<PAGE>
As filed with the Securities and Exchange Commission on November 24, 1998
1933 Act File No. 33-572
1940 Act File No. 811-4409
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [ X ]
POST-EFFECTIVE AMENDMENT NO. 75 [ X ]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ X ]
AMENDMENT NO. 77 [ X ]
EATON VANCE MUNICIPALS TRUST
----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
----------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(617) 482-8260
--------------
(REGISTRANT'S TELEPHONE NUMBER)
ALAN R. DYNNER, 24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
--------------------------------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective pursuant to Rule 485
(check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on December 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (DATE) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
Arizona Municipals Portfolio, Colorado Municipals Portfolio, Connecticut
Municipals Portfolio, Michigan Municipals Portfolio, Minnesota Municipals
Portfolio, New Jersey Municipals Portfolio, Pennsylvania Municipals Portfolio
and Texas Municipals Portfolio have also executed this Registration Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
LOGO
Mutual Funds
for People
Who Pay
Taxes
Eaton Vance Arizona Municipals Fund
Eaton Vance Colorado Municipals Fund
Eaton Vance Connecticut Municipals Fund
Eaton Vance Michigan Municipals Fund
Eaton Vance Minnesota Municipals Fund
Eaton Vance New Jersey Municipals Fund
Eaton Vance Pennsylvania Municipals Fund
Eaton Vance Texas Municipals Fund
Mutual funds providing tax-exempt income
Prospectus Dated
December 1, 1998
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Information in this prospectus
Page Page
- --------------------------------------------------------------------------------
Fund Summaries 2 Sales Charges 13
Investment Objectives, Policies and Risks 11 Redeeming Shares 15
Management and Organization 12 Shareholder Account Features 15
Valuing Shares 13 Tax Information 16
Purchasing Shares 13 Financial Highlights 19
- --------------------------------------------------------------------------------
This prospectus contains important information about the Funds and the services
available to shareholders. Please save it for reference.
<PAGE>
FUND SUMMARIES
This section summarizes the investment objectives, and principal strategies and
risks of investing in an Eaton Vance Municipal Fund. You will find more specific
information about each Fund in the pages that follow.
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The purpose of each Fund is to provide current income exempt from regular
federal income tax and from particular state or local income or other taxes.
Each Fund primarily invests in investment grade municipal obligations. The
portfolio manager will purchase and sell securities to maintain a competitive
yield and to enhance return based upon the relative value of the securities in
the marketplace. The portfolio manager may also trade securities to minimize
taxable capital gains to shareholders.
PRINCIPAL RISK FACTORS
The value of Fund shares may change when interest rates change. When interest
rates rise, the value of Fund shares typically will decline. The Fund's yield
will also fluctuate over time.
Each Fund is non-diversified, which means that it may invest a larger portion of
its assets in the obligations of a limited number of issuers than a diversified
fund. Because a significant portion of assets is invested in obligations of
issuers located in a single state, the Fund is sensitive to factors affecting
that state, such as changes in the economy, decreases in tax collection or the
tax base, legislation which limits taxes and changes in issuer credit ratings.
In addition, each Fund may invest up to 25% of its assets in obligations of
below investment grade quality (so-called "junk bonds"). Because lower quality
obligations are more sensitive to the financial soundness of their issuers than
higher quality obligations, Fund shares may fluctuate more in value than shares
of a fund investing solely in high quality obligations. The credit ratings
assigned a state's general obligations (if any) by Standard & Poor's Ratings
Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch/IBCA
("Fitch") are contained in the Fund-specific summaries that follow this page.
Each Fund may concentrate in certain types of municipal obligations (such as
housing bonds, hospital bonds or utility bonds), so Fund shares could be
affected by events that adversely affect a particular sector. No Fund is a
complete investment program and you may lose money by investing. An investment
in a Fund is not a deposit in a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
FEES OF EACH FUND
This table describes the fees that you may pay if you buy and hold Fund shares.
The operating expenses incurred by each Fund during its last fiscal year are
set forth on the pages that follow.
<TABLE>
<CAPTION>
Class A Class B
Shareholder Fees (fees paid directly from your investments) Shares Shares
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (as a percentage of the lower of net asset
value at time of purchase or time of redemption) None 5.00%
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
</TABLE>
Each Fund offers Class A and Class B shares. Class A shares are sold subject to
a sales charge imposed at the time of purchase. Class B shares are sold subject
to a declining contingent deferred sales charge ("CDSC") (5.00% maximum) if
redeemed within six years of purchase. Long-term holders of Class B shares may
pay more than the economic equivalent of the front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
2
<PAGE>
Eaton Vance Arizona Municipals Fund
The Arizona Fund's investment objective is to provide current income exempt from
regular federal income taxes and Arizona state personal income taxes. Arizona
does not issue general obligation bonds. Obligations issued for a particular
project are rated based on the specific project's creditworthiness.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Arizona Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates that the value of your investment will change from year-to-year.
The following returns are for Class B shares for each calendar year through
December 31, 1997 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
8.03% 14.98% -9.68% 19.56% 2.40% 8.94%
1992 1993 1994 1995 1996 1997
The Fund's highest quarterly total return was 9.11% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.81% for a quarter ended March
31, 1994. The total return through the end of the most recent calendar quarter
(January 1, 1998 to September 30, 1998) was 5.10%. For the 30-days ended July
31, 1998, the yield and tax equivalent yield (assuming a combined state and
federal tax rate of 34.59%) for Class A shares were 4.41% and 6.74%,
respectively, and for Class B shares were 3.83% and 5.86%, respectively. For
current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1997 Year Years Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 4.5% 5.7% 6.9%
Class B Shares 3.9% 6.4% 7.7%
Lehman Brothers Municipal Bond Index 9.2% 7.4% 8.1%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 13, 1993 is the performance of Class B shares, adjusted for
the sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on July 25, 1991. Life of Fund returns are calculated from July 31,
1991. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index.
ARIZONA FUND FEES AND EXPENSES. These tables describe the fees and expenses
that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class A Class B
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (as a percentage of the lower of
net asset value at time of purchase or time of redemption) None 5.00%
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Class A Class B
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees 0.39% 0.39%
Distribution and Service (12b-1) Fees 0.00% 0.94%
Other Expenses* 0.39% 0.24%
----- -----
Total Operating Expenses 0.78% 1.57%
</TABLE>
* Other Expenses for Class A shares includes a service fee of 0.15%.
EXAMPLE. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 551 $ 712 $ 888 $ 1,395
Class B shares $ 660 $ 896 $ 1,055 $ 1,867
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 551 $ 712 $ 888 $ 1,395
Class B shares $ 160 $ 496 $ 855 $ 1,867
</TABLE>
3
<PAGE>
Eaton Vance Colorado Municipals Fund
The Colorado Fund's investment objective is to provide current income exempt
from regular federal income taxes and Colorado state personal income taxes.
There currently are no Colorado general obligations outstanding.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Colorado Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates that the value of your investment will change from year-to-year.
The following returns are for Class B shares for each calendar year through
December 31, 1997 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
13.07% -9.52% 18.61% 2.50% 10.54%
1993 1994 1995 1996 1997
The Fund's highest quarterly total return was 8.61% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.95% for the quarter ended March
31, 1994. The total return through the end of the most recent calendar quarter
(January 1, 1998 to September 30, 1998) was 4.23%. For the 30-days ended July
31, 1998, the yield and tax equivalent yield (assuming a combined state and
federal tax rate of 34.45%) for Class A shares were 4.46% and 6.80%,
respectively, and for Class B shares were 3.87% and 5.90%, respectively. For
current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1997 Year Years Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 5.9% 5.8% 6.1%
Class B Shares 5.6% 6.3% 6.7%
Lehman Brothers Municipal Bond Index 9.2% 7.4% 7.4%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 10, 1993 is the performance of Class B shares, adjusted for
the sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on August 25, 1992. Life of Fund returns are calculated from August
31, 1992. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index.
COLORADO FUND FEES AND EXPENSES. These tables describe the fees and expenses
that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class A Class B
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (as a percentage of the lower of
net asset value at time of purchase or time of redemption) None 5.00%
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Class A Class B
- ----------------------------------------------------------------------------------------
<S> <C>
Management Fees 0.24% 0.39%
Distribution and Service (12b-1) Fees 0.00% 0.94%
Other Expenses* 0.50% 0.24%
----- -----
Total Operating Expenses 0.74% 1.57%
</TABLE>
* Other Expenses for Class A shares includes a service fee of 0.17%.
EXAMPLE. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 547 $ 700 $ 867 $ 1,350
Class B shares $ 654 $ 877 $ 1,024 $ 1,802
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 547 $ 700 $ 867 $ 1,350
Class B shares $ 154 $ 477 $ 824 $ 1,802
</TABLE>
4
<PAGE>
Eaton Vance Connecticut Municipals Fund
The Connecticut Fund's investment objective is to provide current income exempt
from regular federal income taxes and Connecticut state personal income taxes.
Connecticut general obligations currently are rated AA, Aa3 and AA by S&P,
Moody's and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Connecticut Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates that the value of your investment will change from year-to-year.
The following returns are for Class B shares for each calendar year through
December 31, 1997 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
12.40% -10.36% 17.79% 2.77% 8.49%
1993 1994 1995 1996 1997
The Fund's highest quarterly total return was 8.21% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.12% for the quarter ended March
31, 1994. The total return through the end of the most recent calendar quarter
(January 1, 1998 to September 30, 1998) was 4.74%. For the 30-days ended July
31, 1998, the yield and tax equivalent yield (assuming a combined state and
federal tax rate of 34.11%) for Class A shares were 4.19% and 6.36%,
respectively, and for Class B shares were 3.57% and 5.42%, respectively. For
current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1997 Year Years Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 4.1% 5.4% 5.9%
Class B Shares 3.5% 5.4% 6.1%
Lehman Brothers Municipal Bond Index 9.2% 7.4% 7.7%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to April 19, 1994 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on May 1, 1992. Life of Fund returns are calculated from May 31,
1992. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index.
CONNECTICUT FUND FEES AND EXPENSES. These tables describe the fees and expenses
that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class A Class B
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (as a percentage of the lower of
net asset value at time of purchase or time of redemption) None 5.00%
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Class A Class B
- ------------------------------------------------------------------------------
<S> <S> <C>
Management Fees 0.42% 0.39%
Distribution and Service (12b-1) Fees 0.00% 0.94%
Other Expenses* 0.34% 0.24%
----- -----
Total Operating Expenses 0.76% 1.57%
</TABLE>
* Other Expenses for Class A shares includes a service fee of 0.12%.
EXAMPLE. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 549 $ 706 $ 877 $ 1,372
Class B shares $ 662 $ 902 $ 1,066 $ 1,889
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 549 $ 706 $ 877 $ 1,372
Class B shares $ 162 $ 502 $ 866 $ 1,889
</TABLE>
5
<PAGE>
Eaton Vance Michigan Municipals Fund
The Michigan Fund's investment objective is to provide current income exempt
from regular federal income taxes and Michigan state and city income and single
business taxes. Michigan general obligations currently are rated Aa1, AA+ and
AA+ by Moody's, S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Michigan Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates that the value of your investment will change from year-to-year.
The following returns are for Class B shares for each calendar year through
December 31, 1997 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
7.59% 12.06% -8.54% 17.96% 2.35% 8.39%
1992 1993 1994 1995 1996 1997
The Fund's highest quarterly total return was 7.94% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.33% for the quarter ended March
31, 1994. The total return through the end of the most recent calendar quarter
(January 1, 1998 to September 30, 1998) was 4.72%. For the 30-days ended July
31, 1998, the yield and tax equivalent yield (assuming a combined state and
federal tax rate of 35.33%) for Class A shares were 4.10% and 6.34%,
respectively, and for Class B shares were 3.54% and 5.47%, respectively. For
current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1997 Year Years Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 3.5% 5.0% 6.2%
Class B Shares 3.4% 5.7% 7.0%
Lehman Brothers Municipal Bond Index 9.2% 7.4% 8.1%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 7, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on April 19, 1991. Life of Funds returns are calculated from April
30, 1991. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index.
MICHIGAN FUND FEES AND EXPENSES. These tables describe the fees and expenses
that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class A Class B
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (as a percentage of the lower of
net asset value at time of purchase or time of redemption) None 5.00%
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Class A Class B
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees 0.40% 0.39%
Distribution and Service (12b-1) Fees 0.00% 0.94%
Other Expenses* 0.43% 0.24%
----- -----
Total Operating Expenses 0.83% 1.57%
</TABLE>
* Other Expenses for Class A shares includes a service fee of 0.19%.
Example. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 556 $ 727 $ 914 $ 1,452
Class B shares $ 662 $ 902 $ 1,066 $ 1,889
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 556 $ 727 $ 914 $ 1,452
Class B shares $ 162 $ 502 $ 866 $ 1,889
</TABLE>
6
<PAGE>
Eaton Vance Minnesota Municipals Fund
The Minnesota Fund's investment objective is to provide current income exempt
from regular federal income taxes and regular Minnesota state personal income
taxes. The Minnesota Fund will invest at least 95% of its total assets in
Minnesota municipal obligations. Minnesota general obligations currently are
rated Aaa, AAA and AAA by Moody's, S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Minnesota Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates that the value of your investment will change from year-to-year.
The following returns are for Class B shares for each calendar year through
December 31, 1997 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
7.49% 11.61% -9.01% 16.89% 1.62% 8.82%
1992 1993 1994 1995 1996 1997
The Fund's highest quarterly total return was 7.93% for the quarter ended March
31, 1995, and its lowest quarterly return was -6.99% for the quarter ended March
31, 1994. The total return through the end of the most recent calendar quarter
(January 1, 1998 to September 30, 1998) was 5.57%. For the 30-days ended July
31, 1998, the yield and tax equivalent yield (assuming a combined state and
federal tax rate of 36.87%) for Class A shares were 4.53% and 7.18%,
respectively, and for Class B shares were 3.93% and 6.23%, respectively. For
current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1997 Year Years Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 4.5% 5.1% 6.0%
Class B Shares 3.8% 5.3% 6.3%
Lehman Brothers Municipal Bond Index 9.2% 7.4% 8.1%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 9, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on July 29, 1991. Life of Fund returns are calculated from July 31,
1992. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index.
MINNESOTA FUND FEES AND EXPENSES. These tables describe the fees and expenses
that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class A Class B
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (as a percentage of the lower of
net asset value at time of purchase or time of redemption) None 5.00%
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Class A Class B
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees 0.33% 0.39%
Distribution and Service (12b-1) Fees 0.00% 0.94%
Other Expenses* 0.40% 0.24%
----- -----
Total Operating Expenses 0.73% 1.57%
</TABLE>
* Other Expenses for Class A shares includes a service fee of 0.09%.
Example. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 546 $ 697 $ 862 $ 1,338
Class B shares $ 661 $ 899 $ 1,060 $ 1,878
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 546 $ 697 $ 862 $ 1,338
Class B shares $ 161 $ 499 $ 860 $ 1,878
</TABLE>
7
<PAGE>
Eaton Vance New Jersey Municipals Fund
The New Jersey Fund's investment objective is to provide current income exempt
from regular federal income taxes and New Jersey state personal income taxes.
New Jersey general obligations currently are rated Aa1, AA+ and AA+ by Moody's,
S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the New Jersey Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates that the value of your investment will change from year-to-year.
The following returns are for Class B shares for each calendar year through
December 31, 1997 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
7.79% 12.61% -8.20% 15.86% 2.78% 9.41%
1992 1993 1994 1995 1996 1997
The Fund's highest quarterly total return was 6.91% for the quarter ended March
31, 1995, and its lowest quarterly return was -6.31% for the quarter ended March
31, 1994. The total return through the end of the most recent calendar quarter
(January 1, 1998 to September 30, 1998) was 5.12%. For the 30-days ended July
31, 1998, the yield and tax equivalent yield (assuming a combined state and
federal tax rate of 35.40%) for Class A shares were 4.21% and 6.52%,
respectively, and for Class B shares were 3.55% and 5.50%, respectively. For
current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1997 Year Years Fund
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 5.1% 5.9% 7.0%
Class B Shares 4.4% 5.8% 7.1%
Lehman Brothers Municipal Bond Index 9.2% 7.4% 8.1%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to April 13, 1994 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on January 8, 1991. Life of Fund returns are calculated from January
31, 1991. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index.
NEW JERSEY FUND FEES AND EXPENSES. These tables describe the fees and expenses
that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class A Class B
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (as a percentage of the lower of
net asset value at time of purchase or time of redemption) None 5.00%
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Class A Class B
- -----------------------------------------------------------------------------
<S> <C> <C>
Management Fees 0.45% 0.39%
Distribution and Service (12b-1) Fees 0.00% 0.94%
Other Expenses* 0.32% 0.24%
----- -----
Total Operating Expenses 0.77% 1.57%
</TABLE>
* Other Expenses for Class A shares includes a service fee of 0.10%.
Example. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 550 $ 709 $ 883 $ 1,384
Class B shares $ 664 $ 908 $ 1,076 $ 1,911
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 550 $ 709 $ 883 $ 1,384
Class B shares $ 164 $ 508 $ 876 $ 1,911
</TABLE>
8
<PAGE>
Eaton Vance Pennsylvania Municipals Fund
The Pennsylvania Fund's investment objective is to provide current income exempt
from regular federal income taxes and Pennsylvania state and local taxes in the
form of an investment exempt from Pennsylvania personal property taxes.
Pennsylvania general obligations currently are rated A3, AA and AA by Moody's,
S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Pennsylvania Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds.
Although past performance is no guarantee of future results, this performance
information demonstrates that the value of your investment will change from
year-to-year. The following returns are for Class B shares for each calendar
year through December 31, 1997 and do not reflect a sales charge. If the sales
charge was reflected, the returns would be lower.
7.66% 12.46% -9.64% 17.25% 3.33% 8.86%
1992 1993 1994 1995 1996 1997
The Fund's highest quarterly total return was 7.77% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.21% for the quarter ended March
31, 1994. The total return through the end of the most recent calendar quarter
(January 1, 1998 to September 30, 1998) was 2.21%. For the 30-days ended July
31, 1998, the yield and tax equivalent yield (assuming a combined state and
federal tax rate of 33.80%) for Class A shares were 4.62% and 6.98%,
respectively, and for Class B shares were 3.99% and 6.03%, respectively. For
current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1997 Year Years Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 4.5% 5.7% 6.9%
Class B Shares 3.9% 5.7% 7.1%
Lehman Brothers Municipal Bond Index 9.2% 7.4% 8.1%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to June 1, 1994 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on January 8, 1991. Life of Fund returns are calculated from January
31, 1991. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index.
PENNSYLVANIA FUND FEES AND EXPENSES. These tables describe the fees and
expenses that you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class A Class B
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (as a percentage of the lower of
net asset value at time of purchase or time of redemption) None 5.00%
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Class A Class B
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees 0.46% 0.39%
Distribution and Service (12b-1) Fees 0.00% 0.94%
Other Expenses* 0.28% 0.24%
----- -----
Total Operating Expenses 0.74% 1.57%
</TABLE>
* Other Expenses for Class A shares includes a service fee of 0.10%.
Example. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 547 $ 700 $ 867 $ 1,350
Class B shares $ 662 $ 902 $ 1,066 $ 1,889
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 547 $ 700 $ 867 $ 1,350
Class B shares $ 162 $ 502 $ 866 $ 1,889
</TABLE>
9
<PAGE>
Eaton Vance Texas Municipals Fund
The Texas Fund's investment objective is to provide current income exempt from
regular federal income taxes. The state of Texas does not impose a state income
tax on individuals. Texas general obligations currently are rated Aa2, AA and
AA+ by Moody's, S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Texas Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates that the value of your investment will change from year-to-year.
The following returns are for Class B shares for each calendar year through
December 31, 1997 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
12.58% -8.07% 17.83% 2.97% 9.35%
1993 1994 1995 1996 1997
The Fund's highest quarterly total return was 8.56% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.68% for the quarter ended March
31, 1994. The total return through the end of the most recent calendar quarter
(January 1, 1998 to September 30, 1998) was 5.27%. For the 30-days ended July
31, 1998, the yield and tax equivalent yield (assuming a federal tax rate of
31%) for Class A shares were 3.86% and 5.59%, respectively, and for Class B
shares were 3.30% and 4.78%, respectively. For current yield information call
1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1997 Year Years Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 4.9% 5.4% 6.3%
Class B Shares 4.4% 6.2% 7.2%
Lehman Brothers Municipal Bond Index 9.2% 7.4% 7.9%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 8, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on March 24, 1992. Life of Fund returns are calculated from March
31, 1992. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index.
TEXAS FUND FEES AND EXPENSES. These tables describe the fees and expenses that
you may pay if you buy and hold shares.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment) Class A Class B
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (as a percentage of the lower of
net asset value at time of purchase or time of redemption) None 5.00%
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets) Class A Class B
- ----------------------------------------------------------------------------------------------
<S> <C>
Management Fees 0.16% 0.39%
Distribution and Service (12b-1) Fees 0.00% 0.94%
Other Expenses* 0.56% 0.24%
----- -----
Total Operating Expenses 0.72% 1.57%
</TABLE>
* Other Expenses for Class A shares includes a service fee of 0.17%.
Example. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 545 $ 694 $ 857 $ 1,327
Class B shares $ 652 $ 871 $ 1,013 $ 1,779
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 545 $ 694 $ 857 $ 1,327
Class B shares $ 152 $ 471 $ 813 $ 1,779
</TABLE>
10
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective of each Fund is to provide current income exempt from
regular federal income tax and particular state or local income or other taxes.
Each Fund seeks to achieve its objective by investing primarily (i.e., at least
80% of its net assets during periods of normal market conditions) in municipal
obligations, the interest on which is exempt from regular federal income tax and
from the state taxes which, in accordance with the Fund's investment objective,
the Fund seeks to avoid. This is a fundamental policy of each Fund which only
may be changed with shareholder approval. Each Fund's investment objective and
other policies may be changed by the Trustees without shareholder approval.
Each Fund currently seeks to meet its investment objective by investing in a
separate open-end management company (a "Portfolio") that has the same objective
and policies as the Fund.
Municipal obligations include bonds, notes and commercial paper issued by a
municipality for a wide variety of both public and private purposes. The
interest on municipal obligations is (in the opinion of the issuer's counsel)
exempt from regular federal income tax. Interest income from certain types of
municipal obligations may be subject to the federal alternative minimum tax (the
"AMT") for individuals. Distributions to corporate investors may also be
subject to the AMT. THE FUNDS MAY NOT BE SUITABLE FOR INVESTORS SUBJECT TO THE
AMT.
At least 75% of net assets will normally be invested in municipal obligations
rated at least investment grade at the time of investment (which are those rated
Baa or higher by Moody's, or BBB or higher by either S&P or Fitch) or, if
unrated, are determined by the investment adviser to be of at least investment
grade quality. The balance of net assets may be invested in municipal
obligations rated below investment grade (but not lower than B by Moody's, S&P
or Fitch) and in unrated municipal obligations considered to be of comparable
quality by the investment adviser. Municipal obligations rated Baa or BBB or
below have speculative characteristics. Also, changes in economic conditions or
other circumstances are more likely to reduce the capacity of issuers of
lower-rated obligations to make principal and interest payments.
Under normal conditions, each Portfolio invests at least 65% of its total assets
in obligations issued by its respective state or its political subdivisions,
agencies, authorities and instrumentalities. Municipal obligations of issuers
in a single state may be adversely affected by economic developments (including
insolvency of an issuer) and by legislation and other governmental activities in
that state. Each Portfolio may also invest in municipal obligations issued by
the governments of Puerto Rico, the U.S. Virgin Islands and Guam. Moody's
currently rates Puerto Rico general obligations Baa, while S&P rates them A.
Each Portfolio may invest 25% or more of its total assets in municipal
obligations of the same type (such as those involving leases, housing finance,
public housing, municipal utilities, hospital and health facilities or
industrial development). This may make a Portfolio more susceptible to adverse
economic, political or regulatory occurrences affecting a particular category of
issuer.
The net asset value will change in response to changes in prevailing interest
rates and changes in the value of securities held. The value of securities held
will be affected by the credit quality of the issuer of the obligation, and
general economic and business conditions that affect the specific economic
sector of the issuer. Changes by rating agencies in the rating assigned to an
obligation may also affect the value of an obligation. Lower rated obligations
may be subject to greater price volatility than higher rated obligations. The
amount of information available about the financial condition of issuers of
municipal obligations generally is not as extensive as that available for
publicly-traded corporations.
Each Portfolio may purchase derivative instruments, which derive their value
from another instrument, security or index. For example, a Portfolio may invest
in municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Although they are volatile and may expose a Portfolio to leverage risk, inverse
floaters typically offer the potential for yields exceeding the yields available
on fixed rate bonds with comparable credit quality and maturity. Each Portfolio
may also purchase and sell various kinds of financial futures contracts and
options thereon to hedge against changes in interest rates or as a substitute
for the purchase of portfolio securities. The use of derivative instruments for
both hedging and investment purposes involves a risk of loss or depreciation due
to a variety of factors including counterparty risk, unexpected market, interest
rate or securities price movements, and tax and regulatory constraints.
Each Portfolio may invest in zero coupon bonds, which do not pay income
currently. The values of these bonds are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. Each Portfolio may also temporarily borrow up to 5% of the value of
its total assets to satisfy redemption requests or settle securities
transactions.
The investment adviser's process for selecting securities for purchase and sale
is research intensive and emphasizes the creditworthiness of the issuer or other
person obligated to repay the obligation. The investment adviser seeks to
invest in obligations that it believes will retain their value in varying
interest rate climates.
11
<PAGE>
Like most mutual funds, the Funds and Portfolios rely on computers in conducting
daily business and processing information. There is a concern that on January
1, 2000 some computer programs will be unable to recognize the new year and as a
consequence computer malfunctions will occur. Eaton Vance is taking steps that
it believes are reasonably designed to address this potential problem and to
obtain satisfactory assurance from other service providers to the Funds and the
Portfolios that they are also taking steps to address the issue. There can,
however, be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds and the Portfolios or shareholders. The Year 2000
concern may also adversely impact issuer's of obligations held by a Portfolio.
MANAGEMENT AND ORGANIZATION
MANAGEMENT. Each Portfolio's investment adviser is Boston Management and
Research ("BMR"), a subsidiary of Eaton Vance Management, 24 Federal Street,
Boston, Massachusetts 02110. Eaton Vance has been managing assets since 1924
and managing mutual funds since 1931. Eaton Vance and its subsidiaries
currently manage over $28 billion on behalf of mutual funds, institutional
clients and individuals.
The investment adviser manages the investments of each Portfolio and provides
related office facilities and personnel. Under its investment advisory
agreement with each Portfolio, BMR receives a monthly advisory fee equal to the
aggregate of a daily asset based fee and a daily income based fee. The fees are
applied on the basis of the following categories.
<TABLE>
<CAPTION>
Annual Daily
Category Daily Net Assets Asset Rate Income Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
</TABLE>
For the fiscal year ended July 31, 1998, each Portfolio paid advisory fees
equivalent to the percentage of average daily net assets stated below.
<TABLE>
<CAPTION>
Net Assets on
Portfolio July 31, 1998 Advisory Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Arizona $103,092,106 0.39%
Colorado $ 39,801,200 0.24%
Connecticut $164,954,888 0.42%
Michigan $130,236,468 0.40%
Minnesota $ 66,983,677 0.33%
New Jersey $328,629,138 0.45%
Pennsylvania $359,531,875 0.46%
Texas $ 17,837,487 0.16%
</TABLE>
William H. Ahern is the portfolio manager of the COLORADO PORTFOLIO (since June
1, 1997) and the CONNECTICUT PORTFOLIO (since November 24, 1997). Timothy T.
Browse is the portfolio manager of the MICHIGAN PORTFOLIO (since it commenced
operations) and the PENNSYLVANIA PORTFOLIO (since December 1, 1995). Cynthia J.
