market mutual funds and other short-term investments may also be included in
advertisements, supplemental sales literature or communications of the Fund.
Such information may also compare the tax equivalent yield (or value) of the
Fund to the after-tax yield (or value) of such other investment vehicles. Such
information may be in the form of hypothetical illustrations. A bank certificate
of deposit, unlike mutual fund shares, pays a fixed rate of interest and
entitles the depositor to receive the face amount of the certificate of deposit
at maturity. A bank money market deposit account is a form of savings account
which pays a variable rate of interest. Unlike the Fund's shares, bank
certificates of deposit and bank money market deposit accounts are insured by
the Federal Deposit Insurance Corporation. A money market mutual fund is
designed to maintain a constant value of $1.00 per share and, thus, a money
market fund's shares are subject to less price fluctuation than the Fund's
shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
- cost associated with aging parents;
- funding a college education (including its actual and estimated
cost);
- health care expenses (including actual and projected expenses);
- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in municipal bond
funds. Such information may describe the following advantages of investing in a
municipal bond mutual fund versus individual municipal bonds: regular monthly
income; free reinvestment of distributions; potential for increased income; bond
diversification; liquidity; low-cost easy access; and active management and in
depth credit analysis by investment professionals. In addition, by investing in
a municipal bond fund instead of individual bonds, an investor can avoid dealing
with the complexities of the municipal bond market, while benefitting from the
market access and lower transactions costs enjoyed by municipal bond funds.
The Trust (or principal underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to investors
or prospective investors. Such material or advertisements may also provide
information on the use of investment professionals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal income
tax purposes. Each Fund has elected to be treated and intends to qualify each
year, as a regulated investment company ("RIC") under the Code. Accordingly,
each Fund intends to satisfy certain requirements relating to sources of its
income and diversification of its assets and to distribute substantially all of
its ordinary income (including tax-exempt income) and net income (after
reduction by any available capital loss carryforwards) in accordance with the
timing requirements imposed by the Code, so as to maintain its RIC status and to
avoid paying any federal income or excise tax. Each Fund so qualified for its
fiscal year ended July 31, 1998. Because each Fund invests its assets in a
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements in order for the Fund to also satisfy these
requirements. Each Portfolio will allocate at least annually among its
investors, including a Fund, each investor's distributive share of the
Portfolio's net taxable (if any) and tax-exempt investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or credit.
For purposes of applying the requirements of the Code regarding qualification as
a RIC, each Fund (i) will be deemed to own its proportionate share of each of
the assets of the corresponding Portfolio and (ii) will be entitled to the gross
income of that Portfolio attributable to such share.
In order to avoid incurring a federal excise tax obligation, the Code
requires that each Fund distribute (or be deemed to have distributed) by
December 31 of each calendar year at least 98% of its ordinary income (not
including tax-exempt income) for such year, at least 98% of its capital gain net
income (which is the excess of its realized capital gains over its realized
capital losses), generally computed on the basis of the one-year period ending
on October 31 of such year, after reduction by (i) any available capital loss
carryforwards and (ii) 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that a Fund qualifies as a RIC
and a Portfolio is treated as a partnership for Massachusetts and federal tax
purposes, neither the Fund nor the Portfolio should be liable for any income,
corporate excise or franchise tax in the Commonwealth of Massachusetts.
A Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the relevant Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund, the
Portfolio may be required to liquidate securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio to make distributions to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for a Portfolio (and, hence, for the relevant Fund) to the extent that
the issuers of these securities default on their obligations pertaining thereto.
The Code is not entirely clear regarding the federal income tax consequences of
a Portfolio's taking certain positions in connection with ownership of such
distressed securities. For example, the Code is unclear regarding: (i) when a
Portfolio may cease to accrue interest, original issue discount, or market
discount; (ii) when and to what extent deductions may be taken for bad debts or
worthless securities; (iii) how payments received on obligations in default
should be allocated between principal and income; and (iv) whether exchanges of
debt obligations in a workout context are taxable.
Distributions by a Fund of net tax-exempt interest income that are properly
designated as "exempt-interest dividends" may be treated by shareholders as
interest excludable from gross income under Section 103(a) of the Code. In order
for a Fund to be entitled to pay the tax-exempt interest income allocated to it
by its corresponding Portfolio as exempt-interest dividends to its shareholders,
the Fund must and intends to satisfy certain requirements, including the
requirement that, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consists of obligations the interest on which
is exempt from regular federal income tax under Code Section 103(a). For
purposes of applying this 50% requirement, the Fund will be deemed to own its
proportionate share of each of the assets of the Portfolio, and the Portfolio
currently intends to invest its assets in a manner such that the Fund can meet
this 50% requirement. Interest on certain municipal obligations is treated as a
tax preference item for purposes of the AMT. Shareholders of each Fund are
required to report tax-exempt interest on their federal income tax returns.
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.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by a
Portfolio and the value of the securities held by it may be affected.
In the course of managing its investments, a Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when- issued
securities and options and futures transactions. A Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of discount with respect to certain stripped municipal obligations or
their stripped coupons, and certain realized gains or income attributable to
accrued market discount. Any distributions by a Fund of its share of such
capital gains (after reduction by any capital loss carryforwards) or taxable
income would be taxable to shareholders of the Fund. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to the
tax exempt interest earned by the corresponding Portfolio and allocated to the
Fund. Certain distributions of a Fund, if declared in October, November or
December and paid the following January, may be taxed to shareholders as if
received on December 31 of the year in which they are declared.
A Portfolio's transactions in options and futures contracts will be subject
to special tax rules that may affect the amount, timing and character of Fund
distributions to shareholders. For example, certain positions held by a
Portfolio on the last business day of each taxable year will be "marked to
market" (i.e., treated as if closed out on such day), and any resulting gain or
loss will generally be treated as 60% long-term and 40% short-term capital gain
or loss. Certain positions held by a Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding periods of Portfolio securities,
and conversion of short-term capital losses into long-term capital losses. A
Portfolio may have to limit its activities in options and futures contracts in
order to enable the relevant Fund to maintain its RIC status.
Any loss realized upon the sale or exchange of shares of a Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net
long-term capital gains with respect to such shares. In addition, a loss
realized on a redemption or other disposition of Fund shares may be disallowed
to the extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by a Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service (the
"IRS") as well as shareholders with respect to whom the Fund has received
certain information from the IRS or a broker, may be subject to "backup"
withholding of federal income tax arising from the Fund's taxable dividends and
other distributions as well as the proceeds of redemption transactions
(including repurchases and exchanges), at a rate of 31%. An individual's TIN is
generally his or her social security number.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local, and, where applicable, foreign tax
consequences of investing in a Fund. See Appendix C for state tax information
for some states.
PORTFOLIO TRADING
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it. BMR places the portfolio security transactions of each Portfolio
and of all other accounts managed by it for execution with many firms. BMR uses
its best efforts to obtain execution of portfolio security transactions at
prices which are advantageous to each Portfolio and at reasonably competitive
spreads or (when a disclosed commission is being charged) at reasonably
competitive commission rates. In seeking such execution, BMR will use its best
judgment in evaluating the terms of a transaction, and will give consideration
to various relevant factors, including without limitation the full range and
quality of the executing firm's services, the value of the brokerage and
research services provided, the responsiveness of the firm to BMR, the size and
type of the transaction, the nature and character of the market for the
security, the confidentiality, speed and certainty of effective execution
required for the transaction, the general execution and operational capabilities
of the executing firm, the reputation, reliability, experience and financial
condition of the firm, the value and quality of the services rendered by the
firm in this and other transactions, and the reasonableness of the spread or
commission, if any. Municipal obligations, including state obligations,
purchased and sold by the Portfolios are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
broker-dealers and banks acting for their own account rather than as brokers, or
otherwise involve transactions directly with the issuer of such obligations.
Such firms attempt to profit from such transactions by buying at the bid price
and selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked price is customarily referred to as the
spread. The Portfolios may also purchase municipal obligations from
underwriters, and dealers in fixed-price offerings, the cost of which may
include undisclosed fees and concessions to the underwriters. On occasion it may
be necessary or appropriate to purchase or sell a security through a broker on
an agency basis, in which case the Portfolio will incur a brokerage commission.
Although spreads or commissions on portfolio security transactions will, in the
judgment of BMR, be reasonable in relation to the value of the services
provided, spreads or commissions exceeding those which another firm might charge
may be paid to firms who were selected to execute transactions on behalf of the
Portfolios and BMR's other clients for providing brokerage and research services
to BMR.
The following table shows brokerage commission paid by each Portfolio during
the three fiscal years ended August 31, 1998:
<TABLE>
<CAPTION>
PORTFOLIO 8/31/98 8/31/97 8/31/96
- --------- ------- ------- -------
<S> <C> <C> <C>
Alabama ................................................ $ $12,410 $ -0-
Arkansas ............................................... -0- 20,283
Georgia ................................................ 5,977 17,018
Kentucky ............................................... 5,493 43,344
Louisiana .............................................. -0- 7,029
Maryland ............................................... 12,851 15,543
Missouri ............................................... 4,904 15,858
North Carolina ......................................... -0- 26,538
Oregon ................................................. 9,834 39,752
South Carolina ......................................... -0- 18,253
Tennessee .............................................. 3,209 9,892
Virginia ............................................... 19,352 50,618
</TABLE>
All of such portfolio security transactions were directed to firms which
provided some research services to BMR or its affiliates (although many of such
firms may have been selected in any particular transaction primarily because of
their execution capabilities), and the amounts of such transactions for the
fiscal year ended August 31, 1998 were as follows: Alabama -- $ ; Georgia -- $ ;
Kentucky -- $ ; Maryland -- $ ; Missouri -- $ ; Oregon -- $ ; Tennessee -- $ ;
and Virginia -- $ .
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of a Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such compensation was reasonable in relation to
the value of the brokerage and research services provided. This determination
may be made either on the basis of that particular transaction or on the basis
of overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, analytical, statistical and quotation services, data, information and
other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealer firms which execute portfolio transactions for the clients of such
advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, BMR receives Research Services from
many broker-dealer firms with which BMR places the Portfolios' transactions and
from third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic, political, business
and market information, industry and company reviews, evaluations of securities
and portfolio strategies and transactions, proxy voting data and analysis
services, technical analysis of various aspects of the securities markets,
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by each
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient portfolio
security transactions 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.
