<PAGE>
EV CLASSIC LIMITED MATURITY TAX FREE FUNDS
EV CLASSIC CALIFORNIA LIMITED MATURITY TAX FREE FUND
EV CLASSIC CONNECTICUT LIMITED MATURITY TAX FREE FUND
EV CLASSIC FLORIDA LIMITED MATURITY TAX FREE FUND
EV CLASSIC MASSACHUSETTS LIMITED MATURITY TAX FREE FUND
EV CLASSIC MICHIGAN LIMITED MATURITY TAX FREE FUND
EV CLASSIC NEW JERSEY LIMITED MATURITY TAX FREE FUND
EV CLASSIC NEW YORK LIMITED MATURITY TAX FREE FUND
EV CLASSIC OHIO LIMITED MATURITY TAX FREE FUND
EV CLASSIC PENNSYLVANIA LIMITED MATURITY TAX FREE FUND
THE EV CLASSIC LIMITED MATURITY TAX FREE FUNDS (THE "FUNDS") ARE MUTUAL
FUNDS SEEKING TO PROVIDE (1) A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX AND THEIR RESPECTIVE STATE TAXES DESCRIBED UNDER "THE FUNDS"
INVESTMENT OBJECTIVES" IN THIS PROSPECTUS AND (2) LIMITED PRINCIPAL FLUCTUATION.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY INVESTING DIRECTLY IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A SERIES
OF EATON VANCE INVESTMENT TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future reference.
A combined Statement of Additional Information dated August 1, 1995 for the
Funds, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE
FOR PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR
YOUR BROKER FOR FURTHER INFORMATION.
--------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
PROSPECTUS DATED AUGUST 1, 1995
<PAGE>
TABLE OF CONTENTS
Shareholder and Fund Expenses ........................................... 3
The Funds' Financial Highlights ......................................... 5
The Funds' Investment Objectives ........................................ 8
How the Funds and the Portfolios Invest their Assets .................... 9
Organization of the Funds and the Portfolios ............................ 13
Management of the Funds and the Portfolios .............................. 15
Distribution Plans ...................................................... 17
Valuing Fund Shares ..................................................... 19
How to Buy Fund Shares .................................................. 20
How to Redeem Fund Shares ............................................... 21
Reports to Shareholders ................................................. 23
The Lifetime Investing Account/Distribution Options ..................... 23
The Eaton Vance Exchange Privilege ...................................... 24
Eaton Vance Shareholder Services ........................................ 25
Distributions and Taxes ................................................. 26
Performance Information ................................................. 27
Appendix -- State Specific Information .................................. 28
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES
---------------------------------------------------------------------------------------------------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charge Imposed on Redemptions During the First Year (as a
percentage of redemption proceeds exclusive of all reinvestments and capital appreciation
in the account) 1.00%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO CALIFORNIA CONNECTICUT FLORIDA MASSACHUSETTS MICHIGAN
OPERATING EXPENSES FUND FUND FUND FUND FUND
(as a percentage of average daily net assets) ---------- ----------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
Investment Adviser Fee (after any fee
reduction) 0.46% 0.00% 0.46% 0.46% 0.35%
Rule 12b-1 Distribution (and Service) Fees 0.90 0.90 0.90 0.90 0.90
Other Expenses (after expense reduction) 0.15 0.47 0.14 0.27 0.31
---- ---- ---- ---- ----
Total Operating Expenses (after reductions) 1.51% 1.37% 1.50% 1.63% 1.56%
==== ==== ==== ==== ====
EXAMPLES
An investor would pay the following expenses (including a contingent deferred sales charge in the case of redemption during the
first year after purchase) on a $1,000 investment, assuming (a) 5% annual return and (b) redemption at the end of each period:
<CAPTION>
CALIFORNIA CONNECTICUT FLORIDA MASSACHUSETTS MICHIGAN
FUND FUND FUND FUND FUND
---------- ----------- ------- ------------- --------
<S> <C> <C> <C> <C> <C>
1 Year ...................................... $ 25 $ 24 $ 25 $ 27 $ 26
3 Years ...................................... 48 43 47 51 49
5 Years ...................................... 82 75 82 89 85
10 Years ...................................... 180 165 179 193 186
<CAPTION>
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no redemptions:
<S> <C> <C> <C> <C> <C>
1 Year ...................................... $ 15 $ 14 $ 15 $ 17 $ 16
3 Years ...................................... 48 43 47 51 49
5 Years ...................................... 82 75 82 89 85
10 Years ...................................... 180 165 179 193 186
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
NEW JERSEY NEW YORK OHIO PENNSYLVANIA
FUND FUND FUND FUND
---------- -------- ---- ------------
<S> <C> <C> <C> <C>
Investment Adviser Fee (after any fee
reduction) 0.46% 0.46% 0.35% 0.46%
Rule 12b-1 Distribution (and Service) Fees 0.90 0.90 0.90 0.90
Other Expenses (after any expense reduction) 0.25 0.16 0.35 0.11
---- ---- ---- ----
Total Operating Expenses (after any
reductions) 1.61% 1.52% 1.60% 1.47%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLES
An investor would pay the following expenses (including a contingent deferred sales charge in the case of redemption during the
first year after purchase) on a $1,000 investment, assuming (a) 5% annual return and (b) redemption at the end of each period:
NEW JERSEY NEW YORK OHIO PENNSYLVANIA
FUND FUND FUND FUND
---------- -------- ---- ------------
<S> <C> <C> <C> <C>
1 Year ...................................... $ 26 $ 25 $ 25 $ 25
3 Years ...................................... 51 48 47 46
5 Years ...................................... 88 83 81 80
10 Years ...................................... 191 181 178 176
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no redemptions:
1 Year ...................................... $ 16 $ 15 $ 15 $ 15
3 Years ...................................... 51 48 47 46
5 Years ...................................... 88 83 81 80
10 Years ...................................... 191 181 178 176
</TABLE>
Notes:
The tables and Examples summarize the aggregate expenses of the Funds and
the Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund.
Information for each Fund is based on such Fund's expenses for the most recent
fiscal year. Absent a fee reduction and an expense allocation, the Investment
Adviser Fee and Other Expenses would have been 0.45% and 1.66%, respectively,
for the Connecticut Fund, 0.46% and 0.63%, respectively, for the Michigan
Fund, and 0.46% and 0.74%, respectively, for the Ohio Fund. Absent an expense
allocation, the Other Expenses would have been 0.45%, 0.35%, 0.64%, 0.80%,
0.54% and 0.48%, respectively, for the California, Florida, Massachusetts, New
Jersey, New York and Pennsylvania Fund.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe that, over time, the aggregate per share expenses of a Fund and its
corresponding Portfolio should be approximately equal to, or less than, the
per share expenses the Fund would incur if the Fund were instead to retain the
services of an investment adviser and its assets were invested directly in the
types of securities being held by its corresponding Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual
annual return will vary. For further information regarding the expenses of
both the Funds and the Portfolios see "Organization of the Funds and the
Portfolios," "Management of the Funds and the Portfolios" and "How to Redeem
Fund Shares". A long-term shareholder in the Fund may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
rules of the National Assocation of Securities Dealers, Inc.
The contingent deferred sales charge is imposed on the redemption of
shares purchased on or after January 30, 1995. No contingent deferred sales
charge is imposed on (a) shares purchased more than one year prior to
redemption, (b) shares acquired through the reinvestment of distributions or
(c) any appreciation in value of other shares in the account, and no such
charge is imposed on exchanges of Fund shares for shares of one or more other
funds listed under "The Eaton Vance Exchange Privilege." See "How to Redeem
Fund Shares."
Each Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the
fee schedule on page 16.
Other investment companies with different distribution arrangements and
fees are investing in the Portfolios and additional such companies and
investors may do so in the future. See "Organization of the Funds and the
Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's Annual Report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon the report of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of a Fund is contained in its Annual
Report to shareholders which may be obtained without charge by contacting the
Principal Underwriter, Eaton Vance Distributors, Inc.
------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------
CALIFORNIA FUND CONNECTICUT FUND
--------------------------- --------------------------
1995 1994++ 1995 1994++
---- ------ ---- --------
NET ASSET VALUE,
beginning of year .. $ 9.570 $10.000 $ 9.500 $10.000
-------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment
income ........... $ 0.348 $ 0.098 $ 0.344 $ 0.072
Net realized and
unrealized gain
(loss) on
investments ..... 0.003+++ (0.400) 0.002+++ (0.475)
-------- ------- ------- -------
Total income
(loss) from
operations ..... $ 0.351 $(0.302) $ 0.346 $(0.403)
-------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income ........... $ (0.348) $(0.098) $(0.344) $(0.072)
In excess of net
investment income.. (0.053) (0.030) (0.042) (0.025)
-------- ------- ------- -------
Total
distributions.... $ (0.401) $(0.128) $(0.386) $(0.097)
-------- ------- ------- -------
NET ASSET VALUE, end
of year ............. $ 9.520 $ 9.570 $ 9.460 $ 9.500
======== ======= ======= =======
TOTAL RETURN (1)..... 3.80% (3.16%) 3.78% (4.14%)
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of
period (000 omitted)$ 7,970 $14,479 $ 1,583 $ 2,051
Ratio of net
expenses to average
daily net assets(2).. 1.51% 1.48%+ 1.37% 1.38%+
Ratio of net
investment income to
average daily net
assets............... 3.75% 2.91%+ 3.70% 2.70%+
*For the following periods, the operating expenses of the Funds and the
Portfolios reflect a reduction of expenses by the Administrator and/or the
Investment Adviser. Had such actions not been taken, net investment income
per share and the ratios would have been as follows:
NET INVESTMENT INCOME
PER SHARE ........... $ 0.320 $ 0.081 $ 0.192 $ 0.035
======== ======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) ....... 1.81% 1.98%+ 3.01% 2.78%+
Net investment
income ........... 3.45% 2.41%+ 2.06% 1.30%+
+Computed on an annualized basis.