Clemson is the portfolio manager of the ARIZONA PORTFOLIO (since January 1,
1994). Robert B. MacIntosh is the portfolio manager of the New Jersey Portfolio
(since it commenced operations) and the MINNESOTA PORTFOLIO (since November 1,
1996). Thomas M. Metzold is the portfolio manager of the TEXAS PORTFOLIO (since
November 24, 1997). Each portfolio manager also manages other Eaton Vance
portfolios, has been an employee of Eaton Vance for at least 5 years, and is a
Vice President of Eaton Vance and BMR.
Eaton Vance serves as administrator of each Fund, providing the Fund with
administrative services and related office facilities. Eaton Vance does not
currently receive a fee for serving as administrator.
ORGANIZATION. Each Fund is a series of Eaton Vance Municipals Trust, a
Massachusetts business trust. The Funds do not hold annual shareholder
meetings, but may hold special meetings for matters that require shareholder
approval (like electing or removing trustees, approving management contracts or
changing investment policies that may only be changed with shareholder
12
<PAGE>
approval). Because a Fund invests in a Portfolio, it may be asked to vote on
certain Portfolio matters (like changes in certain Portfolio investment
restrictions). When necessary, a Fund will hold a meeting of its shareholders
to consider the Portfolio matter and then vote its interest in the Portfolio in
proportion to the votes cast by its shareholders. A Fund can withdraw from a
Portfolio at any time.
Because the Funds use this combined prospectus, a Fund could be held liable for
a misstatement or omission made about another Fund. The Trust's Trustees
considered this in approving the use of a combined prospectus.
VALUING SHARES
Each Fund values its shares once each day only when the New York Stock Exchange
is open for trading (typically Monday through Friday), as of the close of
regular trading on the Exchange (normally 4:00 p.m. eastern time). The price of
Fund shares is their net asset value, which is derived from Portfolio holdings.
Municipal obligations will normally be valued on the basis of valuations
furnished by a pricing service. Your investment dealer must communicate your
order to the principal underwriter by a specific time each day to receive that
day's public offering price per share. It is the investment dealer's
responsibility to transmit orders promptly. Each Fund may accept purchase and
redemption orders as of the time of their receipt by certain investment dealers
(or their designated intermediaries).
PURCHASING SHARES
You may purchase Fund shares through your investment dealer or by mailing the
account application form included in this prospectus to the transfer agent (see
back cover for address). Your initial investment must be at least $1,000. The
price of Class A shares is the net asset value plus a sales charge. The price
of Class B shares is the net asset value; however, you may be subject to a sales
charge (called a "contingent deferred sales charge" or "CDSC") if you redeem
your Class B shares within six years of purchase. The sales charges are
described below. Your investment dealer can help you decide which class of
shares better suits your investment needs.
You may purchase Fund shares for cash or in exchange for securities. Please
call 1-800-225-6265 for information about exchanging securities for Fund shares.
If you purchase shares through an investment dealer (which includes brokers,
dealers and other financial institutions), that dealer may charge you a fee for
executing the purchase for you. A Fund may suspend the sale of its shares at
any time and any purchase order may be refused.
After your initial investment, additional investments of $50 or more may be made
at any time by sending a check payable to the order of the Fund or the transfer
agent directly to the transfer agent (see back cover for address). Please
include your name and account number and the name of the Fund and Class with
each investment.
You may also make automatic investments of $50 or more each month or quarter
from your bank account. You can establish bank automated investing on the
account application or by calling 1-800-262-1122. The minimum initial
investment amount and Fund policy of redeeming accounts with low account
balances are waived for bank automated investing accounts.
SALES CHARGES
FRONT-END SALES CHARGE. Class A shares are offered at net asset value per share
plus a sales charge that is determined by the amount of your investment. The
current sales charge schedule is:
<TABLE>
<CAPTION>
Sales Charge Sales Charge Dealer Commission
as Percentage of as Percentage of Net as a Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.75% 4.99% 4.50%
$50,000 but less than $100,000 4.50% 4.71% 4.25%
$100,000 but less than $250,000 3.75% 3.90% 3.50%
$250,000 but less than $500,000 3.00% 3.09% 2.75%
$500,000 but less than $1,000,000 2.00% 2.04% 2.00%
$1,000,000 or more 0.00* 0.00* 1.00%
* No sales charge is payable at the time of purchase on investments of $1 million or more.
A CDSC of 1.00% will be imposed on such investments (as described below) in the event of
redemptions within 24 months of purchase.
</TABLE>
13
<PAGE>
CONTINGENT DEFERRED SALES CHARGE. Each Class of shares is subject to a CDSC on
certain redemptions. If Class A shares are purchased at net asset value
because the purchase amount is $1 million or more, they are subject to a 1.00%
CDSC if redeemed within 24 months of purchase. Class B shares are subject to the
following CDSC schedule:
<TABLE>
<CAPTION>
Year of Redemption After Purchase CDSC
- ------------------------------------------------------
<S> <C>
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh or following 0%
The CDSC is based on the lower of the net asset value at the time of purchase or
the time of redemption. Shares acquired through the reinvestment of
distributions are exempt. Redemptions are made first from shares that are not
subject to a CDSC.
</TABLE>
REDUCING OR ELIMINATING SALES CHARGES. Front-end sales charges may be reduced
under the right of accumulation or under a statement of intention. Under the
right of accumulation, sales charges are reduced if the current market value of
your current holdings (shares at current offering price), plus your new
purchases, reach $25,000 or more. Class A shares of other Eaton Vance funds
owned by you can be included in your current holdings. Under a statement of
intention, purchases of $25,000 or more made over a 13-month period are eligible
for reduced sales charges. 5% of the dollar amount to be purchased may be held
in escrow in the form of shares registered in the investor's name until the
statement is satisfied or the thirteen-month period expires. See the account
application for details.
Class A shares are offered at net asset value through certain wrap fee programs
and other programs sponsored by investment dealers that charge fees for their
services. Ask your investment dealer for details. Certain persons associated
with Eaton Vance, other advisers to Eaton Vance funds, the transfer agent, the
custodian and investment dealers may purchase shares at net asset value.
The Class B CDSC is waived for redemptions pursuant to a Withdrawal Plan (see
"Shareholder Account Features"). The Class B CDSC is also waived following the
death of all beneficial owners of shares, but only if the redemption is
requested within one year after death (a death certificate and other applicable
documents may be required).
If you redeem shares, you may reinvest at net asset value any portion or all of
the redemption proceeds in the same class of shares of the Fund (or, for Class A
shares, in Class A shares of any other Eaton Vance fund), provided that the
reinvestment occurs within 60 days of the redemption, and the privilege has not
been used more than once in the prior 12 months. Your account will be credited
with any CDSC paid in connection with the redemption. Reinvestment requests
must be in writing. If you reinvest, you will be sold shares at the next
determined net asset value following receipt of your request.
DISTRIBUTION AND SERVICE FEES. Class B shares have adopted a plan under Rule
12b-1 that allows the Fund to pay distribution fees for the sale and
distribution of shares (so-called "12b-1 fees"). Class B shares pay distribution
expenses of .75% of average daily net assets annually. Because these fees are
paid from Fund assets on an ongoing basis, they will increase your cost over
time and may cost you more than paying other types of sales charges. Both
classes pay service fees for personal and/or account services not exceeding .20%
of average daily net assets annually. Service fees are paid on Class A and
Class B shares only after they have been outstanding for twelve months.
14
<PAGE>
REDEEMING SHARES
You can redeem shares in any of the following ways:
By Mail Send your request to the transfer agent along with any
certificates and stock powers. The request must be
signed exactly as your account is registered and
signature guaranteed. You can obtain a signature
guarantee at certain banks, savings and loan
institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered
securities associations. You may be asked to provide
additional documents if your shares are registered in
the name of a corporation, partnership or fiduciary.
By Telephone You can redeem up to $50,000 by calling the transfer
agent at 1-800-262-1122 on Monday through Friday, 9:00
a.m. to 4:00 p.m. (eastern time). Proceeds of a
telephone redemption can be mailed only to the account
address. Shares held by corporations, trusts or
certain other entities, or subject to fiduciary
arrangements, cannot be redeemed by telephone.
Through an Your investment dealer is responsible for transmitting
Investment the order promptly. A dealer may charge a fee for
Dealer this service.
If you redeem shares, your redemption price will be based on the net asset value
per share next computed after the redemption request is received. Your
redemption proceeds will be paid in cash within seven days, reduced by the
amount of any applicable CDSC and any federal income tax required to be
withheld. Payments will be sent by mail unless you complete the Bank Wire
Redemptions section of the account application.
If you recently purchased shares, the proceeds of a redemption will not be sent
until the check (including a certified or cashier's check) has cleared. If the
purchase check has not cleared, redemption proceeds may be delayed up to 15 days
from the purchase date. If your account value falls below $750 other than due
to market decline, you may be asked to either add to your account or redeem it
within 60 days. If you take no action, your account will be redeemed and the
proceeds sent to you.
While redemption proceeds are normally paid in cash, redemptions may be paid by
distributing marketable securities. If you receive securities, you could incur
brokerage or other charges in converting the securities to cash.
SHAREHOLDER ACCOUNT FEATURES
Once you purchase shares, the transfer agent establishes a Lifetime Investing
Account for you. Share certificates are issued only on request.
DISTRIBUTIONS. You may have your Fund distributions paid in one of the
following ways:
*Full Reinvest Option Dividends and capital gains are reinvested in
additional shares. This option will be assigned if
you do not specify an option.
*Partial Reinvest Option Dividends are paid in cash and capital gains are
reinvested in additional shares.
*Cash Option Dividends and capital gains are paid in cash.
*Exchange Option Dividends and/or capital gains are reinvested in
additional shares of another Eaton Vance fund
chosen by you. Before selecting this option, you
must obtain a prospectus of the other fund and
consider its objectives and policies carefully.
INFORMATION FROM THE FUND. From time to time, you may be mailed the following:
*Annual and Semi-Annual Reports, containing performance information and
financial statements.
*Periodic account statements, showing recent activity and total share balance.
*Form 1099 and tax information needed to prepare your income tax returns.
*Proxy materials, in the event a shareholder vote is required.
*Special notices about significant events affecting your Fund.
WITHDRAWAL PLAN. You may draw on share holdings systematically with monthly or
quarterly checks. For Class B shares, your withdrawals will not be subject to a
15
<PAGE>
CDSC if they do not in the aggregate exceed 12% annually of the account balance
at the time the plan is established. A minimum account size of $5,000 is
required. Because purchases of Class A shares are subject to a sales charge, you
should not make withdrawals from your account while you are making purchases.
EXCHANGE PRIVILEGE. You may exchange your shares for shares of the same class
of another Eaton Vance fund. Exchanges are generally made at net asset value.
If you have held Class A shares for less than six months, an additional sales
charge may apply if you exchange. If your shares are subject to a CDSC, the
CDSC will continue to apply to your new shares at the same CDSC rate. For
purposes of the CDSC, your shares will continue to age from the date of your
original purchase.
Before exchanging, you should read the prospectus of the new fund carefully. If
you wish to exchange shares, you may write to the transfer agent (address on
back cover) or call at 1-800-262-1122. Periodic automatic exchanges are also
available. The exchange privilege may be changed or discontinued at any time.
You will receive 60 days' notice of any material change to the privilege. This
privilege may not be used for "market timing". If an account (or group of
accounts) makes more than two round trip exchanges within twelve months, it will
be deemed to be market timing. The exchange privilege may be terminated for
market timing accounts.
TELEPHONE TRANSACTIONS. You can redeem or exchange shares by telephone as
described in this prospectus. The transfer agent and the principal underwriter
have procedures in place (such as verifying personal account information) to
authenticate telephone instructions. As long as the transfer agent and
principal underwriter follow these procedures, they will not be responsible for
unauthorized telephone transactions and you bear the risk of possible loss
resulting from telephone transactions. You may decline the telephone redemption
option on the account application. Telephone instructions are tape recorded.
"STREET NAME" ACCOUNTS. If your shares are held in a "street name" account at
an investment dealer, that dealer (and not the Fund or its transfer agent) will
perform all recordkeeping, transaction processing and distribution payments.
Because the Fund will have no record of your transactions, you should contact
your investment dealer to purchase, redeem or exchange shares, to make changes
in your account, or to obtain account information. The transfer of shares in a
"street name" account to an account with another investment dealer or to an
account directly with the Fund involves special procedures and you will be
required to obtain historical information about your shares prior to the
transfer. Before establishing a "street name" account with an investment
dealer, you should determine whether that dealer allows reinvestment of
distributions in "street name" accounts.
ACCOUNT QUESTIONS. If you have any questions about your account or the services
available, please call Eaton Vance Shareholder Services at 1-800-225-6265, or
write to the transfer agent (see back cover for address).
TAX INFORMATION
Each Fund declares dividends daily. Each Fund ordinarily pays distributions
each month for Class A shares on the last day and for Class B shares on the
fifteenth day. If the payment date is not a business day, the payment will be
made on the business day thereafter. Your account will be credited with
dividends beginning on the business day after the day when the funds used to
purchase your Fund shares are collected by the transfer agent. For tax purposes
the entire distribution, whether paid in cash or reinvested in additional
shares, ordinarily will constitute tax-exempt income to you.
Distributions of any taxable income and net short-term capital gains will be
taxable as ordinary income. Distributions of any long-term capital gains are
taxable as such. Distributions of interest on certain municipal obligations are
a tax preference item under the AMT provisions applicable to individuals and
corporations.
Shareholders, particularly corporations and those subject to state alternative
minimum tax, should consult with their advisers concerning the applicability of
state, local and other taxes to an investment. Additional information about
state taxes is provided below.
ARIZONA. Based upon the advice of Arizona tax counsel, the management of the
Fund believes that under Arizona law, dividends paid by the Fund will be exempt
from Arizona income tax imposed on individuals, corporations and estates and
trusts that are subject to Arizona taxation to the extent such dividends are
excluded from gross income for federal income tax purposes and are derived from
interest payments on Arizona obligations. In addition, dividends paid by the
Fund will be exempt from Arizona income tax imposed on such persons, though
included in gross income for federal income tax purposes, to the extent such
dividends are derived from interest payments on direct obligations of the United
States. Other distributions from the Fund, including distributions derived from
net short-term and long-term capital gains, are generally not exempt from
Arizona income tax. Interest or indebtedness and other related expenses which
are incurred or continued by a shareholder to purchase or carry shares of the
Fund generally will not be deductible for Arizona income tax purposes.
COLORADO. In the opinion of Kutak Rock, special Colorado tax counsel to the
Fund, provided that the Fund qualifies as a regulated investment company under
the Internal Revenue Code (the "Code") and the Portfolio is treated as a
16
<PAGE>
partnership for federal income tax purposes, individuals, trusts, estates, and
corporations who are holders of the Fund and who are subject to the Colorado
income tax will not be subject to Colorado tax on Fund dividends to the extent
that: (a) such dividends qualify as exempt-interest dividends of a regulated
investment company under Section 852(b)(5) of the Code and are derived from
interest received by the Fund on obligations of Colorado or any of its political
subdivisions issued on or after May 1, 1980 or (b) such dividends are
attributable to interest on obligations of the United States or its possessions
to the extent included in federal taxable income. To the extent that Fund
distributions are attributable to sources not described in the preceding
sentence, such as long or short-term capital gains, such distributions will not
be exempt from Colorado income tax. There are no municipal income taxes in
Colorado. As intangibles, shares in the Fund will be exempt from Colorado
property taxes.
CONNECTICUT. In the opinion of Day, Berry & Howard LLP, special Connecticut tax
counsel to the Connecticut Fund, shareholders of the Connecticut Fund will not
be subject to the Connecticut personal income tax on the Connecticut taxable
income of individuals, trusts, and, estates, in the case of distributions
received from the Connecticut Fund to the extent that such distributions qualify
as exempt-interest dividends for federal income tax purposes and are derived
from interest on obligations issued by or on behalf of the State of Connecticut,
any political subdivision thereof, or public instrumentality, state or local
authority, district or similar public entity created under Connecticut law
("Connecticut Obligations"), or on obligations the interest on which Connecticut
is prohibited from taxing by federal law, e.g., tax-exempt obligations that are
issued by the governments of Puerto Rico, the U.S. Virgin Islands or Guam.
Other distributions from the Connecticut Fund, including dividends attributable
to obligations of issuers in other states and all long-term and short-term
capital gains, will not be exempt from the Connecticut personal income tax,
except that, in the case of shareholders holding shares of the Connecticut Fund
as capital assets, distributions qualifying as capital gain dividends for
federal income tax purposes will not be subject to such tax to the extent they
are derived from Connecticut Obligations. Distributions from the Connecticut
Fund that constitute items of tax preference for purposes of the federal
alternative minimum tax will not be subject to the net Connecticut minimum tax
applicable to taxpayers subject to the Connecticut personal income tax and
required to pay the federal alternative minimum tax, to the extent qualifying as
exempt-interest dividends derived from Connecticut Obligations or from
obligations the interest on which Connecticut is prohibited from taxing by
federal law, but other such distributions from the Connecticut Fund could cause
or increase liability for the net Connecticut minimum tax. The Connecticut Fund
will report annually to its shareholders the percentage and source, on a
state-by-state basis, of interest income received by the Connecticut Fund on
municipal bonds during the preceding year.
Distributions from investment income and capital gains, including
exempt-interest dividends derived from interest that is exempt from federal
income tax, will be subject to the Connecticut Corporation Business Tax if
received by a corporation subject to such tax, except for any portion thereof
other than amounts qualifying as exempt-interest dividends or capital gain
dividends for federal income tax purposes that might qualify for the
dividends-received deduction provided under that Connecticut tax, and all such
distributions may be subject to state and local taxes in states other than
Connecticut.
MICHIGAN. The Michigan Fund has received an opinion from Butzel Long, special
Michigan tax counsel to the Michigan Fund, to the effect that shareholders of
the Michigan Fund who are subject to the Michigan state income tax, municipal
income tax or single business tax will not be subject to such taxes on their
Michigan Fund dividends to the extent that such distributions are
exempt-interest dividends for federal income tax purposes and are attributable
to interest on obligations held by the Michigan Portfolio and allocated to the
Michigan Fund which is exempt from regular federal income tax and is exempt from
Michigan State and city income taxes and Michigan single business tax ("Michigan
tax-exempt obligations"). Other distributions with respect to shares of the
Michigan Fund including, but not limited to, long or short-term capital gains,
will be subject to the Michigan income tax or single business tax and may be
subject to the city income taxes imposed by certain Michigan cities.
MINNESOTA. In the opinion of Faegre & Benson, special Minnesota tax counsel to
the Fund, provided that the Fund qualifies as a "regulated investment company"
under the Code, and subject to the discussion in the paragraph below,
exempt-interest dividends paid by the Fund will be exempt from the regular
Minnesota personal income tax imposed on individuals, estates and trusts that
are subject to Minnesota taxation to the extent that such dividends qualify as
exempt-interest dividends of a regulated investment company under section
852(b)(5) of the Internal Revenue Code which are derived from interest income on
tax-exempt obligations of Minnesota, or its political or governmental
subdivisions, municipalities, governmental agencies or instrumentalities
("Minnesota Sources"); provided, however, such exemption from the regular
Minnesota personal income tax is available only if the portion of the
exempt-interest dividends from such Minnesota Sources that is paid to all
shareholders represents 95% or more of the exempt-interest dividends that are
paid by the Fund. Even if the 95% test is met, to the extent that
exempt-interest dividends paid by the Fund are not derived from Minnesota
Sources, they may be subject to the regular Minnesota personal income tax.
Other distributions of the Fund, including distributions derived from net
short-term and long-term capital gains, are generally not exempt from the
regular Minnesota personal income tax imposed on individuals, estates and
trusts.
17
<PAGE>
Pursuant to Minnesota legislation enacted in 1995, exempt-interest dividends
that are derived from interest income on obligations of the Minnesota Sources
described above may become subject to tax in the case of individuals, estates,
and trusts if the exemption of such income were judicially determined to
discriminate against interstate commerce.
Minnesota imposes an alternative minimum tax on individuals, estates, and trusts
that is based, in part, on such taxpayers' federal alternative minimum taxable
income. Accordingly, exempt-interest dividends that constitute tax preference
items for purposes of the federal alternative minimum tax, even though they are
derived from the Minnesota Sources described above, will be included in the base
upon which such Minnesota alternative minimum tax is computed. In addition, the
entire portion of exempt-interest dividends that is derived from sources other
than the Minnesota Sources described above also is subject to the Minnesota
alternative minimum tax imposed on such individuals, estates and trusts.
Furthermore, should the 95% test that is described above fail to be met, all of
the exempt-interest dividends that are paid by the Fund, including all of those
derived from the Minnesota Sources described above, will be subject to the
Minnesota alternative minimum tax imposed on such shareholders.
Distributions from the Fund will be included in taxable income and in
alternative minimum taxable income, for purposes of determining the Minnesota
franchise tax imposed on corporations subject to Minnesota taxation. Such
distributions may also be taken into account in certain cases in determining the
minimum fee that is imposed on corporations, S corporations, and partnerships.
Interest on indebtedness which is incurred or continued by an individual, a
trust or an estate to purchase or carry shares of the Fund generally will not be
deductible for regular Minnesota personal income tax purposes or Minnesota
alternative minimum tax purposes.
NEW JERSEY. The New Jersey Fund intends to satisfy New Jersey's statutory
requirements for treatment as a "Qualified Investment Fund". The Fund has
obtained an opinion of its special tax counsel, Wilentz, Goldman & Spitzer,
P.A., that, provided the New Jersey Fund limits its investments to those
described in this Prospectus and otherwise satisfies such statutory
requirements, shareholders of the New Jersey Fund which are individuals, estates
or trusts will not be required to include in their New Jersey gross income
distributions from the New Jersey Fund that are attributable to interest or gain
realized by the New Jersey Fund from obligations the interest on which is exempt
from regular federal income tax and is exempt from New Jersey State personal
income tax or other obligations statutorily free from New Jersey taxation.
However, with regard to corporate shareholders, such counsel is also of the
opinion that distributions from the New Jersey Fund will not be excluded from
net income and shares of the New Jersey Fund will not be excluded from
investment capital in determining New Jersey corporation business (franchise)
and corporation income taxes for corporate shareholders.
PENNSYLVANIA. Interest derived by the Pennsylvania Fund from obligations which
are statutorily free from state taxation in Pennsylvania ("Exempt Obligations")
are not taxable on pass through to shareholders for purposes of the Pennsylvania
personal income tax. The term "Exempt Obligations" includes (i) those
obligations issued by the Commonwealth of Pennsylvania and its political
subdivisions, agencies and instrumentalities, the interest from which is
statutorily free from state taxation in the Commonwealth of Pennsylvania, and
(ii) certain qualifying obligations of U.S. territories and possessions, or U.S.
Government obligations. Distributions attributable to most other sources,
including capital gains, will not be exempt from Pennsylvania personal income
tax.
Corporate shareholders that are subject to the Pennsylvania corporate net income
tax will not be subject to corporate net income tax on distributions of interest
made by the Pennsylvania Fund, provided such distributions are attributable to
Exempt Obligations. Distributions of capital gain attributable to Exempt
Obligations are subject to the Pennsylvania corporate net income tax. An
investment in the Pennsylvania Fund is also exempt from the Pennsylvania Gross
Premiums tax.
Shares of the Pennsylvania Fund which are held by individual shareholders who
are Pennsylvania residents and subject to the Pennsylvania county personal
property tax will be exempt from such tax to the extent that the obligations
held by the Pennsylvania Portfolio consist of Exempt Obligations on the annual
assessment date. Corporations are not subject to Pennsylvania personal property
taxes.
For individual shareholders who are residents of the City of Philadelphia,
distributions of interest derived from Exempt Obligations will not be taxable
for purposes of the Philadelphia School District Investment Net Income Tax
("Philadelphia School District Tax"), provided that the Pennsylvania Portfolio
reports to its investors the percentage of Exempt Obligations held by it for the
year. The Pennsylvania Portfolio will report such percentage to its investors.
TEXAS. Texas does not impose a state income tax on individuals. To the extent
that distributions from the Texas Fund are included in a corporate shareholder's
surplus, they will be subject to the Texas franchise tax that is based on net
worth.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years. Certain information in the
tables reflect the financial results for a single Fund share. The total returns
in the tables represent the rate an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all distributions and not
taking into account a sales charge). This information has been audited by
Deloitte & Touche LLP, independent accountants. The report of Deloitte & Touche
LLP and each Fund's financial statements are incorporated herein by reference
and included in the annual report, which is available on request. Each Fund
began offering two classes of shares on August 1, 1997. Prior to that date, the
Fund offered only Class B shares.
<TABLE>
<CAPTION>
ARIZONA FUND
-------------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------------
1998++ 1997 1996 1995 1994*
-------------------------------------------------------------------
CLASS A CLASS B CLASS B CLASS B CLASS B CLASS B
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $ 10.090 $11.220 $ 10.680 $ 10.530 $ 10.390 $ 11.570
------- ------- -------- -------- -------- --------
Income (loss) from operations
Net investment income $ 0.499 $ 0.476 $ 0.486 $ 0.482 $ 0.492 $ 0.404
Net realized and unrealized gain (loss) 0.126 0.134 0.539 0.161 0.164 (0.862)
------- ------- -------- -------- -------- --------
Total income (loss) from operations $ 0.625 $ 0.610 $ 1.025 $ 0.643 $ 0.656 $ (0.458)
------- ------- -------- -------- -------- --------
Less distributions
From net investment income $(0.499) $(0.476) $ (0.485) $ (0.488) $ (0.492) $ (0.404)
In excess of net investment income(4) (0.016) (0.014) -- (0.005) (0.024) (0.074)
From net realized gain -- -- -- -- -- (0.233)
In excess of net realized gain -- -- -- -- -- (0.011)
------- ------- -------- -------- -------- --------
Total distributions $(0.515) $(0.490) $ (0.485) $ (0.493) $ (0.516) $ (0.722)
------- ------- -------- -------- -------- --------
Net asset value - End of year $10.200 $11.340 $ 11.220 $ 10.680 $ 10.530 $ 10.390
------- ------- -------- -------- -------- --------
Total return(1) 6.34% 5.54% 9.85% 6.17% 6.64% (4.16)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $ 3,498 $99,293 $109,379 $127,681 $141,859 $150,879
Ratios (as a percentage of average
daily net assets):
Expenses(2)(3) 0.78% 1.57% 1.58% 1.56% 1.53% 1.46%+
Expenses after custodian fee
reduction (2) 0.76% 1.55% 1.57% 1.55% -- --
Net investment income 4.88% 4.22% 4.50% 4.49% 4.81% 4.47%+
Portfolio turnover of the Portfolio 23% 23% 10% 18% 22% 23%
(See footnotes on last page.)
</TABLE>
19
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
COLORADO FUND
---------------------------------------------------------------
YEAR ENDED JULY 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994*
---------------------------------------------------------------
CLASS A CLASS B CLASS B CLASS B CLASS B CLASS B
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $ 9.920 $10.800 $10.170 $10.020 $10.010 $10.960
------- ------- ------- ------- ------- -------
Income (loss) from operations
Net investment income $ 0.507 $ 0.478 $ 0.491 $ 0.480 $ 0.494 $ 0.403
Net realized and unrealized gain (loss) 0.038 0.025 0.621 0.162 0.033 (0.880)
------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.545 $ 0.503 $ 1.112 $ 0.642 $ 0.527 $(0.477)
------- ------- ------- ------- ------- -------
Less distributions
From net investment income $(0.515) $(0.483) $(0.482) $(0.492) $(0.494) $(0.403)
In excess of net investment income(4) -- -- -- -- (0.023) (0.070)
------- ------- ------- ------- ------- -------
Total distributions $(0.515) $(0.483) $(0.482) $(0.492) $(0.517) $(0.473)
------- ------- ------- ------- ------- -------
Net asset value - End of year $ 9.950 $10.820 $10.800 $10.170 $10.020 $10.010
------- ------- ------- ------- ------- -------
Total return(1) 5.62% 4.74% 11.26% 6.46% 5.58% (4.46%)
Ratios/Supplemental Data+
Net assets, end of year (000's omitted) $ 2,172 $37,535 $40,786 $42,972 $43,900 $42,085
Ratios (as a percentage of average
daily net assets):
Net expenses (2)(3) 0.74% 1.51% 1.53% 1.49% 1.28% 1.09%+
Net expenses after custodian fee
reduction(2) 0.71% 1.48% 1.49% 1.45% -- --
Net investment income 5.14% 4.40% 4.75% 4.69% 5.03% 4.59%+
Portfolio turnover of the Portfolio 18% 18% 14% 53% 52% 23%
+ The operating expenses of the Fund reflect a reduction of the investment
adviser fee, an allocation of expenses to the adviser or administrator, or
both. Had such action not been taken, the ratios and investment income per
share would have been as follows:
Ratios (as a percentage of average daily net assets):
Expenses(2)(3) 1.51% 1.43% 1.42%+
Expenses after custodian fee reduction(2) 1.46% -- --
Net investment income 4.67% 4.88% 4.26%+
Net investment income per share $0.478 $0.479 $0.373
(See footnotes on last page.)