The Portfolios and BMR may also receive Research Services from underwriters
and dealers in fixed-price offerings, which Research Services are reviewed and
evaluated by BMR in connection with its investment responsibilities. The
investment companies sponsored by BMR or Eaton Vance may allocate trades in such
offerings to acquire information relating to the performance, fees and expenses
of such companies and other mutual funds, which information is used by the
Trustees of such companies to fulfill their responsibility to oversee the
quality of the services provided by various entities, including BMR, to such
companies. Such companies may also pay cash for such information.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any broker-dealer firm with whom portfolio orders may
be placed the fact that such firm has sold or is selling shares of the Funds or
of other investment companies sponsored by BMR or Eaton Vance. This policy is
not inconsistent with a rule of the NASD, which rule provides that no firm which
is a member of the NASD shall favor or disfavor the distribution of shares of
any particular investment company or group of investment companies on the basis
of brokerage commissions received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolios may also
be appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by a Portfolio and one or
more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may be
instances where a Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order may
not be allocated on a pro rata basis where, for example: (i) consideration is
given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Portfolio from time to time, it is the opinion of the Trustees of the Trust and
the Portfolios that the benefits from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
FINANCIAL STATEMENTS
The audited financial statements of and the independent auditors' reports
for the Funds and the Portfolios, appear in the Funds' most recent annual report
to shareholders and are incorporated by reference into this SAI. A copy of the
Funds' annual report accompanies this SAI. Consistent with applicable law,
duplicate mailings of shareholder reports and certain other Fund information to
shareholders residing at the same address may be eliminated.
<PAGE>
APPENDIX A
CLASS A FEES, PERFORMANCE AND OWNERSHIP
SERVICE FEES
For the fiscal year ended August 31, 1998, the following table shows (1)
amount of service fees on Class A shares paid under the Plan, and (2) amount of
service fees on Class A shares paid to investment dealers. The service fees paid
by the Funds that were not paid to investment dealers were retained by the
principal underwriter.
SERVICE FEES TO
CLASS A SERVICE FEES INVESTMENT DEALERS
- ------- ------------ ------------------
Alabama ............................ $ $
Arkansas ...........................
Georgia ............................
Kentucky ...........................
Louisiana ..........................
Maryland ...........................
Missouri ...........................
North Carolina .....................
Oregon .............................
South Carolina .....................
Tennessee ..........................
Virginia ...........................
PRINCIPAL UNDERWRITER
The total sales charges paid in connection with sales of Class A shares
during the fiscal year ended August 31, 1998 follow:
<TABLE>
<CAPTION>
TOTAL SALES SALES CHARGES TO SALES CHARGES TO
CLASS A CHARGES INVESTMENT DEALERS PRINCIPAL UNDERWRITER
- ------- ----------- ------------------ ---------------------
<S> <C> <C> <C>
Alabama ................................................... $ $ $
Arkansas ..................................................
Georgia ...................................................
Kentucky ..................................................
Louisiana .................................................
Maryland ..................................................
Missouri ..................................................
North Carolina ............................................
Oregon ....................................................
South Carolina ............................................
Tennessee .................................................
Virginia ..................................................
</TABLE>
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the principal underwriter. For the fiscal year ended August 31, 1998, Class A
paid the principal underwriter for repurchase transactions handled by it $2.50
for each such transaction which aggregated as follows: Alabama -- $ ; Arkansas
- -- $ ; Georgia -- $ ; Kentucky -- $ ; Louisiana -- $ ; Maryland -- $ ; Missouri
- -- $ ; North Carolina -- $ ; Oregon -- $ ; South Carolina $ ; Tennessee -- $ ;
and Virginia -- $ .
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return on
a hypothetical investment in shares of $1,000. Total return for the period prior
to September 1, 1998 reflects the total return of a predecessor to Class A.
Total return prior to the Predecessor Fund's commencement of operations reflects
the total return of Class B, adjusted to reflect the Class A sales charge. The
Class B total return has not been adjusted to reflect certain other expenses
(such as distribution and/or service fees). If such adjustments were made, the
Class A total return would be different. The "Value of Initial Investment"
reflects the deduction of the maximum sales charge of 4.75%. Past performance is
no guarantee of future results. Investment return and principal value will
fluctuate; shares, when redeemed, may be worth more or less than their original
cost. Information presented with two asterisks (**) includes the effect of
subsidizing expenses. Returns would have been lower without subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- ALABAMA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 5/1/92 $ $ % % % %
5 Years Ended
8/31/98** 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecessor Fund commenced operations December 7, 1993.
VALUE OF A $1,000 INVESTMENT -- ARKANSAS
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 10/2/92 $ $ % % % %
5 Years Ended
8/31/98 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecessor Fund commenced operations February 9, 1994.
VALUE OF A $1,000 INVESTMENT -- GEORGIA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 12/23/91 $ $ % % %
5 Years Ended
8/31/98 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecessor Fund commenced operations December 7, 1993.
VALUE OF A $1,000 INVESTMENT -- KENTUCKY
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 12/23/91 $ $ % % % %
5 Years Ended
8/31/98 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecessor Fund commenced operations December 7, 1993.
VALUE OF A $1,000 INVESTMENT -- LOUISIANA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 10/2/92 $ $ % % % %
5 Years Ended
8/31/98 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecessor Fund commenced operations February 14, 1993.
VALUE OF A $1,000 INVESTMENT -- MARYLAND
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 2/3/92 $ $ % % % %
5 Years Ended
8/31/98** 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecessor Fund commenced operations December 10, 1993.
VALUE OF A $1,000 INVESTMENT -- MISSOURI
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 5/1/92 $ $ % % % %
5 Years Ended
8/31/98** 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecessor Fund commenced operations December 7, 1993.
VALUE OF A $1,000 INVESTMENT -- NORTH CAROLINA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 10/23/91 $ $ % % % %
5 Years Ended
8/31/98 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecessor Fund commenced operations December 7, 1993.
VALUE OF A $1,000 INVESTMENT -- OREGON
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 12/24/91 $ $ % % % %
5 Years Ended
8/31/98 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecessor Fund commenced operations December 28, 1993.
VALUE OF A $1,000 INVESTMENT -- SOUTH CAROLINA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 10/2/92 $ $ % % % %
5 Years Ended
8/31/98 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecesor Fund commenced operations February 14, 1994.
VALUE OF A $1,000 INVESTMENT -- TENNESSEE
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 8/25/92 $ $ % % % %
5 Years Ended
8/31/98** 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
*Predecessor Fund commenced operations December 9, 1993.
VALUE OF A $1,000 INVESTMENT -- VIRGINIA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund** 7/26/91 $ $ % % % %
5 Years Ended
8/31/98 8/31/93 $ $ % % % %
1 Year Ended
8/31/98 8/31/97 $ $ % % % %
- ------------
* Predecessor Fund commenced operations December 9, 1993.
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at September 30, 1998, the Trustees and Officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of each
Class A and of each Fund. In addition, as of the same date, the following record
owners held the amounts of Class A shares indicated below, which were held on
behalf of their customers who are the beneficial owners of such shares, and as
to which they have voting power under certain limited circumstances:
<TABLE>
<S> <C> <C> <C>
ALABAMA - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 63.6%
ARKANSAS - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 29.8%
Donaldson Lufkin Jenerette Jersey City, NJ 6.55%
Donaldson Lufkin Jenerette Jersey City, NJ 6.0%
Donaldson Lufkin Jenerette Jersey City, NJ 5.7%
GEORGIA - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 33.0%
BT Alex Brown Incorporated Baltimore, MD 13.3%
KENTUCKY - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 27.1%
Donaldson Lufkin Jenerette Jersey City, NJ 8.3%
Donaldson Lufkin Jenerette Jersey City, NJ 7.6%
LOUISIANA - Donaldson Lufkin Jenrette Jersey City, NJ 31.0%
Donaldson Lufkin Jenrette Jersey City, NJ 16.4%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 12.1%
MARYLAND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 8.0%
MISSOURI - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 20.5%
NORTH CAROLINA - FUBS & Co. Charlotte, NC 50.1%
US Clearing Corp. New York, NY 7.2%
OREGON - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 20.5%
Donaldson Lufkin Jenerette Jersey City, NJ 6.8%
SOUTH CAROLINA - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 44.3%
TENNESSEE - Prudential Securities Inc. Lewisburg, TN 28.2%
Painewebber FBO Elixabeth W. Dupree Knoxville, TN 10.3%
Bear Stearns Securities Corp. Brooklyn, NY 5.8%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 5.3%
VIRGINIA - US Clearing Corp. New York, NY 9.4%
Cowen & Co. New York, NY 5.3%
</TABLE>
In addition, as of the same date, the following shareholders owned of
record, the percentage of each Fund's Class A shares indicated after their name:
<TABLE>
<S> <C> <C> <C>
ALABAMA - Jolee Brown Churan Gentry, AR 5.4%
GEORGIA - Jack D. Pollexfen & Lee Pollexfen; REV LIV Trust Sausalito, CA 9.4%
Edward D. Jones & Company Maryland Heights, MD 7.4%
KENTUCKY - Joseph M. Peterson & Nola Jean Peterson Louisville, KY 16.3%
LOUISIANA - R. Ray Rhymes, Jr. Monroe, LA 5.0%
MARYLAND - Cecile B. Taubman Baltimore, MD 7.3%
Calvert R. Bregel Glen Arm, MD 5.6%
Jean Allen Dornin Lexington Park, MD 5.1%
MISSOURI - John F. Cooney & Joan M. Cooney Raytown, MO 5.6%
Dale A. Knight & Vern H. Schneider St. Louis, MO 5.1%
OREGON - Dain Rauscher Incorporated Eugene, OR 11.0%
Jaynese Hiigel TTEE Eugene, OR 8.5%
John H. Dunlevy Bend, OR 7.2%
Ronald K. Nakata & Wands A. Nakata Portland, OR 5.6%
SOUTH CAROLINA - Barbara B. McDaniel Mount Pleasant, SC 8.8%
Cathryn M. Lander Garden City, SC 8.2%
VIRGINIA - NFSC FBO Sherry L. Volk Williamsburg, VA 14.4%
Wilmington Trust Co. TTEE FBO Wesley C. Dudley Wilmington, DE 6.6%
Olive Young Brown TTEE FBO Olive Young Brown REV TRUST Arlington, VA 6.5%
Jennifer E. Matherly & Philip A. Matherly New York, NY 5.1%
</TABLE>
To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of any Fund's outstanding Class A shares as of such
date.
<PAGE>
APPENDIX B
CLASS B FEES, PERFORMANCE AND OWNERSHIP
DISTRIBUTION AND SERVICE FEES
The following table shows, for the fiscal year ended August 31, 1998, (1)
sales commissions paid by the principal underwriter to investment dealers on
sales of Class B shares, (2) distribution payments to the principal underwriter
under the Distribution Plan, (3) CDSC payments to the principal underwriter, (4)
service fees on Class B shares, and (5) the amount of service fees on Class B
shares paid to investment dealers. The service fees paid by the Funds that were
not paid to investment dealers were retained by the principal underwriter.
<TABLE>
<CAPTION>
DISTRIBUTION CDSC SERVICE
PAYMENTS TO PAYMENTS TO FEES TO
SALES THE PRINCIPAL THE PRINCIPAL SERVICE INVESTMENT
CLASS B COMMISSIONS UNDERWRITER UNDERWRITER FEES DEALERS
- ------- ----------- ----------- ----------- ---- -------
<S> <C> <C> <C> <C> <C>
Alabama ....................... $ $ $ $ $
Arkansas ......................
