<PAGE>
As filed with the Securities and Exchange Commission on November 23, 1999
1933 Act File No. 33-572
1940 Act File No. 811-4409
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [ X ]
POST-EFFECTIVE AMENDMENT NO. 80 [ X ]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ X ]
AMENDMENT NO. 82 [ X ]
EATON VANCE MUNICIPALS TRUST
----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
----------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(617) 482-8260
--------------
(REGISTRANT'S TELEPHONE NUMBER)
ALAN R. DYNNER
THE EATON VANCE BUILDING, 255 STATE STREET, BOSTON, MASSACHUSETTS 02109
----------------------------------------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
<TABLE>
<CAPTION>
It is proposed that this filing will become effective pursuant to Rule 485 (check appropriate box):
<S> <C>
[ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (a)(1)
[x] on December 1, 1999 pursuant to paragraph (b) [ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post effective amendment designates a new effective date for a previously filed post-effective amendment.
</TABLE>
Arizona Municipals Portfolio, Colorado Municipals Portfolio, Connecticut
Municipals Portfolio, Michigan Municipals Portfolio, Minnesota Municipals
Portfolio, New Jersey Municipals Portfolio, Pennsylvania Municipals Portfolio
and Texas Municipals Portfolio have also executed this Registration Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
{LOGO}
Mutual Funds
for People
Who Pay
Taxes
Eaton Vance Arizona Municipals Fund
Eaton Vance Colorado Municipals Fund
Eaton Vance Connecticut Municipals Fund
Eaton Vance Michigan Municipals Fund
Eaton Vance Minnesota Municipals Fund
Eaton Vance New Jersey Municipals Fund
Eaton Vance Pennsylvania Municipals Fund
Eaton Vance Texas Municipals Fund
Mutual funds providing tax-exempt income
Prospectus Dated
December 1, 1999
<TABLE>
<CAPTION>
<S> <C>
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
</TABLE>
<TABLE>
<CAPTION>
Information in this prospectus
Page Page
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fund Summaries 2 Sales Charges 16
Investment Objectives & Principal Policies and Risks 13 Redeeming Shares 18
Management and Organization 14 Shareholder Account Features
Valuing Shares 16 Tax Information 19
Purchasing Shares 16 Financial Highlights 23
- ---------------------------------------------------------------------------------------------
</TABLE>
This prospectus contains important information about the Funds and the services
available to shareholders. Please save it for reference.
<PAGE>
Fund Summaries
This section summarizes the investment objectives, and principal strategies and
risks of investing in an Eaton Vance Municipals Fund. You will find more
specific information about each Fund in the pages that follow.
Investment Objectives and Principal Strategies
The investment objective of each Fund is to provide current income exempt from
regular federal income tax and from particular state or local income or other
taxes. Each Fund primarily invests in investment grade municipal obligations
(those rated BBB or Baa or higher), but may also invest in lower quality
obligations. Each Fund normally invests in municipal obligations with
maturities of ten years or more.
Each Fund may concentrate in certain types of municipal obligations (such as
industrial development bonds, housing bonds, hospital bonds or utility bonds),
so Fund shares could be affected by events that adversely affect a particular
sector. Each Fund may purchase derivative instruments (such as inverse floaters,
and futures contracts and options thereon), bonds that do not require the
periodic payment of interest, bonds issued on a when-issued basis and municipal
leases. A portion of each Fund's distributions generally will be subject to
alternative minimum tax.
Each portfolio manager purchases and sells securities to maintain a competitive
yield and to enhance return based upon the relative value of the securities in
the marketplace. The portfolio managers may also trade securities to minimize
taxable capital gains to shareholders.
Each Fund currently invests its assets in a separate registered investment
company with the same investment objective and policies as that Fund.
Principal Risk Factors
Obligations with maturities of ten years or more may offer higher yields than
obligations with shorter maturities, but they are subject to greater
fluctuations in value when interest rates change. When interest rates rise or
when the supply of suitable bonds exceeds the market demand, the value of Fund
shares typically will decline. The Fund's yield will also fluctuate over time.
Each Fund invests a significant portion of assets in obligations of issuers
located in a single state and 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.
Because obligations rated BBB or Baa and below (so-called "junk bonds") are more
sensitive to the financial soundness of their issuers than higher quality
obligations, Fund shares may fluctuate more in value than shares of a fund
investing solely in higher quality obligations. Obligations rated BBB or Baa
have speculative characteristics, while lower rated obligations are
predominantly speculative. 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.
When-issued securities are subject to the risk that when delivered to the Fund
they will be worth less than the price the Fund agreed to pay for them.
Municipal leases often require a legislative appropriation of funds for
payment. If the necessary appropriation is not made, the issuer of the lease
may not be able to meet its obligations. A Fund's use of derivatives is subject
to certain limitations and may expose the Fund to increased risk of principal
loss due to imperfect correlation, failure of the counterparty and unexpected
price or interest rate movements. Inverse floaters are volatile and involve
leverage risk.
No Fund is a complete investment program and you may lose money by investing in
a Fund. 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.
2
<PAGE>
Eaton Vance Arizona Municipals Fund
The Arizona Fund's investment objective is to provide current income exempt from
regular federal income taxes and Arizona state personal income taxes. The Fund
currently invests its assets in the Arizona Municipals Portfolio (the "Arizona
Portfolio"). Arizona does not issue general obligation bonds. Obligations
issued for a particular project are rated based on the specific project's
creditworthiness.
Performance Information. The following bar chart and table provide information
about the Arizona Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates the risk that the value of your investment will change. The
following returns are for Class B shares for each calendar year through December
31, 1998 and do not reflect a sales charge. If the sales charge was reflected,
the returns would be lower.
8.03% 14.99% -9.68% 19.56% 2.40% 8.94% 5.28%
1992 1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 9.11% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.81% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to September 30, 1999) was -3.78%. For the
30 days ended July 31, 1999, the SEC yield and SEC tax-equivalent yield
(assuming a combined state and federal tax rate of 34.27%) for Class A shares
were 5.00% and 7.61%, respectively, and for Class B shares were 4.21% and 6.40%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares -3.35% 5.16% 6.77%
Class B Shares -4.08% 5.42% 7.34%
Lehman Brothers Municipal Bond Index 6.48% 6.22% 7.86%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 13, 1993 is the performance of Class B shares, adjusted for
the sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on July 25, 1991. Life of Fund returns are calculated from July 31,
1991. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index. (Source for
Lehman Brothers Municipal Bond Index: Lipper Inc.)
3
<PAGE>
Eaton Vance Colorado Municipals Fund
The Colorado Fund's investment objective is to provide current income exempt
from regular federal income taxes and Colorado state personal income taxes. The
Fund currently invests its assets in the Colorado Municipals Portfolio (the
"Colorado Portfolio"). There currently are no Colorado general obligations
outstanding. Obligations issued for a particular project are rated based on the
specific project's creditworthiness.
Performance Information. The following bar chart and table provide information
about the Colorado Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates the risk that the value of your investment will change. The
following returns are for Class B shares for each calendar year through December
31, 1998 and do not reflect a sales charge. If the sales charge was reflected,
the returns would be lower.
13.07% -9.52% 18.61% 2.50% 10.54% 4.14%
1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 8.61% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.95% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to September 30, 1999) was -3.74%. For the
30 days ended July 31, 1999, the SEC yield and SEC tax-equivalent yield
(assuming a combined state and federal tax rate of 34.45%) for Class A shares
were 4.84% and 7.38%, respectively, and for Class B shares were 4.30% and 6.56%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares -3.57% 5.20% 5.95%
Class B Shares -4.27% 5.34% 6.41%
Lehman Brothers Municipal Bond Index 6.48% 6.22% 7.24%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 10, 1993 is the performance of Class B shares, adjusted for
the sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on August 25, 1992. Life of Fund returns are calculated from August
31, 1992. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index. (Source for
Lehman Brothers Municipal Bond Index: Lipper Inc.)
4
<PAGE>
Eaton Vance Connecticut Municipals Fund
The Connecticut Fund's investment objective is to provide current income exempt
from regular federal income taxes and Connecticut state personal income taxes.
The Fund currently invests its assets in the Connecticut Municipals Portfolio
(the "Connecticut Portfolio"). Connecticut general obligations currently are
rated Aa3, AA and AA by Moody's, S&P and Fitch, respectively.
Performance Information. The following bar chart and table provide information
about the Connecticut Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds.
Although past performance is no guarantee of future results, this performance
information demonstrates the risk that the value of your investment will change.
The following returns are for Class B shares for each calendar year through
December 31, 1998 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
12.40% -10.36% 17.79% 2.78% 8.49% 4.94%
1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 8.21% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.12% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to September 30, 1999) was -2.36%. For the
30 days ended July 31, 1999, the SEC yield and SEC tax-equivalent yield
(assuming a combined state and federal tax rate of 34.11%) for Class A shares
were 4.41% and 6.69%, respectively, and for Class B shares were 3.97% and 6.03%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares -2.24% 5.23% 5.91%
Class B Shares -3.05% 5.02% 6.07%
Lehman Brothers Municipal Bond Index 6.48% 6.22% 7.55%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to April 19, 1994 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on May 1, 1992. Life of Fund returns are calculated from May 31,
1992. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index. (Source for
Lehman Brothers Municipal Bond Index: Lipper Inc.)
5
<PAGE>
Eaton Vance Michigan Municipals Fund
The Michigan Fund's investment objective is to provide current income exempt
from regular federal income taxes and Michigan state and city income and single
business taxes. The Fund currently invests its assets in the Michigan
Municipals Portfolio (the "Michigan Portfolio"). Michigan general obligations
currently are rated Aa1, AA+ and AA+ by Moody's, S&P and Fitch, respectively.
Performance Information. The following bar chart and table provide information
about the Michigan Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates the risk that the value of your investment will change. The
following returns are for Class B shares for each calendar year through December
31, 1998 and do not reflect a sales charge. If the sales charge was reflected,
the returns would be lower.
7.59% 12.06% -8.54% 17.95% 2.34% 8.39% 4.45%
1992 1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 7.93% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.33% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to September 30, 1999) was -4.43%. For the
30 days ended July 31, 1999, the SEC yield and SEC tax-equivalent yield
(assuming a combined state and federal tax rate of 34.73%) for Class A shares
were 5.19% and 7.95%, respectively, and for Class B shares were 4.55% and 6.97%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares -3.98% 4.58% 6.08%
Class B Shares -4.69% 4.90% 6.67%
Lehman Brothers Municipal Bond Index 6.48% 6.22% 7.87%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 7, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on April 19, 1991. Life of Fund returns are calculated from April
30, 1991. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index. (Source for
Lehman Brothers Municipal Bond Index: Lipper Inc.)
6
<PAGE>
Eaton Vance Minnesota Municipals Fund
The Minnesota Fund's investment objective is to provide current income exempt
from regular federal income taxes and regular Minnesota state personal income
taxes. The Fund currently invests its assets in the Minnesota Municipals
Portfolio (the "Minnesota Portfolio"). The Minnesota Fund will invest at least
95% of its total assets in Minnesota municipal obligations. Minnesota general
obligations currently are rated Aaa, AAA and AAA by Moody's, S&P and Fitch,
respectively.
Performance Information. The following bar chart and table provide information
about the Minnesota Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds.
Although past performance is no guarantee of future results, this performance
information demonstrates the risk that the value of your investment will change.
The following returns are for Class B shares for each calendar year through
December 31, 1998 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
7.49% 11.60% -9.01% 16.88% 1.62% 8.82% 5.40%
1992 1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 7.93% for the quarter ended March
31, 1995, and its lowest quarterly return was -6.99% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to September 30, 1999) was -4.43%. For the
30 days ended July 31, 1999, the SEC yield and SEC tax-equivalent yield
(assuming a combined state and federal tax rate of 36.87%) for Class A shares
were 4.82% and 7.64%, respectively, and for Class B shares were 4.23% and 6.70%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares -3.48% 4.51% 6.00%
Class B Shares -4.18% 4.65% 6.19%
Lehman Brothers Municipal Bond Index 6.48% 6.22% 7.86%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 9, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on July 29, 1991. Life of Fund returns are calculated from July 31,
1991. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index. (Source for
Lehman Brothers Municipal Bond Index: Lipper Inc.)
7
<PAGE>
Eaton Vance New Jersey Municipals Fund
The New Jersey Fund's investment objective is to provide current income exempt
from regular federal income taxes and New Jersey state personal income taxes.
The Fund currently invests its assets in the New Jersey Municipals Portfolio
(the "New Jersey Portfolio"). New Jersey general obligations currently are
rated Aa1, AA+ and AA+ by Moody's, S&P and Fitch, respectively.
Performance Information. The following bar chart and table provide information
about the New Jersey Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds.
Although past performance is no guarantee of future results, this performance
information demonstrates the risk that the value of your investment will change.
The following returns are for Class B shares for each calendar year through
December 31, 1998 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
7.79% 12.61% -8.20% 15.86% 2.78% 9.41% 4.85%
1992 1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 6.90% for the quarter ended March
31, 1995, and its lowest quarterly return was -6.31% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to September 30, 1999) was -4.09%. For the
30 days ended July 31, 1999, the SEC yield and SEC tax-equivalent yield
(assuming a combined state and federal tax rate of 35.40%) for Class A shares
were 4.89% and 7.57%, respectively, and for Class B shares were 4.30% and 6.66%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares -3.44% 5.29% 6.81%
Class B Shares -4.22% 4.96% 6.84%
Lehman Brothers Municipal Bond Index 6.48% 6.22% 7.92%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to April 13, 1994 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on January 8, 1991. Life of Fund returns are calculated from January
31, 1991. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index. (Source for
Lehman Brothers Municipal Bond Index: Lipper Inc.)
8
<PAGE>
Eaton Vance Pennsylvania Municipals Fund
The Pennsylvania Fund's investment objective is to provide current income exempt
from regular federal income taxes and Pennsylvania state and local taxes in the
form of an investment exempt from Pennsylvania personal property taxes. The Fund
currently invests its assets in the Pennsylvania Municipals Portfolio (the
"Pennsylvania Portfolio"). Pennsylvania general obligations currently are rated
Aa3, AA and AA by Moody's, S&P and Fitch, respectively.
Performance Information. The following bar chart and table provide information
about the Pennsylvania Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds.
Although past performance is no guarantee of future results, this performance
information demonstrates the risk that the value of your investment will change.
The following returns are for Class B shares for each calendar year through
December 31, 1998 and do not reflect a sales charge. If the sales charge was
reflected, the returns would be lower.
7.65% 12.47% -9.64% 17.25% 3.33% 8.86% 2.16%
1992 1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 7.77 % for the quarter ended March
31, 1995, and its lowest quarterly return was -7.21% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to September 30, 1999) was -2.86%. For the
30 days ended July 31, 1999, the SEC yield and SEC tax-equivalent yield
(assuming a combined state and federal tax rate of 33.80%) for Class A shares
were 4.98% and 7.52%, respectively, and for Class B shares were 4.38% and 6.62%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares -3.40% 4.68% 6.40%
Class B Shares -4.17% 4.59% 6.50%
Lehman Brothers Municipal Bond Index 6.48% 6.22% 7.92%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to June 1, 1994 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on January 8, 1991. Life of Fund returns are calculated from January
31, 1991. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index. (Source for
Lehman Brothers Municipal Bond Index: Lipper Inc.)
9
<PAGE>
Eaton Vance Texas Municipals Fund
The Texas Fund's investment objective is to provide current income exempt from
regular federal income taxes. The state of Texas does not impose a state income
tax on individuals. The Fund currently invests its assets in the Texas
Municipals Portfolio (the "Texas Portfolio"). Texas general obligations
currently are rated Aa1, AA and AA+ by Moody's, S&P and Fitch, respectively.
Performance Information. The following bar chart and table provide information
about the Texas Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of municipal bonds. Although
past performance is no guarantee of future results, this performance information
demonstrates the risk that the value of your investment will change. The
following returns are for Class B shares for each calendar year through December
31, 1998 and do not reflect a sales charge. If the sales charge was reflected,
the returns would be lower.
12.58% -8.07% 17.83% 2.97% 9.35% 5.56%
1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 8.56% for the quarter ended March
31, 1995, and its lowest quarterly return was -7.68% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to September 30, 1999) was -4.00%. For the
30 days ended July 31, 1999, the SEC yield and SEC tax-equivalent yield
(assuming a federal tax rate of 31%) for Class A shares were 4.49% and 6.51%,
respectively, and for Class B shares were 3.95% and 5.72%, respectively. For
current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares -3.08% 5.10% 6.27%
Class B Shares -3.82% 5.58% 5.73%
Lehman Brothers Municipal Bond Index 6.48% 6.22% 7.68%
</TABLE>
These returns reflect the maximum sales charge for Class A (4.75%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to December 8, 1993 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on March 24, 1992. Life of Fund returns are calculated from March
31, 1992. The Lehman Brothers Municipal Bond Index is an unmanaged index of
municipal bonds. Investors cannot invest directly in an Index. (Source for
Lehman Brothers Municipal Bond Index: Lipper Inc.)
10
<PAGE>
Fund Fees and Expenses. These tables describe the fees and expenses that you
may pay if you buy and hold shares.
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Class B
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) (as a percentage of offering price) 4.75% None
Maximum Deferred Sales Charge (Load) (as a percentage of the
lower of net asset value at time of purchase or time of redemption) None 5.00%
Maximum Sales Charge (Load) Imposed on Reinvested
Distributions None None
Exchange Fee None None
</TABLE>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Management Distribution and Other Total Annual Fund
Fees Service (12b-1) Fees* Expenses** Operating Expenses
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arizona Fund Class A shares 0.38% 0.00% 0.44% 0.82%
Class B shares 0.38% 0.95% 0.24% 1.57%
- ----------------------------------------------------------------------------------------------------------------
Colorado Fund Class A shares 0.24% 0.00% 0.48% 0.72%
Class B shares 0.24% 0.95% 0.29% 1.48%
- ----------------------------------------------------------------------------------------------------------------
Connecticut Fund Class A shares 0.41% 0.00% 0.41% 0.82%
Class B shares 0.41% 0.95% 0.21% 1.57%
- ----------------------------------------------------------------------------------------------------------------
Michigan Fund Class A shares 0.39% 0.00% 0.42% 0.81%
Class B shares 0.39% 0.95% 0.24% 1.58%
- ----------------------------------------------------------------------------------------------------------------
Minnesota Fund Class A shares 0.33% 0.00% 0.47% 0.80%
Class B shares 0.33% 0.95% 0.29% 1.57%
- ----------------------------------------------------------------------------------------------------------------
New Jersey Fund Class A shares 0.45% 0.00% 0.38% 0.83%
Class B shares 0.45% 0.95% 0.19% 1.59%
- ----------------------------------------------------------------------------------------------------------------
Pennsylvania Fund Class A shares 0.45% 0.00% 0.40% 0.85%
Class B shares 0.45% 0.95% 0.20% 1.60%
- ----------------------------------------------------------------------------------------------------------------
Texas Fund Class A shares 0.16% 0.00% 0.62% 0.78%
Class B shares 0.16% 0.95% 0.45% 1.56%
</TABLE>
* Long-term holders of Class B shares may pay more than the economic equivalent
of the front-end sales charge permitted by the National Association of
Securities Dealers, Inc.
** Other Expenses for Class A includes a service fee of 0.20%.
11
<PAGE>
Example. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arizona Fund Class A shares $555 $724 $ 908 $1,440
Class B shares $660 $896 $1,055 $1,867
- -----------------------------------------------------------------------------------------------------------------------
Colorado Fund Class A shares $545 $694 $ 857 $1,327
Class B shares $651 $868 $1,008 $1,768
- -----------------------------------------------------------------------------------------------------------------------
Connecticut Fund Class A shares $555 $724 $ 908 $1,440
Class B shares $660 $896 $1,055 $1,867
- -----------------------------------------------------------------------------------------------------------------------
Michigan Fund Class A shares $554 $721 $ 903 $1,429
Class B shares $661 $899 $1,060 $1,878
- -----------------------------------------------------------------------------------------------------------------------
Minnesota Fund Class A shares $553 $718 $ 898 $1,418
Class B shares $660 $896 $1,055 $1,867
- -----------------------------------------------------------------------------------------------------------------------
New Jersey Fund Class A shares $556 $727 $ 914 $1,452
Class B shares $662 $902 $1,066 $1,889
- -----------------------------------------------------------------------------------------------------------------------
Pennsylvania Fund Class A shares $558 $733 $ 924 $1,474
Class B shares $663 $905 $1,071 $1,900
- -----------------------------------------------------------------------------------------------------------------------
Texas Fund Class A shares $551 $712 $ 888 $1,395
Class B shares $659 $893 $1,050 $1,856
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arizona Fund Class A shares $555 $724 $908 $1,440
Class B shares $160 $496 $855 $1,867
- -----------------------------------------------------------------------------------------------------
Colorado Fund Class A shares $545 $694 $857 $1,327
Class B shares $151 $468 $808 $1,768
- -----------------------------------------------------------------------------------------------------
Connecticut Fund Class A shares $555 $724 $908 $1,440
Class B shares $160 $496 $855 $1,867
- -----------------------------------------------------------------------------------------------------
Michigan Fund Class A shares $554 $721 $903 $1,429
Class B shares $161 $499 $860 $1,878
- -----------------------------------------------------------------------------------------------------
Minnesota Fund Class A shares $553 $718 $898 $1,418
Class B shares $160 $496 $855 $1,867
- -----------------------------------------------------------------------------------------------------
New Jersey Fund Class A shares $556 $727 $914 $1,452
Class B shares $162 $502 $866 $1,889
- -----------------------------------------------------------------------------------------------------
Pennsylvania Fund Class A shares $558 $733 $924 $1,474
Class B shares $163 $505 $871 $1,900
- -----------------------------------------------------------------------------------------------------
Texas Fund Class A shares $551 $712 $888 $1,395
Class B shares $159 $493 $850 $1,856
</TABLE>
12
<PAGE>
Investment Objectives & Principal Policies and Risks
The investment objective of each Fund is to provide current income exempt from
regular federal income tax and particular state or local income or other taxes.
