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[LOGO APPEARS HERE]
EATON VANCE
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Mutual Funds
EDUCATION
SIGN
PHOTO OF
BRICK WALL
Annual Report September 30,1998
Photo of
Highway
at night
EATON VANCE
NATIONAL MUNICIPALS FUND
Photo of suspension
bridge
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Eaton Vance National Municipals Fund as of September 30, 1998
LETTER TO SHAREHOLDERS
Eaton Vance National Municipals Fund paid its shareholders monthly income
dividends totalling $0.652 per share for Class A shares, $0.544 for Class B, and
$0.502 for Class C during the year ended September 30, 1998./1/ Based on the
most recent dividend and the Fund's net asset value per share on September 30,
1998, of $11.65 for Class A, $10.87 for Class B, and $10.35 for Class C, the
Fund's annualized distribution rates for Classes A, B, and C were 5.60%, 4.97%,
and 4.83%, respectively./2/ The SEC 30-day yields on that date were 4.63%,
4.05%, and 4.04% for Classes A, B, and C, respectively./3/
The municipal bond market has posted solid returns in 1998 in an economy
characterized by slower growth and continued low inflation. Second quarter GDP
rose at a modest 1.8% annualized rate, but was followed by a surprisingly strong
3.3% pace in the third quarter. Meanwhile, the annualized inflation rate has
declined to around 1% and commodity prices have continued to decline due to a
slowing world economy and slackening demand. As a consequence, the Federal
Reserve maintained a stable interest rate policy (until it lowered the Federal
Funds rate to 5.25% in late September and 5.00%in mid-October). Against that
backdrop, municipal bonds have turned in positive returns, with the Lehman
Brothers Municipal Bond Index4 - an unmanaged index of municipal bonds - rising
8.7% during the year ended September 30, 1998.
With refundings producing heavy municipal supply, municipal bonds now offer
unusually good value
The past year has been characterized by a continued wave of refundings, as
municipal issuers have redeemed high-coupon older bonds and replaced them with
lower-coupon bonds. The surge in supply has restrained the performance of
municipals relative to Treasury bonds. As a result, municipal yields represented
nearly 100% of Treasury yields at September 30, 1998, according to Bloomberg,
L.P. That ratio is extraordinarily high by historical standards and suggests
that municipals may represent uncommonly good value.
Following an extraordinary three-year run of 20%-plus annual returns, the stock
market has entered a period of severe volatility. Moreover, the slowdown in Asia
and the economic uncertainty in emerging markets like Russia have clouded the
outlook for corporate profits, while prompting many investors to diversify their
portfolios further with bond investments. Given their attractive valuations
relative to other fixed-income vehicles, municipals are receiving increased
attention. And, of course, municipal bonds remain a good way to lower one's
income tax burden. For those reasons, we believe that municipals continue to
merit strong consideration from tax-conscious investors.
Sincerely,
Thomas J. Fetter,
President
November 9, 1998
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Fund Information
as of September 30, 1998
Performance5 Class A Class B Class C
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Average Annual Total Returns (at net asset value)
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One Year 9.5% 8.6% 8.6%
Five Years N.A. 6.5 N.A.
Ten Years N.A. 8.1 N.A.
Life of Fund+ 10.1 7.8 6.4
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
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One Year 4.3% 3.6% 7.6%
Five Years N.A. 6.2 N.A.
Ten Years N.A. 8.1 N.A.
Life of Fund+ 8.9 7.8 6.4
+Inception dates: Class A: 4/5/94; Class B: 12/19/85; Class C:12/3/93
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/1/ A portion of the Fund's income could be subject to federal income tax and/or
federal alternative minimum tax. Income may also be subject to state tax.
/2/ The Fund's distribution rate represents actual distributions paid to
shareholders and is calculated by dividing the last distribution per share
(annualized) by the net asset value.
/3/ The Fund's SEC yield is calculated by dividing the net investment income per
share for the 30-day period by the offering price at the end of the period
and annualizing the result.
/4/ It is not possible to invest directly in an Index.
/5/ Returns are calculated by determining the percentage change in net asset
value (NAV) with all distributions reinvested. SEC returns for Class A
reflect the maximum 4.75% sales charge. SEC returns for Class B reflect
applicable CDSC based on the following schedule: 5% - 1st and 2nd years; 4%
- 3rd year; 3% -4th year; 2% - 5th year; 1% - 6th year. SEC 1-year return
for Class C reflects 1% CDSC. Past performance is no guarantee of future
results. Investment return and principal value will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
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Mutual fund shares are not insured by the FDIC and are not deposits or other
obligations of, or guaranteed by, any depository institution. Shares are subject
to investment risks, including possible loss of principal invested.
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2
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Eaton Vance National Municipals Fund as of September 30, 1998
INVESTMENT UPDATE
An interview with Thomas M. Metzold, Portfolio Manager of the National
Municipals Portfolio.
Q: Tom, how would you characterize the bond market over the past year?
A: There has been a modest rally in the municipal market over the past twelve
months, and yields have trended downward as a result. However, nothing can
compare to the rally in the Treasury market, which has been remarkable.
Q: The Treasuries market significantly outperformed the municipals market this
year? Why is that so?
A: It's essentially a matter of supply and demand. This year has been one of
the biggest years ever in municipal bond issuance, or supply, with
approximately $275 million of issuance expected by year end. Unfortunately,
demand has not kept pace with the increased supply. Since municipals are
only purchased by U.S. investors, demand for municipals did not parallel
demand for Treasury securities, which had a significant rally fueled by
foreign investors looking to escape volatility in the overseas markets.
Q: How did the National Municipals Portfolio perform in these conditions?
A: As a result of the Portfolio's structure, we were able to participate in the
market rally, which resulted in an increase in the Portfolio's net asset
value. In addition, the Portfolio had a higher yield than most of its
competitors. In a flat interest rate environment, such as we've had until
very recently, the higher level of income enhanced performance.
Q: How does the National Municipals Portfolio compare to others like it?
A: We focus on undervalued and under-researched bonds that other mutual funds
may ignore because they take too much time and effort to analyze. That's
where Eaton Vance stands out:we believe we are willing to go the extra mile,
and we have one of the largest and best credit research staffs around.
[PHOTO OF THOMAS METZOLD APPEARS HERE]
Thomas M. Metzold,
Portfolio Manager
Q: Do you anticipate making any significant changes in the future?
A: Our overall strategy remains the same. We try to create a Portfolio with
bonds that provide both a high degree of income and an opportunity for
capital appreciation. As always we continue to monitor and extend bond call
protection, to avoid inopportune bond calls. The Portfolio is well
diversified in its holdings,
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Rating Distribution* Five Largest Sectors*
- -------------------------------------- ------------------------------------
As a percentage of total investments As a percentage of total investments
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Escrowed 25.2%
--------------------------------
[CHART APPEARS HERE]
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Industrial Development 16.1%
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Hospitals 7.5%
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Nursing Homes 6.6%
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Assisted Living 4.9%
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*Ratings Distribution and Five
Largest Sectors are subject to
change due to active management.
3
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Eaton Vance National Municipals Fund as of September 30, 1998
INVESTMENT UPDATE
and well positioned going forward. We don't make fundamental changes based
on short-term volatility. We set a long-term goal, and we structure the
Portfolio around that. In addition, the Portfolio continued to have very
low turnover, based on our long-term goals and objectives.
Q: You mentioned the research staff in Eaton Vance's municipal bond
department. Can you elaborate on their role?
A: Our research staff is invaluable. We review 200-300 issues each year and
only 20-25 typically meet the Fund's selection criteria. That should
indicate the intense scrutiny that our analysts give each and every issue.
The Eaton Vance research team, in my opinion, gives us a real competitive
advantage.
Q: Was there any one issue in particular that was interesting this year?
A: We purchased a credit called Lake Creek Village Affordable Housing. Located
near Vail, Colorado, this housing development is for the people who live
and work year-round in that expensive resort area, where real estate prices
are so high. The cost of living in Vail is 25% above the national average,
so this kind of housing arrangement really makes sense.
Q: What do you see happening with the economy over the next 6-12 months?
A: Growth continues at a moderate pace; inflation remains low with little to
no sign of becoming a threat; and unemployment is low. Now, obviously,
there are significant developments occurring in the overseas markets. But
still there's no real driving force with respect to inflation from a demand
perspective; the bigger risk now is deflation, or recession. In a
recession, interest rates will fall, and that's generally a positive for
the bond market. In order to avoid the negative impacts of a recession, we
have generally tried to focus on bonds that historically have been
"recession-resistant," such as healthcare, hospitals, and nursing homes.
Q: Tell us why municipal bonds make sense in this investment environment.
A: With the year that the stock market and the Treasury markets have had,
municipal bonds have been "the forgotten asset." However, for anyone in the
higher tax brackets, they're extremely attractive right now. On a
taxable-equivalent basis, municipal bond yields are among the highest
available.
With recent stock volatility, the tax-free returns municipal bonds offer
are quite compelling. Considering the supply/demand imbalance we discussed
earlier, municipals remain a cheap asset class. I think that in this time
of uncertainty, they really offer a tremendous value for investors.
4
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Eaton Vance National Municipals Fund as of September 30, 1998
INVESTMENT UPDATE
Comparison of Change in Value of a $10,000 Investment in
Eaton Vance National Municipals Fund, Class B vs. the
Lehman Brothers Municipal Bond Index*
Date Fund/NAV LMBI
9/30/88 $10,000 $10,000
10/31/88 $10,152 $10,176
11/30/88 $10,077 $10,083
12/31/88 $10,184 $10,186
1/31/89 $10,327 $10,397
2/28/89 $10,306 $10,278
3/31/89 $10,302 $10,254
4/30/89 $10,494 $10,497
5/31/89 $10,644 $10,715
6/30/89 $10,791 $10,861
7/31/89 $10,897 $11,009
8/31/89 $10,783 $10,901
9/30/89 $10,796 $10,868
10/31/89 $10,876 $11,001
11/30/89 $10,978 $11,194
12/31/89 $11,023 $11,285
1/31/90 $10,932 $11,232
2/28/90 $11,015 $11,332
3/31/90 $10,986 $11,336
4/30/90 $10,835 $11,254
5/31/90 $11,067 $11,499
6/30/90 $11,139 $11,600
7/31/90 $11,294 $11,772
8/31/90 $11,098 $11,600
9/30/90 $11,101 $11,607
10/31/90 $11,240 $11,818
11/30/90 $11,398 $12,055
12/31/90 $11,399 $12,108
1/31/91 $11,493 $12,270
2/28/91 $11,553 $12,377
3/31/91 $11,557 $12,381
4/30/91 $11,732 $12,547
5/31/91 $11,841 $12,658
6/30/91 $11,843 $12,646
7/31/91 $12,052 $12,800
8/31/91 $12,217 $12,968
9/30/91 $12,359 $13,137
10/31/91 $12,429 $13,256
11/30/91 $12,412 $13,292
12/31/91 $12,741 $13,578
1/31/92 $12,681 $13,609
2/28/92 $12,725 $13,613
3/31/92 $12,779 $13,618
4/30/92 $12,963 $13,740
5/31/92 $13,175 $13,901
6/30/92 $13,502 $14,134
7/31/92 $14,063 $14,558
8/31/92 $13,756 $14,416
9/30/92 $13,801 $14,511
10/31/92 $13,440 $14,368
11/30/92 $13,890 $14,625
12/31/92 $14,022 $14,775
1/31/92 $14,160 $14,947
2/28/93 $14,836 $15,487
3/31/93 $14,603 $15,323
4/30/93 $14,815 $15,478
5/31/93 $14,957 $15,565
6/30/93 $15,255 $15,825
7/31/93 $15,289 $15,845
8/31/93 $15,642 $16,175
9/30/93 $15,857 $16,360
10/31/93 $15,937 $16,391
11/30/93 $15,763 $16,247
12/31/93 $16,071 $16,590
1/31/94 $16,299 $16,779
2/28/94 $15,900 $16,345
3/31/94 $14,998 $15,679
4/30/94 $15,080 $15,812
5/31/94 $15,211 $15,949
6/30/94 $15,085 $15,856
7/31/94 $15,404 $16,142
8/31/94 $15,425 $16,198
9/30/94 $15,094 $15,960
10/31/94 $14,810 $15,677
11/30/94 $14,407 $15,393
12/31/94 $14,774 $15,732
1/31/95 $15,312 $16,182
2/28/95 $15,832 $16,652
3/31/95 $15,921 $16,844
4/30/95 $15,939 $16,864
5/31/95 $16,561 $17,402
6/30/95 $16,391 $17,250
7/31/95 $16,423 $17,413
8/31/95 $16,619 $17,634
9/30/95 $16,700 $17,745
10/31/95 $17,004 $18,003
11/30/95 $17,445 $18,302
12/31/95 $17,699 $18,478
1/31/96 $17,766 $18,618
2/28/96 $17,601 $18,492
3/31/96 $17,206 $18,256
4/30/96 $17,077 $18,204
5/31/96 $17,155 $18,197
6/30/96 $17,349 $18,395
7/31/96 $17,495 $18,562
8/31/96 $17,559 $18,558
9/30/96 $17,842 $18,817
10/31/96 $18,064 $19,030
11/30/96 $18,385 $19,378
12/31/96 $18,344 $19,296
1/31/97 $18,317 $19,333
2/28/97 $18,503 $19,510
3/31/97 $18,228 $19,250
4/30/97 $18,384 $19,411
5/31/97 $18,655 $19,704
6/30/97 $19,139 $19,914
7/31/97 $19,975 $20,465
8/31/97 $19,706 $20,273
9/30/97 $20,042 $20,514
10/31/97 $20,225 $20,646
11/30/97 $20,321 $20,767
12/31/97 $20,711 $21,070
1/31/98 $20,955 $21,288
2/28/98 $21,030 $21,294
3/31/98 $21,069 $21,313
4/30/98 $20,901 $21,217
5/31/98 $21,204 $21,552
6/30/98 $21,274 $21,637
7/31/98 $21,243 $21,692
8/31/98 $21,579 $22,027
9/30/98 $21,765 $22,301
Fund Information
as of September 30, 1998
<TABLE>
<CAPTION>
Performance** Class A Class B Class C
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Average Annual Total Returns (at net asset value)
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<S> <C> <C> <C>
One Year 9.5% 8.6% 8.6%
Five Years N.A. 6.5 N.A.