Georgia .......................
Kentucky ......................
Louisiana .....................
Maryland ......................
Missouri ......................
North Carolina ................
Oregon ........................
South Carolina ................
Tennessee .....................
Virginia ......................
</TABLE>
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the principal underwriter. For the fiscal year ended August 31, 1998, Class B
paid the principal underwriter for repurchase transactions handled by it $2.50
for each such transaction which aggregated as follows: Alabama -- $ ; Arkansas
- -- $ ; Georgia -- $ ; Kentucky -- $ ; Louisiana -- $ ; Maryland -- $ ;
Missouri -- $ ; North Carolina -- $ ; Oregon -- $ ; South Carolina -- $ ;
Tennessee -- $ ; and Virginia -- $ .
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return on
a hypothetical investment of $1,000 in Class B shares for the periods shown in
each table. Past performance is not indicative of future results. Investment
return and principal value will fluctuate; shares, when redeemed, may be worth
more or less than their original cost. Information presented with two asterisks
(**) includes the effect of subsidizing expenses. Return would have been lower
without subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- ALABAMA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 5/1/92 $1,000
5 Years
Ended
8/31/98** 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ------------
*Investment operations began on May 1, 1992.
VALUE OF A $1,000 INVESTMENT -- ARKANSAS
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 10/2/92 $1,000
5 Years
Ended
8/31/98** 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ------------
*Investment operations began on October 2, 1992.
VALUE OF A $1,000 INVESTMENT -- GEORGIA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 12/23/91 $1,000
5 Years
Ended
8/31/98 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ------------
*Investment operations began on December 23, 1991.
VALUE OF A $1,000 INVESTMENT -- KENTUCKY
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 12/23/91 $1,000
5 Years
Ended
8/31/98 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ------------
*Investment operations began on December 23, 1991.
VALUE OF A $1,000 INVESTMENT -- LOUISIANA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 10/2/92 $1,000
5 Years
Ended
8/31/98** 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ------------
*Investment operations began on October 2, 1992.
VALUE OF A $1,000 INVESTMENT -- MARYLAND
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 2/3/92 $1,000
5 Years
Ended
8/31/98** 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ----------
*Investment operations began on February 3, 1992.
VALUE OF A $1,000 INVESTMENT -- MISSOURI
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 5/1/92 $1,000
5 Years
Ended
8/31/98** 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ----------
*Investment operations began on May 1, 1992.
VALUE OF A $1,000 INVESTMENT -- NORTH CAROLINA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 10/23/91 $1,000
5 Years
Ended
8/31/98 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ------------
*Investment operations began on October 23, 1991.
VALUE OF A $1,000 INVESTMENT -- OREGON
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 12/24/91 $1,000
5 Years
Ended
8/31/98 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ----------
*Investment operations began on December 24, 1991.
VALUE OF A $1,000 INVESTMENT -- SOUTH CAROLINA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 10/02/92 $1,000
5 Years
Ended
8/31/98 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ----------
*Investment operations began on October 2, 1992.
VALUE OF A $1,000 INVESTMENT -- TENNESSEE
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 8/25/92 $1,000
5 Years
Ended
8/31/98** 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ------------
*Investment operations began on August 25, 1992.
VALUE OF A $1,000 INVESTMENT -- VIRGINIA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE 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 8/31/98 ON 8/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
Fund** 7/26/91 $1,000
5 Years
Ended
8/31/98 8/31/93 $1,000
1 Year
Ended
8/31/98 8/31/97 $1,000
- ------------
*Investment operations began on July 26, 1991.
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at September 30, 1998, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of each
Class B and of each Fund. As of September 30, 1998, Merrill Lynch, Pierce,
Fenner & Smith, Inc., Jacksonville, FL was the record owner of the following
amounts of the Class B shares, which are held on behalf of its customers who are
the beneficial owners of such shares, and as to which it had voting power under
certain limited circumstances: Alabama -- 33.9%; Arkansas -- 11.4%; Georgia --
14.3%; Kentucky -- 15.5%; Louisiana -- 42.8%; Maryland -- 14.2%; Missouri --
7.7%; North Carolina -- 11.6%; Oregon -- 9.0%; South Carolina -- 14.4%;
Tennessee -- 9.1%; and Virginia -- 15.3%. To the knowledge of the Trust, no
other person owned of record or beneficially 5% or more of any Fund's
outstanding Class B shares as of such date.
<PAGE>
APPENDIX C: STATE SPECIFIC INFORMATION
RISKS OF CONCENTRATION
The following information as to certain state specific considerations is
given to investors in view of a Portfolio's policy of concentrating its
investments in particular state issuers. Such information supplements the
information in the prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of issuers of each particular state. Neither the Trust nor the
Portfolios have independently verified this information.
The bond ratings provided in the prospectus are current as of the date of
the prospectus and are based on economic conditions which may not continue;
moreover, there can be no assurance that particular bond issues may not be
adversely affected by changes in economic, political or other conditions. Unless
stated otherwise, the ratings indicated are for obligations of the state. A
state's political subdivisions may have different ratings which are unrelated to
the ratings assigned to state obligations.
ALABAMA
Alabama's business cycle is closely related to the national economy, due to
its manufacturing based economy. The State's economy has changed little in the
past few years. Growth in machinery, aerospace and electronic manufacturing have
become increasingly important to the State. The present movement toward
diversification of the State's manufacturing base and a similar trend toward
enlargement and diversification of the service industries are expected to lead
to increased stability. With its strong natural gas and oil deposits, Alabama is
well positioned in energy markets. An important factor affecting the economy is
the State owned Port of Mobile which primarily handles coal exports and serves
as a major Gulf Coast port. The Port of Mobile is one of the nation's busiest
ports in tons of cargo handled.
Although manufacturing remains the largest employment sector, the State
economy has become less dependent on manufacturing. Strong growth in the service
and wholesale/retail trade sectors combined with a weakening manufacturing
sector has enabled the economy to become more diverse. However, its reliance on
the manufacturing sector remains significantly greater than the national
average. In the past several years, the loss of manufacturing jobs has been
primarily as a result of weakness in the durable good sector. Overall,
non-agricultural employment has steadily grown during the past five years.
ARKANSAS
The Constitution of the State does not limit the amount of general
obligation bonds which may be issued by the State; however, no such bonds may be
issued unless approved by the voters of the State at a general election or a
special election held for that purpose. There is no constitutional limitation on
the aggregate principal amount of revenue bonds that may be issued by the State
and its agencies. All revenue bonds and notes are secured only by specific
revenue streams and neither the general revenues of the State nor its full faith
and credit are pledged to repayment.
Pursuant to the Revenue Stabilization Law, the General Assembly must enact
legislation to provide for an allotment process of funding appropriations in
order to comply with State law prohibiting deficit spending whereby spending is
limited to actual revenues received by the State. The Governor may restrict
spending to a level below the level of appropriations. Pursuant to the
Stabilization Act, the General Assembly establishes three levels of priority for
general revenue spending, levels "A," "B" and "C". Successive levels of
appropriations are funded only in the event sufficient revenues have been
generated to fully fund any prior level. Accordingly, appropriations made to
programs and agencies are only maximum authorizations to spend. Actual
expenditures are limited to the lesser of (i) moneys flowing into a program or
agency's fund maintained by the Treasurer or (ii) the maximum appropriation by
the General Assembly. Since State revenues are not collected throughout the year
in a pattern consistent with program and agency expenditures, the Budget
Stabilization Trust Fund, which receives one-half of interest earnings from
State fund investments, has been established and is utilized to assure proper
cash flow during any period. Other said interest earnings are utilized to
supplement the State's capital construction program and the balance is
distributed to programs and agencies funded from general revenues.
The State operates under a biennial budgeting system with July 1, 1997
beginning the current biennium. The State ended fiscal 1996 in balance as
required by the Revenue Stabilization Act. Gross available general revenue
growth for fiscal 1996 was 10.2%.
GEORGIA
The Georgia Constitution provides that the State may incur public debt of
two types for public purposes: (1) general obligation debt and (2) guaranteed
revenue debt. General obligation debt may be incurred to acquire, construct,
develop, extend, enlarge or improve land, waters, property, highways, buildings,
structures, equipment or facilities of the State, its agencies, departments,
institutions and certain State authorities, to provide educational facilities
for county and independent school systems, to provide public library facilities
for county and independent school systems, counties, municipalities, and boards
of trustees of public libraries or boards of trustees of public library systems,
to make loans to counties, municipal corporations, political subdivisions, local
authorities and other local government entities for water or sewerage facilities
or systems, and to make loans to local government entities for regional or
multijurisdictional solid waste recycling or solid waste facilities or systems.
No general obligation debt may be incurred, however, when the highest aggregate
annual debt service requirements for the then current year or any subsequent
year for outstanding general obligation debt and guaranteed revenue debt,
including any proposed debt, and the highest aggregate annual payments for the
then current year or any subsequent fiscal year of the State under certain State
contracts, exceed ten percent of the total revenue receipts, less refunds, of
the State Treasury in the fiscal year immediately preceding the year in which
the debt is to be incurred. In addition, no general obligation debt may be
incurred with a term in excess of twenty-five years.
Guaranteed revenue debt may be incurred by guaranteeing the payment of
certain revenue obligations issued by an instrumentality of the State. No
guaranteed revenue debt may be incurred to finance water or sewage treatment
facilities or systems when the highest aggregate annual debt service
requirements for the then current year or any subsequent fiscal year of the
State for outstanding or proposed guaranteed revenue debt for water or sewerage
facilities or systems exceed one percent of the total revenue receipts, less
refunds, of the State Treasury in the fiscal year immediately preceding the year
in which any debt is to be incurred. In addition, the aggregate amounts of
guaranteed revenue debt incurred to make loans for educational purposes may not
exceed $18 million, and the aggregate guaranteed revenue debt incurred to
purchase, or to lend or deposit against the security of, loans for educational
purposes that may be outstanding may not exceed $72 million.
As of June 30, 1997, the State's outstanding general obligation debt was
$4,635,930,000. The State had outstanding at June 30, 1997, $177,960,000 of
guaranteed revenue debt. In addition to the State's general obligation debt and
guaranteed revenue debt, the State had outstanding at June 30, 1997, $130,000 in
revenue bonds and notes issued by various State agencies, authorities and
institutions of higher education. In the 1997 Legislative Session, the General
Assembly authorized the issuance of $60,350,000 in aggregate principal amount of
general obligation bonds for fiscal year 1998, the proceeds of which are to be
used for various planned capital projects of the State, its departments and
agencies.
The Georgia Constitution also permits the State to incur public debt to
supply a temporary deficit in the State Treasury in any fiscal year created by a
delay in collecting the taxes of that year. Such debt must not exceed, in the
aggregate, 5% of the total revenue receipts, less refunds, of the State Treasury
in the fiscal year immediately preceding the year in which such debt is
incurred. The debt incurred must be repaid on or before the last day of the
fiscal year in which it is to be incurred out of the taxes levied for that
fiscal year. No such debt may be incurred in any fiscal year if there is then
outstanding unpaid debt from any previous fiscal year which was incurred to
supply a temporary deficit in the State Treasury. No such debt has been incurred
under this provision since its inception.