Each Fund seeks to achieve its objective by investing primarily (i.e., at least
80% of its net assets during periods of normal market conditions) in municipal
obligations, the interest on which is exempt from regular federal income tax and
from the state taxes which, in accordance with the Fund's investment objective,
the Fund seeks to avoid. This is a fundamental policy of each Fund which only
may be changed with shareholder approval. Each Fund's investment objective and
certain 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.
At least 75% of net assets will normally be invested in municipal obligations
rated at least investment grade at the time of investment (which are those rated
Baa or higher by Moody's, or BBB or higher by either S&P or Fitch) or, if
unrated, 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 and in unrated municipal obligations considered to
be of comparable quality by the investment adviser. Municipal obligations rated
Baa or BBB have speculative characteristics, while lower quality obligations are
predominantly speculative. 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. Lower rated obligations
also may be subject to greater price volatility than higher rated obligations.
No Portfolio will invest more than 10% of its assets in obligations rated below
B by Moody's, S&P or Fitch.
Municipal obligations include bonds, notes and commercial paper issued by a
municipality for a wide variety of both public and private purposes. Municipal
obligations also include municipal leases and participations in municipal
leases. 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. Certain
municipal obligations may be purchased on a "when-issued" basis, which means
that payment and delivery occur on a future settlement date. The price and
yield of such securities are generally fixed on the date of commitment to
purchase. Many obligations permit the issuer at its option to "call", or
redeem, its securities. If an issuer calls securities during a time of
declining interest rates, it may not be possible to reinvest the proceeds in
securities providing the same investment return as the securities redeemed.
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 generally will 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.
Although each Portfolio may invest in securities of any maturity, it is expected
that a Portfolio will normally invest a substantial portion of its assets in
securities with maturities of ten years or more. The average maturity of a
Portfolio's holdings may vary (generally between 15 and 30 years) depending on
anticipated market conditions.
Under normal conditions, each Portfolio invests at least 65% of its total assets
in obligations issued by its respective state or its political subdivisions,
agencies, authorities and instrumentalities. Municipal obligations of issuers
in a single state may be adversely affected by economic developments (including
insolvency of an issuer) and by legislation and other governmental activities in
that state. Each Portfolio may also invest in municipal obligations issued by
the governments of Puerto Rico, the U.S. Virgin Islands and Guam. Moody's
currently rates Puerto Rico general obligations Baa1, while S&P rates them A.
Each Portfolio may invest 25% or more of its total assets in municipal
obligations of the same type (such as leases, housing finance, public housing,
municipal utilities, hospital and health facilities or industrial development).
This may make a Portfolio more susceptible to adverse economic, political or
regulatory occurrences affecting a particular category of issuer.
The net asset value will change in response to changes in prevailing interest
rates and changes in the value of securities held. The value of securities held
will be affected by the credit quality of the issuer of the obligation, and
general economic and business conditions that affect the specific economic
sector of the issuer. Changes by rating agencies in the rating assigned to an
obligation may also affect the value of an obligation.
13
<PAGE>
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. In addition, a
Portfolio could purchase an instrument that has greater or lesser credit risk
than the municipal bonds underlying the instrument. Each Portfolio may also
purchase and sell various kinds of financial futures contracts and options
thereon to hedge against changes in interest rates or as a substitute for the
purchase of portfolio securities. The use of derivative instruments for both
hedging and investment purposes involves a risk of loss or depreciation due to a
variety of factors including counterparty risk, unexpected market, interest rate
or securities price movements, and tax and regulatory constraints. Derivative
hedging transactions may not be effective because of imperfect correlations and
other factors.
Each Portfolio may invest in zero coupon bonds, which do not require the issuer
to make periodic interest payments. 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 accrues income on these investments
and each Fund is required to distribute its share of Portfolio income each year.
Each Portfolio may be required to sell securities to obtain cash needed for
income distributions.
The limited liquidity of certain securities in which each Portfolio may invest
(including those eligible for resale under Rule 144A of the Securities Act of
1933) could affect their market prices, thereby adversely affecting net asset
value and the ability to pay income. The amount of publicly available
information about certain municipal obligations may be limited and the
investment performance of a Portfolio more dependent on the portfolio manager's
analysis than if this were not the case.
Each Portfolio may borrow amounts up to one-third of the value of its total
assets (including borrowings), but it will not borrow more than 5% of the value
of its total assets except to satisfy redemption requests or for other temporary
purposes. Such borrowings would result in increased expense to a Fund and,
while they are outstanding, would magnify increases or decreases in the value of
Fund shares. No Portfolio will purchase additional investment securities while
outstanding borrowings exceed 5% of the value of its total assets. During
unusual market conditions, each Portfolio may temporarily invest up to 50% of
its total assets in cash or cash equivalents. While temporarily invested, a
Fund may not achieve its objective, and interest income from temporary
investments may be taxable.
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.
Like most mutual funds, the Funds and Portfolios rely on computers in conducting
daily business and processing information. There is a concern that on January
1, 2000 some computer programs will be unable to recognize the new year and as a
consequence computer malfunctions will occur. Eaton Vance is taking steps that
it believes are reasonably designed to address this potential problem and to
obtain satisfactory assurance from other service providers to the Funds and the
Portfolios that they are also taking steps to address the issue. There can,
however, be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds and the Portfolios or shareholders. The Year 2000
concern may also adversely impact issuers of obligations held by a Portfolio and
the markets in which these securities trade. The foregoing statement is subject
to the Year 2000 Information and Readiness Disclosure Act, which may protect
Eaton Vance and the Funds and the Portfolios from liability arising from the
statement.
Management and Organization
Management. Each Portfolio's investment adviser is Boston Management and
Research ("BMR"), a subsidiary of Eaton Vance Management ("Eaton Vance"), with
offices at The Eaton Vance Building, 255 State Street, Boston, Massachusetts
02109. Eaton Vance has been managing assets since 1924 and managing mutual
funds since 1931. Eaton Vance and its subsidiaries currently manage over $40
billion on behalf of mutual funds, institutional clients and individuals.
14
<PAGE>
The investment adviser manages the investments of each Portfolio and provides
related office facilities and personnel. Under its investment advisory
agreement with each Portfolio, BMR receives a monthly advisory fee equal to the
aggregate of a daily asset based fee and a daily income based fee. The fees are
applied on the basis of the following categories.
<TABLE>
<CAPTION>
Annual Daily
Category Daily Net Assets Asset Rate Income Rate
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $20 million 0.100% 1.00%
2 $20 million but less than $40 million 0.200% 2.00%
3 $40 million but less than $500 million 0.300% 3.00%
4 $500 million but less than $1 billion 0.275% 2.75%
5 $1 billion but less than $1.5 billion 0.250% 2.50%
6 $1.5 billion but less than $2 billion 0.225% 2.25%
7 $2 billion but less than $3 billion 0.200% 2.00%
8 $3 billion and over 0.175% 1.75%
</TABLE>
For the fiscal year ended July 31, 1999, each Portfolio paid advisory fees
equivalent to the percentage of average daily net assets stated below.
<TABLE>
<CAPTION>
Net Assets on
July 31, 1999 Advisory Fee
Portfolio
- --------------------------------------------------------------------------------
<S> <C> <C>
Arizona $ 94,333,288 0.38%
Colorado $ 37,874,067 0.24%
Connecticut $157,893,588 0.41%
Michigan $109,463,352 0.39%
Minnesota $ 60,392,868 0.33%
New Jersey $309,333,407 0.45%
Pennsylvania $314,873,291 0.45%
Texas $ 15,765,152 0.16%
</TABLE>
William H. Ahern is the portfolio manager of the Colorado Portfolio (since June
1, 1997) and the Connecticut Portfolio (since November 24, 1997). Timothy T.
Browse is the portfolio manager of the Michigan Portfolio (since it commenced
operations) and the Pennsylvania Portfolio (since December 1, 1995). Cynthia J.
Clemson is the portfolio manager of the Arizona Portfolio (since January 1,
1994). Robert B. MacIntosh is the portfolio manager of the New Jersey Portfolio
(since it commenced operations) and the Minnesota Portfolio (since November 1,
1996). Thomas M. Metzold is the portfolio manager of the Texas Portfolio (since
November 24, 1997). Each portfolio manager also manages other Eaton Vance
portfolios, has been an Eaton Vance portfolio manager for more than 5 years, and
is a Vice President of Eaton Vance and BMR.
The investment adviser and each Fund and Portfolio have adopted Codes of Ethics
governing personal securities transactions. Under the Codes, Eaton Vance
employees may purchase and sell securities (including securities held by a
Portfolio) subject to certain pre-clearance and reporting requirements and other
procedures.
Eaton Vance serves as administrator of each Fund, providing the Fund with
administrative services and related office facilities. Eaton Vance does not
currently receive a fee for serving as administrator.
Organization. Each Fund is a series of Eaton Vance Municipals Trust, a
Massachusetts business trust. Each Fund offers multiple classes of shares.
Each class represents a pro rata interest in the Fund, but is subject to
different expenses and rights. The Funds do not hold annual shareholder
meetings, but may hold special meetings for matters that require shareholder
approval (like electing or removing trustees, approving management contracts or
changing investment policies that may only be changed with shareholder
approval). Because a Fund invests in a Portfolio, it may be asked to vote on
certain Portfolio matters (like changes in certain Portfolio investment
restrictions). When necessary, a Fund will hold a meeting of its shareholders
to consider the Portfolio matter and then vote its interest in the Portfolio in
proportion to the votes cast by its shareholders. A Fund can withdraw from a
Portfolio at any time.
Because the Funds use this combined prospectus, a Fund could be held liable for
a misstatement or omission made about another Fund. The Trust's Trustees
considered this in approving the use of a combined prospectus.
15
<PAGE>
Valuing Shares
Each Fund values its shares once each day only when the New York Stock Exchange
is open for trading (typically Monday through Friday), as of the close of
regular trading on the Exchange (normally 4:00 p.m. eastern time). The purchase
price of Fund shares is their net asset value (plus a sales charge for Class A
shares), which is derived from Portfolio holdings. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing service.
When purchasing or redeeming Fund shares, your investment dealer must
communicate your order to the principal underwriter by a specific time each day
in order for the purchase price or the redemption price to be based on that
day's net asset value 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 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
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 suits
your investment needs.
After your initial investment, additional investments of $50 or more may be made
at any time by sending a check payable to the order of the Fund or the transfer
agent directly to the transfer agent (see back cover for address). Please
include your name and account number and the name of the Fund and class of
shares with each investment.
You may also make automatic investments of $50 or more each month or each
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 and certain group
purchase plans.
You may purchase Fund shares in exchange for securities. Please call
1-800-225-6265 for information about exchanging securities for Fund shares. If
you purchase shares through an investment dealer (which includes brokers,
dealers and other financial institutions), that dealer may charge you a fee for
executing the purchase for you. A Fund may suspend the sale of its shares at
any time and any purchase order may be refused.
Sales Charges
Front-End Sales Charge. Class A shares are offered at net asset value per share
plus a sales charge that is determined by the amount of your investment. The
current sales charge schedule is:
<TABLE>
<CAPTION>
Sales Charge Sales Charge Dealer Commission
as Percentage of as Percentage of Net as a Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $25,000 4.75% 4.99% 4.50%
$25,000 but less than $100,000 4.50% 4.71% 4.25%
$100,000 but less than $250,000 3.75% 3.90% 3.50%
$250,000 but less than $500,000 3.00% 3.09% 2.75%
$500,000 but less than $1,000,000 2.00% 2.04% 2.00%
$1,000,000 or more 0.00* 0.00* 1.00%
* No sales charge is payable at the time of purchase on investments of $1 million or more.
A CDSC of 1.00% will be imposed on such investments (as described below) in the event of
redemptions within 24 months of purchase.
</TABLE>
Contingent Deferred Sales Charge. Each class of shares is subject to a CDSC on
certain redemptions. Class A shares purchased at net asset value in amounts of
$1 million or more are subject to a 1.00% CDSC if redeemed within 24 months of
purchase. Class B shares are subject to the following CDSC schedule:
16
<PAGE>
<TABLE>
<CAPTION>
Year of Redemption After Purchase CDSC
- -----------------------------------------------
<S> <C> <C>
First or Second 5% The CDSC is based on the lower of the net asset value at
Third 4% the time of purchase or at the time of redemption.
Fourth 3% Shares acquired through the reinvestment of distributions
Fifth 2% are exempt from the CDSC. Redemptions are made first
Sixth 1% from shares that are not subject to a CDSC.
Seventh or following 0%
</TABLE>
The principal underwriter pays commissions to investment dealers on sales of
Class B shares (except exchange transactions and reinvestments). The sales
commission equals 4% of the purchase price of the shares.
Reducing or Eliminating Sales Charges. Front-end sales charges on purchases of
Class A shares may be reduced under the right of accumulation or under a
statement of intention. Under the right of accumulation, the sales charges you
pay are reduced if the market value of your current holdings (based on the
current offering price), plus your new purchases, total $25,000 or more. Class
A shares of other Eaton Vance funds owned by you can be included as part of your
current holdings for this purpose. Under a statement of intention, purchases of
$25,000 or more made over a 13-month period are eligible for reduced sales
charges. The principal underwriter may hold 5% of the dollar amount to be
purchased in escrow in the form of shares registered in your name until you
satisfy the statement or the 13-month period expires. See the account
application for details.
Class A shares are offered at net asset value to clients of financial
intermediaries who charge a fee for their services; accounts affiliated with
those financial intermediaries; investment and institutional clients of Eaton
Vance; certain persons affiliated with Eaton Vance; and certain Eaton Vance and
fund service providers. Ask your investment dealer for details.
CDSCs are waived for certain 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 all or any portion 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. Under these circumstances your
account will be credited with any CDSC paid in connection with the redemption.
Any CDSC period applicable to the shares you acquire upon reinvestment will run
from the date of your original share purchase. Reinvestment requests must be in
writing. If you reinvest, you will be sold shares at the next determined net
asset value following receipt of your request.
Distribution and Service Fees. Class B shares have in effect a plan under Rule
12b-1 that allows the Fund to pay distribution fees for the sale and
distribution of shares (so-called "12b-1 fees"). Class B shares pay distribution
fees of 0.75% of average daily net assets annually. Because these fees are paid
from Fund assets on an ongoing basis, they will increase your cost over time and
may cost you more than paying other types of sales charges. Both classes pay
service fees for personal and/or account services equal to 0.20% of average
daily net assets annually. Although there is no present intention to do so, a
class could pay service fees of up to 0.25% annually upon Trustee approval.
Class B distribution fees are subject to termination when payments under the
Rule 12b-1 plans are sufficient to extinguish uncovered distribution charges.
As described more fully in the Statement of Additional Information, uncovered
distribution charges of a class are increased by a sales commission payable by
the class to the principal underwriter in connection with sales of shares of
that class and by an interest factor tied to the U.S. Prime Rate. Uncovered
distribution charges are reduced by the distribution fees paid by the class and
by CDSCs paid to the Fund by redeeming shareholders. The amount of the sales
commission payable by Class B to the principal underwriter in connection with
sales of Class B shares is significantly less than the maximum permitted by the
sales charge rule of the National Association of Securities Dealers, Inc. To
date, Class B uncovered distribution charges have not been fully covered.
17
<PAGE>
Redeeming Shares
You can redeem shares in any of the following ways:
By Mail Send your request to the transfer agent along with any
certificates and stock powers. The request must be
signed exactly as your account is registered and
signature guaranteed. You can obtain a signature
guarantee at certain banks, savings and loan
institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered
securities associations. You may be asked to provide
additional documents if your shares are registered in
the name of a corporation, partnership or fiduciary.
By Telephone You can redeem up to $50,000 b y calling the transfer
agent at 1-800-262-1122 on Monday through Friday, 9:00
a.m. to 4:00 p.m. (eastern time). Proceeds of a
telephone redemption can be mailed only to the account
address. Shares held by corporations, trusts or certain
other entities and shares that are 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, your redemption price will be based on the net asset value
per share next computed after the redemption request is received. Your
redemption proceeds will be paid in cash within seven days, reduced by the
amount of any applicable CDSC and any federal income tax required to be
withheld. Payments will be sent by mail unless you complete the Bank Wire
Redemptions section of the account application.
If you recently purchased shares, the proceeds of a redemption will not be sent
until the purchase check (including a certified or cashier's check) has cleared.
If the purchase check has not cleared, redemption proceeds may be delayed up to
15 days from the purchase date. If your account value falls below $750 (other
than due to market decline), you may be asked to either add to your account or
redeem it within 60 days. If you take no action, your account will be redeemed
and the proceeds sent to you.
While redemption proceeds are normally paid in cash, redemptions may be paid by
distributing marketable securities. If you receive securities, you could incur
brokerage or other charges in converting the securities to cash.
Shareholder Account Features
Once you purchase shares, the transfer agent establishes a Lifetime Investing
Account/(R)/ for you. Share certificates are issued only on request.
Distributions. You may have your Fund distributions paid in one of the
following ways:
.Full Reinvest Option Dividends and capital gains are reinvested in
additional shares. This option will be assigned if
you do not specify an option.
.Partial Reinvest Option Dividends are paid in cash and capital gains are
reinvested in additional shares.
.Cash Option Dividends and capital gains are paid in cash.
.Exchange Option Dividends and/or capital gains are reinvested in
additional shares of another Eaton Vance fund
chosen by you. Before selecting this option, you
must obtain a prospectus of the other fund and
consider its objectives and policies carefully.
Information from the Fund. From time to time, you may be mailed the following:
. Annual and Semi-Annual Reports, containing performance information and
financial statements.
. Periodic account statements, showing recent activity and total share
balance.
. Form 1099 and tax information needed to prepare your income tax returns.
. Proxy materials, in the event a shareholder vote is required.
. Special notices about significant events affecting your Fund.
18
<PAGE>
Withdrawal Plan. You may redeem shares on a regular monthly or quarterly basis
by establishing a systematic withdrawal plan. Withdrawals will not be subject to
any applicable 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 to establish a systematic withdrawal plan. Because purchases
of Class A shares are generally subject to an initial sales charge, you should
not make withdrawals from your account while you are making purchases.
Exchange Privilege. You may exchange your Fund shares for shares of the same
class of another Eaton Vance fund. Exchanges are generally made at net asset
value. If you hold Class A shares for less than six months and exchange them
for shares subject to a higher sales charge, you will be charged the difference
between the two sales charges. 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, write to the transfer agent (address on back cover)
or call 1-800-262-1122. Periodic automatic exchanges are also available. The
exchange privilege may be changed or discontinued at any time. You will receive
60 days' notice of any material change to the privilege. This privilege may not
be used for "market timing". If an account (or group of accounts) makes more
than two round-trip exchanges within 12 months, it will be deemed to be market
timing. The exchange privilege may be terminated for market timing accounts.
Telephone and Electronic Transactions. You can redeem or exchange shares by
telephone as described in this prospectus. In addition, certain transactions
may be conducted through the Internet. The transfer agent and the principal
underwriter have procedures in place to authenticate telephone and electronic
instructions (such as using security codes or verifying personal account
information). As long as the transfer agent and principal underwriter follow
these procedures, they will not be responsible for unauthorized telephone or
electronic transactions and you bear the risk of possible loss resulting from
these 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. You will not be able to
utilize a number of shareholder features, such as telephone transactions,
directly with the Fund. The transfer of shares in a "street name" account to an
account with another investment dealer or to an account directly with the Fund
involves special procedures and you will be required to obtain historical
information about your shares prior to the transfer. Before establishing a
"street name" account with an investment dealer, you should determine whether
that dealer allows reinvestment of distributions in "street name" accounts.
Account Questions. If you have any questions about your account or the services
available, please call Eaton Vance Shareholder Services at 1-800-225-6265, or
write to the transfer agent (see back cover for address).
Tax Information
Each Fund declares dividends daily and ordinarily pays distributions monthly.
Different classes will distribute different dividend amounts. Your account will
be credited with dividends beginning on the business day after the day when the
funds used to purchase your Fund shares are collected by the transfer agent. For
tax purposes the entire monthly distribution of the Fund's daily dividends,
ordinarily will constitute tax-exempt income to you. Distributions of any net
realized gains will be made once each year (usually in December). Each Fund
expects that its distributions will consist primarily of tax-exempt interest.
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 long-term capital gains. Distributions of interest on certain
municipal obligations are a tax preference item under the AMT provisions
applicable to individuals and corporations, and all tax-exempt distributions may
affect a corporation's AMT liability. Each Fund's distributions will be
treated as described above for federal income tax purposes whether they are paid
in cash or reinvested in additional shares. A redemption of Fund shares,
including an exchange for shares of another fund, is a taxable transaction.
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.