++For the period from the start of business, December 8, 1993, to March 31,
1994 for the California Fund; and for the period from the start of business,
December 27, 1993, to March 31, 1994 for the Connecticut Fund.
+++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 Fund shares and
the amount of per share realized and unrealized gains and losses at such
time.
(1)Total investment return is calculated assuming a purchase at the net asset
value on the first day and a sale at the net asset value on the last day of
each period reported. Dividends and distributions, if any, are assumed to be
reinvested at the net asset value on the payable date. Amount is computed on
a nonannualized basis.
(2)Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------------------
FLORIDA FUND MASSACHUSETTS FUND MICHIGAN FUND
---------------------------- ---------------------------------- ----------------------------------
1995 1994<F3> 1995 1994<F3> 1995 1994<F3>
---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year ................... $ 9.480 $ 10.000 $ 9.520 $ 10.000 $ 9.490 $ 10.000
----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS:
Net investment income .... $ 0.353 $ 0.103 $ 0.359 $ 0.107 $ 0.352 $ 0.100
Net realized and
unrealized gain (loss)
on investments ......... 0.088 (0.495) 0.092<F4> (0.451) 0.039<F4> (0.484)
----------- ----------- ----------- ----------- ----------- -----------
Total income (loss) from
operations ........... $ 0.441 $ (0.392) $ 0.451 $ (0.344) $ 0.391 $ (0.384)
----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
From net investment
income................... $ (0.353) $ (0.103) $ (0.359) $ (0.107) $ (0.352) $ (0.100)
In excess of net
investment income........ (0.048) (0.025) (0.052) (0.029) (0.049) (0.026)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions .... $ (0.401) $ (0.128) $ (0.411) $ (0.136) $ (0.401) $ (0.126)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE,
end of year............... $ 9.520 $ 9.480 $ 9.560 $ 9.520 $ 9.480 $ 9.490
=========== =========== =========== =========== =========== ===========
TOTAL RETURN <F2>........... 4.81% (4.07%) 4.90% (3.67%) 4.26% (3.99%)
RATIOS/SUPPLEMENTAL DATA<F1>:
Net assets, end of period
(000 omitted) $13,771 $22,535 $ 5,378 $ 4,967 $ 6,904 $ 8,874
Ratio of net expenses to
average daily
net assets<F6>.......... 1.50% 1.39%<F3> 1.63% 1.49%<F3> 1.56% 1.15%<F3>
Ratio of net investment
income to average daily
net assets ............. 3.81% 3.25%<F2> 3.82% 3.12%<F2> 3.80% 3.07%<F2>
<F1>For the following periods, the operating expenses of the Funds reflect an allocation of expenses to the Administrator and/or the
Investment Adviser. Had such actions not been taken, net investment income per share and the ratios would have been:
NET INVESTMENT INCOME
PER SHARE ................. $ 0.334 $ 0.095 $ 0.324 $ 0.077 $ 0.312 $ 0.061
=========== ======= =========== =========== =========== ===========
RATIOS (As a percentage of average daily
net assets):
Expenses<F6> ............ 1.71% 1.65%<F2> 2.00% 2.38%<F2> 1.99% 2.35%<F2>
Net investment income ... 3.60% 2.99%<F2> 3.45% 2.23%<F2> 3.37% 1.87%<F2>
<FN>
<F2>Computed on an annualized basis.
<F3>For the period from the start of business, December 8, 1993, to March 31, 1994 for the Florida, Michigan, New Jersey, New
York, Ohio and Pennsylvania Funds; and for the period from the start of business, December 9, 1993, to March 31, 1994 for the
Massachusetts Fund.
<F4>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 Fund shares and the amount of per share realized and unrealized gain and losses at such time.
<F5>Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Amount is computed on a nonannualized basis.
<F6>Includes the Fund's share of its corresponding Portfolio's allocated expenses.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY FUND NEW YORK FUND OHIO FUND PENNSYLVANIA FUND
--------------------------------------------------------------------------------------------------------------------------------
1995 1994<F3> 1995 1994<F3> 1995 1994<F3> 1995 1994<F3>
---- ---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning
of year .................... $ 9.570 $10.000 $ 9.500 $10.000 $ 9.500 $10.000 $ 9.520 $10.000
------- ------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS:
Net investment income .... $ 0.345 $ 0.099 $ 0.354 $ 0.100 $ 0.358 $ 0.095 $ 0.359 $ 0.103
Net realized and
unrealized gain (loss)
on investments ......... 0.071 (0.404) 0.037<F4> (0.473) 0.068 (0.473) 0.082 (0.453)
----- ------ ----- ------ ----- ------ ----- ------
Total income (loss) from
operations ........... $ 0.416 $(0.305) $ 0.391 $(0.373) $ 0.426 $(0.378) $ 0.441 $(0.350)
------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income................... $(0.345) $(0.099) $(0.354) $(0.100) $(0.358) $(0.095) $(0.359) $(0.103)
In excess of net
investment income........ (0.051) (0.026) (0.047) (0.027 (0.038) (0.027) (0.052) (0.027)
------ ------ ------ ------ ------ ------ ------ ------
Total distributions .... $(0.396) $(0.125) $(0.401) $(0.127) $(0.396) $(0.122) $(0.411) $(0.130)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE,
end of year............... $ 9.590 $ 9.570 $ 9.490 $ 9.500 $ 9.530 $ 9.500 $ 9.550 $ 9.520
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN <F2>........... 4.49% (3.20)% 4.26% (3.88)% 4.63% (3.91)% 4.79% (3.65)%
RATIOS/SUPPLEMENTAL DATA<F1>:
Net assets, end of period
(000 omitted) $ 3,306 $ 3,148 $ 6,043 $ 6,325 $ 5,090 $ 5,795 $ 9,753 $14,022
Ratio of net expenses to
average daily
net assets<F6>.......... 1.61% 1.57%<F2> 1.52% 1.61% 1.60% 1.27% 1.47% 1.38%<F2>
Ratio of net investment
income to average daily
net assets ............. 3.62% 3.08% 3.76% 3.17% 3.81% 3.04% 3.83% 3.29%<F2>
<F1>For the following periods, the operating expenses of the Funds reflect an allocation of expenses to the Administrator and/or the
Investment Adviser. Had such actions not been taken, net investment income per share and the ratios would have been:
NET INVESTMENT INCOME
PER SHARE ................. $ 0.293 $ 0.057 $ 0.318 $ 0.082 $ 0.311 $ 0.074 $ 0.324 $ 0.089
======= ======= ======= ======= ======= ======= ======= =======
RATIOS (As a percentage of average daily
net assets):
Expenses<F6> ............ 2.16% 2.88%<F2> 1.90% 2.17%<F2> 2.10% 1.95%<F2> 1.84% 1.82%<F2>
Net investment income ... 3.07% 1.77%<F2> 3.38% 2.61%<F2> 3.32% 2.36%<F2> 3.46% 2.85%<F2>
<FN>
<F2>Computed on an annualized basis.
<F3>For the period from the start of business, December 8, 1993, to March 31, 1994 for the Florida, Michigan, New Jersey, New
York, Ohio and Pennsylvania Funds; and for the period from the start of business, December 9, 1993, to March 31, 1994 for the
Massachusetts Fund.
<F4>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 Fund shares and the amount of per share realized and unrealized gain and losses at such time.
<F5>Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Amount is computed on a nonannualized basis.
<F6>Includes the Fund's share of its corresponding Portfolio's allocated expenses.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) having a dollar
weighted average duration of between three and nine years and which are rated at
least investment grade by a major rating agency or, if unrated, determined to be
of at least investment grade quality by the Investment Adviser. Each Portfolio
has the same investment objective as its corresponding Fund.
EV CLASSIC CALIFORNIA LIMITED MATURITY TAX FREE FUND (the "California Fund")
seeks to provide (1) a high level of current income exempt from regular Federal
income tax and California State personal income taxes, and (2) limited principal
fluctuation. The California Fund seeks to meet its objective by investing its
assets in the California Limited Maturity Tax Free Portfolio (the "California
Portfolio").