Virtually all of the issues of long-term debt obligations issued by or on
behalf of the State of Georgia and counties, municipalities and other political
subdivisions and public authorities thereof are required by law to be validated
and confirmed in a judicial proceeding prior to issuance. The legal effect of a
validation in Georgia is to render incontestable the validity of the pertinent
bond issue and the security therefor.
Tax collections of the State for fiscal year 1997 were 5.8% over tax
collections for fiscal year 1996. Corporate and individual income tax receipts
and general sales tax receipts of the State for fiscal year 1997 comprised an
estimated 52.2% and 38.8%, respectively, of the total State tax revenues.
Revenues from sales and income taxes increased 2.6% and 9.2%, respectively,
during fiscal year 1997.
Two suits have been filed with the State of Georgia by foreign producers of
alcoholic beverages. The first suit seeks $96 million in refunds of alcohol
import taxes imposed under Georgia's post-Bacchus (468 U.S. 263-1984) statute,
O.C.G.A. (S) 3-4-60, et seq., as amended in 1985. These claims constitute 99% of
all such taxes paid during the three years preceding these claims. In addition,
the claimants have filed a second suit for refund of an additional $23 million
for apparently later time periods. These two cases encompass all known or
anticipated claims for refund of such type within the apparently applicable
statute of limitations for the years in question (1989 - January 1995). These
cases are still pending in the trial court.
A suit has also been filed in the Federal District Court for the Northern
District of Georgia by Dekalb County against the State School Superintendent and
the State of Georgia. The suit is based on a claim that the State's funding
formula for pupil transportation is unconstitutional and a local school board's
claim that the State should finance the major portion of the costs of its
desegregation program. The plaintiffs are seeking approximately $67,500,000 in
restitution. The Federal District Court ruled that the State's funding formula
for pupil transportation is contrary to state law but ruled in the State's favor
on the school desegregation costs issue. Motions to reconsider and amend the
Court's judgment were filed by both parties. The State's motion was granted, in
part, which reduced the required State payment to approximately $28,000,000, as
of the date of decision. Notices of appeal and briefs to the Eleventh Circuit
Court of Appeals were filed by both sides, and oral arguments on appeal were
heard in October 1996. In April 1997, a three-judge panel of the Eleventh
Circuit Court of Appeals rendered a decision, affirming the trial court's
decision in the State's favor as to the school desegregation costs issue and
reversing the trial court's decision against the State as to the State's funding
formula for pupil transportation being contrary to state law. Thus, under the
Eleventh Circuit panel's decision, the State has no liability. On April 28,
1997, the plaintiffs filed a motion for rehearing and en banc consideration, and
that motion was denied. The plaintiffs may apply for a writ of certiorari to the
United States Supreme Court for a discretionary appeal, but have not yet done
so.
On August 26, 1996, a civil action was filed in the Fulton County Superior
Court seeking a court order declaring that two games sponsored by the Georgia
Lottery Corporation, "Quick Cash" and "Cash Three," are unconstitutional and
enjoining the lottery from further offering of these games. Plaintiffs also seek
the return of all monies played on these games during a specified period,
approximately $1,703,462,781. As a preliminary matter, the Court has ruled that
the plaintiffs would not be legally entitled to the monies claimed. The
plaintiffs have attempted to appeal. Any judgment against the Georgia Lottery
Corporation would not be satisfied from the State's general fund.
Another case has arisen in the context of a declaratory judgment action
brought by the State of Georgia and counterclaims filed by the defendants. A
young professional woman and mother was killed in an automobile accident when
her car collided with another vehicle. The other vehicle was a state-owned
vehicle driven by an employee of a for-profit corporation, which had contracted
with Fulton County, Georgia, to provide a transportation service. Fulton County
had a contract with the Atlanta Regional Commission concerning the
transportation service program, and the Atlanta Regional Commission, in turn,
had a contract with the Georgia Department of Human Resources. In June 1996, the
Georgia Department of Human Resources and the Georgia Department of
Administrative Services brought declaratory judgment actions against the
decedent's estate and others to assert the absence of any duty to insure the
second driver. In August 1996, the estate and other parties filed tort
counter-claims for wrongful death. Under commonly applied measures of damages
for wrongful death, a money judgment for the estate could be several million
dollars. However, the State believes that it has substantial defenses to assert
and intends to defend the counterclaim actions vigorously.
KENTUCKY
Because the Kentucky Constitution requires the vote of a majority of the
state's electorate to approve the issuance of state general obligation
indebtedness and until recently required the vote of two-thirds of a
municipality's electorate to approve the issuance of general obligation
indebtedness by any city, county, or other municipality within the state, most
Kentucky state and local government indebtedness is issued not as general
obligation indebtedness but as either debt payable only from revenues produced
by the particular project or as indebtedness subject to biennial, in the case of
the state, or annual, in the case of a local government, legislative
appropriation for the payment of debt service. Such appropriation-backed
indebtedness is customarily issued in the form of lease revenue bonds by a
public authority or public holding company which uses the proceeds of the bonds
to finance the particular public project and leases the project to the state or
local government pursuant to a lease renewable each fiscal biennium (in the case
of the state) or each fiscal year (in the case of a local government). Failure
of the lessee government to renew the lease would terminate the lessee's
obligation to make further rental payments and would leave the bondholders with
recourse only against the property which was subject to the lease and any other
security pledged for the payment of the bonds. An amendment to the state
constitution approved by the electorate at the November 1994 general election
authorized the Kentucky General Assembly to enact legislation permitting local
governments to issue general obligation indebtedness without voter approval but
subject to prescribed limitations on the maximum amount of indebtedness that may
be incurred based on the assessed value of the taxable property within the
municipality and such additional limitations and conditions as may be prescribed
by statute. Although the Kentucky General Assembly enacted enabling legislation
in 1996, the validity of the constitutional amendment is currently the subject
of a test case. Therefore, appropriation-backed indebtedness continues to be the
prevailing form of financing for local governments in Kentucky.
LOUISIANA
The State of Louisiana General Fund should have a $76.8 million balance
after Fiscal Year 1995-96. However, Fiscal Year 1996-97 budget projections
indicate that the State will have to rely on reduction in expenditures by
approximately $72.5 million to produce a balanced budget. One of the most severe
budget issues is the Medicaid program. For Fiscal Year 1995-96, Louisiana was
eligible to receive $690 million in Medicaid disproportionate share payments for
hospitals. In the past, Louisiana used a portion of the amounts paid to the
State public hospitals to fund the State's portion of the Medicaid program. The
1993 amendments to the federal disproportionate share law severely restrict the
State's ability to continue to help finance health care in this manner. On April
26, 1996, Congress adopted a budget bill that included a two-year funding based
specifically for the State Medicaid Program. This budget bill allows the State
to move forward with the Medicaid Managed Care initiatives without being faced
with severe funding cuts. It is expected, however, that additional program
reductions will be required in order to bear a $2.6 billion Federal fund cap and
the minimum required State match of $600 million for Fiscal Year 1996-97 as
allowed by Congress. The State's executive and legislative leadership is
currently revising its overall spending projections for years through Fiscal
Year 1999-2000, including projections for Medicaid requirements. This Medicaid
problem will also slow the growth in the services sector of the Louisiana
economy.
The Louisiana Economic Development and Gaming Corporation (the "Gaming
Corporation") was created by the Louisiana legislature in 1992 for the purpose
of contracting with a casino operator to provide for or furnish an official
gaming establishment and to conduct casino gaming operations at the official
gaming establishment, the Rivergate Convention Center in New Orleans (the
"casino") as well as a temporary casino until the casino is opened. Voters at
the general election held in November, 1996, approved land-based gambling in the
City of New Orleans. Once the casino is in operation, the operator must pay a
minimum of 18 1/2% of gross revenues, or $100 million annually, whichever is
higher, to the Gaming Corporation. The Gaming Corporation must transfer daily to
the State Treasury for deposit in the Casino Gaming Proceeds Fund net revenues
which are surplus to its needs. Such revenues will be first credited to the Bond
Security and Redemption Fund before being credited to the Casino Gaming Proceeds
Fund. Moneys in the Casino Gaming Proceeds Fund may be allotted or expended only
pursuant to legislative appropriation. The operating contract was awarded to
Harrah's Jazz Company, which is a partnership comprised of three principals:
Harrah's New Orleans; New Orleans/Louisiana Development Corporation (Jazzville);
and Grand Palais Corporation. Construction of the permanent casino began at the
site of the old Rivergate in the spring of 1995. In November, 1995, after
unsuccessfully operating a temporary casino at the New Orleans Municipal
Auditorium, Harrah's New Orleans filed voluntary bankruptcy under Chapter 11.
Harrah's New Orleans is in the process of restructuring Harrah's Jazz Company
financing and renegotiating other contractual terms. The temporary casino will
not re-open. It appears at this time that a scaled-down version of the casino
will be opened in the latter part of 1997, but the Governor of the State has
publicly stated that he will not comprise any payments that are due the State
under the enabling legislation and the original contract. At this time, the
situation has not been resolved. The State has not included any revenue from
land based casino gaming in the official revenue forecast for Fiscal Year
1996-97 or Fiscal Year 1997-98.
MARYLAND
Generally Maryland has been among the most heavily indebted of the states,
although its position is more moderate with the inclusion of local debt,
reflecting in part the State assumption several years ago of a substantial
portion of local school construction costs. The State became concerned over its
debt levels and, following recommendations of a debt affordability committee,
has practiced restraint in borrowing. Resources have also expanded and debt
ratios have fallen. Capital borrowing plans are reasonable and designed not to
increase debt levels. Recently, major infrastructure projects undertaken,
including a light rail line, two stadiums, and airport and convention center
improvements, have been financed primarily by revenue-backed or other
non-general obligation financings.
The public indebtedness of Maryland and its instrumentalities is divided
into three basic types. The State, as well as the various counties and
municipalities of the State, issues general obligation bonds payable from ad
valorem taxes for capital improvements. The Department of Transportation of
Maryland issues limited, special obligation bonds for transportation purposes
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities, as well as several local
governments, issue obligations payable solely from identified taxes or revenue
streams, including loan obligations from nonprofits, companies or other private
entities, and for which the State or local government has no liability and has
given no moral obligation assurance. The State, its agencies and departments and
the various localities also enter into municipal leases or installment purchase
obligations. Such a lease is not a general obligation of the municipality for
which the municipality's taxing power is pledged but is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payments due
under the lease. Such municipal leases generally contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease
payments in future years unless money is appropriated for such purpose on a
yearly basis.