19
<PAGE>
Arizona. Based upon the advice of special tax counsel to the Arizona Fund, the
management of the Fund believes that under Arizona law, dividends paid by the
Fund will be exempt from Arizona income tax imposed on individuals, corporations
and estates and trusts that are subject to Arizona taxation to the extent such
dividends are excluded from gross income for federal income tax purposes and are
derived from interest payments on Arizona obligations. In addition, dividends
paid by the Fund will be exempt from Arizona income tax imposed on such persons,
though included in gross income for federal income tax purposes, to the extent
such dividends are derived from interest payments on direct obligations of the
United States. Other distributions from the Fund, including distributions
derived from net short-term and long-term capital gains, are generally not
exempt from Arizona income tax. Interest or indebtedness and other related
expenses which are incurred or continued by a shareholder to purchase or carry
shares of the Fund generally will not be deductible for Arizona income tax
purposes.
Colorado. In the opinion of special tax counsel to the Colorado Fund, provided
that the Fund qualifies as a regulated investment company under the Internal
Revenue Code (the "Code") and the Portfolio is treated as a partnership for
federal income tax purposes, individuals, trusts, estates, and corporations who
are holders of the Fund and who are subject to the Colorado income tax will not
be subject to Colorado tax on Fund dividends to the extent that: (a) such
dividends qualify as exempt-interest dividends of a regulated investment company
under Section 852(b)(5) of the Code and are derived from interest received by
the Fund on obligations of Colorado or any of its political subdivisions issued
on or after May 1, 1980 or (b) such dividends are attributable to interest on
obligations of the United States or its possessions to the extent included in
federal taxable income. To the extent that Fund distributions are attributable
to sources not described in the preceding sentence, such as long or short-term
capital gains, such distributions will not be exempt from Colorado income tax.
There are no municipal income taxes in Colorado. As intangibles, shares in the
Fund will be exempt from Colorado property taxes.
Connecticut. In the opinion of special tax counsel to the Connecticut Fund,
shareholders of the Connecticut Fund will not be subject to the Connecticut
personal income tax on the Connecticut taxable income of individuals, trusts,
and, estates, in the case of distributions received from the Connecticut Fund to
the extent that such distributions qualify as exempt-interest dividends for
federal income tax purposes and are derived from interest on obligations issued
by or on behalf of the State of Connecticut, any political subdivision thereof,
or public instrumentality, state or local authority, district or similar public
entity created under Connecticut law ("Connecticut Obligations"), or on
obligations the interest on which Connecticut is prohibited from taxing by
federal law, e.g., tax-exempt obligations that are issued by the governments of
Puerto Rico, the U.S. Virgin Islands or Guam.
Other distributions from the Connecticut Fund, including dividends attributable
to obligations of issuers in other states and all long-term and short-term
capital gains, will not be exempt from the Connecticut personal income tax,
except that, in the case of shareholders holding shares of the Connecticut Fund
as capital assets, distributions qualifying as capital gain dividends for
federal income tax purposes will not be subject to such tax to the extent they
are derived from Connecticut Obligations. Distributions from the Connecticut
Fund that constitute items of tax preference for purposes of the federal
alternative minimum tax will not be subject to the net Connecticut minimum tax
applicable to taxpayers subject to the Connecticut personal income tax and
required to pay the federal alternative minimum tax, to the extent qualifying as
exempt-interest dividends derived from Connecticut Obligations or from
obligations the interest on which Connecticut is prohibited from taxing by
federal law, but other such distributions from the Connecticut Fund could cause
or increase liability for the net Connecticut minimum tax. The Connecticut Fund
will report annually to its shareholders the percentage and source, on a
state-by-state basis, of interest income received by the Connecticut Fund on
municipal bonds during the preceding year.
Distributions from investment income and capital gains, including
exempt-interest dividends derived from interest that is exempt from federal
income tax, will be subject to the Connecticut Corporation Business Tax if
received by a corporation subject to such tax, except for any portion thereof
other than amounts qualifying as exempt-interest dividends or capital gain
dividends for federal income tax purposes that might qualify for the
dividends-received deduction provided under that Connecticut tax, and all such
distributions may be subject to state and local taxes in states other than
Connecticut.
Michigan. The Michigan Fund has received an opinion from special tax counsel to
the Michigan Fund, to the effect that shareholders of the Michigan Fund who are
subject to the Michigan state income tax, municipal income tax or single
business tax will not be subject to such taxes on their Michigan Fund dividends
to the extent that such distributions are exempt-interest dividends for federal
income tax purposes and are attributable to interest on obligations held by the
Michigan Portfolio and allocated to the Michigan Fund which is exempt from
regular federal income tax and is exempt from Michigan State and city income
taxes and Michigan single business tax ("Michigan tax-exempt obligations").
Other distributions with respect to shares of the Michigan Fund including, but
not limited to, long or short-term capital gains, will be subject to the
Michigan income tax or single business tax and may be subject to the city income
taxes imposed by certain Michigan cities.
20
<PAGE>
Minnesota. In the opinion of special tax counsel to the Minnesota 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 Code
which are derived from interest income on tax-exempt obligations of Minnesota,
or its political or governmental subdivisions, municipalities, governmental
agencies or instrumentalities ("Minnesota Sources"); provided, however, such
exemption from the regular Minnesota personal income tax is available only if
the portion of the exempt-interest dividends from such Minnesota Sources that is
paid to all shareholders represents 95% or more of the exempt-interest dividends
that are paid by the Fund. Even if the 95% test is met, to the extent that
exempt-interest dividends paid by the Fund are not derived from Minnesota
Sources, they generally will be subject to the regular Minnesota personal income
tax. Other distributions of the Fund, including distributions derived from net
short-term and long-term capital gains, are generally not exempt from the
regular Minnesota personal income tax imposed on individuals, estates and
trusts.
Pursuant to Minnesota legislation enacted in 1995, exempt-interest dividends
that are derived from interest income on obligations of the Minnesota Sources
described above may become subject to tax in the case of individuals, estates,
and trusts if the exemption of such income were judicially determined to
discriminate against interstate commerce.
Minnesota imposes an alternative minimum tax on individuals, estates, and trusts
that is based, in part, on such taxpayers' federal alternative minimum taxable
income. Accordingly, exempt-interest dividends that constitute tax preference
items for purposes of the federal alternative minimum tax, even though they are
derived from the Minnesota Sources described above, will be included in the base
upon which such Minnesota alternative minimum tax is computed. In addition, the
entire portion of exempt-interest dividends that is derived from sources other
than the Minnesota Sources described above generally will be 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, generally 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 special tax counsel to the New Jersey Fund, 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
21
<PAGE>
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.
22
<PAGE>
Financial Highlights
The financial highlights 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 Deloitte & Touche LLP,
independent accountants. The report of Deloitte & Touche LLP and each Fund's
financial statements are incorporated herein by reference and included in the
annual report, which is available on request. Each Fund began offering two
classes of shares on August 1, 1997. Prior to that date, each Fund offered only
Class B shares and Class A existed as a separate fund.
<TABLE>
<CAPTION>
ARIZONA FUND
---------------------------------------------------------------------------
YEAR ENDED JULY 31,
---------------------------------------------------------------------------
1999(1) 1998(1) 1997 1996 1995
---------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS B CLASS B CLASS B
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $10.200 $11.340 $10.090 $11.220 $ 10.680 $ 10.530 $ 10.390
------- ------- ------- ------- -------- -------- --------
Income (loss) from operations
Net investment income $ 0.504 $ 0.472 $ 0.499 $ 0.476 $ 0.486 $ 0.482 $ 0.492
Net realized and unrealized gain (loss) (0.348) (0.381) 0.126 0.134 0.539 0.161 0.164
------- ------- ------- ------- -------- -------- --------
Total income from operations $ 0.156 $ 0.091 $ 0.625 $ 0.610 $ 1.025 $ 0.643 $ 0.656
------- ------- ------- ------- -------- -------- --------
Less distributions
From net investment income $(0.504) $(0.472) $(0.499) $(0.476) $ (0.485) $ (0.488) $ (0.492)
In excess of net investment income(5) (0.002) (0.009) (0.016) (0.014) -- (0.005) (0.024)
------- ------- ------- ------- -------- -------- --------
Total distributions $(0.506) $(0.481) $(0.515) $(0.490) $ (0.485) $ (0.493) $ (0.516)
------- ------- ------- ------- -------- -------- --------
Net asset value - End of year $ 9.850 $10.950 $10.200 $11.340 $ 11.220 $ 10.680 $ 10.530
------- ------- ------- ------- -------- -------- --------
Total return(2) 1.48% 0.74% 6.34% 5.54% 9.85% 6.17% 6.64%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $ 5,409 $88,682 $ 3,498 $99,293 $109,379 $127,681 $141,859
Ratios (as a percentage of average
daily net assets):
Expenses(3)(4) 0.77% 1.56% 0.78% 1.57% 1.58% 1.56% 1.53%
Expenses after custodian fee reduction(3) 0.76% 1.55% 0.76% 1.55% 1.57% 1.55% --
Net investment income 4.90% 4.16% 4.88% 4.22% 4.50% 4.49% 4.81%
Portfolio turnover of the Portfolio 38% 38% 23% 23% 10% 18% 22%
(See footnotes on last page.)
</TABLE>
23
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
COLORADO FUND
------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS B CLASS B CLASS B
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $ 9.950 $10.820 $ 9.920 $10.800 $10.170 $10.020 $10.010
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations
Net investment income $ 0.507 $ 0.467 $ 0.507 $ 0.478 $ 0.491 $ 0.480 $ 0.494
Net realized and unrealized gain (loss) (0.374) (0.401) 0.038 0.025 0.621 0.162 0.033
------- ------- ------- ------- ------- ------- -------
Total income from operations $ 0.133 $ 0.066 $ 0.545 $ 0.503 $ 1.112 $ 0.642 $ 0.527
------- ------- ------- ------- ------- ------- -------
Less distributions
From net investment income $(0.513) $(0.476) $(0.515) $(0.483) $(0.482) $(0.492) $(0.494)
In excess of net investment income(5) -- -- -- -- -- -- (0.023)
------- ------- ------- ------- ------- ------- -------
Total distributions $(0.513) $(0.476) $(0.515) $(0.483) $(0.482) $(0.492) $(0.517)
------- ------- ------- ------- ------- ------- -------
Net asset value - End of year $ 9.570 $10.410 $ 9.950 $10.820 $10.800 $10.170 $10.020
------- ------- ------- ------- ------- ------- -------
Total return(2) 1.27% 0.54% 5.62% 4.74% 11.26% 6.46% 5.58%
Ratios/Supplemental Data+
Net assets, end of year (000's omitted) $ 2,021 $35,703 $ 2,172 $37,535 $40,786 $42,972 $43,900
Ratios (as a percentage of average
daily net assets):
Net expenses(3)(4) 0.63% 1.46% 0.74% 1.51% 1.53% 1.49% 1.28%
Net expenses after custodian fee
reduction(3) 0.59% 1.42% 0.71% 1.48% 1.49% 1.45% --
Net investment income 5.09% 4.32% 5.14% 4.40% 4.75% 4.69% 5.03%
Portfolio turnover of the Portfolio 33% 33% 18% 18% 14% 53% 52%
</TABLE>
+ The operating expenses of the Colorado Fund reflect a reduction of the
investment adviser fee, an allocation of expenses to the adviser or
administrator, or both. Had such action not been taken, the ratios and
investment income per share would have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Ratios (as a percentage of average daily net assets):
Expenses(3)(4) 1.51% 1.43%
Expenses after custodian fee reduction(3) 1.46% --
Net investment income 4.67% 4.88%
Net investment income per share $0.478 $0.479
(See footnotes on last page.)
</TABLE>
24
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
CONNECTICUT FUND
-----------------------------------------------------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------
1999(1) 1998(1) 1997 1996 1995
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS B CLASS B CLASS B
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $10.710 $10.640 $10.640 $10.570 $10.120 $9.970 $10.050
------- -------- ------- -------- -------- -------- --------
Income (loss) from operations
Net investment income $0.539 $0.440 $0.529 $0.438 $0.453 $0.452 $0.465
Net realized and unrealized gain (loss) (0.258) (0.243) 0.091 0.080 0.450 0.169 (0.037)
------- -------- ------- -------- -------- -------- --------
Total income from operations $0.281 $0.197 $0.620 $0.518 $0.903 $0.621 $0.428
------- -------- ------- -------- -------- -------- --------
Less distributions
From net investment income $(0.531) $(0.437) $(0.529) $(0.438) $(0.453) $(0.452) $(0.465)
In excess of net investment income(5) -- -- (0.021) (0.010) -- (0.019) (0.043)
------- -------- ------- -------- -------- -------- --------
Total distributions $(0.531) $(0.437) $(0.550) $(0.448) $(0.453) $(0.471) $(0.508)
------- -------- ------- -------- -------- -------- --------
Net asset value - End of year $10.460 $10.400 $10.710 $10.640 $10.570 $10.120 $9.970
------- -------- ------- -------- -------- -------- --------
Total return(2) 2.60% 1.84% 5.97% 4.99% 9.17% 6.30% 4.55%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $9,222 $149,024 $5,193 $159,125 $171,634 $181,608 $188,900
Ratios (as a percentage of average
daily net assets):
Expenses(3)(4) 0.75% 1.56% 0.76% 1.59% 1.60% 1.58% 1.55%
Expenses after custodian fee reduction(3) 0.73% 1.54% 0.75% 1.58% 1.60% 1.57% --
Net investment income 4.89% 4.11% 4.93% 4.14% 4.45% 4.45% 4.77%
Portfolio turnover of the Portfolio 18% 18% 7% 7% 11% 23% 29%
(See footnotes on last page.)
</TABLE>
25
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
MICHIGAN FUND
-----------------------------------------------------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------
1999(1) 1998(1) 1997 1996 1995
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS B CLASS B CLASS B
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $ 9.820 $ 10.950 $ 9.750 $ 10.870 $ 10.420 $ 10.250 $ 10.210
------- -------- ------- -------- -------- -------- --------
Income (loss) from operations
Net investment income $ 0.471 $ 0.440 $ 0.474 $ 0.448 $ 0.460 $ 0.464 $ 0.486
Net realized and unrealized gain (loss) (0.385) (0.420) 0.092 0.097 0.454 0.195 0.059
------- -------- ------- -------- -------- -------- --------
Total income from operations $ 0.086 $ 0.020 $ 0.566 $ 0.545 $ 0.914 $ 0.659 $ 0.545
------- -------- ------- -------- -------- -------- --------
Less distributions
From net investment income $(0.461) $ (0.435) $(0.496) $ (0.448) $ (0.462) $ (0.481) $ (0.486)
In excess of net investment income(5) -- -- -- (0.017) (0.002) (0.008) (0.019)
From net realized gain (0.015) (0.015) -- -- -- -- --
------- -------- ------- -------- -------- -------- --------
Total distributions $(0.476) $ (0.450) $(0.496) $ (0.465) $ (0.464) $ (0.489) $ (0.505)
------- -------- ------- -------- -------- -------- --------
Net asset value - End of year $ 9.430 $ 10.520 $ 9.820 $ 10.950 $ 10.870 $ 10.420 $ 10.250
------- -------- ------- -------- -------- -------- --------
Total return(2) 0.81% 0.11% 5.95% 5.11% 9.01% 6.50% 5.61%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $ 1,737 $107,357 $ 1,526 $128,216 $148,542 $171,067 $186,363
Ratios (as a percentage of average
daily net assets):
Expenses(3)(4) 0.80% 1.58% 0.83% 1.59% 1.60% 1.61% 1.51%
Expenses after custodian fee reduction(3) 0.79% 1.57% 0.81% 1.57% 1.58% 1.60% --
Net investment income 4.81% 4.03% 4.85% 4.12% 4.40% 4.44% 4.84%
Portfolio turnover of the Portfolio 31% 31% 26% 26% 16% 49% 54%
(See footnotes on last page.)
</TABLE>
26
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
MINNESOTA FUND
------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------------------
1999(1) 1998(1) 1997 1996 1995
------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS B CLASS B CLASS B
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $ 9.820 $10.540 $ 9.770 $10.490 $10.070 $ 9.950 $10.040
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations
Net investment income $ 0.490 $ 0.446 $ 0.492 $ 0.439 $ 0.466 $ 0.468 $ 0.470
Net realized and unrealized gain (loss) (0.351) (0.369) 0.073 0.073 0.415 0.123 (0.053)
------- ------- ------- ------- ------- ------- -------
Total income from operations $ 0.139 $ 0.077 $ 0.565 $ 0.512 $ 0.881 $ 0.591 $ 0.417
------- ------- ------- ------- ------- ------- -------
Less distributions
From net investment income $(0.490) $(0.446) $(0.515) $(0.439) $(0.461) $(0.468) $(0.470)
In excess of net investment income(5) (0.009) (0.001) -- (0.023) -- (0.003) (0.037)
------- ------- ------- ------- ------- ------- -------
Total distributions $(0.499) $(0.447) $(0.515) $(0.462) $(0.461) $(0.471) $(0.507)
------- ------- ------- ------- ------- ------- -------
Net asset value - End of year $ 9.460 $10.170 $ 9.820 $10.540 $10.490 $10.070 $ 9.950
------- ------- ------- ------- ------- ------- -------
Total return(2) 1.34% 0.65% 5.94% 4.99% 9.01% 6.00% 4.41%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $ 4,822 $55,355 $ 3,995 $62,899 $67,781 $74,374 $78,970
Ratios (as a percentage of average
daily net assets):
Expenses(3)(4) 0.73% 1.55% 0.73% 1.58% 1.58% 1.56% 1.52%
Expenses after custodian fee reduction(3) 0.71% 1.53% 0.71% 1.56% 1.55% 1.54% --
Net investment income 4.97% 4.21% 5.03% 4.19% 4.62% 4.63% 4.80%
Portfolio turnover of the Portfolio 19% 19% 23% 23% 22% 45% 76%
(See footnotes on last page.)
</TABLE>
27
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
NEW JERSEY FUND
-----------------------------------------------------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------
1999(1) 1998(1) 1997 1996 1995
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS B CLASS B CLASS B
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $10.590 $11.020 $10.530 $10.940 $10.440 $10.360 $10.410
------- -------- ------- -------- -------- -------- --------
Income (loss) from operations
Net investment income $0.548 $0.481 $0.558 $0.491 $0.506 $0.505 $0.505
Net realized and unrealized gain (loss) (0.394) (0.409) 0.082 0.089 0.493 0.084 (0.009)
------- -------- ------- -------- -------- -------- --------
Total income from operations $0.154 $0.072 $0.640 $0.580 $0.999 $0.589 $0.496
------- -------- ------- -------- -------- -------- --------
Less distributions
From net investment income $(0.548) $(0.481) $(0.558) $(0.491) $(0.499) $(0.505) $(0.505)
In excess of net investment income(5) (0.006) (0.001) (0.022) (0.009) -- (0.004) (0.035)
In excess of net realized gain -- -- -- -- -- -- (0.006)
------- -------- ------- -------- -------- -------- --------
Total distributions $(0.554) $(0.482) $(0.580) $(0.500) $(0.499) $(0.509) $(0.546)
------- -------- ------- -------- -------- -------- --------
Net asset value - End of year $10.190 $10.610 $10.590 $11.020 $10.940 $10.440 $10.360
Total return(2) 1.39% 0.59% 6.24% 5.41% 9.85% 5.74% 5.04%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $18,897 $289,219 $11,570 $316,155 $345,080 $378,649 $404,861
Ratios (as a percentage of average
daily net assets):
Expenses(3)(4) 0.73% 1.57% 0.77% 1.61% 1.59% 1.57% 1.53%
Expenses after custodian fee reduction(3) 0.72% 1.56% 0.75% 1.59% 1.57% 1.56% --
Net investment income 5.14% 4.37% 5.25% 4.48% 4.82% 4.80% 4.97%
Portfolio turnover of the Portfolio 32% 32% 14% 14% 24% 39% 54%
(See footnotes on last page.)
</TABLE>
28
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
PENNSYLVANIA FUND
-----------------------------------------------------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS B CLASS B CLASS B
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $10.400 $ 10.730 $10.550 $ 10.900 $ 10.430 $ 10.320 $ 10.340
------- -------- ------- -------- -------- -------- --------
Income (loss) from operations
Net investment income $ 0.546 $ 0.477 $ 0.578 $ 0.506 $ 0.522 $ 0.512 $ 0.507
Net realized and unrealized gain (loss) (0.393) (0.404) (0.143) (0.156) 0.458 0.108 0.004+
------- -------- ------- -------- -------- -------- --------
Total income from operations $ 0.153 $ 0.073 $ 0.435 $ 0.350 $ 0.980 $ 0.620 $ 0.511
------- -------- ------- -------- -------- -------- --------
Less distributions
From net investment income $(0.546) $ (0.483) $(0.578) $ (0.520) $ (0.510) $ (0.510) $ (0.507)
In excess of net investment income(5) (0.017) (0.010) (0.007) -- -- -- (0.024)
------- -------- ------- -------- -------- -------- --------
Total distributions $(0.563) $ (0.493) $(0.585) $ (0.520) $ (0.510) $ (0.510) $ (0.531)
------- -------- ------- -------- -------- -------- --------
Net asset value - End of year $ 9.990 $ 10.310 $10.400 $ 10.730 $ 10.900 $ 10.430 $ 10.320
------- -------- ------- -------- -------- -------- --------
Total return(2) 1.42% 0.64% 4.17% 3.23% 9.66% 6.08% 5.24%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $10,652 $303,150 $ 8,552 $349,593 $395,974 $441,104 $495,856
Ratios (as a percentage of average
daily net assets):
Expenses(3)(4) 0.75% 1.58% 0.74% 1.59% 1.61% 1.58% 1.51%
Expenses after custodian fee reduction(3) 0.71% 1.54% 0.70% 1.55% 1.56% 1.54% --
Net investment income 5.29% 4.47% 5.40% 4.63% 4.93% 4.89% 5.04%
Portfolio turnover of the Portfolio 27% 27% 13% 13% 17% 30% 44%
(See footnotes on last page.)