</TABLE>
20
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CONNECTICUT FUND
--------------------------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------------------------
1998++ 1997 1996 1995 1994*
--------------------------------------------------------------------
CLASS A CLASS B CLASS B CLASS B CLASS B CLASS B
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $10.640 $10.570 $10.120 $9.970 $10.050 $11.030
------- -------- -------- -------- -------- --------
Income (loss) from operations
Net investment income $0.529 $0.438 $0.453 $0.452 $0.465 $0.388
Net realized and unrealized gain (loss) 0.091 0.080 0.450 0.169 (0.037) (0.883)
------- -------- -------- -------- -------- --------
Total income (loss) from operations $0.620 $0.518 $0.903 $0.621 $0.428 $(0.495)
------- -------- -------- -------- -------- --------
Less distributions
From net investment income $(0.529) $(0.438) $(0.453) $(0.452) $(0.465) $(0.388)
In excess of net investment income(4) (0.021) (0.010) -- (0.019) (0.043) (0.079)
From net realized gain -- -- -- -- -- (0.018)
------- -------- -------- -------- -------- --------
Total distributions $(0.550) $(0.448) $(0.453) $(0.471) $(0.508) $(0.485)
------- -------- -------- -------- -------- --------
Net asset value - End of year $10.710 $10.640 $10.570 $10.120 $9.970 $10.050
------- -------- -------- -------- -------- --------
Total return(1) 5.97% 4.99% 9.17% 6.30% 4.55% (4.61)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $5,193 $159,125 $171,634 $181,608 $188,900 $188,453
Ratios (as a percentage of average
daily net assets):
Expenses(2)(3) 0.76% 1.59% 1.60% 1.58% 1.55% 1.43%+
Expenses after custodian fee
reduction(2) 0.75% 1.58% 1.60% 1.57% -- --
Net investment income 4.93% 4.14% 4.45% 4.45% 4.77% 4.42%+
Portfolio turnover of the Portfolio 7% 7% 11% 23% 29% 10%
(See footnotes on last page.)
</TABLE>
21
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
MICHIGAN FUND
------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------------
1998++ 1997 1996 1995 1994*
------------------------------------------------------------------
CLASS A CLASS B CLASS B CLASS B CLASS B CLASS B
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $ 9.750 $ 10.870 $ 10.420 $ 10.250 $ 10.210 $ 11.110
------- -------- -------- -------- -------- ---------
Income (loss) from operations
Net investment income $ 0.474 $ 0.448 $ 0.460 $ 0.464 $ 0.486 $ 0.398
Net realized and unrealized gain (loss) 0.092 0.097 0.454 0.195 0.059 (0.794)
------- -------- -------- -------- -------- ---------
Total income (loss) from operations $ 0.566 $ 0.545 $ 0.914 $ 0.659 $ 0.545 $ (0.396)
------- -------- -------- -------- -------- ---------
Less distributions
From net investment income $(0.496) $ (0.448) $ (0.462) $ (0.481) $ (0.486) $ (0.398)
In excess of net investment income(4) -- (0.017) (0.002) (0.008) (0.019) (0.062)
From net realized gain -- -- -- -- -- (0.028)
In excess of net realized gain -- -- -- -- -- (0.016)
------- -------- -------- -------- -------- --------
Total distributions $(0.496) $ (0.465) $ (0.464) $ (0.489) $ (0.505) $ (0.504)
------- -------- -------- -------- -------- -------
Net asset value - End of year $ 9.820 $ 10.950 $ 10.870 $ 10.420 $ 10.250 $ 10.210
------- -------- -------- -------- -------- --------
Total return(1) 5.95% 5.11% 9.01% 6.50% 5.61% (3.66)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $ 1,526 $128,216 $148,542 $171,067 $186,363 $197,082
Ratios (as a percentage of average
daily net assets):
Expenses(2)(3) 0.83% 1.59% 1.60% 1.61% 1.51% 1.49%+
Expenses after custodian fee
reduction(2) 0.81% 1.57% 1.58% 1.60% -- --
Net investment income 4.85% 4.12% 4.40% 4.44% 4.84% 4.49%+
Portfolio turnover of the Portfolio 26% 26% 16% 49% 54% 45%
(See footnotes on last page.)
</TABLE>
22
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
MINNESOTA FUND
--------------------------------------------------------------
YEAR ENDED JULY 31,
---------------------------------------------------------------
1998++ 1997 1996 1995 1994*
---------------------------------------------------------------
CLASS A CLASS B CLASS B CLASS B CLASS B CLASS B
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $ 9.770 $10.490 $10.070 $ 9.950 $10.040 $10.910
------- ------- ------- ------- ------- -------
Income (loss) from operations
Net investment income $ 0.492 $ 0.439 $ 0.466 $ 0.468 $ 0.470 $ 0.383
Net realized and unrealized gain (loss) 0.073 0.073 0.415 0.123 (0.053) (0.788)
------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.565 $ 0.512 $ 0.881 $ 0.591 $ 0.417 $(0.405)
------- ------- ------- ------- ------- -------
Less distributions
From net investment income $(0.515) $(0.439) $(0.461) $(0.468) $(0.470) $(0.383)
In excess of net investment income(4) -- (0.023) -- (0.003) (0.037) (0.073)
From net realized gain -- -- -- -- -- (0.009)
------- ------- ------- ------- ------- -------
Total distributions $(0.515) $(0.462) $(0.461) $(0.471) $(0.507) $(0.465)
------- ------- ------- ------- ------- -------
Net asset value - End of year $ 9.820 $10.540 $10.490 $10.070 $ 9.950 $10.040
------- ------- ------- ------- ------- -------
Total return(1) 5.94% 4.99% 9.01% 6.00% 4.41% (3.81)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $ 3,995 $62,899 $67,781 $74,374 $78,970 $79,223
Ratios (as a percentage of average
daily net assets):
Expenses(2)(3) 0.73% 1.58% 1.58% 1.56% 1.52% 1.54%+
Expenses after custodian fee
reduction(2) 0.71% 1.56% 1.55% 1.54% -- --
Net investment income 5.03% 4.19% 4.62% 4.63% 4.80% 4.38%+
Portfolio turnover of the Portfolio 23% 23% 22% 45% 76% 20%
(See footnotes on last page.)
</TABLE>
23
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
NEW JERSEY FUND
--------------------------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------------------------
1998/++/ 1997 1996 1995 1994*
--------------------------------------------------------------------
CLASS A CLASS B CLASS B CLASS B CLASS B CLASS B
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $10.530 $10.940 $10.440 $10.360 $10.410 $11.350
------- -------- -------- -------- -------- --------
Income (loss) from operations
Net investment income $0.558 $0.491 $0.506 $0.505 $0.505 $0.421
Net realized and unrealized gain (loss) 0.082 0.089 0.493 0.084 (0.009) (0.836)
------- -------- -------- -------- -------- --------
Total income (loss) from operations $0.640 $0.580 $0.999 $0.589 $0.496 $(0.415)
------- -------- -------- -------- -------- --------
Less distributions
From net investment income $(0.558) $(0.491) $(0.499) $(0.505) $(0.505) $(0.421)
In excess of net investment income(4) (0.022) (0.009) -- (0.004) (0.035) (0.075)
From net realized gain -- -- -- -- -- (0.029)
In excess of net realized gain -- -- -- -- (0.006) --
------- -------- -------- -------- -------- --------
Total distributions $(0.580) $(0.500) $(0.499) $(0.509) $(0.546) $(0.525)
------- -------- -------- -------- -------- --------
Net asset value - End of year $10.590 $11.020 $10.940 $10.440 $10.360 $10.410
Total return(1) 6.24% 5.41% 9.85% 5.74% 5.04% (3.77)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $11,570 $316,155 $345,080 $378,649 $404,861 $420,117
Ratios (as a percentage of average
daily net assets):
Expenses(2)(3) 0.77% 1.61% 1.59% 1.57% 1.53% 1.48%+
Expenses after custodian
fee reduction(2) 0.75% 1.59% 1.57% 1.56% -- --
Net investment income 5.25% 4.48% 4.82% 4.80% 4.97% 4.64%+
Portfolio turnover of the Portfolio 14% 14% 24% 39% 54% 25%
(See footnotes on last page.)
</TABLE>
24
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
PENNSYLVANIA FUND
----------------------------------------------------------------------
YEAR ENDED JULY 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994*
----------------------------------------------------------------------
CLASS A CLASS B CLASS B CLASS B CLASS B CLASS B
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $10.550 $ 10.900 $ 10.430 $ 10.320 $ 10.340 $ 11.310
------- -------- -------- -------- -------- --------
Income (loss) from operations
Net investment income $ 0.578 $ 0.506 $ 0.522 $ 0.512 $ 0.507 $ 0.422
Net realized and unrealized gain (loss) (0.143) (0.156) 0.458 0.108 0.004+++ (0.841)
------- -------- -------- -------- -------- --------
Total income (loss) from operations $ 0.435 $ 0.350 $ 0.980 $ 0.620 $ 0.511 $ (0.419)
------- -------- -------- -------- -------- --------
Less distributions
From net investment income $(0.578) $ (0.520) $ (0.510) $ (0.510) $ (0.507) $ (0.422)
In excess of net investment income(4) (0.007) -- -- -- (0.024) (0.069)
From net realized gain -- -- -- -- -- (0.042)
In excess of net realized gain -- -- -- -- -- (0.018)
------- -------- -------- -------- -------- --------
Total distributions $(0.585) $ (0.520) $ (0.510) $ (0.510) $ (0.531) $ (0.551)
------- -------- -------- -------- -------- --------
Net asset value - End of year $10.400 $ 10.730 $ 10.900 $ 10.430 $ 10.320 $ 10.340
------- -------- -------- -------- -------- --------
Total return(1) 4.17% 3.23% 9.66% 6.08% 5.24% (3.84)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $ 8,552 $349,593 $395,974 $441,104 $495,856 $530,115
Ratios (as a percentage of average
daily net assets):
Expenses(2)(3) 0.74% 1.59% 1.61% 1.58% 1.51% 1.46%+
Expenses after custodian fee
reduction(2) 0.70% 1.55% 1.56% 1.54% -- --
Net investment income 5.40% 4.63% 4.93% 4.89% 5.04% 4.68%+
Portfolio turnover of the Portfolio 13% 13% 17% 30% 44% 21%
(See footnotes on last page.)
</TABLE>
25
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
TEXAS FUND
--------------------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994*
--------------------------------------------------------------
CLASS A CLASS B CLASS B CLASS B CLASS B CLASS B
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $ 9.770 $10.960 $10.440 $10.280 $10.210 $11.110
------- ------- ------- ------- ------- -------
Income (loss) from operations
Net investment income $ 0.515 $ 0.496 $ 0.489 $ 0.492 $ 0.532 $ 0.436
Net realized and unrealized gain (loss) 0.110 0.120 0.526 0.177 0.084 (0.824)
------- ------- ------- ------- ------- -------
Total income (loss) from operations $ 0.625 $ 0.616 $ 1.015 $ 0.669 $ 0.616 $(0.388)
------- ------- ------- ------- ------- -------
Less distributions
From net investment income $(0.505) $(0.496) $(0.495) $(0.509) $(0.532) $(0.436)
In excess of net investment income(4) -- -- -- -- (0.014) (0.076)
------- ------- ------- ------- ------- -------
Total distributions $(0.505) $(0.496) $(0.495) $(0.509) $(0.546) $(0.512)
------- ------- ------- ------- ------- -------
Net asset value - End of year $ 9.890 $11.080 $10.960 $10.440 $10.280 $10.210
------- ------- ------- ------- ------- -------
Total return(1) 6.55% 5.74% 10.00% 6.60% 6.36% (3.65)%
Ratios/Supplemental Data+
Net assets, end of year (000's omitted) $ 373 $16,988 $21,283 $23,996 $27,762 $26,677
Ratios (as a percentage of average
daily net assets):
Net expenses(2)(3) 0.72% 1.49% 1.57% 1.43% 0.99% 0.82%+
Net expenses after custodian
fee reduction (2) 0.69% 1.46% 1.55% 1.39% -- --
Net investment income 5.22% 4.50% 4.61% 4.70% 5.29% 4.81%+
Portfolio turnover of the Portfolio 17% 17% 17% 39% 49% 27%
+ The operating expenses of the Fund reflect a reduction of the investment
adviser fee, an allocation of expenses to the adviser or administrator, or
both. Had such action not been taken, the ratios and investment income per
share would have been as follows:
Ratios (as a percentage of average daily net assets):
Expenses(2)(3) 1.53% 1.44% 1.67%+
Expenses after custodian fee reduction(2) 1.49% -- --
Net investment income 4.60% 4.84% 3.96%+
Net investment income per share $0.482 $0.487 $0.359
</TABLE>
* For the ten months ended July 31, 1994.
+ Annualized.
++ Net investment income per share was computed using average shares
outstanding.
+++ The per share amount is not in accord with the net realized and unrealized
gain (loss) for the period because of the timing of sales of the Fund
shares and the amount of per share realized and unrealized gains and losses
at such time.
(1) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Distributions, if any, are assumed to be reinvested at the
net asset value on the payable date. Total return is 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 July 31, 1996 and periods thereafter
have been adjusted to reflect a change in reporting requirements. The new
reporting guidelines require the Fund, as well as its corresponding
Portfolio, to increase its expense ratio by the effect of any expense
offset arrangements with its service providers. The expense ratios for each
of the prior periods have not been adjusted to reflect this change.
(4) The Funds have followed the Statement of Position (SOP) 93-2:
Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distribution by Investment Companies.
The SOP requires that differences in the recognition or classification of
income between the financial statements and tax earnings and profits that
result in temporary over-distributions for financial statement purposes,
are classified as distributions in excess of net investment income or
accumulated net realized gains.
26
<PAGE>
LOGO
Mutual Funds
for People
Who Pay
Taxes
MORE INFORMATION
- --------------------------------------------------------------------------------
ABOUT THE FUNDS: More information is available in the statement of
additional information. The statement of additional information is
incorporated by reference into this prospectus. Additional
information about each Portfolio's investments is available in the
annual and semi-annual reports to shareholders. In the annual
report, you will find a discussion of the market conditions and
investment strategies that significantly affected each Fund's
performance during the past year. You may obtain free copies of the
statement of additional information and the shareholder reports by
contacting:
Eaton Vance Distributors, Inc.
24 Federal StreetBoston, MA 02110
1-800-225-6265
website: www.eatonvance.com
You will find and may copy information about each Fund at the
Securities and Exchange Commission's public reference room in
Washington, DC (call 1-800-SEC-0330 for information); on the SEC's
Internet site (http://www.sec.gov); or upon payment of copying fees
by writing to the SEC's public reference room in Washington, DC
20549-6009.
ABOUT SHAREHOLDER ACCOUNTS: You can obtain more information from
Eaton Vance Shareholder Services (1-800-225-6265). If you own
shares and would like to add to, redeem or change your account,
please write or call the transfer agent:
- --------------------------------------------------------------------------------
First Data Investor Services Group
P.O. Box 5123
Westborough, MA 01581-5123
1-800-262-1122
SEC File No. 811-4409 C12/1ABP
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
December 1, 1998
EATON VANCE ARIZONA MUNICIPALS FUND
EATON VANCE COLORADO MUNICIPALS FUND
EATON VANCE CONNECTICUT MUNICIPALS FUND
EATON VANCE MICHIGAN MUNICIPALS FUND
EATON VANCE MINNESOTA MUNICIPALS FUND
EATON VANCE NEW JERSEY MUNICIPALS FUND
EATON VANCE PENNSYLVANIA MUNICIPALS FUND
EATON VANCE TEXAS MUNICIPALS FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information ("SAI") provides general
information about the Funds listed above and their corresponding Portfolios.
Each Fund is a series of Eaton Vance Municipals Trust. Capitalized terms used in
this SAI and not otherwise defined have the meanings given to them in the
prospectus. This SAI contains additional information about:
Page
Strategies and Risks ............................................ 1
Investment Restrictions ......................................... 6
Management and Organization ..................................... 7
Investment Advisory and Administrative Services ................. 11
Other Service Providers ......................................... 14
Purchasing and Redeeming Shares ................................. 14
Sales Charges ................................................... 16
Performance ..................................................... 19
Taxes ........................................................... 20
Portfolio Trading ............................................... 22
Financial Statements ............................................ 24
Appendices:
A: Class A Fees, Performance and Ownership ...................... a-1
B: Class B Fees, Performance and Ownership ...................... b-1
C: State Specific Information ................................... c-1
D: Yield Tables ................................................. d-1
E: Description of Municipal Obligation Ratings .................. e-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund (or Class) might become liable for a misstatement or
omission in this SAI regarding another Fund (or Class) because the Funds use
this combined SAI. The Trustees of the Trust have considered this factor in
approving the use of a combined SAI.
THIS IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED
DECEMBER 1, 1998, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED
HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS,
WHICH MAY BE OBTAINED BY CALLING 1-800-225-6265.
<PAGE>
STRATEGIES AND RISKS
MUNICIPAL OBLIGATIONS. Municipal obligations are issued to obtain funds for
various public and private purposes. Municipal obligations include bonds as well
as tax-exempt commercial paper, project notes and municipal notes such as tax,
revenue and bond anticipation notes of short maturity, generally less than three
years. While most municipal bonds pay a fixed rate of interest semi-annually in
cash, there are exceptions. Some bonds pay no periodic cash interest, but rather
make a single payment at maturity representing both principal and interest.
Bonds may be issued or subsequently offered with interest coupons materially
greater or less than those then prevailing, with price adjustments reflecting
such deviation.
In general, there are three categories of municipal obligations the interest
on which is exempt from federal income tax and is not a tax preference item for
purposes of the AMT: (i) certain "public purpose" obligations (whenever issued),
which include obligations issued directly by state and local governments or
their agencies to fulfill essential governmental functions; (ii) certain
obligations issued before August 8, 1986 for the benefit of non-governmental
persons or entities; and (iii) certain "private activity bonds" issued after
August 7, 1986 which include "qualified Section 501(c)(3) bonds" or refundings
of certain obligations included in the second category. Interest on certain
"private activity bonds" issued after August 7, 1986 is exempt from regular
federal income tax, but such interest (including a distribution by a Fund
derived from such interest) is treated as a tax preference item which could
subject the recipient to or increase the recipient's liability for the AMT. For
corporate shareholders, a Fund's distributions derived from interest on all
municipal obligations (whenever issued) is included in "adjusted current
earnings" for purposes of the AMT as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds). In assessing the federal income tax treatment of
interest on any municipal obligation, the Portfolios will generally rely on an
opinion of the issuer's counsel (when available) and will not undertake any
independent verification of the basis for the opinion.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects including the
construction or improvement of schools, highways and roads, water and sewer
systems and a variety of other public purposes. The basic security of general
obligation bonds is the issuer's pledge of its faith, credit, and taxing power
for the payment of principal and interest. The taxes that can be levied for the
payment of debt service may be limited or unlimited as to rate and amount.
Revenue bonds are generally secured by the net revenues derived from a
particular facility or group of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. Revenue bonds have been
issued to fund a wide variety of capital projects including: electric, gas,
water, sewer and solid waste disposal systems; highways, bridges and tunnels;
port, airport and parking facilities; transportation systems; housing
facilities, colleges and universities and hospitals. Although the principal
security behind these bonds varies widely, many provide additional security in
the form of a debt service reserve fund whose monies may be used to make
principal and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security including partially or fully insured,
rent subsidized and/or collateralized mortgages, and/or the net revenues from
housing or other public projects. In addition to a debt service reserve fund,
some authorities provide further security in the form of a state's ability
(without legal obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are normally secured by annual lease rental payments from the
state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality. Industrial development and pollution
control bonds, although nominally issued by municipal authorities, are in most
cases revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users. Each Portfolio may on occasion
acquire revenue bonds which carry warrants or similar rights covering equity
securities. Such warrants or rights may be held indefinitely, but if exercised,
the Portfolio anticipates that it would, under normal circumstances, dispose of
any equity securities so acquired within a reasonable period of time.
The obligations of any person or entity to pay the principal of and interest
on a municipal obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a municipal obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
municipal obligations which were not foreseen by the financial and investment
communities. Each Portfolio will take whatever action it considers appropriate
in the event of anticipated financial difficulties, default or bankruptcy of
either the issuer of any municipal obligation or of the underlying source of
funds for debt service. Such action may include retaining the services of
various persons or firms (including affiliates of the investment adviser) to
evaluate or protect any real estate, facilities or other assets securing any
such obligation or acquired by a Portfolio as a result of any such event, and a
Portfolio may also manage (or engage other persons to manage) or otherwise deal
with any real estate, facilities or other assets so acquired. The Portfolio
anticipates that real estate consulting and management services may be required
with respect to properties securing various municipal obligations in its
portfolio or subsequently acquired by the Portfolio. The Portfolio will incur
additional expenditures in taking protective action with respect to portfolio
obligations in default and assets securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, maturity of the obligation and rating of the issue.
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of the municipal obligations which they undertake to rate. It should be
emphasized, however, that ratings are based on judgment and are not absolute
standards of quality. Consequently, municipal obligations with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield. In
addition, the market price of such obligations will normally fluctuate with
changes in interest rates, and therefore the net asset value of a Portfolio will
be affected by such changes.
STATE-SPECIFIC CONCENTRATION. For a discussion of the risks associated with
investing in municipal obligations of a particular state's issuers, see "Risks
of Concentration" in Appendix C. Each Portfolio may also invest a total of up to
35% of its net assets in the obligations of Puerto Rico, the U.S. Virgin Islands
and Guam. Accordingly, the Portfolio may be adversely affected by local
political and economic conditions and developments within Puerto Rico, the U.S.
Virgin Islands and Guam affecting the issuers of such obligations. Information
about some of these conditions and developments is included in Appendix C.
ISSUER CONCENTRATION. Each Portfolio may invest 25% or more of its total assets
in municipal obligations of the same type. There could be economic, business or
political developments which might affect all municipal obligations of the same
type. In particular, investments in revenue bonds might involve (without
limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of increase
of hospital charges.
Electric utilities face problems in financing large construction programs in
an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices, and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Industrial development bonds are normally secured only by the revenues from
the project and not by state or local government tax payments, they are subject
to a wide variety of risks, many of which relate to the nature of the specific
project. Generally, IDBs are sensitive to the risk of a slowdown in the economy.
MUNICIPAL LEASES. Each Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment purchase
arrangement which is issued by state or local governments to acquire equipment
and facilities. Interest income from such obligations is generally exempt from
local and state taxes in the state of issuance. "Participations" in such leases
are undivided interests in a portion of the total obligation. Participations
entitle their holders to receive a pro rata share of all payments under the
lease. The obligation of the issuer to meet its obligations under such leases is
often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligation.
Certain municipal lease obligations owned by each Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the investment adviser, pursuant to
guidelines adopted by the Trustees of a Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal lease
obligations, the investment adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
investment adviser will consider factors unique to particular lease obligations
affecting the marketability thereof. These include the general creditworthiness
of the municipality, the importance of the property covered by the lease to the
municipality, and the likelihood that the marketability of the obligation will
be maintained throughout the time the obligation is held by a Portfolio. In the
event a Portfolio acquires an unrated municipal lease obligation, the investment
adviser will be responsible for determining the credit quality of such
obligation on an on-going basis, including an assessment of the likelihood that
the lease may or may not be cancelled.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations which do not require
the periodic payment of interest and are issued at a significant discount from
face value. The discount approximates the total amount of interest the bonds
will accrue and compound over the period until maturity at a rate of interest
reflecting the market rate of the security at the time of issuance. Each
Portfolio is required to accrue income from zero-coupon bonds on a current
basis, even though it does not receive that income currently in cash and each
Fund is required to distribute its share of the Portfolio's income for each
taxable year. Thus, a Portfolio may have to sell other investments to obtain
cash needed to make income distributions.
CREDIT QUALITY. While municipal obligations rated investment grade or below and
comparable unrated municipal obligations may have some quality and protective
characteristics, these characteristics can be expected to be offset or
outweighed by uncertainties or major risk exposures to adverse conditions. Lower
rated and comparable unrated municipal obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
(credit risk) and may also be subject to greater price volatility due to such
factors as interest rate sensitivity, market perception of the creditworthiness
of the issuer and general market liquidity (market risk). Lower rated or unrated
municipal obligations are also more likely to react to real or perceived
developments affecting market and credit risk than are more highly rated
obligations, which react primarily to movements in the general level of interest
rates.
Municipal obligations held by a Portfolio which are rated below investment
grade but which, subsequent to the assignment of such rating, are backed by
escrow accounts containing U.S. Government obligations may be determined by the
investment adviser to be of investment grade quality for purposes of the
Portfolio's investment policies. A Portfolio may retain in its portfolio an
obligation whose rating drops below B after its acquisition, including defaulted
obligations, if such retention is considered desirable by the investment
adviser; provided, however, that holdings of obligations rated below Baa or BBB
will be less than 35% of net assets. In the event the rating of an obligation
held by a Portfolio is downgraded, causing the Portfolio to exceed this
limitation, the investment adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary in
order to comply with the Portfolio's credit quality limitations. In the case of
a defaulted obligation, a Portfolio may incur additional expense seeking
recovery of its investment. See "Portfolio of Investments" in the "Financial
Statements" incorporated by reference into this SAI with respect to any
defaulted obligations held by a Portfolio.
The investment adviser seeks to minimize the risks of investing in below
investment grade securities through professional investment analysis and
attention to current developments in interest rates and economic conditions.
When a Portfolio invests in lower rated or unrated municipal obligations, the
achievement of the Portfolio's goals is more dependent on the investment
adviser's ability than would be the case if the Portfolio were investing in
municipal obligations in the higher rating categories. In evaluating the credit
quality of a particular issue, whether rated or unrated, the investment adviser
will normally take into consideration, among other things, the financial
resources of the issuer (or, as appropriate, of the underlying source of funds
for debt service), its sensitivity to economic conditions and trends, any
operating history of and the community support for the facility financed by the
issue, the ability of the issuer's management and regulatory matters. The
investment adviser will attempt to reduce the risks of investing in the lowest
investment grade, below investment grade and comparable unrated obligations
through active portfolio management, credit analysis and attention to current
developments and trends in the economy and the financial markets.
WHEN-ISSUED SECURITIES. New issues of municipal obligations are sometimes
offered on a "when-issued" basis, that is, delivery and payment for the
securities normally take place within a specified number of days after the date
of a Portfolio's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. Each Portfolio may also purchase
securities on a when-issued basis pursuant to refunding contracts in connection
with the refinancing of an issuer's outstanding indebtedness. Refunding
contracts generally require the issuer to sell and a Portfolio to buy such
securities on a settlement date that could be several months or several years in
the future. Each Portfolio may also purchase instruments that give the Portfolio
the option to purchase a municipal obligation when and if issued.
Each Portfolio will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time a Portfolio enters into the
purchase commitment. When a Portfolio commits to purchase a security on a
when-issued basis it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by a Portfolio are subject to changes
in value based upon the perception of the creditworthiness of the issuer and
changes in the level of interest rates (i.e., appreciation when interest rates
decline and depreciation when interest rates rise). Therefore, to the extent
that a Portfolio remains substantially fully invested at the same time that it
has purchased securities on a when-issued basis, there will be greater
fluctuations in the Portfolio's net asset value than if it solely set aside cash
to pay for when-issued securities.
