<PAGE>
As filed with the Securities and Exchange Commission on October 1, 1998
1933 Act File No. 33-572
1940 Act File No. 811-4409
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [ X ]
POST-EFFECTIVE AMENDMENT NO. 73 [ X ]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ X ]
AMENDMENT NO. 75 [ 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 [X] on December 1, 1998 pursuant to
paragraph b) paragraph (a)(1)
[ ] on (date) pursuant to paragraph (b) [ ] 75 days after filing pursuant to
paragraph (a)(2)
[ ] 60 days after filing pursuant to [ ] on (date) pursuant to paragraph
paragraph (a)(1) (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.
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<PAGE>
{LOGO}
EATON VANCE Mutual Funds
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
Prospectus Dated
December 1, 1998
Funds for investors seeking income exempt from
regular federal income tax and state taxes
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 14
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, strategies and risks of
investing in an Eaton Vance Municipal Fund. You will find more specific
information about each Fund in the pages that follow.
INVESTMENT OBJECTIVES AND STRATEGIES
The purpose of each Fund is to provide current income exempt from regular
federal income tax and from state or local income or other taxes. Each Fund
concentrates its investments in investment grade municipal obligations. The
portfolio manager will purchase and sell securities to maintain a competitive
yield and to enhance return based upon the relative value of the securities in
the marketplace. The portfolio manager may also trade securities to minimize
taxable capital gains to shareholders.
RISK FACTORS
The value of Fund shares may change when interest rates change. When interest
rates rise, the value of Fund shares typically will decline. The Fund's yield
will also fluctuate over time.
Each Fund is non-diversified, which means that it may invest a large portion of
its assets (up to 25%) in obligations of one issuer. Because a significant
portion of assets is invested in obligations of issuers located in a single
state, the Fund is sensitive to factors affecting that state, such as changes in
the economy, decreases in tax collection or the tax base, legislation which
limits taxes and changes in issuer credit ratings. In addition, because up to
25% of assets may be obligations of below investment grade quality, Fund shares
are sensitive to the financial soundness of the issuers of the securities held.
The credit ratings assigned a state's general obligations (if any) by Standard &
Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and
Fitch/IBCA ("Fitch") are contained in the Fund-specific summaries that follow
this page.
Each Fund may concentrate in certain types of municipal obligations (such as
housing bonds, hospital bonds or utility bonds), so Fund shares could be
affected by events that adversely affect a particular sector. The Funds are not
a complete investment program and you may lose money by investing. An investment
in a Fund is not a deposit in a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
FEES OF EACH FUND
This table describes the fees that you may pay if you buy and hold Fund shares.
The operating expenses incurred by each Fund during its last fiscal year are set
forth on the pages that follow.
<TABLE>
Shareholder Fees (fees paid directly from your investment) Class A Class B
Shares Shares
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (as a percentage of offering price) 4.75% None
Maximum Contingent Deferred Sales Charge (as a percentage of the lower
of net asset value at the time of purchase or time of redemption) None None
Sales Charge Imposed on Reinvested Distributions None None
Exchange Fee None None
</TABLE>
Each Fund offers Class A and Class B shares. Class A shares are sold subject to
a sales charge imposed at the time of purchase. Class B shares are sold subject
to a declining contingent deferred sales charge ("CDSC") (5.00% maximum) if
redeemed within six years of purchase.
2
<PAGE>
Eaton Vance Arizona Municipals Fund
The Arizona Fund seeks to provide current income exempt from regular federal
income taxes and Arizona state personal income taxes.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Arizona Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
<TABLE>
Annual Total Returns
Class B shares
<S> <C> <C> <C> <C> <C> <C> <C>
8.33% 8.03% 14.98% -9.68% 19.56% 2.40% 8.94%
1991 1992 1993 1994 1995 1996 1997
</TABLE>
These returns are 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. The Fund's highest total return for a quarter was ___% for the quarter
ended __________, 199_, and its lowest return for a quarter was ___% for the
quarter ended _________, 199_. The total return through the most recent fiscal
quarter (July 31, 1997 to October 31, 1998) was __%. 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
more current yield information call 1-800-225-6265.
<TABLE>
Average Annual Total Return as of December 31, 1997 One Five Life of
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. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE ARIZONA FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
</TABLE>
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:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
3
<PAGE>
Eaton Vance Colorado Municipals Fund
The Colorado Fund seeks to provide current income exempt from regular federal
income taxes and Colorado state personal income taxes. There are currently no
Colorado general obligations outstanding.
PERFORMANCE INFORMATION
The following bar chart and table provide information about the Colorado Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
<TABLE>
Annual Total Returns
Class B shares
<S> <C> <C> <C> <C> <C> <C>
3.95% 13.07% -9.52% 18.61% 2.50% 10.54%
1992 1993 1994 1995 1996 1997
</TABLE>
These returns are 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. The Fund's highest total return for a quarter was ___% for the quarter
ended __________, 199_, and its lowest return for a quarter was ___% for the
quarter ended _________, 199_. The total return through the most recent fiscal
quarter (July 31, 1997 to October 31, 1998) was __%. 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
more current yield information call 1-800-225-6265.
<TABLE>
Average Annual Total Return as of December 31, 1997 One Five Life of
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. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE COLORADO FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1) and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
</TABLE>
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:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
4
<PAGE>
Eaton Vance Connecticut Municipals Fund
The Connecticut Fund seeks to provide current income exempt from regular federal
income taxes and Connecticut state personal income taxes. Connecticut general
obligations 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. 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.
<TABLE>
Annual Total Returns
Class B shares
<S> <C> <C> <C> <C> <C> <C>
7.02% 12.40% -10.36% 17.79% 2.77% 8.49%
1992 1993 1994 1995 1996 1997
</TABLE>
These returns are 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. The Fund's highest total return for a quarter was ___% for the quarter
ended __________, 199_, and its lowest return for a quarter was ___% for the
quarter ended _________, 199_. The total return through the most recent fiscal
quarter (July 31, 1997 to October 31, 1998) was __%. 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
more current yield information call 1-800-225-6265.
<TABLE>
Average Annual Total Return as of December 31, 1997 One Five Life of
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. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE CONNECTICUT FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1) and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
</TABLE>
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:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
5
<PAGE>
Eaton Vance Michigan Municipals Fund
The Michigan Fund seeks to provide current income exempt from regular federal
income taxes and Michigan state and city income and single business taxes in the
form of an investment exempt from Michigan intangibles tax. Michigan general
obligations 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 Michigan Fund's
performance. Although past performance is no guarantee of future results, this
performance information demonstrates that the value of your investment will
change from year-to-year.
<TABLE>
Annual Total Returns
Class B shares
<S> <C> <C> <C> <C> <C> <C> <C>
8.98% 7.59% 12.06% -8.54% 17.96% 2.35% 8.39%
1991 1992 1993 1994 1995 1996 1997
</TABLE>
These returns are 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. The Fund's highest total return for a quarter was ___% for the quarter
ended __________, 199_, and its lowest return for a quarter was ___% for the
quarter ended _________, 199_. The total return through the most recent fiscal
quarter (July 31, 1997 to October 31, 1998) was __%. 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
more current yield information call 1-800-225-6265.
<TABLE>
Average Annual Total Return as of December 31, 1997 One Five Life of
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. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE MICHIGAN FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1) and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
</TABLE>
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:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
6
<PAGE>
Eaton Vance Minnesota Municipals Fund
The Minnesota Fund seeks 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 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. 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.
<TABLE>
Annual Total Returns
Class B shares
<S> <C> <C> <C> <C> <C> <C> <C>
4.60% 7.49% 11.61% -9.01% 16.89% 1.62% 8.82%
1991 1992 1993 1994 1995 1996 1997
</TABLE>
These returns are 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. The Fund's highest total return for a quarter was ___% for the quarter
ended __________, 199_, and its lowest return for a quarter was ___% for the
quarter ended _________, 199_. The total return through the most recent fiscal
quarter (July 31, 1997 to October 31, 1998) was __%. 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
more current yield information call 1-800-225-6265.
<TABLE>
Average Annual Total Return as of December 31, 1997 One Five Life of
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. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE MINNESOTA FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1) and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
</TABLE>
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:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
7
<PAGE>
Eaton Vance New Jersey Municipals Fund
The New Jersey Fund seeks to provide current income exempt from regular federal
income taxes and New Jersey state personal income taxes. New Jersey general
obligations 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. 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.
<TABLE>
Annual Total Returns
Class B shares
<S> <C> <C> <C> <C> <C> <C> <C>
12.06% 7.79% 12.61% -8.20% 15.86% 2.78% 9.41%
1991 1992 1993 1994 1995 1996 1997
</TABLE>
These returns are 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. The Fund's highest total return for a quarter was ___% for the quarter
ended __________, 199_, and its lowest return for a quarter was ___% for the
quarter ended _________, 199_. The total return through the most recent fiscal
quarter (July 31, 1997 to October 31, 1998) was __%. 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
more current yield information call 1-800-225-6265.
<TABLE>
Average Annual Total Return as of December 31, 1997 One Five Life of
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. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE NEW JERSEY FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1)and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
</TABLE>
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:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
8
<PAGE>
Eaton Vance Pennsylvania Municipals Fund
The Pennsylvania Fund seeks 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 are rated A1, 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. 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.
<TABLE>
Annual Total Returns
Class B shares
<S> <C> <C> <C> <C> <C> <C> <C>
12.36% 7.66% 12.46% -9.64% 17.25% 3.33% 8.86%
1991 1992 1993 1994 1995 1996 1997
</TABLE>
These returns are 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. The Fund's highest total return for a quarter was ___% for the quarter
ended __________, 199_, and its lowest return for a quarter was ___% for the
quarter ended _________, 199_. The total return through the most recent fiscal
quarter (July 31, 1997 to October 31, 1998) was __%. 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
more current yield information call 1-800-225-6265.
<TABLE>
Average Annual Total Return as of December 31, 1997 One Five Life of
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. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
Expenses of the Pennsylvania Fund
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1) and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
</TABLE>
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:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
9
<PAGE>
Eaton Vance Texas Municipals Fund
The Texas Fund seeks 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 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. 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.
<TABLE>
Annual Total Returns
Class B shares
<S> <C> <C> <C> <C> <C> <C>
9.14% 12.58% -8.07% 17.83% 2.97% 9.35%
1992 1993 1994 1995 1996 1997
</TABLE>
These returns are 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. The Fund's highest total return for a quarter was ___% for the quarter
ended __________, 199_, and its lowest return for a quarter was ___% for the
quarter ended _________, 199_. The total return through the most recent fiscal
quarter (July 31, 1997 to October 31, 1998) was __%. 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 more current yield information
call 1-800-225-6265.
<TABLE>
Average Annual Total Return as of December 31, 1997 One Five Life of
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. The Lehman Brothers Municipal Bond Index is an
unmanaged index of municipal bonds. Investors cannot invest directly in this
index. (Source for Lehman Brothers Index returns: Lipper Analytical Services,
Inc.)
EXPENSES OF THE TEXAS FUND
This table describes the expenses that you may pay if you buy and hold shares.
<TABLE>
Annual Fund Operating Expenses (expenses that
are deducted from Fund assets) Class A Class B
- -------------------------------------------------------------------------------
<S> <C> <C>
Management Fees % %
Distribution (12b-1) and/or Service Fees % %
Other Expenses % %
Total Operating Expenses % %
</TABLE>
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:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B hares
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Class A shares
Class B shares
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 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 Investors Service, Inc. ("Moody's") or BBB or higher by
either Standard & Poor's Ratings Group ("S&P") or Fitch/IBCA ("Fitch")) or, if
unrated, are determined by the investment adviser to be of at least investment
grade quality. The balance of net assets may be invested in municipal
obligations rated below investment grade (but not lower than B by Moody's, S&P
or Fitch) and in unrated municipal obligations considered to be of comparable
quality by the investment adviser. Municipal obligations rated Baa or BBB or
below may have speculative characteristics. Also, changes in economic conditions
or other circumstances are more likely to reduce the capacity of issuers of
lower-rated obligations to make principal and interest payments. Securities
rated below Baa or BBB are commonly known as "junk bonds".
Under normal conditions, each Portfolio invests at least 65% of its total assets
in obligations issued by its respective state or its political subdivisions.
Municipal obligations of issuers in a single state may be adversely affected by
economic developments (including insolvency of an issuer) and by legislation and
other governmental activities in that state. Each Portfolio may also invest in
municipal obligations issued by the governments of Puerto Rico, the U.S. Virgin
Islands and Guam. S&P rates Puerto Rico general obligations A, while Moody's
rates them Baa.