Ten Years N.A. 8.1 N.A.
Life of Fund+ 10.1 7.8 6.4
SEC Average Annual Total Returns (including sales charge or applicable CDSC)
- ------------------------------------------------------------------------------
One Year 4.3% 3.6% 7.6%
Five Years N.A. 6.2 N.A.
Ten Years N.A. 8.1 N.A.
Life of Fund+ 8.9 7.8 6.4
</TABLE>
+Inception date: Class A: 4/5/94; Class B: 12/19/85; Class C:12/3/93
* Source: Towers Data Systems, Bethesda, MD. Investment operations commenced
12/19/85. Index information is available only at month-end; therefore, the
line comparison begins at the next month-end following the commencement of the
Fund's investment operations.
The chart compares the Fund's total return with that of a broad-based,
unmanaged market index of municipal bonds. Returns are calculated by
determining the percentage change in net asset value (NAV) with all
distributions reinvested. The lines on the chart represent the total returns
of $10,000 hypothetical investments in the Fund and the Lehman Brothers
Municipal Bond Index. An investment in Class A shares on 4/30/94 at net asset
value would have grown to $15,073 on September 30, 1998; $14,356, including
the 4.75% sales charge. An investment in Class C shares on 12/31/93 at net
asset value would have grown to $13,485 on September 30, 1998. The Index's
total return does not reflect commissions or expenses that would have been
incurred if an investor individually purchased or sold the securities
represented in the Index. It is not possible to invest directly in an Index.
**Returns are calculated by determining the percentage change in net asset value
(NAV) with all distributions reinvested. SEC returns for Class A reflect the
maximum 4.75% sales charge. SEC returns for Class B reflect applicable CDSC
based on the following schedule: 5% - 1st and 2nd years; 4% - 3rd year; 3% -
4th year; 2% -5th year; 1% - 6th year. SEC 1-year return for Class C reflects
1% CDSC.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
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Federal income tax information: For federal income tax purposes, 99.18% of the
total dividends paid by the Fund from net investment income during the fiscal
year ended September 30, 1998, is designated as an exempt-interest dividend.
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5
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EATON VANCE NATIONAL MUNICIPALS FUND as of September 30, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of September 30, 1998
Assets
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<S> <C>
Investment in National Municipals Portfolio, at value
(identified cost, $2,035,871,120) $2,340,124,754
Receivable for Fund shares sold 8,118,611
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Total assets $2,348,243,365
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Liabilities
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Dividends payable $ 4,560,032
Payable for Fund shares redeemed 1,997,304
Payable to affiliate for Trustees' fees 343
Other accrued expenses 1,701,614
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Total liabilities $ 8,259,293
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Net Assets $2,339,984,072
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Sources of Net Assets
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Paid-in capital $2,071,377,192
Accumulated net realized loss from Portfolio (computed
on the basis of identified cost) (33,301,200)
Accumulated distributions in excess of net investment income (2,345,554)
Net unrealized appreciation from Portfolio (computed
on the basis of identified cost) 304,253,634
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Total $2,339,984,072
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Class A Shares
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Net Assets $ 146,066,879
Shares Outstanding 12,536,614
Net Asset Value and Redemption Price Per Share
(net assets / shares of beneficial interest outstanding) $ 11.65
Maximum Offering Price Per Share
(100 / 95.25 of $11.65) $ 12.23
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Class B Shares
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Net Assets $2,071,078,401
Shares Outstanding 190,514,429
Net Asset Value, Offering Price and Redemption Price Per Share
(net assets / shares of beneficial interest outstanding) $ 10.87
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Class C Shares
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Net Assets $ 122,838,792
Shares Outstanding 11,864,802
Net Asset Value, Offering Price and Redemption Price Per Share
(net assets / shares of beneficial interest outstanding) $ 10.35
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On sales of $25,000 or more, the offering price of Class A shares is reduced.
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</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
September 30, 1998
Investment Income
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<S> <C>
Interest allocated from Portfolio $ 142,901,887
Expenses allocated from Portfolio (9,673,436)
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Net investment income from Portfolio $ 133,228,451
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Expenses
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Trustees fees and expenses $ 3,566
Distribution and service fees
Class A 157,372
Class B 20,375,362
Class C 935,126
Transfer and dividend disbursing agent fees 1,627,406
Printing and postage 95,222
Registration fees 81,296
Amortization of organization expenses 20,535
Legal and accounting services 2,458
Miscellaneous 149,570
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Total expenses $ 23,447,913
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Net investment income $ 109,780,538
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Realized and Unrealized
Gain (Loss) from Portfolio
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Net realized gain (loss) --
Investment transactions (identified cost basis) $ 74,344,437
Financial futures contracts (12,173,968)
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Net realized gain $ 62,170,469
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Change in unrealized appreciation (depreciation) --
Investments $ 9,578,765
Financial futures contracts 4,472,250
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Net change in unrealized appreciation (depreciation) $ 14,051,015
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Net realized and unrealized gain $ 76,221,484
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Net increase in net assets from operations $ 186,002,022
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</TABLE>
See notes to financial statements
6
<PAGE>
Eaton Vance National Municipals Fund as of September 30, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets September 30, 1998 September 30, 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 109,780,538 $ 111,643,873
Net realized gain 62,170,469 1,306,387
Net change in unrealized
appreciation (depreciation) 14,051,015 125,499,848
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Net increase in net assets
from operations $ 186,002,022 $ 238,450,108
- --------------------------------------------------------------------------------
Distributions to shareholders --
From net investment income
Class A $ (4,961,910) $ --
Class B (101,970,34) (112,620,886)
Class C (4,580,088) --
In excess of net
investment income
Class B (2,428,253)
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Total distributions to shareholders $ (113,940,583) $ (112,620,886)
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Transactions in shares of
beneficial interest
Proceeds from sale of shares
Class A $ 102,611,748 $ --
Class B 225,630,573 228,261,692
Class C 56,423,943 --
Issued in reorganization of EV
Traditional and EV Classic
National Municipals Funds
Class A 49,435,356 --
Class C 82,777,583 --
Net asset value of shares issued
to shareholders in payment
of distributions declared
Class A 2,455,264 --
Class B 40,750,734 42,171,754
Class C 2,814,562 --
Cost of shares redeemed
Class A (11,442,195) --
Class B (301,849,49) (457,268,290)
Class C (22,311,421) --
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Net increase (decrease) in
net assets from Fund
share transactions $ 227,296,655 $ (186,834,844)
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Net increase (decrease) in
net assets $ 299,358,084 $ (61,005,622)
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At beginning of year $2,040,625,988 $2,101,631,610
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At end of year $2,339,984,072 $2,040,625,988
- --------------------------------------------------------------------------------
</TABLE>
Accumulated undistributed
(distribution in excess of)
net investment income
included in net assets
- --------------------------------------------------------------------------------
At end of year $ (2,345,554) $ 1,646,304
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See notes to financial statements
7
<PAGE>
<TABLE>
<CAPTION>
Eaton Vance National Municipals Fund as of September 30, 1998
FINANCIAL STATEMENTS CONT'D
Financial Highlights
Year Ended September 30,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------- -----------------------------------------------
Class A Class B Class C Class B Class B Class B Class B
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value-- Beginning of year $ 11.260 $ 10.530 $ 10.010 $ 9.900 $ 9.800 $ 9.410 $ 10.570
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.644 $ 0.523 $ 0.493 $ 0.550 $ 0.557 $ 0.570 $ 0.556
Net realized and unrealized
gain (loss) 0.398 0.361 0.349 0.634 0.096 0.395 (1.043)
- -------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations $ 1.042 $ 0.884 $ 0.842 $ 1.184 $ 0.653 $ 0.965 $ (0.487)
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $ (0.652) $ (0.531) $ (0.502) $ (0.554) $ (0.553) $ (0.570) $ (0.556)
In excess of net investment income -- (0.013) -- -- -- (0.005) (0.077)
In excess of net realized gain -- -- -- -- -- -- (0.040)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.652) $ (0.544) $ (0.502) $ (0.554) $ (0.553) $ (0.575) $ (0.673)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value-- End of year $ 11.650 $ 10.870 $ 10.350 $ 10.530 $ 9.900 $ 9.800 $ 9.410
- -------------------------------------------------------------------------------------------------------------------------------
Total Return/(1)/ 9.49% 8.60% 8.59% 12.33% 6.84% 10.60% (4.82)%
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Ratios/Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year
(000's omitted) $ 146,067 $2,071,078 $ 122,839 $2,040,626 $2,101,632 $2,191,240 $2,171,901
Ratios (As a percentage of average
daily net assets):
Expenses/(2)//(3)/ 0.71% 1.53% 1.54% 1.60% 1.55% 1.53% 1.51%
Expenses after custodian fee
reduction/(2)/ 0.69% 1.51% 1.52% 1.60% 1.54% 1.52% --
Net investment income 5.60% 4.87% 4.83% 5.45% 5.62% 6.00% 5.54%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions, if any, are assumed
reinvested at the net asset value on the reinvestment date. Total return is
not computed on an annualized basis.
/(2)/Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
/(3)/The expense ratios for the year ended September 30, 1995 and periods
thereafter have been adjusted to reflect a change in reporting
requirements. The new reporting guidelines require the Fund, as well as 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.