</TABLE>
29
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
TEXAS FUND
------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS B CLASS B CLASS B
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of year $ 9.890 $11.080 $ 9.770 $10.960 $10.440 $10.280 $10.210
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations
Net investment income $ 0.511 $ 0.485 $ 0.515 $ 0.496 $ 0.489 $ 0.492 $ 0.532
Net realized and unrealized gain (loss) (0.336) (0.368) 0.110 0.120 0.526 0.177 0.084
------- ------- ------- ------- ------- ------- -------
Total income from operations $ 0.175 $ 0.117 $ 0.625 $ 0.616 $ 1.015 $ 0.669 $ 0.616
------- ------- ------- ------- ------- ------- -------
Less distributions
From net investment income $(0.505) $(0.487) $(0.505) $(0.496) $(0.495) $(0.509) $(0.532)
In excess of net investment income(5) -- -- -- -- -- -- (0.014)
------- ------- ------- ------- ------- ------- -------
Total distributions $(0.505) $(0.487) $(0.505) $(0.496) $(0.495) $(0.509) $(0.546)
------- ------- ------- ------- ------- ------- -------
Net asset value - End of year $ 9.560 $10.710 $ 9.890 $11.080 $10.960 $10.440 $10.280
------- ------- ------- ------- ------- ------- -------
Total return(2) 1.72% 1.01% 6.55% 5.74% 10.00% 6.60% 6.36%
Ratios/Supplemental Data+
Net assets, end of year (000's omitted) $ 458 $15,219 $ 373 $16,988 $21,283 $23,996 $27,762
Ratios (as a percentage of average
daily net assets):
Net expenses(3)(4) 0.75% 1.54% 0.72% 1.49% 1.57% 1.43% 0.99%
Net expenses after custodian fee
reduction(3) 0.72% 1.51% 0.69% 1.46% 1.55% 1.39% --
Net investment income 5.11% 4.37% 5.22% 4.50% 4.61% 4.70% 5.29%
Portfolio turnover of the Portfolio 55% 55% 17% 17% 17% 39% 49%
</TABLE>
+ The operating expenses of the Texas Fund reflect a reduction of the
investment adviser fee, an allocation of expenses to the adviser or
administrator, or both. Had such action not been taken, the ratios and
investment income per share would have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Ratios (as a percentage of average daily net assets):
Expenses(3)(4) 1.53% 1.44%
Expenses after custodian fee reduction(3) 1.49% --
Net investment income 4.60% 4.84%
Net investment income per share $0.482 $0.487
</TABLE>
+ 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) Net investment income per share was computed using average shares
outstanding.
(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 reinvestment date. Total return is not computed on
an annualized basis.
(3) Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
(4) 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 ratio for the
year ended July 31, 1995 has not been adjusted to reflect this change.
(5) 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.
30
<PAGE>
{LOGO}
Mutual Funds
for People
Who Pay
Taxes
More Information
- --------------------------------------------------------------------------------
About the Funds: More information is available in the statement of
additional information. The statement of additional information is
incorporated by reference into this prospectus. Additional
information about each Portfolio's investments is available in the
annual and semi-annual reports to shareholders. In the annual
report, you will find a discussion of the market conditions and
investment strategies that significantly affected each Fund's
performance during the past year. You may obtain free copies of the
statement of additional information and the shareholder reports by
contacting:
EATON VANCE DISTRIBUTORS, INC.
The Eaton Vance Building
255 State Street
Boston, MA 02109
1-800-225-6265
website: www.eatonvance.com
You will find and may copy information about each Fund at the
Securities and Exchange Commission's public reference room in
Washington, DC (call 1-800-SEC-0330 for information on the operation
of the public reference room); 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 20549-0102 or
by electronic mail at [email protected].
About Shareholder Accounts: You can obtain more information from
Eaton Vance Share- holder 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
The Funds' SEC File No. is 811-4409 C12/1ABP
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
December 1, 1999
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
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
(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 ............................................... 12
Purchasing and Redeeming Shares ....................................... 13
Sales Charges ......................................................... 15
Performance ........................................................... 18
Taxes ................................................................. 19
Portfolio Security Transactions ....................................... 21
Financial Statements .................................................. 23
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: Tax Equivalent Yield Tables ........................................ d-1
E: 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 SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE FUNDS' PROSPECTUS
DATED DECEMBER 1, 1999, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS
INCORPORATED HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS, WHICH MAY BE OBTAINED BY CALLING 1-800-225-6265.
<PAGE>
STRATEGIES AND RISKS
MUNICIPAL OBLIGATIONS. Municipal obligations are issued to obtain funds for
various public and private purposes. Municipal obligations include bonds as
well as tax-exempt commercial paper, project notes and municipal notes such as
tax, revenue and bond anticipation notes of short maturity, generally less
than three years. While most municipal bonds pay a fixed rate of interest
semi-annually in cash, there are exceptions. Some bonds pay no periodic cash
interest, but rather make a single payment at maturity representing both
principal and interest. Bonds may be issued or subsequently offered with
interest coupons materially greater or less than those then prevailing, with
price adjustments reflecting such deviation.
In general, there are three categories of municipal obligations, the
interest on which is exempt from federal income tax and is not a tax
preference item for purposes of the AMT: (i) certain "public purpose"
obligations (whenever issued), which include obligations issued directly by
state and local governments or their agencies to fulfill essential
governmental functions; (ii) certain obligations issued before August 8, 1986
for the benefit of non-governmental persons or entities; and (iii) certain
"private activity bonds" issued after August 7, 1986 which include "qualified
Section 501(c)(3) bonds" or refundings of certain obligations included in the
second category. Interest on certain "private activity bonds" issued after
August 7, 1986 is exempt from regular federal income tax, but such interest
(including a distribution by a Fund derived from such interest) is treated as
a tax preference item which could subject the recipient to or increase the
recipient's liability for the AMT. For corporate shareholders, a Fund's
distributions derived from interest on all municipal obligations (whenever
issued) is included in "adjusted current earnings" for purposes of the AMT as
applied to corporations (to the extent not already included in alternative
minimum taxable income as income attributable to private activity bonds). In
assessing the federal income tax treatment of interest on any municipal
obligation, the Portfolios will generally rely on an opinion of the issuer's
counsel (when available) and will not undertake any independent verification
of the basis for the opinion.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects including the
construction or improvement of schools, highways and roads, water and sewer
systems and a variety of other public purposes. The basic security of general
obligation bonds is the issuer's pledge of its faith, credit, and taxing power
for the payment of principal and interest. The taxes that can be levied for
the payment of debt service may be limited or unlimited as to rate and amount.
Revenue bonds are generally secured by the net revenues derived from a
particular facility or group of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Revenue bonds
have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways,
bridges and tunnels; port, airport and parking facilities; transportation
systems; housing facilities, colleges and universities and hospitals. Although
the principal security behind these bonds varies widely, many provide
additional security in the form of a debt service reserve fund whose monies
may be used to make principal and interest payments on the issuer's
obligations. Housing finance authorities have a wide range of security
including partially or fully insured, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public projects. In
addition to a debt service reserve fund, some authorities provide further
security in the form of a state's ability (without legal obligation) to make
up deficiencies in the debt service reserve fund. Lease rental revenue bonds
issued by a state or local authority for capital projects are normally secured
by annual lease rental payments from the state or locality to the authority
sufficient to cover debt service on the authority's obligations. Such payments
are usually subject to annual appropriations by the state or locality.
Industrial development and pollution control bonds, although nominally issued
by municipal authorities, are in most cases revenue bonds and are generally
not secured by the taxing power of the municipality, but are usually secured
by the revenues derived by the authority from payments of the industrial user
or users. Each Portfolio may on occasion acquire revenue bonds which carry
warrants or similar rights covering equity securities. Such warrants or rights
may be held indefinitely, but if exercised, the Portfolio anticipates that it
would, under normal circumstances, dispose of any equity securities so
acquired within a reasonable period of time.
The obligations of any person or entity to pay the principal of and
interest on a municipal obligation are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of any person or entity to
pay when due principal of and interest on a municipal obligation may be
materially affected. There have been recent instances of defaults and
bankruptcies involving municipal obligations which were not foreseen by the
financial and investment communities. Each Portfolio will take whatever action
it considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of
the underlying source of funds for debt service. Such action may include
retaining the services of various persons or firms (including affiliates of
the investment adviser) to evaluate or protect any real estate, facilities or
other assets securing any such obligation or acquired by a Portfolio as a
result of any such event, and a Portfolio may also manage (or engage other
persons to manage) or otherwise deal with any real estate, facilities or other
assets so acquired. The Portfolio anticipates that real estate consulting and
management services may be required with respect to properties securing
various municipal obligations in its portfolio or subsequently acquired by the
Portfolio. The Portfolio will incur additional expenditures in taking
protective action with respect to portfolio obligations in default and assets
securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating
of the issue. The ratings of Moody's, S&P and Fitch represent their opinions
as to the quality of the municipal obligations which they undertake to rate.
It should be emphasized, however, that ratings are based on judgment and are
not absolute standards of quality. Consequently, municipal obligations with
the same maturity, coupon and rating may have different yields while
obligations of the same maturity and coupon with different ratings may have
the same yield. In addition, the market price of such obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of a Portfolio will be affected by such changes.
STATE-SPECIFIC CONCENTRATION. For a discussion of the risks associated with
investing in municipal obligations of a particular state's issuers, see "Risks
of Concentration" in Appendix C. Each Portfolio may also invest a total of up
to 35% of its net assets in the obligations of Puerto Rico, the U.S. Virgin
Islands and Guam. Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within Puerto Rico,
the U.S. Virgin Islands and Guam affecting the issuers of such obligations.
Information about some of these conditions and developments is included in
Appendix C.
SECTOR CONCENTRATION. Each Portfolio may invest 25% or more of its total
assets in municipal obligations of the same type. There could be economic,
business or political developments which might affect all municipal
obligations of the same type. In particular, investments in revenue bonds
might involve (without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of
increase of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices, and in
achieving timely and adequate rate relief from regulatory commissions, effects
of energy conservation and limitations on the capacity of the capital market
to absorb utility debt.
Industrial development bonds ("IDBs") are normally secured only by the
revenues from the project and not by state or local government tax payments,
they are subject to a wide variety of risks, many of which relate to the
nature of the specific project. Generally, IDBs are sensitive to the risk of a
slowdown in the economy.
MUNICIPAL LEASES. Each Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment
purchase arrangement which is issued by state or local governments to acquire
equipment and facilities. Interest income from such obligations is generally
exempt from local and state taxes in the state of issuance. "Participations"
in such leases are undivided interests in a portion of the total obligation.
Participations entitle their holders to receive a pro rata share of all
payments under the lease. The obligation of the issuer to meet its obligations
under such leases is often subject to the appropriation by the appropriate
legislative body, on an annual or other basis, of funds for the payment of the
obligations. Investments in municipal leases are thus subject to the risk that
the legislative body will not make the necessary appropriation and the issuer
will not otherwise be willing or able to meet its obligation.
Certain municipal lease obligations owned by each Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the investment adviser, pursuant to
guidelines adopted by the Trustees of a Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal
lease obligations, the investment adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
investment adviser will consider factors unique to particular lease
obligations affecting the marketability thereof. These include the general
creditworthiness of the municipality, the importance of the property covered
by the lease to the municipality, and the likelihood that the marketability of
the obligation will be maintained throughout the time the obligation is held
by a Portfolio. In the event a Portfolio acquires an unrated municipal lease
obligation, the investment adviser will be responsible for determining the
credit quality of such obligation on an on-going basis, including an
assessment of the likelihood that the lease may or may not be cancelled.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations which do not
require the periodic payment of interest and are issued at a significant
discount from face value. The discount approximates the total amount of
interest the bonds will accrue and compound over the period until maturity at
a rate of interest reflecting the market rate of the security at the time of
issuance. Each Portfolio is required to accrue income from zero-coupon bonds
on a current basis, even though it does not receive that income currently in
cash and each Fund is required to distribute its share of the Portfolio's
income for each taxable year. Thus, a Portfolio may have to sell other
investments to obtain cash needed to make income distributions.
CREDIT QUALITY. While municipal obligations rated investment grade or below
and comparable unrated municipal obligations may have some quality and
protective characteristics, these characteristics can be expected to be offset
or outweighed by uncertainties or major risk exposures to adverse conditions.
Lower rated and comparable unrated municipal obligations are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to greater price volatility
due to such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Lower rated or unrated municipal obligations are also more likely to react to
real or perceived developments affecting market and credit risk than are more
highly rated obligations, which react primarily to movements in the general
level of interest rates.
Municipal obligations held by a Portfolio which are rated below investment
grade but which, subsequent to the assignment of such rating, are backed by
escrow accounts containing U.S. Government obligations may be determined by
the investment adviser to be of investment grade quality for purposes of the
Portfolio's investment policies. A Portfolio may retain in its portfolio an
obligation whose rating drops 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. The investment
adviser may also purchase structured derivative products with greater or lesser
credit risk than the underlying bonds. Such bonds may be rated investment grade,
as well as below investment grade. For a description of municipal bond ratings,
see Appendix E.
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. Illiquid securities also include
those legally restricted as to resale, and securities eligible for resale
pursuant to Rule 144A thereunder. Rule 144A securities may be treated as
liquid securities if the investment adviser determines that such treatment is
warranted. Even if determined to be liquid, holdings of these securities may
increase the level of Portfolio illiquidity if eligible buyers become
uninterested in purchasing them.
The secondary market for some municipal obligations issued within a state
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain of the municipal
obligations in which a Portfolio may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, a Portfolio may be unable to dispose of
these municipal obligations at times when it would otherwise wish to do so at
the prices at which they are valued.
SECURITIES LENDING. Each Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers.
Distributions by a Fund of any income realized by a Portfolio from securities
loans will be taxable. If the management of a Portfolio decides to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of a Portfolio's total assets. Securities lending involves
risks of delay in recovery or even loss of rights on the securities loaned if
the borrower fails financially. Each Portfolio has no present intention of
engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A change in the level of
interest rates may affect the value of the securities held by a Portfolio (or
of securities that a Portfolio expects to purchase). To hedge against changes
in rates or as a substitute for the purchase of securities, a Portfolio may
enter into (i) futures contracts for the purchase or sale of debt securities
and (ii) futures contracts on securities indices. All futures contracts
entered into by a Portfolio are traded on exchanges or boards of trade that
are licensed and regulated by the Commodity Futures Trading Commission
("CFTC") and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant exchange. The Portfolio may
purchase and write call and put options on futures contracts which are traded
on a United States exchange or board of trade. The Portfolio will be required,
in connection with transactions in futures contracts and the writing of
options on futures, to make margin deposits, which will be held by the
Portfolio's custodian for the benefit of the futures commission merchant
through whom the Portfolio engages in such futures and options transactions.
Some futures contracts and options thereon may become illiquid under
adverse market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit transactions in an exchange-traded
instrument, which may make the instrument temporarily illiquid and difficult
to price. Commodity exchanges may also establish daily limits on the amount
that the price of a futures contract or futures option can vary from the
previous day's settlement price. Once the daily limit is reached, no trades
may be made that day at a price beyond the limit. This may prevent the
Portfolio from closing out positions and limiting its losses.
Each Portfolio will engage in futures and related options transactions for
bona fide hedging purposes or non-hedging purposes as defined in or permitted
by CFTC regulations. The Portfolio will determine that the price fluctuations
in the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the
Portfolio or which it expects to purchase. Each Portfolio will engage in
transactions in futures and related options contracts only to the extent such
transactions are consistent with the requirements of the Code for maintaining
qualification of a Fund as a regulated investment company for federal income
tax purposes.
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.
DIVERSIFIED STATUS. Each Portfolio is a "diversified" investment company
under the 1940 Act. This means that with respect to 75% of its total assets
(1) a Portfolio may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. Government obligations) and (2) a
Portfolio may not own more than 10% of the outstanding voting securities of
any one issuer (which generally is inapplicable because municipal debt
obligations are not voting securities).
TEMPORARY INVESTMENTS. Under unusual market conditions, each Portfolio may
invest temporarily in cash or cash equivalents. Cash equivalents are highly
liquid, short-term securities such as commercial paper, certificates of
deposit, short-term notes and short-term U.S. Government 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.
INVESTMENT RESTRICTIONS
The following investment restrictions of each Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of a Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of a Fund present or
represented by proxy at a meeting if the holders of more than 50% of the
outstanding shares are present or represented at the meeting or (b) more than
50% of the outstanding shares of a Fund. Accordingly, each Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940 (the "1940 Act");
(2) Purchase securities on margin (but the Fund may obtain such short-
term credits as may be necessary for the clearance of purchases and sales
of securities). The deposit or payment by the Fund of initial or
maintenance margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of
others, except insofar as it may technically be deemed to be an
underwriter in selling a portfolio security under circumstances which may
require the registration of the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership
interests in real estate but excluding readily marketable interests in
real estate investment trusts or readily marketable securities of
companies which invest or deal in real estate or securities which are
secured by real estate);
(5) Purchase or sell physical commodities or contracts for the
purchase or sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of each Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
Each Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by each Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of a Portfolio.
The Funds and the Portfolios have adopted the following investment
policies which may be changed by the Trustees with respect to a Fund without
approval by that Fund's shareholders or with respect to the Portfolio without
approval of a Fund or its other investors. Each Fund and each Portfolio will
not:
(a) engage in options, futures or forward transactions if more than 5%
of its net assets, as measured by the aggregate of the premiums paid by
the Fund or the Portfolio, would be so invested;
(b) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount
of such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue as,
and equal in amount to, the securities sold short and unless not more than
25% of the Fund's net assets (taken at current value) is held as
collateral for such sales at any one time; or
(c) invest more than 15% of its net assets in investments which are
not readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial
paper issued pursuant to Section 4(2) of said Act that the Board of
Trustees of the Trust or the Portfolio, or its delegate, determines to be
liquid. Any such determination by a delegate will be made pursuant to
procedures adopted by the Board. If the Fund or Portfolio invests in Rule
144A securities, the level of portfolio illiquidity may be increased to
the extent that eligible buyers become uninterested in purchasing such
securities.
No Fund or Portfolio will invest 25% or more of its total assets in the
securities of issuers in any one industry. For purposes of the foregoing
policy, securities of the U.S. Government, its agencies, or instrumentalities
are not considered to represent industries. Municipal obligations backed by
the credit of a governmental entity are also not considered to represent
industries. However, municipal obligations backed only by the assets and
revenues of non-governmental users may for this purpose be deemed to be issued
by such non-governmental users. The foregoing 25% limitation would apply to
these issuers. As discussed in the prospectus and this SAI, a Fund or
Portfolio may invest more than 25% of its total assets in certain economic
sectors, such as revenue bonds, housing, hospitals and other health care
facilities, and industrial development bonds. Each Fund and each Portfolio
reserve the right to invest more than 25% of total assets in each of these
sectors.
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 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 a Fund and a Portfolio must take actions necessary to comply with
the policy of investing at least 65% of total assets in a particular state.
Moreover, each Fund and Portfolio must always be in compliance with the
limitation on investing in illiquid investments and 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 The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109. Those Trustees who are "interested persons" of the Trust
or a Portfolio, as defined in the 1940 Act, are indicated by an asterisk(*).
JESSICA M. BIBLIOWICZ (40), Trustee*
President and Chief Executive Officer of National Financial Partners (a
financial services company) (since April, 1999). President and Chief
Operating Officer of John A. Levin & Co. (a registered investment advisor)
(July, 1997 to April, 1999) and a Director of Baker, Fentress & Company
which owns John A. Levin & Co. (July, 1997 to April, 1999). Formerly
Executive Vice President of Smith Barney Mutual Funds (from July, 1994 to
June, 1997). Elected Trustee October 30, 1998. Trustee of various investment
companies managed by Eaton Vance or BMR since October 30, 1998.
Address: 1301 Avenue of the Americas, New York, New York 10019
DONALD R. DWIGHT (68), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee/Director of the Royce Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (58), 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 (64), Trustee
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of the Kobrick
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 (64), Trustee
Chairman of the Board and Chief Executive Officer, United Asset Management
Corporation (a holding company owning institutional investment management
firms); Chairman, President and Director, UAM Funds (mutual funds). Trustee
of various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
LYNN A. STOUT (42), Trustee
Professor of Law, Georgetown University Law Center. Elected Trustee October
30, 1998. Trustee of various investment companies managed by Eaton Vance or
BMR since October 30, 1998.