Each Portfolio may invest 25% or more of its total assets in municipal
obligations of the same type (such as lease rental obligations, housing finance
obligations, public housing obligations, municipal utility obligations, hospital
and health facility obligations, industrial development obligations and others).
This may make a Portfolio more susceptible to adverse economic, political or
regulatory occurrences affecting a particular category of issuer.
The net asset value will change in response to changes in prevailing interest
rates and changes in the value of securities held. The value of securities held
will be affected by the credit quality of the issuer of the obligation, general
economic conditions and business conditions that affect the specific industry of
the issuer. Changes by rating agencies in the rating assigned to an obligation
and in the ability of the issuer to make payments of principal and interest may
also affect the value of an obligation. Lower rated obligations may be subject
to greater price volatility than higher rated obligations. The amount of
information available about the financial condition of issuers of municipal
obligations generally is not as extensive as that available for publicly-traded
corporations.
Each Portfolio may purchase derivative instruments, which derive their value
from another instrument, security or index. For example, a Portfolio may invest
in municipal securities whose interest rates bear an inverse relationship to the
interest rate on another security or the value of an index ("inverse floaters").
Although they are volatile and may expose a Portfolio to leverage risk, inverse
floaters typically offer the potential for yields exceeding the yields available
on fixed rate bonds with comparable credit quality and maturity. Each Portfolio
may also purchase and sell various kinds of financial futures contracts and
options thereon to hedge against changes in interest rates and as a substitute
for the purchase of portfolio securities.
Each Portfolio may invest in zero coupon bonds, which do not pay income
currently. The values of these bonds are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. Each Portfolio may also temporarily borrow up to 5% of the value of
its total assets to satisfy redemption requests or settle securities
transactions.
11
<PAGE>
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.
MANAGEMENT AND ORGANIZATION
MANAGEMENT. Each Portfolio's investment adviser is Boston Management and
Research ("BMR"), a subsidiary of Eaton Vance Management. Eaton Vance has been
managing assets since 1924 and managing mutual funds since 1931. Eaton Vance and
its subsidiaries currently manage over $27 billion on behalf of mutual funds,
institutional clients and individuals.
The investment adviser manages the investments of each Portfolio and provides
related office facilities and personnel. Under its investment advisory agreement
with each Portfolio, BMR receives a monthly advisory fee equal to the aggregate
of a daily asset based fee and a daily income based fee. The fees are applied on
the basis of the following categories.
<TABLE>
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 2 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>
Net Assets on
Portfolio July 31, 1998 Advisory Fee
- -------------------------------------------------------------------------
<S> <C> <C>
Arizona $ %
Colorado %
Connecticut %
Michigan %
Minnesota %
New Jersey %
Pennsylvania %
Texas %
</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 and is a Vice
President of Eaton Vance and BMR.
Eaton Vance serves as administrator to each Fund, providing the Fund with office
facilities and administrative services. Eaton Vance does not currently receive a
fee for serving as administrator.
Like most mutual funds, the Funds and the 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
12
<PAGE>
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.
ORGANIZATION. Each Fund is a series of Eaton Vance Municipals Trust. The Funds
do not hold annual shareholder meetings, but may hold special meetings for
matters that require shareholder approval (like electing or removing trustees,
approving management contracts or changing investment policies that may only be
changed with shareholder approval). Because a Fund invests in a Portfolio, it
may be asked to vote on certain Portfolio matters (like changes in certain
Portfolio investment restrictions). When necessary, the 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. The Fund
can withdraw from the Portfolio at any time.
Because the Funds use this combined prospectus, a Fund could be held liable for
a misstatement or omission made about another Fund. The Trust's Trustees
considered this in approving the use of a combined prospectus.
VALUING SHARES
Each Fund values its shares once each day the New York Stock Exchange is open
for trading (typically Monday through Friday), as of the close of regular
trading on the Exchange (normally 4:00 p.m. New York 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, 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, checks of $50 or more payable to the order of the
Fund or the transfer agent may be mailed directly to the transfer agent (see
back cover for address) at any time. 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.
13
<PAGE>
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>
Sales Charge Sales Charge as
as Percentage of Percentage of Net
Amount of Purchase Offering Price Amount Invested
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.75% 4.99%
$25,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than$500,000 3.00% 3.09%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 or more 0.00* 0.00*
</TABLE>
* 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.
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>
Year of Redemption After Purchase CDSC
- --------------------------------------------------------------------------------
<S> <C>
First or Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
</TABLE>
The CDSC is based on the lower of the net asset value at the time of purchase or
the time of redemption. Shares acquired through the reinvestment of
distributions are exempt. Redemptions are made first from shares which are not
subject to a CDSC.
REDUCING OR ELIMINATING SALES CHARGES. Front-end sales charges may be reduced
under the right of accumulation or under a statement of intention. Under the
right of accumulation, sales charges are reduced if the current market value of
your current holdings (shares at current offering price), plus your new
purchases, reach $25,000 or more. Class A shares of other Eaton Vance funds
owned by you can be included in your current holdings. Under a statement of
intention, purchases of $25,000 or more made over a 13-month period are eligible
for reduced sales charges. 5% of the dollar amount to be purchased will be held
in escrow in the form of shares registered in the investor's name until the
statement is satisfied or the thirteen-month period expires. See the account
application for details.
Class A shares are offered at net asset value through certain wrap fee programs
and other programs sponsored by investment dealers that charge fees for their
services. Ask your investment dealer for details. Certain persons associated
with Eaton Vance, other advisers to Eaton Vance funds, the transfer agent, the
custodian and investment dealers may purchase shares at net asset value.
The Class B CDSC is waived for redemptions pursuant to a Withdrawal Plan (see
"Shareholder Account Features"). The Class B CDSC is also waived following the
death of all beneficial owners of shares, but only if the redemption is
requested within one year after death (a death certificate and other applicable
documents may be required).
If you redeem shares, you may reinvest at net asset value any portion or all of
the redemption proceeds in the same class of shares of the Fund (or for Class A
shares in Class A shares of any other Eaton Vance fund), provided that the
reinvestment occurs within 60 days of the redemption, and the privilege has not
been used more than once in the prior 12 months. Your account will be credited
with any CDSC paid in connection with the redemption. Reinvestment requests must
be in writing. If you reinvest, you will be sold shares at the next determined
net asset value following receipt of your request.
14
<PAGE>
DISTRIBUTION AND SERVICE FEES. Class B shares pay distribution expenses of .75%
of average daily net assets annually (so-called "12b-1 fees"). All classes pay
service fees for personal and/or account services not exceeding .20% of average
daily net assets annually. Services fees are paid on Class A and Class B shares
only after they have been outstanding for twelve months.
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 800-262-1122 on Monday through Friday, 9:00 a.m. to 4:00
p.m. (eastern time). Proceeds of a telephone redemption can
be mailed only to the account address. Shares held by
corporations, trusts or certain other entities, or subject
to fiduciary arrangements, cannot be redeemed by telephone.
Through an
Investment
Dealer Your investment dealer is responsible for transmitting the
order promptly. A dealer may charge a fee for this service.
If you redeem shares, you receive the net asset value per share next computed
after the redemption request is received. Your redemption proceeds will be paid
in cash within seven days, reduced by the amount of any applicable CDSC and any
federal income tax required to be withheld. Payments will be sent by mail unless
you complete the Bank Wire Redemptions section of the account application.
If you recently purchased shares, the proceeds of a redemption will not be sent
until the check (including a certified or cashier's check) has cleared. If the
purchase check has not cleared, redemption proceeds may be delayed up to 15 days
from the purchase date. If your account value falls below $750, you may be asked
to either add to your account or redeem it within 60 days. If you take no
action, your account will be redeemed and the proceeds sent to you.
While redemption proceeds are normally paid in cash, redemptions may be paid by
distributing marketable securities. If you receive securities, you could incur
brokerage or other charges in converting the securities to cash.
SHAREHOLDER ACCOUNT FEATURES
Once you purchase shares, the transfer agent establishes a Lifetime Investing
Account for you. Share certificates are issued only on request.
DISTRIBUTIONS. You may have your Fund distributions paid in one of the following
ways:
*FULL REINVEST Dividends and capital gains are reinvested in additional
OPTION shares. This option will be assigned if you do not specify
an option.
*PARTIAL REINVEST Dividends are paid in cash and capital gains are reinvested
OPTION in additional shares.
*CASH OPTION Dividends and capital gains are paid in cash.
*EXCHANGE OPTION Dividends and/or capital gains are reinvested in additional
shares of another Eaton Vance fund chosen by you. Before
selecting this option, you must obtain a prospectus of the
other fund and consider its objectives and policies
carefully.
INFORMATION FROM THE FUND. From time to time, you may be mailed the following:
* Annual and Semi-Annual Reports, containing performance information and
financial statements.
* Periodic account statements, showing recent activity and total value.
* Form 1099 and tax information needed to prepare your income tax returns.
* Proxy materials, in the event a shareholder vote is required.
* Special notices about significant events affecting your Fund.
15
<PAGE>
WITHDRAWAL PLAN. You may draw on share holdings systematically with monthly or
quarterly checks. For Class B shares, your withdrawals will not be subject to a
CDSC if they do not in the aggregate exceed 12% annually of the account balance
at the time the plan is established. A minimum account size of $5,000 is
required. Because purchases of Class A shares are subject to a sales charge, you
should not make withdrawals from your account while you are making purchases.
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. 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. 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 such 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 1-800-262-1122, or
write to the transfer agent (see back cover for address).
TAX INFORMATION
Each Fund declares dividends daily. Each Fund ordinarily pays distributions each
month for Class A shares on the last business day and for Class B shares on the
fifteenth business day. If the payment date is not a business day, the payment
will be made on the business day thereafter. Your account will be credited with
dividends on the business day after the funds used to purchase your Fund shares
are collected by the transfer agent. For tax purposes the entire distribution,
whether paid in cash or reinvested in additional shares, ordinarily will
constitute tax-exempt income to you.
Distributions of any taxable income and net short-term capital gains will be
taxable as ordinary income. Distributions of any long-term capital gains are
taxable as such. Distributions of interest on certain municipal obligations are
a tax preference item under the AMT provisions applicable to individuals and
corporations.
Shareholders, particularly corporations and those subject to state alternative
minimum tax, should consult with their advisers concerning the applicability of
state, local and other taxes to an investment. Additional information about
state taxes is provided below.
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.
16
<PAGE>
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 Code, and the Portfolio is treated as a 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) 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 sentences, 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 policital 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 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, Michigan single business tax and in the
form of an investment exempt from the Michigan intangibles 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. Other distributions of the Fund, including distributions
17
<PAGE>
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.
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
reflects the financial results for a single Fund share. The total returns in the
tables represent the rate an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all distributions and not
taking into account a sales charge). This information has been audited by
__________________, independent accountants. The report of _________________ and
each Fund's financial statements are included in the Funds' annual report, which
is available on request. Each Fund began offering two classes of shares on
August 1, 1997.
<TABLE>
Arizona Fund
-----------------------------------------------------------------------
Year Ended July 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994**
- --------------------------------------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.680 $ 10.530 $ 10.390 $ 11.570
-------- -------- -------- --------
Income (loss) from operations:
Net investment income $ 0.486 $ 0.482 $ 0.492 $ 0.404
Net realized and unrealized gain
(loss) on investments 0.539 0.161 0.164 (0.862)
-------- -------- -------- --------
Total income (loss) from operations
$ 1.025 $ 0.643 $ 0.656 $ (0.458)
-------- -------- -------- --------
Less distributions:
From net investment income $ (0.485) $ (0.488) $ (0.492) $ (0.404)
In excess of net investment income(4) -- (0.005) (0.024) (0.074)
From net realized gain on investment -- -- -- (0.233)
In excess of net realized gain on
investment transactions -- -- -- (0.011)
-------- -------- -------- --------
Total distributions $ (0.485) $ (0.493) $ (0.516) $ (0.722)
-------- -------- -------- --------
Net asset value, end of year $ 11.220 $ 10.680 $ 10.530 $ 10.390
======== ======== ======== ========
Total Return(2) 9.85% 6.17% 6.64% (4.16)%
Ratios/Supplemental Data*:
Net assets, end of year (000 omitted) $109,379 $127,681 $141,859 $150,879
Ratio of net expenses to average daily
net assets(1)(3) 1.58% 1.56% 1.53% 1.46%+
Ratio of net expenses to average daily
net assets after custodian fee
reduction(1) 1.57% 1.55% -- --
Ratio of net investment income to
average daily net assets 4.50% 4.49% 4.81% 4.47%+
Portfolio Turnover of the Portfolio 10% 18% 22% 23%
</TABLE>
(See footnotes on page 11.)