REDEMPTION, DEMAND AND PUT FEATURES AND PUT OPTIONS. Issuers of municipal
obligations reserve the right to call (redeem) the bond. If an issuer redeems
securities held by the Portfolio during a time of declining interest rates, the
Portfolio may not be able to reinvest the proceeds in securities providing the
same investment return as the securities redeemed. Also, some bonds may have
"put" or "demand" features that allow early redemption by the bondholder. Longer
term fixed-rate bonds may give the holder a right to request redemption at
certain times (often annually after the lapse of an intermediate term). These
bonds are more defensive than conventional long term bonds (protecting to some
degree against a rise in interest rates) while providing greater opportunity
than comparable intermediate term bonds, because the Portfolio may retain the
bond if interest rates decline.
LIQUIDITY AND PROTECTIVE PUT OPTIONS. Each Portfolio may enter into a separate
agreement with the seller of the security or some other person granting the
Portfolio the right to put the security to the seller thereof or the other
person at an agreed upon price. Each Portfolio intends to limit this type of
transaction to institutions (such as banks or securities dealers) which the
investment adviser believes present minimal credit risks and would engage in
this type of transaction to facilitate portfolio liquidity or (if the seller so
agrees) to hedge against rising interest rates. There is no assurance that this
kind of put option will be available to a Portfolio or that selling institutions
will be willing to permit a Portfolio to exercise a put to hedge against rising
interest rates. A Portfolio does not expect to assign any value to any separate
put option which may be acquired to facilitate portfolio liquidity, inasmuch as
the value (if any) of the put will be reflected in the value assigned to the
associated security; any put acquired for hedging purposes would be valued in
good faith under methods or procedures established by the Trustees of the
Portfolio after consideration of all relevant factors, including its expiration
date, the price volatility of the associated security, the difference between
the market price of the associated security and the exercise price of the put,
the creditworthiness of the issuer of the put and the market prices of
comparable put options. Interest income generated by certain bonds having put or
demand features may be taxable.
ILLIQUID OBLIGATIONS. At times, a substantial portion of the Portfolio's assets
may be invested in securities as to which the Portfolio, by itself or together
with other accounts managed by the investment adviser and its affiliates, holds
a major portion or all of such securities. Under adverse market or economic
conditions or in the event of adverse changes in the financial condition of the
issuer, the Portfolio could find it more difficult to sell such securities when
the investment adviser believes it advisable to do so or may be able to sell
such securities only at prices lower than if such securities were more widely
held. Under such circumstances, it may also be more difficult to determine the
fair value of such securities for purposes of computing the Portfolio's net
asset value.
The secondary market for some municipal obligations issued within a state
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15% of
its net assets would be invested in securities that are not readily marketable.
No established resale market exists for certain of the municipal obligations in
which a Portfolio may invest. The market for obligations rated below investment
grade is also likely to be less liquid than the market for higher rated
obligations. As a result, a Portfolio may be unable to dispose of these
municipal obligations at times when it would otherwise wish to do so at the
prices at which they are valued.
SECURITIES LENDING. Each Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers.
Distributions by a Fund of any income realized by a Portfolio from securities
loans will be taxable. If the management of a Portfolio decides to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of a Portfolio's total assets. Securities lending involves risks
of delay in recovery or even loss of rights on the securities loaned if the
borrower fails financially. Each Portfolio has no present intention of engaging
in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A change in the level of
interest rates may affect the value of the securities held by a Portfolio (or of
securities that a Portfolio expects to purchase). To hedge against changes in
rates or as a substitute for the purchase of securities, a Portfolio may enter
into (i) futures contracts for the purchase or sale of debt securities and (ii)
futures contracts on securities indices. All futures contracts entered into by a
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States exchange or
board of trade. The Portfolio will be required, in connection with transactions
in futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Portfolio's custodian for the benefit of the
futures commission merchant through whom the Portfolio engages in such futures
and options transactions.
Some futures contracts and options thereon may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit transactions in an exchange-traded instrument,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or futures option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Portfolio from closing out
positions and limiting its losses.
Each Portfolio will engage in futures and related options transactions for
bona fide hedging purposes or non-hedging purposes as defined in or permitted by
CFTC regulations. The Portfolio will determine that the price fluctuations in
the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the Portfolio
or which it expects to purchase. Each Portfolio will engage in transactions in
futures and related options contracts only to the extent such transactions are
consistent with the requirements of the Code for maintaining qualification of a
Fund as a regulated investment company for federal income tax purposes (see
"Taxes").
ASSET COVERAGE REQUIREMENTS. Transactions involving when-issued securities or
futures contracts and options (other than options that the Portfolio has
purchased) expose the Portfolio to an obligation to another party. A Portfolio
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options or futures
contracts, or (2) cash or liquid securities (such as readily marketable
obligations and money market instruments) with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. Each
Portfolio will comply with Securities and Exchange Commission ("SEC") guidelines
regarding cover for these instruments and, if the guidelines so require, set
aside cash or liquid securities in a segregated account with its custodian in
the prescribed amount. The securities in the segregated account will be marked
to market daily.
Assets used as cover or held in a segregated account maintained by the
custodian cannot be sold while the position requiring coverage or segregation is
outstanding unless they are replaced with other appropriate assets. As a result,
the commitment of a large portion of a Portfolio's assets to segregated accounts
or to cover could impede portfolio management or a Portfolio's ability to meet
redemption requests or other current obligations.
PORTFOLIO TURNOVER. Each Portfolio may sell (and later purchase) securities in
anticipation of a market decline (a rise in interest rates) or purchase (and
later sell) securities in anticipation of a market rise (a decline in interest
rates). In addition, a security may be sold and another purchased at
approximately the same time to take advantage of what a Portfolio believes to be
a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, such as changes in the overall demand for or supply of various types of
municipal obligations or changes in the investment objectives of investors. Such
trading may be expected to increase the portfolio turnover rate, which may
increase capital gains and the expenses incurred in connection with such
trading. A Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual portfolio turnover rate will generally not
exceed 100% (excluding turnover of securities having a maturity of one year or
less). A 100% annual turnover rate could occur, for example, if all the
securities held by a Portfolio were replaced once in a period of one year. A
high turnover rate (100% or more) necessarily involves greater expenses to the
Portfolio. Each Portfolio engages in portfolio trading (including short-term
trading) if it believes that a transaction including all costs will help in
achieving its investment objective.
INVESTMENT RESTRICTIONS
The following investment restrictions of each Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of a Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of a Fund present or
represented by proxy at a meeting if the holders of more than 50% of the
outstanding shares are present or represented at the meeting or (b) more than
50% of the outstanding shares of a Fund. Accordingly, each Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940 (the "1940 Act");
(2) Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities). The deposit or payment by the Fund of initial or
maintenance margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in
selling a portfolio security under circumstances which may require the
registration of the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership
interests in real estate but excluding readily marketable interests in real
estate investment trusts or readily marketable securities of companies which
invest or deal in real estate or securities which are secured by real
estate);
(5) Purchase or sell physical commodities or contracts for the purchase
or sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of each Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
Each Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by each Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of a Portfolio.
The Funds and the Portfolios have adopted the following investment policies
which may be changed by the Trustees with respect to a Fund without approval by
that Fund's shareholders or with respect to the Portfolio without approval of a
Fund or its other investors. Each Fund and each Portfolio will not:
(a) engage in options, futures or forward transactions if more than 5%
of its net assets, as measured by the aggregate of the premiums paid by the
Fund or the Portfolio, would be so invested;
(b) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and equal
in amount to, the securities sold short and unless not more than 25% of the
Fund's net assets (taken at current value) is held as collateral for such
sales at any one time; or
(c) invest more than 15% of its net assets in investments which are not
readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial paper
issued pursuant to Section 4(2) of said Act that the Board of Trustees of
the Trust or the Portfolio, or its delegate, determines to be liquid. The
Fund and the Portfolio have no current intention of investing in 144A
securities.
For purposes of a Portfolio's investment restrictions, the determination of
the "issuer" of a municipal obligation which is not a general obligation bond
will be made by the Portfolio's investment adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding quality
standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease resulting
from a change in values, assets or other circumstances, or any subsequent rating
change below investment grade made by a rating service, will not compel the Fund
or the Portfolio, as the case may be, to dispose of such security or other
asset. Where applicable and notwithstanding the foregoing, under normal market
conditions the Fund and the Portfolio must take actions necessary to comply with
the policy of investing at least 65% of total assets in a particular state and
not investing more than 15% of net assets in illiquid securities. Moreover, the
Fund and Portfolio must always be in compliance with the borrowing policies set
forth above.
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees of the Trust are responsible for the overall
management and supervision of the Trust's affairs. The Trustees and officers of
the Trust and the Portfolios are listed below. Except as indicated, each
individual has held the office shown or other offices in the same company for
the last five years. Unless otherwise noted, the business address of each
Trustee and officer is 24 Federal Street, Boston, Massachusetts 02110. Those
Trustees who are "interested persons" of the Trust or a Portfolio, as defined in
the 1940 Act, are indicated by an asterisk(*).
JESSICA M. BIBLIOWICZ (38), Trustee
President and Chief Operating Officer of John A. Levin & Co. (a registered
investment advisor) (since July, 1997) and a Director of Baker, Fentress &
Company which owns John A. Levin & Co. (since July, 1997). Executive Vice
President of Smith Barney Mutual Funds (from July, 1994 to June, 1997).
Elected Trustee October 30, 1998. Trustee of various investment companies
managed by Eaton Vance or BMR since October 30, 1998.
Address: One Rockefeller Plaza, New York, New York 10020
DONALD R. DWIGHT (67), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee of various investment companies managed by Eaton Vance or
BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (57), Vice President and Trustee*
Chairman, President and Chief Executive Officer of BMR, Eaton Vance and their
corporate parent and trustee (EVC and EV); Director of EVC and EV. Trustee and
officer of various investment companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (63), Trustee
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of the Kobrick - Cendant
Investment Trust (mutual funds). Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 345 Nahatan Road, Westwood, Massachusetts 02090
NORTON H. REAMER (63), Trustee
Chairman of the Board and Chief Executive Officer, United Asset Management
Corporation (a holding company owning institutional investment management
firms); Chairman, President and Director, UAM Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
LYNN A. STOUT (41), Trustee
Professor of Law, Georgetown University Law Center. Elected Trustee October
30, 1998. Trustee of various investment companies managed by Eaton Vance or
BMR since October 30, 1998.
Address: 600 New Jersey Avenue, NW, Washington, DC 20001
JOHN L. THORNDIKE (72), Trustee
Formerly Director of Fiduciary Company Incorporated. Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (68), Trustee
Investment Adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
THOMAS J. FETTER (55), President
Vice President of BMR and Eaton Vance. Officer of various investment
companies managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (41), Vice President
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (53), Treasurer
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ALAN R. DYNNER (58), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance and EVC since
November 1, 1996. Previously, he was a Partner of the law firm of Kirkpatrick
& Lockhart LLP, New York and Washington, D.C., and was Executive Vice
President of Neuberger & Berman Management, Inc., a mutual fund management
company. Officer of various investment companies managed by Eaton Vance or
BMR.
JANET E. SANDERS (63), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (35), Assistant Secretary
Assistant Vice President of BMR and Eaton Vance. Officer of various investment
companies managed by Eaton Vance or BMR.
ERIC G. WOODBURY (41), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
In addition, William H. Ahern, Jr. (39), Vice President of Eaton Vance and
BMR, is a Vice President of the Colorado and Connecticut Portfolios. Timothy
T. Browse (39), Vice President of Eaton Vance and BMR, is a Vice President of
the Michigan and Pennsylvania Portfolios. Cynthia J. Clemson (35), Vice
President of Eaton Vance and BMR, is a Vice President of the Arizona
Portfolio. Thomas M. Metzhold (40), Vice President of Eaton Vance and BMR, is
a Vice President of the Texas Portfolio. Ms. Clemson, and Messrs. Ahern,
Browse and Metzold are officers of various investment companies managed by
Eaton Vance or BMR.
Messrs. Hayes (Chairman), Reamer and Thorndike are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolios. The
purpose of the Special Committee is to consider, evaluate and make
recommendations to the full Board of Trustees concerning (i) all contractual
arrangements with service providers to the Funds and the Portfolios, including
investment advisory (Portfolio only), administrative, transfer agency, custodial
and fund accounting and distribution services, and (ii) all other matters in
which Eaton Vance or its affiliates has any actual or potential conflict of
interest with the Funds, the Portfolios or investors therein.
The Nominating Committee of the Board of Trustees of the Trust and the
Portfolios is comprised of four Trustees who are not "interested persons" as
that term is defined under the 1940 Act ("noninterested Trustees"). The
Committee has four-year staggered terms, with one member rotating off the
Committee to be replaced by another noninterested Trustee. The purpose of the
Committee is to recommend to the Board nominees for the position of
noninterested Trustee and to assure that at least a majority of the Board of
Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolios. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent accountants, and reviewing matters relative to trading and
brokerage policies and practices, accounting and auditing practices and
procedures, accounting records, internal accounting controls,and the functions
performed by the custodian, transfer agent and dividend disbursing agent of the
Trust and of the Portfolios.
Trustees of the Portfolios who are not affiliated with the investment
adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Trustees" Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by a Portfolio in the shares of one or more
funds in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolios' assets, liabilities, and net
income per share, and will not obligate a Portfolio to retain the services of
any Trustee or obligate a Portfolio to pay any particular level of compensation
to the Trustee. Neither the Portfolios nor the Trust has a retirement plan for
its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and of the
Portfolios are paid by the Funds (and the other series of the Trust) and the
Portfolios, respectively. (The Trustees of the Trust and the Portfolios who are
members of the Eaton Vance organization receive no compensation from the Trust
or the Portfolios). During the fiscal year ended July 31, 1998, the
noninterested Trustees of the Trust and the Portfolio received the following
compensation in their capacities as Trustees from the Trust and the Portfolio,
and, for the year ended September 30, 1998, received the following compensation
in their capacities as Trustees of the funds in the Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
JESSICA M. DONALD R. SAMUEL L. NORTON H. LYNN A. JOHN L. JACK L.
SOURCE OF COMPENSATION BIBLIOWICZ(9) DWIGHT(3) HAYES, III(4) REAMER STOUT(9) THORNDIKE(5) TREYNOR
- ---------------------- ------------ --------- ------------ ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Trust(2) $ -- $ 14,811 $ 14,340 $ 13,789 $ -- $ 14,296 $ 15,808
Arizona Portfolio -- 1,674 1,929 1,779 -- 1,803 1,909
Colorado Portfolio -- 372 360 346 -- 359 397
Connecticut Portfolio -- 2,268 2,505 2,333 -- 2,377 2,544
Michigan Portfolio -- 1,674 1,929 1,779 -- 1,803 1,909
Minnesota Portfolio -- 1,227 1,497 1,363 -- 1,372 1,432
New Jersey Portfolio -- 3,607 3,802 3,580 -- 3,669 3,973
Pennsylvania Portfolio -- 3,607 3,802 3,580 -- 3,669 3,973
Texas Portfolio -- 123 121 114 -- 119 132
Trust and Fund Complex -- $156,250(6) $166,250(7) $156,250 -- $156,250(8) $165,000
- ----------
(1) As of December 1, 1998, the Eaton Vance fund complex consists of 143 registered investment companies or series thereof.
(2) The Trust consisted of 29 Funds as of July 31, 1998.
(3) Mr. Dwight received deferred compensation from each Portfolio as follows: Arizona - $840; Colorado - $187; Connecticut -
$1,139; Michigan - $840; Minnesota - $616; New Jersey - $1,812; Pennsylvania - $1,812; and Texas - $63.
(4) Mr. Hayes received deferred compensation from each Portfolio as follows: Arizona - $659; Colorado - $123; Connecticut -
$857; Michigan - $659; Minnesota - $511; New Jersey - $1,300; Pennsylvania - $1,300; and Texas - $41.
(5) Mr. Thorndike received deferred compensation from each Portfolio as follows: Arizona - $1,799; Colorado - $358; Connecticut
- $2,372; Michigan - $1,799; Minnesota - $1,369; New Jersey - $3,662; Pennsylvania - $3,662; and Texas - $118.
(6) Includes $56,250 of deferred compensation.
(7) Includes $41,563 of deferred compensation.
(8) Includes $115,790 of deferred compensation.
(9) Ms. Bibliowicz and Ms. Stout were elected as Trustees on October 30, 1998 and will receive compensation approximating the
other Trustees after November 1, 1998.
</TABLE>
ORGANIZATION. Each Fund is a series of the Trust, which is organized under
Massachusetts law as a business trust and is operated as an open-end management
investment company. Each Fund changed its name from Eaton Vance [state name] Tax
Free Fund to EV Marathon [state name] Tax Free Fund on February 1, 1994 and to
EV Marathon [state name] Municipals Fund on December 1, 1994. Each Fund was
reorganized into multiple classes and changed its name to Eaton Vance [state
name] Municipals Fund on August 1, 1997. The operations of the Class B reflect
the operations of a Fund prior to August 1, 1997. Class A is a successor to the
operations of a separate series of the Trust.
The Trust may issue an unlimited number of shares of beneficial interest (no
par value per share) in one or more series (such as the Funds). The Trustees of
the Trust have divided the shares of each Fund into multiple classes. Each class
represents an interest in a Fund, but is subject to different expenses, rights
and privileges. The Trustees have the authority under the Declaration of Trust
to create additional classes of shares with differing rights and privileges.
When issued and outstanding, shares are fully paid and nonassessable by the
Trust. Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares of a Fund will be voted
together except that only shareholders of a particular class may vote on matters
affecting only that class. Shares have no preemptive or conversion rights and
are freely transferable. In the event of the liquidation of a Fund, shareholders
of each class are entitled to share pro rata in the net assets attributable to
that class available for distribution to shareholders.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of each Fund in its corresponding Portfolio, as well as
the advantages and disadvantages of the two-tier format. The Trustees believe
that the structure offers opportunities for growth in the assets of the
Portfolios, may afford the potential for economies of scale for each Fund and
may over time result in lower expenses for a Fund.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will call
a shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's By-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him from
that office either by a written declaration filed with the Trust's custodian or
by votes cast at a meeting called for that purpose. The By-laws further provide
that under certain circumstances the shareholders may call a meeting to remove a
Trustee and that the Trust is required to provide assistance in communication
with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent of
shareholders to change the name of the Trust or any series or to make such other
changes (such as reclassifying series of classes of shares or restructuring the
Trust) as do not have a materially adverse effect on the financial interests of
shareholders or if they deem it necessary to conform it to applicable federal or
state laws or regulations. The Trust or any series or class thereof may be
terminated by: (1) the affirmative vote of the holders of not less than
two-thirds of the shares outstanding and entitled to vote at any meeting of
shareholders of the Trust or the appropriate series or class thereof, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of two-thirds of the shares of the Trust or a series or class thereof,
provided, however, that, if such termination is recommended by the Trustees, the
vote of a majority of the outstanding voting securities of the Trust or a series
or class thereof entitled to vote thereon shall be sufficient authorization; or
(2) by means of an instrument in writing signed by a majority of the Trustees,
to be followed by a written notice to shareholders stating that a majority of
the Trustees has determined that the continuation of the Trust or a series or a
class thereof is not in the best interest of the Trust, such series or class or
of their respective shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such liability
has been imposed. The Trust's Declaration of Trust contains an express
disclaimer of liability on the part of the Fund shareholders and the Trust's
By-laws provide that the Trust shall assume the defense on behalf of any Fund
shareholders. The Declaration of Trust also contains provisions limiting the
liability of a series or class to that series or class. Moreover, the Trust's
By-laws also provide for indemnification out of the property of the Fund of any
shareholder held personally liable solely by reason of being or having been a
shareholder for all loss or expense arising from such liability. The assets of
the Fund are readily marketable and will ordinarily substantially exceed its
liabilities. In light of the nature of the Fund's business and the nature of its
assets, management believes that the possibility of the Fund's liability
exceeding its assets, and therefore the shareholder's risk of personal
liability, is remote.
Each Portfolio is organized as a trust under the laws of the state of New
York and intends to be treated as a partnership for federal tax purposes. In
accordance with the Declaration of Trust of each Portfolio, there will normally
be no meetings of the investors for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees of the Portfolio holding
office have been elected by investors. In such an event the Trustees of the
Portfolio then in office will call an investors' meeting for the election of
Trustees. Except for the foregoing circumstances and unless removed by action of
the investors in accordance with the Portfolio's Declaration of Trust, the
Trustees shall continue to hold office and may appoint successor Trustees.
The Declaration of Trust of each Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with the
Portfolio's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that under certain circumstances the
investors may call a meeting to remove a Trustee and that the Portfolio is
required to provide assistance in communicating with investors about such a
meeting.
Each Portfolio's Declaration of Trust provides that a Fund and other
entities permitted to invest in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance exists and the Portfolio itself is unable to meet its
obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund
investing in the Portfolio.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for federal income tax purposes.
Whenever a Fund as an investor in a Portfolio is requested to vote on
matters pertaining to the Portfolio (other than the termination of the
Portfolio's business, which may be determined by the Trustees of the Portfolio
without investor approval), the Fund will hold a meeting of Fund shareholders
and will vote its interest in the Portfolio for or against such matters
proportionately to the instructions to vote for or against such matters received
from Fund shareholders. A Fund shall vote shares for which it receives no voting
instructions in the same proportion as the shares for which it receives voting
instructions. Other investors in a Portfolio may alone or collectively acquire
sufficient voting interests in the Portfolio to control matters relating to the
operation of the Portfolio, which may require the Fund to withdraw its
investment in the Portfolio or take other appropriate action. Any such
withdrawal could result in a distribution "in kind" of portfolio securities (as
opposed to a cash distribution from the Portfolio). If securities are
distributed, a Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of a
Fund. Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
A Fund may withdraw (completely redeem) all its assets from its
corresponding Portfolio at any time if the Board of Trustees of the Trust
determines that it is in the best interest of that Fund to do so. In the event a
Fund withdraws all of its assets from its corresponding Portfolio, or the Board
of Trustees of the Trust determines that the investment objective of such
Portfolio is no longer consistent with the investment objective of the Fund, the
Trustees would consider what action might be taken, including investing the
assets of such Fund in another pooled investment entity or retaining an
investment adviser to manage the Fund's assets in accordance with its investment
objective. A Fund's investment performance may be affected by a withdrawal of
all its assets (or the assets of another investor in the Portfolio) from its
corresponding Portfolio.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISORY SERVICES. BMR manages the investments and affairs of each
Portfolio subject to the supervision of the Portfolio's Board of Trustees. BMR
furnishes to the Portfolios investment research, advice and supervision,
furnishes an investment program and determines what securities will be
purchased, held or sold by the Portfolio and what portion, if any, of the
Portfolio's assets will be held uninvested. Each Investment Advisory Agreement
requires BMR to pay the salaries and fees of all officers and Trustees of the
Portfolio who are members of the BMR organization and all personnel of BMR
performing services relating to research and investment activities.
For a description of the compensation that each Portfolio pays BMR, see the
prospectus. The following table sets forth the net assets of each Portfolio and
the advisory fees earned during the three fiscal years ended July 31, 1998.
<TABLE>
<CAPTION>
ADVISORY FEE FOR FISCAL YEARS ENDED
NET ASSETS ----------------------------------------------------------------
PORTFOLIO AT 7/31/98 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996
- --------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Arizona $103,092,106 $ 413,386 $ 482,775 $ 574,999
Colorado(1) 39,801,200 97,947 113,698 130,068
Connecticut 164,954,888 703,463 771,883 841,092
Michigan 130,236,468 562,200 676,686 795,032
Minnesota 66,983,677 228,670 252,187 295,178
New Jersey 328,629,138 1,535,921 1,707,028 1,878,801
Pennsylvania 359,531,875 1,758,264 1,982,739 2,262,320
Texas(2) 17,837,487 31,780 41,158 55,086
- ----------
(1) To enhance the net income of the Colorado Portfolio, BMR made a reduction of its advisory fee for the period ended July 31,
1996 in the amount of $7,886.
(2) To enhance the net income of the Texas Portfolio, BMR made a reduction of its advisory fee for the period ended July 31, 1996
in the amount of $27,295.
</TABLE>
Each Investment Advisory Agreement with BMR continues in effect from year to
year so long as such continuance is approved at least annually (i) by the vote
of a majority of the noninterested Trustees of the Portfolio cast in person at a
meeting specifically called for the purpose of voting on such approval and (ii)
by the Board of Trustees of the Portfolio or by vote of a majority of the
outstanding voting securities of the Portfolio. Each Agreement may be terminated
at any time without penalty on sixty (60) days' written notice by the Board of
Trustees of either party, or by vote of the majority of the outstanding voting
securities of the Portfolio, and the Agreement will terminate automatically in
the event of its assignment. Each Agreement provides that BMR may render
services to others. Each Agreement also provides that BMR shall not be liable
for any loss incurred in connection with the performance of its duties, or
action taken or omitted under that Agreement, in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties thereunder, or
for any losses sustained in the acquisition, holding or disposition of any
security or other investment.
ADMINISTRATIVE SERVICES. As indicated in the prospectus, Eaton Vance serves as
administrator of each Fund, but currently receives no compensation for providing
administrative services to the Fund. Under its Administrative Services Agreement
with the Trust, Eaton Vance has been engaged to administer the Funds' affairs,
subject to the supervision of the Trustees of the Trust, and shall furnish for
the use of the Funds' office space and all necessary office facilities,
equipment and personnel for administering the affairs of the Funds.
INFORMATION ABOUT BMR AND EATON VANCE. BMR and Eaton Vance are business
trusts organized under Massachusetts law. Eaton Vance, Inc. ("EV") serves as
trustee of BMR and Eaton Vance. BMR, Eaton Vance and EV are wholly-owned
subsidiaries of Eaton Vance Corporation ("EVC"), a Maryland corporation and
publicly-held holding company. EVC through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities. The Directors of EVC are M. Dozier Gardner, James B. Hawkes,
Benjamin A. Rowland, Jr., John G.L. Cabot, John M. Nelson, Vincent M. O'Reilly
and Ralph Z. Sorenson. All of the issued and outstanding shares of Eaton Vance
are owned by EVC. All of the issued and outstanding shares of BMR are owned by
Eaton Vance. All shares of the outstanding Voting Common Stock of EVC are
deposited in a Voting Trust, the Voting Trustees of which are Messrs. Gardner,
Hawkes and Rowland, Alan R. Dynner, Thomas E. Faust, Jr., William M. Steul,
and Wharton P. Whitaker. The Voting Trustees have unrestricted voting rights
for the election of Directors of EVC. All of the outstanding voting trust
receipts issued under said Voting Trust are owned by certain of the officers
of BMR and Eaton Vance who are also officers, or officers and Directors of EVC
and EV. As indicated under "Management and Organization", all of the officers
of the Trust (as well as Mr. Hawkes who is also a Trustee) hold positions in
the Eaton Vance organization.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment- grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
Eaton Vance and its affiliates act as adviser to a family of mutual funds,
and individual and various institutional accounts, including corporations,
hospitals, retirement plans, universities, foundations and trusts. Eaton Vance
mutual funds feature international equities, domestic equities, tax-free
municipal bonds, and U.S. government and corporate bonds. Lloyd George
Management has advised Eaton Vance's international equity funds since 1992.
Founded in 1991, Lloyd George is headquartered in Hong Kong with offices in
London and Mumbai, India. It has established itself as a leader in investment
management in Asian equities and other global markets. Lloyd George features an
experienced team of investment professionals that began working together in the
mid-1980s. Lloyd George analysts cover East Asia, the India subcontinent, Russia
and Eastern Europe, Latin America, Australia and New Zealand from offices in
Hong Kong, London and Mumbai. Together Eaton Vance and Lloyd George manage over
$28 billion in assets. Eaton Vance mutual funds are distributed by the principal
underwriter both within the United States and offshore.
The principal underwriter believes that an investment professional can
provide valuable services to you to help you reach your investment goals.