8
<PAGE>
Eaton Vance National Municipals Fund as of September 30, 1998
NOTES TO FINANCIAL STATEMENTS
/1/Significant Accounting Policies
----------------------------------------------------------------------------
Eaton Vance National Municipals Fund (the Fund) is a diversified series of
Eaton Vance Municipals Trust (the Trust). The Trust is an entity of the type
commonly known as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund offers three classes of shares. Class A shares
are sold subject to a sales charge imposed at the time of purchase. Class B
and Class C shares are sold at net asset value and are subject to a
contingent deferred sales charge (see Note 6). All classes of shares have
equal rights to assets and voting privileges. Realized and unrealized gains
and losses and net investment income, other than class specific expenses, are
allocated daily to each class of shares based on the relative net assets of
each class to the total net assets of the Fund. Each class of shares differs
in its distribution plan and certain other class specific expenses. The Fund
invests all of its investable assets in interests in National Municipals
Portfolio (the Portfolio), a New York Trust, having the same investment
objective as the Fund. The value of the Fund's investment in the Portfolio
reflects the Fund's proportionate interest in the net assets of the Portfolio
(100% at September 30, 1998). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements of the
Portfolio, including the portfolio of investments, are included elsewhere in
this report and should be read in conjunction with the Fund's financial
statements.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A Investment Valuations -- Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements, which
are included elsewhere in this report.
B Income -- The Fund's net investment income consists of the Fund's pro rata
share of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally accepted
accounting principles.
C Federal Taxes -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year all of its taxable, if any, and tax-
exempt income, including any net realized gain on investments. Accordingly,
no provision for federal income or excise tax is necessary. At September 30,
1998, the Fund, for federal income tax purposes, had a capital loss carryover
of $36,492,067 which will reduce the taxable income arising from future net
realized gains on investments, if any, to the extent permitted by the
Internal Revenue Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income or excise tax. A portion of such capital loss
carryover was acquired through the Fund Reorganization (see Note 8) and may
be subject to certain limitations. Such capital loss carryover will expire on
September 30, 2002 ($599,716), September 30, 2004 ($28,646,299) and September
30, 2005 ($7,246,052). Dividends paid by the Fund from net tax-exempt
interest on municipal bonds allocated from the Portfolio are not includable
by shareholders as gross income for federal income tax purposes because the
Fund and Portfolio intend to meet certain requirements of the Internal
Revenue Code applicable to regulated investment companies which will enable
the Fund to pay exempt-interest dividends. The portion of such interest, if
any, earned on private activity bonds issued after August 7, 1986, may be
considered a tax preference item to shareholders.
D Deferred Organization Expenses -- Costs incurred by the Fund in connection
with its organization, including registration costs, are being amortized on
the straight-line basis over five years.
E Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could
differ from those estimates.
F Other -- Investment transactions are accounted for on a trade-date basis.
G Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian to the Fund and the Portfolio. Pursuant to the respective custodian
agreements, IBT receives a fee reduced by credits which are determined based
on the average daily cash balances the Fund or the
9
<PAGE>
Eaton Vance National Municipals Fund as of September 30, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
Portfolio maintains with IBT. All significant credit balances used to reduce
the Fund's custodian fees are reported as a reduction of operating expenses on
the Statement of Operations.
/2/Distributions to Shareholders
---------------------------------------------------------------------------
The net income of the Fund is determined daily and substantially all of the
net income so determined is declared as a dividend to shareholders of record
at the time of declaration. Distributions are paid monthly. Distributions of
allocated realized gains, if any, are made at least annually. Shareholders
may reinvest capital gain distributions in additional shares of the Fund at
the net asset value as of the ex-dividend date. Distributions are paid in the
form of additional shares or, at the election of the shareholder, in cash.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis. Generally accepted accounting principles require that only
distributions in excess of tax basis earnings and profits be reported in the
financial statements as a return of capital. Differences in the recognition
or classification of income between the financial statements and tax earnings
and profits which result in temporary over-distributions for financial
statement purposes are classified as distributions in excess of net
investment income or accumulated net realized gains. Permanent differences
between book and tax accounting relating to distributions are reclassified to
paid-in capital. During the year ended September 30,1998, accumulated
distributions in excess of net investment income decreased by $29,065,
accumulated net realized loss from Portfolio increased by $123,822, and paid-
in capital increased by $94,757 due to permanent differences between book and
tax accounting. Net investment income, net realized gains and net assets were
not affected by these reclassifications.
The tax treatment of distributions for the calendar year will be reported to
shareholders prior to February 1, 1999 and will be based on tax accounting
methods which may differ from amounts determined for financial statement
purposes.
/3/Shares of Beneficial Interest
---------------------------------------------------------------------------
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Such shares may be issued in a number of different classes.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended
Class A September 30, 1998
- --------------------------------------------------------------------
<S> <C>
Sales 8,929,025
Issued to shareholders electing to
receive payment of distribution in Fund shares 213,017
Redemptions (994,852)
Issued to EV Traditional National Municipals
Fund Shareholders 4,389,424
- --------------------------------------------------------------------
Net increase 12,536,614
- --------------------------------------------------------------------
Year Ended Year Ended
Class B September 30, 1998 September 30, 1997
- --------------------------------------------------------------------
Sales 21,046,222 22,677,891
Issued to shareholders
electing to receive
payment of distribution
in Fund shares 3,796,542 4,179,698
Redemptions (28,163,550) (45,329,984)
- --------------------------------------------------------------------
Net decrease (3,320,786) (18,472,395)
- --------------------------------------------------------------------
Year Ended
Class C September 30, 1998
- --------------------------------------------------------------------
Sales 5,517,422
Issued to shareholders electing to receive
payment of distribution in Fund shares 275,339
Redemptions (2,196,022)
Issued to EV Classic National Municipals
Fund Shareholders 8,268,063
- --------------------------------------------------------------------
Net increase 11,864,802
- --------------------------------------------------------------------
</TABLE>
/4/Investment Adviser Fee and Other Transactions
with Affiliates
---------------------------------------------------------------------------
Eaton Vance Management (EVM) serves as the Administrator of the Fund, but
receives no compensation. The Portfolio has engaged Boston Management and
Research (BMR), a subsidiary of EVM, to render investment advisory services.
See Note 2 of the Portfolio's
10
<PAGE>
Eaton Vance National Municipals Fund as of September 30, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
Notes to Financial Statements which are included elsewhere in this report.
Except as to Trustees of the Fund and the Portfolio who are not members of
EVM's of BMR's organization, officers and Trustees receive remuneration for
their services to the Fund out of the investment adviser fee earned by BMR.
Eaton Vance Distributors, Inc. (EVD), a subsidiary of EVM and the Fund's
principal underwriter, received $65,138 as its portion of the sales charge on
sales of Class A shares for the year ended September 30, 1998.
Certain officers and Trustees of the Fund and of the Portfolio are officers
and/or directors/trustees of the above organizations.
/5/Distribution and Service Plans
---------------------------------------------------------------------------
The Fund has adopted distribution plans (Class B Plan and Class C Plan, the
Plans) pursuant to Rule 12b-1 under the Investment Company Act of 1940 and a
service plan (Class A Plan) (Collectively, the Plans). The Plans require the
Fund to pay the Principal Underwriter, Eaton Vance Distributors, Inc. (EVD)
amounts equal to 1/365 of 0.75% of the Fund's average daily net assets
attributable to Class B and Class C shares for providing ongoing distribution
services and facilities to the Fund. The Fund will automatically discontinue
payments to EVD during any period in which there are no outstanding Uncovered
Distribution Charges, which are equivalent to the sum of (i) 5% and 6.25% of
the aggregate amount received by the Fund for the Class B and Class C shares
sold, respectively, plus (ii) distribution fees calculated by applying the
rate of 1% over the prevailing prime rate to the outstanding balance of
Uncovered Distribution Charges of EVD of each respective class reduced by the
aggregate amount of contingent deferred sales charges (see Note 6) and daily
amounts theretofore paid to EVD by each respective class. The Fund paid or
accrued $15,435,883 and $701,345 for Class B, and Class C shares,
respectively, to or payable to EVD for the year ended September 30, 1998,
representing 0.75% of the average daily net assets for Class B and Class C
shares. At September 30, 1998, the amount of Uncovered Distribution Charges
EVD calculated under the Plans was approximately $15,176,000 and $10,442,000
for Class B and Class C shares, respectively.
In addition, the Plans authorize the Fund to make payments of service fees to
EVD, Authorized Firms and other persons in amounts not exceeding 0.25% of the
Fund's average daily net assets attributable to Class A, Class B, and Class C
shares for each fiscal year. The Trustees have initially implemented the
Plans by authorizing the Fund to make quarterly payments of service fees to
EVD and Authorized Firms in amounts not expected to exceed 0.25% per annum of
the Fund's average daily net assets attributable to Class A and Class B
shares based on the value of Fund shares sold by such persons and remaining
outstanding for at least one year. The Class C Plan permits the fund to make
monthly payments of service fees in amounts not expected to exceed 0.25% of
the Fund's average daily net assets attributable to Class C shares for any
fiscal year. Service fee payments will be made for personal services and/or
the maintenance of shareholder accounts. Service fees are separate and
distinct from the sales commissions and distribution fees payable by the Fund
to EVD, and, as such are not subject to automatic discontinuance when there
are no outstanding Uncovered Distribution Charges of EVD. Service fee
payments for the year ended September 30, 1998 amounted to $157,372,
$4,939,479, and $233,781 for Class A, Class B, and Class C shares,
respectively.
/6/Contingent Deferred Sales Charge
---------------------------------------------------------------------------
A contingent deferred sales charge (CDSC) is imposed on any redemption of
Class B shares made within six years of purchase. A CDSC is imposed on
certain Class C shares redeemed within one year of purchase. Generally, the
CDSC is based upon the lower of the net asset value at date of redemption or
date of purchase. No charge is levied on shares acquired by reinvestment of
dividends or capital gains distributions. Class B CDSC is imposed at
declining rates that begin at 5% in the case of redemptions in the first and
second year after purchase, declining one percentage point each subsequent
year. Class C shares will be subject to a 1% CDSC if redeemed within one year
of purchase. No CDSC is levied on shares which have been sold to EVM or its
affiliates or to their respective employees or clients. CDSC charges are paid
to EVD to reduce the amount of Uncovered Distribution Charges calculated
under each Fund's Distribution Plan (see Note 5). CDSC charges received when
no Uncovered Distribution Charges exist will be credited to the Fund. EVD
received approximately $2,715,000 and $11,000 of CDSC paid by shareholders
for Class B shares and Class C shares, respectively, for the year ended
September 30, 1998.
/7/Investment Transactions
--------------------------------------------------------------------------
Increases and decreases in the Fund's investment in the National Municipals
Portfolio aggregated $389,124,010 and $439,963,679, respectively, for the
year ended September 30, 1998.
11
<PAGE>
Eaton Vance National Municipals Fund as of September 30, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
/8/Transfer of Net Assets
---------------------------------------------------------------------------
On October 1, 1997, the EV Marathon National Municipals Fund acquired the net
assets of the EV Traditional National Municipals Fund and EV Classic National
Municipals Fund pursuant to an Agreement and Plan of Reorganization dated
June 23, 1997. In accordance with the agreement, EV Marathon National
Municipals Fund, at the closing, issued 4,389,424 Class A shares and
8,268,063 Class C shares of the Fund having an aggregate value of $49,435,356
and $82,777,583, respectively. As a result, the Fund issued one Class A share
and one Class C share for each share of EV Traditional National Municipals
Fund and EV Classic National Municipals Fund, respectively. The transaction
was structured for tax purposes to qualify as a tax free reorganization under
the Internal Revenue Code. The EV Traditional National Municipals Fund's and
EV Classic National Municipals Fund's net assets at the date of the
transaction were $49,435,356 and $82,777,583, respectively, including
$3,854,847 and $6,655,724 of unrealized appreciation. Directly after the
merger, the combined net assets of the Eaton Vance National Municipals Fund
(formerly "EV Marathon National Municipals Fund") were $2,172,838,927 with a
net asset value of $11.26, $10.53 and $10.01 for Class A, Class B and Class
C, respectively.