19
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
Colorado Fund
--------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994**
- --------------------------------------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $10.170 $10.020 $10.010 $10.960
------- ------- ------- -------
Income (loss) from operations:
Net investment income $ 0.491 $ 0.480 $ 0.494 $ 0.403
Net realized and unrealized gain
(loss) on investments 0.621 0.162 0.033 (0.880)
------- ------- ------- -------
Total income (loss) from operations $ 1.112 $ 0.642 $ 0.527 $(0.477)
------- ------- ------- -------
Less distributions:
From net investment income $(0.482) $(0.492) $(0.494) $(0.403)
In excess of net investment income(4) -- -- (0.023) (0.070)
------- ------- ------- -------
Total distributions $(0.482) $(0.492) $(0.517) $(0.473)
------- ------- ------- -------
Net asset value, end of year $10.800 $10.170 $10.020 $10.010
======= ======= ======= =======
Total Return(2) 11.26% 6.46% 5.58% (4.46)%
Ratios/Supplemental Data*:
Net assets, end of year (000 omitted) $40,786 $42,972 $43,900 $42,085
Ratio of net expenses to average daily
net assets(1)(3) 1.53% 1.49% 1.28% 1.09%+
Ratio of net expenses to average daily
net assets after custodian fee
reduction(1) 1.49% 1.45% -- --
Ratio of net investment income to
average daily net assets 4.75% 4.69% 5.03% 4.59%
Portfolio Turnover of the Portfolio 14% 53% 52% 23%
* For the periods indicated, the operating expenses of the Colorado Fund
reflect an allocation of expenses to the Administrator and/or the
Investment Adviser. Had such actions not been taken, net investment income
per share and the ratios would have been as follows:
Net investment income per share $ 0.478 $ 0.479 $ 0.373
======= ======= =======
Ratios (As a percentage of average daily net assets):
Expenses(1)(3) 1.51% 1.43% 1.42%
Expenses after custodian fee reduction(1)(3) 1.46% -- --
Net investment income 4.67% 4.88% 4.26%
</TABLE>
(See footnotes on page 11.)
20
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
Connecticut Fund
------------------------------------------------------------------------
Year Ended July 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994**
- -------------------------------------------------------------------------------------------------------------------
Class A Class B
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.120 $ 9.970 $ 10.050 $ 11.030
-------- -------- -------- --------
Income (loss) from operations:
Net investment income $ 0.453 $ 0.452 $ 0.465 $ 0.388
Net realized and unrealized gain
(loss) on investments 0.450 0.169 (0.037) (0.883)
-------- -------- -------- --------
Total income (loss) from operations $ 0.903 $ 0.621 $ 0.428 $ (0.495)
-------- -------- -------- --------
Less distributions:
From net investment income $ (0.453) $ (0.452) $ (0.465) $ (0.388)
In excess of net investment income(4) -- (0.019) (0.043) (0.079)
From net realized gain on investment
transactions -- -- -- (0.018)
-------- -------- -------- --------
Total distributions $ (0.453) $ (0.471) $ (0.508) $ (0.485)
-------- -------- -------- --------
Net asset value, end of year $ 10.570 $ 10.120 $ 9.970 $ 10.050
======== ======== ======== ========
Total Return(2) 9.17% 6.30% 4.55% (4.61)%
Ratios/Supplemental Data*:
Net assets, end of year (000 omitted) $171,634 $181,608 $188,900 $188,453
Ratio of net expenses to average daily
net assets(1)(3) 1.60% 1.58% 1.55% 1.43%+
Ratio of net expenses to average daily
net assets after custodian fee
reduction(1) 1.60% 1.57% -- --
Ratio of net investment income to
average daily net assets 4.45% 4.45% 4.77% 4.42%+
Portfolio Turnover of the Portfolio 11% 23% 29% 10%
</TABLE>
(See footnotes on page 11.)
21
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
Michigan Fund
-----------------------------------------------------------------
Year Ended July 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994/**/
- ------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.420 $ 10.250 $ 0.210 $ 11.110
-------- -------- -------- --------
Income (loss) from operations:
Net investment income $ 0.460 $ 0.464 $ 0.486 $ 0.398
Net realized and unrealized gain
(loss) on investments 0.454 0.195 0.059 (0.794)
-------- -------- -------- --------
Total income (loss) from operations $ 0.914 $ 0.659 $ 0.545 $ (0.396)
-------- -------- -------- --------
Less distributions:
From net investment income $ (0.462) $ (0.481) $ (0.486) $ (0.398)
In excess of net investment income(4) (0.002) (0.008) (0.019) (0.062)
From net realized gain on investment
transactions -- -- -- (0.028)
In excess of net realized gain on investment
transactions -- -- -- (0.016)
-------- -------- -------- --------
Total distributions $ (0.464) $ (0.489) $ (0.505) $ (0.504)
-------- -------- -------- --------
Net asset value, end of year $ 10.870 $ 10.420 $ 10.250 $ 10.210
======== ======== ======== ========
Total Return(2) 9.01% 6.50% 5.61% (3.66)%
Ratios/Supplemental Data*:
Net assets, end of year (000 omitted) $148,542 $171,067 $186,363 $197,082
Ratio of net expenses to average
daily net assets(1)(3) 1.60% 1.61% 1.51% 1.49%+
Ratio of net expenses to average daily
net assets after custodian fee
reduction(1) 1.58% 1.60% -- --
Ratio of net investment income to average
daily net assets 4.40% 4.44% 4.84% 4.49%
Portfolio Turnover of the Portfolio 16% 49% 54% 45%
</TABLE>
(See footnotes on page 11.)
22
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
Minnesota Fund
---------------------------------------------------------------
Year Ended July 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994**
- ---------------------------------------------------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $10.070 $ 9.950 $10.040 $10.910
------- ------- ------- -------
Income (loss) from operations:
Net investment income $ 0.466 $ 0.468 $ 0.470 $ 0.383
Net realized and unrealized gain
(loss) on investments 0.415 0.123 (0.053) (0.788)
------- ------- ------- -------
Total income (loss) from operations $ 0.881 $ 0.591 $ 0.417 $(0.405)
------- ------- ------- -------
Less distributions:
From net investment income $(0.461) $(0.468) $(0.470) $(0.383)
In excess of net investment income(4) -- (0.003) (0.037) (0.073)
From net realized gain on investment
transactions -- -- -- (0.009)
In excess of net realized gain on
investment transactions -- -- -- --
------- ------- ------- -------
Total distributions $(0.461) $(0.471) $(0.507) $(0.465)
------- ------- ------- -------
Net asset value, end of year $10.490 $10.070 $ 9.950 $10.040
======= ======= ======= =======
Total Return(2) 9.01% 6.00% 4.41% (3.81)%
Ratios/Supplemental Data*:
Net assets, end of year (000 omitted) $67,781 $74,374 $78,970 $79,223
Ratio of net expenses to average daily
net assets(1)(3) 1.58% 1.56% 1.52% 1.54%
Ratio of net expenses to average daily
net assets after custodian fee
reduction(1) 1.55% 1.54% -- --
Ratio of net investment income to
average daily net assets 4.62% 4.63% 4.80% 4.38%
Portfolio Turnover of the Portfolio 22% 45% 76% 20%
</TABLE>
(See footnotes on page 11.)
23
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
New Jersey Fund
-----------------------------------------------------------------
Year Ended July 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994**
- ----------------------------------------------------------------------------------------------------------
Class A Class B
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.440 $ 10.360 $ 10.410 $ 11.350
-------- -------- -------- --------
Income (loss) from operations:
Net investment income $ 0.506 $ 0.505 $ 0.505 $ 0.421
Net realized and unrealized gain
(loss) on investments 0.493 0.084 (0.009) (0.836)
-------- -------- -------- --------
Total income (loss) from operations $ 0.999 $ 0.589 $ 0.496 $ (0.415)
-------- -------- -------- --------
Less distributions:
From net investment income $ (0.499) $ (0.505) $ (0.505) $ (0.421)
In excess of net investment income(4) -- (0.004) (0.035) (0.075)
From net realized gain on investment
transactions -- -- -- (0.029)
In excess of net realized gain on
investment transactions -- -- (0.006 --
-------- -------- -------- --------
Total distributions $ (0.499) $ (0.509) $ (0.546) $ (0.525)
-------- -------- -------- --------
Net asset value, end of year $ 10.940 $ 10.440 $ 10.360 $ 10.410
======== ======== ======== ========
Total Return(2) 9.85% 5.74% 5.04% (3.77)%
Ratios/Supplemental Data:
Net assets, end of year (000 omitted) $345,080 $378,649 $404,861 $420,117
Ratio of net expenses to average daily
net assets(1)(3) 1.59% 1.57% 1.53% 1.48%
Ratio of net expenses to average daily
net assets after custodian fee
reduction(1) 1.57% 1.56% -- --
Ratio of net investment income to
average daily net assets 4.82% 4.80% 4.97% 4.64%
Portfolio Turnover of the Portfolio 24% 39% 54% 25%
</TABLE>
(See footnotes on page 11.)
24
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
Pennsylvania Fund
-----------------------------------------------------------------
Year Ended July 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994**
- ----------------------------------------------------------------------------------------------------------
Class A Class B
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.430 $ 10.320 $ 10.340 $ 11.310
-------- -------- -------- --------
Income (loss) from operations:
Net investment income $ 0.522 $ 0.512 $ 0.507 $ 0.422
Net realized and unrealized gain
(loss) on investments 0.458 0.108 0.004 (0.841)
-------- -------- -------- --------
Total income (loss) from operations $ 0.980 $ 0.620 $ 0.511 $ (0.419)
======== ======== ======== ========
Less distributions:
From net investment income $ (0.510) $ (0.510) $ (0.507) $ (0.422)
In excess of net investment income(4) -- -- (0.024) (0.069)
From net realized gain on investment
transactions -- -- -- (0.042)
In excess of net realized gain on
investment transactions -- -- -- (0.018)
-------- -------- -------- --------
Total distributions $ (0.510) $ (0.510) $ (0.531) $ (0.551)
-------- -------- -------- --------
Net asset value, end of year $(10.900) $(10.430) $(10.320) $(10.340)
======== ======== ======== ========
Total Return(2) 9.66% 6.08% 5.24% (3.84)%
Ratios/Supplemental Data:
Net assets, end of year (000 omitted) $395,974 $441,104 $495,856 $530,115
Ratio of net expenses to average daily
net assets(1)(3) 1.61% 1.58% 1.51% 1.46%
Ratio of net expenses to average daily
net assets after custodian fee
reduction(1) 1.56% 1.54% -- --
Ratio of net investment income to
average daily net assets 4.93% 4.89% 5.04% 4.68%
Portfolio Turnover of the Portfolio 17% 30% 44% 21%
</TABLE>
(See footnotes on page 11.)
25
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
Texas Fund
---------------------------------------------------------------
Year Ended July 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994**
- -------------------------------------------------------------------------------------------------------
Class A Class B
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $10.440 $10.280 $10.210 $11.110
------- ------- ------- -------
Income (loss) from operations:
Net investment income $ 0.489 $ 0.492 $ 0.532 $ 0.436
Net realized and unrealized gain
(loss) on investments 0.526 0.177 0.084 (0.824)
------- ------- ------- -------
Total income (loss) from operations $ 1.015 $ 0.669 $ 0.616 $(0.388)
------- ------- ------- -------
Less distributions:
From net investment income $(0.495) $(0.509) $(0.532) $(0.436)
In excess of net investment income(4) -- -- (0.014) (0.076)
In excess of net realized gain on
investment transactions -- -- -- --
------- ------- ------- -------
Total distributions $(0.495) $(0.509) $(0.546) $(0.512)
------- ------- ------- -------
Net asset value, end of year $10.960 $10.440 $10.280 $10.210
======= ======= ======= =======
Total Return(2) 10.00% 6.60% 6.36% (3.65)%
Ratios/Supplemental Data*:
Net assets, end of year (000 omitted) $21,283 $23,996 $27,762 $26,677
Ratio of net expenses to average daily
net assets(1)(3) 1.57% 1.43% 0.99% 0.82%
Ratio of net expenses to average daily
net assets after custodian fee
reduction(1) 1.55% 1.39% -- --
Ratio of net investment income to
average daily net assets 4.61% 4.70% 5.29% 4.81%
Portfolio Turnover of the Portfolio 17% 39% 49% 27%
* For the periods indicated, the operating expenses of the Texas Fund reflect
an allocation of expenses to the Administrator and/or the Investment
Adviser. Had such actions not been taken, net investment income per share
and the ratios would have been as follows:
Net investment income per share $ 0.482 $ 0.487 $ 0.359
======= ======= =======
Ratios (As a percentage of average daily net assets):
Expenses(1)(3) 1.53% 1.44% 1.67%
Expenses after custodian fee reduction(1)(3) 1.49% -- --
Net investment income 4.60% 4.84% 3.96%+
</TABLE>
** For the ten months ended July 31, 1994.
+ Annualized.