Meeting investment goals requires time, objectivity and investment savvy. Before
making an investment recommendation, a representative can help you carefully
consider your short- and long-term financial goals, your tolerance for
investment risk, your investment time frame, and other investments you may
already own. Your professional investment representatives are knowledgeable
about financial markets, as well as the wide range of investment opportunities
available. A representative can help you decide when to buy, sell or persevere
with your investments. A professional investment representative can provide you
with tailored financial advice.
Eaton Vance offers single-state tax-free portfolios in more states than any
other sponsor of mutual funds. There are 32 long-term state portfolios, 4
national portfolios and 9 limited maturity portfolios, which serve as investment
vehicles for over 44 mutual funds with varying pricing options. A staff of 26
(including 6 portfolio managers and 11 credit specialists) is responsible for
the day-to-day management of over 3,500 issues in 45 mutual fund portfolios.
Assets managed by the municipal investment group are currently over $7.6
billion. The investment philosophy of the municipal investment group is to: seek
value by avoiding unnecessary credit risk; build portfolios one security at a
time; and take a long-term approach to managing market risk. Over the long-term,
the group seeks to maximize tax-free income by keeping portfolios fully invested
(rather than trying to "time the market" for short-term results) and reduce
potential capital losses due to poor credit quality. Diligent and continuing
research and analysis are a critical component of the municipal investment
group's investment philosophy and long-term strategy.
The following persons manage one or more of the Eaton Vance municipal
portfolios. For the identity of a Portfolio's portfolio manager, see the
prospectus.
William H. Ahern, Jr. is a Vice President of Eaton Vance and BMR. Mr.
Ahern graduated from Boston College in 1981 with a B.A. in Economics, and
received his M.B.A. degree in Finance from Babson College in 1987. Mr. Ahern
is a member of the Boston Security Analysts Society.
Timothy T. Browse is a Vice President of Eaton Vance and BMR. Mr. Browse
graduated from St. Lawrence University in 1981 and received his M.B.A. degree
from Boston University in 1990.
Cynthia J. Clemson is a Vice President of Eaton Vance and BMR. Ms. Clemson
graduated from Mount Holyoke College with a B.A. in 1985 and received her
M.B.A., cum laude, from Boston University in 1990. She is a member of the
Boston Municipal Analysts Forum, the Boston Security Analyst Society and the
Financial Analysts Federation.
Thomas J. Fetter is a Vice President of Eaton Vance and BMR, and Director
of Municipal Investments. Mr. Fetter graduated with a degree in Business
Administration from Kent State University. He is a Chartered Financial Analyst
and member of the Boston Security Analysts Society. He is also a member of the
Boston Municipal Analysts Forum.
Robert B. MacIntosh is a Vice President of Eaton Vance and BMR, and the
portfolio manager of single-state, tax-exempt funds in six states: Hawaii,
Louisiana, Massachusetts, Minnesota, New Jersey and North Carolina. He also
serves as economic spokesman for the Eaton Vance organization.
Thomas M. Metzold is a Vice President of Eaton Vance and BMR. He is a
Chartered Financial Analyst and a member of the Boston Security Analysts
Society, the Association for Investment Management & Research, the Boston
Municipal Analysts Forum, and the National Federation of Municipal Analysts.
EXPENSES. Each Fund and Portfolio is responsible for all expenses not expressly
stated to be payable by another party (such as the investment adviser under the
Investment Advisory Agreement, Eaton Vance under the Administrative Services
Agreement or the principal underwriter under the Distribution Agreement). In the
case of expenses incurred by the Trust, each Fund is responsible for its pro
rata share of those expenses. The only expenses of a Fund allocated to a
particular class are those incurred under the Distribution or Service Plan
applicable to that class and the fee paid to the principal underwriter for
handling share repurchases.
OTHER SERVICE PROVIDERS
PRINCIPAL UNDERWRITER. Eaton Vance Distributors, Inc. ("EVD"), 24 Federal
Street, Boston, MA 02110, is the Funds' principal underwriter. The principal
underwriter acts as principal in selling shares under a Distribution Agreement
with the Trust. The expenses of printing copies of prospectuses used to offer
shares and other selling literature and of advertising are borne by the
principal underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of a Fund and its shares under
federal and state securities laws are borne by that Fund. The Distribution
Agreement as it applies to Class A shares is renewable annually by the Board of
Trustees of the Trust (including a majority of the noninterested Trustees) may
be terminated on six months' notice by either party and is automatically
terminated upon assignment. The Distribution Agreement as it applies to Class B
shares is renewable annually by the Trust's Board of Trustees (including a
majority of the noninterested Trustees who have no direct or indirect financial
interest in the operation of the Distribution Plan or the Distribution
Agreement), may be terminated on sixty days' notice either by such Trustees or
by vote of a majority of the outstanding Class B shares or on six months' notice
by the principal underwriter and is automatically terminated upon assignment.
The principal underwriter distributes shares on a "best efforts" basis under
which it is required to take and pay for only such shares as may be sold. The
principal underwriter allows investment dealers discounts from the applicable
public offering price which are alike for all investment dealers. See "Sales
Charges." EVD is a wholly-owned subsidiary of EVC. M. Hawkes is a Vice President
and Director and Messrs. Dynner and O'Connor are Vice Presidents of EVD.
CUSTODIAN. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
MA 02116, serves as custodian to the Funds and Portfolios. IBT has the custody
of all cash and securities representing a Fund's interest in a Portfolio, has
custody of each Portfolio's assets, maintains the general ledger of each
Portfolio and each Fund and computes the daily net asset value of interests in
each Portfolio and the net asset value of shares of the Fund. In such capacity
it attends to details in connection with the sale, exchange, substitution,
transfer or other dealings with the Portfolios' investments, receives and
disburses all funds and performs various other ministerial duties upon receipt
of proper instructions from the Trust and the Portfolios. IBT also provides
services in connection with the preparation of shareholder reports and the
electronic filing of such reports with the SEC. EVC and its affiliates and their
officers and employees from time to time have transactions with various banks,
including IBT. It is Eaton Vance's opinion that the terms and conditions of such
transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund or the Portfolio and such
banks.
INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 125 Summer Street, Boston,
Massachusetts, are the independent accountants of the Funds and the Portfolios,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC.
TRANSFER AGENT. First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123, serves as transfer and dividend disbursing agent
for the Funds.
PURCHASING AND REDEEMING SHARES
CALCULATION OF NET ASSET VALUE. The net asset value of each Portfolio is
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as the
market for municipal obligations is a dealer market with no central trading
location or continuous quotation system, it is not feasible to obtain last
transation prices for most municipal obligations held by the Portfolio, and such
obligations, including those purchased on a when-issued basis, will normally be
valued on the basis of valuations furnished by a pricing service. The pricing
service uses information with respect to transactions in bonds, quotations from
bond dealers, market transactions in comparable securities, various
relationships between securities, and yield to maturity in determining value.
Taxable obligations for which price quotations are readily available normally
will be valued at the mean between the latest available bid and asked prices.
Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by or at the direction of the Trustees of the
Portfolio. The Funds and the Portfolios will be closed for business and will not
price their respective shares or interests on the following business holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each investor in a Portfolio, including a Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying the
net asset value of the Portfolio by the percentage, determined on the prior
Portfolio Business Day, which represented that investor's share of the aggregate
interests in the Portfolio on such prior day. Any additions or withdrawals for
the current Portfolio Business Day will then be recorded. Each investor's
percentage of the aggregate interest in the Portfolio will then be recomputed as
a percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on the
prior Portfolio Business Day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
on the current Portfolio Business Day and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate investment in the
Portfolio on the current Portfolio Business Day by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio for the current Portfolio
Business Day.
ADDITIONAL INFORMATION ABOUT PURCHASES. Fund shares are continuously offered
through investment dealers which have entered agreements with the principal
underwriter. The public offering price is the net asset value next computed
after receipt of the order, plus, in the case of Class A shares, a variable
percentage (sales charge) depending upon the amount of purchase as indicated by
the sales charge table set forth in the prospectus. The sales charge is divided
between the principal underwriter and the investment dealer. The sales charge
table is applicable to purchases of a Fund alone or in combination with
purchases of certain other funds offered by the principal underwriter, made at a
single time by (i) an individual, or an individual, his spouse and their
children under the age of twenty-one, purchasing shares for his or their own
account, and (ii) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account. The table is also presently
applicable to (1) purchases of Class A shares pursuant to a written Statement of
Intention; or (2) purchases of Class A shares pursuant to the Right of
Accumulation and declared as such at the time of purchase. See "Sales Charges".
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. The right to redeem shares of a Fund
can be suspended and the payment of the redemption price deferred when the
Exchange is closed (other than for customary weekend and holiday closings),
during periods when trading on the Exchange is restricted as determined by the
SEC, or during any emergency as determined by the SEC which makes it
impracticable for a Portfolio to dispose of its securities or value its assets,
or during any other period permitted by order of the SEC for the protection of
investors.
While normally payments will be made in cash for redeemed shares, the Trust,
subject to compliance with applicable regulations, has reserved the right to pay
the redemption price of shares of a Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn from its
corresponding Portfolio. The securities so distributed would be valued pursuant
to the Portfolio's valuation procedures. If a shareholder received a
distribution in kind, the shareholder could incur brokerage or other charges in
converting the securities to cash.
The Trust may, in its absolute discretion, suspend, discontinue or limit the
offering of one or more of its classes of shares at any time. In determining
whether any such action should be taken, the Trust's management intends to
consider all relevant factors, including (without limitation) the size of a Fund
or class, the investment climate and market conditions, the volume of sales and
redemptions of shares, and in the case of Class B shares, the amount of
uncovered distribution charges of the principal underwriter. The Class B
Distribution Plan may continue in effect and payments may be made under the
Plans following any such suspension, discontinuance or limitation of the
offering of shares; however, there is no contractual obligation to continue any
Plan for any particular period of time. Suspension of the offering of shares
would not, of course, affect a shareholder's ability to redeem shares.
SYSTEMATIC WITHDRAWAL PLAN. The transfer agent will send to the shareholder
regular monthly or quarterly payments of any permitted amount designated by the
shareholder based upon the value of the shares held. The checks will be drawn
from share redemptions and hence, although they are a return of principal, may
require the recognition of taxable gain or loss. Income dividends and capital
gains distributions in connection with withdrawal plan accounts will be credited
at net asset value as of the record date for each distribution. Continued
withdrawals in excess of current income will eventually use up principal,
particularly in a period of declining market prices. A shareholder may not have
a withdrawal plan in effect at the same time he or she has authorized Bank
Automated Investing or is otherwise making regular purchases of Fund shares. The
shareholder, the transfer agent or the principal underwriter will be able to
terminate the withdrawal plan at any time without penalty.
SALES CHARGES
The principal underwriter may, from time to time, at its own expense,
provide additional incentives to investment dealers which employ registered
representatives who sell Fund shares and/or shares of other funds distributed by
the principal underwriter. In some instances, such additional incentives may be
offered only to certain investment dealers whose representatives sell or are
expected to sell significant amounts of shares. In addition, the principal
underwriter may from time to time increase or decrease the sales commissions
payable to investment dealers. The principal underwriter may allow, upon notice
to all investment dealers with whom it has agreements, discounts up to the full
sales charge during the periods specified in the notice. During periods when the
discount includes the full sales charge, such investment dealers may be deemed
to be underwriters as that term is defined in the Securities Act of 1933.
SALES CHARGE WAIVERS. Class A shares may be sold at net asset value to current
and retired Directors and Trustees of Eaton Vance funds, including the
Portfolios; to clients and current and retired officers and employees of Eaton
Vance, its affiliates and other investment advisers of Eaton Vance sponsored
funds; to registered representatives and employees of investment dealers and
bank employees who refer customers to registered representatives of invetment
dealers; to officers and employees of IBT and the transfer agent; and to such
persons' spouses, parents, siblings and children and their beneficial accounts.
Class A shares may also be issued at net asset value (1) in connection with the
merger of an investment company or series thereof with a Fund, (2) to investors
making an investment as part of a fixed fee program whereby an entity
unaffiliated with the investment adviser provides multiple investment services,
such as management, brokerage and custody, and (3) to investment advisors,
financial planners or other intermediaries who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; clients of such investment advisors,
financial planners or other intermediaries who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisor, financial planner or other intermediary on the books and records of the
broker or agent; and retirement and deferred compensation plans and trusts used
to fund those plans, including, but not limited to, those defined in Section
401(a), 403(b) or 457 of the Internal Revenue Code of 1986, as amended (the
"Code") and "rabbi trusts". Subject to the applicable provisions of the 1940
Act, the Trust may issue Class A shares at net asset value in the event that an
investment company (whether a regulated or private investment company or a
personal holding company) is merged or consolidated with or acquired by the
Class. Normally no sales charges will be paid in connection with an exchange of
Class A shares for the assets of such investment company. Class A shares may be
sold at net asset value to any investment advisory, agency, custodial or trust
account managed or administered by Eaton Vance or by any parent, subsidiary or
other affiliate of Eaton Vance. Class A shares are offered at net asset value to
the foregoing persons and in the foregoing situations because either (i) there
is no sales effort involved in the sale of shares or (ii) the investor is paying
a fee (other than the sales charge) to the investment dealer involved in the
sale.
The CDSC applicable to Class B shares will be waived in connection with
minimum required distributions from tax-sheltered retirement plans by applying
the rate required to be withdrawn under the applicable rules and regulations of
the Internal Revenue Service to the balance of Class B shares in your account.
STATEMENT OF INTENTION. If it is anticipated that $25,000 or more of Class A
shares and shares of other funds exchangeable for Class A shares of another
Eaton Vance fund will be purchased within a 13-month period, a Statement of
Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum. Shares
held under Right of Accumulation (see below) as of the date of the Statement
will be included toward the completion of the Statement. The Statement
authorizes the transfer agent to hold in escrow sufficient shares (5% of the
dollar amount specified in the Statement) which can be redeemed to make up any
difference in sales charge on the amount intended to be invested and the amount
actually invested. Execution of a Statement does not obligate the shareholder to
purchase or the Fund to sell the full amount indicated in the Statement, and
should the amount actually purchased during the 13-month period be more or less
than that indicated on the Statement, price adjustments will be made. Any
investor considering signing a Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION. The applicable sales charge level for the purchase of
Class A shares is calculated by taking the dollar amount of the current purchase
and adding it to the value (calculated at the maximum current offering price) of
the Class A shares the shareholder owns in his or her account(s) in the Fund,
and shares of other funds exchangeable for Class A shares. The sales charge on
the shares being purchased will then be at the rate applicable to the aggregate.
Shares purchased (i) by an individual, his or her spouse and their children
under the age of twenty-one, and (ii) by a trustee, guardian or other fiduciary
of a single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for the Right of
Accumulation and if qualifying, the applicable sales charge level. For any such
discount to be made available, at the time of purchase a purchaser or his or her
investment dealer must provide the principal underwriter (in the case of a
purchase made through an investment dealer) or the transfer agent (in the case
of an investment made by mail) with sufficient information to permit
verification that the purchase order qualifies for the accumulation privilege.
Confirmation of the order is subject to such verification. The Right of
Accumulation privilege may be amended or terminated at any time as to purchases
occurring thereafter.
DISTRIBUTION AND SERVICE PLANS. The Trust has adopted a Service Plan (the "Class
A Plan") for each Fund's Class A shares that is designed to meet the service fee
requirements of the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD"). (Management believes service fee payments are not
distribution expenses governed by Rule 12b-1 under the 1940 Act, but has chosen
to have the Plan approved as if that Rule were applicable.) The Class A Plan
provides that each Class A may make service fee payments for personal services
and/or the maintenance of shareholder accounts to the principal underwriter,
investment dealers and other persons in amounts not exceeding .25% of its
average daily net assets for any fiscal year. The Trustees of the Trust have
initially implemented the Class A Plan by authorizing Class A to make quarterly
service fee payments to the principal underwriter and investment dealers in
amounts not expected to exceed .20% of its average daily net assets for any
fiscal year which is based on the value of Class A shares sold by such persons
and remaining outstanding for at least twelve months. However, the Class A Plan
authorizes the Trustees of the Trust to increase payments without action by
Class A shareholders of any Fund, provided that the aggregate amount of payments
made in any fiscal year does not exceed .25% of average daily net assets. For
the service fees paid by Class A shares, see Appendix A.
The Trust has also adopted a compensation-type Distribution Plan ("Class B
Plan") pursuant to Rule 12b-1 under the 1940 Act for each Fund's Class B shares.
The Plan is designed to permit an investor to purchase shares through an
investment dealer without incurring an initial sales charge and at the same time
permit the principal underwriter to compensate investment dealers in connection
therewith. The Class B Plan provides that each Fund will pay sales commissions
and distribution fees to the principal underwriter only after and as a result of
the sale of Class B shares of the Fund. On each sale of Fund shares (excluding
reinvestment of distributions) each Fund will pay the principal underwriter
amounts representing (i) sales commissions equal to 5% of the amount received by
the Fund for each Class B share sold and (ii) distribution fees calculated by
applying the rate of 1% over the prime rate then reported in The Wall Street
Journal to the outstanding balance of uncovered distribution charges (as
described below) of the principal underwriter. To pay these amounts, each Class
B pays the principal underwriter a fee, accrued daily and paid monthly, at an
annual rate not exceeding .75% of its average daily net assets to finance the
distribution of its shares. Such fees compensate the principal underwriter for
sales commissions paid by it to investment dealers on the sale of Class B shares
and for interest expenses. The principal underwriter uses its own funds to pay
sales commissions (except on exchange transactions and reinvestments) to
investment dealers at the time of sale equal to 4% of the purchase price of the
Class B shares sold by such dealers. CDSCs paid to the principal underwriter
will be used to reduce amounts owed to it. The Class B Plan provides that the
Fund will make no payments to the principal underwriter in respect of any day on
which there are no outstanding uncovered distribution charges of the principal
underwriter. CDSCs and accrued amounts will be paid by the Trust to the
principal underwriter whenever there exist uncovered distribution charges.
Because payments to the principal underwriter under the Class B Plan are
limited, uncovered distribution charges (sales commissions paid by the principal
underwriter plus interest, less the above fees and CDSCs received by it) may
exist indefinitely. For the sales commissions and CDSCs paid on (and uncovered
distribution charges of) Class B shares, see Appendix B.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the principal underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Trust to the principal underwriter and CDSCs theretofore
paid or payable to the principal underwriter will be subtracted from such
distribution charges; if the result of such subtraction is positive, a
distribution fee (computed at 1% over the prime rate then reported in The Wall
Street Journal) will be computed on such amount and added thereto, with the
resulting sum constituting the amount of outstanding uncovered distribution
charges with respect to such day. The amount of outstanding uncovered
distribution charges of the principal underwriter calculated on any day does not
constitute a liability recorded on the financial statements of the Fund.
The amount of uncovered distribution charges of the principal underwriter at
any particular time depends upon various changing factors, including the level
and timing of sales of shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
investment dealers), the level and timing of redemptions of shares upon which a
CDSC will be imposed, the level and timing of redemptions of shares upon which
no CDSC will be imposed (including redemptions of shares pursuant to the
exchange privilege which result in a reduction of uncovered distribution
charges), changes in the level of the net assets of the Class, and changes in
the interest rate used in the calculation of the distribution fee under the
Plan.
The Class B Plan also authorizes each Class B to make payments of service
fees to the principal underwriter, investment dealers and other persons in
amounts not exceeding .25% of its average daily net assets for personal
services, and/or the maintenance of shareholder accounts. The Trustees of the
Trust have initially implemented this provision of the Class B Plan by
authorizing each Class B to make quarterly service fee payments to the principal
underwriter and investment dealers in amounts not expected to exceed .20% of the
average daily net assets for any fiscal year which is based on the value of
Class B shares sold by such persons and remaining outstanding for at least 12
months. This fee is paid quarterly in arrears based on the value of Class B
shares sold by such persons and remaining outstanding for at least twelve
months. For the service fees paid by Class B shares, see Appendix B.
Currently, payments of sales commissions and distribution fees and of
service fees may equal 1% of a Class's average daily net assets per annum. The
Trust believes that the combined rate of all these payments may be higher than
the rate of payments made under distribution plans adopted by other investment
companies pursuant to Rule 12b-1. Although the principal underwriter will use
its own funds (which may be borrowed from banks) to pay sales commissions at the
time of sale, it is anticipated that the Eaton Vance organization will profit by
reason of the operation of the Plan through an increase in the Fund's assets
(thereby increasing the advisory fee payable to BMR by the Portfolio) resulting
from sale of shares and through the amounts paid to the principal underwriter,
including CDSCs, pursuant to the Plan. The Eaton Vance organization may be
considered to have realized a profit under the Plan if at any point in time the
aggregate amounts theretofore received by the principal underwriter pursuant to
the Plan and from CDSCs have exceeded the total expenses theretofore incurred by
such organization in distributing Class B shares of the Fund. Total expenses for
this purpose will include an allocable portion of the overhead costs of such
organization and its branch offices, which costs will include without limitation
leasing expense, depreciation of building and equipment, utilities,
communication and postage expense, compensation and benefits of personnel,
travel and promotional expense, stationery and supplies, literature and sales
aids, interest expense, data processing fees, consulting and temporary help
costs, insurance, taxes other than income taxes, legal and auditing expense and
other miscellaneous overhead items. Overhead is calculated and allocated for
such purpose by the Eaton Vance organization in a manner deemed equitable to the
Trust.
The Service and Distribution Plans continue in effect from year to year so
long as such continuance is approved at least annually by the vote of both a
majority of (i) the noninterested Trustees of the Trust who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to the Plan (the "Plan Trustees") and (ii) all of the Trustees then in
office. Each Plan may be terminated at any time by vote of a majority of the
Plan Trustees or by a vote of a majority of the outstanding voting securities of
the applicable Class. Each Plan requires quarterly Trustee review of a written
report of the amount expended under the Plan and the purposes for which such
expenditures were made. The Plans may not be amended to increase materially the
payments described therein without approval of the shareholders of the affected
Class and the Trustees. So long as a Plan is in effect, the selection and
nomination of the noninterested Trustees shall be committed to the discretion of
such Trustees. The Class A and Class B Plans were approved by the Trustees,
including the Plan Trustees, on June 23, 1997.
The Trustees of the Trust believe that each Plan will be a significant
factor in the expected growth of each Fund's assets, and will result in
increased investment flexibility and advantages which have benefitted and will
continue to benefit the Fund and its shareholders. Payments for sales
commissions and distribution fees made to the principal underwriter under the
Class B Plan will compensate the principal underwriter for its services and
expenses in distributing Class B shares of the Fund. Service fee payments made
to the principal underwriter and investment dealers provide incentives to
provide continuing personal services to investors and the maintenance of
shareholder accounts. By providing incentives to the principal underwriter and
investment dealers, each Plan is expected to result in the maintenance of, and
possible future growth in, the assets of the Fund. Based on the foregoing and
other relevant factors, the Trustees of the Trust have determined that in their
judgment there is a reasonable likelihood that each Plan will benefit the Fund
and its shareholders.
PERFORMANCE
Average annual total return is determined separately for each Class of a
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the result. The calculation assumes (i) that all distributions are
reinvested at net asset value on the reinvestment dates during the period, (ii)
the deduction of the maximum sales charge from the initial $1,000 purchase order
for Class A shares, (iii) a complete redemption of the investment and, (iv) the
deduction of any CDSC at the end of the period. For further information
concerning the total return of the Classes of a Fund, see Appendix A and
Appendix B.
Yield is computed separately for each Class of a Fund pursuant to a
standardized formula by dividing the net investment income per share earned
during a recent thirty-day period by the maximum offering price (including the
maximum initial sales charge for Class A shares) per share on the last day of
the period and annualizing the resulting figure. Net investment income per share
is calculated from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods, reduced by accrued Fund and Class
expenses for the period with the resulting number being divided by the average
daily number of Class shares outstanding and entitled to receive distributions
during the period. This yield figure does not reflect the deduction of any CDSCs
which (if applicable) are imposed upon certain redemptions at the rates set
forth under "Sales Charges" in the prospectus. Yield calculations assume the
current maximum initial sales charge for Class A shares set forth under "Sales
Charges" in the prospectus. (Actual yield may be affected by variations in sales
charges on investments). A taxable-equivalent yield is computed by using the
tax-exempt yield and dividing by 1 minus a stated rate.
Each Fund may also publish total return figures for each Class which do not
take into account any sales charge. Any performance figure which does not take
into account a sales charge would be reduced to the extent such charge is
imposed. Each Fund's performance may be compared in publications to the
performance of various indices and investments for which reliable data is
available, and to averages, performance rankings, or other information prepared
by recognized mutual fund statistical services. A Fund's performance may differ
from that of other investors in its corresponding Portfolio, including other
investment companies.
The Trust (or principal underwriter) may provide investors with information
on municipal bond investing, which may include comparative performance
information, evaluations of Fund performance, charts and/or illustrations
prepared by independent sources (such as Lipper Analytical Services Inc.,
CDA/Wiesenberger, Morningstar, Inc., The Bond Buyer, the Federal Reserve Board
or The Wall Street Journal). The Trust may also refer in investor publications
to Tax Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to
help illustrate the value of tax free investing, as well as other tax-related
information. Information, charts and illustrations showing the effects of
inflation and taxes (including their effects on the dollar and the return on
various investments) and compounding earnings may also be included in
advertisements and materials furnished to present and prospective investors.
Information about portfolio allocation and holdings of a Portfolio at a
particular date (including ratings assigned by independent ratings services such
as Moody's, S&P and Fitch) may be included in advertisements and other material
furnished to present and prospective shareholders. Such information may be
stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield of a Fund and about average rates of
return on certificates of deposit, bank money market deposit accounts, money
market mutual funds and other short-term investments may also be included in
advertisements, supplemental sales literature or communications of the Fund.
Such information may also compare the tax equivalent yield (or value) of the
Fund to the after-tax yield (or value) of such other investment vehicles. Such
information may be in the form of hypothetical illustrations. A bank certificate
of deposit, unlike mutual fund shares, pays a fixed rate of interest and
entitles the depositor to receive the face amount of the certificate of deposit
at maturity. A bank money market deposit account is a form of savings account
which pays a variable rate of interest. Unlike the Fund's shares, bank
certificates of deposit and bank money market deposit accounts are insured by
the Federal Deposit Insurance Corporation. A money market mutual fund is
designed to maintain a constant value of $1.00 per share and, thus, a money
market fund's shares are subject to less price fluctuation than the Fund's
shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
- cost associated with aging parents;
- funding a college education (including its actual and estimated
cost);
- health care expenses (including actual and projected expenses); -
long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in municipal bond
funds. Such information may describe the following advantages of investing in a
municipal bond mutual fund versus individual municipal bonds: regular monthly
income; free reinvestment of distributions; potential for increased income; bond
diversification; liquidity; low-cost easy access; and active management and in
depth credit analysis by investment professionals. In addition, by investing in
a municipal bond fund instead of individual bonds, an investor can avoid dealing
with the complexities of the municipal bond market, while benefitting from the
market access and lower transactions costs enjoyed by municipal bond funds.
The Trust (or principal underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to investors
or prospective investors. Such material or advertisements may also provide
information on the use of investment professionals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal income
tax purposes. Each Fund has elected to be treated and intends to qualify each
year, as a regulated investment company ("RIC") under the Code. Accordingly,
each Fund intends to satisfy certain requirements relating to sources of its
income and diversification of its assets and to distribute substantially all of
its ordinary income (including tax-exempt income) and net income (after
reduction by any available capital loss carryforwards) in accordance with the
timing requirements imposed by the Code, so as to maintain its RIC status and to
avoid paying any federal income or excise tax. Each Fund so qualified for its
fiscal year ended July 31, 1998. Because each Fund invests its assets in a
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements in order for the Fund to also satisfy these
requirements. Each Portfolio will allocate at least annually among its
investors, including a Fund, each investor's distributive share of the
Portfolio's net taxable (if any) and tax-exempt investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or credit.
For purposes of applying the requirements of the Code regarding qualification as
a RIC, each Fund (i) will be deemed to own its proportionate share of each of
the assets of the corresponding Portfolio and (ii) will be entitled to the gross
income of that Portfolio attributable to such share.