The State ended its fiscal year 1994 with a General Fund surplus on a
budgetary basis of approximately $60.0 million, and ended its fiscal year 1995
with a General Fund surplus on a budgetary basis of approximately $26.5 million
(excluding $106 million to be applied to the fiscal year 1996 budget) and $286.1
million in the Revenue Stabilization Account of the State Reserve Fund. The
State ended fiscal year 1996 with a $124 million surplus and a $461.2 million in
the Revenue Stabilization Account. Fiscal year 1997 is estimated to end with a
$144.5 million surplus and a $490.4 million balance in the Revenue Stabilization
Account. During the first nine months of fiscal year 1997 revenues for the
General Fund were $4.82 billion; fiscal 1998 revenues for the General Fund are
anticipated to be $7.79 billion. When the budget for fiscal year 1998 was
enacted, the State estimated the General Fund surplus on a budgetary basis to be
$28.2 million, in addition to which the State projected that there would be a
balance of $554 million in the Revenue Stabilization Account.
MISSOURI
While Missouri has a diverse economy with a distribution of earnings and
employment among manufacturing, trade and service sectors closely approximating
the average national distribution, the national economic recession of the early
1980's had a disproportionately adverse impact on the economy of Missouri.
However, since the 1980 to 1983 recession periods, Missouri unemployment levels
generally approximated or slightly exceeded the national average. The St. Louis
and Kansas City metropolitan areas are important contributors to the Missouri
economy. Economic reversals in either of these two areas would have a major
impact on the overall economic condition of the State of Missouri. Additionally,
the State of Missouri has a significant agricultural sector which is
experiencing farm-related problems comparable to those which are occurring in
other states. To the extent that these problems were to intensify, there could
possibly be an adverse impact on the overall economic condition of the State.
Defense related business plays an important role in Missouri's economy and
in 1996 St. Louis based McDonnel Douglas Corporation ("MDC"), the largest
employer in the State, was reported to have received the second largest dollar
volume of defense contracts in the United States. Recent changes in the levels
of military appropriations and cancellations of weapons programs have resulted
in a 30% decrease in MDC's Missouri workforce over the last four years. In the
event of further reductions in the level of military appropriations are enacted
by the United States Congress, Missouri and particularly the St. Louis area,
could be disproportionately affected. On August 1, 1997, MDC became a
wholly-owned subsidiary of The Boeing Company. It is impossible to determine
what effect, if any, the acquisition of MDC by The Boeing Company will have on
the operations conducted by MDC. However, any shift or loss of production
operations now conducted in Missouri would have a negative impact on the economy
of the State and particularly on the economy of the St. Louis metropolitan area.
Desegregation lawsuits in St. Louis and Kansas City continue to require
significant levels of state funding and are sources of uncertainty: litigation
continues on many issues, court orders are unpredictable, and school district
spending patterns have proven difficult to predict. A recent Supreme Court
decision favorable to the State may decrease the level of State funding required
in the future, but the impact of this decision is uncertain. The State paid $282
million for desegregation costs in fiscal 1994 and the budget for fiscal 1995
provided $315 million. In fiscal 1996, this expense accounts for close to 15% of
total state General Revenue Fund spending.
Article X, Sections 16-24 of the Constitution of Missouri (the "Hancock
Amendment") imposes limitations on the amount of State taxes which may be
imposed by the General Assembly of Missouri (the "General Assembly") as well as
on the amount of local taxes, licenses and fees (including taxes, licenses and
fees used to meet debt service commitments on debt obligations) which may be
imposed by local governmental units (such as cities, counties, school districts,
fire protection districts and other similar bodies) in the State of Missouri in
any fiscal year.
The limit on taxes is tied to total State revenues determined in accordance
with the formula set forth in the amendment, which adjusts the limit based on
increases in the average personal income of Missouri for certain designated
periods. The details of the amendment are complex and clarification from
subsequent legislation and further judicial decisions may be necessary.
Generally, if the total State revenues exceed the State revenue limit imposed by
Section 18 of Article X by more than 1%, the State is required to refund the
excess. The State revenue limitation imposed by the Hancock Amendment does not
apply to taxes imposed for the payment of principal and interest on bonds,
approved by the voters and authorized by the Missouri Constitution. The revenue
limit can also be exceeded by a constitutional amendment authorizing new or
increased taxes or revenues adopted by the voters of the State of Missouri. The
Hancock Amendment also limits new taxes, licenses and fees and increases in
taxes, licenses and fees by local governmental units in Missouri. It prohibits
counties and other political subdivisions (essentially all local governmental
units) from levying new taxes, licenses and fees or increasing the current levy
of an existing tax, license or fee "without the approval of the required
majority of the qualified voters of that county or other political subdivision
voting thereon."
When a local governmental unit's tax base with respect to certain fees or
taxes is broadened, the Hancock Amendment requires the tax levy or fees to be
reduced "to yield the same estimated gross revenue as on the prior base." It
also effectively limits any percentage increase in property tax revenues to the
percentage increase in the general price level (plus the value of new
construction and improvements), even if the assessed valuation of property in
the local governmental unit, excluding the value of new construction and
improvements, increases at a rate exceeding the increase in the general price
level.
NORTH CAROLINA
The current economic profile of the State consists of a combination of
industry, agriculture and tourism. Tobacco production, which had been the
leading source of agricultural income in the State, declined in 1995. Tobacco
farming in the State has been and is expected to continue to be affected by
major Federal legislation and regulatory measures regarding tobacco production
and marketing and by international competition.
The State's seasonally adjusted unemployment rate in April, 1997 was 3.2% of
the labor force, as compared with and unemployment of 4.9% nationwide. The labor
force has undergone significant change during recent years as the State has
moved from an agricultural to a service and goods producing economy. Those
persons displaced by farm mechanization and farm consolidations have, in large
measure, sought and found employment in other pursuits.
During fiscal 1991 and 1992, the State was forced to employ various
non-recurring items and budget reductions in order to balance the State's
budget. Among other things, the State deferred Basic Education Program
improvements. In addition, the State also implemented approximately $640 million
in tax increases, including raising the State sales tax from 3% to 4%. This 4%
tax is the State's portion of the total 6% sales tax with the rest dedicated to
local governments. A 4% corporate income tax surcharge was also implemented and
is scheduled to terminate on January 1, 1995. The State's fiscal position has
improved considerably since 1992, with the general fund balance increasing from
a deficit position to a surplus equal to 6.3% of 1996 expenditures.
The State is a defendent in pending court actions involving the taxing of
benefits paid to federal retirees and related matters. Although specific claims
for damages have not been precisely calculated, the amount could exceed $400
million over a period of years. The State is also a defendent in several other
litigations which, in the opinion of the Department of the Treasurer, could have
a material adverse affect on the State's ability to meet its obligations. In the
Leandro action, the plaintiffs claim that the State has failed to provide
adequate or substantially equal educational opportunities to children. On July
24, 1997, the North Carolina Supreme Court issued a decision in the case, in
which the Court held that the North Carolina Constitution guarantees every child
in the state an opportunity to receive a sound basic education in North Carolina
public schools, and defined the basic parameters of a "sound basic education".
The Court also held, however, that the Constitution does not require
substantially equal funding and educational advantages in all school districts.
The Court remanded the case to the Superior Court to determine whether the
plaintiffs could make a clear showing that the State Board of Education has
established and is administering a system that denies the children in the State
a sound basic education. In the Francisco action, the plaintiffs claim that the
State has failed to fund programs to educate non-English speaking students. In a
series of cases involving State retirement benefits, disabled retirees are
challenging on various grounds changes in the formula for paying retirement
benefits. Damages could exceed $500 million. In the Fulton case, the imposition
of the State's intangible personal property tax on shares of stock was
challenged and was found to be in violation of the United States Constitution
Commerce Clause. On July 21, 1997, the North Carolina General Assembly ratified
legislation providing a refund to all taxpayers who paid intangibles tax on
shares of stock from 1990 through 1994, who protested payment in a timely manner
under applicable state law, and whose refund claim was pending on the date the
United States Supreme Court struck down the tax. The estimated cost of refunds
is approximately $155 million.
OREGON
As of September 1, 1997, $3.26 billion in general obligation bonds issued by
the State of Oregon and its agencies and instrumentalities were outstanding,
including $122.3 million in general obligation bonds supported by the budget for
the State's general fund and $3.14 billion of self-supporting general obligation
bonds. The State's self-supporting general obligation bonds include $2.39
billion of State veteran's bonds, which, in the event of poor economic
conditions resulting in an increased number of mortgage defaults, could cease to
be self-supporting. All of the existing and outstanding general obligation bonds
of the State have been issued under specific State constitutional provisions
that authorize the issuance of such bonds and provide authority for ad valorem
taxation to pay the principal of and interest on such bonds. With the exception
of the veteran's bonds, for which no more than two mills on each dollar
valuation may be levied to pay principal and interest, the authority of the
State to tax property for the payment of its general obligation bonds is
unlimited. Since at least 1950, the State has not imposed ad valorem tax for the
payment of any of its obligations because other revenues, including those
generated by the self-supporting bonds, have been sufficient.
In addition to general obligation bonds, various state statutes authorize
the issuance of State revenue bonds and certificates of participation. These
limited obligations of the State or its agencies or instrumentalities may be
payable from a specific project or source, including lease rentals. The State is
not authorized to impose ad valorem taxes on property for the payment of
principal and interest on these bonds, so they are more sensitive to changes in
the economy. There can be no assurance that future economic problems will not
adversely affect the market value of Oregon obligations held by the Portfolio or
the ability of the respective obligors (both private and governmental) to make
required payments on such obligations.
Oregon does not have a sales tax. As a result, State tax revenues are
particularly sensitive to economic recessions. The principal source of State tax
revenues are personal income and corporate income taxes. For the 1997-99
biennium, approximately 97.0% of the State's legislatively budgeted revenues are
projected to come from combined income taxes, insurance taxes, gift and
inheritance taxes, and cigarette and tobacco taxes.
Units of local government (including cities, counties, school districts and
various types of special purpose districts), each of them a municipal
corporation separate from the State, rely on various combinations of property
tax revenues, local income taxes, user fees and charges and State assistance. As
of June 30, 1996, units of local government in Oregon had $3.01 billion in
general obligation bonds outstanding.
Over the past several years, a number of species of Oregon wildlife have
been added to the Endangered Species list, including the northern spotted owl
and certain populations of salmon. The spotted owl listing has already had a
substantial economic impact on the State's economy, primarily through a
reduction in timber harvests from federal lands. The salmon listings also have
had a substantial economic impact, primarily through increased electricity rates
and related impacts on rate-sensitive industries such as the aluminum industry.
Efforts to protect the spotted owl and salmon and steelhead populations may
eventually affect a wide variety of agricultural, industrial, recreational and
land use activities, with corresponding impacts on long-term economic growth.
The magnitude and extent of any future environmental action is difficult to
predict.