++ The per share amount is not in accord with the net realized and unrealized
gain (loss) for the period because of the timing of sales of the Fund
shares and the amount of per share realized and unrealized gains and losses
at such time.
(1) Includes the Fund's share of its corresponding Portfolio's allocated
expenses subsequent to February 1, 1993.
(2) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Distributions, if any, are assumed to be reinvested at the
net asset value on the payable date. Total return is computed on a
non-annualized basis.
(3) The expense ratios for the year ended 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}
EATON VANCE Mutual Funds
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 the Portfolios'
investments is available in the annual and semi-annual reports to shareholders.
In the annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected each Fund's performance during
the past year. You may obtain free copies of the statement of additional
information and the shareholder report by contacting:
Eaton Vance Distributors, Inc.
24 FEDERAL STREET
BOSTON, MA 02110
1-800-225-6265
You will find and may copy information about the Funds 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 up to 35% of
its net assets in the obligations of Puerto Rico and up to 5% of its net
assets in obligations of each of the U.S. Virgin Islands and Guam.
Accordingly, the Portfolio may be adversely affected by local political and
economic conditions and developments within Puerto Rico, the U.S. Virgin
Islands and Guam affecting the issuers of such obligations. Information about
some of these conditions and developments is included in Appendix C.
ISSUER CONCENTRATION. Each Portfolio may invest 25% or more of its total
assets in municipal obligations of the same type. There could be economic,
business or political developments which might affect all municipal
obligations of the same type. In particular, investments in industrial revenue
bonds might involve (without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of
increase of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices, and in
achieving timely and adequate rate relief from regulatory commissions, effects
of energy conservation and limitations on the capacity of the capital market
to absorb utility debt.
Bonds to finance life care facilities are normally secured only by the
revenues of each facility and not by state or local government tax payments,
they are subject to a wide variety of risks. Primarily, the projects must
maintain adequate occupancy levels to be able to provide revenues sufficient
to meet debt service payments. Moreover, since a portion of housing, medical
care and other services may be financed by an initial deposit, it is important
that the facility maintain adequate financial reserves to secure estimated
actuarial liabilities. The ability of management to accurately forecast
inflationary cost pressures is an important factor in this process. The
facilities may also be affected adversely by regulatory cost restrictions
applied to health care delivery in general, particularly state regulations or
changes in Medicare and Medicaid payments or qualifications, or restrictions
imposed by medical insurance companies. They may also face competition from
alternative health care or conventional housing facilities in the private or
public sector.
MUNICIPAL LEASES. Each Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment
purchase arrangement which is issued by state or local governments to acquire
equipment and facilities. Interest income from such obligations is generally
exempt from local and state taxes in the state of issuance. "Participations"
in such leases are undivided interests in a portion of the total obligation.
Participations entitle their holders to receive a pro rata share of all
payments under the lease. The obligation of the issuer to meet its obligations
under such leases is often subject to the appropriation by the appropriate
legislative body, on an annual or other basis, of funds for the payment of the
obligations. Investments in municipal leases are thus subject to the risk that
the legislative body will not make the necessary appropriation and the issuer
will not otherwise be willing or able to meet its obligation.
Certain municipal lease obligations owned by each Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the investment adviser, pursuant to
guidelines adopted by the Trustees of a Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal
lease obligations, the investment adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
investment adviser will consider factors unique to particular lease
obligations affecting the marketability thereof. These include the general
creditworthiness of the municipality, the importance of the property covered
by the lease to the municipality, and the likelihood that the marketability of
the obligation will be maintained throughout the time the obligation is held
by a Portfolio. In the event a Portfolio acquires an unrated municipal lease
obligation, the investment adviser will be responsible for determining the
credit quality of such obligation on an on-going basis, including an
assessment of the likelihood that the lease may or may not be cancelled.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations which do not
require the periodic payment of interest and are issued at a significant
discount from face value. The discount approximates the total amount of
interest the bonds will accrue and compound over the period until maturity at
a rate of interest reflecting the market rate of the security at the time of
issuance. Each Portfolio is required to accrue income from zero-coupon bonds
on a current basis, even though it does not receive that income currently in
cash and each Fund is required to distribute its share of the Portfolio's
income for each taxable year. Thus, a Portfolio may have to sell other
investments to obtain cash needed to make income distributions.
CREDIT QUALITY. While municipal obligations rated investment grade or below
and comparable unrated municipal obligations may have some quality and
protective characteristics, these characteristics can be expected to be offset
or outweighed by uncertainties or major risk exposures to adverse conditions.
Lower rated and comparable unrated municipal obligations are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to greater price volatility
due to such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Lower rated or unrated municipal obligations are also more likely to react to
real or perceived developments affecting market and credit risk than are more
highly rated obligations, which react primarily to movements in the general
level of interest rates.
Municipal obligations held by a Portfolio which are rated below investment
grade but which, subsequent to the assignment of such rating, are backed by
escrow accounts containing U.S. Government obligations may be determined by
the investment adviser to be of investment grade quality for purposes of the
Portfolio's investment policies. A Portfolio may retain in its portfolio an
obligation whose rating drops below B after its acquisition, including
defaulted obligations, if such retention is considered desirable by the
investment adviser; provided, however, that holdings of obligations rated
below Baa or BBB will be less than 35% of net assets. In the event the rating
of an obligation held by a Portfolio is downgraded, causing the Portfolio to
exceed this limitation, the investment adviser will (in an orderly fashion
within a reasonable period of time) dispose of such obligations as it deems
necessary in order to comply with the Portfolio's credit quality limitations.
In the case of a defaulted obligation, a Portfolio may incur additional
expense seeking recovery of its investment. See "Portfolio of Investments" in
the "Financial Statements" incorporated by reference into this SAI with
respect to any defaulted obligations held by a Portfolio.
The investment adviser seeks to minimize the risks of investing in below
investment grade securities through professional investment analysis and
attention to current developments in interest rates and economic conditions.
When a Portfolio invests in lower rated or unrated municipal obligations, the
achievement of the Portfolio's goals is more dependent on the investment
adviser's ability than would be the case if the Portfolio were investing in
municipal obligations in the higher rating categories. In evaluating the
credit quality of a particular issue, whether rated or unrated, the investment
adviser will normally take into consideration, among other things, the
financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The investment adviser will attempt to reduce the risks of investing
in the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
WHEN-ISSUED SECURITIES. New issues of municipal obligations are sometimes
offered on a "when-issued" basis, that is, delivery and payment for the
securities normally take place within a specified number of days after the
date of a Portfolio's commitment and are subject to certain conditions such as
the issuance of satisfactory legal opinions. Each Portfolio may also purchase
securities on a when-issued basis pursuant to refunding contracts in
connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts generally require the issuer to sell and a Portfolio to
buy such securities on a settlement date that could be several months or
several years in the future. Each Portfolio may also purchase instruments that
give the Portfolio the option to purchase a municipal obligation when and if
issued.
Each Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell
such securities before the settlement date if it is deemed advisable as a
matter of investment strategy. The payment obligation and the interest rate
that will be received on the securities are fixed at the time a Portfolio
enters into the purchase commitment. When a Portfolio commits to purchase a
security on a when-issued basis it records the transaction and reflects the
value of the security in determining its net asset value. Securities purchased
on a when-issued basis and the securities held by a Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the
issuer and changes in the level of interest rates (i.e., appreciation when
interest rates decline and depreciation when interest rates rise). Therefore,
to the extent that a Portfolio remains substantially fully invested at the
same time that it has purchased securities on a when-issued basis, there will
be greater fluctuations in the Portfolio's net asset value than if it solely
set aside cash to pay for when-issued securities.
REDEMPTION, DEMAND AND PUT FEATURES AND PUT OPTIONS. Issuers of municipal
obligations reserve the right to call (redeem) the bond. If an issuer redeems
securities held by the Portfolio during a time of declining interest rates,
the Portfolio may not be able to reinvest the proceeds in securities providing
the same investment return as the securities redeemed. Also, some bonds may
have "put" or "demand" features that allow early redemption by the bondholder.
Longer term fixed-rate bonds may give the holder a right to request redemption
at certain times (often annually after the lapse of an intermediate term).
These bonds are more defensive than conventional long term bonds (protecting
to some degree against a rise in interest rates) while providing greater
opportunity than comparable intermediate term bonds, because the Portfolio may
retain the bond if interest rates decline.
LIQUIDITY AND PROTECTIVE PUT OPTIONS. Each Portfolio may enter into a
separate agreement with the seller of the security or some other person
granting the Portfolio the right to put the security to the seller thereof or
the other person at an agreed upon price. Each Portfolio intends to limit this
type of transaction to institutions (such as banks or securities dealers)
which the investment adviser believes present minimal credit risks and would
engage in this type of transaction to facilitate portfolio liquidity or (if
the seller so agrees) to hedge against rising interest rates. There is no
assurance that this kind of put option will be available to a Portfolio or
that selling institutions will be willing to permit a Portfolio to exercise a
put to hedge against rising interest rates. A Portfolio does not expect to
assign any value to any separate put option which may be acquired to
facilitate portfolio liquidity, inasmuch as the value (if any) of the put will
be reflected in the value assigned to the associated security; any put
acquired for hedging purposes would be valued in good faith under methods or
procedures established by the Trustees of the Portfolio after consideration of
all relevant factors, including its expiration date, the price volatility of
the associated security, the difference between the market price of the
associated security and the exercise price of the put, the creditworthiness of
the issuer of the put and the market prices of comparable put options.
Interest income generated by certain bonds having put or demand features may
be taxable.
ILLIQUID OBLIGATIONS. At times, a substantial portion of the Portfolio's
assets may be invested in securities as to which the Portfolio, by itself or
together with other accounts managed by the investment adviser and its
affiliates, holds a major portion or all of such securities. Under adverse
market or economic conditions or in the event of adverse changes in the
financial condition of the issuer, the Portfolio could find it more difficult
to sell such securities when the investment adviser believes it advisable to
do so or may be able to sell such securities only at prices lower than if such
securities were more widely held. Under such circumstances, it may also be
more difficult to determine the fair value of such securities for purposes of
computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a state
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain of the municipal
obligations in which a Portfolio may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, a Portfolio may be unable to dispose of
these municipal obligations at times when it would otherwise wish to do so at
the prices at which they are valued.
SECURITIES LENDING. Each Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers.
Distributions by a Fund of any income realized by a Portfolio from securities
loans will be taxable. If the management of a Portfolio decides to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of a Portfolio's total assets. Each Portfolio has no present
intention of engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A change in the level of
interest rates may affect the value of the securities held by a Portfolio (or
of securities that a Portfolio expects to purchase). To hedge against changes
in rates or as a substitute for the purchase of securities, a Portfolio may
enter into (i) futures contracts for the purchase or sale of debt securities
and (ii) futures contracts on securities indices. All futures contracts
entered into by a Portfolio are traded on exchanges or boards of trade that
are licensed and regulated by the Commodity Futures Trading Commission
("CFTC") and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant exchange. The Portfolio may
purchase and write call and put options on futures contracts which are traded
on a United States or foreign exchange or board of trade. The Portfolio will
be required, in connection with transactions in futures contracts and the
writing of options on futures, to make margin deposits, which will be held by
the Portfolio's custodian for the benefit of the futures commission merchant
through whom the Portfolio engages in such futures and options transactions.
Some futures contracts and options thereon may become illiquid under
adverse market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit transactions in an exchange-traded
instrument, which may make the instrument temporarily illiquid and difficult
to price. Commodity exchanges may also establish daily limits on the amount
that the price of a futures contract or futures option can vary from the
previous day's settlement price. Once the daily limit is reached, no trades
may be made that day at a price beyond the limit. This may prevent the
Portfolio from closing out positions and limiting its losses.
Each Portfolio will engage in futures and related options transactions for
bona fide hedging purposes or non-hedging purposes as defined in or permitted
by CFTC regulations. The Portfolio will determine that the price fluctuations
in the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the
Portfolio or which it expects to purchase. Each Portfolio will engage in
transactions in futures and related options contracts only to the extent such
transactions are consistent with the requirements of the Code for maintaining
qualification of a Fund as a regulated investment company for federal income
tax purposes (see "Taxes").