In order to avoid incurring a federal excise tax obligation, the Code
requires that each Fund distribute (or be deemed to have distributed) by
December 31 of each calendar year at least 98% of its ordinary income (not
including tax-exempt income) for such year, at least 98% of its capital gain net
income (which is the excess of its realized capital gains over its realized
capital losses), generally computed on the basis of the one-year period ending
on October 31 of such year, after reduction by (i) any available capital loss
carryforwards and (ii) 100% of any income from the prior year (as previously
computed) that was not paid out during such year and on which the Fund paid no
federal income tax. Under current law, provided that a Fund qualifies as a RIC
and a Portfolio is treated as a partnership for Massachusetts and federal tax
purposes, neither the Fund nor the Portfolio should be liable for any income,
corporate excise or franchise tax in the Commonwealth of Massachusetts.
A Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the relevant Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund, the
Portfolio may be required to liquidate securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio to make distributions to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for a Portfolio (and, hence, for the relevant Fund) to the extent that
the issuers of these securities default on their obligations pertaining thereto.
The Code is not entirely clear regarding the federal income tax consequences of
a Portfolio's taking certain positions in connection with ownership of such
distressed securities. For example, the Code is unclear regarding: (i) when a
Portfolio may cease to accrue interest, original issue discount, or market
discount; (ii) when and to what extent deductions may be taken for bad debts or
worthless securities; (iii) how payments received on obligations in default
should be allocated between principal and income; and (iv) whether exchanges of
debt obligations in a workout context are taxable.
Distributions by a Fund of net tax-exempt interest income that are properly
designated as "exempt-interest dividends" may be treated by shareholders as
interest excludable from gross income under Section 103(a) of the Code. In order
for a Fund to be entitled to pay the tax-exempt interest income allocated to it
by its corresponding Portfolio as exempt-interest dividends to its shareholders,
the Fund must and intends to satisfy certain requirements, including the
requirement that, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consists of obligations the interest on which
is exempt from regular federal income tax under Code Section 103(a). For
purposes of applying this 50% requirement, the Fund will be deemed to own its
proportionate share of each of the assets of the Portfolio, and the Portfolio
currently intends to invest its assets in a manner such that the Fund can meet
this 50% requirement. Interest on certain municipal obligations is treated as a
tax preference item for purposes of the AMT. Shareholders of each Fund are
required to report tax-exempt interest on their federal income tax returns.
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (i.e., obligations with a term of more than one
year) purchased after April 30, 1993 other than, in general, at their original
issue, is taxable as ordinary income. A long-term debt obligation is generally
treated as acquired at a market discount if purchased after its original issue
at a price less than (i) the stated principal amount payable at maturity, in the
case of an obligation that does not have original issue discount or (ii) in the
case of an obligation that does have original issue discount, the sum of the
issue price and any original issue discount that accrued before the obligation
was purchased, subject to a de minimis exclusion.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected that
similar proposals may be introduced in the future. Under federal tax legislation
enacted in 1986, the federal income tax exemption for interest on certain
municipal obligations was eliminated or restricted. As a result of such
legislation, the availability of municipal obligations for investment by a
Portfolio and the value of the securities held by it may be affected.
In the course of managing its investments, a Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when- issued
securities and options and futures transactions. A Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of discount with respect to certain stripped municipal obligations or
their stripped coupons, and certain realized gains or income attributable to
accrued market discount. Any distributions by a Fund of its share of such
capital gains (after reduction by any capital loss carryforwards) or taxable
income would be taxable to shareholders of the Fund. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to the
tax exempt interest earned by the corresponding Portfolio and allocated to the
Fund. Certain distributions of a Fund, if declared in October, November or
December and paid the following January, may be taxed to shareholders as if
received on December 31 of the year in which they are declared.
A Portfolio's transactions in options and futures contracts will be subject
to special tax rules that may affect the amount, timing and character of Fund
distributions to shareholders. For example, certain positions held by a
Portfolio on the last business day of each taxable year will be "marked to
market" (i.e., treated as if closed out on such day), and any resulting gain or
loss will generally be treated as 60% long-term and 40% short-term capital gain
or loss. Certain positions held by a Portfolio that substantially diminish the
Portfolio's risk of loss with respect to other positions in its portfolio may
constitute "straddles," which are subject to tax rules that may cause deferral
of Portfolio losses, adjustments in the holding periods of Portfolio securities,
and conversion of short-term capital losses into long-term capital losses. A
Portfolio may have to limit its activities in options and futures contracts in
order to enable the relevant Fund to maintain its RIC status.
Any loss realized upon the sale or exchange of shares of a Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and, to
the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net
long-term capital gains with respect to such shares. In addition, a loss
realized on a redemption or other disposition of Fund shares may be disallowed
to the extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by a Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service (the
"IRS") as well as shareholders with respect to whom the Fund has received
certain information from the IRS or a broker, may be subject to "backup"
withholding of federal income tax arising from the Fund's taxable dividends and
other distributions as well as the proceeds of redemption transactions
(including repurchases and exchanges), at a rate of 31%. An individual's TIN is
generally his or her social security number.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own tax
advisers with respect to special tax rules that may apply in their particular
situations, as well as the state, local, and, where applicable, foreign tax
consequences of investing in a Fund. See Appendix C for state tax information
for some states.
PORTFOLIO TRADING
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other accounts
managed by it. BMR places the portfolio security transactions of each Portfolio
and of all other accounts managed by it for execution with many firms. BMR uses
its best efforts to obtain execution of portfolio security transactions at
prices which are advantageous to each Portfolio and at reasonably competitive
spreads or (when a disclosed commission is being charged) at reasonably
competitive commission rates. In seeking such execution, BMR will use its best
judgment in evaluating the terms of a transaction, and will give consideration
to various relevant factors, including without limitation the full range and
quality of the executing firm's services, the value of the brokerage and
research services provided, the responsiveness of the firm to BMR, the size and
type of the transaction, the nature and character of the market for the
security, the confidentiality, speed and certainty of effective execution
required for the transaction, the general execution and operational capabilities
of the executing firm, the reputation, reliability, experience and financial
condition of the firm, the value and quality of the services rendered by the
firm in this and other transactions, and the reasonableness of the spread or
commission, if any. Municipal obligations, including state obligations,
purchased and sold by the Portfolios are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
broker-dealers and banks acting for their own account rather than as brokers, or
otherwise involve transactions directly with the issuer of such obligations.
Such firms attempt to profit from such transactions by buying at the bid price
and selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked price is customarily referred to as the
spread. The Portfolios may also purchase municipal obligations from
underwriters, and dealers in fixed-price offerings, the cost of which may
include undisclosed fees and concessions to the underwriters. On occasion it may
be necessary or appropriate to purchase or sell a security through a broker on
an agency basis, in which case the Portfolio will incur a brokerage commission.
Although spreads or commissions on portfolio security transactions will, in the
judgment of BMR, be reasonable in relation to the value of the services
provided, spreads or commissions exceeding those which another firm might charge
may be paid to firms who were selected to execute transactions on behalf of the
Portfolios and BMR's other clients for providing brokerage and research services
to BMR.
The following table shows brokerage commission paid by each Portfolio during
the three fiscal years ended July 31, 1998:
PORTFOLIO 7/31/98 7/31/97 7/31/96
- --------- -------- ------- --------
Arizona ............... $ -0- $ 7,927 $ 22,534
Colorado .............. 5,307 2,870 13,997
Connecticut ........... 15,890 6,551 33,097
Michigan .............. -0- 18,638 -0-
Minnesota ............. 3,856 3,715 21,625
New Jersey ............ 12,088 17,765 41,780
Pennsylvania .......... 31,468 48,478 106,001
Texas ................. 312 1,277 5,915
All of such portfolio security transactions were directed to firms which
provided some research services to BMR or its affiliates (although many of such
firms may have been selected in any particular transaction primarily because of
their execution capabilities), and the amounts of such transactions for the
fiscal year ended July 31, 1998 were as follows: Arizona -- $0; Colorado --
$104,632,388; Connecticut -- $318,773,853; Michigan -- $0; Minnesota --
$77,705,122; New Jersey -- $248,151,940; Pennsylvania -- $612,073,149; and Texas
- -- $6,255,461.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of a Portfolio
may receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if BMR
determines in good faith that such compensation was reasonable in relation to
the value of the brokerage and research services provided. This determination
may be made either on the basis of that particular transaction or on the basis
of overall responsibilities which BMR and its affiliates have for accounts over
which they exercise investment discretion. In making any such determination, BMR
will not attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include advice as
to the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement); and the "Research
Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, analytical, statistical and quotation services, data, information and
other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealer firms which execute portfolio transactions for the clients of such
advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, BMR receives Research Services from
many broker-dealer firms with which BMR places the Portfolios' transactions and
from third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic, political, business
and market information, industry and company reviews, evaluations of securities
and portfolio strategies and transactions, proxy voting data and analysis
services, technical analysis of various aspects of the securities markets,
recommendations as to the purchase and sale of securities and other portfolio
transactions, financial, industry and trade publications, news and information
services, pricing and quotation equipment and services, and research oriented
computer hardware, software, data bases and services. Any particular Research
Service obtained through a broker-dealer may be used by BMR in connection with
client accounts other than those accounts which pay commissions to such
broker-dealer. Any such Research Service may be broadly useful and of value to
BMR in rendering investment advisory services to all or a significant portion of
its clients, or may be relevant and useful for the management of only one
client's account or of a few clients' accounts, or may be useful for the
management of merely a segment of certain clients' accounts, regardless of
whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by each
Portfolio is not reduced because BMR receives such Research Services. BMR
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient portfolio
security transactions to such firms to ensure the continued receipt of Research
Services which BMR believes are useful or of value to it in rendering investment
advisory services to its clients.
The Portfolios and BMR may also receive Research Services from underwriters
and dealers in fixed-price offerings, which Research Services are reviewed and
evaluated by BMR in connection with its investment responsibilities. The
investment companies sponsored by BMR or Eaton Vance may allocate trades in such
offerings to acquire information relating to the performance, fees and expenses
of such companies and other mutual funds, which information is used by the
Trustees of such companies to fulfill their responsibility to oversee the
quality of the services provided by various entities, including BMR, to such
companies. Such companies may also pay cash for such information.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at reasonably
competitive spreads or commission rates, BMR is authorized to consider as a
factor in the selection of any broker-dealer firm with whom portfolio orders may
be placed the fact that such firm has sold or is selling shares of the Funds or
of other investment companies sponsored by BMR or Eaton Vance. This policy is
not inconsistent with a rule of the NASD, which rule provides that no firm which
is a member of the NASD shall favor or disfavor the distribution of shares of
any particular investment company or group of investment companies on the basis
of brokerage commissions received or expected by such firm from any source.
Municipal obligations considered as investments for the Portfolios may also
be appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by a Portfolio and one or
more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may be
instances where a Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order may
not be allocated on a pro rata basis where, for example: (i) consideration is
given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Portfolio from time to time, it is the opinion of the Trustees of the Trust and
the Portfolios that the benefits from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
FINANCIAL STATEMENTS
The audited financial statements of and the independent auditors' reports
for the Funds and the Portfolios, appear in the Funds' most recent annual report
to shareholders and are incorporated by reference into this SAI. A copy of the
Funds' annual report accompanies this SAI. Consistent with applicable law,
duplicate mailings of shareholder reports and certain other Fund information to
shareholders residing at the same address may be eliminated.
Registrant incorporates by reference the audited financial information for
the Funds and the Portfolios listed below for the fiscal year ended July 31,
1998, as previously filed electronically with the Commission:
Eaton Vance Arizona Municipals Fund Arizona Municipals Portfolio
Eaton Vance Colorado Municipals Fund Colorado Municipals Portfolio
Eaton Vance Connecticut Municipals Fund Connecticut Municipals Portfolio
Eaton Vance Michigan Municipals Fund Michigan Municipals Portfolio
Eaton Vance Minnesota Municipals Fund Minnesota Municipals Portfolio
Eaton Vance New Jersey Municipals Fund New Jersey Municipals Portfolio
Eaton Vance Pennsylvania Municipals Fund Pennsylvania Municipals Portfolio
Eaton Vance Texas Municipals Fund Texas Municipals Portfolio
(Accession No. 0000950109-98-004712)
<PAGE>
APPENDIX A
CLASS A FEES, PERFORMANCE AND OWNERSHIP
SERVICE FEES
For the fiscal year ended July 31, 1998, the following table shows (1)
amount of service fees on Class A shares paid under the Plan, and (2) amount of
service fees on Class A shares paid to investment dealers. The service fees paid
by the Funds that were not paid to investment dealers were retained by the
principal underwriter.
SERVICE FEES TO
CLASS A SERVICE FEES INVESTMENT DEALERS
- ------- ------------ ------------------
Arizona .......................... $3,305 $3,128
Colorado ......................... 2,508 2,508
Connecticut ...................... 4,172 3,691
Michigan ......................... 1,840 1,840
Minnesota ........................ 3,254 3,254
New Jersey ....................... 8,455 8,455
Pennsylvania ..................... 6,392 6,392
Texas ............................ 585 585
PRINCIPAL UNDERWRITER
The total sales charges paid in connection with sales of Class A shares
during the fiscal year ended July 31, 1998 follow:
<TABLE>
<CAPTION>
SALES CHARGES TO SALES CHARGES TO
CLASS A TOTAL SALES CHARGES INVESTMENT DEALERS PRINCIPAL UNDERWRITER
- ------- ------------------- ------------------ ---------------------
<S> <C> <C> <C>
Arizona .................................. $57,233 $54,168 $ 3,065
Colorado ................................. 36,501 34,408 2,093
Connecticut .............................. 5,466 992 4,474
Michigan ................................. 1,301 79 1,222
Minnesota ................................ 57,394 54,032 3,362
New Jersey ............................... 17,938 3,217 14,721
Pennsylvania ............................. 70,440 66,592 3,848
Texas .................................... 2,000 1,903 97
</TABLE>
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the principal underwriter. For the fiscal year ended July 31, 1998, Class A
paid the principal underwriter for repurchase transactions handled by it $2.50
for each such transaction which aggregated as follows: Arizona -- $7.50;
Colorado -- $40; Connecticut -- $447.50; Michigan -- $745; Minnesota -- $315;
New Jersey -- $92.50; Pennsylvania -- $72.50; and Texas -- $12.50.
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return on
a hypothetical investment in shares of $1,000. Total return for the period prior
to August 1, 1997 reflects the total return of a predecessor to Class A. Total
return prior to the Predecessor Fund's commencement of operations reflects the
total return of Class B, adjusted to reflect the Class A sales charge. The Class
B total return has not been adjusted to reflect certain other expenses (such as
distribution and/or service fees). If such adjustments were made, the Class A
total return would be different. The "Value of Initial Investment" reflects the
deduction of the maximum sales charge of 4.75%. Past performance is no guarantee
of future results. Investment return and principal value will fluctuate; shares,
when redeemed, may be worth more or less than their original cost. Information
presented with two asterisks (**) includes the effect of subsidizing expenses.
Returns would have been lower without subsidies.
VALUE OF A $1,000 INVESTMENT -- ARIZONA
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 7/25/91 $952.23 $1,597.13 67.71% 7.64% 59.70% 6.90%
5 Years Ended
7/31/98** 7/31/93 $952.76 $1,255.29 31.76% 5.67% 25.53% 4.65%
1 Year Ended
7/31/98 7/31/97 $952.79 $1,013.17 6.34% 6.34% 1.32% 1.32%
- ------------
*Predecessor Fund commenced operations December 13, 1993.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- COLORADO
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 8/25/92 $952.17 $1,410.78 48.16% 6.85% 41.08% 5.98%
5 Years Ended
7/31/98** 7/31/93 $952.46 $1,258.77 32.16% 5.74% 25.88% 4.71%
1 Year Ended
7/31/98 7/31/97 $952.93 $1,006.42 5.62% 5.62% 0.64% 0.64%
- ------------
*Predecessor Fund commenced operations December 10, 1993.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- CONNECTICUT
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 5/1/92 $952.74 $1,431.65 50.27% 6.73% 43.16% 5.91%
5 Years Ended
7/31/98** 7/31/93 $952.18 $1,240.54 30.28% 5.43% 24.05% 4.41%
1 Year Ended
7/31/98 7/31/97 $952.56 $1,009.37 5.97% 5.97% 0.94% 0.94%
- ------------
*Predecessor Fund commenced operations April 19, 1994.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- MICHIGAN
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/19/91 $952.89 $1,537.33 61.33% 6.78% 53.73% 6.08%
5 Years Ended
7/31/98** 7/31/93 $952.41 $1,223.05 28.41% 5.13% 22.30% 4.11%
1 Year Ended
7/31/98 7/31/97 $952.15 $1,008.78 5.95% 5.95% 0.88% 0.88%
- ------------
*Predecessor Fund commenced operations December 7, 1993.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- MINNESOTA
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 7/29/91 $952.56 $1,486.91 56.10% 6.56% 48.69% 5.82%
5 Years Ended
7/31/98** 7/31/93 $952.22 $1,237.12 29.92% 5.38% 23.71% 4.35%
1 Year Ended
7/31/98 7/31/97 $952.24 $1,008.76 5.94% 5.94% 0.88% 0.88%
- ------------
*Predecessor Fund commenced operations December 9, 1993.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- NEW JERSEY
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 1/8/91 $952.43 $1,657.55 74.04% 7.61% 65.76% 6.91%
5 Years Ended
7/31/98** 7/31/93 $952.33 $1,267.79 33.13% 5.89% 26.78% 4.86%
1 Year Ended
7/31/98 7/31/97 $952.08 $1,011.45 6.24% 6.24% 1.14% 1.14%
- ------------
*Predecessor Fund commenced operations April 13, 1994.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- PENNSYLVANIA
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 1/8/91 $952.88 $1,609.98 68.96% 7.18% 61.00% 6.50%
5 Years Ended
7/31/98** 7/31/93 $952.24 $1,243.98 30.64% 5.49% 24.40% 4.46%
1 Year Ended
7/31/98 7/31/97 $952.17 $ 991.89 4.17% 4.17% -0.81% -0.81%
- ------------
*Predecessor Fund commenced operations June 1, 1994.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- TEXAS
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 3/24/92 $952.46 $1,465.68 53.88% 7.02% 46.56% 6.21%
5 Years Ended
7/31/98** 7/31/93 $952.54 $1,254.32 31.69% 5.66% 25.43% 4.64%
1 Year Ended
7/31/98 7/31/97 $952.24 $1,014.59 6.55% 6.55% 1.46% 1.46%
- ------------
*Predecessor Fund commenced operations December 8, 1993.
</TABLE>
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 2, 1998, the Trustees and Officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of each Class A
and of each Fund. In addition, as of the same date, the following record owners
held the amounts of Class A shares indicated below, which were held on behalf of
their customers who are the beneficial owners of such shares, and as to which
they have voting power under certain limited circumstances:
<TABLE>
<S> <C> <C> <C>
ARIZONA FUND - Donaldson Lufkin Jenrette Jersey City, NJ 15.6%
FTC & Co. Denver, CO 8.6%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 9.8%
COLORADO FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 6.2%
Olde Discount Detroit, MI 6.0%
CONNECTICUT FUND - Corelink Financial Inc. Concord, CA 9.6%
Raymond James & Assoc. Inc. Essex, CT 12.7%
MICHIGAN FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 17.9%
Donaldson Lufkin Jenrette Jersey City, NJ 15.4%
NEW JERSEY FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 10.9%
NFSC Summit, NJ 8.2%
US Clearing Corp. New York, NY 6.8%
Olde Discount Detroit, MI 6.5%
PENNSYLVANIA FUND - Dime Bank Honesdale, PA 8.7%
Donaldson Lufkin Jenrette Jersey City, NJ 9.2%
TEXAS FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 52.1%
In addition, as of the same date, the following shareholders owned of record, the percentage of each Fund's Class A shares
indicated after their name:
ARIZONA FUND - Betty E. Howard Trustee Scottsdale, AZ 5.1%
U/A/DTD 4-12-88 FBO
Betty E. Howard
MICHIGAN FUND - Patricia A. Doyle & Mary Dianne Sanders & Michael J. Grosse Pointe Shores, MI 9.4%
Doyle TTEE John H. Doyle Rev Trust U/A dtd
2/2/79
Patricia A. Doyle Grosse Pointe Shores, MI 7.2%
MINNESOTA FUND - Dorothy M. Allen Aitkin, MN 8.9%
Elayne J. Aiple Stillwater, MN 6.9%
PENNSYLVANIA FUND - Peter Depaul Irrev Fmly Trust Blue Bell, PA 9.2%
Josephine J. Kuhn Pittsburgh, PA 9.1%
TEXAS FUND - Dr. H. David Medley & Rosemary Medley Dallas, TX 24.1%
Margaretha R. Lafferty Houston, TX 9.1%
Dick D. Heller & Evelyn J. Heller Mission, TX 8.6%
TTEES Dick Heller & Evelyn Heller
Rev Trust U/a Dtd 2-3-98
</TABLE>
To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of any Fund's outstanding Class A shares as of such
date.
<PAGE>
APPENDIX B
CLASS B FEES, PERFORMANCE AND OWNERSHIP
DISTRIBUTION AND SERVICE FEES
The following table shows, for the fiscal year ended July 31, 1998, (1)
sales commissions paid by the principal underwriter to investment dealers on
sales of Class B shares, (2) distribution payments to the principal underwriter
under the Distribution Plan, (3) CDSC payments to the principal underwriter, (4)
service fees on Class B shares, and (5) the amount of service fees on Class B
shares paid to investment dealers. The service fees paid by the Funds that were
not paid to investment dealers were retained by the principal underwriter.
<TABLE>
<CAPTION>
DISTRIBUTION CDSC SERVICE
PAYMENTS TO PAYMENTS TO FEES TO
SALES THE PRINCIPAL THE PRINCIPAL SERVICE INVESTMENT
CLASS B COMMISSIONS UNDERWRITER UNDERWRITER FEES DEALERS
- ------- ----------- ----------- ----------- ---- -------
<S> <C> <C> <C> <C> <C>
Arizona ........................ $206,091 $ 775,844 $302,000 $194,445 $192,037
Colorado ....................... 136,538 289,494 159,000 69,180 68,899
Connecticut .................... 207,565 1,240,622 317,000 319,752 317,021
Michigan ....................... 145,756 1,035,452 258,000 271,480 269,303
Minnesota ...................... 130,428 488,671 142,000 120,058 119,719
New Jersey ..................... 749,296 2,470,627 632,000 616,528 612,661
Pennsylvania ................... 586,600 2,809,571 669,000 714,605 711,425
Texas .......................... 19,095 144,546 66,000 36,184 36,168
</TABLE>
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction handled
by the principal underwriter. For the fiscal year ended July 31, 1998, Class B
paid the principal underwriter for repurchase transactions handled by it $2.50
for each such transaction which aggregated as follows: Arizona -- $1,380;
Colorado -- $550; Connecticut -- $1,295; Michigan -- $1,682.50; Minnesota --
$725; New Jersey -- $4,942.50; Pennsylvania -- $6,380; and Texas -- $237.50.
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return on
a hypothetical investment of $1,000 in Class B shares for the periods shown in
each table. Past performance is not indicative of future results. Investment
return and principal value will fluctuate; shares, when redeemed, may be worth
more or less than their original cost. Information presented with two asterisks
(**) includes the effect of subsidizing expenses. Return would have been lower
without subsidies.
VALUE OF A $1,000 INVESTMENT -- ARIZONA
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE INVESTMENT DEDUCTING DEDUCTING
DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE INVESTMENT CDSC ON 7/31/98 CDSC ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 7/25/91 $1,000 $1,666.15 $1,666.15 66.62% 7.54% 66.62% 7.54%
5 Years
Ended
7/31/98** 7/31/93 $1,000 $1,308.84 $1,288.84 30.88% 5.53% 28.88% 5.21%
1 Year
Ended
7/31/98 7/31/97 $1,000 $1,055.44 $1,005.44 5.54% 5.54% 0.54% 0.54%
- ------------
* Investment operations began on July 25, 1991.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- COLORADO
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE INVESTMENT DEDUCTING DEDUCTING
DEDUCTING AFTER DEDUCTIN THE MAXIMUM CDSC THE MAXIMUM CDSC G
INVESTMENT INVESTMENT AMOUNT OF THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE INVESTMENT CDSC ON 7/31/98 CDSC ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 8/25/92 $1,000 $1,454.29 $1,444.29 45.43% 6.52% 44.43% 6.40%
5 Years
Ended
7/31/98** 7/31/93 $1,000 $1,297.26 $1,277.26 29.73% 5.34% 27.73% 5.02%
1 Year
Ended
7/31/98 7/31/97 $1,000 $1,047.44 $ 997.44 4.74% 4.74% -0.26% -0.26%
- ------------
* Investment operations began on August 25, 1992.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- CONNECTICUT
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE INVESTMENT DEDUCTING DEDUCTING
DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE INVESTMENT CDSC ON 7/31/98 CDSC ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ----------- ----------- --------------- ----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 5/1/92 $1,000 $1,449.61 $1,449.61 44.96% 6.12% 44.96% 6.12%
5 Years
Ended**
7/31/98 7/31/93 $1,000 $1,256.89 $1,237.11 25.69% 4.68% 23.71% 4.35%
1 Year
Ended
7/31/98 7/31/97 $1,000 $1,049.93 $ 999.93 4.99% 4.99% -0.01% -0.01%
- ------------
* Investment operations began on May 1, 1992.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- MICHIGAN
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE INVESTMENT DEDUCTING DEDUCTING
DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE INVESTMENT CDSC ON 7/31/98 CDSC ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ----------- --------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 4/19/91 $1,000 $1,608.61 $1,608.61 60.86% 6.74% 60.86% 6.74%
5 Years
Ended
7/31/98** 7/31/93 $1,000 $1,280.37 $1,260.37 28.04% 5.07% 26.04% 4.74%
1 Year
Ended
7/31/98 7/31/97 $1,000 $1,051.13 $1,001.13 5.11% 5.11% 0.11% 0.11%
- ------------
* Investment operations began on April 19, 1991.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- MINNESOTA
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE INVESTMENT DEDUCTING DEDUCTING
DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE INVESTMENT CDSC ON 7/31/98 CDSC ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 7/29/91 $1,000 $1,511.97 $1,511.97 51.20% 6.07% 51.20% 6.07%
5 Years
Ended
7/31/98** 7/31/93 $1,000 $1,258.41 $1,238.63 25.84% 4.70% 23.86% 4.37%
1 Year
Ended
7/31/98 7/31/97 $1,000 $1,049.88 $ 999.88 4.99% 4.99% -0.01% -0.01%
- ----------
* Investment operations began on July 29, 1991.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- NEW JERSEY
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE INVESTMENT DEDUCTING DEDUCTING
DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE INVESTMENT CDSC ON 7/31/98 CDSC ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ----------- ----------- --------------- ----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 1/8/91 $1,000 $1,665.43 $1,665.43 66.54% 6.98% 66.54% 6.98%
5 Years
Ended
7/31/98** 7/31/93 $1,000 $1,274.04 $1,254.24 27.40% 4.96% 25.42% 4.63%
1 Year
Ended
7/31/98 7/31/97 $1,000 $1,054.14 $1,004.14 5.41% 5.41% 0.41% 0.41%
- ----------
* Investment operations began on January 8, 1991.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- PENNSYLVANIA
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE INVESTMENT DEDUCTING DEDUCTING
DEDUCTING AFTER DEDUCTIN THE MAXIMUM CDSC THE MAXIMUM CDSCG
INVESTMENT INVESTMENT AMOUNT OF THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE INVESTMENT CDSC ON 7/31/98 CDSC ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ----------- ----------- --------------- ----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 1/8/91 $1,000 $1,626.73 $1,626.73 62.67% 6.65% 62.67% 6.65%
5 Years
Ended
7/31/98** 7/31/93 $1,000 $1,257.83 $1,238.37 25.78% 4.69% 23.84% 4.37%
1 Year
Ended
7/31/98 7/31/97 $1,000 $1,032.27 $ 983.05 3.23% 3.23% -1.70% -1.70%
- ------------
* Investment operations began on January 8, 1991.