EV CLASSIC CONNECTICUT LIMITED MATURITY TAX FREE FUND (the "Connecticut
Fund") seeks to provide (1) a high level of current income exempt from regular
Federal income tax and Connecticut State personal income taxes, and (2) limited
principal fluctuation. The Connecticut Fund seeks to meet its objective by
investing its assets in the Connecticut Limited Maturity Tax Free Portfolio (the
"Connecticut Portfolio").
EV CLASSIC FLORIDA LIMITED MATURITY TAX FREE FUND (the "Florida Fund") seeks
to provide (1) a high level of current income exempt from regular Federal income
tax in the form of an investment exempt from Florida intangibles tax, and (2)
limited principal fluctuation. The Florida Fund seeks to meet its objective by
investing its assets in the Florida Limited Maturity Tax Free Portfolio (the
"Florida Portfolio").
EV CLASSIC MASSACHUSETTS LIMITED MATURITY TAX FREE FUND (the "Massachusetts
Fund") seeks to provide (1) a high level of current income exempt from regular
Federal income tax and Massachusetts State personal income taxes, and (2)
limited principal fluctuation. The Massachusetts Fund seeks to meet its
objective by investing its assets in the Massachusetts Limited Maturity Tax Free
Portfolio (the "Massachusetts Portfolio").
EV CLASSIC MICHIGAN LIMITED MATURITY TAX FREE FUND (the "Michigan Fund")
seeks to provide (1) a high level of current income exempt from regular Federal
income tax and Michigan State and City income and single business taxes in the
form of an investment exempt from Michigan intangibles tax, and (2) limited
principal fluctuation. The Michigan Fund seeks to meet its objective by
investing its assets in the Michigan Limited Maturity Tax Free Portfolio (the
"Michigan Portfolio").
EV CLASSIC NEW JERSEY LIMITED MATURITY TAX FREE FUND (the "New Jersey Fund")
seeks to provide (1) a high level of current income exempt from regular Federal
income tax and New Jersey State personal income taxes, and (2) limited principal
fluctuation. The New Jersey Fund seeks to meet its objective by investing its
assets in the New Jersey Limited Maturity Tax Free Portfolio (the "New Jersey
Portfolio").
EV CLASSIC NEW YORK LIMITED MATURITY TAX FREE FUND (the "New York Fund")
seeks to provide (1) a high level of current income exempt from regular Federal
income tax and New York State and New York City personal income taxes, and (2)
limited principal fluctuation. The New York Fund seeks to meet its objective by
investing its assets in the New York Limited Maturity Tax Free Portfolio (the
"New York Portfolio").
EV CLASSIC OHIO LIMITED MATURITY TAX FREE FUND (the "Ohio Fund") seeks to
provide (1) a high level of current income exempt from regular Federal income
tax and Ohio State personal income taxes, and (2) limited principal fluctuation.
The Ohio Fund seeks to meet its objective by investing its assets in the Ohio
Limited Maturity Tax Free Portfolio (the "Ohio Portfolio").
EV CLASSIC PENNSYLVANIA LIMITED MATURITY TAX FREE FUND (the "Pennsylvania
Fund") seeks to provide (1) a high level of current income exempt from regular
Federal income tax and Pennsylvania State and local taxes in the form of an
investment exempt from Pennsylvania personal property taxes, and (2) limited
principal fluctuation. The Pennsylvania Fund seeks to meet its objective by
investing its assets in the Pennsylvania Limited Maturity Tax Free Portfolio
(the "Pennsylvania Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF ITS CORRESPONDING
STATE AND ITS POLITICAL SUBDIVISIONS, AND THE GOVERNMENTS OF PUERTO RICO, THE
U.S. VIRGIN ISLANDS AND GUAM, THE INTEREST ON WHICH IS EXEMPT FROM REGULAR
FEDERAL INCOME TAX, IS NOT A TAX PREFERENCE ITEM UNDER THE FEDERAL ALTERNATIVE
MINIMUM TAX, AND IS EXEMPT FROM THE RELEVANT STATE TAXES SET FORTH ABOVE. IN THE
CASE OF THE CONNECTICUT FUND, THE FUND MAY INVEST IN DEBT OBLIGATIONS OF THE
GOVERNMENTS OF PUERTO RICO, THE U.S. VIRGIN ISLANDS AND GUAM, THE INTEREST ON
WHICH CANNOT BE TAXED BY ANY STATE UNDER FEDERAL LAW. The foregoing policy is a
fundamental policy of each Fund and its corresponding Portfolio and may not be
changed unless authorized by a vote of the Fund's shareholders or that
Portfolio's investors, as the case may be.
At least 80% of each Portfolio's net assets will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch")) or, if unrated, determined by the Investment Adviser to
be of at least investment grade quality. The balance of each Portfolio's net
assets may be invested in municipal obligations rated below investment grade
(but not lower than B by Moody's, S&P or Fitch) and unrated municipal
obligations considered to be of comparable quality by the Investment Adviser.
Municipal obligations rated Baa or BBB may have speculative characteristics.
Also, changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than in the
case of higher rated obligations. Securities rated below Baa or BBB are commonly
known as "junk bonds". A Portfolio may retain an obligation whose rating drops
below B after its acquisition if such retention is considered desirable by the
Investment Adviser. See "Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
In pursuing its investment objective, each Portfolio seeks to invest in a
portfolio having a dollar weighted average duration of between three and nine
years. Duration represents the dollar weighted average maturity of expected cash
flows (i.e., interest and principal payments) on one or more debt obligations,
discounted to their present values. The duration of an obligation is usually not
more than its stated maturity and is related to the degree of volatility in the
market value of the obligation. Maturity measures only the time until a bond or
other debt security provides its final payment; it does not take into account
the pattern of a security's payments over time. Duration takes both interest and
principal payments into account and, thus, in the Investment Adviser's opinion,
is a more accurate measure of a debt security's sensitivity to changes in
interest rates. In computing the duration of its portfolio, a Portfolio will
have to estimate the duration of debt obligations that are subject to prepayment
or redemption by the issuer, based on projected cash flows from such
obligations.
Each Portfolio may use various techniques to shorten or lengthen the dollar
weighted average duration of its portfolio, including the acquisition of debt
obligations at a premium or discount, and transactions in futures contracts and
options on futures. Subject to the requirement that its dollar weighted average
portfolio duration will not exceed nine years, a Portfolio may invest in
individual debt obligations of any maturity.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and commercial
paper issued by a municipality for a wide variety of both public and private
purposes, the interest on which is, in the opinion of bond counsel, exempt from
regular Federal income tax. Public purpose municipal bonds include general
obligation and revenue bonds. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed by the revenues of a
project or facility. Municipal notes include bond anticipation, tax
anticipation, revenue anticipation, and construction loan notes. Bond, tax and
revenue anticipation notes are short-term obligations that will be retired with
the proceeds of an anticipated bond issue, tax revenue or facility revenue,
respectively. Construction loan notes are short-term obligations that will be
retired with the proceeds of long-term mortgage financing. Under normal market
conditions, a Portfolio will invest at least 65% of its total assets in
obligations issued by its respective State or its political subdivisions.
Interest income from certain types of municipal obligations may subject the
recipient to or increase the recipient's liability for the Federal alternative
minimum tax. A Portfolio may not invest more than 20% of its net assets in these
obligations and obligations that pay interest subject to regular Federal income
tax and/or the relevant State taxes. As at March 31, 1995, the Portfolios had
invested in private activity bonds as follows (as a percentage of net assets):
California Portfolio (1.2%); Connecticut Portfolio (8.3%); Florida Portfolio
(0%); Massachusetts Portfolio (8.8%); Michigan Portfolio (5.5%); New Jersey
Portfolio (5.6%); New York Portfolio (0%); Ohio Portfolio (6.1%); and
Pennsylvania Portfolio (0%). Distributions to corporate investors of certain
interest income may also be subject to the Federal alternative minimum tax.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State. Each Portfolio is, therefore, more
susceptible to factors adversely affecting issuers in one State than mutual
funds which do not concentrate in a specific State. Municipal obligations of
issuers in a single State may be adversely effected by economic developments and
by legislation and other governmental activities in that State. To the extent
that a Portfolio's assets are concentrated in municipal obligations of issuers
of a single State, that Portfolio may be subject to an increased risk of loss.
Each Portfolio may also invest in obligations issued by the governments of
Puerto Rico, the U.S. Virgin Islands and Guam. See the Appendix to this
Prospectus for a description of economic and other factors relating to the
States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities; obligations
of State and local housing finance authorities, municipal utilities systems or
public housing authorities; obligations for hospitals or life care facilities;
or industrial development or pollution control bonds issued for electric utility
systems, steel companies, paper companies or other purposes. This may make a
Portfolio more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuer. For example, health
care-related issuers are susceptible to medicaid reimbursement policies, and
national and state health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its assets, more than 5% (but not
more than 25%) of its assets in the securities of any issuer. A Portfolio is
likely to invest a greater percentage of its assets in the securities of a
single issuer than would a diversified fund. Therefore, a Portfolio would be
more susceptible to any single adverse economic or political occurrence or
development affecting issuers of the relevant State's municipal obligations.