ASSET COVERAGE REQUIREMENTS. Transactions involving when-issued securities or
futures contracts and options (other than options that the Portfolio has
purchased) expose the Portfolio to an obligation to another party. A Portfolio
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options or futures
contracts, or (2) cash or liquid securities (such as readily marketable
obligations and money market instruments) with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. Each
Portfolio will comply with Securities and Exchange Commission ("SEC")
guidelines regarding cover for these instruments and, if the guidelines so
require, set aside cash or liquid securities in a segregated account with its
custodian in the prescribed amount. The securities in the segregated account
will be marked to market daily.
Assets used as cover or held in a segregated account maintained by the
custodian cannot be sold while the position requiring coverage or segregation
is outstanding unless they are replaced with other appropriate assets. As a
result, the commitment of a large portion of a Portfolio's assets to
segregated accounts or to cover could impede portfolio management or a
Portfolio's ability to meet redemption requests or other current obligations.
PORTFOLIO TURNOVER. Each Portfolio may sell (and later purchase) securities
in anticipation of a market decline (a rise in interest rates) or purchase
(and later sell) securities in anticipation of a market rise (a decline in
interest rates). In addition, a security may be sold and another purchased at
approximately the same time to take advantage of what a Portfolio believes to
be a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to
the investment quality of particular issues or the general movement of
interest rates, such as changes in the overall demand for or supply of various
types of municipal obligations or changes in the investment objectives of
investors. Such trading may be expected to increase the portfolio turnover
rate, which may increase capital gains and the expenses incurred in connection
with such trading. A Portfolio cannot accurately predict its portfolio
turnover rate, but it is anticipated that the annual portfolio turnover rate
will generally not exceed 100% (excluding turnover of securities having a
maturity of one year or less). A 100% annual turnover rate could occur, for
example, if all the securities held by a Portfolio were replaced once in a
period of one year. A high turnover rate (100% or more) necessarily involves
greater expenses to the Portfolio. Each Portfolio engages in portfolio trading
(including short-term trading) if it believes that a transaction including all
costs will help in achieving its investment objective. For the portfolio
turnover rate of each Portfolio, see "Financial Highlights" in the prospectus.
INVESTMENT RESTRICTIONS
The following investment restrictions of each Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of a Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of a Fund present or
represented by proxy at a meeting if the holders of more than 50% of the
shares are present or represented at the meeting or (b) more than 50% of the
shares of a Fund. Accordingly, each Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940 (the "1940 Act");
(2) Purchase securities on margin (but the Fund may obtain such short-
term credits as may be necessary for the clearance of purchases and sales
of securities). The deposit or payment by the Fund of initial or
maintenance margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of
others, except insofar as it may technically be deemed to be an
underwriter in selling a portfolio security under circumstances which may
require the registration of the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership
interests in real estate but excluding readily marketable interests in
real estate investment trusts or readily marketable securities of
companies which invest or deal in real estate or securities which are
secured by real estate);
(5) Purchase or sell physical commodities or contracts for the
purchase or sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
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 Trust 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. The Fund and the Portfolio will
not:
(a) engage in options, futures or forward transactions if more than 5%
of its net assets, as measured by the aggregate of the premiums paid by
the Fund or the Portfolio, would be so invested;
(b) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount
of such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue as,
and equal in amount to, the securities sold short and unless not more than
25% of the Fund's net assets (taken at current value) is held as
collateral for such sales at any one time; or
(c) invest more than 15% of its net assets in investments which are
not readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial
paper issued pursuant to Section 4(2) of said Act that the Board of
Trustees of the Trust or the Portfolio, or its delegate, determines to be
liquid.
For purposes of a Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation
bond will be made by the Portfolio's investment adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding
quality standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease
resulting from a change in values, assets or other circumstances, or any
subsequent rating change below investment grade made by a rating service, will
not compel the Fund or the Portfolio, as the case may be, to dispose of such
security or other asset. Where applicable and notwithstanding the foregoing,
under normal market conditions the Fund and the Portfolio must take actions
necessary to comply with the policy of investing at least 65% of total assets
in a particular state and not investing more than 15% of net assets in
illiquid securities. Moreover, the Fund and Portfolio must always be in
compliance with the borrowing policies set forth above.
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees of the Trust are responsible for the overall
management and supervision of the Trust's affairs. The Trustees and officers
of the Trust and the Portfolios are listed below. Except as indicated, each
individual has held the office shown or other offices in the same company for
the last five years. Unless otherwise noted, the business address of each
Trustee and officer is 24 Federal Street, Boston, Massachusetts 02110. Those
Trustees who are "interested persons" of the Trust or the Portfolio, as
defined in the 1940 Act, are indicated by an asterisk(*).
DONALD R. DWIGHT (67), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee of various investment companies managed by Eaton Vance or
BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (57), Vice President and Trustee*
Chairman, President and Chief Executive Officer of BMR, Eaton Vance and their
corporate parent and trustee (EVC and EV); Director of EVC and EV. Trustee
and officer of various investment companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (63), Trustee
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of the Kobrick - Cendant
Investment Trust (mutual funds). Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 345 Nahatan Road, Westwood, Massachusetts 02090
NORTON H. REAMER (63), Trustee
Chairman of the Board and Chief Executive Officer, United Asset Management
Corporation (a holding company owning institutional investment management
firms); Chairman, President and Director, UAM Funds (mutual funds). Trustee
of various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (72), Trustee
Formerly Director of Fiduciary Company Incorporated. Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (68), Trustee
Investment Adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
THOMAS J. FETTER (55), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (41), Vice President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (53), Treasurer
Vice President of BMR, Eaton Vance and EV. 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, EVC and EV 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, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (35), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
ERIC G. WOODBURY (41), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. 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 certified public accountants, and reviewing matters relative
to trading and brokerage policies and practices, accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the custodian, 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>
SAMUEL L.
DONALD R. HAYES, III NORTON H. JOHN L. JACK L.
SOURCE OF COMPENSATION DWIGHT(3) (4) REAMER THORNDIKE(5) TREYNOR
- ---------------------- --------- --- ------ ------------ -------
<S> <C> <C> <C> <C> <C>
Trust(2) $ $ $
Arizona Portfolio $ $ $ $ $
Colorado Portfolio
Connecticut Portfolio
Michigan Portfolio
Minnesota Portfolio
New Jersey Portfolio
Pennsylvania Portfolio
Texas Portfolio
Trust and Fund Complex $ (6) $ (7) $ $ (8) $
</TABLE>
- ----------
(1) As of December 1, 1998, the Eaton Vance fund complex consists of 144
registered investment companies or series thereof.
(2) The Trust consisted of Funds as of July 31, 1998.
(3) Mr. Dwight received deferred compensation from each Portfolio as follows:
Arizona - $ ; Colorado - $ ; Connecticut - $ ; Michigan - $ ;
Minnesota - $ ; New Jersey - $ ; Pennsylvania - $ ; and Texas -
$ .
(4) Mr. Hayes received deferred compensation from each Portfolio as follows:
Arizona - $ ; Colorado - $ ; Connecticut - $ ; Michigan - $ ;
Minnesota - $ ; New Jersey - $ ; Pennsylvania - $ ; and Texas - $ .
(5) Mr. Thorndike received deferred compensation from each Portfolio as
follows: Arizona - $ ; Colorado - $ ; Connecticut - $ ; Michigan
- $ ; Minnesota - $ ; New Jersey - $ ; Pennsylvania - $ ;
and Texas - $ .
(6) Includes $ of deferred compensation.
(7) Includes $ of deferred compensation.
(8) Includes $ of deferred compensation.
ORGANIZATION. Each Fund is a series of the Trust, which is organized under
Massachusetts law and is operated as an open-end management investment
company. Each Fund changed its name from Eaton Vance [state name] Tax Free
Fund to EV Marathon [state name] Tax Free Fund on February 1, 1994 and to EV
Marathon [state name] Municipals Fund on December 1, 1994. Each Fund was
reorganized into multiple classes and changed its name to Eaton Vance [state
name] Municipals Fund on 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, including Class A and Class B shares. 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
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in
kind" of portfolio securities (as opposed to a cash distribution from the
Portfolio). If securities are distributed, a Fund could incur brokerage, tax
or other charges in converting the securities to cash. In addition, the
distribution in kind may result in a less diversified portfolio of investments
or adversely affect the liquidity of a Fund. Notwithstanding the above, there
are other means for meeting shareholder redemption requests, such as
borrowing.
A Fund may withdraw (completely redeem) all its assets from its
corresponding Portfolio at any time if the Board of Trustees of the Trust
determines that it is in the best interest of that Fund to do so. In the event
a Fund withdraws all of its assets from its corresponding Portfolio, or the
Board of Trustees of the Trust determines that the investment objective of
such Portfolio is no longer consistent with the investment objective of the
Fund, 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 $ $ $ 482,775 $ 574,999
Colorado(1) 113,698 130,068
Connecticut 771,883 841,092
Michigan 676,686 795,032
Minnesota 252,187 295,178
New Jersey 1,707,028 1,878,801
Pennsylvania 1,982,739 2,262,320
Texas(2) 41,158 55,086
</TABLE>
- ----------
(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.
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, Rowland, and 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 long-term state portfolios,
national portfolios and 9 limited maturity portfolios, which serve as
investment vehicles for over 100 mutual funds with varying pricing options. A
staff of (including portfolio managers and 9 credit specialists) is
responsible for the day-to-day management of over 3,500 issues in 46 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.
OTHER SERVICE PROVIDERS
PRINCIPAL UNDERWRITER. Eaton Vance Distributors, Inc. ("EVD"), 24 Federal
Street, Boston, MA 02110, is the Funds' principal underwriter. The principal
underwriter acts as principal in selling Class A shares under a Distribution
Agreement with the Trust. The expenses of printing copies of prospectuses used
to offer shares and other selling literature and of advertising are borne by
the principal underwriter. The fees and expenses of qualifying and registering
and maintaining qualifications and registrations of a Fund and its shares
under federal and state securities laws are borne by that Fund. The
Distribution Agreement as it applies to Class A shares is renewable annually
by the Board of Trustees of the Trust (including a majority of the
noninterested Trustees) may be terminated on six months' notice by either
party and is automatically terminated upon assignment. The Distribution
Agreement as it applies to Class B shares is renewable annually by the Trust's
Board of Trustees (including a majority of the noninterested Trustees who have
no direct or indirect financial interest in the operation of the Distribution
Plan or the Distribution Agreement), may be terminated on sixty days' notice
either by such Trustees or by vote of a majority of the outstanding Class B
shares or on six months' notice by the principal underwriter and is
automatically terminated upon assignment. The principal underwriter
distributes shares on a "best efforts" basis under which it is required to
take and pay for only such shares as may be sold. The principal underwriter
allows investment dealers discounts from the applicable public offering price
which are alike for all investment dealers. See "Sales Charges." EVD is a
wholly-owned subsidiary of EVC. M. Hawkes is a Vice President and Director and
Messrs. Dynner and O'Connor are Vice Presidents of EVD.
CUSTODIAN. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street,
Boston, MA 02116, serves as custodian to the Funds and Portfolios. IBT has the
custody of all cash and securities representing a Fund's interest in a
Portfolio, has custody of each Portfolio's assets, maintains the general
ledger of each Portfolio and each Fund and computes the daily net asset value
of interests in each Portfolio and the net asset value of shares of the Fund.
In such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolios' investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Trust and the Portfolios. IBT
also provides services in connection with the preparation of shareholder
reports and the electronic filing of such reports with the SEC. EVC and its
affiliates and their officers and employees from time to time have
transactions with various banks, including the custodian of the Fund and the
Portfolio, IBT. It is Eaton Vance's opinion that the terms and conditions of
such transactions were not and will not be influenced by existing or potential
custodial or other relationships between the Fund or the Portfolio and such
banks.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. Deloitte & Touche LLP, 125 Summer
Street, Boston, Massachusetts, are the independent certified public
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, 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 Fund and the Portfolio will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, 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.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. The right to redeem shares of the
Fund can be suspended and the payment of the redemption price deferred when
the Exchange is closed (other than for customary weekend and holiday
closings), during periods when trading on the Exchange is restricted as
determined by the SEC, or during any emergency as determined by the SEC which
makes it impracticable for the Portfolio to dispose of its securities or value
its assets, or during any other period permitted by order of the 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
Plans 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 Plans for
any particular period of time. Suspension of the offering of shares would not,
of course, affect a shareholder's ability to redeem shares.