</TABLE>
VALUE OF A $1,000 INVESTMENT -- TEXAS
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE INVESTMENT DEDUCTING DEDUCTING
DEDUCTING AFTER DEDUCTIN THE MAXIMUM CDSC THE MAXIMUM CDSC G
INVESTMENT INVESTMENT AMOUNT OF THE MAXIMUM THE MAXIMUM ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT CDSC ON 7/31/98 CDSC ON 7/31/98 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ------------- ---------- ----------- --------------- --------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 3/24/92 $1,000 $1,541.98 $1,541.98 54.19% 7.06% 54.19% 7.06%
5 Years
Ended
7/31/98** 7/31/93 $1,000 $1,319.63 $1,299.63 31.96% 5.70% 29.96% 5.38%
1 Year
Ended
7/31/98 7/31/97 $1,000 $1,057.40 $1,007.40 5.74% 5.74% 0.74% 0.74%
- ------------
* Investment operations began on March 24, 1992.
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 2, 1998, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of each Class B
and of each Fund. As of November 2, 1998, Merrill Lynch, Pierce, Fenner & Smith,
Inc., Jacksonville, FL was the record owner of the following amounts of the
Class B shares, which are held on behalf of its customers who are the beneficial
owners of such shares, and as to which it had voting power under certain limited
circumstances: Arizona -- 11.9%; Colorado -- 8.6%; Connecticut -- 18.1%;
Michigan -- 20.2%; Minnesota -- 7.3%; New Jersey -- 10.3%; Pennsylvania --
14.3%; and Texas -- 34.7%. To the knowledge of the Trust, no other person owned
of record or beneficially 5% or more of any Fund's outstanding Class B shares as
of such date.
<PAGE>
APPENDIX C: STATE SPECIFIC INFORMATION
RISKS OF CONCENTRATION
The following information as to certain state specific considerations is
given to investors in view of a Portfolio's policy of concentrating its
investments in particular state issuers. Such information supplements the
information in the prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete description
and is based on information from official statements relating to securities
offerings of issuers of each particular state. Neither the Trust nor the
Portfolios have independently verified this information.
The bond ratings provided in the prospectus are current as of the date of
the prospectus and are based on economic conditions which may not continue;
moreover, there can be no assurance that particular bond issues may not be
adversely affected by changes in economic, political or other conditions. Unless
stated otherwise, the ratings indicated are for obligations of the state. A
state's political subdivisions may have different ratings which are unrelated to
the ratings assigned to state obligations.
ARIZONA
The state's ability to raise revenues is limited by Constitutional and
legislative restrictions on property tax increases. There is also a limit on
annual spending. The state does not issue general obligation bonds, but relies
on pay-as-you-go capital outlays, revenue bonds and certificates of
participation to finance projects. Each of these projects is individually rated
based on its specific creditworthiness. Subject to certain exceptions, the
maximum amount of property taxes levied by any Arizona county, city, town or
community college district for their operations and maintenance expenditures
cannot exceed the amount levied in a preceding year by more than two percent.
Certain taxes are specifically exempt from this limit, including taxes levied
for debt service payments. Annual property tax levies for the payment of general
obligation bonded indebtedness are unlimited as to rate or amount. However,
there are Constitutional limitations on the aggregate amount of general
obligation bonded indebtedness an Arizona municipality may incur, and these
limitations could impede a municipality's ability to respond to the needs of a
fast-growing population for additional public facilities and services.
COLORADO
The major revenue sources of the state are the individual income tax and the
general sales and use tax. Because of limitations contained in the state
constitution, the state of Colorado issues no general obligation bonds. Several
agencies and instrumentalities of state government, however, are authorized by
statute to issue bonds secured by revenues from specific projects and activities
or to enter into lease-purchase financings which are subject to annual
appropriation. Additionally, the state is authorized to issue short-term revenue
anticipation notes. To the extent the Portfolio holds debt of local units of
government whose revenues may rely in part on distributions from the state, the
fiscal health of the state will have an indirect affect on the Portfolio. The
state is required to have a balanced budget each fiscal year.
There are approximately 2,000 units of local government in Colorado,
including counties, statutory cities and towns, home-rule cities and counties,
school districts and a variety of water, sewer and other special districts, all
with various constitutional and statutory authority to levy taxes and incur
indebtedness. The major sources of revenue for payment of local government
indebtedness are the ad valorem property tax, which presently is imposed and
collected solely at the local level, sales and use taxes, and revenue from
special projects.
A 1992 amendment to the state Constitution (the "TABOR Amendment") restricts
growth of state and local government spending to the rate of inflation plus
growth (as measured by population, school enrollment, or construction depending
on the government entity); and requires voter approval of (a) all new taxes or
tax increases and (b) the issuance of most types of debt. For fiscal year 1998,
"excess" revenues of approximately $500 million is expected to be returned to
the residents of the state pursuant to the TABOR Amendment.
CONNECTICUT
For the fiscal year ended June 30, 1997, the state's General Fund ran an
operating surplus, based on the state's budgetary method of accounting, of
approximately $262,600,000. The state's primary method for financing capital
projects is through the sale of general obligation bonds. These bonds are backed
by the full faith and credit of the state. As of October 1, 1998, the state had
authorized direct general obligation bond indebtedness totaling $12,397,960,000,
of which $10,947,625,000 had been approved for issuance by the State Bond
Commission and $9,584,857,000 had been issued. As of October 1, 1998, state
direct general obligation indebtedness outstanding was $6,717,837,000.
In addition, the state has limited or contingent liability on a significant
amount of other bonds issued by the following quasi-public agencies: the
Connecticut Housing Finance Authority, the Connecticut Development Authority,
the Connecticut Higher Education Supplemental Loan Authority, the Connecticut
Resources Recovery Authority and the Connecticut Health and Educational
Facilities Authority. Such bonds have also been issued by the cities of
Bridgeport and West Haven and the Southeastern Connecticut Water Authority.
In 1984, the state established a program to plan, construct and improve the
State's transportation system (other than Bradley International Airport). The
total cost of the program through June 30, 2002, is currently estimated to be
$12.3 billion, to be met from federal, state, and local funds. The state expects
to finance most of its $5.1 billion share of such cost by issuing $4.6 billion
of special tax obligation ("STO") bonds. The STO bonds are payable solely from
specified motor fuel taxes, motor vehicle receipts, and license, permit and fee
revenues pledged therefor and credited to the Special Transportation Fund, which
was established to budget and account for such revenues.
The state's Department of Information Technology is reviewing the state's
Year 2000 exposure and developing plans for modification or replacement of
existing software that it believes will prevent significant operations problems.
There is a risk that the plan will not be completed on time, that planned
testing will not reveal all problems, or that systems of others on when the
state relies will not be timely remediated. If necessary remediation is not
completed in a timely fashion, the Year 2000 problem may have a material impact
on the operations of the state.
The state, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of the
following cases might have a significant impact on the state's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury who have been placed in certain state hospitals and other
persons with acquired brain injury who are in the custody of the Department of
Mental Health and Addiction Services; claiming that their constitutional rights
are violated by placement in state hospitals alleged not to provide adequate
treatment and training, and seeking placement in community residential settings
with appropriate support services; (iii) litigation involving claims by Indian
tribes to a portion of the state's land area; (iv) an action by certain students
and municipalities claiming that the state's formula for financing public
education violates the state's Constitution and seeking a declaratory judgment
and injunctive relief; and (v) an action on behalf of black and Hispanic school
children in the City of Hartford seeking "integrated education" in the greater
Hartford metropolitan area.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in recent
years. Regional economic difficulties, reductions in revenues, and increased
expenses could lead to further fiscal problems for the state and its political
subdivisions, authorities, and agencies. This could result in declines in the
value of their outstanding obligations, reductions in their ability to pay
interest and principal thereon, and increases in their future borrowing costs.
MICHIGAN
Under the state Constitution, the raising of taxes by the Legislature is
limited if doing so would cause the ratio of Total State Revenues (except
federal aid) to Personal Income of Michigan (as such terms are defined in the
state Constitution) to exceed certain limits. The only exceptions to this
revenue limit are a majority approval of a referendum question or a specific
emergency declared by a two-thirds vote of the Legislature. However, this limit
does not apply to taxes imposed for the payment of principal and interest on
bonds of the state, if the bonds are approved by voters and authorized by a vote
of two-thirds of the members of each House of the Legislature and certain school
district loans. Local units of government and local authorities are authorized
to issue bonds and other evidences of indebtedness in a variety of situations
without the approval of electors, but the ability of the obligor to levy taxes
for the payment of such obligations is subject to the foregoing limitations
unless the obligations were authorized before December 23, 1978 or approved by
the electors. The Constitution prohibits the state from reducing the proportion
of total state spending paid to all local units of government, taken as a group,
below that proportion in effect in the 1978-79 fiscal year. The state may not
mandate new or increased levels of services to be provided by local units
without making appropriations to cover any increased costs.
Under the state Constitution, the total amount of general ad valorem taxes
imposed on taxable property in any year cannot exceed certain millage
limitations specified by the Constitution, statute or charter. The Constitution
prohibits local units of government from levying any tax not authorized by law
or charter, or from increasing the rate of an existing tax above the rate
authorized by law or charter. The Constitution also contains millage reduction
provisions. Under such provisions, should the value of taxable property
(exclusive of new construction and improvements) increase at a percentage
greater than the percentage increase in the Consumer Price Index ("CPI"), the
maximum authorized tax rate would be reduced by a factor which would result in
the same maximum potential tax revenues to the local taxing unit as if the
valuation of taxable property (less new construction and improvements) had grown
only at the CPI rate instead of at the higher actual growth rate. Thus, if
taxable property values rise faster than consumer prices, the maximum authorized
tax rate would be increased at the CPI rate. Conversely, if taxable property
values rise slower than consumer prices, tax rates may be raised accordingly,
but never higher than the rate authorized on December 23, 1978, without elector
approval.
MINNESOTA
The state of Minnesota has no obligation to pay any bonds of its political
or governmental subdivisions, municipalities, governmental agencies, or
instrumentalities. Minnesota relies heavily on a progressive individual income
tax and a retail sales tax for revenue, which results in a fiscal system
unusually sensitive to economic conditions.
MINNESOTA TAXES. Legislation enacted in 1995 provides that it is the intent of
the Minnesota legislature that interest income on obligations of Minnesota
governmental units, including obligations of Minnesota, or its political or
governmental subdivisions, municipalities, governmental agencies or
instrumentalities, and exempt-interest dividends that are derived from interest
income on such obligations, be included in the net income of individuals,
estates, and trusts for Minnesota income tax purposes if it is judicially
determined that the exemption by Minnesota of such interest or such
exempt-interest dividends unlawfully discriminates against interstate commerce
because interest income on obligations of governmental issuers located in other
states, or exempt-interest dividends derived from such obligations, is so
included. This provision applies to taxable years that begin during or after the
calendar year in which such judicial decision becomes final, regardless of the
date on which the obligations were issued, and other remedies apply for previous
taxable years. The United States Supreme Court in 1995 denied certiorari in a
case in which an Ohio state court upheld an exemption for interest income on
obligations of Ohio governmental issuers, even though interest income on
obligations of non-Ohio governmental issuers was subject to tax. In 1997, the
United States Supreme Court denied certiorari in a subsequent case from Ohio,
involving the same taxpayer and the same issue, in which the Ohio Supreme Court
refused to reconsider the merits of the case on the ground that the previous
final state court judgment barred any claim arising out of the transaction that
was the subject of the previous action. It cannot be predicted whether a similar
case will be brought in Minnesota or elsewhere, or what the outcome of such case
would be.
NEW JERSEY
In June 1997, the New Jersey Economic Development Authority issued $2.75
billion of State Pension Funding Bonds. Proceeds of this issue were used to
fully fund the state's unfunded accrued pension liability and will result in a
reduction of the General Fund costs for fiscal years 1997 and 1998 of $590
million.
Other state-related obligations include those created pursuant to the New
Jersey Building Authority Act, which has the power to construct facilities for
leasing to the state. On September 1, 1997, the New Jersey Building Authority
issued $224 million in refunding and new state revenue bonds. The funds were
applied for various projects including restoration of the State House Complex,
construction of South Woods State Prison, and several renovations of municipal
buildings.
The authorizing legislation for various state entities provides for specific
budgetary procedures with respect to certain obligations issued by such
entities. Bonds issued pursuant to authorizing legislation of this type are
sometimes referred to as "moral obligation" bonds. There is no statutory
limitation on the amount of moral obligation bonds which may be issued by
eligible state entities. Currently, there are two such entities available for
state appropriations to meet moral obligations. The New Jersey Housing and
Mortgage Finance Agency has not had a deficiency in a debt service reserve which
required New Jersey to appropriate funds. It is anticipated that the agency's
revenue will continue to be sufficient to cover debt service on its bonds. The
state provides the South Jersey Port Corporation with funds to cover all debt
service and property tax requirements when earned revenues are anticipated to be
insufficient to cover these obligations. In the past, anticipated revenues have,
in some cases, been insufficient to cover debt service and/or all property tax
requirements. There are numerous other state- created entities with outstanding
debt. This debt is supported by revenues derived from or assets of the various
projects financed by such entities.
The Local Budget Law imposes specific budgetary procedures upon counties and
municipalities, subject to review by the Director of the Division of Local
Government Services. State law also regulates the issuance of debt by counties
and municipalities by limiting the amount of tax anticipation notes that may be
issued and requiring their repayment within 120 days of the end of the fiscal
year in which they are issued. The Local Bond Law governs the issuance of bonds
and notes and bars the issuance of bonds for the payment of current expenses or
to pay outstanding obligations, except where permitted by the Local Finance
Board. State law also authorizes state officials to supervise fiscal
administration in any municipality facing financial difficulties.
PENNSYLVANIA
The General Fund, the state's largest fund, receives all tax receipts,
revenues, federal grants and reimbursements that are not specified by law to be
deposited elsewhere. Debt service on all obligations, except those issued for
highway purposes or for the benefit of other special revenue funds, is payable
from the General Fund. The General Fund closed fiscal year 1997 with a balance
of $1,364.9 million. For 1998, the Commonwealth expects an improvement in the
state's financial position.
Certain state-created agencies have statutory authorization to incur debt
for which no legislation providing for state appropriations to pay debt service
thereon is required. The debt of these agencies is supported by assets of or
revenues derived from the various projects financed; it is not an obligation of
the state. Some of these agencies, however, are indirectly dependent on state
appropriations. state-related agencies and their outstanding debt as of June 30,
1998 include the Delaware River Joint Toll Bridge Commission ($51.4 million),
the Delaware River Port Authority ($504.1 million), the Pennsylvania Economic
Development Financing Authority ($1,106.4 million), the Pennsylvania Energy
Development Authority ($43.1 million), the Pennsylvania Higher Education
Assistance Agency ($1,633.8 million), the Pennsylvania Higher Education
Facilities Authority ($3,057.6 million), the Pennsylvania Industrial Development
Authority ($394.5 million), the Pennsylvania Infrastructure Investment Authority
($196.4 million), the Pennsylvania Turnpike Commission ($1,127.9 million), the
Philadelphia Regional Port Authority ($59.5 milliion) and the state Public
School Building Authority ($343.4 million).
The only obligations of state-created agencies in Pennsylvania which bear a
moral obligation of the state are those issued by the Pennsylvania Housing
Finance Agency, a state-created agency which provides housing for lower and
moderate income families in the state, which had $2,716.4 million in bonds
outstanding at June 30, 1998, and the Hospitals and Higher Education Facilities
Authority of Philadelphia which issued $21.1 million in bonds in 1993.
Pennsylvania is currently involved in certain litigation where adverse
decisions could have an adverse impact on its ability to pay debt service. For
instance, in Baby Neal v. Commonwealth, the American Civil Liberties Union filed
a lawsuit against the Commonwealth seeking an order that would require the
Commonwealth to provide additional funding for child welfare services. County of
Allegheny v. Commonwealth of Pennsylvania involves litigation regarding the
state constitutionality of the statutory scheme for county funding of the
judicial system.
TEXAS
The state has no personal or corporate income tax, although the state does
impose a corporate franchise tax based on the amount of a corporation's capital
and surplus. The state is expected to end the fiscal year ended August 31, 1997
with a $1.235 million operating surplus in the General Revenue Fund.
TEXAS TAXES. In most every state which has an income tax, dividends paid by a
mutual fund attributable to investments in a particular state's municipal
obligations are exempt from both federal and such state's income tax. If Texas
adopts an income tax in the future, and assuming that its income tax policy with
respect to mutual funds investing in Texas state and local municipal obligations
would be similar to the general tax policy of other states, dividends paid by
the Fund would be exempt from Texas state income tax.
PUERTO RICO, THE U.S. VIRGIN ISLANDS AND GUAM
PUERTO RICO. Puerto Rico has a diversified economy dominated by the
manufacturing and service sectors. The North American Free Trade Agreement
("NAFTA"), which became effective January 1, 1994, has led to loss of lower wage
jobs such as textiles, but economic growth in other areas, particularly the high
technology area has compensated for that loss.
The Commonwealth of Puerto Rico differs from the states in its relationship
with the federal government. Most federal taxes, except those such as social
security taxes that are imposed by mutual consent, are not levied in Puerto
Rico. However, in conjunction with the 1993 U.S. budget plan, Section 936 of the
Code was amended and provided for two alternative limitations to the Section 936
credit. The first option limited the credit against such income to 40% of the
credit allowable under then current law, with a five year phase-in period
starting at 60% of the allowable credit. The second option was a wage and
depreciation based credit. Additional amendments to Section 936 in 1996 imposed
caps on these credits, beginning in 1998 for the first option and beginning in
2002 for the second option. More importantly, the 1996 amendments eliminated
both options for taxable years beginning in 2006. The eventual elimination of
tax benefits to those U.S. companies with operations in Puerto Rico may lead to
slower growth in the future. There can be no assurance that this will not lead
to a weakened economy, a lower rating on Puerto Rico's debt or lower prices for
Puerto Rican bonds that may be held by the Portfolio in the long-term.
Puerto Ricans have periodically considered conversion to statehood and such
a vote is likely again in the future.
THE U.S. VIRGIN ISLANDS. The United States Virgin Islands (USVI) is heavily
reliant on the tourism industry, with roughly 43% of non-agricultural employment
in tourist-related trade and services. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe.
An important component of the USVI revenue base is the federal excise tax on
rum exports. Tax revenues rebated by the federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI is periodically hit by hurricanes.
Several hurricanes have caused extensive damage, which has had a negative impact
on revenue collections. There is currently no rated, unenhanced Virgin Islands
debt outstanding (although there is unrated debt outstanding).
GUAM. The U.S. military is a key component of Guam's economy. The federal
government directly comprises more than 10% of the employment base, with a
substantial component of the service sector to support these personnel. The
Naval Air Station, one of several U.S. military facilities on the island, has
been slated for closure by the Defense Base Closure and Realignment Committee;
however, the administration plans to use these facilities to expand the Island's
commercial airport. Guam is also heavily reliant on tourists, particularly the
Japanese. Guam's general obligation debt is rated BBB by S&P with a negative
outlook.
<PAGE>
APPENDIX D: TAX EQUIVALENT YIELD TABLES
The tables below give the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of tax
exempt bonds yielding from 4% to 7% (6% for Pennsylvania) under the regular
federal income tax and applicable state and local tax rates applicable for 1998.
Note: The federal income tax portion of the indicated combined income tax
brackets in the tables does not take into account the effect of a reduction in
the deductibility of itemized deductions (including applicable state and local
taxes) for taxpayers with adjusted gross income in excess of $124,500. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $124,500 and joint filers
with adjusted gross income in excess of $186,800. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
in the tables.
Yields shown are for illustration purposes only and are not meant to represent a
Fund's actual yield. No assurance can be given that any specific tax exempt
yield will be achieved. While it is expected that each Portfolio will invest
principally in obligations, the interest from which is exempt from the regular
federal income tax and applicable state and local taxes described in the
prospectus, other income received by a Portfolio and allocated to a Fund may be
taxable. The tables do not take into account state or local taxes, if any,
payable on Fund distributions except for those described in the footnote to the
tables. Also, the interest earned on certain "private activity bonds" issued
after August 7, 1986, while exempt from the regular federal income tax, is
treated as a tax preference item which could subject the recipient to the AMT.
The illustrations assume that the AMT is not applicable and do not take into
account any tax credits that may be available.
The information set forth herein is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors should
consult their tax adviser for additional information.
<TABLE>
<CAPTION>
ARIZONA
COMBINED A FEDERAL AND ARIZONA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN AZ STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX --------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ----------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,350 Up to $ 42,350 18.25% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95% 8.56%
$ 25,351 - $ 61,400 $ 42,351 - $102,300 31.41 5.83 6.56 7.29 8.02 8.75 9.48 10.21
$ 61,401 - $128,100 $102,301 - $155,950 34.27 6.09 6.85 7.61 8.37 9.13 9.89 10.65
$128,101 - $278,450 $155,951 - $278,450 39.26 6.59 7.41 8.23 9.06 9.88 10.70 11.53
Over $278,450 Over $278,450 42.68 6.98 7.85 8.72 9.60 10.47 11.34 12.21
* Net amount subject to federal and Arizona personal income tax after deductions and exemptions.
+ The combined federal and Arizona tax brackets are calculated using the highest Arizona tax rate within each bracket. Taxpayers
with taxable income within such brackets may have lower combined tax brackets and taxable equivalent yields than indicated
above. The combined tax brackets assume that Arizona taxes are itemized deductions for federal income tax purposes. Investors
who do not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable
equivalent yield than those indicated above. The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36% and
39.6%, over the same ranges of income.
<CAPTION>
COLORADO
COMBINED A FEDERAL AND COLORADO STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN CO STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX --------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ----------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,350 Up to $ 42,350 19.25% 4.95% 5.57% 6.19% 6.81% 7.43% 8.05% 8.67%
$ 23,351 - $ 61,400 $ 42,351 - $102,300 31.60 5.85 6.58 7.31 8.04 8.77 9.50 10.23
$ 61,401 - $128,100 $102,301 - $155,950 34.45 6.10 6.86 7.63 8.39 9.15 9.92 10.68
$128,101 - $278,450 $155,951 - $278,450 39.20 6.58 7.40 8.22 9.05 9.87 10.69 11.51
Over $278,450 Over $278,450 42.62 6.97 7.84 8.71 9.59 10.46 11.33 12.20
* Net amount subject to federal and Colorado personal income tax after deductions and exemptions.
+ The Colorado income tax rate is 5%. The combined tax brackets assume that Colorado taxes are itemized deductions for federal
income tax purposes. Investors who do not itemize deductions on their federal income tax return will have a higher combined
bracket and higher taxable equivalent yield than those indicated above. The applicable federal tax rates within the brackets
are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
CONNECTICUT
<CAPTION>
COMBINED A FEDERAL AND CONNECTICUT STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN CT STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX --------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ----------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,350 Up to $ 42,350 18.83% 4.93% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62%
$ 25,351 - $ 61,400 $ 42,351 - $102,300 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18
$ 61,401 - $128,100 $102,301 - $155,950 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62
$128,101 - $278,450 $155,951 - $278,450 38.88 6.54 7.36 8.18 9.00 9.82 10.63 11.45
Over $278,450 Over $278,450 42.32 6.93 7.80 8.67 9.54 10.40 11.27 12.14
* Net amount subject to federal and Connecticut personal income tax after deductions and exemptions.
+ The combined federal and Connecticut tax brackets are calculated using the highest Connecticut tax rate within each bracket,
reduced by available tax credits. Taxpayers with taxable income within these brackets may have a lower combined tax bracket and
taxable equivalent yield than indicated above. Tax credits reduce the effective Connecticut tax rate for single filers with
taxable income up to $52,500 and joint filers up to $100,500. The combined tax brackets assume that Connecticut taxes are
itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their federal income tax return
will have a higher combined bracket and higher taxable equivalent yield than those indicated above. The applicable federal tax
rates within the brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
MICHIGAN
<CAPTION>
COMBINED A FEDERAL AND MICHIGAN STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MI STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX ----------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ----------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,350 Up to $ 42,350 19.59% 4.97% 5.60% 6.22% 6.84% 7.46% 8.08% 8.71%
$ 25,351 - $ 61,400 $ 42,351 - $102,300 31.89 5.87 6.61 7.34 8.07 8.81 9.54 10.28
$ 61,401 - $128,100 $102,301 - $155,950 34.73 6.13 6.89 7.66 8.43 9.19 9.96 10.72
$128,101 - $278,450 $155,951 - $278,450 39.46 6.61 7.43 8.26 9.08 9.91 10.74 11.56
Over $278,450 Over $278,450 42.86 7.00 7.88 8.75 9.63 10.50 11.38 12.25
* Net amount subject to federal and Michigan personal income tax after deductions and exemptions.
+ The combined tax brackets include a Michigan tax rate of 4.4%, Michigan City income tax rate of 1% (which may vary by city) and
assume that Michigan state and local taxes are itemized deductions for federal income tax purposes. Investors who do not
itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield
than those indicated above. The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36% and 39.6%, over the
same ranges of income.
MINNESOTA
<CAPTION>
COMBINED A FEDERAL AND MINNESOTA STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MN STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX ------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ----------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,350 Up to $ 42,350 21.80% 5.12% 5.75% 6.39% 7.03% 7.67% 8.31% 8.95%
$ 25,351 - $ 61,400 $ 42,351 - $102,300 34.12 6.07 6.83 7.59 8.35 9.11 9.87 10.63
$ 61,401 - $128,100 $102,301 - $155,950 36.87 6.34 7.13 7.92 8.71 9.50 10.30 11.09
$128,101 - $278,450 $155,951 - $278,450 41.44 6.83 7.68 8.54 9.39 10.25 11.10 11.95
Over $278,450 Over $278,450 44.73 7.24 8.14 9.05 9.95 10.86 11.76 12.67
* Net amount subject to federal and Minnesota personal income tax after deductions and exemptions.
+ The first two combined tax brackets are calculated using the highest Minnesota tax rate within each bracket. Taxpayers with
taxable income within such brackets may have lower combined tax brackets and taxable equivalent yields than indicated above.
The combined tax brackets assume that Minnesota taxes are itemized deductions for federal income tax purposes. Investors who do
not itemize deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent
yield than those indicated above. The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36% and 39.6%, over
the same ranges of income.
NEW JERSEY
<CAPTION>
COMBINED A FEDERAL AND NEW JERSEY STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN NJ STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- TAX ------------------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ---------------------------------------------- ----------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,350 Up to $ 42,350 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78% 8.38%
$ 25,351-$ 61,400 $ 42,351-$102,300 31.98% 5.88 6.62 7.35 8.09 8.82 9.56 10.29
$ 61,401-$128,100 $102,301-$155,950 35.40% 6.19 6.97 7.74 8.51 9.29 10.06 10.84
$128,101-$278,450 $155,951-$278,450 40.08% 6.68 7.51 8.34 9.18 10.01 10.85 11.68
Over $278,450 Over $278,450 43.45% 7.07 7.96 8.84 9.73 10.61 11.49 12.38
* Net amount subject to federal and New Jersey personal income tax after deductions and exemptions.
+ The combined federal and New Jersey tax brackets are calculated using the highest New Jersey tax rate applicable within each
bracket. Taxpayers with taxable income within such brackets may have lower combined tax brackets and taxable equivalent yields
than indicated above. The combined tax brackets assume that New Jersey taxes are itemized deductions for federal income tax
purposes. Investors who do not itemize deductions on their federal income tax return will have a higher combined bracket and
higher taxable equivalent yield then those indicated above. The applicable federal tax rates within the brackets are 15%, 28%,
31%, 36% and 39.6%, over the same ranges of income.