OTHER INVESTMENT PRACTICES. Each Portfolio may engage in the following
investment practices, some of which may be considered to involve "derivative"
instruments because they derive their value from another instrument, security or
index.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of a Fund's shares.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities 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. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. Each Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the Municipal
Bond Index traded on the Chicago Board of Trade) and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not purchase
or sell futures contracts or related options, except for closing purchase or
sale transactions, if immediately thereafter the sum of the amount of margin
deposits and premiums paid on the Portfolio's outstanding positions would exceed
5% of the market value of the Portfolio's net assets. These transactions involve
transaction costs. There can be no assurance that the Investment Adviser's use
of futures will be advantageous to a Portfolio. Distributions by a Fund of any
gains realized on its corresponding Portfolio's transactions in futures and
options on futures will be taxable.
RISK CONSIDERATIONS.
Many municipal obligations offering high current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, each Portfolio may invest in municipal obligations rated below
investment grade (but not lower than B by Moody's, S&P or Fitch) and comparable
unrated obligations. The lowest investment grade, lower rated and comparable
unrated municipal obligations in which a Portfolio may invest will have
speculative characteristics in varying degrees. While such 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.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking recovery
of its investment. Municipal obligations held by a Portfolio which are rated
below investment grade but which, subsequent to the assignment of such rating,
are backed by escrow accounts containing U.S. Government obligations may be
determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. A Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will not exceed 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 its credit
quality limitations. For a description of municipal obligation ratings, see the
Statement of Additional Information.
The net asset value of shares of a Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by its corresponding Portfolio. When interest rates decline, the
value of securities held by a Portfolio can be expected to rise. Conversely,
when interest rates rise, the value of most portfolio security holdings can be
expected to decline. Because each Portfolio intends to limit its average
portfolio duration to no more than nine years, the net asset value of its
corresponding Fund can be expected to be less sensitive to changes in interest
rates than that of a fund with a longer average portfolio duration. Changes in
the credit quality of the issuers of municipal obligations held by a Portfolio
will affect the principal value of (and possibly the income earned on) such
obligations. In addition, the values of such securities are affected by changes
in general economic conditions and business conditions affecting the specific
industries of their issuers. Changes by recognized rating services in their
ratings of a security and in the ability of the issuer to make payments of
principal and interest may also affect the value of a Portfolio's investments.
The amount of information about the financial condition of an issuer of
municipal obligations may not be as extensive as that made available by
corporations whose securities are publicly traded. An investment in shares of a
Fund will not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by the Investment Adviser and its affiliates, holds a major portion or
all of such securities. Under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the issuer, the Portfolio
could find it more difficult to sell such securities when the Investment Adviser
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of such
securities for purposes of computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15% of
its 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.
Certain securities held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem 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.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. Each Portfolio is required to accrue and distribute income from
zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, a Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
Each Portfolio may invest in 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.
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.
--------------------------------------------------------------------------------
EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF
ADDITIONAL INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED
BY A SHAREHOLDER VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR
SUCH ENUMERATED RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS
PROSPECTUS, THE INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND AND
PORTFOLIO ARE NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY BE CHANGED
BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE
APPROVAL OF A FUND'S SHAREHOLDERS OR THE INVESTORS IN THE
CORRESPONDING PORTFOLIO, AS THE CASE MAY BE. IF ANY CHANGES WERE MADE
IN A FUND'S INVESTMENT OBJECTIVE, THE FUND MIGHT HAVE INVESTMENT
OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH AN INVESTOR CONSIDERED
APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN THE FUND.
--------------------------------------------------------------------------------
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
--------------------------------------------------------------------------------
Each Fund is a non-diversified series of Eaton Vance Investment Trust, a
business trust established under Massachusetts law pursuant to a Declaration of
Trust dated October 23, 1985, as amended and restated. The Trust is a mutual
fund -- an open-end management investment company. THE TRUSTEES OF THE TRUST ARE
RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF ITS AFFAIRS. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series and because the Trust can offer separate series
(such as the Funds), it is known as a "series company." Each share represents an
equal proportionate beneficial interest in a Fund. When issued and outstanding,
each Fund's shares are fully paid and nonassessable by the Trust and redeemable
as described under "How to Redeem Fund Shares." Shareholders are entitled to one
vote for each full share held. Fractional shares may be voted proportionately.
Shares have no preemptive or conversion rights and are freely transferable. In
the event of the liquidation of a Fund, shareholders of that Fund are entitled
to share pro rata in the net assets available for distribution to shareholders.
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. The
Portfolios, as well as the Trust, intend to comply with all applicable Federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that 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 a 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 Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in a
Fund should be aware that the Fund, unlike mutual funds which directly acquire
and manage their own portfolios of securities, seeks to achieve its investment
objective by investing its assets in an interest in its corresponding Portfolio
(although the Fund may temporarily hold a de minimus amount of cash), which is a
separate investment company with an identical investment objective. Therefore, a
Fund's interest in the securities owned by its corresponding Portfolio is
indirect. In addition to selling an interest to its corresponding Fund, a
Portfolio may sell interests to other affiliated and non-affiliated mutual funds
or institutional investors. Such investors will invest in a Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the corresponding Fund
due to variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in its corresponding Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. For information regarding the investment objective, policies and
restrictions of the Portfolios, see "The Funds" Investment Objectives" and "How
the Funds and the Portfolios Invest their Assets". Further information regarding
investment practices may be found in the Statement of Additional Information.
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 substantial growth in the assets of
the Portfolios, and affords the potential for economies of scale for each Fund,
at least when the assets of its corresponding Portfolio exceed $500 million.
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. The investment
objective and the nonfundamental investment policies of each Fund and Portfolio
may be changed by the Trustees of the Trust and the Portfolio without obtaining
the approval of the shareholders of that Fund or the investors in that
Portfolio, as the case may be. Any such change of an investment objective will
be preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of a Fund, those shares may be subject to a contingent deferred sales charge, as
described in "How to Redeem Fund Shares". 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, such 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 from
its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc. (the
"Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in a Portfolio may be adversely affected by the
actions of larger investors in the Portfolio. For example, if a large investor
withdraws from a Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, a
Portfolio may become less diverse, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured funds which have large or institutional
investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Funds may be subject to additional regulations than
historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other investor
in the Portfolio, unless either the remaining investors, by unanimous vote at a
meeting of such investors, or a majority of the Trustees of the Portfolio, by
written instrument consented to by all investors, agree to continue the business
of the Portfolio. This provision is consistent with treatment of the Portfolios
as partnerships for Federal income tax purposes. See "Distributions and Taxes"
for further information. Whenever a Fund as an investor in a Portfolio is
requested to vote on matters pertaining to the Portfolio (other than the
termination of the Portfolio's business, which may be determined by the Trustees
of the Portfolio without investor approval), the Fund will hold a meeting of
Fund shareholders and will vote its interest in the Portfolio for or against
such matters proportionately to the instructions to vote for or against such
matters received from Fund shareholders. A Fund shall vote shares for which it
receives no voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, a Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Fund. Notwithstanding the above, there are other means
for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of each Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between a Fund and
its corresponding Portfolio, and it is possible that the creation of separate
Boards may be considered. For further information concerning the Trustees and
officers of the Trust and the Portfolios, see the Statement of Additional
Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
--------------------------------------------------------------------------------
EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs. Under its
investment advisory agreement with a Portfolio, BMR receives a monthly advisory
fee equal to the aggregate of
(a) a daily asset-based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
<C> <S> <C> <C>
1 up to $500 million ........................................... 0.300% 3.00%
2 $500 million but less than $1 billion ........................ 0.275% 2.75%
3 $1 billion but less than $1.5 billion ........................ 0.250% 2.50%
4 $1.5 billion but less than $2 billion ........................ 0.225% 2.25%
5 $2 billion but less than $3 billion .......................... 0.200% 2.00%
6 $3 billion and over .......................................... 0.175% 1.75%
</TABLE>
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory
fees for the fiscal year ended March 31, 1995 equivalent to the percentage of
average daily net assets stated below. BMR furnishes for the use of each
Portfolio office space and all necessary office facilities, equipment and
personnel for servicing the investments of the Portfolios.
NET ASSETS
AS OF
PORTFOLIO MARCH 31, 1995 ADVISORY FEE
--------- -------------- ------------
California ....................... $ 82,343,725 0.46%
Connecticut ...................... 17,315,618 0.45%(1)
Florida .......................... 164,578,915 0.46%
Massachusetts .................... 119,119,542 0.46%
Michigan ......................... 33,198,016 0.46%(2)
New Jersey ....................... 97,279,675 0.46%
New York ......................... 173,632,424 0.46%
Ohio ............................. 39,435,374 0.46%(3)
Pennsylvania ..................... 113,606,045 0.46%
(1)To enhance the net income of the Connecticut Portfolio, BMR made a reduction
of its advisory fee in the full amount of such fee and BMR was allocated
$8,932 of expenses related to the operation of such Portfolio.
(2) To enhance the net income of the Michigan Portfolio, BMR made a reduction of
its advisory fee in the amount of $40,822.