/9/Name Change
---------------------------------------------------------------------------
Effective October 1, 1997, the EV Marathon National Municipals Fund changed
its name to Eaton Vance National Municipals Fund.
12
<PAGE>
Eaton Vance National Municipals Fund as of September 30, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders
of Eaton Vance Municipals Trust
- -----------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities of Eaton
Vance National Municipals Fund (one of the series constituting Eaton Vance
Municipals Trust) as of September 30, 1998, the related statement of operations
for the year then ended, the statements of changes in net assets for the years
ended September 30, 1998 and 1997 and the financial highlights for each of the
years in the five-year period ended September 30, 1998. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Eaton Vance
National Municipals Fund at September 30, 1998, the results of its operations,
the changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 30, 1998
13
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS
Tax-Exempt Investments -- 100.0%
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- -------------------
Standard Amount
& (000's
Moody's Poor's omitted) Security Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assisted Living -- 4.9%
- ---------------------------------------------------------------------------
NR NR $ 6,035 Arizona Health
Facilities Authority,
(Care Institute,
Inc.-Mesa), 7.625%,
1/1/26 $ 6,394,626
NR NR 17,070 Bell County, TX,
Health Facilities,
(Care Institute, Inc.,
Texas), 9.00%, 11/1/24 19,763,134
NR NR 5,000 Chester, PA, IDA,
(Senior Life Choice of
Paoli, L.P.),
8.05%, 1/1/24 5,642,450
NR NR 3,060 Chester, PA, IDA,
(Senior Life-Choice of
Kimberton), (AMT),
8.50%, 9/1/25 3,542,134
NR NR 5,000 Delaware, PA, IDA,
(Glen Riddle), (AMT),
8.625%, 9/1/25 5,822,750
NR NR 10,000 Glen Cove, NY, IDA,
(Regency at Glen
Cove), 9.50%, 7/1/12 10,652,600
NR NR 15,000 Illinois Development
Finance Authority,
(Care Institute,
Inc.-Illinois), 7.80%,
6/1/25 16,653,450
NR NR 4,605 New Jersey EDA,
(Chelsea at East
Brunswick), (AMT),
8.25%, 10/1/20 5,181,546
NR NR 10,000 New Jersey EDA,
(Forsgate), (AMT),
8.625%, 6/1/25 11,708,100
NR NR 4,935 North Syracuse Village
Housing Authority,
(AJM Senior Housing,
Inc., Janus Park),
8.00%, 6/1/24 5,209,978
NR NR 7,915 Roseville, MN, Elder
Care Facility, (Care
Institute,
Inc.-Roseville),
7.75%, 11/1/23 8,248,855
NR NR 12,430 St. Paul, MN, Housing
and Redevelopment,
(Care Institute,
Inc.-Highland),
8.75%, 11/1/24 14,514,635
- ---------------------------------------------------------------------------
$ 113,334,258
- ---------------------------------------------------------------------------
Cogeneration -- 4.5%
- ---------------------------------------------------------------------------
NR NR $ 20,250 Maryland Energy
Cogeneration, (AES
Warrior Run), (AMT),
7.40%, 9/1/19 $ 21,523,725
NR BB+ $ 30,775 New Jersey EDA,
(Vineland
Cogeneration) (AMT),
7.875%, 6/1/19 $ 33,842,036
NR NR 12,950 Palm Beach County, FL,
(Osceola Power),
(AMT), 6.95%, 1/1/22(1) 10,230,500
NR NR 7,000 Pennsylvania EDA,
(Northampton
Generating
Subordinated), Junior
Liens, (AMT), 6.875%,
1/1/11 7,468,930
NR BBB- 6,100 Pennsylvania EDA,
(Northampton
Generating), (AMT),
6.50%, 1/1/13 6,536,943
NR BBB- 18,450 Pennsylvania EDA,
(Northampton
Generating), (AMT),
6.60%, 1/1/19 19,877,292
NR NR 5,000 Pennsylvania EDA,
(Northampton
Generating), Junior
Liens, (AMT),
6.95%, 1/1/21 5,340,000
- ---------------------------------------------------------------------------
$ 104,819,426
- ---------------------------------------------------------------------------
Education -- 1.3%
- ---------------------------------------------------------------------------
Aaa AAA $ 12,390 California Educational
Facilities Authority,
(Stanford University),
5.35%, 6/1/27 $ 12,907,035
NR BBB- 1,250 Massachusetts HEFA,
(Nichols College),
7.00%, 10/1/20 1,344,275
Ba1 NR 4,235 New Hampshire HEFA,
(Franklin Pierce Law
Center), 7.50%, 7/1/22 4,556,606
A3 A- 9,000 New York State
Dormitory Authority,
(State University
Educational
Facilities),
7.50%, 5/15/11 11,273,310
- ---------------------------------------------------------------------------
$ 30,081,226
- ---------------------------------------------------------------------------
Electric Utilities -- 2.8%
- ---------------------------------------------------------------------------
B2 B $ 14,000 Apache County, AZ,
IDA, (Tuscon Electric
Power Co.), 5.85%,
3/1/28 $ 14,107,800
Ba3 B+ 10,000 Connecticut State
Development Authority,
Pollution Control
Revenue, (Connecticut
Light and Power),
5.85%, 9/1/28 10,169,100
</TABLE>
See notes to financial statements
14
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- -------------------
Standard Amount
& (000's
Moody's Poor's omitted) Security Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Electric Utilities (continued)
- ---------------------------------------------------------------------------
Ba3 B+ $ 13,000 Connecticut State
Development Authority,
Pollution Control
Revenue, (Western
Massachusetts Electric
Co.), 5.85%, 9/1/28 $ 13,219,830
A1 A+ 9,500 Intermountain Power
Agency, UT, 5.00%,
7/1/23 9,425,900
NR NR 11,000 Long Island, NY, Power
Authority, (RITES),
Variable Rate,
12/1/29(2) 11,745,470
NR NR 5,000 West Feliciana, LA,
(Gulf States Utilities
Co.), (AMT),
9.00%, 5/1/15 5,475,700
- ---------------------------------------------------------------------------
$ 64,143,800
- ---------------------------------------------------------------------------
Escrowed / Prerefunded -- 25.2%
- ---------------------------------------------------------------------------
Aaa AAA $ 42,500 Bakersfield, CA,
(Bakersfield Assisted
Living Center),
Escrowed to Maturity,
0.00%, 4/15/21 $ 13,537,950
NR NR 2,200 Bexar County, TX,
Health Facilities,
(St. Luke's Lutheran),
Escrowed to Maturity,
7.00%, 5/1/21 2,864,246
NR AAA 177,055 Colorado Health
Facilities Authority,
(Liberty Heights),
Escrowed to Maturity,
0.00%, 7/15/24 47,824,325
Aaa NR 225,500 Dawson Ridge, CO,
Metropolitan District
#1, Escrowed to
Maturity,
0.00%, 10/1/22 64,851,544
Aaa NR 30,000 Dawson Ridge, CO,
Metropolitan District
#1, Escrowed to
Maturity,
0.00%, 10/1/22 8,627,700
Aaa BBB 1,660 Denver, CO, City and
County Airport
Revenue, (AMT),
Prerefunded to
11/15/01, 7.00%,
11/15/25 1,821,203
Aaa BBB 990 Denver, CO, City and
County Airport
Revenue, (AMT),
Prerefunded to
11/15/04, 7.50%,
11/15/23 1,197,177
NR NR 7,000 Florida State,
(Mid-Bay Bridge
Authority), Escrowed
to Maturity, 6.875%,
10/1/22 8,910,510
NR NR $ 4,310 Hazelton Luzerne, PA,
(Saint Joseph Medical
Center), Prerefunded
to 7/1/03, 8.375%,
7/1/12 $ 5,119,677
NR AAA 101,555 Illinois Development
Finance Authority,
(Regency Park),
Escrowed to Maturity,
0.00%, 7/15/23 28,858,884
NR AAA 60,360 Illinois Development
Finance Authority,
(Regency Park),
Escrowed to Maturity,
0.00%, 7/15/25 15,496,826
NR NR 4,500 Illinois Health and
Educational Facilities
Authority, (Chicago
Osteopathic Health
Systems), Prerefunded
to 11/15/19, 7.25%,
5/15/22 5,740,470
NR NR 4,650 Illinois HEFA,
(Chicago Osteopathic
Health Systems),
Escrowed to Maturity,
7.125%, 5/15/11 5,582,465
Aaa AAA 20,400 Loudoun County, VA,
IDA, (Falcons
Landing), Prerefunded
to 11/1/04,
8.75%, 11/1/24 26,242,356
NR AAA 11,890 Louisiana Public
Facilities Authority,
(Southern Baptist
Hospitals, Inc.),
Escrowed to Maturity,
8.00%, 5/15/12 14,788,188
Aaa AAA 19,400 Louisville, KY,
Hospital Revenue,
(MBIA), Prerefunded to
10/30/01, Variable
Rate, 10/1/14 21,290,530
Baa1 BBB- 10,000 Maricopa County, AZ,
(Sun Health Corp.),
Prerefunded to 4/1/02,
8.125%, 4/1/12 11,583,100
NR NR 5,675 Maricopa County, AZ,
IDA, (Place Five and
The Greenery),
Escrowed to Maturity,
6.625%, 1/1/27 6,640,999
NR NR 1,000 Maricopa County, AZ,
IDA, Multifamily,
Escrowed to Maturity,
6.45%, 1/1/17 1,133,820
Aaa NR 5,835 Massachusetts HEFA,
(Fairview Extended
Care), Prerefunded to
1/1/01, 10.125%, 1/1/11 6,715,385
</TABLE>
See notes to financial statements
15
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------
Standard Amount
& (000's
Moody's Poor's omitted) Security Value
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Escrowed / Prerefunded (continued)
- ----------------------------------------------------------------------------
Baa3 NR $ 2,500 Massachusetts HEFA,
(Milford-Whitinsville
Hospital), Prerefunded
to 7/15/02, 7.75%,
7/15/17 $ 2,888,200
Aaa AAA 41,015 Massachusetts Turnpike
Authority, (FGIC),
Escrowed to Maturity,
5.125%, 1/1/23 43,255,648
NR NR 4,450 Mille Lacs Capital
Improvements, MN,
(Mille Lacs Band of
Chippewa Indians),
Prerefunded to
11/1/95, 9.25%, 11/1/12 5,446,400
Baa3 NR 5,000 Mississippi Hospital
Equipment and
Facilities Authority,
(Magnolia Hospital),
Prerefunded to
10/01/01, 7.375%,
10/1/21 5,586,750
Aaa NR 100,000 Mississippi Housing
Finance Corp., Single
Family, (AMT),
Escrowed to Maturity,
0.00%, 6/1/15 45,723,999
Aaa AAA 10,000 New Hampshire HEFA,
(Riverwoods at
Exeter), Prerefunded
to 3/1/03, 9.00%,
3/1/23 12,343,500
NR NR 3,500 New Jersey EDA,
(Cadbury Corp.),
Prerefunded to 7/1/01,
7.50%, 7/1/21 3,933,265
Aaa AAA 20,000 New Jersey EDA,
(Keswick Pines),
Prerefunded to 1/1/04,
8.75%, 1/1/24 24,735,000
Aaa AAA 10,355 New York City
Municipal Water
Finance Authority,
(FSA), Prerefunded to
6/15/01, 6.25%, 6/15/21 11,057,794
Aaa NR 6,120 North Salt Lake
Municipal Building
Authority, Davis
County, UT,
Prerefunded
to 12/01/02, 7,417,624
8.625%, 12/1/17
NR NR 3,500 Philadelphia, PA, (The
Philadelphia
Protestant Home),
Prerefunded to 7/1/01,
8.625%, 7/1/21 4,004,700