SYSTEMATIC WITHDRAWAL PLAN. The transfer agent will send to the shareholder
regular monthly or quarterly payments of any permitted amount designated by
the shareholder based upon the value of the shares held. The checks will be
drawn from share redemptions and hence, although they are a return of
principal, may require the recognition of taxable gain or loss. Income
dividends and capital gains distributions in connection with withdrawal plan
accounts will be credited at net asset value as of the record date for each
distribution. Continued withdrawals in excess of current income will
eventually use up principal, particularly in a period of declining market
prices. A shareholder may not have a withdrawal plan in effect at the same
time he or she has authorized Bank Automated Investing or is otherwise making
regular purchases of Fund shares. The shareholder, the transfer agent or the
principal underwriter will be able to terminate the withdrawal plan at any
time without penalty.
SALES CHARGES
DEALER COMMISSIONS. Upon the sale of Class A shares, investment dealers will
be paid the following dealer commission:
DEALER COMMISSION
AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE
Less than $25,000 4.50%
$25,000 but less than $100,000 4.25
$100,000 but less than $250,000 3.50
$250,000 but less than $500,000 2.75
$500,000 but less than $1,000,000 2.00
$1,000,000 or more 0.50
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, financial service firms ("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 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.
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.
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 or distribution rate 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 the Fund's
shares, pays a fixed rate of interest and entitles the depositor to receive
the face amount of the certificate of deposit at maturity. A bank money market
deposit account is a form of savings account which pays a variable rate of
interest. Unlike the Fund's shares, bank certificates of deposit and bank
money market deposit accounts are insured by the Federal Deposit Insurance
Corporation. A money market mutual fund is designed to maintain a constant
value of $1.00 per share and, thus, a money market fund's shares are subject
to less price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
- cost associated with aging parents;
- funding a college education (including its actual and estimated
cost);
- health care expenses (including actual and projected expenses);
- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and
the results of such methods, as well as the benefits of investing in municipal
bond funds. Such information may describe the following advantages of
investing in a municipal bond mutual fund versus individual municipal bonds:
regular monthly income; free reinvestment of distributions; potential for
increased income; bond diversification; liquidity; low-cost easy access; and
active management and in depth credit analysis by investment professionals. In
addition, by investing in a municipal bond fund instead of individual bonds,
an investor can avoid dealing with the complexities of the municipal bond
market, while benefitting from the market access and lower transactions costs
enjoyed by municipal bond funds.
The 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 for
each of the fiscal years ended July 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
PORTFOLIO 7/31/98 7/31/97 7/31/96
- --------- ------- ------- -------
<S> <C> <C> <C>
Arizona ................................................ $ $ 7,927 $ 22,534
Colorado ............................................... 2,870 13,997
Connecticut ............................................ 6,551 33,097
Michigan ............................................... 18,638 -0-
Minnesota .............................................. 3,715 21,625
New Jersey ............................................. 17,765 41,780
Pennsylvania ........................................... 48,478 106,001
Texas .................................................. 1,277 5,915
</TABLE>
All of such portfolio security transactions were directed to firms which
provided some research services to BMR or its affiliates (although many of
such firms may have been selected in any particular transaction primarily
because of their execution capabilities), and the amounts of such transactions
for the fiscal year ended July 31, 1998 were as follows: Arizona --
$ ; Colorado -- $ ; Connecticut -- $ ; Michigan
- -- $ ; Minnesota -- $ ; New Jersey -- $ ;
Pennsylvania -- $ ; and Texas -- $ .
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of a Portfolio
may receive a commission which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
BMR determines in good faith that such compensation was reasonable in relation
to the value of the brokerage and research services provided. This
determination may be made either on the basis of that particular transaction
or on the basis of overall responsibilities which BMR and its affiliates have
for accounts over which they exercise investment discretion. In making any
such determination, BMR will not attempt to place a specific dollar value on
the brokerage and research services provided or to determine what portion of
the commission should be related to such services. Brokerage and research
services may include advice as to the value of securities, the advisability of
investing in, purchasing, or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts; effecting
securities transactions and performing functions incidental thereto (such as
clearance and settlement); and the "Research Services" referred to in the next
paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, analytical, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealer firms which execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, BMR receives Research Services
from many broker-dealer firms with which BMR places the Portfolios'
transactions and from third parties with which these broker-dealers have
arrangements. These Research Services include such matters as general
economic, political, business and market information, industry and company
reviews, evaluations of securities and portfolio strategies and transactions,
proxy voting data and analysis services, technical analysis of various aspects
of the securities markets, recommendations as to the purchase and sale of
securities and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation equipment
and services, and research oriented computer hardware, software, data bases
and services. Any particular Research Service obtained through a broker-dealer
may be used by BMR in connection with client accounts other than those
accounts which pay commissions to such broker-dealer. Any such Research
Service may be broadly useful and of value to BMR in rendering investment
advisory services to all or a significant portion of its clients, or may be
relevant and useful for the management of only one client's account or of a
few clients' accounts, or may be useful for the management of merely a segment
of certain clients' accounts, regardless of whether any such account or
accounts paid commissions to the broker-dealer through which such Research
Service was obtained. The advisory fee paid by each Portfolio is not reduced
because BMR receives such Research Services. BMR evaluates the nature and
quality of the various Research Services obtained through broker-dealer firms
and attempts to allocate sufficient portfolio security transactions to such
firms to ensure the continued receipt of Research Services which BMR believes
are useful or of value to it in rendering investment advisory services to its
clients.
The Portfolios and BMR may also receive Research Services from
underwriters and dealers in fixed-price offerings, which Research Services are
reviewed and evaluated by BMR in connection with its investment
responsibilities. The investment companies sponsored by BMR or Eaton Vance may
allocate trades in such offerings to acquire information relating to the
performance, fees and expenses of such companies and other mutual funds, which
information is used by the Trustees of such companies to fulfill their
responsibility to oversee the quality of the services provided by various
entities, including BMR, to such companies. Such companies may also pay cash
for such information.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Funds or of other investment companies sponsored by BMR or Eaton
Vance. This policy is not inconsistent with a rule of the NASD, which rule
provides that no firm which is a member of the NASD shall favor or disfavor
the distribution of shares of any particular investment company or group of
investment companies on the basis of brokerage commissions received or
expected by such firm from any source.
Municipal obligations considered as investments for the Portfolios may
also be appropriate for other investment accounts managed by BMR or its
affiliates. Whenever decisions are made to buy or sell securities by a
Portfolio and one or more of such other accounts simultaneously, BMR will
allocate the security transactions (including "hot" issues) in a manner which
it believes to be equitable under the circumstances. As a result of such
allocations, there may be instances where a Portfolio will not participate in
a transaction that is allocated among other accounts. If an aggregated order
cannot be filled completely, allocations will generally be made on a pro rata
basis. An order may not be allocated on a pro rata basis where, for example:
(i) consideration is given to portfolio managers who have been instrumental in
developing or negotiating a particular investment; (ii) consideration is given
to an account with specialized investment policies that coincide with the
particulars of a specific investment; (iii) pro rata allocation would result
in odd-lot or de minimis amounts being allocated to a portfolio or other
client; or (iv) where BMR reasonably determines that departure from a pro rata
allocation is advisable. While these aggregation and allocation policies could
have a detrimental effect on the price or amount of the securities available
to the Portfolio from time to time, it is the opinion of the Trustees of the
Trust and the Portfolios that the benefits from the BMR organization outweigh
any disadvantage that may arise from exposure to simultaneous transactions.
FINANCIAL STATEMENTS
The audited financial statements of and the independent auditors' reports
for the Funds and the Portfolios, appear in the Funds' most recent annual
report to shareholders and are incorporated by reference into this SAI. A copy
of the Funds' annual report accompanies this SAI. Consistent with applicable
law, duplicate mailings of shareholder reports and certain other Fund
information to shareholders residing at the same address may be eliminated.
<PAGE>
APPENDIX A
CLASS A FEES, PERFORMANCE AND OWNERSHIP
SERVICE FEES
For the fiscal year ended 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.
<TABLE>
<CAPTION>
SERVICE FEES TO
CLASS A SERVICE FEES INVESTMENT DEALERS
- ------- ------------ ------------------
<S> <C> <C>
Arizona ...................................................... $ $
Colorado .....................................................
Connecticut ..................................................
Michigan .....................................................
Minnesota ....................................................
New Jersey ...................................................
Pennsylvania .................................................
Texas ........................................................
</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 --
$ Colorado -- $ ; Connecticut -- $ Michigan -- $ ;
Minnesota -- $ ; New Jersey -- $ ; Pennsylvania -- $ ;
and Texas -- $ .
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.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- ARIZONA
<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 $ $ % % % %
5 Years Ended
7/31/98** 7/31/93 $ $ % % % %
1 Year Ended
7/31/98 7/31/97 $ $ % % % %
</TABLE>
- ------------
*Predecessor Fund commenced operations December 13, 1993.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- COLORADO
<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 $ $ % % % %
5 Years Ended
7/31/98** 7/31/93 $ $ % % % %
1 Year Ended
7/31/98 7/31/97 $ $ % % % %
</TABLE>
- ------------
*Predecessor Fund commenced operations December 10, 1993.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- CONNECTICUT
<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 $ $ % % % %
5 Years Ended
7/31/98** 7/31/93 $ $ % % % %
1 Year Ended
7/31/98 7/31/97 $ $ % % % %
</TABLE>
- ------------
*Predecessor Fund commenced operations April 19, 1994.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- MICHIGAN
<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 $ $ % % % %
5 Years Ended
7/31/98** 7/31/93 $ $ % % % %
1 Year Ended
7/31/98 7/31/97 $ $ % % % %
</TABLE>
- ------------
*Predecessor Fund commenced operations December 7, 1993.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- MINNESOTA
<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 $ $ % % % %
5 Years Ended
7/31/98** 7/31/93 $ $ % % % %
1 Year Ended
7/31/98 7/31/97 $ $ % % % %
</TABLE>
- ------------
*Predecessor Fund commenced operations December 9, 1993.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- NEW JERSEY
<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 $ $ % % % %
5 Years Ended
7/31/98** 7/31/93 $ $ % % % %
1 Year Ended
7/31/98 7/31/97 $ $ % % % %
</TABLE>
- ------------
*Predecessor Fund commenced operations April 13, 1994.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- PENNSYLVANIA
<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 $ $ % % % %
5 Years Ended
7/31/98** 7/31/93 $ $ % % % %
1 Year Ended
7/31/98 7/31/97 $ $ % % % %
</TABLE>
- ------------
*Predecessor Fund commenced operations June 1, 1994.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- TEXAS
<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 $ $ % % % %
5 Years Ended
7/31/98** 7/31/93 $ $ % % % %
1 Year Ended
7/31/98 7/31/97 $ $ % % % %
</TABLE>
- ------------
*Predecessor Fund commenced operations December 8, 1993.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at September 1, 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 22.0%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 12.5%
COLORADO FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 6.5%
Olde Discount Detroit, MI 6.2%
CONNECTICUT FUND - Corelink Financial Inc. Concord, CA 11.8%
MICHIGAN FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 19.1%
Donaldson Lufkin Jenrette Jersey City, NJ 16.4%
NEW JERSEY FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 10.5%
NFSC Summit, NJ 8.6%
US Clearing Corp. New York, NY 7.1%
Olde Discount Detroit, MI 6.7%
PENNSYLVANIA FUND - Dime Bank Honesdale, PA 10.7%
TEXAS FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 56.1%
</TABLE>
In addition, as of the same date, the following shareholders owned of
record, the percentage of each Fund's Class A shares indicated after their
name:
<TABLE>
<S> <C> <C> <C>
ARIZONA FUND - Betty E. Howard Trustee Scottsdale, AZ 6.3%
U/A/DTD 4-12-88 FBO
Betty E. Howard
Michael J. Waldman & Sandra C. Scottsdale, AZ 6.2%
Waldman JTWROS
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
MINNESOTA FUND - Dorothy M. Allen Aitkin, MN 10.1%
Elayne J. Aiple Stillwater, MN 7.7%
James E. Steichen St. Paul, MN 5.1%
James M. Winey North Oaks, MN 5.0%
PENNSYLVANIA FUND - Josephine J. Kuhn Pittsburgh, PA 11.7%
TEXAS FUND - Dr. H. David Medley & Rosemary Medley Dallas, TX 22.1%
Margaretha R. Lafferty Houston, TX 8.3%
Dick D. Heller & Evelyn J. Heller Mission, TX 7.9%
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 AUTHORIZED
CLASS B COMMISSIONS UNDERWRITER UNDERWRITER FEES FIRMS
- ------- ----------- ------------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C>
Arizona ......................... $ $ $ $ $
Colorado ........................
Connecticut .....................
Michigan ........................
Minnesota .......................
New Jersey ......................
Pennsylvania ....................
Texas ...........................