Oregon voters have approved several property tax limitation measures during
the 1990s. Ballot Measure 5, adopted by Oregon's voters in November 1990,
imposed an aggregate limit on the rate of property taxes, including ad valorem
taxes, that may be levied against any real or personal property. Measure 5
provided that not more than $15 per $1,000 of real market value could be levied
against any piece of property, of which $5 could be used for public education
and the remaining $10 could be used for general governmental purposes. Ballot
Measure 47, adopted by Oregon's voters in November 1996, was designed to limit
the amount of property taxes actually collected.
Units of local government that levy and collect property taxes are most
directly affected by the property tax limitation measures. The Oregon
Legislative Revenue Office has estimated that the total reduction in property
tax revenues collected by local governments under Measure 50 will be
approximately $389 million for tax year 1997-98 and approximately $454 million
for tax year 1998-99. Both Measure 5 and Measure 50 require the State to
temporarily replace a substantial portion of the lost revenues of local school
districts. Because the State does not levy or collect property taxes, the main
impact of the property tax limitation measures will likely be to increase
pressure on the Legislative Assembly to continue to use State funds to replace
revenues lost by local governments.
Ballot Measure 47. At the November 5, 1996 general election, the voters of
the State of Oregon approved a constitutional amendment creating new sections
11g, 11h, 11i and 11j within Article XI of the Oregon Constitution. The
initiative proposing these amendments was commonly referred to as "Ballot
Measure 47" or "Cut and Cap."
Before Measure 47 was fully implemented, the 1997 Legislative Assembly
referred to Oregon voters, and the voters approved at the May 20, 1997 special
election, a constitutional amendment that replaced the property tax limitations
imposed by the former Measure 47. Measure 50 repealed both Measure 47 and
Measure 5 and replaced them with a new ad valorem property tax limitation
measure, which required a 17 percent reduction in 1997-98 operating tax levies
(which vary by government entity) and which limited the assessed value for the
tax year 1997-98 to its 1995-96 "real market value," less ten percent.
Thereafter, Measure 50 limits the valuation growth of property assessments on
each unit of property to three percent per year for future tax years. Measure 50
preserves the general limitations on property tax rates imposed by Measure 5.
Measure 50 also requires that any new property taxes be approved by a majority
of the voters in an election where at least 50 percent of the eligible voters
participate, except in the instance of a general election in even numbered
years. In addition, Measure 50 requires voter approval of the use if fees,
taxes, assessments or other charges as alternative revenue sources to make up
for revenue reductions caused by the amended property tax limits.
Several litigation matters are pending involving the State. These matters
include (i) an action filed by several out-of-state insurers challenging
Oregon's gross premium tax on out-of-state insurers and seeking refunds of taxes
previously paid, which could result in the State being liable for approximately
$50 million in refunds and (ii) several cases in which federal retirees have
challenged the validity of a State Public Employees Retirement System benefit
increase to offset the taxation of such benefits or have sought refunds of State
taxes paid on federal retirement benefits. In addition, the Oregon Supreme Court
has ruled against the State in an action brought to require the State to return
$81 million that was transferred in 1983 from the State's Industrial Accident
Fund ("SAIF") to the State's general fund. The amount required to be returned to
SAIF, including interest, has been estimated to be approximately $280 million.
The claims have been settled for a State obligation to pay $225 million and $145
million of that amount has been paid. An additional $80 million is payable at
the end of the 1999 legislative session.
According to the September 1997 Oregon Economic and Revenue Forecast
prepared by the State Department of Administrative Services, Oregon's economy is
expected to continue expanding faster than the overall U.S. economy, due to a
strong international export sector, an expanding high technology sector and a
steady stream of immigration. Oregon's manufacturing and construction sectors,
which have been growing at an extremely rapid pace, are expected to cool off.
The larger service-producing sector, which has softened over the past two
quarters, is expected to grow slightly. The overall growth rate is trending
down. Increases in personal income are expected to be slightly higher in 1997
than they were in 1996, and are projected to be lower in 1998 and 1999.
Following a 4.0 percent increase in 1996, employment is projected to rise more
slowly in 1997 and 1998. Oregon's unemployment rate for August 1997 was 5.5%
compared to a national rate of 4.9%.
SOUTH CAROLINA
The South Carolina Constitution requires the General Assembly to provide a
balanced budget and requires that if there is a deficit, such deficit shall be
provided for in the succeeding fiscal year. The State Constitution also provides
that (i) the State Budget and Control Board may, if a deficit appears likely,
effect such reductions in appropriations as may be necessary to prevent a
deficit, (ii) annual increases in State appropriations may not exceed the
average growth rate of the economy of the State, (iii) that the annual increase
in the number of State employees may not exceed the average growth of the
population of the State, and (iv) a General Reserve Fund be maintained in an
amount equal to 3% of General Fund revenue for the latest fiscal year. The State
also maintains a Capital Reserve Fund equal to 2% of the General Reserve Fund.
Despite several spending reductions in fiscal 1992, the State recorded a
budgetary basis operating deficit of $54 million due to lower than anticipated
sales and corporate-income tax revenues. The State ended fiscal 1992 with only
$7.6 million in its budgetary general fund. In June 1993, the presidential
base-closing commission voted to close the Charleston Naval Base. South Carolina
has estimated lost revenues of $100 million over the three-year period from July
1, 1993 to June 30, 1996 due to the closing. There can be no guarantee that the
actual cost will not be more or less than the State's estimate. Budgetary
General Fund revenues and expenditures for fiscal 1993 were $3.673 billion and
$3.521 billion, respectively. There was a $116 million surplus of which $67
million was deposited into the General Reserve Fund ("Rainy Day Fund"). Fiscal
1994 had budgeted revenues and expenditures of $3.828 billion and $3.795
billion, respectively. No new taxes were implemented. Fiscal 1994 ended with a
General Fund surplus of $128 million, 1995 ended with a $222 million surplus and
1996 with a $27 million surplus. Despite recent deposits into the General
Reserve Fund, South Carolina still maintains a deficit in its unrestricted
general fund, in the amount of $261 million at the end of 1996. The General
Reserve Fund is now at its fully funded level of $110.2 million. Fiscal 1995 has
budgeted $3.93 billion for expenditures with no new taxes expected.
TENNESSEE
Tennessee's State Constitution requires that (1) the total expenditures of
the State for any fiscal year shall not exceed the State's revenues and
reserves, including the proceeds of debt obligations issued to finance capital
expenditures and (2) in no year shall the rate of growth of appropriations from
State tax revenues exceed the estimated rate of growth of the State's economy.
In the past, the Governor and the General Assembly have had to restrict
expenditures to comply with the State Constitution.
The Tennessee economy generally tends to rise and fall in a roughly parallel
manner with the U.S. economy. Like the U.S. economy, the Tennessee economy
entered recession in the last half of 1990 which continued throughout 1991 and
into 1992 as the Tennessee indexes of coincident and leading economic indicators
trended downward throughout the period. However, the Tennessee economy gained
strength during the latter part of 1992 and this renewed vitality steadily
continued through 1993, 1994 and into 1995. The latter half of 1995 and the
first part of 1996 has seen the State's economy become slightly inconsistent in
its performance, with most 1996 economic data revealing some downward movement
in the leading economic index.
State revenue collections for 1996 fell below projections by $22.4 million.
A corresponding reduction in expenditures enabled the rainy day fund to maintain
its balance of $101 million.
VIRGINIA
The Commonwealth of Virginia has had a tradition of low debt, and a large
proportion of its general obligation bonds has been supported by particular
revenue-producing projects. However, a trend towards more use of non-general
obligation debt, which is not subject to constitutional limits on borrowing, is
now changing the Commonwealth's debt profile. In recent years, the Commonwealth
has expanded its limited obligation borrowings through various financing
vehicles such as the Virginia Public Building Authority and the Virginia College
Building Authority, and has embarked upon a substantial transportation bonding
program to which certain increases in retail sales and motor vehicle-related
taxes enacted in 1986 are dedicated. The general fund is the Commonwealth's
major operating fund and accounts for about half of Commonwealth expenditures.
It covers all functions except highways and Federal grant disbursements, for
which there are special revenue funds.
While the Commonwealth has had a long history of sound financial operations,
variations of a cyclical nature have occurred during the past several years.
During fiscal year 1992, financial operations were somewhat more favorable than
expected. Revenues of $5.6 billion exceeded expenditures by approximately $150
million with $44 million in increased revenues and the balance in decreased
expenditures ordered by the Governor in December of 1991. The closing balance at
June 30, 1992 was $195.1 million, of which $142.3 million will be
reappropriated, leaving $52.8 million as an unreserved, undesignated balance,
the first such balance in four years. The fiscal 1993 ending balance for the
General Fund was $331.8 million of which $59.7 is unreserved, undesignated.
Revenues for the 1993 fiscal year were 8.9% higher than fiscal year 1992, a $103
million increase. At the close of the biennium ending June 30, 1994, the Fund
balance amounted to $518.7 million of which $81 million was reserved, including
$79.9 million for the Revenue Stabilization Fund. Fiscal 1995 general fund
revenues exceeded projections by $56 million, or 0.8% and 1996 ended just below
budget. The Revenue Stabilization Fund is estimated to have a balance of $200
million by June 30, 1998.
Virginia's economy is generally affected by economic trends throughout the
country and in the Mid-Atlantic region, and it is particularly influenced by
Federal civilian and military installations and the growth of suburban
communities around Washington, D.C. Also significant to the economy of Virginia
are manufacturing (such as electronic equipment, shipbuilding and chemical
products), minerals (chiefly coal), service sector occupations (including
banking and insurance), agriculture and tourism. Unemployment rates are
typically below the national average, but because of a large military and
civilian government employment component, and the related civilian employment, a
substantial decrease in defense or other governmental spending could have a
material adverse effect on both the unemployment rate and the economy of the
Commonwealth in general.
PUERTO RICO, THE U.S. VIRGIN ISLANDS AND GUAM
PUERTO RICO. Puerto Rico has a diversified economy dominated by the
manufacturing and service sectors. The North American Free Trade Agreement
("NAFTA"), which became effective January 1, 1994, has led to loss of lower wage
jobs such as textiles, but economic growth in other areas, particularly the high
technology area has compensated for that loss.
The Commonwealth of Puerto Rico differs from the states in its relationship
with the federal government. Most federal taxes, except those such as social
security taxes that are imposed by mutual consent, are not levied in Puerto
Rico. However, in conjunction with the 1993 U.S. budget plan, Section 936 of the
Code was amended and provided for two alternative limitations to the Section 936
credit. The first option limited the credit against such income to 40% of the
credit allowable under then current law, with a five year phase-in period
starting at 60% of the allowable credit. The second option was a wage and
depreciation based credit. Additional amendments to Section 936 in 1996 imposed
caps on these credits, beginning in 1998 for the first option and beginning in
2002 for the second option. More importantly, the 1996 amendments eliminated
both options for taxable years beginning in 2006. The eventual elimination of
tax benefits to those U.S. companies with operations in Puerto Rico may lead to
slower growth in the future. There can be no assurance that this will not lead
to a weakened economy, a lower rating on Puerto Rico's debt or lower prices for
Puerto Rican bonds that may be held by the Portfolio in the long-term.