Aa3 AA- 1,520 Port Seattle, WA,
(AMT), Prerefunded to
12/01/00, 6.00%,
12/1/14 1,594,313
NR NR $ 5,000 Rhode Island HEFA,
(Steere House),
Prerefunded to 7/1/00,
8.25%, 7/1/15 $ 5,477,350
NR NR 10,000 Saint Tammany, LA,
Public Finance,
(Christwood),
Prerefunded to
5/15/05, 9.00%,
11/15/25 13,243,400
Aaa NR 46,210 San Joaquin Hills
Transportation
Corridor Agency, CA,
Toll Roads, Escrowed
to Maturity,
0.00%, 1/1/20 16,688,742
Aaa AAA 72,685 San Joaquin Hills
Transportation
Corridor Agency, CA,
Toll Roads, Escrowed
to Maturity,
0.00%, 1/1/21 25,021,811
Aaa AAA 45,045 San Joaquin Hills
Transportation
Corridor Agency, CA,
Toll Roads, Escrowed
to Maturity,
0.00%, 1/1/23 14,022,959
Aaa AAA 15,000 San Joaquin Hills
Transportation
Corridor Agency, CA,
Toll Roads, Escrowed
to Maturity,
0.00%, 1/1/25 4,241,250
NR AAA 4,500 Scranton-Lackawanna,
PA, Health and Welfare
Authority, (Moses
Taylor Hospital),
Prerefunded to 9/1/01,
8.50%, 7/1/20 5,148,360
Baa2 BBB 5,435 South Dakota HEFA,
(Prairie Lakes Health
Care), Prerefunded to
04/01/03, 7.25%, 4/1/22
6,265,468
Aaa AAA 19,165 Texas Turnpike
Authority, (Houston
Ship Channel Bridge),
Prerefunded to 7/1/02,
12.625%, 1/1/20(3) 25,336,322
Aaa AAA 1,600 Washington Public
Power Supply System,
(Nuclear Project
Number 2), (MBIA),
Escrowed to Maturity,
14.375%, 7/1/01 1,879,536
- ----------------------------------------------------------------------------
$ 584,139,746
- ----------------------------------------------------------------------------
General Obligations -- 0.2%
- ----------------------------------------------------------------------------
Aa1 AA+ $ 4,665 Washington State,
5.75%, 7/1/14 $ 5,072,954
- ----------------------------------------------------------------------------
$ 5,072,954
- ----------------------------------------------------------------------------
</TABLE>
16
See notes to financial statements
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- -------------------
Standard Amount
& (000's
Moody's Poor's omitted) Security Value
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Hospital -- 7.5%
- ----------------------------------------------------------------------------
NR BBB $ 6,500 Arizona Health
Facilities, (Phoenix
Memorial Hospital),
8.20%, 6/1/21 $ 7,035,275
NR NR 2,360 Berlin, MD, (Atlantic
General), 8.375%,
6/1/22 2,577,875
NR NR 10,180 Chaves County, NM,
(Eastern New Mexico
Medical Center),
7.25%, 12/1/22 11,698,754
NR BBB 3,000 Colorado Health
Facilities Authority,
(National Jewish
Center For
Immunology), 6.875%,
2/15/12 3,338,250
NR BBB 5,015 Colorado Health
Facilities Authority,
(National Jewish
Center For
Immunology), 7.10%,
2/15/22 5,614,293
NR NR 11,000 Colorado Health
Facilities Authority,
(Rocky Mountain
Adventist), (RITES),
Variable Rate,
5/1/22(2) 12,749,990
Baa3 NR 4,000 Corinth and Alcorn
County, MS, (Magnolia
Registered Health
Center), 5.50%, 10/1/21 4,032,280
Baa3 NR 400 Corinth and Alcorn
County, MS, (Magnolia
Registered Health
Center), 5.50%, 10/1/21 403,228
Baa1 NR 4,000 Crossville, TN, HEFA,
(Cumberland Medical
Center), 6.75%, 11/1/12 4,330,240
A3 BBB+ 6,000 District of Columbia,
(Washington Hospital
Center Issue-Medlantic
Healthcare Group,
Inc.), 7.125%, 8/15/19 6,801,480
NR A- 5,000 Dubuque, IA, (Finley
Hospital), 6.875%,
1/1/12 5,436,100
NR BB 4,000 Hawaii State
Department of Budget
and Finance, (Wahiawa
General Hospital),
7.50%, 7/1/12 4,352,640
Baa1 NR 1,000 Illinois Health
Facilities Authority,
(Holy Cross Hospital),
6.70%, 3/1/14 1,101,360
Baa1 NR $ 2,650 Illinois Health
Facilities Authority,
(Holy Cross Hospital),
6.75%, 3/1/24 $ 2,924,832
Baa2 NR 4,500 Indiana Health
Facility Financing
Authority, (Memorial
Hospital and Health
Care Center), 7.40%,
3/1/22 4,893,570
NR BBB 8,250 Louisiana Public
Facilities Authority,
(General Health
Systems), 6.80%,
11/1/16 9,244,125
NR AA+ 20,000 Maricopa County, AZ
IDA, (Mayo Clinic),
5.25%, 11/15/37 20,444,400
Baa NR 2,000 Marshall County, AL,
(Guntersville-Arab
Medical Center),
7.00%, 10/1/09 2,169,140
Baa NR 2,000 Marshall County, AL,
(Guntersville-Arab
Medical Center),
7.00%, 10/1/13 2,175,880
A BBB+ 10,000 Philadelphia, PA,
(Albert Eistein
Medical Center),
7.00%, 10/1/21 11,116,500
B2 BB 9,000 Philadelphia, PA,
(Graduate Health
System),
6.625%, 7/1/21(1) 4,050,000
B2 BB 2,250 Philadelphia, PA,
(Graduate Health
System),
7.25%, 7/1/18(1) 1,012,500
Baa3 NR 2,000 Prince George's
County, MD, (Greater
SouthEast Healthcare
System), 6.375%, 1/1/23 1,824,520
Baa1 BBB+ 10,000 Randolph County
Building Commission,
WV, (Davis Memorial
Hospital),
7.65%, 11/1/21 11,292,500
NR AA+ 16,500 Rochester, MN, Health
Care Facilities
Revenue, (Mayo
Clinic), 5.50%,
11/15/27 17,452,710
NR AAA 8,000 Scranton-Lackawanna
Health and Welfare
Authority, PA, (Moses
Taylor Hospital),
8.25%, 7/1/09 9,087,120
NR NR 4,800 Winslow, AZ, IDA,
(Winslow Memorial
Hospital),
9.50%, 6/1/22 5,523,168
- ----------------------------------------------------------------------------
$ 172,682,730
- ----------------------------------------------------------------------------
</TABLE>
See notes to financial statements
17
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO as of September 30, 1998
PORTFOLIO OF INVESTMENTS
Tax-Exempt Investments -- 100.0%
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hotel -- 0.1%
- ---------------------------------------------------------------------------------------------------------------------------------
NR NR $ 4,205 Niagara County, NY IDA,
(Wintergarden Inn Associates),
9.75%, 6/1/11(1) $ 1,682,000
- ---------------------------------------------------------------------------------------------------------------------------------
$ 1,682,000
- ---------------------------------------------------------------------------------------------------------------------------------
Housing -- 2.5%
- --------------------------------------------------------------------------------------------------------------------------------
Aa AA- $ 9,450 California Housing Finance
Agency, (AMT), "RIBS",
Variable Rate, 8/1/23(2) $ 10,962,000
Aa2 NR 5,000 Colorado Housing Finance
Agency, Single Family Housing,
(AMT), 7.55%, 11/1/27 5,733,950
NR NR 10,800 Lake Creek, CO, (Affordable
Housing Corp.), Multifamily,
6.25%, 12/1/23 10,997,316
NR NR 8,000 Los Angeles County Housing
Authority, CA, Multifamily,
(Corporate Fund for Housing),
10.50%, 12/1/29 7,407,760
NR NR 1,500 Maricopa County, AZ, IDA,
(National Health Facilities II),
6.375%, 1/1/19 1,523,280
NR NR 3,385 Minneapolis, MN, Community
Development, Multifamily,
(Lindsay Brothers),
1.50%, 12/1/07 2,739,988
NR NR 3,180 Minneapolis, MN, Community
Development, Multifamily,
(Lindsay Brothers),
9.50%, 12/1/07 3,592,732
NR NR 8,635 North Miami, FL Health Care
Facilities, (The Imperial Club),
1/1/13 9.25%, 9,830,602
NR NR 4,000 North Miami, FL Health Care
Facilities, (The Imperial Club),
10.00%, 1/1/13 4,030,920
- ----------------------------------------------------------------------------------------------------------------------------------
$ 56,818,548
- ----------------------------------------------------------------------------------------------------------------------------------
Industrial Development Revenue -- 16.1%
- ----------------------------------------------------------------------------------------------------------------------------------
NR NR $ 7,500 Austin, TX, (Cargoport
Development LLC), (AMT),
8.30%, 10/1/21 $ 8,478,000
NR NR $ 2,000 California Pollution Control
Financing Authority, (Laidlaw
Environmental), (AMT),
6.70%, 7/1/07 $ 2,132,120
NR BB- 2,000 Camden County, NJ, (Holt
Hauling), (AMT),
9.875%, 1/1/21 2,529,980
Baa2 BBB+ 6,050 Carbon County, UT, (Laidlaw
Environmental, Inc.), (AMT),
7.50%, 2/1/10 6,964,942
Baa2 BBB- 28,000 Chicago, IL, O'Hare
International, (American
Airlines), 7.875%, 11/1/25 30,341,079
Baa2 BBB- 20,275 Chicago, IL, O'Hare
International, (American
Airlines), 8.20%, 12/1/24 24,339,732
NR NR 6,000 Clark County, NV, (Nevada
Power), (RITES), (AMT),
Variable Rate, 10/1/30 6,285,600
Baa1 BBB 24,000 Courtland, AL, (Champion
International Corp.), (AMT),
7.00%, 6/1/22 26,188,080
Baa2 BBB- 41,000 Dallas-Fort Worth, TX,
International Airport Facility,
(American Airlines),
7.25%, 11/1/30 45,602,659
Baa3 BB+ 52,500 Denver, CO, City and County,
(United Airlines), (AMT),
6.875%, 10/1/32(4) 57,092,699
Baa2 BBB- 8,000 Effingham County, GA, Solid
Waste Disposal, (Fort James),
(AMT), 5.625%, 7/1/18 8,154,400
Baa1 BBB 11,480 Gulf Coast Waste Disposal, TX,
(Champion International
Corp.), (AMT),
6.875%, 12/1/28 12,560,727
NR NR 5,928 Gwinnett County, GA,
(Plastics/Packaging, Inc.),
(AMT), 0.00%, 5/1/13(1) 3,023,060
Ba2 BB- 4,725 Hawaii State Department of
Transportation, (Continental
Airlines, Inc.), (AMT),
5.625%, 11/15/27 4,774,093
NR NR 6,500 Kimball, NE, EDA, (Clean
Harbors, Inc.), (AMT),
10.75%, 9/1/26 7,205,640
</TABLE>
See notes to financial statements
18
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- ------------------
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Development Revenue (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
Baa2 NR $ 7,500 Little River County,
AR, (Georgia-Pacific Corp.),
(AMT), 5.60%, 10/1/26 $ 7,610,775
NR NR 1,800 Los Angeles International
Airport, (Continental Airlines),
(AMT), 9.00%, 8/1/08 1,842,336
Baa1 BBB 10,000 Maine Finance Authority,
(Great Northern Paper, Inc. -
Bowater, Inc.), (AMT),
7.75%, 10/1/22 11,248,800
NR BB+ 5,000 Maine Solid Waste Disposal,
(Boise Cascade), (AMT),
7.90%, 6/1/15 5,326,850
Baa1 BBB 5,000 McMinn County, TN, (Calhoun
Newsprint Co. - Bowater Inc.),
(AMT), 7.40%, 12/1/22 5,591,750
NR NR 10,000 Michigan Strategic, (S.D.