Address: 600 New Jersey Avenue, NW, Washington, DC 20001
JACK L. TREYNOR (69), 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 (56), President
Vice President of BMR and Eaton Vance. Officer of various investment
companies managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (42), Vice President
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (54), Treasurer
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ALAN R. DYNNER (59), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance and EVC since
November 1, 1996. Previously, he was a Partner of the law firm of
Kirkpatrick & Lockhart LLP, New York and Washington, D.C., and was Executive
Vice President of Neuberger & Berman Management, Inc., a mutual fund
management company. Officer of various investment companies managed by Eaton
Vance or BMR.
JANET E. SANDERS (64), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (36), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ERIC G. WOODBURY (42), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
In addition, William H. Ahern, Jr. (40), Vice President of Eaton Vance and
BMR, is a Vice President of the Colorado and Connecticut Portfolios. Timothy
T. Browse (40), Vice President of Eaton Vance and BMR, is a Vice President of
the Michigan and Pennsylvania Portfolios. Cynthia J. Clemson (36), Vice
President of Eaton Vance and BMR, is a Vice President of the Arizona
Portfolio. Thomas M. Metzhold (41), 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.
The Nominating Committee of the Board of Trustees of the Trust and each
Portfolio is comprised of the Trustees who are not "interested persons" as
that term is defined under the 1940 Act ("noninterested Trustees"). 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. Hayes (Chairman), Dwight and Reamer and Ms. Stout are members of
the Special Committee of the Board of Trustees of the Trust and of each
Portfolio. 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.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of each Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent accountants, and reviewing matters relative to trading and
brokerage policies and practices, accounting and auditing practices and
procedures, accounting records, internal accounting controls,and the functions
performed by the custodian, transfer agent and dividend disbursing agent of the
Trust and of the Portfolios.
Trustees of the Portfolios who are not affiliated with the investment
adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Trustees" Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by a Portfolio in the shares of one or more
funds in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolios' assets, liabilities, and net
income per share, and will not obligate a Portfolio to retain the services of
any Trustee or obligate a Portfolio to pay any particular level of
compensation to the Trustee. Neither the Portfolios nor the Trust has a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and of
the Portfolios are paid by the Funds (and the other series of the Trust) and
the Portfolios, respectively. (The Trustees of the Trust and the Portfolios
who are members of the Eaton Vance organization receive no compensation from
the Trust or the Portfolios). During the fiscal year ended July 31, 1999, the
noninterested Trustees of the Trust and the Portfolios earned the following
compensation in their capacities as Trustees from the Trust and the
Portfolios, and, for the year ended December 31, 1998, earned the following
compensation in their capacities as Trustees of the funds in the Eaton Vance
fund complex(1):
<TABLE>
<CAPTION>
JESSICA M. DONALD R. SAMUEL L. NORTON H. LYNN A. JACK L.
SOURCE OF COMPENSATION BIBLIOWICZ(7) DWIGHT(3) HAYES, III(4) REAMER STOUT(7) TREYNOR
- ---------------------- ------------- --------- ------------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Trust(2) $ 7,119 $ 14,688 $ 14,623 $ 13,925 $ 7,518 $ 16,016
Arizona Portfolio 700 1,713 1,933 1,802 777 1,961
Colorado Portfolio 184 381 379 361 194 409
Connecticut Portfolio 993 2,322 2,539 2,379 1,088 2,616
Michigan Portfolio 669 1,713 1,933 1,802 777 961
Minnesota Portfolio 478 1,256 1,478 1,369 544 1,471
New Jersey Portfolio 1,656 3,691 3,903 3,678 1,787 4,088
Pennsylvania Portfolio 1,656 3,691 3,903 3,678 1,787 4,088
Texas Portfolio 18 38 38 36 19 41
Trust and Fund Complex $33,334 $160,000(5) $170,000(6) $160,000 $32,842 $170,000
</TABLE>
- ----------
(1) As of December 1, 1999, the Eaton Vance fund complex consists of 143
registered investment companies or series thereof.
(2) The Trust consisted of 29 Funds as of July 31, 1999.
(3) Mr. Dwight received deferred compensation from each Portfolio as follows:
Arizona - $898; Colorado - $200; Connecticut - $1,218; Michigan - $898;
Minnesota - $659; New Jersey - $1,937; Pennsylvania - $1,937; and Texas -
$20.
(4) Mr. Hayes received deferred compensation from each Portfolio as follows:
Arizona - $324; Colorado - $65; Connecticut - $428; Michigan - $324;
Minnesota - $246; New Jersey - $661; Pennsylvania - $661 and Texas - $7.
(5) Includes $60,000 of deferred compensation.
(6) Includes $41,563 of deferred compensation.
(7) Ms. Bibliowicz and Ms. Stout were elected as Trustees on October 30, 1998.
ORGANIZATION. Each Fund is a series of the Trust, which is organized under
Massachusetts law as a business trust and is operated as an open-end
management investment company. Each Fund changed its name from Eaton Vance
[state name] Tax Free Fund to EV Marathon [state name] Tax Free Fund on
February 1, 1994 and to EV Marathon [state name] Municipals Fund on December
1, 1994. Each Fund was reorganized into multiple classes and changed its name
to Eaton Vance [state name] Municipals Fund on August 1, 1997. The operations
of the Class B reflect the operations of a Fund prior to August 1, 1997. Class
A is a successor to the operations of a separate series of the Trust.
The Trust may issue an unlimited number of shares of beneficial interest
(no par value per share) in one or more series (such as the Funds). The
Trustees of the Trust have divided the shares of each Fund into multiple
classes. Each class represents an interest in a Fund, but is subject to
different expenses, rights and privileges. The Trustees have the authority
under the Declaration of Trust to create additional classes of shares with
differing rights and privileges. When issued and outstanding, shares are fully
paid and nonassessable by the Trust. Shareholders are entitled to one vote for
each full share held. Fractional shares may be voted proportionately. Shares
of a Fund will be voted together except that only shareholders of a particular
class may vote on matters affecting only that class. Shares have no preemptive
or conversion rights and are freely transferable. In the event of the
liquidation of a Fund, shareholders of each class are entitled to share pro
rata in the net assets attributable to that class available for distribution
to shareholders.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of each Fund in its corresponding Portfolio, as well
as the advantages and disadvantages of the two-tier format. The Trustees
believe that the structure offers opportunities for growth in the assets of
the Portfolios, may afford the potential for economies of scale for each Fund
and may over time result in lower expenses for a Fund.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time
as less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will
call a shareholders' meeting for the election of Trustees.
Except for the foregoing circumstances and unless removed by action of the
shareholders in accordance with the Trust's By-laws, the Trustees shall
continue to hold office and may appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The By-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes (such as reclassifying series of classes of shares or
restructuring the Trust) as do not have a materially adverse effect on the
financial interests of shareholders or if they deem it necessary to conform it
to applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such
liability has been imposed. The Trust's Declaration of Trust contains an
express disclaimer of liability on the part of the Fund shareholders and the
Trust's By-laws provide that the Trust shall assume the defense on behalf of
any Fund shareholders. The Declaration of Trust also contains provisions
limiting the liability of a series or class to that series or class. Moreover,
the Trust's By-laws also provide for indemnification out of the property of
the Fund of any shareholder held personally liable solely by reason of being
or having been a shareholder for all loss or expense arising from such
liability. The assets of the Fund are readily marketable and will ordinarily
substantially exceed its liabilities. In light of the nature of the Fund's
business and the nature of its assets, management believes that the
possibility of the Fund's liability exceeding its assets, and therefore the
shareholder's risk of personal liability, is remote.
Each Portfolio is organized as a trust under the laws of the state of New
York and intends to be treated as a partnership for federal tax purposes. In
accordance with the Declaration of Trust of each Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees of the
Portfolio holding office have been elected by investors. In such an event the
Trustees of the Portfolio then in office will call an investors' meeting for
the election of Trustees. Except for the foregoing circumstances and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust of each Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
Each Portfolio's Declaration of Trust provides that a Fund and other
entities permitted to invest in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be
liable for all obligations of the Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio
itself is unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
Whenever a Fund as an investor in a Portfolio is requested to vote on
matters pertaining to the Portfolio (other than the termination of the
Portfolio's business, which may be determined by the Trustees of the Portfolio
without investor approval), the Fund will hold a meeting of Fund shareholders
and will vote its interest in the Portfolio for or against such matters
proportionately to the instructions to vote for or against such matters
received from Fund shareholders. A Fund shall vote shares for which it
receives no voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the Fund
to withdraw its investment in the Portfolio or take other appropriate action.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, a Fund could incur brokerage, tax or other charges
in converting the securities to cash. In addition, the distribution in kind
may result in a less diversified portfolio of investments or adversely affect
the liquidity of a Fund. Notwithstanding the above, there are other means for
meeting shareholder redemption requests, such as borrowing.
A Fund may withdraw (completely redeem) all its assets from its
corresponding Portfolio at any time if the Board of Trustees of the Trust
determines that it is in the best interest of that Fund to do so. In the event
a Fund withdraws all of its assets from its corresponding Portfolio, or the
Board of Trustees of the Trust determines that the investment objective of
such Portfolio is no longer consistent with the investment objective of the
Fund, the Trustees would consider what action might be taken, including
investing the assets of such Fund in another pooled investment entity or
retaining an investment adviser to manage the Fund's assets in accordance with
its investment objective. A Fund's investment performance may be affected by a
withdrawal of all its assets (or the assets of another investor in the
Portfolio) from its corresponding Portfolio.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISORY SERVICES. BMR manages the investments and affairs of each
Portfolio subject to the supervision of the Portfolio's Board of Trustees. BMR
furnishes to the Portfolios investment research, advice and supervision,
furnishes an investment program and determines what securities will be
purchased, held or sold by the Portfolio and what portion, if any, of the
Portfolio's assets will be held uninvested. Each Investment Advisory Agreement
requires BMR to pay the salaries and fees of all officers and Trustees of the
Portfolio who are members of the BMR organization and all personnel of BMR
performing services relating to research and investment activities.
For a description of the compensation that each Portfolio pays BMR, see
the prospectus. The following table sets forth the net assets of each
Portfolio and the advisory fees earned during the three fiscal years ended
July 31, 1999.
<TABLE>
<CAPTION>
ADVISORY FEE FOR FISCAL YEARS ENDED
NET ASSETS -----------------------------------------------------------
PORTFOLIO AT 7/31/99 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
- --------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Arizona $ 94,333,288 $ 386,713 $ 413,386 $ 482,775
Colorado 37,874,067 94,915 97,947 113,698
Connecticut 157,893,588 681,988 703,463 771,883
Michigan 109,463,352 477,860 562,200 676,686
Minnesota 60,392,868 217,205 228,670 252,187
New Jersey 309,333,407 1,481,949 1,535,921 1,707,028
Pennsylvania 314,873,291 1,558,973 1,758,264 1,982,739
Texas 15,765,152 26,732 31,780 41,158
</TABLE>
Each Investment Advisory Agreement with BMR continues in effect from year
to year so long as such continuance is approved at least annually (i) by the
vote of a majority of the noninterested Trustees of the Portfolio cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Portfolio or by vote of a
majority of the outstanding voting securities of the Portfolio. Each Agreement
may be terminated at any time without penalty on sixty (60) days' written
notice by the Board of Trustees of either party, or by vote of the majority of
the outstanding voting securities of the Portfolio, and the Agreement will
terminate automatically in the event of its assignment. Each Agreement
provides that BMR may render services to others. Each Agreement also provides
that BMR shall not be liable for any loss incurred in connection with the
performance of its duties, or action taken or omitted under that Agreement, in
the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
ADMINISTRATIVE SERVICES. As indicated in the prospectus, Eaton Vance serves
as administrator of each Fund, but currently receives no compensation for
providing administrative services to the Fund. Under its Administrative
Services Agreement with the Trust, Eaton Vance has been engaged to administer
the Funds' affairs, subject to the supervision of the Trustees of the Trust,
and shall furnish for the use of the Funds' office space and all necessary
office facilities, equipment and personnel for administering the affairs of
the Funds.
INFORMATION ABOUT BMR AND EATON VANCE. BMR and Eaton Vance are business
trusts organized under Massachusetts law. Eaton Vance, Inc. ("EV") serves as
trustee of BMR and Eaton Vance. BMR, Eaton Vance and EV are wholly-owned
subsidiaries of Eaton Vance Corporation ("EVC"), a Maryland corporation and
publicly-held holding company. EVC through its subsidiaries and affiliates
engages primarily in investment management, administration and marketing
activities. The Directors of EVC are 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. Hawkes and Rowland,
Alan R. Dynner, Thomas E. Faust, Jr., Thomas J. Fetter, Duncan W. Richardson,
William M. Steul, and Wharton P. Whitaker (all of whom are officers of Eaton
Vance). 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.
EXPENSES. Each Fund and Portfolio is responsible for all expenses not
expressly stated to be payable by another party (such as the investment
adviser under the Investment Advisory Agreement, Eaton Vance under the
Administrative Services Agreement or the principal underwriter under the
Distribution Agreement). In the case of expenses incurred by the Trust, each
Fund is responsible for its pro rata share of those expenses. The only
expenses of a Fund allocated to a particular class are those incurred under
the Distribution or Service Plan applicable to that class and the fee paid to
the principal underwriter for handling repurchase transactions.
OTHER SERVICE PROVIDERS
PRINCIPAL UNDERWRITER. Eaton Vance Distributors, Inc. ("EVD"), The Eaton Vance
Building, 255 State Street, Boston, MA 02109, is the Funds' principal
underwriter. The principal underwriter acts as principal in selling shares
under a Distribution Agreement with the Trust. The expenses of printing copies
of prospectuses used to offer shares and other selling literature and of
advertising are borne by the principal underwriter. The fees and expenses of
qualifying and registering and maintaining qualifications and registrations of
a Fund and its shares under federal and state securities laws are borne by
that Fund. The Distribution Agreement as it applies to Class A shares is
renewable annually by the Board of Trustees of the Trust (including a majority
of the noninterested Trustees) may be terminated on six months' notice by
either party and is automatically terminated upon assignment. The Distribution
Agreement as it applies to Class B shares is renewable annually by the Trust's
Board of Trustees (including a majority of the noninterested Trustees who have
no direct or indirect financial interest in the operation of the Distribution
Plan or the Distribution Agreement), may be terminated on sixty days' notice
either by such Trustees or by vote of a majority of the outstanding Class B
shares or on six months' notice by the principal underwriter and is
automatically terminated upon assignment. The principal underwriter
distributes shares on a "best efforts" basis under which it is required to
take and pay for only such shares as may be sold. The principal underwriter
allows investment dealers discounts from the applicable public offering price
which are alike for all investment dealers. See "Sales Charges". EVD is a
wholly-owned subsidiary of EVC. Mr. Hawkes is a Vice President and Director
and Messrs. Dynner and O'Connor are Vice Presidents of EVD.
CUSTODIAN. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street,
Boston, MA 02116, serves as custodian to the Funds and Portfolios. IBT has the
custody of all cash and securities representing a Fund's interest in a
Portfolio, has custody of each Portfolio's assets, maintains the general
ledger of each Portfolio and each Fund and computes the daily net asset value
of interests in each Portfolio and the net asset value of shares of the Fund.
In such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolios' investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Trust and the Portfolios. IBT
also provides services in connection with the preparation of shareholder
reports and the electronic filing of such reports with the SEC. EVC and its
affiliates and their officers and employees from time to time have
transactions with various banks, including IBT. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between
the Fund or the Portfolio and such banks.
INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 200 Berkeley Street, Boston,
Massachusetts 02116, are the independent accountants of the Funds and the
Portfolios, providing audit services, tax return preparation, and assistance
and consultation with respect to the preparation of filings with the SEC.
TRANSFER AGENT. First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123, serves as transfer and dividend disbursing agent
for the Funds.
PURCHASING AND REDEEMING SHARES
CALCULATION OF NET ASSET VALUE. The net asset value of each Portfolio is
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as
the market for municipal obligations is a dealer market with no central
trading location or continuous quotation system, it is not feasible to obtain
last transation prices for most municipal obligations held by the Portfolio,
and such obligations, including those purchased on a when-issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing service uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most
recent settlement prices, unless such price does not reflect the fair value of
the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by or at the direction of the
Trustees of the Portfolio. The Funds and the Portfolios will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in a Portfolio, including a Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the
prior Portfolio Business Day, which represented that investor's share of the
aggregate interests in the Portfolio on such prior day. Any additions or
withdrawals for the current Portfolio Business Day will then be recorded. Each
investor's percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio for the current Portfolio Business Day.
ADDITIONAL INFORMATION ABOUT PURCHASES. Fund shares are continuously offered
through investment dealers which have entered agreements with the principal
underwriter. The public offering price is the net asset value next computed
after receipt of the order, plus, in the case of Class A shares, a variable
percentage (sales charge) depending upon the amount of purchase as indicated
by the sales charge table set forth in the prospectus. The sales charge is
divided between the principal underwriter and the investment dealer. The
sales charge table is applicable to purchases of a Fund alone or in
combination with purchases of certain other funds offered by the principal
underwriter, made at a single time by (i) an individual, or an individual, his
spouse and their children under the age of twenty-one, purchasing shares for
his or their own account, and (ii) a trustee or other fiduciary purchasing
shares for a single trust estate or a single fiduciary account. The table is
also presently applicable to (1) purchases of Class A shares pursuant to a
written Statement of Intention; or (2) purchases of Class A shares pursuant to
the Right of Accumulation and declared as such at the time of purchase. See
"Sales Charges".
SUSPENSION OF SALES. The Trust may, in its absolute discretion, suspend,
discontinue or limit the offering of one or more of its classes of shares at
any time. In determining whether any such action should be taken, the Trust's
management intends to consider all relevant factors, including (without
limitation) the size of a Fund or class, the investment climate and market
conditions, the volume of sales and redemptions of shares, and in the case of
Class B shares, the amount of uncovered distribution charges of the principal
underwriter. The Class B Distribution Plan may continue in effect and payments
may be made under the Plans following any such suspension, discontinuance or
limitation of the offering of shares; however, there is no contractual
obligation to continue any Plan for any particular period of time. Suspension
of the offering of shares would not, of course, affect a shareholder's ability
to redeem shares.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as administrator, in exchange
for Fund shares. The minimum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold on the day of
their receipt or as soon thereafter as possible. The number of Fund shares to
be issued in exchange for securities will be the aggregate proceeds from the
sale of such securities, divided by the applicable public offering price of
Class A shares or net asset value of Class B shares on the day such proceeds
are received. Eaton Vance will use reasonable efforts to obtain the then
current market price for such securities but does not guarantee the best
available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of securities. Securities determined to be acceptable
should be transferred via book entry or physically delivered, in proper form
for transfer, through an investment dealer, together with a completed and
signed Letter of Transmittal in approved form (available from investment
dealers). Investors who are contemplating an exchange of securities for
shares, or their representatives, must contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, state and local tax
consequences of exchanging securities.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. The right to redeem shares of a
Fund can be suspended and the payment of the redemption price deferred when
the Exchange is closed (other than for customary weekend and holiday
closings), during periods when trading on the Exchange is restricted as
determined by the SEC, or during any emergency as determined by the SEC which
makes it impracticable for a Portfolio to dispose of its securities or value
its assets, or during any other period permitted by order of the SEC for the
protection of investors.
While normally payments will be made in cash for redeemed shares, the
Trust, subject to compliance with applicable regulations, has reserved the
right to pay the redemption price of shares of a Fund, either totally or
partially, by a distribution in kind of readily marketable securities
withdrawn from its corresponding Portfolio. The securities so distributed
would be valued pursuant to the Portfolio's valuation procedures. If a
shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash.
Due to the high cost of maintaining small accounts, the Trust reserves the
right to redeem accounts with balances of less than $750. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. However, no such redemption would be required by the
Trust if the cause of the low account balance was a reduction in the net asset
value of shares. No CDSC will be imposed with respect to such involuntary
redemptions.
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, 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. 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 officers and employees of IBT and the transfer agent; to persons
associated with law firms, accounting firms and consulting firms providing
services to Eaton Vance and the Eaton Vance funds; and to such persons'
spouses, parents, siblings and children and their beneficial accounts. Such
shares may also be issued at net asset value (1) in connection with the merger
of an investment company (or series or class thereof) with a Fund (or class
thereof), (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. Class A shares may also be sold at
net asset value to registered representatives and employees of investment
dealers and bank employees who refer customers to registered representatives
of investment dealers. 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 in effect a Service Plan (the
"Class A Plan") for each Fund's Class A shares that is designed to meet the
service fee requirements of the sales charge rule of the National Association
of Securities Dealers, Inc. (the "NASD"). (Management believes service fee
payments are not distribution expenses governed by Rule 12b-1 under the 1940
Act, but has chosen to have the Plan approved as if that Rule were
applicable.) The Class A Plan provides that each Class A may make service fee
payments for personal services and/or the maintenance of shareholder accounts
to the principal underwriter, investment dealers and other persons in amounts
not exceeding .25% of its average daily net assets for any fiscal year. The
Trustees of the Trust have initially implemented the Class A Plan by
authorizing Class A to make quarterly service fee payments to the principal
underwriter and investment dealers in amounts equal to .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. 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 also has in effect 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 Class B Plan is designed to permit an investor to purchase shares
through an investment dealer without incurring an initial sales charge and at
the same time permit the principal underwriter to compensate investment
dealers in connection therewith. The Class B Plan provides that each Fund will
pay sales commissions and distribution fees to the principal underwriter only
after and as a result of the sale of Class B shares of the Fund. On each sale
of Fund shares (excluding reinvestment of distributions) each Fund will pay
the principal underwriter amounts representing (i) sales commissions equal to
5% of the amount received by the Fund for each Class B share sold and (ii)
distribution fees calculated by applying the rate of 1% over the prime rate
then reported in The Wall Street Journal to the outstanding balance of
uncovered distribution charges (as described below) of the principal
underwriter. To pay these amounts, each Class B pays the principal underwriter
a fee, accrued daily and paid monthly, at an annual rate not exceeding .75% of
its average daily net assets to finance the distribution of its shares. Such
fees compensate the principal underwriter for sales commissions paid by it to
investment dealers on the sale of Class B shares and for interest expenses.