</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 --
$ Colorado -- $ ; Connecticut -- $ Michigan -- $ ;
Minnesota -- $ ; New Jersey -- $ ; Pennsylvania -- $ ;
and Texas -- $ .
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return
on a hypothetical investment of $1,000 in Class B shares for the periods shown
in each table. Past performance is not indicative of future results.
Investment return and principal value will fluctuate; shares, when redeemed,
may be worth more or less than their original cost. Information presented with
two asterisks (**) includes the effect of subsidizing expenses. Return would
have been lower without subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- ARIZONA
<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 $ $ % % % %
5 Years
Ended
7/31/98** 7/31/93 $1,000 $ $ % % % %
1 Year
Ended
7/31/98 7/31/97 $1,000 $ $ % % % %
- ------------
* Investment operations began on July 25, 1991.
</TABLE>
<TABLE>
VALUE OF A $1,000 INVESTMENT -- COLORADO
<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** 8/25/92 $1,000 $ $ % % % %
5 Years
Ended
7/31/98** 7/31/93 $1,000 $ $ % % % %
1 Year
Ended
7/31/98 7/31/97 $1,000 $ $ % % % %
</TABLE>
- ------------
* Investment operations began on August 25, 1992.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- CONNECTICUT
<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 $ $ % % % %
5 Years
Ended**
7/31/98 7/31/93 $1,000 $ $ % % % %
1 Year
Ended
7/31/98 7/31/97 $1,000 $ $ % % % %
</TABLE>
- ------------
* Investment operations began on May 1, 1992.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- MICHIGAN
<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 $ $ % % % %
5 Years
Ended
7/31/98** 7/31/93 $1,000 $ $ % % % %
1 Year
Ended
7/31/98 7/31/97 $1,000 $ $ % % % %
</TABLE>
- ------------
* Investment operations began on April 19, 1991.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- MINNESOTA
<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 $ $ % % % %
5 Years
Ended
7/31/98** 7/31/93 $1,000 $ $ % % % %
1 Year
Ended
7/31/98 7/31/97 $1,000 $ $ % % % %
</TABLE>
- ----------
* Investment operations began on July 29, 1991.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- NEW JERSEY
<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 $ $ % % % %
5 Years
Ended
7/31/98** 7/31/93 $1,000 $ $ % % % %
1 Year
Ended
7/31/98 7/31/97 $1,000 $ $ % % %
</TABLE>
- ----------
* Investment operations began on January 8, 1991.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- PENNSYLVANIA
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 $ $ % % % %
5 Years
Ended
7/31/98** 7/31/93 $1,000 $ $ % % % %
1 Year
Ended
7/31/98 7/31/97 $1,000 $ $ % % % %
</TABLE>
- ------------
* Investment operations began on January 8, 1991.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- TEXAS
<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** 3/24/92 $1,000 $ $ % % % %
5 Years
Ended
7/31/98** 7/31/93 $1,000 $ $ % % % %
1 Year
Ended
7/31/98 7/31/97 $1,000 $ $ % % % %
</TABLE>
- ------------
* Investment operations began on March 24, 1992.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at September 1, 1998, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of each
Class B and of each Fund. As of September 1, 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 -- 8.7%;
Connecticut -- 17.6%; Michigan -- 19.9%; Minnesota -- 7.4%; New Jersey --
10.3%; Pennsylvania -- 14.1%; and Texas -- 33.9%. 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 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. In fiscal year 1997, "excess" revenues of approximately $150 million had
to be returned to the residents of the state pursuant to the TABOR Amendment.
CONNECTICUT
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. The state has about $6 billion of general obligation bonds
outstanding, of which more than half have been issued for general state
purposes. The remaining general obligation bonds were issued for highway
construction, mass transit, and rental housing. Debt indicators have been
rising and are high at $1,963 of net direct debt per capita. 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.
For the fiscal year ended June 30, 1997, the 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 December 1, 1997, the state had
authorized direct general obligation bond indebtedness totaling
$11,460,239,000, of which $10,159,950,000 had been approved for issuance by
the State Bond Commission and $9,181,272,000 had been issued. As of December
1, 1997, state direct general obligation indebtedness outstanding was
$6,475,986,251.
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, 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,
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; and (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.
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. Moody's placed the Aa1 general obligation bond rating on negative. In
doing so they cited a reduction in financial flexibility resulting from the
shift of a current liability to long-term debt, and failure to address a
budget gap that will emerge in 1999, a year which may see a slowing in the
economy and decline in tax receipts.
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 three months 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 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 December 31, 1997 include the Delaware River Joint Toll
Bridge Commission ($52.7 million), the Delaware River Port Authority ($512.3
million), the Pennsylvania Economic Development Financing Authority ($1,080.5
million), the Pennsylvania Energy Development Authority ($72.8 million), the
Pennsylvania Higher Education Assistance Agency ($1,583.8 million), the
Pennsylvania Higher Education Facilities Authority ($2,776.8 million), the
Pennsylvania Industrial Development Authority ($402.1 million), the
Pennsylvania Infrastructure Investment Authority ($196.4 million), the
Pennsylvania Turnpike Commission ($1,177.6 million as of June 30, 1997), the
Philadelphia Regional Port Authority ($59.5 milliion) and the state Public
School Building Authority ($310.5 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 $2,631.1 million in bonds
outstanding at December 31, 1997, 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. In Pennsylvania Association of Rural and Small
Schools v. Casey, the constitutionality of Pennsylvania's system for funding
local school districts has been challenged. No estimates for the amount of
these claims are available.
As of the date of this SAI, the City of Philadelphia's general obligations
are rated Baa, BBB and BBB, by Moody's, S&P and Fitch, respectively.
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>
ARIZONA
<CAPTION>
COMBINED
FEDERAL A FEDERAL AND ARIZONA STATE
AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN ARIZONA 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- STATE 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 17.98% 4.88% 5.49% 6.10% 6.71% 7.31% 7.92% 8.53%
$ 25,351 - $ 61,400 $ 42,351 - $102,300 31.74 5.86 6.59 7.33 8.06 8.79 9.52 10.26
$ 61,401 - $128,100 $102,301 - $155,950 34.59 6.12 6.88 7.64 8.41 9.17 9.94 10.70
$128,101 - $278,450 $155,951 - $278,450 39.58 6.62 7.45 8.28 9.10 9.93 10.76 11.59
Over $278,450 Over $278,450 42.98 7.02 7.89 8.77 9.65 10.52 11.40 12.28
</TABLE>
* 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.
<TABLE>
COLORADO
<CAPTION>
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%
- ----------------------- --------------------- --------------------------------------------------------------------
(TAXABLE INCOME*) TAX 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
</TABLE>
* 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.
<TABLE>
CONNECTICUT
<CAPTION>
A FEDERAL AND CONNECTICUT STATE
SINGLE RETURN JOINT RETURN COMBINED TAX EXEMPT YIELD OF:
- ------------------------- ---------------------- FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
CT STATE -----------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 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 31.24 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
</TABLE>
* 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.
<TABLE>
MICHIGAN
<CAPTION>
A FEDERAL AND MICHIGAN STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------- ---------------------- MI STATE -----------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,350 Up to $ 42,350 20.33% 5.02% 5.65% 6.28% 6.90% 7.53% 8.16% 8.79%
$ 25,351 - $ 61,400 $ 42,351 - $102,300 32.52 5.93 6.67 7.41 8.15 8.89 9.63 10.37
$ 61,401 - $128,100 $102,301 - $155,950 35.33 6.19 6.96 7.73 8.50 9.28 10.05 10.82
$128,101 - $278,450 $155,951 - $278,450 40.02 6.67 7.50 8.34 9.17 10.00 10.84 11.67
Over $278,450 Over $278,450 43.39 7.07 7.95 8.83 9.72 10.60 11.48 12.37
</TABLE>
* 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 a Michigan intangibles
tax rate of 0.875%, 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.
<TABLE>
MINNESOTA
<CAPTION>
A FEDERAL AND MINNESOTA STATE
TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ --------------------- -------------------------------------------------------------------
COMBINED
FEDERAL AND
MN STATE
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------------------------- ------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 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
</TABLE>
* 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.
<TABLE>
NEW JERSEY
<CAPTION>
A FEDERAL AND NEW JERSEY STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ --------------------- NJ STATE -------------------------------------------------------------------
(TAXABLE INCOME)* TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ----------------------------------------------- ------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 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
</TABLE>
* 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.
<TABLE>
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% 8.24%
$ 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 10.15
$128,101 - $278,450 $155,951 - $278,450 36.00 2.80 9.65 10.36 10.94
Over $278,450 Over $278,450 39.60 2.80 10.22 10.97 11.59
</TABLE>
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 4.84% 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.
<TABLE>
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
</TABLE>
* Net amount subject to federal personal income tax after deductions and
exemptions.
<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.
- ------------
+ 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.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
P: The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed by the
debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk
of default upon failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Deposit Insurance Corp. and interest is adequately
collateralized. In the case of certificates of deposit, the letter "L"
indicates that the deposit, combined with other deposits being held in the
same right and capacity, will be honored for principal and accrued pre-default
interest up to the federal insurance limits within 30 days after closing of
the insured institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus(+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH/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 herewith.
(j) Not applicable
(k) Not applicable
(l) Not applicable
(m)(1) Eaton Vance Municipals Trust Class A Service Plan adopted June
23, 1997 with attached Schedule A effective June 23, 1997 filed
as Exhibit (15)(g) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(2) Eaton Vance Municipals Trust Class B Distribution Plan adopted
June 23, 1997 with attached Schedule A effective June 23, 1997
filed as Exhibit (15)(b) to Post-Effective Amendment No. 69 and
incorporated herein by reference.
(3) Eaton Vance Municipals Trust Class C Distribution Plan adopted
June 23, 1997 with attached Schedule A effective June 23, 1997
filed as Exhibit (15)(c) to Post-Effective Amendment No. 69 and
incorporated herein by reference.
(n) Not applicable
(o) Multiple Class Plan for Eaton Vance Funds dated June 23, 1997
filed as Exhibit (18) to Post-Effective Amendment No. 67 and
incorporated herein by reference.
(p)(1) Power of Attorney for Eaton Vance Municipals Trust dated April
22, 1997 filed as Exhibit (17)(a) to Post-Effective Amendment No.
65 and incorporated herein by reference.
(2) Power of Attorney for Alabama Municipals Portfolio, Arizona
Municipals Portfolio, Arkansas Municipals Portfolio, California
Municipals Portfolio, Colorado Municipals Portfolio, Connecticut
Municipals Portfolio, Florida Municipals Portfolio, Georgia
Municipals Portfolio, Kentucky Municipals Portfolio, Louisiana
Municipals Portfolio, Maryland Municipals Portfolio,
Massachusetts Municipals Portfolio, Michigan Municipals
Portfolio, Minnesota Municipals Portfolio, Mississippi Municipals
Portfolio, Missouri Municipals Portfolio, National Municipals
Portfolio, New Jersey Municipals Portfolio, New York Municipals
Portfolio, North Carolina Municipals Portfolio, Ohio Municipals
Portfolio, Oregon Municipals Portfolio, Pennsylvania Municipals
Portfolio, Rhode Island Municipals Portfolio, South Carolina
Municipals Portfolio, Tennessee Municipals Portfolio, Texas
Municipals Portfolio, Virginia Municipals Portfolio and West
Virginia Municipals Portfolio dated April 22, 1997 filed as
Exhibit (17)(b) to Post-Effective Amendment No. 65 and
incorporated herein by reference.
C-2
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not applicable
ITEM 25. INDEMNIFICATION
ARTICLE IV of the Registrant's Amended and Restated Declaration of Trust
permits Trustee and officer indemnification by By-law, contract and vote.
Article XI of the By-Laws contains indemnification provisions. Registrant's
Trustees and officers are insured under a standard mutual fund errors and
omissions insurance policy covering loss incurred by reason of negligent errors
and omissions committed in their capacities as such.