PENNSYLVANIA
<CAPTION>
TAXABLE YIELD NEEDED TO MATCH 6% FREE OF
---------------------------------------------
FEDERAL,
STATE,
1994 TAXABLE INCOME FEDERAL FEDERAL, STATE COUNTY AND
- ---------------------------------------------------- FEDERAL STATE AND STATE AND COUNTY PHILADELPHIA
SINGLE RETURN JOINT RETURN INCOME TAX INCOME TAX TAXES TAXES (1) TAXES (2)
- --------------------------- ----------------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Up to $ 25,350 Up to $ 42,350 15.00% 2.80% 7.26% 7.80% 8.23%
$ 25,351 - $ 61,400 $ 42,351 - $102,300 28.00 2.80 8.57 9.20 9.72
$ 61,401 - $128,100 $102,301 - $155,950 31.00 2.80 8.95 9.60 10.14
$128,101 - $278,450 $155,951 - $278,450 36.00 2.80 9.65 10.36 10.93
Over $278,450 Over $278,450 39.60 2.80 10.22 10.97 11.59
Equivalent yields are based on a fixed $1,000 investment with all taxes deducted from income. Included in all areas are the
effects of: federal income tax and a 2.8% Pennsylvania income tax. (1) Includes a 4 mil county personal property tax imposed by
most counties. (2) Includes a 4 mil county personal property and a 4.79% Philadelphia school income tax. The equivalent yields
assume that the Pennsylvania state and local taxes referred to above are itemized deductions for federal income tax purposes.
Investors who do not itemize deductions on their federal income tax return will have a higher equivalent yield than indicated.
TEXAS
<CAPTION>
YOU ARE
IF THE TAXABLE OR THE TAXABLE IN
INCOME ON INCOME ON THIS IN YOUR BRACKET, A TAX-FREE YIELD OF
YOUR SINGLE YOUR JOINT FEDERAL 4% 4.5% 5% 5.5% 6% 6.5% 7%
RETURN IS* RETURN IS* BRACKET EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
- ---------------------------------------------- --------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,350 Up to $ 42,350 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 25,351 - $ 61,400 $ 42,351 - $102,300 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 61,401 - $128,100 $102,301 - $155,950 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$128,101 - $278,450 $155,951 - $278,450 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $278,450 Over $278,450 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
* Net amount subject to federal personal income tax after deductions and exemptions.
</TABLE>
<PAGE>
APPENDIX E: RATINGS
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
- ------------
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of a Portfolio's
fiscal year end.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount of
those bonds to the extent that the underlying deposit collateral is insured by
the Federal Deposit Insurance Corp. and interest is adequately collateralized.
In the case of certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same right and capacity,
will be honored for principal and accrued pre-default interest up to the federal
insurance limits within 30 days after closing of the insured institution or, in
the event that the deposit is assumed by a successor insured institution, upon
maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating. Notes
maturing beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues determined
to possess very strong characteristics will be given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH/IBCA
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within the
rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change could cause these securities to be rated below
investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. Each Portfolio is dependent on the investment
adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Amended and Restated Declaration of Trust of Eaton Vance
Municipals Trust dated January 11, 1993, filed as Exhibit (1)(a)
to Post-Effective Amendment No. 55 and incorporated herein by
reference.
(2) Amendment dated June 23, 1997 to the Declaration of Trust filed
as Exhibit (1)(b) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(3) Establishment and Designation of Classes of Shares of Beneficial
Interest, without Par Value, dated November 18, 1996 filed as
Exhibit (1)(c) to Post-Effective Amendment No. 62 and
incorporated herein by reference.
(b)(1) By-Laws as amended October 21, 1987 filed as Exhibit (2)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
(2) Amendment to By-Laws of Eaton Vance Municipals Trust dated
December 13, 1993 filed as Exhibit (2)(b) to Post-Effective
Amendment No. 55 and incorporated herein by reference.
(c) Reference is made to Item 23(a) and 23(b) above.
(d) Not applicable
(e)(1) Distribution Agreement between Eaton Vance Municipals Trust and
Eaton Vance Distributors, Inc. effective June 23, 1997 with
attached Schedule A effective June 23, 1997 filed as Exhibit
(6)(a)(7) to Post-Effective Amendment No. 67 and incorporated
herein by reference.
(2) Selling Group Agreement between Eaton Vance Distributors, Inc.
and Authorized Dealers filed as Exhibit (6)(b) to the
Post-Effective Amendment No. 61 to the Registration Statement of
Eaton Vance Growth Trust (File Nos. 2-22019, 811-1241) and
incorporated herein by reference.
(f) The Securities and Exchange Commission has granted the Registrant
an exemptive order that permits the Registrant to enter into
deferred compensation arrangements with its independent Trustees.
See in the Matter of Capital Exchange Fund, Inc., Release No.
IC-20671 (November 1, 1994).
(g)(1) Custodian Agreement with Investors Bank & Trust Company dated
October 15, 1992 filed as Exhibit (8) to Post-Effective Amendment
No. 55 and incorporated herein by reference.
(2) Amendment to Custodian Agreement with Investors Bank & Trust
Company dated October 23, 1995 filed as Exhibit (8)(b) to
Post-Effective Amendment No. 57 and incorporated herein by
reference.
(h)(1)(a) Amended Administrative Services Agreement between Eaton Vance
Municipals Trust (on behalf of each of its series) and Eaton
Vance Management with attached schedules (including Amended
Schedule A dated September 29, 1995) filed as Exhibit (9)(a) to
Post-Effective Amendment No. 55 and incorporated herein by
reference.
C-1
<PAGE>
(b) Amendment to Schedule A dated June 23, 1997 to the Amended
Administrative Services Agreement dated June 19, 1995 filed as
Exhibit (9)(a)(2) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(2) Transfer Agency Agreement dated January 1, 1998 filed as Exhibit
(k)(b) to the Registration Statement on Form N-2 of Eaton Vance
Advisers Senior Floating-Rate Fund (File Nos. 333-46853,
811-08671) (Accession No. 0000950156-98-000172) and incorporated
herein by reference.
(i) Opinion of Internal Counsel filed as Exhibit (i) to
Post-Effective Amendment No. 73 and incorporated herein by
reference.
(j) Consent of Independent Auditors for Eaton Vance Arizona
Municipals Fund, Eaton Vance Colorado Municipals Fund, Eaton
Vance Connecticut Municipals Fund, Eaton Vance Michigan
Municipals Fund, Eaton Vance Minnesota Municipals Fund, Eaton
Vance New Jersey Municipals Fund, Eaton Vance Pennsylvania
Municipals Fund, and Eaton Vance Texas Municipals Fund filed
herewith.
(k) Not applicable
(l) Not applicable
(m)(1) Eaton Vance Municipals Trust Class A Service Plan adopted June
23, 1997 with attached Schedule A effective June 23, 1997 filed
as Exhibit (15)(g) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(2) Eaton Vance Municipals Trust Class B Distribution Plan adopted
June 23, 1997 with attached Schedule A effective June 23, 1997
filed as Exhibit (15)(b) to Post-Effective Amendment No. 69 and
incorporated herein by reference.
(3) Eaton Vance Municipals Trust Class C Distribution Plan adopted
June 23, 1997 with attached Schedule A effective June 23, 1997
filed as Exhibit (15)(c) to Post-Effective Amendment No. 69 and
incorporated herein by reference.
(n)(1) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Arizona Municipals Fund-Class A filed herewith.
(2) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Arizona Municipals Fund-Class B filed herewith.
(3) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Colorado Municipals Fund-Class A filed herewith.
(4) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Colorado Municipals Fund-Class B filed herewith.
(5) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Connecticut Municipals Fund-Class A filed
herewith.
(6) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Connecticut Municipals Fund-Class B filed
herewith.
C-2
<PAGE>
(7) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Michigan Municipals Fund-Class A filed herewith.
(8) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Michigan Municipals Fund-Class B filed herewith.
(9) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Minnesota Municipals Fund-Class A filed herewith.
(10) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Minnesota Municipals Fund-Class B filed herewith.
(11) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance New Jersey Municipals Fund-Class A filed
herewith.
(12) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance New Jersey Municipals Fund-Class B filed
herewith.
(13) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Pennsylvania Municipals Fund-Class A filed
herewith.
(14) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Pennsylvania Municipals Fund-Class B filed
herewith.
(15) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Texas Municipals Fund-Class A filed herewith.
(16) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Texas Municipals Fund-Class B filed herewith.
(17) Financial Data Schedule for the fiscal year ended July 31, 1998
for Arizona Municipals Portfolio filed herewith.
(18) Financial Data Schedule for the fiscal year ended July 31, 1998
for Colorado Municipals Portfolio filed herewith.
(19) Financial Data Schedule for the fiscal year ended July 31, 1998
for Connecticut Municipals Portfolio filed herewith.
(20) Financial Data Schedule for the fiscal year ended July 31, 1998
for Michigan Municipals Portfolio filed herewith.
(21) Financial Data Schedule for the fiscal year ended July 31, 1998
for Minnesota Municipals Portfolio filed herewith.
(22) Financial Data Schedule for the fiscal year ended July 31, 1998
for New Jersey Municipals Portfolio filed herewith.
(23) Financial Data Schedule for the fiscal year ended July 31, 1998
for Pennsylvania Municipals Portfolio filed herewith.
C-3
<PAGE>
(24) Financial Data Schedule for the fiscal year ended July 31, 1998
for Texas Municipals Portfolio filed herewith.
(o) Multiple Class Plan for Eaton Vance Funds dated June 23, 1997
filed as Exhibit (18) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(p)(1) Power of Attorney for Eaton Vance Municipals Trust dated April
22, 1997 filed as Exhibit (17)(a) to Post-Effective Amendment No.
65 and incorporated herein by reference.
(2) Power of Attorney for Eaton Vance Municipals Trust dated November
16, 1998 filed herewith.
(3) Power of Attorney for Alabama Municipals Portfolio, Arizona
Municipals Portfolio, Arkansas Municipals Portfolio, California
Municipals Portfolio, Colorado Municipals Portfolio, Connecticut
Municipals Portfolio, Florida Municipals Portfolio, Georgia
Municipals Portfolio, Kentucky Municipals Portfolio, Louisiana
Municipals Portfolio, Maryland Municipals Portfolio,
Massachusetts Municipals Portfolio, Michigan Municipals
Portfolio, Minnesota Municipals Portfolio, Mississippi Municipals
Portfolio, Missouri Municipals Portfolio, National Municipals
Portfolio, New Jersey Municipals Portfolio, New York Municipals
Portfolio, North Carolina Municipals Portfolio, Ohio Municipals
Portfolio, Oregon Municipals Portfolio, Pennsylvania Municipals
Portfolio, Rhode Island Municipals Portfolio, South Carolina
Municipals Portfolio, Tennessee Municipals Portfolio, Texas
Municipals Portfolio, Virginia Municipals Portfolio and West
Virginia Municipals Portfolio dated April 22, 1997 filed as
Exhibit (17)(b) to Post-Effective Amendment No. 65 and
incorporated herein by reference.
(4) Power of Attorney for Alabama Municipals Portfolio, Arizona
Municipals Portfolio, Arkansas Municipals Portfolio, California
Municipals Portfolio, Colorado Municipals Portfolio, Connecticut
Municipals Portfolio, Florida Municipals Portfolio, Georgia
Municipals Portfolio, Kentucky Municipals Portfolio, Louisiana
Municipals Portfolio, Maryland Municipals Portfolio,
Massachusetts Municipals Portfolio, Michigan Municipals
Portfolio, Minnesota Municipals Portfolio, Mississippi Municipals
Portfolio, Missouri Municipals Portfolio, National Municipals
Portfolio, New Jersey Municipals Portfolio, New York Municipals
Portfolio, North Carolina Municipals Portfolio, Ohio Municipals
Portfolio, Oregon Municipals Portfolio, Pennsylvania Municipals
Portfolio, Rhode Island Municipals Portfolio, South Carolina
Municipals Portfolio, Tennessee Municipals Portfolio, Texas
Municipals Portfolio, Virginia Municipals Portfolio and West
Virginia Municipals Portfolio dated November 16, 1998 filed
herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not applicable
ITEM 25. INDEMNIFICATION
Article IV of the Registrant's Amended and Restated Declaration of Trust
permits Trustee and officer indemnification by By-law, contract and vote.
Article XI of the By-Laws contains indemnification provisions. Registrant's
Trustees and officers are insured under a standard mutual fund errors and
omissions insurance policy covering loss incurred by reason of negligent errors
and omissions committed in their capacities as such.
The distribution agreements of the Registrant also provide for reciprocal
indemnity of the principal underwriter, on the one hand, and the Trustees and
officers, on the other.
C-4
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to: (i) the information set forth under the caption
"Management and Organization" in the Statement of Additional Information; (ii)
the Eaton Vance Corp. 10-K filed under the Securities Exchange Act of 1934 (File
No. 1-8100); and (iii) the Form ADV of Eaton Vance Management (File No.
801-15930) and Boston Management and Research (File No. 801-43127) filed with
the Commission, all of which are incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Eaton Vance Distributors,
Inc., a wholly-owned subsidiary of Eaton Vance Management, is the
principal underwriter for each of the investment companies named
below:
<TABLE>
<CAPTION>
<S> <C>
Eaton Vance Advisers Senior Floating-Rate Fund Eaton Vance Municipals Trust II
Eaton Vance Growth Trust Eaton Vance Mutual Funds Trust
Eaton Vance Income Fund of Boston Eaton Vance Prime Rate Reserves
Eaton Vance Investment Trust Eaton Vance Special Investment Trust
Eaton Vance Municipals Trust EV Classic Senior Floating-Rate Fund
</TABLE>
(b)
<TABLE>
<CAPTION>
<S> <C> <C>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwiter with Registrant
----------------- ------------------------- ---------------
Albert F. Barbaro Vice President None
Chris Berg Vice President None
Kate B. Bradshaw Vice President None
David B. Carle Vice President None
Mark Carlson Vice President None
Daniel C. Cataldo Vice President None
Raymond Cox Vice President None
Peter Crowley Vice President None
Mark P. Doman Vice President None
Alan R. Dynner Vice President Secretary
Richard A. Finelli Vice President None
Kelly Flynn Vice President None
James Foley Vice President None
Michael A. Foster Vice President None
William M. Gillen Senior Vice President None
Hugh S. Gilmartin Vice President None
James B. Hawkes Vice President and Director Vice President and Trustee
Perry D. Hooker Vice President None
Brian Jacobs Senior Vice President None
Thomas P. Luka Vice President None
John Macejka Vice President None
Stephen Marks Vice President None
Joseph T. McMenamin Vice President None
Morgan C. Mohrman Senior Vice President None
James A. Naughton Vice President None
Joseph Nelson Vice President None
Mark D. Nelson Vice President None
Linda D. Newkirk Vice President None
James L. O'Connor Vice President Treasurer
Andrew Ogren Vice President None
Thomas Otis Secretary and Clerk None
George D. Owen, II Vice President None
Enrique M. Pineda Vice President None
F. Anthony Robinson Vice President None
Frances Rogell Vice President None
Jay S. Rosoff Vice President None
C-5
<PAGE>
Benjamin A. Rowland, Jr. Vice President, Treasurer and Director None
Stephen M. Rudman Vice President None
John P. Rynne Vice President None
Kevin Schrader Vice President None
George V.F. Schwab, Jr. Vice President None
Teresa A. Sheehan Vice President None
William M. Steul Vice President and Director None
Cornelius J. Sullivan Senior Vice President None
Peter Sykes Vice President None
David M. Thill Vice President None
John M. Trotsky Vice President None
Jerry Vainisi Vice President None
Chris Volf Vice President None
Wharton P. Whitaker President and Director None
Sue Wilder Vice President None
</TABLE>
- ------------------------------------------
* Address is 24 Federal Street, Boston, MA 02110
(c) Not applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 200 Clarendon Street,
16th Floor, Mail Code ADM27, Boston, MA 02116, and its transfer agent, First
Data Investor Services Group, 4400 Computer Drive, Westborough, MA 01581-5120,
with the exception of certain corporate documents and portfolio trading
documents which are in the possession and custody, Eaton Vance Management, 24
Federal Street, Boston, MA 02110. Registrant is informed that all applicable
accounts, books and documents required to be maintained by registered investment
advisers are in the custody and possession of Eaton Vance Management and Boston
Management and Research.
ITEM 29. MANAGEMENT SERVICES
Not applicable
ITEM 30. UNDERTAKINGS
Not applicable
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, and the
Commonwealth of Massachusetts, on November 23, 1998.
EATON VANCE MUNICIPALS TRUST
By: /s/ Thomas J. Fetter
--------------------------------------
Thomas J. Fetter, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities on November 23, 1998.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ---------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ---------------------- Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ---------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ---------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ---------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ---------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------------- Trustee
Lynn A. Stout
John L. Thorndike*
- ---------------------- Trustee
John L. Thorndike
Jack L. Treynor*
- ---------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-7
<PAGE>
SIGNATURES
Arizona Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1998.
ARIZONA MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
----------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities on November 23, 1998.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ---------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ---------------------- Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ---------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ---------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ---------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ---------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------------- Trustee
Lynn A. Stout
John L. Thorndike*
- ---------------------- Trustee
John L. Thorndike
Jack L. Treynor*
- ---------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-8
<PAGE>
SIGNATURES
Colorado Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1998.
COLORADO MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
-------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities on November 23, 1998.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ---------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ---------------------- Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ---------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ---------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ---------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ---------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------------- Trustee
Lynn A. Stout
John L. Thorndike*
- ---------------------- Trustee
John L. Thorndike
Jack L. Treynor*
- ---------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-9
<PAGE>
SIGNATURES
Connecticut Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1998.
CONNECTICUT MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
-----------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities on November 23, 1998.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ---------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ---------------------- Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ---------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ---------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ---------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ---------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------------- Trustee
Lynn A. Stout
John L. Thorndike*
- ---------------------- Trustee
John L. Thorndike
Jack L. Treynor*
- ---------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-10
<PAGE>
SIGNATURES
Michigan Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1998.
MICHIGAN MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
---------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities on November 23, 1998.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ---------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ---------------------- Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ---------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ---------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ---------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ---------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------------- Trustee
Lynn A. Stout
John L. Thorndike*
- ---------------------- Trustee
John L. Thorndike
Jack L. Treynor*
- ---------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-11
<PAGE>
SIGNATURES
Minnesota Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1998.
MINNESOTA MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
----------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities on November 23, 1998.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ---------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ---------------------- Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ---------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ---------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ---------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ---------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------------- Trustee
Lynn A. Stout
John L. Thorndike*
- ---------------------- Trustee
John L. Thorndike
Jack L. Treynor*
- ---------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-12
<PAGE>
SIGNATURES
New Jersey Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1998.
NEW JERSEY MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
-------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities on November 23, 1998.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ---------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ---------------------- Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ---------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ---------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ---------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ---------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------------- Trustee
Lynn A. Stout
John L. Thorndike*
- ---------------------- Trustee
John L. Thorndike
Jack L. Treynor*
- ---------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-13
<PAGE>
SIGNATURES
Pennsylvania Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1998.
PENNSYLVANIA MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
-------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities on November 23, 1998.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ---------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ---------------------- Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ---------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ---------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ---------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ---------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------------- Trustee
Lynn A. Stout
John L. Thorndike*
- ---------------------- Trustee
John L. Thorndike
Jack L. Treynor*
- ---------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-14
<PAGE>
SIGNATURES
Texas Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1998.
TEXAS MUNICIPALS PORTFOLIO
By: /s/ Thomas J. Fetter
----------------------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Municipals Trust (File No. 33-572) has been signed below by the following
persons in the capacities on November 23, 1998.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ---------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ---------------------- Treasurer (Principal Financial and Accounting Officer)
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ---------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ---------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ---------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ---------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------------- Trustee
Lynn A. Stout
John L. Thorndike*
- ---------------------- Trustee
John L. Thorndike
Jack L. Treynor*
- ---------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-15
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this amendment to the
Registration Statement pursuant to Rule 483 of Regulation C.
Exhibit No. Description
- ----------- -----------
(j) Consent of Independent Auditors for Eaton Vance Arizona
Municipals Fund, Eaton Vance Colorado Municipals Fund, Eaton
Vance Connecticut Municipals Fund, Eaton Vance Michigan
Municipals Fund, Eaton Vance Minnesota Municipals Fund, Eaton
Vance New Jersey Municipals Fund, Eaton Vance Pennsylvania
Municipals Fund, and Eaton Vance Texas Municipals Fund.
(n)(1) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Arizona Municipals Fund-Class A.
(n)(2) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Arizona Municipals Fund-Class B.
(n)(3) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Colorado Municipals Fund-Class A.
(n)(4) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Colorado Municipals Fund-Class B.
(n)(5) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Connecticut Municipals Fund-Class A .
(n)(6) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Connecticut Municipals Fund-Class B.
(n)(7) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Michigan Municipals Fund-Class A.
(n)(8) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Michigan Municipals Fund-Class B.
(n)(9) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Minnesota Municipals Fund-Class A.
(n)(10) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Minnesota Municipals Fund-Class B.
(n)(11) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance New Jersey Municipals Fund-Class A.
(n)(12) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance New Jersey Municipals Fund-Class B.
C-16
<PAGE>
(n)(13) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Pennsylvania Municipals Fund-Class A.
(n)(14) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Pennsylvania Municipals Fund-Class B.
(n)(15) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Texas Municipals Fund-Class A.
(n)(16) Financial Data Schedule for the fiscal year ended July 31, 1998
for Eaton Vance Texas Municipals Fund-Class B.
(n)(17) Financial Data Schedule for the fiscal year ended July 31, 1998
for Arizona Municipals Portfolio.
(n)(18) Financial Data Schedule for the fiscal year ended July 31, 1998
for Colorado Municipals Portfolio.
(n)(19) Financial Data Schedule for the fiscal year ended July 31, 1998
for Connecticut Municipals Portfolio.
(n)(20) Financial Data Schedule for the fiscal year ended July 31, 1998
for Michigan Municipals Portfolio.
(n)(21) Financial Data Schedule for the fiscal year ended July 31, 1998
for Minnesota Municipals Portfolio.
(n)(22) Financial Data Schedule for the fiscal year ended July 31, 1998
for New Jersey Municipals Portfolio.
(n)(23) Financial Data Schedule for the fiscal year ended July 31, 1998
for Pennsylvania Municipals Portfolio.
(n)(24) Financial Data Schedule for the fiscal year ended July 31, 1998
for Texas Municipals Portfolio.
(p)(2) Power of Attorney for Eaton Vance Municipals Trust dated November
16, 1998.
(p)(4) Power of Attorney for Alabama Municipals Portfolio, Arizona
Municipals Portfolio, Arkansas Municipals Portfolio, California
Municipals Portfolio, Colorado Municipals Portfolio, Connecticut
Municipals Portfolio, Florida Municipals Portfolio, Georgia
Municipals Portfolio, Kentucky Municipals Portfolio, Louisiana
Municipals Portfolio, Maryland Municipals Portfolio,
Massachusetts Municipals Portfolio, Michigan Municipals
Portfolio, Minnesota Municipals Portfolio, Mississippi Municipals
Portfolio, Missouri Municipals Portfolio, National Municipals
Portfolio, New Jersey Municipals Portfolio, New York Municipals
Portfolio, North Carolina Municipals Portfolio, Ohio Municipals
Portfolio, Oregon Municipals Portfolio, Pennsylvania Municipals
Portfolio, Rhode Island Municipals Portfolio, South Carolina
Municipals Portfolio, Tennessee Municipals Portfolio, Texas
Municipals Portfolio, Virginia Municipals Portfolio and West
Virginia Municipals Portfolio dated November 16, 1998.
C-17
<PAGE>
EXHIBIT (J)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 75 to the
Registration Statement of Eaton Vance Municipals Trust (1933 Act File No.
33-572) on behalf of Eaton Vance Arizona Municipals Fund, Eaton Vance Colorado
Municipals Fund, Eaton Vance Connecticut Municipals Fund, Eaton Vance Michigan
Municipals Fund, Eaton Vance Minnesota Municipals Fund, Eaton Vance New Jersey
Municipals Fund, Eaton Vance Pennsylvania Municipals Fund, and Eaton Vance Texas
Municipals Fund of our report dated September 4, 1998, relating to the Funds
referenced above and of our report dated September 4, 1998, relating to Arizona
Municipals Portfolio, Colorado Municipals Portfolio, Connecticut Municipals
Portfolio, Michigan Municipals Portfolio, Minnesota Municipals Portfolio, New
Jersey Municipals Portfolio, Pennsylvania Municipals Portfolio, and Texas
Municipals Portfolio, which reports are included in the Annual Report to
Shareholders for the year ended July 31, 1998, which is incorporated by
reference in the Statement of Additional Information, which is part of such
Registration Statement.
We also consent to the reference to our Firm under the heading "Financial
Highlights" in the Prospectus and under the caption "Independent Certified
Public Accountants" in the Statement of Additional Information of the
Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
November 23, 1998
Boston, Massachusetts
<PAGE>
EXHIBIT 99.(p)(2)
POWER OF ATTORNEY
We, the undersigned Trustees of Eaton Vance Municipals Trust, a
Massachusetts business trust, do hereby severally constitute and appoint Alan R.
Dynner, James B. Hawkes and Eric G. Woodbury, or any of them, to be true,
sufficient and lawful attorneys, or attorney for each of us, to sign for each of
us, in the name of each of us in the capacities indicated below, any and all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A filed by Eaton Vance Municipals Trust with the Securities and
Exchange Commission in respect of shares of beneficial interest and other
documents and papers relating thereto.
IN WITNESS WHEREOF we have hereunto set our hands on the dates set opposite
our respective signatures.
Signature Title Date
- --------- ----- ----
/s/ Jessica M. Bibliowicz Trustee November 16, 1998
- ---------------------------
Jessica M. Bibliowicz
/s/ Lynn A. Stout Trustee November 16, 1998
- ---------------------------
Lynn A. Stout
<PAGE>
EXHIBIT 99.(p)(4)
POWER OF ATTORNEY
We, the undersigned Trustees of Alabama Municipals Portfolio, Arizona
Municipals Portfolio, Arkansas Municipals Portfolio, California Municipals
Portfolio, Colorado Municipals Portfolio, Connecticut Municipals Portfolio,
Florida Municipals Portfolio, Georgia Municipals Portfolio, Kentucky Municipals
Portfolio, Louisiana Municipals Portfolio, Maryland Municipals Portfolio,
Massachusetts Municipals Portfolio, Michigan Municipals Portfolio, Minnesota
Municipals Portfolio, Mississippi Municipals Portfolio, Missouri Municipals
Portfolio, National Municipals Portfolio, New Jersey Municipals Portfolio, New
York Municipals Portfolio, North Carolina Municipals Portfolio, Ohio Municipals
Portfolio, Oregon Municipals Portfolio, Pennsylvania Municipals Portfolio, Rhode
Island Municipals Portfolio, South Carolina Municipals Portfolio, Tennessee
Municipals Portfolio, Texas Municipals Portfolio, Virginia Municipals Portfolio
and West Virginia Municipals Portfolio, each a New York trust, do hereby
severally constitute and appoint Alan R. Dynner, James B. Hawkes and Eric G.
Woodbury, or any of them, to be true, sufficient and lawful attorneys, or
attorney for each of us, to sign for each of us, in the name of each of us in
the capacities indicated below, any and all amendments (including post-effective
amendments) to the Registration Statement on Form N-1A filed by Eaton Vance
Municipals Trust with the Securities and Exchange Commission in respect of
shares of beneficial interest and other documents and papers relating thereto.
IN WITNESS WHEREOF we have hereunto set our hands on the dates set opposite
our respective signatures.
Signature Title Date
- --------- ----- ----
/s/ Jessica M. Bibliowicz Trustee November 16, 1998
- ---------------------------
Jessica M. Bibliowicz
/s/ Lynn A. Stout Trustee November 16, 1998
- ---------------------------
Lynn A. Stout
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> EATON VANCE COLORADO MUNICIPALS FUND - CLASS A
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PAGE>
[TYPE] EX-27
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<NAME> EATON VANCE MINNESOTA MUNICIPALS FUND - CLASS B
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> EATON VANCE NEW JERSEY MUNICIPALS FUND - CLASS A
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<TABLE> <S> <C>
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<NAME> EATON VANCE NEW JERSEY MUNICIPALS FUND - CLASS B
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> EATON VANCE PENNSYLVANIA MUNICIPALS FUND - CLASS A
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<TABLE> <S> <C>
<PAGE>
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<NAME> EATON VANCE PENNSYLVANIA MUNICIPALS FUND - CLASS B
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
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<NAME> EATON VANCE TEXAS MUNICIPALS FUND - CLASS A
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<NAME> EATON VANCE TEXAS MUNICIPALS FUND - CLASS B
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<NAME> ARIZONA MUNICIPALS PORTFOLIO
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<NAME> COLORADO MUNICIPALS PORTFOLIO
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