The principal underwriter uses its own funds to pay sales commissions (except
on exchange transactions and reinvestments) to investment dealers at the time
of sale equal to 4% of the purchase price of the Class B shares sold by such
dealers. CDSCs paid to the principal underwriter will be used to reduce
amounts owed to it. The Class B Plan provides that the Fund will make no
payments to the principal underwriter in respect of any day on which there are
no outstanding uncovered distribution charges of the principal underwriter.
CDSCs and accrued amounts will be paid by the Trust to the principal
underwriter whenever there exist uncovered distribution charges. Because
payments to the principal underwriter under the Class B Plan are limited,
uncovered distribution charges (sales commissions paid by the principal
underwriter plus interest, less the above fees and CDSCs received by it) may
exist indefinitely. For the sales commissions and CDSCs paid on (and uncovered
distribution charges of) Class B shares, see Appendix B.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions
and distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the principal underwriter is entitled
to be paid under the Plan since its inception. Payments theretofore paid or
payable under the Class B 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 Class B Plan.
The Class B Plan also authorizes each Class B to make payments of service
fees to the principal underwriter, investment dealers and other persons in
amounts not exceeding .25% of its average daily net assets for personal
services, and/or the maintenance of shareholder accounts. The Trustees of the
Trust have initially implemented this provision of the Class B Plan by
authorizing each Class B to make quarterly service fee payments to the
principal underwriter and investment dealers in amounts equal to .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. This fee is paid quarterly in arrears
based on the value of Class B shares sold by such persons. For the service
fees paid by Class B shares, see Appendix B.
Currently, payments of sales commissions and distribution fees and of
service fees may equal 1% of a Class's average daily net assets per annum. The
Trust believes that the combined rate of all these payments may be higher than
the rate of payments made under distribution plans adopted by other investment
companies pursuant to Rule 12b-1. Although the principal underwriter will use
its own funds (which may be borrowed from banks) to pay sales commissions at
the time of sale, it is anticipated that the Eaton Vance organization will
profit by reason of the operation of the Class B 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 Class B
Plan if at any point in time the aggregate amounts theretofore received by the
principal underwriter pursuant to the Class B 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 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. Each
Fund may also publish total return figures for each Class based on reduced
sales charges or at net asset value. These returns would be lower if the full
sales charge was imposed. 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'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 ratings, 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 Inc.,
Wiesenberger, Morningstar, Inc., The Bond Buyer, the Federal Reserve Board or
The Wall Street Journal). The Trust may also refer in investor publications to
Tax Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to
help illustrate the value of tax free investing, as well as other tax-related
information. Information, charts and illustrations showing the effects of
inflation and taxes (including their effects on the dollar and the return on
various investments) and compounding earnings may also be included in
advertisements and materials furnished to present and prospective investors.
Information about portfolio allocation and holdings of a Portfolio at a
particular date (including ratings assigned by independent ratings services
such as Moody's, S&P and Fitch) may be included in advertisements and other
material furnished to present and prospective shareholders. Such information
may be stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield of a Fund and about average rates
of return on certificates of deposit, bank money market deposit accounts,
money market mutual funds and other short-term investments may also be
included in advertisements, supplemental sales literature or communications of
the Fund. Such information may also compare the tax equivalent yield (or
value) of the Fund to the after-tax yield (or value) of such other investment
vehicles. Such information may be in the form of hypothetical illustrations. A
bank certificate of deposit, unlike mutual fund shares, pays a fixed rate of
interest and entitles the depositor to receive the face amount of the
certificate of deposit at maturity. A bank money market deposit account is a
form of savings account which pays a variable rate of interest. Unlike the
Fund's shares, bank certificates of deposit and bank money market deposit
accounts are insured by the Federal Deposit Insurance Corporation. A money
market mutual fund is designed to maintain a constant value of $1.00 per share
and, thus, a money market fund's shares are subject to less price fluctuation
than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and in materials provided to present
and prospective shareholders may include descriptions of Eaton Vance and other
Fund and Portfolio service providers, their investment styles, other
investment products, personnel and Fund distribution channels.
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 net income (including tax-exempt income) and net
short-term and long-term capital gains (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, 1999. 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, 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.
Tax-exempt distributions received from a Fund are taken into account in
determining, and may increase, the portion of social security and certain
railroad retirement benefits that may be subject to federal income tax.
Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of a Fund is not deductible to the extent it is
deemed related to the Fund's distributions of tax-exempt interest. Further,
entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development or
private activity bonds should consult their tax advisers before purchasing
shares of a Fund. "Substantial user" is defined in applicable Treasury
regulations to include a "non-exempt person" who regularly uses in trade or
business a part of a facility financed from the proceeds of industrial
development bonds, and the same definition should apply in the case of private
activity bonds.
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 of any
distributions treated as 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 distributions treated as long-term
capital gain with respect to such shares. In addition, all or a portion of a
loss realized on a redemption or other disposition of Fund shares may be
disallowed under "wash sale" rules to the extent the shareholder acquired
other shares of the same Fund (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. Any
disallowed loss will result in an adjustment to the shareholder's tax basis in
some or all of the other shares acquired.
Sales charges paid upon a purchase of Class A shares of a Fund cannot be
taken into account for purposes of determining gain or loss on a redemption or
exchange of the shares before the 91st day after their purchase to the extent
a sales charge is reduced or eliminated in a subsequent acquisition of shares
of the Fund (or of another fund) pursuant to the reinvestment or exchange
privilege. Any disregarded amounts will result in an adjustment to the
shareholder's tax basis in some or all of any other shares acquired.
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.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on a Fund's distributions from its ordinary income (not including tax-
exempt interest) and the excess of its net short-term capital gain over its
net long-term capital loss, unless the tax is reduced or eliminated by an
applicable tax convention. Distributions from the excess of a Fund's net long-
term capital gain over its net short-term capital loss received by such
shareholders and any gain from the sale or other disposition of shares of the
Fund generally will not be subject to U.S. federal income taxation, provided
that non-resident alien status has been certified by the shareholder.
Different U.S. tax consequences may arise if: (i) the shareholder is engaged
in a trade or business in the United States; (ii) the shareholder is present
in the United States for a sufficient period of time during a taxable year to
be treated as a U.S. resident; or (iii) the shareholder fails to provide, or
renew after expiration, any required certifications regarding its status as a
non-resident alien investor. Foreign shareholders should consult their tax
advisers regarding the U.S. and foreign tax consequences of an investment in a
Fund.
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 SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other
accounts managed by it. BMR places the portfolio security transactions of each
Portfolio and of all other accounts managed by it for execution with many
firms. BMR uses its best efforts to obtain execution of portfolio security
transactions at prices which are advantageous to each Portfolio and at
reasonably competitive spreads or (when a disclosed commission is being
charged) at reasonably competitive commission rates. In seeking such
execution, BMR will use its best judgment in evaluating the terms of a
transaction, and will give consideration to various relevant factors,
including without limitation the full range and quality of the executing
firm's services, the value of the brokerage and research services provided,
the responsiveness of the firm to BMR, the size and type of the transaction,
the nature and character of the market for the security, the confidentiality,
speed and certainty of effective execution required for the transaction, the
general execution and operational capabilities of the executing firm, the
reputation, reliability, experience and financial condition of the firm, the
value and quality of the services rendered by the firm in this and other
transactions, and the reasonableness of the spread or commission, if any.
Municipal obligations, including state obligations, purchased and sold by the
Portfolios are generally traded in the over-the-counter market on a net basis
(i.e., without commission) through broker-dealers and banks acting for their
own account rather than as brokers, or otherwise involve transactions directly
with the issuer of such obligations. Such firms attempt to profit from such
transactions by buying at the bid price and selling at the higher asked price
of the market for such obligations, and the difference between the bid and
asked price is customarily referred to as the spread. The Portfolios may also
purchase municipal obligations from underwriters, and dealers in fixed-price
offerings, the cost of which may include undisclosed fees and concessions to
the underwriters. On occasion it may be necessary or appropriate to purchase
or sell a security through a broker on an agency basis, in which case the
Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolios and BMR's other
clients for providing brokerage and research services to BMR.
The following table shows brokerage commission paid by each Portfolio
during the three fiscal years ended July 31, 1999:
<TABLE>
<CAPTION>
PORTFOLIO 7/31/99 7/31/98 7/31/97
- --------- ------- ------- -------
<S> <C> <C> <C>
Arizona ................................................ $ 1,268 $ -0- $ 7,927
Colorado ............................................... 3,927 5,307 2,870
Connecticut ............................................ 15,637 15,890 6,551
Michigan ............................................... 7,489 -0- 18,638
Minnesota .............................................. -0- 3,856 3,715
New Jersey ............................................. 6,451 12,088 17,765
Pennsylvania ........................................... 21,445 31,468 48,478
Texas .................................................. -0- 312 1,277
</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, 1999 were as follows: Arizona -- $26,398,507;
Colorado -- $67,847,670; Connecticut -- $253,338,401; Michigan -- $154,527,057;
Minnesota -- $0; New Jersey -- $131,592,372; Pennsylvania -- $442,496,742; and
Texas -- $0.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of a Portfolio
may receive a commission which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
BMR determines in good faith that such compensation was reasonable in relation
to the value of the brokerage and research services provided. This
determination may be made either on the basis of that particular transaction
or on the basis of overall responsibilities which BMR and its affiliates have
for accounts over which they exercise investment discretion. In making any
such determination, BMR will not attempt to place a specific dollar value on
the brokerage and research services provided or to determine what portion of
the commission should be related to such services. Brokerage and research
services may include advice as to the value of securities, the advisability of
investing in, purchasing, or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing analyses and
reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts; effecting
securities transactions and performing functions incidental thereto (such as
clearance and settlement); and the "Research Services" referred to in the next
paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, analytical, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealer firms which execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, BMR receives Research Services
from many broker-dealer firms with which BMR places the Portfolios'
transactions and from third parties with which these broker-dealers have
arrangements. These Research Services include such matters as general
economic, political, business and market information, industry and company
reviews, evaluations of securities and portfolio strategies and transactions,
proxy voting data and analysis services, technical analysis of various aspects
of the securities markets, recommendations as to the purchase and sale of
securities and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation equipment
and services, and research oriented computer hardware, software, data bases
and services. Any particular Research Service obtained through a broker-dealer
may be used by BMR in connection with client accounts other than those
accounts which pay commissions to such broker-dealer. Any such Research
Service may be broadly useful and of value to BMR in rendering investment
advisory services to all or a significant portion of its clients, or may be
relevant and useful for the management of only one client's account or of a
few clients' accounts, or may be useful for the management of merely a segment
of certain clients' accounts, regardless of whether any such account or
accounts paid commissions to the broker-dealer through which such Research
Service was obtained. The advisory fee paid by each Portfolio is not reduced
because BMR receives such Research Services. BMR evaluates the nature and
quality of the various Research Services obtained through broker-dealer firms
and attempts to allocate sufficient portfolio security transactions to such
firms to ensure the continued receipt of Research Services which BMR believes
are useful or of value to it in rendering investment advisory services to its
clients.
The Portfolios and BMR may also receive Research Services from
underwriters and dealers in fixed-price offerings, which Research Services are
reviewed and evaluated by BMR in connection with its investment
responsibilities. The investment companies sponsored by BMR or Eaton Vance may
allocate trades in such offerings to acquire information relating to the
performance, fees and expenses of such companies and other mutual funds, which
information is used by the Trustees of such companies to fulfill their
responsibility to oversee the quality of the services provided by various
entities, including BMR, to such companies. Such companies may also pay cash
for such information.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Funds or of other investment companies sponsored by BMR or Eaton
Vance. This policy is not inconsistent with a rule of the NASD, which rule
provides that no firm which is a member of the NASD shall favor or disfavor
the distribution of shares of any particular investment company or group of
investment companies on the basis of brokerage commissions received or
expected by such firm from any source.
Municipal obligations considered as investments for the Portfolios may
also be appropriate for other investment accounts managed by BMR or its
affiliates. Whenever decisions are made to buy or sell securities by a
Portfolio and one or more of such other accounts simultaneously, BMR will
allocate the security transactions (including "hot" issues) in a manner which
it believes to be equitable under the circumstances. As a result of such
allocations, there may be instances where a Portfolio will not participate in
a transaction that is allocated among other accounts. If an aggregated order
cannot be filled completely, allocations will generally be made on a pro rata
basis. An order may not be allocated on a pro rata basis where, for example:
(i) consideration is given to portfolio managers who have been instrumental in
developing or negotiating a particular investment; (ii) consideration is given
to an account with specialized investment policies that coincide with the
particulars of a specific investment; (iii) pro rata allocation would result
in odd-lot or de minimis amounts being allocated to a portfolio or other
client; or (iv) where BMR reasonably determines that departure from a pro rata
allocation is advisable. While these aggregation and allocation policies could
have a detrimental effect on the price or amount of the securities available
to the Portfolio from time to time, it is the opinion of the Trustees of the
Trust and the Portfolios that the benefits from the BMR organization outweigh
any disadvantage that may arise from exposure to simultaneous transactions.
FINANCIAL STATEMENTS
The audited financial statements of and the independent auditors' reports
for the Funds and the Portfolios, appear in the Funds' most recent annual
report to shareholders and are incorporated by reference into this SAI. A copy
of the Funds' annual report accompanies this SAI. Consistent with applicable
law, duplicate mailings of shareholder reports and certain other Fund
information to shareholders residing at the same address may be eliminated.
Registrant incorporates by reference the audited financial information for
the Funds and the Portfolios listed below for the fiscal year ended July 31,
1999, as previously filed electronically with the SEC:
<TABLE>
<S> <C>
Eaton Vance Arizona Municipals Fund Arizona Municipals Portfolio
Eaton Vance Colorado Municipals Fund Colorado Municipals Portfolio
Eaton Vance Connecticut Municipals Fund Connecticut Municipals Portfolio
Eaton Vance Michigan Municipals Fund Michigan Municipals Portfolio
Eaton Vance Minnesota Municipals Fund Minnesota Municipals Portfolio
Eaton Vance New Jersey Municipals Fund New Jersey Municipals Portfolio
Eaton Vance Pennsylvania Municipals Fund Pennsylvania Municipals Portfolio
Eaton Vance Texas Municipals Fund Texas Municipals Portfolio
(Accession No. 0001047469-99-038413)
</TABLE>
<PAGE>
APPENDIX A
CLASS A FEES, PERFORMANCE AND OWNERSHIP
SERVICE FEES
For the fiscal year ended July 31, 1999, the following table shows (1)
service fees paid under the Service Plan, and (2) service fees 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 .............................................................. $ 4,995 $ 4,686
Colorado ............................................................. 3,046 3,042
Connecticut .......................................................... 7,937 7,423
Michigan ............................................................. 1,749 1,749
Minnesota ............................................................ 5,847 5,830
New Jersey ........................................................... 14,077 14,066
Pennsylvania ......................................................... 9,873 9,873
Texas ................................................................ 718 718
</TABLE>
PRINCIPAL UNDERWRITER
For the fiscal year ended July 31, 1999, the following sales charges were
paid in connection with sales of Class A shares:
<TABLE>
<CAPTION>
SALES CHARGES TO SALES CHARGES TO
CLASS A TOTAL SALES CHARGES INVESTMENT DEALERS PRINCIPAL UNDERWRITER
- ------- ------------------- ------------------ ---------------------
<S> <C> <C> <C>
Arizona .................................. $108,102 $102,079 $ 6,023
Colorado ................................. 17,626 16,632 994
Connecticut .............................. 105,535 99,576 5,959
Michigan ................................. 10,257 9,654 603
Minnesota ................................ 56,152 53,062 3,090
New Jersey ............................... 273,119 258,738 14,381
Pennsylvania ............................. 90,622 85,195 5,427
Texas .................................... 5,399 5,096 303
</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, 1999, Class A
paid the principal underwriter for repurchase transactions handled by it $2.50
for each such transaction which aggregated as follows: Arizona -- $42.50;
Colorado -- $42.50; Connecticut -- $80; Michigan -- $45; Minnesota -- $37.50;
New Jersey -- $215; Pennsylvania -- $280; and Texas -- $25.
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 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 7/25/91 $952.33 $1,620.76 70.21% 6.86% 62.08% 6.21%
5 Years Ended 7/31/99** 7/31/94 $952.33 $1,286.06 35.04% 6.19% 28.61% 5.16%
1 Year Ended 7/31/99 7/31/98 $952.38 $ 966.49 1.48% 1.48% -3.35% -3.35%
- ------------
*Predecessor Fund commenced operations December 13, 1993.
</TABLE>
<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 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 8/25/92 $952.17 $1,428.79 50.05% 6.03% 42.88% 5.28%
5 Years Ended 7/31/99** 7/31/94 $952.28 $1,288.34 35.28% 6.23% 28.83% 5.20%
1 Year Ended 7/31/99 7/31/98 $952.16 $964.31 1.27% 1.27% -3.57% -3.57%
</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 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 5/1/92 $952.14 $1,468.93 54.19% 6.15% 46.89% 5.45%
5 Years Ended 7/31/99** 7/31/94 $952.83 $1,290.37 35.43% 6.25% 29.04% 5.23%
1 Year Ended 7/31/99 7/31/98 $952.85 $ 977.63 2.60% 2.60% -2.24% -2.24%
- ------------
*Predecessor Fund commenced operations April 19, 1994.
</TABLE>
<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 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/19/91 $952.89 $1,549.77 62.64% 6.05% 54.98% 5.43%
5 Years Ended 7/31/99** 7/31/94 $952.48 $1,250.84 31.32% 5.60% 25.08% 4.58%
1 Year Ended 7/31/99 7/31/98 $952.47 $ 960.18 0.81% 0.81% -3.98% -3.98%
- ------------
*Predecessor Fund commenced operations December 7, 1993.
</TABLE>
<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 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 7/29/91 $952.56 $1,506.76 58.18% 5.89% 50.68% 5.25%
5 Years Ended 7/31/99** 7/31/94 $952.24 $1,246.67 30.92% 5.54% 24.67% 4.51%
1 Year Ended 7/31/99 7/31/98 $952.47 $ 965.18 1.34% 1.34% -3.48% -3.48%
- ------------
*Predecessor Fund commenced operations December 9, 1993.
</TABLE>
<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 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 1/8/91 $952.43 $1,680.56 76.46% 6.86% 68.06% 6.25%
5 Years Ended 7/31/99** 7/31/94 $952.10 $1,294.08 35.92% 6.33% 29.41% 5.29%
1 Year Ended 7/31/99 7/31/98 $952.34 $ 965.55 1.39% 1.39% -3.44% -3.44%
- ------------
*Predecessor Fund commenced operations April 13, 1994.
</TABLE>
<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 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 1/8/91 $952.88 $1,632.92 71.36% 6.49% 63.29% 5.90%
5 Years Ended 7/31/99** 7/31/94 $952.61 $1,257.23 31.98% 5.71% 25.72% 4.68%
1 Year Ended 7/31/99 7/31/98 $952.38 $ 965.97 1.42% 1.42% -3.40% -3.40%
- ------------
*Predecessor Fund commenced operations June 1, 1994.
</TABLE>
<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 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 3/24/92 $952.46 $1,490.94 56.53% 6.29% 49.09% 5.58%
5 Years Ended 7/31/99** 7/31/94 $952.53 $1,282.47 34.64% 6.13% 28.25% 5.10%
1 Year Ended 7/31/99 7/31/98 $952.79 $ 969.23 1.72% 1.72% -3.08% -3.08%
- ------------
*Predecessor Fund commenced operations December 8, 1993.