The DISTRIBUTION AGREEMENTS of the Registrant also provide for reciprocal
indemnity of the principal underwriter, on the one hand, and the Trustees and
officers, on the other.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to: (i) the information set forth under the caption
"Management and Organization" in the Statement of Additional Information; (ii)
the Eaton Vance Corp. 10-K filed under the Securities Exchange Act of 1934 (File
No. 1-8100); and (iii) the Forms 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:
Eaton Vance Advisers Senior Eaton Vance Municipals Trust II
Floating-Rate Fund Eaton Vance Mutual Funds Trust
Eaton Vance Growth Trust Eaton Vance Prime Rate Reserves
Eaton Vance Income Fund of Boston Eaton Vance Special Investment
Eaton Vance Investment Trust EV Classic Senior Floating-Rate Fund
Eaton Vance Municipals Trust
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwiter with Registrant
----------------- ------------------------- ---------------
Albert F. Barbaro Vice President None
Chris Berg Vice President None
Kate B. Bradshaw Vice President None
David B. Carle Vice President None
Mark Carlson Vice President None
Daniel C. Cataldo Vice President None
Raymond Cox Vice President None
Mark P. Doman Vice President None
Alan R. Dynner Vice President Secretary
Richard A. Finelli Vice President None
Kelly Flynn Vice President None
James Foley Vice President None
Michael A. Foster Vice President None
William M. Gillen Senior Vice President None
Hugh S. Gilmartin Vice President None
James B. Hawkes Vice President and Director Vice President and Trustee
C-3
<PAGE>
Perry D. Hooker Vice President None
Brian Jacobs Senior Vice President None
Thomas P. Luka Vice President None
John Macejka Vice President None
Stephen Marks Vice President None
Joseph T. McMenamin Vice President None
Morgan C. Mohrman Senior Vice President None
James A. Naughton Vice President None
Mark D. Nelson Vice President None
Linda D. Newkirk Vice President None
James L. O'Connor Vice President Treasurer
Thomas Otis Secretary and Clerk None
George D. Owen, II Vice President None
Enrique M. Pineda Vice President None
F. Anthony Robinson Vice President None
Jay S. Rosoff Vice President None
Benjamin A. Rowland, Jr. Vice President, Treasurer None
and Director
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
David C. Sturgis Vice President None
Cornelius J. Sullivan Senior Vice President None
Peter Sykes Vice President None
David M. Thill Vice President None
John M. Trotsky Vice President None
Chris Volf Vice President None
Wharton P. Whitaker President and Director None
Sue Wilder Vice President None
- ------------------------
*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
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston, and the Commonwealth of
Massachusetts, on SEPTEMBER 25, 1998.
EATON VANCE MUNICIPALS TRUST
By: /s/ Thomas J. Fetter
-----------------------------
Thomas J. Fetter, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter President (Chief September 25, 1998
- --------------------------- Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal
- --------------------------- Financial and September 25, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- --------------------------- Trustee September 25, 1998
Donald R. Dwight
/s/ James B. Hawkes
- --------------------------- Trustee September 25, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------------- Trustee September 25, 1998
Samuel L. Hayes
Norton H. Reamer*
- -------------------------- Trustee September 25, 1998
Norton H. Reamer
John L. Thorndike*
- -------------------------- Trustee September 25, 1998
John L. Thorndike
Jack L. Treynor*
- -------------------------- Trustee September 25, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
- ----------------------------
Alan R. Dynner
As attorney-in-fact
C-5
<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 SEPTEMBER 25,
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 and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter President (Chief September 25, 1998
- --------------------------- Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal
- --------------------------- Financial and September 25, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- --------------------------- Trustee September 25, 1998
Donald R. Dwight
/s/ James B. Hawkes
- --------------------------- Trustee September 25, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------------- Trustee September 25, 1998
Samuel L. Hayes
Norton H. Reamer*
- -------------------------- Trustee September 25, 1998
Norton H. Reamer
John L. Thorndike*
- -------------------------- Trustee September 25, 1998
John L. Thorndike
Jack L. Treynor*
- -------------------------- Trustee September 25, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
- ----------------------------
Alan R. Dynner
As attorney-in-fact
C-6
<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 SEPTEMBER 25,
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 and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter President (Chief September 25, 1998
- --------------------------- Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal
- --------------------------- Financial and September 25, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- --------------------------- Trustee September 25, 1998
Donald R. Dwight
/s/ James B. Hawkes
- --------------------------- Trustee September 25, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------------- Trustee September 25, 1998
Samuel L. Hayes
Norton H. Reamer*
- -------------------------- Trustee September 25, 1998
Norton H. Reamer
John L. Thorndike*
- -------------------------- Trustee September 25, 1998
John L. Thorndike
Jack L. Treynor*
- -------------------------- Trustee September 25, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
- ----------------------------
Alan R. Dynner
As attorney-in-fact
C-7
<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 SEPTEMBER 25,
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 and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter President (Chief September 25, 1998
- --------------------------- Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal
- --------------------------- Financial and September 25, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- --------------------------- Trustee September 25, 1998
Donald R. Dwight
/s/ James B. Hawkes
- --------------------------- Trustee September 25, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------------- Trustee September 25, 1998
Samuel L. Hayes
Norton H. Reamer*
- -------------------------- Trustee September 25, 1998
Norton H. Reamer
John L. Thorndike*
- -------------------------- Trustee September 25, 1998
John L. Thorndike
Jack L. Treynor*
- -------------------------- Trustee September 25, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
- ----------------------------
Alan R. Dynner
As attorney-in-fact
C-8
<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 SEPTEMBER 25,
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 and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter President (Chief September 25, 1998
- --------------------------- Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal
- --------------------------- Financial and September 25, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- --------------------------- Trustee September 25, 1998
Donald R. Dwight
/s/ James B. Hawkes
- --------------------------- Trustee September 25, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------------- Trustee September 25, 1998
Samuel L. Hayes
Norton H. Reamer*
- -------------------------- Trustee September 25, 1998
Norton H. Reamer
John L. Thorndike*
- -------------------------- Trustee September 25, 1998
John L. Thorndike
Jack L. Treynor*
- -------------------------- Trustee September 25, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
- ----------------------------
Alan R. Dynner
As attorney-in-fact
C-9
<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 SEPTEMBER 25,
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 and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter President (Chief September 25, 1998
- --------------------------- Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal
- --------------------------- Financial and September 25, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- --------------------------- Trustee September 25, 1998
Donald R. Dwight
/s/ James B. Hawkes
- --------------------------- Trustee September 25, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------------- Trustee September 25, 1998
Samuel L. Hayes
Norton H. Reamer*
- -------------------------- Trustee September 25, 1998
Norton H. Reamer
John L. Thorndike*
- -------------------------- Trustee September 25, 1998
John L. Thorndike
Jack L. Treynor*
- -------------------------- Trustee September 25, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
- ----------------------------
Alan R. Dynner
As attorney-in-fact
C-10
<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 SEPTEMBER 25,
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 and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter President (Chief September 25, 1998
- --------------------------- Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal
- --------------------------- Financial and September 25, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- --------------------------- Trustee September 25, 1998
Donald R. Dwight
/s/ James B. Hawkes
- --------------------------- Trustee September 25, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------------- Trustee September 25, 1998
Samuel L. Hayes
Norton H. Reamer*
- -------------------------- Trustee September 25, 1998
Norton H. Reamer
John L. Thorndike*
- -------------------------- Trustee September 25, 1998
John L. Thorndike
Jack L. Treynor*
- -------------------------- Trustee September 25, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
- ----------------------------
Alan R. Dynner
As attorney-in-fact
C-11
<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 SEPTEMBER 25,
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 and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter President (Chief September 25, 1998
- --------------------------- Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal
- --------------------------- Financial and September 25, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- --------------------------- Trustee September 25, 1998
Donald R. Dwight
/s/ James B. Hawkes
- --------------------------- Trustee September 25, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------------- Trustee September 25, 1998
Samuel L. Hayes
Norton H. Reamer*
- -------------------------- Trustee September 25, 1998
Norton H. Reamer
John L. Thorndike*
- -------------------------- Trustee September 25, 1998
John L. Thorndike
Jack L. Treynor*
- -------------------------- Trustee September 25, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
- ----------------------------
Alan R. Dynner
As attorney-in-fact
C-12
<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 SEPTEMBER 25,
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 and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas J. Fetter President (Chief September 25, 1998
- --------------------------- Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal
- --------------------------- Financial and September 25, 1998
James L. O'Connor Accounting Officer)
Donald R. Dwight*
- --------------------------- Trustee September 25, 1998
Donald R. Dwight
/s/ James B. Hawkes
- --------------------------- Trustee September 25, 1998
James B. Hawkes
Samuel L. Hayes, III*
- --------------------------- Trustee September 25, 1998
Samuel L. Hayes
Norton H. Reamer*
- -------------------------- Trustee September 25, 1998
Norton H. Reamer
John L. Thorndike*
- -------------------------- Trustee September 25, 1998
John L. Thorndike
Jack L. Treynor*
- -------------------------- Trustee September 25, 1998
Jack L. Treynor
*By: /s/ Alan R. Dynner
- ----------------------------
Alan R. Dynner
As attorney-in-fact
C-13
<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
- ---------- -----------
(i) Opinion of Internal Counsel
C-14
<PAGE>
Exhibit (i)
Eaton Vance Management
24 Federal Street
Boston, MA 02110
Telephone: (617) 482-8260
Telecopy: (617) 338-8054
September 25, 1998
Eaton Vance Municipals Trust
24 Federal Street
Boston, MA 02110
Ladies and Gentlemen:
Eaton Vance Municipals Funds Trust (the "Trust") is a voluntary association
(commonly referred to as a "business trust") established under Massachusetts law
with the powers and authority set forth under its Declaration of Trust dated
September 30, 1985, as amended and restated January 11, 1993 (the "Declaration
of Trust").
I am of the opinion that all legal requirements have been complied with in
the creation of the Trust, and that said Declaration of Trust is legal and
valid.
The Trustees of the Trust have the powers set forth in the Declaration of
Trust, subject to the terms, provisions and conditions therein provided. As
provided in the Declaration of Trust, the Trustees may authorize one or more
series or classes of shares, without par value, and the number of shares of each
series or class authorized is unlimited. The series and classes of shares
established and designated as of the date hereof are identified on Appendix A
hereto.
Under the Declaration of Trust, the Trustees may from time to time issue
and sell or cause to be issued and sold shares of the Trust for cash or for
property. All such shares, when so issued, shall be fully paid and nonassessable
by the Trust.
I have examined originals, or copies, certified or otherwise identified to
my satisfaction, of such certificates, records and other documents as we have
deemed necessary or appropriate for the purpose of this opinion.
Based upon the foregoing, and with respect to Massachusetts law (other than
the Massachusetts Uniform Securities Act), only to the extent that Massachusetts
law may be applicable and without reference to the laws of the other several
states or of the United States of America, I am of the opinion that under
existing law:
<PAGE>
Eaton Vance Municipals Trust
September 25, 1998
Page 2
1. The Trust is a trust with transferable shares of beneficial interest
organized in compliance with the laws of the Commonwealth of Massachusetts, and
the Declaration of Trust is legal and valid under the laws of the Commonwealth
of Massachusetts.
2. Shares of beneficial interest of the Trust registered by Form N-1A may
be legally and validly issued in accordance with the Declaration of Trust upon
receipt of payment in compliance with the Declaration of Trust and, when so
issued and sold, will be fully paid and nonassessable by the Trust.
I am a member of the Massachusetts bar and have acted as internal legal
counsel to the Trust in connection with the registration of shares.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to Post-Effective Amendment No. 73 to the
Trust's Registration Statement on Form N-1A pursuant to the Securities Act of
1933, as amended.
Very truly yours,
/s/ Maureen A. Gemma
Maureen A. Gemma, Esq.
Vice President
<PAGE>
Appendix A
Established and Designated Series* of the Trust
Eaton Vance Alabama Municipals Fund
Eaton Vance Arizona Municipals Fund
Eaton Vance Arkansas Municipals Fund
Eaton Vance California Municipals Fund
Eaton Vance Colorado Municipals Fund
Eaton Vance Connecticut Municipals Fund
Eaton Vance Florida Municipals Fund
Eaton Vance Georgia Municipals Fund
Eaton Vance Kentucky Municipals Fund
Eaton Vance Louisiana Municipals Fund
Eaton Vance Maryland Municipals Fund
Eaton Vance Massachusetts Municipals Fund
Eaton Vance Michigan Municipals Fund
Eaton Vance Minnesota Municipals Fund
Eaton Vance Mississippi Municipals Fund
Eaton Vance Missouri Municipals Fund
Eaton Vance National Municipals Fund
Eaton Vance New Jersey Municipals Fund
Eaton Vance New York Municipals Fund
Eaton Vance North Carolina Municipals Fund
Eaton Vance Ohio Municipals Fund
Eaton Vance Oregon Municipals Fund
Eaton Vance Pennsylvania Municipals Fund
Eaton Vance Rhode Island Municipals Fund
Eaton Vance South Carolina Municipals Fund
Eaton Vance Tennessee Municipals Fund
Eaton Vance Texas Municipals Fund
Eaton Vance Virginia Municipals Fund
Eaton Vance West Virginia Municipals Fund
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* Each Series is authorized to issue Class A, Class B, Class C and Class I
shares.