Warren Co.),
7.375%, 1/15/22 11,214,700
NR NR 15,000 Michigan Strategic, (S.D.
Warren Co.), (AMT),
7.375%, 1/15/22 16,822,050
NR NR 3,810 Middleboro, MA, (Read Corp.),
9.50%, 10/1/10 4,076,586
NR NR 17,000 New Jersey EDA, (Holt
Hauling), 7.75%, 3/1/27 19,271,030
NR NR 1,500 New Jersey EDA, (Holt
Hauling), 7.90%, 3/1/27 1,718,880
NR NR 1,000 Ohio Solid Waste Revenue,
(Republic Engineered Steels,
Inc.), (AMT), 9.00%, 6/1/21 1,087,090
Baa2 BBB- 7,500 Pennsylvania, IDA, (MacMillan
Bloedel), (AMT),
7.60%, 12/1/20 8,673,750
Baa3 BBB 10,000 Pennsylvania, IDA, (Sun
Company), (AMT),
7.60%, 12/1/24 11,754,500
B1 B 2,585 Riverdale Village, IL, ACME
Metals, Inc., (AMT),
7.90%, 4/1/24 2,333,686
B1 B 2,000 Riverdale Village, IL, ACME
Metals, Inc., (AMT),
7.95%, 4/1/25 1,805,520
NR NR 2,400 Savannah, GA, (Intercat-
Savannah, Inc.), (AMT),
9.75%, 7/1/10 2,573,208
NR NR $ 3,910 Savannah, GA, EDA, (Intercat-
Savannah, Inc.), (AMT),
9.00%, 1/1/15 $ 4,358,555
NR NR 2,000 Skowhegan, ME, (S. D. Warren
Co.), (AMT),
6.65%, 10/15/15 2,170,620
NR NR 3,500 Toole County, UT, Pollution
Control Revenue, (AMT),
7.55%, 7/1/27 3,923,570
Baa2 AA- 4,000 Yavapai County, AZ, IDA,
(Citizens Utilities Co.), (AMT),
5.45%, 6/1/33 4,142,160
- --------------------------------------------------------------------------------------------------------------------------------
$ 373,219,227
- --------------------------------------------------------------------------------------------------------------------------------
Insured-Education -- 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
Aaa AAA $ 6,820 New York State Dormitory
Authority, (University of
Rochester), (MBIA),
5.00%, 7/1/23 $ 6,846,598
- ---------------------------------------------------------------------------------------------------------------------------------
$ 6,846,598
- ---------------------------------------------------------------------------------------------------------------------------------
Insured-Electric Utilities -- 3.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Aaa AAA $ 22,000 Intermountain Power Agency,
UT, (MBIA), 5.75%, 7/1/19 $ 24,208,800
Aaa AAA 10,000 Intermountain Power Agency,
UT, (MBIA), 6.00%, 7/1/16 11,068,300
Aaa AAA 10,000 Los Angeles, CA, Department of
Water and Power, (MBIA),
5.00%, 10/15/33 10,026,200
Aaa AAA 9,645 New York City Municipal Water
Finance Authority, (FSA),
6.25%, 6/15/21 10,180,105
Aaa AAA 16,500 Sacramento, CA, Municipal
Utility District, (MBIA), Variable
Rate, 11/15/15(2) 18,459,375
Aaa AAA 15,350 South Carolina Public Services,
RIBS, (FGIC), Variable
Rate, 1/1/25(5)(2) 15,196,500
- ---------------------------------------------------------------------------------------------------------------------------------
$ 89,139,280
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
19
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited)
- ------------------ Principal
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured-General Obligations ------ 0.7%
- --------------------------------------------------------------------------------
Aaa AAA $ 16,000 New York State Local
Government Assistance
Corp., (MBIA), 5.00%,
4/1/21 $ 16,062,560
- -------------------------------------------------------------------------------
$ 16,062,560
- -------------------------------------------------------------------------------
Insured-Hospital -- 0.4%
- -------------------------------------------------------------------------------
Aaa AAA $ 7,000 Montgomery County, PA,
HEFA, (Abington
Memorial Hospital)
(AMBAC), Variable
Rate, 7/5/11/(2)/ $ 8,260,000
- -------------------------------------------------------------------------------
$ 8,260,000
- -------------------------------------------------------------------------------
Insured-Housing -- 0.4%
- -------------------------------------------------------------------------------
Aaa AAA $ 7,525 SCA Multifamily
Mortgage, Industrial
Development Board,
Hamilton County, TN,
(AMT), (FSA), 7.35%,
1/1/30 $ 8,461,562
- -------------------------------------------------------------------------------
$ 8,461,562
- -------------------------------------------------------------------------------
Insured-Industrial Development Revenue -- 0.6%
- -------------------------------------------------------------------------------
Aaa AAA $ 11,950 Chicago, IL, (The
Peoples Gas Light and
Coke Company), (AMT),
(AMBAC), RIBS,
Variable Rate,
12/1/23/(5)//(2)/ $ 13,280,035
- -------------------------------------------------------------------------------
$ 13,280,035
- -------------------------------------------------------------------------------
Insured-Pooled Loans -- 0.3%
- -------------------------------------------------------------------------------
Aaa AAA $ 7,000 George L. Smith,
(Georgia World
Congress Center-Domed
Stadium), (MBIA),
(AMT), 5.50%, 7/1/20/(6)/ $ 7,043,610
- -------------------------------------------------------------------------------
$ 7,043,610
- -------------------------------------------------------------------------------
Insured-Senior Living / Life Care -- 0.3%
- -------------------------------------------------------------------------------
Aaa AAA $ 8,170 Michigan State
Hospital Finance
Authority, (Oakwood
Obligation Group),
(FSA), 5.00%, 8/15/26 $ 8,151,127
- -------------------------------------------------------------------------------
$ 8,151,127
- -------------------------------------------------------------------------------
Insured-Special Tax Revenue -- 2.2%
- -------------------------------------------------------------------------------
Aaa AAA $ 9,800 Metropolitan Pier and
Exposition Authority,
IL, (McCormick Place
Expansion), RIBS,
(MBIA), Variable
Rate, 6/15/27/(5)//)/ $ 11,804,786
Aaa AAA 3,415 Regional
Transportation
Authority, LA, (FGIC),
0.00%, 12/1/12 1,792,773
Aaa AAA 10,935 Regional
Transportation
Authority, LA, (FGIC),
0.00%, 12/1/15 4,859,405
Aaa AAA 10,000 Regional
Transportation
Authority, LA, (FGIC),
0.00%, 12/1/21 3,239,900
Aaa AAA 20,000 South Orange County,
CA, Public Financing
Authority, (FGIC),
Variable
Rate, 8/15/15/(2)//(3)/ 21,900,000
Aaa AAA 7,000 Utah Municipal Finance
Corp., Local
Government Revenue,
(FSA), 0.00%, 3/1/10 4,234,720
Aaa AAA 6,000 Utah Municipal Finance
Corp., Local
Government Revenue,
(FSA), 0.00%, 3/1/11 3,431,520
- -------------------------------------------------------------------------------
$ 51,263,104
- -------------------------------------------------------------------------------
Insured-Transportation --------- 3.4%
- -------------------------------------------------------------------------------
Aaa AAA $ 19,000 Massachusetts State
Turnpike Authority,
(FGIC),
5.00%, 1/1/20 $ 19,694,640
Aaa AAA 1,000 Massachusetts State
Turnpike Authority,
(MBIA),
5.00%, 1/1/20 1,036,560
Aaa AAA 10,000 Massachusetts Turnpike
Authority,
Metropolitan District
Highway System,
(MBIA), 5.00%, 1/1/27 10,019,100
Aaa AAA 14,400 Metropolitan
Washington, DC Airport
Authority, (MBIA),
Variable Rate,
4/1/21/(5)//(2)/ 16,236,864
Aaa AAA 18,200 Mobile, AL, Airport
Authority, (MBIA),
6.375%, 10/1/14//(3)/ 20,401,108
NR AAA 10,000 Triborough Bridge and
Tunnel Authority, NY,
(MBIA), Variable Rate,
1/1/19(5)/(2)/ 10,847,100
- -------------------------------------------------------------------------------
$ 78,235,372
- -------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited)
- ------------------ Principal
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insured-Water and Sewer -- 2.6%
- -------------------------------------------------------------------------------
Aaa AAA $ 30,395 California State
Department Water
Resources, (Central
Valley Water Systems),
(FGIC), 5.25%,
12/1/28/(3)/ $ 31,299,250
Aaa AAA 10,000 Detroit, MI, Sewer
Revenue, (FGIC),
Variable
Rate, 7/1/23/(2)/ 11,150,000
Aaa AAA 7,150 Harrisburg, PA, Water
Revenue Bonds, RIBS,
(FGIC), Variable Rate,
8/11/16/(2)/ 7,516,438
Aaa AAA 10,000 San Diego Public
Finance Authority,
(FGIC),
5.25%, 5/15/27 10,349,500
- -------------------------------------------------------------------------------
$ 60,315,188
- -------------------------------------------------------------------------------
Lease Revenue/
Certificates of Participation -- 0.2%
- -------------------------------------------------------------------------------
NR AA- $ 3,500 Plymouth County, MA,
(Plymouth County
Correctional
Facility), 7.00%,
4/1/22 $ 3,939,705
- -------------------------------------------------------------------------------
$ 3,939,705
- -------------------------------------------------------------------------------
Miscellaneous -- 2.3%
- -------------------------------------------------------------------------------
NR NR $ 5,890 American Samoa
Economic Development
Authority, (Executive
Office Building),
10.125%, 9/1/08 $ 6,182,969
NR NR 6,645 Hardeman County, TN,
(Correctional
Facilities Corp.),
7.75%, 8/1/17 7,566,728
NR A- 6,500 Los Angeles, CA,
Regional Airports
Improvement Corp.,
(LAXFuel), (AMT),
6.50%, 1/1/32 6,814,145
NR NR 22,500 New Jersey Sports and
Exposition Authority,
(Monmouth Park),
8.00%, 1/1/25 25,824,375
NR NR 10,200 Orange County, NC,
(Community Activity
Corp.), 8.00%,
3/1/24/(1)/ 6,120,000
- -------------------------------------------------------------------------------
MIscellaneous (continued)
- -------------------------------------------------------------------------------
NR NR $ 1,600 Pittsfield Township,
MI, EDC, (Arbor
Hospice),
7.875%, 8/15/27 $ 1,719,424
- -------------------------------------------------------------------------------
$ 54,227,641
- -------------------------------------------------------------------------------
Nursing Home -- 6.6%
- -------------------------------------------------------------------------------
NR NR $ 13,270 Bell County, TX,
(Riverside Healthcare,
Inc. - Normandy
Terrace), 9.00%, 4/1/23 $ 16,324,489
NR NR 4,200 Collier County, FL,
IDA, Retirement
Rental, (Beverly
Enterprises - Florida,
Inc.), 10.75%, 3/1/03 4,779,852
NR NR 4,945 Delaware County, PA
(Mainline-Haverford
Nursing and
Rehabilitation
Centers),
9.00%, 8/1/22 5,893,253
NR NR 4,650 Hillsborough County,
FL, IDA, (Center for
Independent Living),
10.25%, 3/1/09/(7)/ 4,185,000
NR NR 5,460 Hillsborough County,
FL, IDA, (Center for
Independent Living),
11.00%, 3/1/19/(7)/ 4,914,000
Baa1 NR 10,000 Indianapolis, IN,
(National Benevolent
Association - Robin
Run Village),
7.625%, 10/1/22 11,148,200
NR NR 3,475 Lackawanna County, PA,
IDA, (Edella Street
Associates), 8.875%,
9/1/14 3,909,896
NR NR 2,885 Luzerne County, PA,
IDA, (River Street
Associates),
8.75%, 6/15/07 3,224,420
NR NR 13,250 Massachusetts IFA,
(Age Institute of
Massachusetts), 8.05%,
11/1/25 15,095,063
NR NR 11,765 Mississippi Business
Finance Corp.,
(Magnolia Healthcare),
7.99%, 7/1/25 12,892,558
NR NR 6,750 Missouri HEFA,
(Bethesda Health Group
of Saint Louis, Inc.),
6.625%, 8/15/05 7,271,235
NR NR 14,000 Missouri HEFA,
(Bethesda Health Group
of Saint Louis, Inc.),
7.50%, 8/15/12 15,837,080
</TABLE>
See notes to financial statements
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- -------------------
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
Nursing Home (continued)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR NR $ 12,500 Montgomery, PA, IDA,
(Advancement of
Geriatric Health Care
Institute), 8.375%,
7/1/23 $ 13,623,000
NR NR 4,945 New Jersey EDA,
(Claremont Health
System, Inc.),
9.10%, 9/1/22 5,635,470
NR NR 5,915 New Jersey EDA,
(Victoria Health
Corp.), 7.75%, 1/1/24 6,560,090
NR NR 2,630 Okaloosa County, FL,
(Beverly Enterprises),
10.75%, 10/1/03 2,693,094
A3 BBB 3,870 Racine County, WI,
Health Center, 8.125%,
8/1/21 3,977,586
NR NR 5,000 Sussex County, DE,
(Delaware Health
Corp.), 7.50%, 1/1/14 5,459,500
NR NR 5,000 Sussex County, DE,
(Delaware Health
Corp.), 7.60%, 1/1/24 5,470,000
NR NR 2,470 Westmoreland, PA,
(Highland Health
Systems, Inc.),
9.25%, 6/1/22 2,821,926
- --------------------------------------------------------------------------------
$ 151,715,712
- --------------------------------------------------------------------------------
Senior Living / Life Care -- 3.8%
- --------------------------------------------------------------------------------
NR NR $ 8,616 Albuquerque, NM, First