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 1, 1999, 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 either (i) individually or (ii) 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 - Olde Discount Detroit, MI 31.4%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 9.4%
FTC & Co. Denver, CO 5.0%
COLORADO FUND - Olde Discount Detroit, MI 7.2%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 6.7%
CONNECTICUT FUND - BISYS Brokerage Services Inc. Concord, CA 19.4%
MICHIGAN FUND - Donaldson Lufkin Jenrette Jersey City, NJ 11.2%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 10.4%
Old Discount Detroit, MI 9.5%
National Investor Services New York, NY 6.8%
NEW JERSEY FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 7.5%
NFSC Summit, NJ 7.0%
Olde Discount Detroit, MI 5.8%
US Clearing Corp. New York, NY 5.7%
PENNSYLVANIA FUND - Donaldson Lufkin Jenrette Jersey City, NJ 10.0%
Ruane & Co. Ithaca, NY 9.5%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 5.1%
TEXAS FUND - Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 35.9%
</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 6.7%
U/A/DTD 4-12-88 FBO
Betty E. Howard
Michael J. Waldman & Sandra C. Waldman Scottsdale, AZ 5.9%
JTWROS
COLORADO FUND - Maxine M. Millen Lakewood, CO 5.3%
CONNECTICUT FUND - First County Bank Stamford, CT 5.2%
Peter Garman & Judith Garman JTWROS Manchester, CT 5.0%
MICHIGAN FUND - Patricia A. Doyle & Mary Dianne Sanders & Michael J. Grosse Pointe Shores, MI 7.8%
Doyle TTEE John H. Doyle Rev Trust U/A dtd
2/2/79
Patricia A. Doyle Grosse Pointe Shores, MI 5.6%
Edward C. Brennan & Barbara A. Brennan JT TEN Milford, MI 5.1%
MINNESOTA FUND - Dorothy M. Allen Aitkin, MN 14.2%
Elayne J. Aiple Living Trust Stillwater, MN 6.6%
Elayne Aiple, TTEE U/A DTD 11/12/1998
PENNSYLVANIA FUND - Josephine J. Kuhn Pittsburgh, PA 9.4%
Peter Depaul Irrevocable Fmly Trust Blue Bell, PA 6.3%
TEXAS FUND - Dr. H. David Medley & Rosemary Medley Dallas, TX 18.5%
Elizabeth K. Browning TTEE New York, NY 20.2%
Margaret Aigeltinger TTEE U/W Tyler, TX 10.8%
Howard O. Aigeltinger FBO
Margaret Aigeltinger TR#2
Margaretha R. Lafferty Houston, TX 7.0%
</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
For the fiscal year ended July 31, 1999, the following table shows (1)
sales commissions paid by the principal underwriter to investment dealers on
sales of Class B shares, (2) distribution fees to the principal underwriter
under the Distribution Plan, (3) CDSC payments to the principal underwriter,
(4) uncovered distribution charges under the Plan (dollar amount and as a
percentage of net assets attributable to Class B), (5) service fees paid under
the Distribution Plan, and (6) the service fees paid to investment dealers.
The service fees paid by the Funds that were not paid to investment dealers
were retained by the principal underwriter. Distribution payments and CDSC
payments reduce uncovered distribution charges under the Plan.
<TABLE>
<CAPTION>
UNCOVERED
DISTRIBUTION
DISTRIBUTION CDSCS CHARGES SERVICE
FEES PAID TO PAID TO (AS A % OF FEES TO
SALES THE PRINCIPAL THE PRINCIPAL CLASS NET SERVICE INVESTMENT
CLASS B COMMISSIONS UNDERWRITER UNDERWRITER ASSETS) FEES DEALERS
- ------- ----------- ------------- ------------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Arizona ..... $259,115 $ 718,447 $ 90,000 $2,412,000 (2.7%) $175,767 $173,508
Colorado .... 130,811 283,125 42,000 1,330,000 (3.7%) 66,439 66,143
Connecticut.. 382,742 1,181,348 149,000 3,960,000 (2.7%) 293,100 290,297
Michigan .... 155,469 901,213 146,000 2,244,000 (2.1%) 226,361 224,381
Minnesota ... 165,404 459,775 87,000 1,520,000 (2.7%) 112,349 114,454
New Jersey .. 927,242 2,351,311 279,000 6,289,000 (2.2%) 560,972 556,577
Pennsylvania. 571,323 2,502,923 284,000 7,100,000 (2.3%) 618,658 615,604
Texas ....... 24,086 122,830 24,000 327,000 (2.1%) 30,738 30,734
</TABLE>
PRINCIPAL UNDERWRITER
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, 1999,
Class B paid the principal underwriter for repurchase transactions handled by
it $2.50 for each such transaction which aggregated as follows: Arizona --
$1,200; Colorado -- $475; Connecticut -- $1,425; Michigan -- $1,722.50;
Minnesota -- $855; New Jersey -- $4,052.50; Pennsylvania -- $4,942.50; and
Texas -- $215.
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 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. Return would have
been lower without subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- ARIZONA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE DEDUCTING TOTAL RETURN AFTER DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM ------------------------------ ----------------------------
PERIOD* DATE CDSC ON 7/31/99 CDSC ON 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- --------------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 7/25/91 $1,678.59 $1,678.59 67.86% 6.67% 67.86% 6.67%
5 Years
Ended
7/31/99** 7/31/94 $1,322.29 $1,302.29 32.23% 5.75% 30.23% 5.42%
1 Year
Ended
7/31/99 7/31/98 $1,007.45 $ 959.17 0.74% 0.74% -4.08% -4.08%
- ------------
* Investment operations began on July 25, 1991.
</TABLE>
<TABLE>
VALUE OF A $1,000 INVESTMENT -- COLORADO
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE DEDUCTING TOTAL RETURN AFTER DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM ------------------------------- ----------------------------
PERIOD* DATE CDSC ON 7/31/99 CDSC ON 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- --------------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 8/25/92 $1,462.23 $1,462.23 46.22% 5.64% 46.22% 5.64%
5 Years
Ended
7/31/99** 7/31/94 $1,317.00 $1,297.00 31.70% 5.66% 29.70% 5.34%
1 Year
Ended
7/31/99 7/31/98 $1,005.44 $ 957.34 0.54% 0.54% -4.27% -4.27%
- ------------
* Investment operations began on August 25, 1992.
</TABLE>
<TABLE>
VALUE OF A $1,000 INVESTMENT -- CONNECTICUT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE DEDUCTING TOTAL RETURN AFTER DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM ------------------------------- ----------------------------
PERIOD* DATE CDSC ON 7/31/99 CDSC ON 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- --------------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 5/1/92 $1,476.21 $1,476.21 47.62% 5.52% 47.62% 5.52%
5 Years
Ended
7/31/99** 7/31/94 $1,297.22 $1,277.22 29.72% 5.34% 27.72% 5.02%
1 Year
Ended
7/31/99 7/31/98 $1,018.35 $ 969.48 1.84% 1.84% -3.05% -3.05%
- ------------
* Investment operations began on May 1, 1992.
</TABLE>
<TABLE>
VALUE OF A $1,000 INVESTMENT -- MICHIGAN
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE DEDUCTING TOTAL RETURN AFTER DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM ------------------------------- ----------------------------
PERIOD* DATE CDSC ON 7/31/99 CDSC ON 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- --------------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 4/19/91 $1,610.41 $1,610.41 61.04% 5.92% 61.04% 5.92%
5 Years
Ended
7/31/99** 7/31/94 $1,290.27 $1,270.27 29.03% 5.23% 27.03% 4.90%
1 Year
Ended
7/31/99 7/31/98 $1,001.11 $ 953.07 0.11% 0.11% -4.69% -4.69%
- ------------
* Investment operations began on April 19, 1991.
</TABLE>
<TABLE>
VALUE OF A $1,000 INVESTMENT -- MINNESOTA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE DEDUCTING TOTAL RETURN AFTER DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM ------------------------------- ----------------------------
PERIOD* DATE CDSC ON 7/31/99 CDSC ON 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- --------------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 7/29/91 $1,521.82 $1,521.82 52.18% 5.38% 52.18% 5.38%
5 Years
Ended
7/31/99** 7/31/94 $1,274.98 $1,254.98 27.50% 4.98% 25.50% 4.65%
1 Year
Ended
7/31/99 7/31/98 $1,006.49 $ 958.25 0.65% 0.65% -4.18% -4.18%
- ----------
* Investment operations began on July 29, 1991.
</TABLE>
<TABLE>
VALUE OF A $1,000 INVESTMENT -- NEW JERSEY
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE DEDUCTING TOTAL RETURN AFTER DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM ------------------------------- ----------------------------
PERIOD* DATE CDSC ON 7/31/99 CDSC ON 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- --------------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 1/8/91 $1,675.33 $1,675.33 67.53% 6.21% 67.53% 6.21%
5 Years
Ended
7/31/99** 7/31/94 $1,293.79 $1,273.79 29.38% 5.29% 27.38% 4.96%
1 Year
Ended
7/31/99 7/31/98 $1,005.94 $ 957.80 0.59% 0.59% -4.22% -4.22%
- ----------
* Investment operations began on January 8, 1991.
</TABLE>
<TABLE>
VALUE OF A $1,000 INVESTMENT -- PENNSYLVANIA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE DEDUCTING TOTAL RETURN AFTER DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM ------------------------------- ----------------------------
PERIOD* DATE CDSC ON 7/31/99 CDSC ON 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- --------------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 1/8/91 $1,637.10 $1,637.10 63.71% 5.93% 63.71% 5.93%
5 Years
Ended
7/31/99** 7/31/94 $1,271.61 $1,251.67 27.16% 4.92% 25.17% 4.59%
1 Year
Ended
7/31/99 7/31/98 $1,006.37 $ 958.33 0.64% 0.64% -4.17% -4.17%
- ------------
* Investment operations began on January 8, 1991.
</TABLE>
<TABLE>
VALUE OF A $1,000 INVESTMENT -- TEXAS
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE DEDUCTING TOTAL RETURN AFTER DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM ------------------------------- ----------------------------
PERIOD* DATE CDSC ON 7/31/99 CDSC ON 7/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- --------------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 3/24/92 $1,557.47 $1,557.47 55.75% 6.21% 55.75% 6.21%
5 Years
Ended
7/31/99** 7/31/94 $1,331.92 $1,311.92 33.19% 5.90% 31.19% 5.58%
1 Year
Ended
7/31/99 7/31/98 $1,010.08 $ 961.75 1.01% 1.01% -3.82% -3.82%
- ------------
* Investment operations began on March 24, 1992.
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at November 1, 1999, the Trustees and officers of the Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of each
Class B and of each Fund. As of November 1, 1999, 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 -- 10.4%; Colorado -- 9.9%;
Connecticut -- 17.8%; Michigan -- 16.6%; Minnesota -- 6.4%; New Jersey --
8.9%; Pennsylvania -- 13.8%; and Texas -- 37.3%. To the knowledge of the
Trust, no other person owned of record or beneficially 5% or more of any
Fund's outstanding Class B shares as of such date.
<PAGE>
APPENDIX C: STATE SPECIFIC INFORMATION
RISKS OF CONCENTRATION
The following information as to certain state specific considerations is
given to investors in view of a Portfolio's policy of concentrating its
investments in particular state issuers. Such information supplements the
information in the prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of issuers of each particular state. Neither the Trust
nor the Portfolios have independently verified this information.
The bond ratings provided in the prospectus are current as of the date of
the prospectus and are based on economic conditions which may not continue;
moreover, there can be no assurance that particular bond issues may not be
adversely affected by changes in economic, political or other conditions.
Unless stated otherwise, the ratings indicated are for obligations of the
state. A state's political subdivisions may have different ratings which are
unrelated to the ratings assigned to state obligations.
ARIZONA
Under its Constitution, the state is not permitted to issue general
obligation bonds secured by the state's full faith and credit. However,
agencies and instrumentalities of the state are authorized under specified
circumstances to issue bonds secured by revenues. The state enters into
certain lease transactions that are subject to annual renewal at its option.
Local governmental units in the state are also authorized to incur
indebtedness. The major source of financing for such local government
indebtedness is an ad valorem property tax. In addition, to finance public
projects, local governments may issue revenue bonds to be paid from the
revenues of an enterprise or the proceeds of an excise tax, from assessment
bonds payable from special proceeds of an excise tax, or from assessment bonds
payable by special assessments. Arizona local governments have also financed
public projects through leases that are subject to annual appropriation at the
option of the local government.
There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions without voter approval.
It is possible that if such a proposal were enacted, there would be an adverse
impact on state or local government financing. It is not possible to predict
whether any such proposals will be enacted in the future or what would be
their possible impact on state or local government financing.
The Arizona diversified economic base is not dependent on a single
industry. Principal economic sectors include services, manufacturing, mining,
tourism, and the military. The state is required by law to maintain a balanced
budget. To achieve this objective, it has in the past utilized a combination
of spending reductions and tax increases. In recent years, the state's fiscal
situation has gradually improved, and tax reduction measures have been enacted
each year since 1992. Overall, General Fund revenues are expected to grow
modestly.
State policy makers have been successful in recent years in depositing
monies into various accounts that have been established for a "rainy day."
These monies are reserved for a true budget emergency precipitated by an
economic downturn. By the end of fiscal year 2001, the rainy day fund is
expected to reach $425 million, or 7.08% of the General Fund revenues.
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 effect on the Portfolio. The state is required to have a balanced
budget each fiscal year.
There are approximately 2,000 units of local government in Colorado,
including counties, statutory cities and towns, home-rule cities and counties,
school districts and a variety of water, sewer and other special districts,
all with various constitutional and statutory authority to levy taxes and
incur indebtedness. The major sources of revenue for payment of local
government indebtedness are the ad valorem property tax, which presently is
imposed and collected solely at the local level, sales and use taxes, and
revenue from special projects.
A 1992 amendment to the state Constitution (the "TABOR Amendment")
restricts growth of state and local government spending to the rate of
inflation plus growth (as measured by population, school enrollment, or
construction depending on the government entity); and requires voter approval
of (a) all new taxes or tax increases and (b) the issuance of most types of
debt. For fiscal year 1999, "excess" revenues of approximately $680 million is
expected to be returned to the residents of the state pursuant to the TABOR
Amendment.
CONNECTICUT
Connecticut's General Fund has recorded operating surplus for each fiscal
year since the year ended June 30, 1991. For the fiscal year ended June 30,
1998, the state's General Fund ran an operating surplus, based on the state's
budgetary method of accounting, of approximately $312,900,000. 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, 1998, the state had authorized direct general
obligation bond indebtedness totaling $12,398,200,000, of which
$11,057,311,000 had been approved for issuance by the State Bond Commission
and $9,814,857,000 had been issued. As of December 1, 1998, state direct
general obligation indebtedness outstanding was $6,837,131,000.
In 1995, the state established the University of Connecticut as a separate
corporate entity to issue bonds and construct certain infrastructure
improvements. The University is authorized to issue bonds secured by a state
debt service commitment totaling $962,000,000 to finance the improvements.
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 $12.6 billion, to be met from federal, state, and local funds. The state
expects to finance most of its $5.1 billion share of such cost by issuing $4.6
billion of special tax obligation ("STO") bonds. The STO bonds are payable
solely from specified motor fuel taxes, motor vehicle receipts, and license,
permit and fee revenues pledged therefor and credited to the Special
Transportation Fund, which was established to budget and account for such
revenues.
The state's Department of Information Technology is reviewing the state's
Year 2000 exposure and developing plans for modification or replacement of
existing software that it believes will prevent significant operations
problems. There is a risk that the plan will not be completed on time, that
planned testing will not reveal all problems, or that systems of others on
when the state relies will not be timely remediated. If necessary remediation
is not completed in a timely fashion, the Year 2000 problem may have a
material impact on the operations of the state.
The state, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of
the following cases might have a significant impact on the state's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury who have been placed in certain state hospitals and
other persons with acquired brain injury who are in the custody of the
Department of Mental Health and Addiction Services; claiming that their
constitutional rights are violated by placement in state hospitals alleged not
to provide adequate treatment and training, and seeking placement in community
residential settings with appropriate support services; (iii) litigation
involving claims by Indian tribes to a portion of the state's land area; (iv)
an action by certain students and municipalities claiming that the state's
formula for financing public education violates the state's Constitution and
seeking a declaratory judgment and injunctive relief; and (v) an action on
behalf of black and Hispanic school children in the City of Hartford seeking
"integrated education" in the greater Hartford metropolitan area.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. Certain Connecticut municipalities have experienced severe
fiscal difficulties and have reported operating and accumulated deficits in
recent years. Regional economic difficulties, reductions in revenues, and
increased expenses could lead to further fiscal problems for the state and its
political subdivisions, authorities, and agencies. This could result in
declines in the value of their outstanding obligations, reductions in their
ability to pay interest and principal thereon, and increases in their future
borrowing costs.
MICHIGAN
Under the state Constitution, the raising of taxes by the Legislature is
limited if doing so would cause the ratio of Total State Revenues (except
federal aid) to Personal Income of Michigan (as such terms are defined in the
state Constitution) to exceed certain limits. The only exceptions to this
revenue limit are a majority approval of a referendum question or a specific
emergency declared by a two-thirds vote of the Legislature. However, this
limit does not apply to taxes imposed for the payment of principal and
interest on bonds of the state, if the bonds are approved by voters and
authorized by a vote of two-thirds of the members of each House of the
Legislature and certain school district loans. Local units of government and
local authorities are authorized to issue bonds and other evidences of
indebtedness in a variety of situations without the approval of electors, but
the ability of the obligor to levy taxes for the payment of such obligations
is subject to the foregoing limitations unless the obligations were authorized
before December 23, 1978 or approved by the electors. The Constitution
prohibits the state from reducing the proportion of total state spending paid
to all local units of government, taken as a group, below that proportion in
effect in the 1978-79 fiscal year. The state may not mandate new or increased
levels of services to be provided by local units without making appropriations
to cover any increased costs.
Under the state Constitution, the total amount of general ad valorem taxes
imposed on taxable property in any year cannot exceed certain millage
limitations specified by the Constitution, statute or charter. The
Constitution prohibits local units of government from levying any tax not
authorized by law or charter, or from increasing the rate of an existing tax
above the rate authorized by law or charter. The Constitution also contains
millage reduction provisions. Under such provisions, should the value of
taxable property (exclusive of new construction and improvements) increase at
a percentage greater than the percentage increase in the Consumer Price Index
("CPI"), the maximum authorized tax rate would be reduced by a factor which
would result in the same maximum potential tax revenues to the local taxing
unit as if the valuation of taxable property (less new construction and
improvements) had grown only at the CPI rate instead of at the higher actual
growth rate. The Constitution and state law also, generally, restrict the
increase in the taxable value of real property, subject to ad valorem property
taxes, adjusted for additions and losses, to a percentage which reflects the
percentage increase in the general price level from the previous year unless
ownership of the property is transferred.
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
New Jersey ended Fiscal Year 1998 with a balance of $1.6 billion in its
General State Funds and is projected to end Fiscal 1999 with a balance of $1.9
billion. The state's economic indicators for the two year period, 1997 through
1998, showed employment growth of 2.1%; personal income growth of 5.5%;
construction job growth of 4.6%; sales of existing homes rising by 14%; and an
unemployment rate dropping to 4.9%.
On February 18, 1999, New Jersey issued $360 million of its tax-exempt
general obligation bonds. Projects supported by general obligation bonds are
of economic, social and environmental importance, including the construction
of correctional and human service facilities, transportation projects, higher
education improvements and environmental abatement projects. On December 30,
1998, the New Jersey Sports and Exposition Authority issued $100 million of
its State Contract Bonds, a portion of which was used to refund its
outstanding State Contract Bonds. On December 16, 1998, the New Jersey
Transportation Trust Fund Authority issued $700 million State Transportation
System Bonds.
In June 1997, the New Jersey Economic Development Authority issued $2.75
billion of State Pension Funding Bonds. Proceeds of this issue were used to
fully fund the state's unfunded accrued pension liability and will result in a
reduction of the General Fund costs for fiscal years 1997 and 1998 of $590
million.
Other state-related obligations include those created pursuant to the New
Jersey Building Authority Act, which has the power to construct facilities for
leasing to the state. On September 1, 1997, the New Jersey Building Authority
issued $224 million in refunding and new state revenue bonds. The funds were
applied for various projects including restoration of the State House Complex,
construction of South Woods State Prison, and several renovations of municipal
buildings.
The authorizing legislation for various state entities provides for
specific budgetary procedures with respect to certain obligations issued by
such entities. Bonds issued pursuant to authorizing legislation of this type
are sometimes referred to as "moral obligation" bonds. There is no statutory
limitation on the amount of moral obligation bonds which may be issued by
eligible state entities. Currently, there are two such entities available for
state appropriations to meet moral obligations. The New Jersey Housing and
Mortgage Finance Agency has not had a deficiency in a debt service reserve
which required New Jersey to appropriate funds. It is anticipated that the
agency's revenue will continue to be sufficient to cover debt service on its
bonds. The state provides the South Jersey Port Corporation with funds to
cover all debt service and property tax requirements when earned revenues are
anticipated to be insufficient to cover these obligations. In the past,
anticipated revenues have, in some cases, been insufficient to cover debt
service and/or all property tax requirements. There are numerous other state-
created entities with outstanding debt. This debt is supported by revenues
derived from or assets of the various projects financed by such entities.
The Local Budget Law imposes specific budgetary procedures upon counties
and municipalities, subject to review by the Director of the Division of Local
Government Services. State law also regulates the issuance of debt by counties
and municipalities by limiting the amount of tax anticipation notes that may
be issued and requiring their repayment within 120 days of the end of the
fiscal year in which they are issued. The Local Bond Law governs the issuance
of bonds and notes and bars the issuance of bonds for the payment of current
expenses or to pay outstanding obligations, except where permitted by the
Local Finance Board. State law also authorizes state officials to supervise
fiscal administration in any municipality facing financial difficulties.
PENNSYLVANIA
The General Fund, the state's largest fund, receives all tax receipts,
revenues, federal grants and reimbursements that are not specified by law to
be deposited elsewhere. Debt service on all obligations, except those issued
for highway purposes or for the benefit of other special revenue funds, is
payable from the General Fund. The General Fund closed fiscal year 1998 with a
balance of $1,958.9 million. For 1999, the Commonwealth expects an improvement
in the state's financial position.