(3) To enhance the net income of the Ohio Portfolio, BMR made a reduction of its
advisory fee in the amount of $44,856.
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
Raymond E. Hender has acted as the portfolio manager of the California,
Florida, Massachusetts, New York and Pennsylvania Portfolios since they
commenced operations. He joined Eaton Vance and BMR as a Vice President in 1992.
Previously, he was a Senior Vice President of Bank of New England (1989- 1992)
and a Portfolio Manager of Fidelity Management & Research Company (1977-
1988).
William H. Ahern has acted as the portfolio manager of the Connecticut,
Michigan, New Jersey and Ohio Portfolios since October 1994. He has been an
Assistant Vice President of Eaton Vance since 1994 and an employee since 1989.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing the Fund's assets in its corresponding Portfolio. As Administrator,
Eaton Vance provides the Funds with general office facilities and supervises the
overall administration of the Funds. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLANS
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EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. Rule 12b-1 permits a
mutual fund, such as a Fund, to finance distribution activities and bear
expenses associated with the distribution of its shares provided that any
payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. Each Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). Each Fund's Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plans. Each Fund's Plan provides that the Fund, subject to the NASD Rule, will
pay sales commissions and distribution fees to the Principal Underwriter only
after and as a result of the sale of shares of the Fund. On each sale of Fund
shares (excluding reinvestment of distributions) a Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 6.25% of the
amount received by the Fund for each 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. On sales of shares made prior
to January 30, 1995, the Principal Underwriter currently pays monthly sales
commissions to a financial service firm (an "Authorized Firm") in amounts
anticipated to be equivalent to .75%, annualized, of the assets maintained in a
Fund by the customers of such Firm. On sales of shares made on January 30, 1995
and thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .85% of the purchase price of the
shares sold by such Firm, and (b) monthly sales commissions approximately
equivalent to 1/12 of .75% of the value of shares sold by such Firm and
remaining outstanding for at least one year. The Plan is designed to permit an
investor to purchase Fund shares through an Authorized Firm without incurring an
initial sales charge and at the same time permit the Principal Underwriter to
compensate Authorized Firms in connection with the sale of Fund shares.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Under its Plan, a Fund accrues daily an amount at the rate of 1/365 of .75% of
the Fund's net assets, and pays such accrued amounts monthly to the Principal
Underwriter. Each Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily and,
briefly, are equivalent to all unpaid sales commissions and distribution fees to
which the Principal Underwriter is entitled under a Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under a Fund's
Plan if at any point in time the aggregate amounts of all payments made to the
Principal Underwriter pursuant to a Fund's Plan, including any contingent
deferred sales charges, have exceeded the total expenses theretofore incurred by
such organization in distributing 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.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of a Fund's
operations would cause a large portion of the sales commissions attributable to
a sale of Fund shares to be accrued and paid by the Fund to the Principal
Underwriter in fiscal years subsequent to the year in which such shares were
sold. This spreading of sales commissions payments under a Fund's Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan.
During the fiscal year ended March 31, 1995, each Fund paid or accrued sales
commissions under its Plan equivalent to .75% of such Fund's average daily net
assets for such year. As of March 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under each Fund's
Plan amounted to approximately $1,286,000 (equivalent to 16.1% of net assets on
such day) in the case of the California Fund, $217,000 (equivalent to 13.7% of
net assets on such day) in the case of the Connecticut Fund, $2,826,000
(equivalent to 20.5% of net assets on such day) in the case of the Florida Fund,
$594,000 (equivalent to 11.0% of net assets on such day) in the case of the
Massachusetts Fund, $856,000 (equivalent to 12.4% of net assets on such day) in
the case of the Michigan Fund, $326,000 (equivalent to 9.8% of net assets on
such day) in the case of the New Jersey Fund, $748,000 (equivalent to 12.4% of
net assets on such day) in the case of the New York Fund, $677,000 (equivalent
to 13.3% of net assets on such day) in the case of the Ohio Fund, and $1,391,000
(equivalent to 14.3% of net assets on such day) in the case of the Pennsylvania
Fund.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Trust have initially implemented this provision of each Fund's
Plan by authorizing a Fund to make monthly service fee payments to the Principal
Underwriter in amounts not expected to exceed .15% of the Fund's average daily
net assets for each fiscal year. Each Fund accrues the service fee daily at the
rate of 1/365 of .15% of the Fund's net assets. However, each Fund's Plan
authorizes the Trustees of the Trust on behalf of the Fund to increase payments
to the Principal Underwriter, Authorized Firms and other persons from time to
time without further action by shareholders of the Fund, provided that the
aggregate amount of payments made to such persons under the Plan in any fiscal
year of the Fund does not exceed .25% of the Fund's average daily net assets. On
sales of shares made prior to January 30, 1995, the Principal Underwriter
currently makes monthly service fee payments to an Authorized Firm in amounts
anticipated to be equivalent to .15%, annualized, of the assets maintained in a
Fund by the customers of such Firm. On sales of shares made on January 30, 1995
and thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) a service fee (except on exchange transactions and
reinvestments) at the time of sale equal to .15% of the purchase price of the
shares sold by such Firm, and (b) monthly service fees approximately equivalent
to 1/12 of .15% of the value of shares sold by such Firm and remaining
outstanding for at least one year. During the first year after a purchase of
Fund shares, the Principal Underwriter will retain the service fee as
reimbursement for the service fee payment made to the Authorized Firm at the
time of sale. As permitted by the NASD Rule, all service fee payments are made
for personal services and/or the maintenance of shareholder accounts. Service
fees are separate and distinct from the sales commissions and distribution fees
payable by a Fund to the Principal Underwriter, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of the Principal Underwriter. For the fiscal year ended March 31, 1995,
each Fund paid or accrued service fees under its Plan equivalent to 0.15% of
such Fund's average daily net assets for such period.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of a Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives 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 Authorized Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Funds' management intends to consider all relevant factors,
including without limitation the size of a Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. Each Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, no Fund is contractually obligated to continue its Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, a Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio) based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of a Portfolio from the value of its total assets. Municipal
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolios' assets, see "Determination of Net Asset Value" in the Statement of
Additional Information. Eaton Vance Corp. owns 77.3% of the outstanding stock of
IBT, the Funds' and the Portfolios' custodian.
--------------------------------------------------------------------------------
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY
MULTIPLYING THE NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET
VALUE PER SHARE.
--------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the net asset value per share of the Fund next determined after an order is
effective. A Fund may suspend the offering of shares at any time and may refuse
an order for the purchase of shares. Shares of each Fund are offered for sale
only in States where such shares may be legally sold.
An initial investment in a Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Funds' transfer agent (the "Transfer Agent") as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See
"Eaton Vance Shareholder Services."
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 at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT 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 net asset value per
Fund share 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 the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Classic [State name] Limited Maturity Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic [State name] Limited Maturity Tax Free Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities. Exchanging securities
for Fund 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 for Fund shares.
--------------------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
--------------------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
--------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission and
acceptable to The Shareholder Services Group, Inc. In addition, in some cases,
good order may require the furnishing of additional documents such as where
shares are registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by The
Shareholder Services Group, Inc., a Fund will make payment in cash for the net
asset value of the shares as of the date determined above, reduced by the amount
of any applicable contingent deferred sales charges (described below) and any
Federal income tax required to be withheld. Although each Fund normally expects
to make payment 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 by that Fund 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.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of a redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the low
account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares purchased on or after January 30,
1995 and redeemed within the first year of their purchase (except shares
acquired through the reinvestment of distributions) generally will be subject to
a contingent deferred sales charge. This contingent deferred sales charge is
imposed on any redemption, the amount of which exceeds the aggregate value at
the time of redemption of (a) all shares in the account purchased more than one
year prior to the redemption, (b) all shares in the account acquired through
reinvestment of distributions, and (c) the increase, if any, of value in the
other shares in the account (namely those purchased within the year preceding
the redemption) over the purchase price of such shares. Redemptions are
processed in a manner to maximize the amount of redemption proceeds which will
not be subject to a contingent deferred sales charge. That is, each redemption
will be assumed to have been made first from the exempt amounts referred to in
clauses (a), (b) and (c) above, and second through liquidation of those shares
in the account referred to in clause (c) on a first-in-first- out basis. Any
contingent deferred sales charge which is required to be imposed on share
redemptions will be equal to 1% of the net asset value of the redeemed shares.
In calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange for shares of a fund currently listed under
"The Eaton Vance Exchange Privilege," the purchase of Fund shares acquired in
the exchange is deemed to have occurred at the time of the original purchase of
the exchanged shares.
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will also be waived
for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance
Shareholder Services"), (2) as part of a distribution from a retirement plan
qualified under Section 401, 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), or (3) as part of a minimum required distribution from
other tax-sheltered retirement plans. The contingent deferred sales charge will
be paid to the Principal Underwriter or a Fund.