Mortgage IDR, (La Vida
Llena Retirement
Center), 8.625%, 2/1/20 $ 9,183,622
NR NR 6,900 Albuquerque, NM, First
Mortgage IDR, (La Vida
Llena Retirement
Center), 8.85%, 2/1/23 7,605,801
NR NR 5,744 Albuquerque, NM, First
Mortgage IDR, (La Vida
Lllena Retirement
Center), 2.25%, 2/1/23 1,801,204
NR NR 10,000 Atlantic Beach, FL,
Fixed Rate
Improvement, (Fleet
Landing), 8.00%,
10/1/24 11,366,800
NR NR 12,435 De Kalb County, GA,
Private Hospital
Authority, (Atlanta,
Inc.), 8.50%, 3/1/25(7) 9,326,250
Senior Living / Life Care (continued)
- --------------------------------------------------------------------------------
NR NR $ 4,995 Kansas City, MO, IDA,
(Kingswood United
Methodist Manor),
9.00%, 11/15/13 $ 5,812,232
Aaa AAA 2,100 Loudoun County, VA,
IDA, Residential Care,
(Falcons Landing),
9.25%, 7/1/04 2,486,106
NR NR 15,000 Louisiana Housing
Finance Agency, (HCC
Assisted Living Group
1), (AMT), 9.00%,
3/1/25 17,056,800
NR NR 5,700 Ridgeland, MS, Urban
Renewal, (The
Orchard), 7.75%,
12/1/15 6,265,668
Baa2 BBB 2,565 South Dakota HEFA,
(Prairie Lakes Health
Care), 7.25%, 4/1/22 2,905,889
NR NR 4,500 Vermont IDA, (Wake
Robin Corp.), 8.75%,
3/1/23 5,105,115
NR NR 7,500 Vermont IDA, (Wake
Robin Corp.), 8.75%,
4/1/23 8,521,125
- --------------------------------------------------------------------------------
$ 87,436,612
- --------------------------------------------------------------------------------
Solid Waste -- 1.2%
- --------------------------------------------------------------------------------
NR NR $ 35,000 Robbins, Cook County,
IL, (Robbins Resource
Recovery Partners,
L.P.), 8.375%,
10/15/16(3) $ 28,000,000
- --------------------------------------------------------------------------------
$ 28,000,000
- --------------------------------------------------------------------------------
Special Tax Revenue -- 0.8%
- --------------------------------------------------------------------------------
Aa2 AA+ $ 7,000 Florida Department of
Transportation, (Right
of Way), 5.00%, 7/1/27 $ 7,028,980
Baa BBB 3,695 Inglewood, CA Public
Financing Authority,
In-Town,
(Manchester-Prairie
and North Inglewood
Industrial
Park Redevelopment),
7.00%, 5/1/22 4,035,457
Aa3 AA- 7,500 Michigan State Trunk
Line, 5.50%, 11/1/18 8,248,350
- --------------------------------------------------------------------------------
$ 19,312,787
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
22
<PAGE>
National Municipals Portfolio as of September 30, 1998
PORTFOLIO OF INVESTMENTS CONT'D
<TABLE>
<CAPTION>
Ratings (Unaudited) Principal
- -------------------
Amount
Standard (000's
Moody's & Poor's omitted) Security Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation -- 3.8%
- --------------------------------------------------------------------------------
Baa1 BBB $ 4,735 Denver, CO, City and
County Airport
Revenue, (AMT), 7.50%,
11/15/23 $ 5,566,845
A A- 5,000 Hawaii Airport System,
(AMT), 7.00%, 7/1/18 5,436,150
Baa1 BBB+ 6,000 Metropolitan
Transportation
Authority, NY,
5.50%, 7/1/17 6,349,320
Aa3 A+ 10,000 New Jersey Turnpike
Authority, 5.00%,
6/15/17 10,194,600
A1 AA- 15,000 Port Authority of New
York and New Jersey,
(AMT), Variable Rate,
1/15/27(5)(2) 17,086,350
Aa3 AA- 3,480 Port Seattle, WA,
(AMT), 6.00%, 12/1/14 3,613,110
Aa3 A+ 9,050 Triborough Bridge and
Tunnel Authority, NY,
5.125%, 1/1/22 9,128,283
Aa3 A+ 10,450 Triborough Bridge and
Tunnel Authority, NY,
5.20%, 1/1/27 10,712,191
Aa3 A+ 19,030 Triborough Bridge and
Tunnel Authority, NY,
5.25%, 1/1/28 19,475,492
- --------------------------------------------------------------------------------
$ 87,562,341
- --------------------------------------------------------------------------------
Water and Sewer -- 1.2%
- --------------------------------------------------------------------------------
Aa2 AA $ 21,920 California State
Department Water
Resources, (Central
Valley Water Systems),
5.25%, 12/1/24 $ 22,416,269
A2 A- 4,965 New York, NY,
Municipal Water
Finance Authority,
6.25%, 6/15/21 5,227,450
- --------------------------------------------------------------------------------
$ 27,643,719
- --------------------------------------------------------------------------------
Total Tax-Exempt Investments
(identified cost $2,005,029,958) $ 2,312,890,868
- --------------------------------------------------------------------------------
Taxable-Investment -- 0.0%
Senior Living / Life Care -- 0.0%
- --------------------------------------------------------------------------------
NR NR $ 485 Ridgeland, MS, Urban
Renewal, (The
Orchard), 9.00%,
12/1/00 $ 486,474
- --------------------------------------------------------------------------------
$ 486,474
- --------------------------------------------------------------------------------
Total Taxable-Investment
(identified cost $485,000) $ 486,474
- --------------------------------------------------------------------------------
Total Investments -- 100.0%
(identified cost $2,005,514,958) $2,313,377,342
- --------------------------------------------------------------------------------
</TABLE>
At September 30, 1998 the concentration of the Portfolio's investments in the
various states, determined as a percentage of total investments, is as follows:
California 10.0%
Others, representing less than 10% individually 90.0%
The Portfolio invests primarily in debt securities issued by municipalities. The
ability of the issuers of the debt securities to meet their obligations may be
affected by economic developments in a specific industry or municipality. In
order to reduce the risk associated with such economic developments, at
September 30, 1998, 18.4% of the securities in the portfolio of investments are
backed by bond insurance of various financial institutions and financial
guaranty assurance agencies. The aggregate percentage insured by financial
institutions ranged from 0.9% to 8.1% of total investments.
/(1)/Non-income producing security.
/(2)/Security has been issued as an inverse floater bond.
/(3)/Security (or a portion thereof) has been segregated to cover when-issued
securities.
/(4)/Security (or a portion thereof) has been segregated to cover margin
requirements on open financial futures contracts.
/(5)/Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At September 30,
1998, the value of these securities amounted to $84,451,635 or 3.6% of the
Portfolio's net assets.
/(6)/When-issued security.
/(7)/The Portfolio is accruing only partial interest on this security.
See notes to financial statements
23
<PAGE>
NATIONAL MUNICIPALS PORTFOLIO as of September 30, 1998
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
As of September 30, 1998
Assets
- --------------------------------------------------------------------------
<S> <C>
Investments, at value
(identified cost, $2,005,514,958) $2,313,377,342
Cash 1,881,598
Receivable for investments sold 17,915,080
Interest receivable 39,301,543
- --------------------------------------------------------------------------
Total assets $2,372,475,563
- --------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------
Payable for investments purchased $ 23,000,000
Payable for when-issued securities 6,710,830
Payable for daily variation margin on open
financial futures contracts 2,624,687
Payable to affiliate for Trustees' fees 2,508
Other accrued expenses 12,760
- --------------------------------------------------------------------------
Total liabilities $ 32,350,785
- --------------------------------------------------------------------------
Net Assets applicable to investors' interest in
Portfolio $2,340,124,778
- --------------------------------------------------------------------------
Sources of Net Assets
- --------------------------------------------------------------------------
Net proceeds from capital contributions and
withdrawals $2,035,871,144
Net unrealized appreciation (computed on the basis
of identified cost) 304,253,634
- --------------------------------------------------------------------------
Total $2,340,124,778
- --------------------------------------------------------------------------
Statement of Operations
For the Year Ended
September 30, 1998
Investment Income
- --------------------------------------------------------------------------
Interest $ 142,901,888
- --------------------------------------------------------------------------
Total investment income $ 142,901,888
- --------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------
Investment adviser fee $ 9,401,075
Trustees fees and expenses 35,018
Custodian fee 369,252
Legal and accounting services 79,629
Amortization of organization expenses 7,562
Miscellaneous 140,987
- --------------------------------------------------------------------------
Total expenses $ 10,033,523
- --------------------------------------------------------------------------
Deduct --
Reduction of custodian fee $ 360,087
- --------------------------------------------------------------------------
Total expense reductions $ 360,087
- --------------------------------------------------------------------------
Net expenses $ 9,673,436
- --------------------------------------------------------------------------
Net investment income $ 133,228,452
- --------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 74,344,438
Financial futures contracts (12,173,968)
- --------------------------------------------------------------------------
Net realized gain $ 62,170,470
- --------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 9,477,871
Financial futures contracts 4,472,250
- --------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) $ 13,950,121
- --------------------------------------------------------------------------
Net realized and unrealized gain $ 76,120,591
- --------------------------------------------------------------------------
Net increase in net assets from operations $ 209,349,043
- --------------------------------------------------------------------------
</TABLE>
See notes to financial statements
<PAGE>
National Municipals Portfolio as of September 30, 1998
FINANCIAL STATEMENTS CONT'D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended Year Ended
in Net Assets September 30, 1998 September 30, 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
From operations --
Net investment income $ 133,228,452 $ 141,173,780
Net realized gain 62,170,470 683,719
Net change in
unrealized
appreciation
(depreciation) 13,950,121 133,564,032
- --------------------------------------------------------------------------------
Net increase in net assets
from operations $ 209,349,043 $ 275,421,531
- --------------------------------------------------------------------------------
Capital transactions --
Contributions $ 389,124,010 $ 304,512,126
Withdrawals (439,963,679) (610,796,255)
- --------------------------------------------------------------------------------
Net decrease in net assets from
capital transactions $ (50,839,669) $ (306,284,129)
- --------------------------------------------------------------------------------
Net increase (decrease) in
net assets $ 158,509,374 $ (30,862,598)
- --------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------
At beginning of year $2,181,615,404 $2,212,478,002
- --------------------------------------------------------------------------------
At end of year $2,340,124,778 $2,181,615,404
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
25
<PAGE>
National Municipals Portfolio as of September 30, 1998
FINANCIAL STATEMENTS CONT'D
Supplementary Data
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratios to average daily net assets
- --------------------------------------------------------------------------------------------------------------------------------
Expenses: /(1)/ 0.45% 0.52% 0.49% 0.50% 0.50%
Expenses after custodian fee reduction 0.43% 0.52% 0.48% 0.49% --
Net investment income 5.93% 6.51% 6.65% 7.00% 6.55%
Portfolio Turnover 28% 17% 19% 54% 40%
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000's omitted) $2,340,125 $2,181,615 $2,212,478 $2,260,646 $2,210,936
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ The expense ratios for the year ended September 30, 1995 and periods
thereafter have been adjusted to reflect a change in reporting guidelines.