Puerto Ricans have periodically considered conversion to statehood and such
a vote is likely again in the future.
THE U.S. VIRGIN ISLANDS. The United States Virgin Islands (USVI) is heavily
reliant on the tourism industry, with roughly 43% of non-agricultural employment
in tourist-related trade and services. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe.
An important component of the USVI revenue base is the federal excise tax on
rum exports. Tax revenues rebated by the federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI is periodically hit by hurricanes.
Several hurricanes have caused extensive damage, which has had a negative impact
on revenue collections. There is currently no rated, unenhanced Virgin Islands
debt outstanding (although there is unrated debt outstanding).
GUAM. 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. Guam's general obligation debt is rated BBB by S&P with a negative
outlook.
<PAGE>
APPENDIX D: TAX EQUIVALENT YIELD TABLES
The tables below give the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% (6% for Pennsylvania) under the regular
federal income tax and applicable state and local tax rates applicable for 1997.
Note: The federal income tax portion of the indicated combined income tax
brackets in the tables does not take into account the effect of a reduction in
the deductibility of itemized deductions (including applicable state and local
taxes) for taxpayers with adjusted gross income in excess of $124,500. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $124,500 and joint filers
with adjusted gross income in excess of $186,800. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
in the tables.
Yields shown are for illustration purposes only and are not meant to represent a
Fund's actual yield. No assurance can be given that any specific tax exempt
yield will be achieved. While it is expected that each Portfolio will invest
principally in obligations, the interest from which is exempt from the regular
federal income tax and applicable state and local taxes described in the
prospectus, other income received by a Portfolio and allocated to a Fund may be
taxable. The tables do not take into account state or local taxes, if any,
payable on Fund distributions except for those described in the footnote to the
tables. Also, the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the AMT.
The illustrations assume that the AMT is not applicable and do not take into
account any tax credits that may be available.
The information set forth herein is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<TABLE>
ALABAMA
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN AL STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 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 Alabama personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Alabama tax rate within the bracket. Taxpayers with taxable income within
this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax brackets
assume that Alabama taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%, over the same
ranges of income. The assumed Alabama State income tax rate is 5%.
ARKANSAS
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN AR STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 59,751 - $124,650 $ 99,601 - $151,750 35.83 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$124,651 - $271,050 $151,751 - $271,050 40.48 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over $271,050 Over $271,050 43.83 7.12 8.01 8.90 9.79 10.68 11.57 12.46
* Net amount subject to federal and Arkansas personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Arkansas tax rate within the bracket. Taxpayers with taxable income within
this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax brackets
assume that Arkansas taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the same
ranges of income. The assumed Arkansas State income tax rate is 7%.
GEORGIA
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN GA STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 59,751 - $124,650 $ 99,601 - $151,750 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$124,651 - $271,050 $151,751 - $271,050 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $271,050 Over $271,050 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
* Net amount subject to federal and Georgia personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Georgia tax rate within the bracket. Taxpayers with taxable income within
this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax brackets
assume that Georgia taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%, over the same
ranges of income.
KENTUCKY
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN KY STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 32.32% 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 59,751-$124,650 $ 99,601-$151,750 35.14% 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$124,651-$271,050 $151,751-$271,050 39.84% 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $271,050 Over $271,050 43.22% 7.05 7.93 8.81 9.69 10.57 11.45 12.33
<CAPTION>
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- -----------------------------------------------------------------------
(TAXABLE INCOME*) 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 5.36% 5.99% 6.61% 7.23% 7.86% 8.48% 9.11%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 6.33 7.07 7.80 8.54 9.28 10.01 10.75
$ 59,751-$124,650 $ 99,601-$151,750 6.61 7.37 8.14 8.91 9.68 10.45 11.22
$124,651-$271,050 $151,751-$271,050 7.12 7.95 8.78 9.61 10.44 11.27 12.10
Over $271,050 Over $271,050 7.55 8.42 9.30 10.18 11.06 11.94 12.82
* Net amount subject to federal and Kentucky personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Kentucky tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax
brackets assume that Kentucky taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than
those indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%,
over the same ranges of income. The Kentucky State income tax rate is 6%.
** The Kentucky intangibles tax on stocks, bonds, notes and other evidences of debt is 25 cents on every $100 of the value
thereof. An example of the effect of the Kentucky intangibles tax on the combined tax brackets of taxpayers is as follows: A
$10,000 investment subject to the tax would require payment of $25 annually in intangibles taxes. If the investment yielded
5.5% annually or $550, the intangibles tax as a percentage of income would be $25/$550 or 4.55%. If a taxpayer owning such an
investment were in the 6% state income tax bracket, he or she would be paying combined state taxes as a percentage of income of
6% plus 4.55% or 10.55%. Assuming the deductibility of these taxes as itemized deductions and that such taxpayer were in the
36% federal income tax bracket, the taxpayer would then be in a 42.75% (36% + (1 - .36) X 10.55%) combined tax bracket with
respect to such investment. This is higher than the 39.84% combined tax bracket without taking into account the intangibles
tax.
LOUISIANA
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN LA STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 59,751 - $124,650 $ 99,601 - $151,750 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$124,651 - $271,050 $151,751 - $271,050 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $271,050 Over $271,050 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
* Net amount subject to federal and Louisiana personal income tax after deductions and exemptions.
+ Tax brackets are calculated using the highest Louisiana tax rate within the brackets. Taxpayers with taxable income within these
brackets may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax brackets assume
that Louisiana taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated above.
The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36% and 39.6%.
MARYLAND
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MD STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 21.80% 5.12% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 33.76% 6.04 6.79 7.55 8.30 9.06 9.81 10.57
$ 59,751-$124,650 $ 99,601-$151,750 36.52% 6.30 7.09 7.88 8.66 9.45 10.24 11.03
$124,651-$271,050 $151,751-$271,050 41.12% 6.79 7.64 8.49 9.34 10.19 11.04 11.89
Over $271,050 Over $271,050 44.43% 7.20 8.10 9.00 9.90 10.80 11.70 12.60
* Net amount subject to federal and Maryland personal income tax after deductions and exemptions.
+ Tax brackets are calculated using the highest Maryland State and local tax rate within the brackets. Taxpayers with taxable
income within these brackets may have a lower combined bracket and taxable equivalent yield than indicated above. The
illustration assumes the taxpayer is subject to a local income tax which is 60% of the State rate. The combined tax brackets
assume that Maryland State and local income 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.
MISSOURI
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MO STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 59,751 - $124,650 $ 99,601 - $151,750 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$124,651 - $271,050 $151,751 - $271,050 39.84 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $271,050 Over $271,050 43.22 7.05 7.93 8.81 9.69 10.57 11.45 12.33
* Net amount subject to federal and Missouri personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Missouri tax rate within the bracket. Taxpayers with taxable income within
this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax brackets
assume that Missouri taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the same
ranges of income. The assumed Missouri State income tax rate is 6%.
NORTH CAROLINA
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN NC STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 24,651 - $ 59,750 $ 41,201 - $ 99,600 33.04 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 59,751 - $124,650 $ 99,601 - $151,750 36.35 6.28 7.07 7.86 8.64 9.43 10.21 11.00
$124,651 - $271,050 $151,751 - $271,050 40.96 6.78 7.62 8.47 9.32 10.16 11.01 11.86
Over $271,050 Over $271,050 44.28 7.18 8.08 8.97 9.87 10.77 11.67 12.56
* Net amount subject to federal and North Carolina personal income tax after deductions and exemptions.
+ Tax brackets are calculated using the highest North Carolina tax rate within each bracket. Taxpayers with taxable income within
these brackets may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax brackets
assume that North Carolina taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those
indicated above. The applicable federal tax rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%.
OREGON
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN OR STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 22.65% 5.17% 5.82% 6.46% 7.11% 7.76% 8.40% 9.05%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 34.48% 6.11 6.87 7.63 8.39 9.16 9.92 10.68
$ 59,751-$124,650 $ 99,601-$151,750 37.21% 6.37 7.17 7.96 8.76 9.56 10.35 11.15
$124,651-$271,050 $151,751-$271,050 41.76% 6.87 7.73 8.59 9.44 10.30 11.16 12.02
Over $271,050 Over $271,050 45.04% 7.28 8.19 9.10 10.01 10.92 11.83 12.74
* Net amount subject to federal and Oregon personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Oregon tax rate within the bracket. Taxpayers with taxable income within
this bracket may have a lower combined bracket and taxable equivalent yield than indicated above. The combined tax rates assume
that Oregon taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated above.
The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of
income. The assumed Oregon State income tax rate is 9%.
SOUTH CAROLINA
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN AL STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 20.95% 5.06% 5.69% 6.33% 6.96% 7.59% 8.22% 8.86%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 33.04% 5.97 6.72 7.47 8.21 8.96 9.71 10.45
$ 59,751-$124,650 $ 99,601-$151,750 35.83% 6.23 7.01 7.79 8.57 9.35 10.13 10.91
$124,651-$271,050 $151,751-$271,050 40.48% 6.72 7.56 8.40 9.24 10.08 10.92 11.76
Over $271,050 Over $271,050 43.83% 7.12 8.01 8.90 9.79 10.68 11.57 12.46
* Net amount subject to federal and South Carolina personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest South Carolina tax rate within the bracket. Taxpayers with taxable income
within this bracket may have a lower combined tax bracket and taxable equivalent yield than indicated above. The combined tax
brackets assume that South Carolina taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those
indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6%, over the
same ranges of income. The assumed South Carolina State income tax rate is 7%.
TENNESSEE
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN TN STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 32.32% 5.91 6.65 7.39 8.13 8.87 9.60 10.34
$ 59,751-$124,650 $ 99,601-$151,750 35.14% 6.17 6.94 7.71 8.48 9.25 10.02 10.79
$124,651-$271,050 $151,751-$271,050 39.84% 6.65 7.48 8.31 9.14 9.97 10.80 11.64
Over $271,050 Over $271,050 43.22% 7.05 7.93 8.81 9.69 10.57 11.45 12.33
* Net amount subject to federal and Tennessee personal income tax after deductions and exemptions.
+ The combined tax brackets assume that Tennessee taxes are itemized deductions for federal income tax purposes. Investors who do
not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent
yield than those indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36%
and 39.6% over the same ranges of income. The assumed Tennessee State income tax rate is 6%.
VIRGINIA
<CAPTION>
COMBINED A FEDERAL AND ALABAMA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN VA STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX -----------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ---------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 24,650 Up to $ 41,200 19.89% 4.99% 5.62% 6.24% 6.87% 7.49% 8.11% 8.74%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 32.14% 5.89 6.63 7.37 8.10 8.84 9.58 10.32
$ 59,751-$124,650 $ 99,601-$151,750 34.97% 6.15 6.92 7.69 8.46 9.23 10.00 10.76
$124,651-$271,050 $151,751-$271,050 39.68% 6.63 7.46 8.29 9.12 9.95 10.78 11.60
Over $271,050 Over $271,050 43.07% 7.03 7.90 8.78 9.66 10.54 11.42 12.30
* Net amount subject to federal and Virginia personal income tax after deductions and exemptions.