REPORTS TO SHAREHOLDERS
------------------------------------------------------------------------------
EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing Federal and State tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS' TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This account is a
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. A Fund will not issue share
certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance of shares in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE to The
Shareholder Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA, 02104 (please provide the name of the shareholder, the
Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Funds' dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in
additional shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
--------------------------------------------------------------------------------
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
--------------------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
Shares of a Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Classic Group of Funds or Eaton Vance Money Market
Fund, which are distributed subject to a contingent deferred sales charge, on
the basis of the net asset value per share of each fund at the time of the
exchange, provided that such exchange offers are available only in states where
shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes of
calculating the contingent deferred sales charge upon the redemption of Fund
shares acquired in an exchange, the purchase of shares acquired in one or more
exchanges is deemed to have occurred at the time of the original purchase of the
exchanged shares.
Shares of the other funds in the Eaton Vance Classic Group of Funds (and
shares of Eaton Vance Money Market Fund acquired as the result of an exchange
from an EV Classic fund) may be exchanged for Fund shares on the basis of the
net asset value per share of each fund at the time of the exchange,but subject
to any restrictions or qualifications set forth in the current prospectus of any
such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.,
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as the
shares being exchanged. Neither the Funds, the Principal Underwriter nor The
Shareholder Services Group, Inc. will be responsible for the authenticity of
exchange instructions received by telephone, provided that reasonable procedures
to confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An exchange
may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
------------------------------------------------------------------------------
THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not
distributions are reinvested. The name of the shareholder, the Fund and the
account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the plan is established. Such amount will
not be subject to a contingent deferred sales charge. See "How to Redeem Fund
Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON THE
REPURCHASED OR REDEEMED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, provided
that the reinvestment is effected within 60 days after such repurchase or
redemption, and the privilege has not been used more than once in the prior 12
months. Shares are sold to a reinvesting shareholder at the next determined net
asset value following timely receipt of a written purchase order by the
Principal Underwriter or by a Fund (or by the Fund's Transfer Agent). To the
extent that any shares of a Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption) some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
DISTRIBUTIONS AND TAXES
------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the twenty-second day of each
month or the next business day thereafter. Each Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, will constitute tax-exempt income to
shareholders, except for the proportionate part of the distribution that may be
considered taxable income if the Fund has taxable income during the calendar
year. Shareholders reinvesting the monthly distribution should treat the amount
of the entire distribution as the tax cost basis of the additional shares
acquired by reason of such reinvestment. Daily distribution crediting will
commence on the day that collected funds for the purchase of Fund shares are
available at the Transfer Agent. Shareholders of a Fund will receive timely
Federal income tax information as to the tax-exempt or taxable status of all
distributions made by the Fund during the calendar year. A Fund's net realized
capital gains, if any, consist of the net realized capital gains allocated to
the Fund by its corresponding Portfolio for tax purposes, after taking into
account any available capital loss carryovers; a Fund's net realized capital
gains, if any, will be distributed at least once a year, usually in December.
Each Fund intends to qualify as a regulated investment company under the
Code, and to satisfy all requirements necessary to be relieved of Federal taxes
on income and gains it distributes to shareholders. In satisfying these
requirements, each Fund will treat itself as owning its proportionate share of
each of its corresponding Portfolio's assets and as entitled to the income of
the Portfolio properly attributable to such share.
--------------------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT
PAY FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES
TO SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL
GAINS IN ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE.
AS PARTNERSHIPS UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL
INCOME OR EXCISE TAXES.
--------------------------------------------------------------------------------
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 10). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares of a Fund.
Tax-exempt distributions received from a Fund are includable in the tax base
for determining the taxability of social security and railroad retirement
benefits.
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 distribution 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 would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
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FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by one minus the tax rate. Each
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all distributions. The average annual
total return calculation assumes a complete redemption of the investment and the
deduction of any applicable contingent deferred sales charge at the end of the
period. Each Fund may publish annual and cumulative total return figures from
time to time. The Fund may quote total return for the period prior to
commencement of operations which would reflect the Portfolio's total return (and
that of its predecessor) adjusted to reflect any applicable Fund sales charge.
Each Fund may also publish its distribution rate and/or its effective
distribution rate. Each Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current maximum
offering price per share (net asset value). Each Fund's effective distribution
rate is computed by dividing the distribution rate by the ratio used to
annualize the most recent monthly distribution and reinvesting the resulting
amount for a full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the compounding effect
of the assumed reinvestment. Investors should note that a Fund's yield is
calculated using a standardized formula the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on a Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
The Fund may also publish total return figures which do not take into
account any contingent deferred sales charge which may be imposed upon
redemptions at the end of the specified period. Any performance figure which
does not take into account the contingent deferred sales charge would be reduced
to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of a Fund's yield, total return, distribution
rate or effective distribution rate for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period. If the expenses related to the operation of a Fund or its
corresponding Portfolio are allocated to Eaton Vance, the Fund's performance
will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in
the obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this
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.
CALIFORNIA. California has experienced severe economic and fiscal stress
over the past several years. Between 1990 and 1993, California lost 3% of its
total employment base and nearly 16% of higher paying manufacturing jobs. This
was during a period when population increased 6%. The unemployment rate in
California was 9.1% in 1992 and 9.2% in 1993, well above the U.S. rates of 7.4%
and 6.8% for the same periods, respectively. Unemployment was 7.9% in April
1995, compared to a U.S. rate of 5.8%.
The weak economy has seriously undermined the government's ability to
accurately estimate tax revenues and has increased social service expenditures
for recession-related welfare case loads. In addition, the continued influx of
illegal immigrants has strained the State's welfare and health care systems. The
result of these various problems is a $2 billion accumulated budget deficit and
a heavy reliance on short-term borrowing for day-to-day operations. Short-term
borrowing increased from 7.8% of general fund receipts in 1990 to 12.4% in 1992
to a projected 16% in 1995. In July, 1994, the State issued $7 billion in
short-term debt, an unprecedented amount for a State.
The $2 billion budget deficit built up during the 1991 and 1992 fiscal years
and was not adequately addressed during the 1993 or 1994 fiscal years, despite a
Deficit Retirement and Reduction Plan put in place in June, 1993. The budget for
fiscal year 1995 (which commenced on July 1, 1994) includes general fund
expenditures of $40.9 billion, a 4.2% increase over 1993-94, and general fund
revenues of $41.9 billion, a 5.2% increase. A revised Deficit Retirement and
Reduction Plan was adopted which anticipated the elimination of the deficit by
April, 1996. Key to this revised plan is the assumed receipt of $2.8 billion in
Federal aid from the Federal government to offset the mounting costs associated
with illegal immigrants. As this money is in no way assured, the budget includes
a "trigger" mechanism that would require automatic spending cuts should actual
cash flow deviate significantly from projections. There can be no assurances
that bonds, some of which may be held by the Portfolio, issued by California
entities would not be adversely affected should this "trigger" be used.
On January 17, 1994, a major earthquake struck the Los Angeles area causing
significant property damage. Preliminary estimates of total property damage
approximate $15 billion. The Federal government has approved $9.5 billion for
earthquake relief. The Governor has estimated that the State will have to pay
approximately $1.9 billion for relief not otherwise covered by the Federal aid.
The Governor had proposed to cover $1.05 billion of relief costs from a general
obligation bond issue, but the proposal was rejected by California voters in
June 1994. The Governor subsequently announced that funds earmarked for other
projects would be used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9 of
the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold bonds
of some of the governmental units that had money invested with the County; the
impact of the loss of access to these funds, the loss of expected investment
earnings and the potential loss of some of the principal invested is not known
at this point. There can be no assurances that these holdings will maintain
their current ratings and/or liquidity in the market.
In early June 1995, the County filed a proposal with the bankruptcy court
that would require holders of the County's short-term notes to wait one-year
before being repaid. The existence of this proposal and its adoption could
disrupt the market for short-term debt in California and possibly drive up the
State's borrowing costs. On June 27, 1995 the voters in Orange County rejected a
proposed one half cent increase in the sales tax, the revenues from which would
have been used to help the County emerge from bankruptcy. The failure of this
measure increases the likelihood that the County will default on some of their
obligations and, more broadly, could have a negative impact on the perceived
credit quality of municipal obligations throughout California. Although the
State of California has no obligation with respect to any obligations or
securities of the County or any of the other participating entities, under
existing legal precedents, the State may be obligated to ensure that school
districts have sufficient funds to operate. Longer term, this financial crisis
could have an adverse impact on the economic recovery that has only recently
taken hold in Southern California.
California voters have approved a series of amendments to the California
State constitution which have imposed certain limits on the taxing and spending
powers of the State and local governments. While the State legislature has, in
the past, enacted legislation designed to assist California issuers in meeting
their debt service obligations, other laws limiting the State's authority to
provide financial assistance to localities have also been enacted. Because of
the uncertain impact of such constitutional amendments and statutes, the
possible inconsistencies in their respective terms and the impossibility of
predicting the level of future appropriations and applicability of related
statutes to such questions, it is not currently possible to assess the impact of
such legislation and policies on the ability of California issuers to pay
interest or repay principal on their obligations.