The new reporting guidelines require the Portfolio to increase its expense
ratio by the effect of any expense offset arrangements with its service
providers. The expense ratios for each of the prior periods have not been
adjusted to reflect this change.
See notes to financial statements
26
<PAGE>
National Municipals Portfolio as of September 30, 1998
NOTES TO FINANCIAL STATEMENTS
/1/ Significant Accounting Policies
--------------------------------------------------------------------------
National Municipals Portfolio (the Portfolio) is registered under the
Investment Company Act of 1940 as a diversified open-end management
investment company which was organized as a trust under the laws of the
State of New York on May 1, 1992. The Declaration of Trust permits the
Trustees to issue interests in the Portfolio. The following is a summary of
significant accounting policies of the Portfolio. The policies are in
conformity with generally accepted accounting principles.
A Investment Valuation -- Municipal bonds are normally valued on the basis
of valuations furnished by a pricing service. Taxable obligations, if any,
for which price quotations are readily available are normally valued at the
mean between the latest bid and asked prices. Futures contracts listed on
the commodity exchanges are valued at closing settlement prices. Short-term
obligations, maturing in sixty days or less, are valued at amortized cost,
which approximates value. Investments for which valuations or market
quotations are unavailable are valued at fair value using methods determined
in good faith by or at the direction of the Trustees.
B Income -- Interest income is determined on the basis of interest accrued,
adjusted for amortization of premium or discount when required for federal
income tax purposes.
C Federal Taxes -- The Portfolio is treated as a partnership for federal tax
purposes. No provision is made by the Portfolio for federal or state taxes
on any taxable income of the Portfolio because each investor in the
Portfolio is ultimately responsible for the payment of any taxes. Since some
of the Portfolio's investors are regulated investment companies that invest
all or substantially all of their assets in the Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements (under the Internal Revenue Code) in order for its investors to
satisfy them. The Portfolio will allocate at least annually among its
investors each investor's distributive share of the Portfolio's net taxable
(if any) and tax-exempt investment income, net realized capital gains, and
any other items of income, gain, loss, deduction or credit. Interest income
received by the Portfolio on investments in municipal bonds, which is
excludable from gross income under the Internal Revenue Code, will retain
its status as income exempt from federal income tax when allocated to the
Portfolio's investors. The portion of such interest, if any, earned on
private activity bonds issued after August 7, 1986 may be considered a tax
preference item for investors.
D Deferred Organization Expenses -- Costs incurred by the Portfolio in
connection with its organization are being amortized on the straight-line
basis over five years.
E Financial Futures Contracts -- Upon the entering of a financial futures
contract, the Portfolio is required to deposit ("initial margin") either in
cash or securities an amount equal to a certain percentage of the purchase
price indicated in the financial futures contract. Subsequent payments are
made or received by the Portfolio ("margin maintenance") each day, dependent
on the daily fluctuations in the value of the underlying security, and are
recorded for book purposes as unrealized gains or losses by the Portfolio.
The Portfolio's investment in financial futures contracts is designed only
to hedge against anticipated future changes in interest rates. Should
interest rates move unexpectedly, the Portfolio may not achieve the
anticipated benefits of the financial futures contracts and may realize a
loss.
F Options on Financial Futures Contracts -- Upon the purchase of a put
option on a financial futures contract by the Portfolio, the premium paid is
recorded as an investment, the value of which is marked-to-market daily.
When a purchased option expires, the Portfolio will realize a loss in the
amount of the cost of the option. When the Portfolio enters into a closing
sale transaction, the Portfolio will realize a gain or loss depending on
whether the sales proceeds from the closing sale transaction are greater or
less than the cost of the option. When the Portfolio exercises a put option,
settlement is made in cash. The risk associated with purchasing put options
is limited to the premium originally paid.
G Legal Fees -- Legal fees and other related expenses incurred as part of
negotiations of the terms and requirements of capital infusions, or that are
expected to result in the restructuring of or a plan of reorganization for
an investment are recorded as realized losses. Ongoing expenditures to
protect or enhance an investment are treated as operating expenses.
H When-issued and Delayed Delivery Transactions -- The Portfolio may engage
in when-issued or delayed delivery transactions. The Portfolio records
when-issued securities on trade date and maintains security positions such
that sufficient liquid assets will be available to make payments for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked-to-market daily and begin accruing interest on
settlement date.
I Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results
could differ from those estimates.
27
<PAGE>
National Municipals Portfolio as of September 30, 1998
NOTES TO FINANCIAL STATEMENTS CONT'D
J Other -- Investment transactions are accounted for on a trade date basis.
K Expense Reduction -- Investors Bank & Trust Company (IBT) serves as
custodian of the Portfolio. Pursuant to the custodian agreement, IBT
receives a fee reduced by credits which are determined based on the average
daily cash balance the Portfolio maintains with IBT. All significant credit
balances used to reduce the Portfolio's custodian fees are reflected as a
reduction of operating expense on the Statement of Operations.
/2/ Investment Adviser Fee and Other Transactions with Affiliates
------------------------------------------------------------------
The investment adviser fee is earned by Boston Management and Research
(BMR), a wholly-owned subsidiary of Eaton Vance Management (EVM), as
compensation for management and investment advisory services rendered to the
Portfolio. The fee is based upon a percentage of average daily net assets
plus a percentage of gross income (i.e., income other than gains from the
sale of securities). For the year ended September 30, 1998, the fee was
equivalent to 0.42% of the Portfolio's average daily net assets for such
period and amounted to $9,401,075. Except as to Trustees of the Portfolio
who are not members of EVM's or BMR's organization, officers and Trustees
receive remuneration for their services to the Portfolio out of such
investment adviser fee. Trustees of the Portfolio that are not affiliated
with the Investment Adviser may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of the Trustees
Deferred Compensation Plan. For the year ended September 30, 1998, no
significant amounts have been deferred.
Certain of the officers and Trustees of the Portfolio are officers and
directors/trustees of the above organizations.
/3/ Investments
------------------------------------------------------------------
Purchases and sales of investments, other than U.S. Government securities
and short-term obligations, aggregated $620,410,606 and $614,142,170,
respectively, for the year ended September 30, 1998.
/4/ Federal Income Tax Basis of Investments
------------------------------------------------------------------
The cost and unrealized appreciation (depreciation) in value of the
investments owned at September 30, 1998, as computed on a Federal income tax
basis, are as follows:
Aggregate cost $2,005,944,910
------------------------------------------------------------------
Gross unrealized appreciation $ 336,227,591
Gross unrealized depreciation (28,795,159)
------------------------------------------------------------------
Net unrealized appreciation $ 307,432,432
------------------------------------------------------------------
/5/ Line of Credit
------------------------------------------------------------------
The Portfolio participates with other portfolios and funds managed by BMR
and EVM and its affiliates in a $100 million ($80 million effective October
13, 1998) unsecured line of credit agreement with a group of banks. The
portfolio may temporarily borrow from the line of credit to satisfy
redemption requests or settle investment transactions. Interest is charged
to each portfolio or fund based on its borrowings at an amount above either
the Eurodollar rate or federal funds rate. In addition, a fee computed at an
annual rate of 0.10% on the daily unused portion of the line of credit is
allocated among the participating portfolios and funds at the end of each
quarter. The Portfolio did not have any significant borrowings or allocated
fees during the year ended September 30, 1998.
/6/ Financial Instruments
------------------------------------------------------------------
The Portfolio regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities to assist in
managing exposure to various market risks. These financial instruments
include futures contracts and may involve, to a varying degree, elements of
risk in excess of the amounts recognized for financial statement purposes.
The notional or contractual amounts of these instruments represent the
investment the Portfolio has in particular classes of financial instruments
and does not necessarily represent the amounts potentially subject to risk.
The measurement of the risks associated with these instruments is meaningful
only when all related and offsetting transactions are considered.
A summary of obligations under these financial instruments at September 30,
1998 is as follows:
<TABLE>
<CAPTION>
Futures
Contracts
Expiration Net Unrealized
Date Contracts Position Depreciation
------------------------------------------------------------------
<S> <C> <C> <C>
12/98 2,500 U.S. Treasury Bonds Short $3,608,750
------------------------------------------------------------------
</TABLE>
At September 30, 1998, the Portfolio had sufficient cash and/or securities
to cover margin requirements on open futures contracts.
28
<PAGE>
National Municipals Portfolio as of September 30, 1998
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders
of National Municipals Portfolio
- -------------------------------------------------------------------------------
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of National Municipals Portfolio as of September
30, 1998, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended September 30, 1998 and
1997 and the supplementary data for each of the years in the five year period
ended September 30, 1998. These financial statements and supplementary data are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and supplementary data based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities held as of
September 30, 1998 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and supplementary data present fairly,
in all material respects, the financial position of National Municipals
Portfolio at September 30, 1998, the results of its operations, the changes in
its net assets, and its supplementary data for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 30, 1998
29
<PAGE>
Eaton Vance National Municipals Fund as of September 30, 1998
INVESTMENT MANAGEMENT
Eaton Vance National Municipals Fund
Officers
Thomas J. Fetter
President
James B. Hawkes
Vice President and Trustee
Robert B. MacIntosh
Vice President
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking,
Harvard University Graduate School of
Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
National Municipals Portfolio
Officers
Thomas J. Fetter
President
James B. Hawkes
Vice President and Trustee
Robert B. MacIntosh
Vice President
Thomas M. Metzold
Vice President and
Portfolio Manager
James L. O'Connor
Treasurer
Alan R. Dynner
Secretary
Independent Trustees
Donald R. Dwight
President, Dwight Partners, Inc.
Samuel L. Hayes, III
Jacob H. Schiff Professor of Investment Banking,
Harvard University Graduate School of
Business Administration
Norton H. Reamer
Chairman and Chief Executive Officer,
United Asset Management Corporation
John L. Thorndike
Formerly Director, Fiduciary Company Incorporated
Jack L. Treynor
Investment Adviser and Consultant
30
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Investment Advisor of
National Municipals Portfolio
Boston Management and Research
24 Federal Street
Boston, MA 02110
Administrator of
Eaton Vance National Municipals Fund
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Principal Underwriter
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(617)482-8260
Custodian
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, MA 02116
Transfer Agent
First Data Investor Services Group, Inc.
Attention: Eaton Vance Funds
P.O. Box 5123
Westborough, MA 01581-5123
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
Eaton Vance National Municipals Fund
24 Federal Street
Boston, MA 02110
This report must be preceded or accompanied by a current prospectus which
contains more complete information on the Fund, including its distribution plan,
sales charges and expenses. Please read the prospectus carefully before you
invest or send money.