+ The first tax bracket is calculated using the highest Virginia tax rate with the bracket. Taxpayers with taxable income within
such brackets may have lower combined tax brackets and taxable equivalent yields than indicated above. The combined tax brackets
assume that Virginia taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on
their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated
above. The applicable federal tax rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%. The assumed
Virginia State income tax rate is 5.75%.
</TABLE>
<PAGE>
APPENDIX E: RATINGS
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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 SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of a Portfolio's
fiscal year end.
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/IBCA
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. Each Portfolio is dependent on the investment
adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) 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.
(2) Amendment dated June 23, 1997 to the Declaration of Trust filed
as Exhibit (1)(b) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(3) 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.
(b)(1) By-Laws as amended October 21, 1987 filed as Exhibit (2)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(2) 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.
(c) Reference is made to Item 23(a) and 23(b) above.
(d) Not applicable
(e)(1) Distribution Agreement between Eaton Vance Municipals Trust and
Eaton Vance Distributors, Inc. effective June 23, 1997 with
attached Schedule A effective June 23, 1997 filed as Exhibit
(6)(a)(7) to Post-Effective Amendment No. 67 and incorporated
herein by reference.
(2) Selling Group Agreement between Eaton Vance Distributors, Inc.
and Authorized Dealers filed as Exhibit (6)(b) to the
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.
(f) 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).
(g)(1) 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.
(2) 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.
(h)(1)(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.
C-1
<PAGE>
(b) Amendment to Schedule A dated June 23, 1997 to the Amended
Administrative Services Agreement dated June 19, 1995 filed as
Exhibit (9)(a)(2) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(2) Transfer Agency Agreement dated January 1, 1998 filed as Exhibit
(k)(b) to the Registration Statement on Form N-2 of Eaton Vance
Advisers Senior Floating-Rate Fund (File Nos. 333-46853,
811-08671) (Accession No. 0000950156-98-000172) and incorporated
herein by reference.
(i)
Opinion of Internal Counsel filed as Exhibit (i) to Post-Effective
Amendment No. 73 and incorporated herein by reference.
(j) Not applicable
(k) Not applicable
(l) Not applicable
(m)(1) Eaton Vance Municipals Trust Class A Service Plan adopted June
23, 1997 with attached Schedule A effective June 23, 1997 filed
as Exhibit (15)(g) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(2) Eaton Vance Municipals Trust Class B Distribution Plan adopted
June 23, 1997 with attached Schedule A effective June 23, 1997
filed as Exhibit (15)(b) to Post-Effective Amendment No. 69 and
incorporated herein by reference.
(3) Eaton Vance Municipals Trust Class C Distribution Plan adopted
June 23, 1997 with attached Schedule A effective June 23, 1997
filed as Exhibit (15)(c) to Post-Effective Amendment No. 69 and
incorporated herein by reference.
(n) Not applicable
(o) Multiple Class Plan for Eaton Vance Funds dated June 23, 1997
filed as Exhibit (18) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(p)(1) Power of Attorney for Eaton Vance Municipals Trust dated April
22, 1997 filed as Exhibit (17)(a) to Post-Effective Amendment No.
65 and incorporated herein by reference.
(2) Power of Attorney for Alabama Municipals Portfolio, Arizona
Municipals Portfolio, Arkansas Municipals Portfolio, California
Municipals Portfolio, Colorado Municipals Portfolio, Connecticut
Municipals Portfolio, Florida Municipals Portfolio, Georgia
Municipals Portfolio, Kentucky Municipals Portfolio, Louisiana
Municipals Portfolio, Maryland Municipals Portfolio,
Massachusetts Municipals Portfolio, Michigan Municipals
Portfolio, Minnesota Municipals Portfolio, Mississippi Municipals
Portfolio, Missouri Municipals Portfolio, National Municipals
Portfolio, New Jersey Municipals Portfolio, New York Municipals
Portfolio, North Carolina Municipals Portfolio, Ohio Municipals
Portfolio, Oregon Municipals Portfolio, Pennsylvania Municipals
Portfolio, Rhode Island Municipals Portfolio, South Carolina
Municipals Portfolio, Tennessee Municipals Portfolio, Texas
Municipals Portfolio, Virginia Municipals Portfolio and West
Virginia Municipals Portfolio dated April 22, 1997 filed as
Exhibit (17)(b) to Post-Effective Amendment No. 65 and
incorporated herein by reference.
C-2
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not applicable
ITEM 25. INDEMNIFICATION
Article IV of the Registrant's Amended and Restated Declaration of Trust
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 loss incurred by reason of negligent errors
and omissions committed in their capacities as such.
The distribution agreements of the Registrant also provide for reciprocal
indemnity of the principal underwriter, on the one hand, and the Trustees and
officers, on the other.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT Adviser
Reference is made to: (i) the information set forth under the caption
"Management and Organization" in the Statement of Additional Information; (ii)
the Eaton Vance Corp. 10-K filed under the Securities Exchange Act of 1934 (File
No. 1-8100); and (iii) the Form ADV of Eaton Vance (File No. 801-15930) and BMR
(File No. 801-43127) filed with the Commission, all of which are incorporated
herein by reference.
ITEM 27. 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>
<CAPTION>
<S> <C>
Eaton Vance Advisers Senior Floating-Rate Fund Eaton Vance Municipals Trust II
Eaton Vance Growth Trust Eaton Vance Mutual Funds Trust
Eaton Vance Income Fund of Boston Eaton Vance Prime Rate Reserves
Eaton Vance Investment Trust Eaton Vance Special Investment Trust
Eaton Vance Municipals Trust EV Classic Senior Floating-Rate Fund
</TABLE>
(b)
<TABLE>
<CAPTION>
<S> <C> <C>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwiter with Registrant
----------------- ------------------------- ---------------
Albert F. Barbaro Vice President None
Chris Berg Vice President None
Kate B. Bradshaw Vice President None
David B. Carle Vice President None
Mark Carlson Vice President None
Daniel C. Cataldo Vice President None
Raymond Cox Vice President None
Mark P. Doman Vice President None
Alan R. Dynner Vice President Secretary
Richard A. Finelli Vice President None
Kelly Flynn Vice President None
James Foley Vice President None
Michael A. Foster Vice President None
<CAPTION>
<S> <C> <C>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwiter with Registrant
----------------- ------------------------- ---------------
William M. Gillen Senior Vice President None
Hugh S. Gilmartin Vice President None
James B. Hawkes Vice President and Director Vice President and Trustee
Perry D. Hooker Vice President None
Brian Jacobs Senior Vice President None
Thomas P. Luka Vice President None
John Macejka Vice President None
Stephen Marks Vice President None
Joseph T. McMenamin Vice President None
Morgan C. Mohrman Senior Vice President None
James A. Naughton Vice President None
Mark D. Nelson Vice President None
Linda D. Newkirk Vice President None
James L. O'Connor Vice President Treasurer
Thomas Otis Secretary and Clerk None
George D. Owen, II Vice President None
Enrique M. Pineda Vice President None
F. Anthony Robinson Vice President None
Jay S. Rosoff Vice President None
Benjamin A. Rowland, Vice President, Treasurer and Director None
Jr.
Stephen M. Rudman Vice President None
John P. Rynne Vice President None
Kevin Schrader Vice President None
George V.F. Schwab, Vice President None
Jr.
Teresa A. Sheehan Vice President None
William M. Steul Vice President and Director None
David C. Sturgis Vice President None
Cornelius J. Sullivan Senior Vice President None
Peter Sykes Vice President None
David M. Thill Vice President None
John M. Trotsky Vice President None
Chris Volf Vice President None
Wharton P. Whitaker President and Director None
Sue Wilder Vice President None
</TABLE>
- ---------------------------------------------------
/*/ Address is 24 Federal Street, Boston, MA 02110
C-3
<PAGE>
(c) Not applicable
ITEM 28. 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, 200 Clarendon Street,
16th Floor, Mail Code ADM27, Boston, MA 02116, and its transfer agent, First
Data Investor Services Group, 4400 Computer Drive, Westborough, MA 01581-5120,
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.
C-4
<PAGE>
ITEM 29. MANAGEMENT SERVICES
Not applicable
ITEM 30. UNDERTAKINGS
Not applicable
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant 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 October 23, 1998.
EATON VANCE MUNICIPALS TRUST
By: /s/ THOMAS J. FETTER
------------------------------------------
Thomas J. Fetter, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
---------
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ----------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
--------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-6
<PAGE>
SIGNATURES
Alabama 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 October 23, 1998.
ALABAMA MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
-------------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-7
<PAGE>
SIGNATURES
Arkansas 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 October 23, 1998.
ARKANSAS MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
--- ------ -- ------ ----------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-8
<PAGE>
SIGNATURES
Georgia 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 October 23, 1998.
GEORGIA MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-9
<PAGE>
SIGNATURES
Kentucky 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 October 23, 1998.
KENTUCKY MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (and Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-10
<PAGE>
SIGNATURES
Louisiana 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 October 23, 1998.
LOUISIANA MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (and Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-11
<PAGE>
SIGNATURES
Maryland 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 October 23, 1998.
MARYLAND MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-12
<PAGE>
SIGNATURES
Missouri 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 October 23, 1998.
MISSOURI MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-13
<PAGE>
SIGNATURES
North Carolina 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 October 23, 1998.
NORTH CAROLINA MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-14
<PAGE>
SIGNATURES
Oregon 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 October 23, 1998.
OREGON MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-15
<PAGE>
SIGNATURES
South Carolina 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 October 23, 1998.
SOUTH CAROLINA MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-16
<PAGE>
SIGNATURES
Tennessee 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 October 23, 1998.
TENNESSEE MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-17
<PAGE>
WEDNESDAY, OCTOBER 21, 1998 1:43 PM
C:\DOCUMENTUM\CHECKOUT\8-31MUNI.FM
SIGNATURES
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 October 23, 1998.
VIRGINIA MUNICIPALS PORTFOLIO
By: /s/ THOMAS J. FETTER
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter
- -------------------- President (Chief October 23, 1998
Thomas J. Fetter Executive Officer)
/s/ James L. O'Connor Treasurer (Principal
- --------------------- Financial and October 23, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- ----------------- Trustee October 23, 1998
Donald R. Dwight
/s/ James B. Hawkes
- ------------------- Trustee October 23, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee October 23, 1998
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee October 23, 1998
Norton H. Reamer
John L. Thorndike*
- ------------------ Trustee October 23, 1998
John L. Thorndike
Jack L. Treynor*
- ---------------- Trustee October 23, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
-------------------
Alan R. Dynner
As attorney-in-fact
</TABLE>
C-18