As a result of the significant economic and fiscal problems described above,
the State's debt has been downgraded by all three rating agencies from Aa to A1
by Moody's, from A+ to A by S&P, and from AA to A by Fitch.
CALIFORNIA TAXES. California law provides that dividends paid by the
California Fund and designated by the California Fund as tax-exempt are exempt
from California personal income tax on individuals who reside in California to
the extent such dividends are derived from interest payments on municipal
obligations exempt from regular Federal income tax and California State personal
income taxes, provided that at least 50% of the assets of the California
Portfolio at the close of each quarter of its taxable year are invested in
obligations the interest on which is exempt under either Federal or California
law from taxation by the State of California. Distributions of short-term
capital gains are treated as ordinary income, and distributions of long-term
capital gains are treated as long-term capital gains under the California
personal income tax.
CONNECTICUT. Historically, Connecticut's economic structure has been
concentrated in manufacturing, including a heavy component of defense-related
industries, which increases the State's vulnerability to economic cycles and to
declines in Federal government defense spending. More recently, Connecticut's
level of manufacturing activity has declined, but this has been partially offset
by extensive urban development, a large insurance sector, relocations of
corporate headquarters to Connecticut (specifically to Fairfield County), and
the extension of other service sectors. As of April 1995, the unemployment rate
in Connecticut on a seasonally adjusted basis was 4.9%, as compared to a rate of
5.8% nationwide.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. The State has about $6 billion of general obligation bonds
outstanding, of which more than half have been issued for general state
purposes. The remaining general obligation bonds were issued for highway
construction, mass transit, and rental housing. Debt indications have been
rising and are high at $1,850 per capita. Certain Connecticut municipalities
have experienced severe fiscal difficulties and have reported operating and
accumulated deficits in recent years. Regional economic difficulties, reductions
in revenues, and increased expenses could lead to further fiscal problems for
the State and its political subdivisions, authorities, and agencies. This could
result in declines in the value of their outstanding obligations, reductions in
their ability to pay interest and principal thereon, and increases in their
future borrowing costs.
General obligations of the State of Connecticut are rated AA-, Aa and AA+ by
S&P, Moody's and Fitch, respectively.
CONNECTICUT TAXES. In the opinion of Day, Berry & Howard, special
Connecticut tax counsel to the Connecticut Fund, shareholders of the Connecticut
Fund will not be subject to the Connecticut personal income tax on the
Connecticut taxable income of individuals, trusts, and estates in the case of
distributions received from the Connecticut Fund to the extent that such
distributions qualify as exempt-interest dividends for Federal income tax
purposes and are derived from interest on tax-exempt obligations issued by or on
behalf of the State of Connecticut and its political subdivisions or the
authorities, instrumentalities, or districts of any of them, or on tax-exempt
obligations the interest on which Connecticut is prohibited from taxing by
Federal law that are issued by the governments of Puerto Rico, the U.S. Virgin
Islands and 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 capital gain dividends derived from obligations issued
by or on behalf of the State of Connecticut or its political subdivisions may
not be subject to such tax. 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 obligations issued by or on behalf of the State of
Connecticut and its political subdivisions or the authorities,
instrumentalities, or districts of any of them, or from obligations the interest
on which Connecticut is prohibited from taxing by Federal law that are issued by
the governments of Puerto Rico, the U.S. Virgin Islands and Guam, but other
distributions from the Fund that constitute items of tax preference for purposes
of the Federal alternative minimum tax could cause 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 Connecticut
personal income tax and 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 that might qualify for the dividends-received
deduction provided under that tax, and all such distributions may be subject to
state and local taxes in states other than Connecticut.
FLORIDA. Florida's financial operations are considerably different than most
other states because, under the State's constitution, there is no state income
tax. The lack of an income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the event
of an economic downswing, could effect the State's ability to pay principal and
interest in a timely manner. The General Fund budget for 1994-95 includes
revenues of $14.6 billion and expenditures of $14.3 billion. Due to lower than
expected revenue collections, revenue estimates have been reduced by 1.1% for
1994-95. Unencumbered reserves are projected to be $252.6 million, or 1.8% of
expenditures for fiscal year 1995. Unemployment in the State for April, 1995 was
5.6%, compared to the national unemployment rate of 5.8%.
In 1993, the State constitution was amended to limit the annual growth in
the assessed valuation of residential property and which, over time, could
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the amendment
could have a negative impact on the financial performance of local governments
over time and lead to ratings revisions which may have a negative impact on the
prices of affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Fund that are subject to the Florida intangibles tax
will not be required to include the value of their Florida Fund shares in their
taxable intangible property if all of the Florida Portfolio's investments on the
annual assessment date are obligations that would be exempt from such tax if
held directly by such shareholders, such as Florida and U.S. Government
obligations. The Florida Portfolio will normally attempt to invest substantially
all of its assets in tax-exempt obligations of Florida, the United States, the
Territories or political subdivisions of the United States or Florids ("Florida
Obligations"), and it will ensure that all of its assets held on the annual
assessment date are exempt from the Florida intangibles tax. Accordingly, the
value of the Florida Fund shares held by a shareholder should under normal
circumstances be exempt from the Florida intangibles tax.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a
significant economic slowdown, and has experienced shifts in employment from
labor-intensive manufacturing industries to technology and service-based
industries. The unemployment rate was 5.0% as of May, 1995, while the national
unemployment rate was 5.7%.
Effective July 1, 1990, limitations were placed on the amount of direct
bonds the Commonwealth could have outstanding in a fiscal year, and the amount
of the total appropriation in any fiscal year that may be expended for debt
service on general obligation debt of the Commonwealth (other than certain debt
incurred to pay the fiscal 1990 deficit and certain Medicaid reimbursement
payments for prior years) was limited to 10%. In addition, the power of
Massachusetts cities and towns and certain tax-supported districts and public
agencies to raise revenue from property taxes to support their operations,
including the payment of debt service, is limited. Property taxes are virtually
the only source of tax revenues available to cities and towns to meet local
costs. This limitation on cities and towns to generate revenues could create a
demand for increases in state-funded local aid. The recent difficulties
experienced by the Commonwealth have resulted in a substantial reduction in
local aid from the Commonwealth, which may create financial difficulties for
certain municipalities.
General obligations of Massachusetts are rated A1, A+ and A+ by Moody's, S&P
and Fitch, respectively.
MASSACHUSETTS TAXES. The Massachusetts Portfolio has received a letter
ruling (the "Ruling") from the Department of Revenue of The Commonwealth of
Massachusetts to the effect that it will be classified as a partnership for
Massachusetts tax purposes. The Ruling provides that, consequently, interest
income received by the Massachusetts Portfolio on (1) debt obligations issued by
The Commonwealth of Massachusetts or its political subdivisions, including
agencies or instrumentalities thereof ("Massachusetts Obligations"), (2) the
Governments of Puerto Rico, Guam, or the United States Virgin Islands
("Possessions Obligations"), or (3) the United States ("United States
Obligations") will be treated as if realized directly by investors in the
Massachusetts Portfolio. The Ruling concludes that, provided that an investor in
the Massachusetts Portfolio qualifies as a regulated investment company ("RIC")
under the Code and satisfies certain notice requirements of Massachusetts law,
(1) dividends paid by such a RIC that are treated as tax-exempt interest under
the Code and that are directly attributable to interest on Massachusetts
Obligations (including the RIC's allocable share of interest earned by the
Massachusetts Portfolio on such obligations) and (2) dividends paid by such a
RIC that are directly attributable to interest on Possessions Obligations or
United States Obligations (including the RIC's allocable share of interest
earned by the Massachusetts Portfolio on such obligations) will, in each case,
be excluded from Massachusetts gross income. Because the Massachusetts Fund
intends to continue to invest in the Massachusetts Portfolio, qualify for
treatment as a RIC under the Code, and satisfy the applicable notice
requirements, the Massachusetts Fund's distributions to its shareholders of its
allocable share of the interest received by the Massachusetts Portfolio that is
attributable to Massachusetts Obligations, Possessions Obligations or United
States Obligations should consequently be excluded from Massachusetts gross
income for individuals, estates and trusts that are subject to Massachusetts
taxation. Distributions properly designated as capital gain dividends under the
Code and attributable to gains realized by the Massachusetts Portfolio and
allocated to the Massachusetts Fund on the sale of certain Massachusetts
tax-exempt obligations issued pursuant to statutes that specifically exempt such
gains from Massachusetts taxation will also be exempt from Massachusetts
personal income tax. Other distributions from the Massachusetts Fund that are
included in a shareholder's Federal gross income, including distributions
derived from net long-term capital gains not described in the preceding sentence
and net short-term capital gains, are generally not exempt from Massachusetts
personal income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset (beginning
on the later of January 1, 1995 or the date of actual acquisition) increases
from more than one year to more than six years. It is not clear what
Massachusetts tax rate will be applicable to capital gain dividends for taxable
years beginning after 1995.
Distributions from the Massachusetts Fund will be included in net income,
and in the case of intangible property corporations, shares of the Massachusetts
Fund will be included in net worth for purposes of determining the Massachusetts
excise tax on corporations subject to Massachusetts taxation.