Certain state-created agencies have statutory authorization to incur debt
for which no legislation providing for state appropriations to pay debt
service thereon is required. The debt of these agencies is supported by assets
of or revenues derived from the various projects financed; it is not an
obligation of the state. Some of these agencies, however, are indirectly
dependent on state appropriations. State-related agencies and their
outstanding debt as of June 30, 1998 include the Delaware River Joint Toll
Bridge Commission ($51.4 million), the Delaware River Port Authority ($504.1
million), the Pennsylvania Economic Development Financing Authority ($1,106.4
million), the Pennsylvania Energy Development Authority ($43.1 million), the
Pennsylvania Higher Education Assistance Agency ($1,633.8 million), the
Pennsylvania Higher Education Facilities Authority ($3,057.6 million), the
Pennsylvania Industrial Development Authority ($394.5 million), the
Pennsylvania Infrastructure Investment Authority ($196.4 million), the
Pennsylvania Turnpike Commission ($1,127.9 million), the Philadelphia Regional
Port Authority ($59.5 milliion) and the state Public School Building Authority
($343.4 million).
The only obligations of state-created agencies in Pennsylvania which bear
a moral obligation of the state are those issued by the Pennsylvania Housing
Finance Agency, a state-created agency which provides housing for lower and
moderate income families in the state, which had $2,716.4 million in bonds
outstanding at June 30, 1998, and the Hospitals and Higher Education
Facilities Authority of Philadelphia which issued $21.1 million in bonds in
1993.
Pennsylvania is currently involved in certain litigation where adverse
decisions could have an adverse impact on its ability to pay debt service. For
instance, in Baby Neal v. Commonwealth, the American Civil Liberties Union
filed a lawsuit against the Commonwealth seeking an order that would require
the Commonwealth to provide additional funding for child welfare services.
County of Allegheny v. Commonwealth of Pennsylvania involves litigation
regarding the state constitutionality of the statutory scheme for county
funding of the judicial system.
TEXAS
The state has no personal or corporate income tax, although the state does
impose a corporate franchise tax based on the amount of a corporation's
capital and surplus. The state is expected to end the fiscal year ended August
31, 1998 with a $426 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
tourism, construction and the high technology areas have compensated for that
loss. Puerto Rico's economy has expanded in the 1990's in step with the U.S.
economy.
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.
Also in 1996, a new Section 30A was added to the Code. Section 30A permits
a "qualifying domestic corporation" that meets certain gross income tests to
claim a credit against the federal income tax imposed on taxable income
derived from sources outside the United States from the active conduct of a
trade or business in Puerto Rico or from the sale of substantially all the
assets used in such a business. Section 30A will be phased out by January 1,
2006. The Governor of Puerto Rico has proposed that Congress permanently
extend Section 30A until the Puerto Rican economy achieves certain economic
improvements. Similarly, President Clinton proposed permanent extension of the
Section 30A in both his 1998 and 1999 budgets. To date, however, no action has
been taken.
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. The government of Puerto Rico has enacted
its own tax incentive programs for both industrial and tourist activities.
Puerto Ricans have periodically considered conversion to statehood and
such a vote is likely again in the future. The statehood proposal was defeated
in December, 1998.
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. The last major hurricane to impact the
USVI was Hurricane Marilyn on September 15, 1995. 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. territory of Guam derives a substantial portion of its economic
base from Japanese tourism. With a reduced U.S. military presence on the
island, Guam has relied more heavily on tourism in the past few years. During
its 1997 fiscal year, the government was able to make noticeable progress on
its traditional budgetary problems operating with a balanced budget for that
fiscal year. However, during 1998, the Japanese recession combined with the
impact of typhoon Paka resulted in a budget deficit of $21 million. With
hotels alone accounting for 8.5% of Guam's employment and Japanese tourists
comprising 86% of total visitor arrivals, the Japanese recession and
depreciation of the yen versus the dollar earlier this year have had a
negative impact on the island's economy. Based on these factors, S&P
downgraded Guam's rating to BBB- from BBB with a negative outlook on May 26,
1999. There does seem to be some recent improvement in the Japanese economy.
However, Guam has not realized any economic benefit as visitor arrivals are
0.8% below 1998 levels for the second quarter ended June 30, 1999, driving
General Fund revenues down 3.1%.
<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 1999.
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 $126,600. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $126,600 and joint
filers with adjusted gross income in excess of $189,950. 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>
A FEDERAL AND ARIZONA STATE
COMBINE TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- AZ 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 $ 25,750 Up to $ 43,050 18.18% 4.89% 5.50% 6.11% 6.73% 7.33% 7.94% 8.56%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 31.40 5.83 6.56 7.29 8.02 8.75 9.47 10.20
$ 62,451 - $130,250 $104,051 - $158,550 34.26 6.08 6.84 7.61 8.37 9.13 9.89 10.65
$130,251 - $283,150 $158,551 - $283,150 39.23 6.58 7.40 8.23 9.05 9.87 10.70 11.52
Over $283,150 Over $283,150 42.64 6.97 7.85 8.72 9.59 10.46 11.33 12.20
</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
A FEDERAL AND COLORADO STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- --------------------- CO 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 $ 25,750 Up to $ 43,050 19.04% 4.94% 5.56% 6.18% 6.79% 7.41% 8.03% 8.65%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 31.42 5.83 6.56 7.29 8.02 8.75 9.48 10.21
$ 62,451 - $130,250 $104,051 - $158,550 34.28 6.09 6.85 7.61 8.37 9.13 9.89 10.65
$130,251 - $283,150 $158,551 - $283,150 39.04 6.56 7.38 8.20 9.02 9.84 10.66 11.48
Over $283,150 Over $283,150 42.47 6.95 7.82 8.69 9.56 10.43 11.30 12.17
</TABLE>
*Net amount subject to federal and Colorado personal income tax after
deductions and exemptions.
+The Colorado income tax rate is 4.75%. 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
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN 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 $ 25,750 Up to $ 43,050 18.83% 4.93% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18
$ 62,451 - $130,250 $104,051 - $158,550 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62
$130,251 - $283,150 $158,551 - $283,150 38.88 6.54 7.36 8.18 9.00 9.82 10.63 11.45
Over $283,150 Over $283,150 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.
<PAGE>
<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 $ 25,750 Up to $ 43,050 19.59% 4.97% 5.60% 6.22% 6.84% 7.46% 8.08% 8.71%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 31.89 5.87 6.61 7.34 8.07 8.81 9.54 10.28
$ 62,451 - $130,250 $104,051 - $158,550 34.73 6.13 6.89 7.66 8.43 9.19 9.96 10.72
$130,251 - $283,150 $158,551 - $283,150 39.46 6.61 7.43 8.26 9.08 9.91 10.74 11.56
Over $283,150 Over $283,150 42.86 7.00 7.88 8.75 9.63 10.50 11.38 12.25
</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 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
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ --------------------- 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 $ 25,750 Up to $ 43,050 21.16% 5.07% 5.71% 6.34% 6.98% 7.61% 8.24% 8.88%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 33.76 6.04 6.79 7.55 8.30 9.06 9.81 10.57
$ 62,451 - $130,250 $104,051 - $158,550 36.52 6.30 7.09 7.88 8.66 9.45 10.24 11.03
$130,251 - $283,150 $158,551 - $283,150 41.12 6.79 7.64 8.49 9.34 10.19 11.04 11.89
Over $283,150 Over $283,150 44.43 7.20 8.10 9.00 9.90 10.80 11.70 12.60
</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 $ 25,750 Up to $ 43,050 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78% 8.38%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 31.98% 5.88 6.62 7.35 8.09 8.82 9.56 10.29
$ 62,451 - $130,250 $104,051 - $158,550 35.40% 6.19 6.97 7.74 8.51 9.29 10.06 10.84
$130,251 - $283,150 $158,551 - $283,150 40.08% 6.68 7.51 8.34 9.18 10.01 10.85 11.68
Over $283,150 Over $283,150 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.
PENNSYLVANIA
<TABLE>
<CAPTION>
TAXABLE YIELD NEEDED TO MATCH 6% FREE OF
---------------------------------------------
FEDERAL,
STATE,
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> <C> <C> <C>
Up to $ 25,750 Up to $ 43,050 15.00% 2.80% 7.26% 7.80% 8.24%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 28.00 2.80 8.57 9.20 9.72
$ 62,451 - $130,250 $104,051 - $158,550 31.00 2.80 8.95 9.60 10.15
$130,251 - $283,150 $158,551 - $283,150 36.00 2.80 9.65 10.36 10.94
Over $283,150 Over $283,150 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.
TEXAS
<TABLE>
<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 $ 25,750 Up to $ 43,050 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 62,451 - $130,250 $104,051 - $158,550 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$130,251 - $283,150 $158,551 - $283,150 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $283,150 Over $283,150 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. 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.
(3) Amendment to Master Custodian Agreement with Investors Bank & Trust
Company dated December 21, 1998 filed as Exhibit (g)(3) to
Post-Effective Amendment No. 78 and incorporated herein by
reference.
C-1
<PAGE>
(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.
(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)(1) Opinion of Internal Counsel filed as Exhibit (i) to Post-Effective
Amendment No. 73 and incorporated herein by reference.
(2) Consent of Counsel filed herewith.
(j) Consent of Independent Auditors for Eaton Vance Arizona Municipals
Fund, Eaton Vance Colorado Municipals Fund, Eaton Vance Connecticut
Municipals Fund, Eaton Vance Michigan Municipals Fund, Eaton Vance
Minnesota Municipals Fund, Eaton Vance New Jersey Municipals Fund,
Eaton Vance Pennsylvania Municipals Fund, and Eaton Vance Texas
Municipals Fund filed herewith.
(k) Not applicable
(l) Not applicable
(m)(1) Eaton Vance Municipals Trust Class A Service Plan adopted June 23,
1997 with attached Schedule A effective June 23, 1997 filed as
Exhibit (15)(g) to Post-Effective Amendment No. 67 and incorporated
herein by reference.
(2) Eaton Vance Municipals Trust Class B Distribution Plan adopted June
23, 1997 with attached Schedule A effective June 23, 1997 filed as
Exhibit (15)(b) to Post-Effective Amendment No. 69 and incorporated
herein by reference.
(3) Eaton Vance Municipals Trust Class C Distribution Plan adopted June
23, 1997 with attached Schedule A effective June 23, 1997 filed as
Exhibit (15)(c) to Post-Effective Amendment No. 69 and incorporated
herein by reference.
(n) 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 Eaton Vance Municipals Trust dated November
16, 1998 filed as Exhibit (p)(2) to Post-Effective Amendment No. 75
and incorporated herein by reference.
C-2
<PAGE>
(3) Power of Attorney for Alabama Municipals Portfolio, Arizona
Municipals Portfolio, Arkansas Municipals Portfolio, California
Municipals Portfolio, Colorado Municipals Portfolio, Connecticut
Municipals Portfolio, Florida Municipals Portfolio, Georgia
Municipals Portfolio, Kentucky Municipals Portfolio, Louisiana
Municipals Portfolio, Maryland Municipals Portfolio, Massachusetts
Municipals Portfolio, Michigan Municipals Portfolio, Minnesota
Municipals Portfolio, Mississippi Municipals Portfolio, Missouri
Municipals Portfolio, National Municipals Portfolio, New Jersey
Municipals Portfolio, New York Municipals Portfolio, North Carolina
Municipals Portfolio, Ohio Municipals Portfolio, Oregon Municipals
Portfolio, Pennsylvania Municipals Portfolio, Rhode Island
Municipals Portfolio, South Carolina Municipals Portfolio, Tennessee
Municipals Portfolio, Texas Municipals Portfolio, Virginia
Municipals Portfolio and West Virginia Municipals Portfolio dated
April 22, 1997 filed as Exhibit (17)(b) to Post-Effective Amendment
No. 65 and incorporated herein by reference.
(4) Power of Attorney for Alabama Municipals Portfolio, Arizona
Municipals Portfolio, Arkansas Municipals Portfolio, California
Municipals Portfolio, Colorado Municipals Portfolio, Connecticut
Municipals Portfolio, Florida Municipals Portfolio, Georgia
Municipals Portfolio, Kentucky Municipals Portfolio, Louisiana
Municipals Portfolio, Maryland Municipals Portfolio, Massachusetts
Municipals Portfolio, Michigan Municipals Portfolio, Minnesota
Municipals Portfolio, Mississippi Municipals Portfolio, Missouri
Municipals Portfolio, National Municipals Portfolio, New Jersey
Municipals Portfolio, New York Municipals Portfolio, North Carolina
Municipals Portfolio, Ohio Municipals Portfolio, Oregon Municipals
Portfolio, Pennsylvania Municipals Portfolio, Rhode Island
Municipals Portfolio, South Carolina Municipals Portfolio, Tennessee
Municipals Portfolio, Texas Municipals Portfolio, Virginia
Municipals Portfolio and West Virginia Municipals Portfolio dated
November 16, 1998 filed as Exhibit (p)(4) to Post-Effective
Amendment No. 75 and incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not applicable
ITEM 25. INDEMNIFICATION
Article IV of the Registrant's Amended and Restated Declaration of Trust
permits Trustee and officer indemnification by By-law, contract and vote.
Article XI of the By-Laws contains indemnification provisions. Registrant's
Trustees and officers are insured under a standard mutual fund errors and
omissions insurance policy covering loss incurred by reason of negligent errors
and omissions committed in their capacities as such.
The distribution agreements of the Registrant also provide for reciprocal
indemnity of the principal underwriter, on the one hand, and the Trustees and
officers, on the other.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT Adviser
Reference is made to: (i) the information set forth under the caption
"Management and Organization" in the Statement of Additional Information; (ii)
the Eaton Vance Corp. 10-K filed under the Securities Exchange Act of 1934 (File
No. 1-8100); and (iii) the Form ADV of Eaton Vance 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.
C-3
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the investment companies named below:
<TABLE>
<CAPTION>
<S> <C>
Eaton Vance Advisers Senior Floating-Rate Fund Eaton Vance Municipals Trust II
Eaton Vance Growth Trust Eaton Vance Mutual Funds Trust
Eaton Vance Income Fund of Boston Eaton Vance Prime Rate Reserves
Eaton Vance Institutional Senior Floating-Rate Fund Eaton Vance Special Investment Trust
Eaton Vance Investment Trust EV Classic Senior Floating-Rate Fund
Eaton Vance Municipals Trust
</TABLE>
(b)
<TABLE>
<CAPTION>
<S> <C> <C>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
-----------------
Albert F. Barbaro Vice President None
Chris Berg Vice President None
Kate B. Bradshaw Vice President None
Mark Carlson Vice President None
Daniel C. Cataldo Vice President None
Raymond Cox Vice President None
Peter Crowley Vice President None
Anthony DeVille Vice President None
Ellen Duffy Vice President None
Alan R. Dynner Vice President Secretary
Richard A. Finelli Vice President None
Kelly Flynn Vice President None
James Foley Vice President None
Michael A. Foster Vice President None
William M. Gillen Senior Vice President None
Hugh S. Gilmartin Vice President None
James B. Hawkes Vice President and Director Vice President and Trustee
Perry D. Hooker Vice President None
Brian Jacobs Senior Vice President None
Kara Lawler Vice President None
Thomas P. Luka Vice President None
John Macejka Vice President None
Stephen Marks Vice President None
Geoff Marshall Vice President None
Joseph T. McMenamin Vice President None
Morgan C. Mohrman Senior Vice President None
James A. Naughton Vice President None
Joseph Nelson Vice President None
Mark D. Nelson Vice President None
Linda D. Newkirk Vice President None
James L. O'Connor Vice President Treasurer
Andrew Ogren Vice President None
Thomas Otis Secretary and Clerk None
George D. Owen, II Vice President None
Margaret Pier Vice President None
Enrique M. Pineda Vice President None
F. Anthony Robinson Vice President None
Frances Rogell Vice President None
Jay S. Rosoff Vice President None
Benjamin A. Rowland, Jr. Vice President, Treasurer and Director None
Stephen M. Rudman Vice President None
Kevin Schrader Vice President None
Teresa A. Sheehan Vice President None
William M. Steul Vice President and Director None
Cornelius J. Sullivan Senior Vice President None
C-4
<PAGE>
Peter Sykes Vice President None
David M. Thill Vice President None
John M. Trotsky Vice President None
Jerry Vainisi Vice President None
Chris Volf Vice President None
Debra Wekstein Vice President None
Wharton P. Whitaker President and Director None
Sue Wilder Vice President None
</TABLE>
- ------------------------------------------
* Address is The Eaton Vance Building, 255 State Street, Boston, MA 02109
(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 of the administrator and
investment adviser. 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
The Registrant undertakes to include the information required by Item 5 of
Form N-1A in its annual reports to shareholders under Rule 30d-1.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, and the
Commonwealth of Massachusetts, on November 23, 1999.
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 their capacities on November 23, 1999.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ------------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ------------------------- Treasurer (Principal Financial and Accounting
James L. O'Connor Officer)
Jessica M. Bibliowicz*
- ------------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ------------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ------------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ------------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-6
<PAGE>
SIGNATURES
Arizona Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1999.
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 their capacities on November 23, 1999.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ------------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ------------------------- Treasurer (Principal Financial and Accounting
James L. O'Connor Officer)
Jessica M. Bibliowicz*
- ------------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ------------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ------------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ------------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-7
<PAGE>
SIGNATURES
Colorado Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1999.
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 their capacities on November 23, 1999.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ------------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ------------------------- Treasurer (Principal Financial and Accounting
James L. O'Connor Officer)
Jessica M. Bibliowicz*
- ------------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ------------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ------------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ------------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-8
<PAGE>
SIGNATURES
Connecticut Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1999.
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 their capacities on November 23, 1999.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ------------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ------------------------- Treasurer (Principal Financial and Accounting
James L. O'Connor Officer)
Jessica M. Bibliowicz*
- ------------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ------------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ------------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ------------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-9
<PAGE>
SIGNATURES
Michigan Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1999.
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 their capacities on November 23, 1999.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ------------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ------------------------- Treasurer (Principal Financial and Accounting
James L. O'Connor Officer)
Jessica M. Bibliowicz*
- ------------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ------------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ------------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ------------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-10
<PAGE>
SIGNATURES
Minnesota Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1999.
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 their capacities on November 23, 1999.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ------------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ------------------------- Treasurer (Principal Financial and Accounting
James L. O'Connor Officer)
Jessica M. Bibliowicz*
- ------------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ------------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ------------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ------------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-11
<PAGE>
SIGNATURES
New Jersey Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1999.
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 their capacities on November 23, 1999.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ------------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ------------------------- Treasurer (Principal Financial and Accounting
James L. O'Connor Officer)
Jessica M. Bibliowicz*
- ------------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ------------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ------------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ------------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-12
<PAGE>
SIGNATURES
Pennsylvania Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1999.
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 their capacities on November 23, 1999.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ------------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ------------------------- Treasurer (Principal Financial and Accounting
James L. O'Connor Officer)
Jessica M. Bibliowicz*
- ------------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ------------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ------------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ------------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-13
<PAGE>
SIGNATURES
Texas Municipals Portfolio has duly caused this Amendment to the
Registration Statement on Form N-1A of Eaton Vance Municipals Trust (File No.
33-572) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Boston and the Commonwealth of Massachusetts on November 23,
1999.
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 their capacities on November 23, 1999.
SIGNATURE TITLE
--------- -----
/s/ Thomas J. Fetter
- ------------------------- President (Chief Executive Officer)
Thomas J. Fetter
/s/ James L. O'Connor
- ------------------------- Treasurer (Principal Financial and Accounting
James L. O'Connor Officer)
Jessica M. Bibliowicz*
- ------------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ------------------------- Trustee
Donald R. Dwight
/s/ James B. Hawkes
- ------------------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- ------------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ------------------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ------------------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ------------------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
C-14
<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)(2) Consent of Internal Counsel
(j)
Consent of Independent Auditors for Eaton Vance Arizona
Municipals Fund, Eaton Vance Colorado Municipals Fund, Eaton
Vance Connecticut Municipals Fund, Eaton Vance Michigan
Municipals Fund, Eaton Vance Minnesota Municipals Fund, Eaton
Vance New Jersey Municipals Fund, Eaton Vance Pennsylvania
Municipals Fund, and Eaton Vance Texas Municipals Fund.
<PAGE>
EXHIBIT (i)(2)
CONSENT OF COUNSEL
I consent to the incorporation by reference in this Post-Effective
Amendment No. 80 to the Registration Statement of Eaton Vance Municipals Trust
(1933 Act File No. 33-572) of my opinion dated September 25, 1998, which was
filed as Exhibit (i) to Post-Effective Amendment No. 73.
/s/ Maureen A. Gemma
Maureen A. Gemma, Esq.
November 23, 1999
Boston, Massachusetts
<PAGE>
EXHIBIT (j)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference to the Prospectus and
Statement of Additional Information in this Post-Effective Amendment No. 80 to
the Registration Statement of Eaton Vance Municipals Trust (1933 Act File No.
33-572) of our reports each dated September 3, 1999 on the financial statements
and supplementary data or financial highlights of Eaton Vance Arizona Municipals
Fund, Eaton Vance Colorado Municipals Fund, Eaton Vance Connecticut Municipals
Fund, Eaton Vance Michigan Municipals Fund, Eaton Vance Minnesota Municipals
Fund, Eaton Vance New Jersey Municipals Fund, Eaton Vance Pennsylvania
Municipals Fund, and Eaton Vance Texas Municipals Fund (the "Funds") and the
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 included in the July 31, 1999 Annual Report to
Shareholders of the Funds.
We also consent to the reference to our Firm under the heading "Financial
Highlights" in the Prospectus and under the heading "Other Service Providers" in
the Statement of Additional Information.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
November 23, 1999
Boston, Massachusetts