MICHIGAN. Michigan has long had a large representation in and is dominated
by the automobile industry and related industries and tends to be more
vulnerable to economic cycles than other states and the nation as a whole. As of
April, 1994 Michigan's unemployment rate was 5.7%, as compared to the national
rate of 6.4%. In March, 1994, Michigan voters approved changes to the tax system
resulting in, among other things, an increase in the sales tax rate, a reduction
in the income tax rate and the creation of a statewide property tax.
Michigan's general obligation debt is rated A1, AA and AA, by Moody's, S&P
and Fitch, respectively.
MICHIGAN TAXES. The Michigan Fund has received an opinion from Butzel Long,
special Michigan tax counsel to the Michigan Fund, to the effect that
shareholders of the Michigan Fund who are subject to the Michigan state income
tax, municipal income tax or single business tax will not be subject to such
taxes on their Michigan Fund dividends to the extent that such distributions are
exempt-interest dividends for Federal income tax purposes and are attributable
to interest on obligations held by the Michigan Portfolio and allocated to the
Michigan Fund which is exempt from regular Federal income tax, is not a tax
preference item under the Federal alternative minimum tax and is exempt from
Michigan State and City income taxes, Michigan single business tax and in the
form of an investment exempt from the Michigan intangibles tax ("Michigan
tax-exempt obligations"). Other distributions with respect to shares of the
Michigan Fund including, but not limited to, long or short-term capital gains,
will be subject to the Michigan income tax or single business tax and may be
subject to the city income taxes imposed by certain Michigan cities. The opinion
also provides that shares of the Michigan Fund will be exempt from the Michigan
intangibles tax to the extent the Michigan Portfolio's assets consist of
Michigan tax-exempt obligations and any other securities or obligations that are
exempt from the Michigan intangibles tax.
NEW JERSEY. The fiscal year 1995 budget included total spending of $15.5
billion. However, the proposed fiscal year 1996 budget (for the fiscal period
ending June 30, 1996) includes total spending of $15.987 billion, or a 3.14%
increase over fiscal 1995. In addition, New Jersey has adopted a 10% personal
income tax cut retroactive to January 1, 1995. Furthermore, on June 26, 1995,
the New Jersey Legislature passed an additional 15% reduction to take effect
January 1, 1996. State officials estimate the revenue loss resulting from these
tax cuts at over $1 billion for fiscal 1996. To accommodate the tax cut, the
fiscal 1996 budget would rely on non-recurring revenues and the use of prior
years' surplus. Also, a major focus of the spending reductions has been employer
contributions to retiree health care and pension systems which were cut by over
$863 million in fiscal 1995. There can be no assurance that the tax cuts will
not have an adverse impact on the State's finances and the demand for municipal
bonds in the State.
New Jersey's general obligation debt is rated Aa1, AA+ and AA+ by Moody's,
S&P and Fitch, respectively.
NEW JERSEY TAXES. The New Jersey Fund intends to satisfy New Jersey's
statutory requirements for treatment as a "Qualified Investment Fund." The Fund
has obtained an opinion of its special tax counsel, Wilentz, Goldman & Spitzer,
P.A., that, provided the New Jersey Fund limits its investments to those
described in this Prospectus and otherwise satisfies such statutory
requirements, shareholders of the New Jersey Fund which are individuals, estates
or trusts will not be required to include in their New Jersey gross income
distributions from the New Jersey Fund that are attributable to interest or gain
realized by the New Jersey Fund from obligations the interest on which is exempt
from regular Federal income tax, is not a tax preference item under the Federal
minimum 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.
NEW YORK. New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a comparatively small share of the
nation's farming and mining activity. However, as the result of a recession
ending in the first quarter of 1993, 560,000 jobs were lost statewide (equal to
6.7% of the peak employment figure for 1989). Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer,
manufacturing, defense and banking industries. New York's economy is expected to
continue to expand modestly during 1995 with a pronounced slow-down during the
course of the year. In the 1992-1993 fiscal year, however, the State began the
process of financial reform. The State Financial Plans for the 1992-1993,
1993-1994 and 1994-1995 fiscal years produced positive fund balances at the end
of all three fiscal years.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies, authorities
and localities to meet their financial obligations and, in some cases, to
prevent or cure defaults. To the extent State agencies and local governments
require State assistance to meet their financial obligations, the ability of the
State to meet its own obligations as they become due or to obtain additional
financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in
recent years and currently continues to experience such difficulties owing, in
part, to lower than anticipated revenues. Because New York City taxes comprise
approximately 40% of the State's tax base, the City's difficulties adversely
affect the State.
In June, 1995, the Governor approved the 1995-1996 budget, which included
adoption of a three-year 20% reduction in the State's personal income tax. In
combination with business tax reductions enacted in 1994, State taxes will be
reduced by $5.5 billion by the 1997-1998 fiscal year. The 1995-1996 State
Financial Plan, based on the enacted 1995-1996 budget, includes gap-closing
actions to offset a projected budget gap of $5 billion, the largest in the
State's history.
On June 7, 1995, the New York State Legislature passed the State's 1995-
1996 $33.1 billion budget, which was $344 million less than the actual level of
spending on the 1994-1995 fiscal year. Significant year to year spending
reductions are projected in Medicaid and State agency operating costs.
Legislation was enacted to reduce by 20 percent the State's personal income tax.
Under this three-year legislation, tax rates will drop, tax brackets will be
accelerated and standard deductions will be increased.
New York's general obligations are rated A, A- and A+ by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as positive. New York City obligations are rated Baa1, BBB+ and A-
by Moody's, S&P and Fitch, respectively. On July 10, 1995, S&P revised downward
its rating on City general obligation bonds from A- to BBB+ and removed City
bonds from CreditWatch. S&P stated that the downgrade was a reflection of the
City's inability to eliminate a structural budget imbalance due to persistent
softness in the City's economy, weak job growth, a trend of using nonrecurring
budget devices, optimistic projections of State and federal aid and high levels
of debt service.
NEW YORK TAXES. In the opinion of Brown & Wood, under New York law, for
individuals subject to the New York State or New York City personal income tax,
dividends paid by the New York Fund are exempt from New York State and New York
City income tax for individuals who reside in New York to the extent such
dividends are excluded from gross income for Federal income tax purposes and are
derived from interest payments on tax-exempt obligations issued by or on behalf
of New York State and its political subdivisions and agencies, and the
governments or Puerto Rico, the U.S. Virgin Islands and Guam. Other
distributions from the New York Fund, including distributions derived from
taxable ordinary income and net short-term and long-term capital gains, are
generally not exempt from New York State or City personal income tax.
OHIO. The State's economy is reliant in part on durable goods manufacturing,
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, economic activity in Ohio tends to be more
cyclical than in some other states and in the nation as a whole. In fiscal 1993,
a projected $520 million budget gap was addressed through tax increases and
appropriation cuts. The fiscal year 1994 budget was balanced, and the State's
General Revenue Fund had an ending fund balance of $560 million.
General obligations of Ohio are rated Aa and AA by S&P and Moody's,
respectively (except that highway obligations are rated Aaa by S&P). Fitch does
not currently rate the State's general obligations.
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund, Squire,
Sanders & Dempsey, under Ohio law individuals who are otherwise subject to the
Ohio personal income tax will not be subject to such tax on dividends paid by
the Ohio Fund to the extent such dividends are properly attributable to interest
on obligations issued by or on behalf of the State of Ohio or its political
subdivisions, or the agencies or instrumentalities thereof ("Ohio obligations").
Dividends paid by the Ohio Fund also will be excluded from the net income base
of the Ohio corporation franchise tax to the extent such dividends are excluded
from gross income for Federal income tax purposes or are properly attributable
to interest on Ohio obligations. However, the Ohio Fund's shares will be
included in the tax base for purposes of computing the Ohio corporation
franchise tax on the net worth basis. These conclusions regarding Ohio taxation
are based on the assumption that the Ohio Fund will continue to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Ohio Fund will consist of Ohio
obligations or similar obligations of other states or their subdivisions
determined, to the extent the Ohio Fund invests in the Ohio Portfolio, by
treating the Ohio Fund as owning its proportionate share of the assets owned by
the Ohio Portfolio.
PENNSYLVANIA. Pennsylvania has long had a large representation in the steel,
mining and manufacturing industries and adverse conditions in those or other
significant industries within Pennsylvania may from time to time have a
correspondingly adverse effect on specific issuers within Pennsylvania or on
anticipated revenue to the Commonwealth. In recent years Pennsylvania's economy
has become more diversified with major new sources of growth in the service
sector, including trade, medical and the health services, education and
financial institutions. The unadjusted unemployment rate for both Pennsylvania
and the United States for May, 1995 was 5.7%.
The Governor's fiscal year 1996 budget contained no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending
increased 2.3% over fiscal year 1995 appropriations. The fiscal year 1996 budget
included tax reductions of approximately $214.8 million. The State Tax
Stabilization Reserve Fund had a balance at March 31, 1995 of $65.3 million. The
fiscal year 1996 budget projects a $3.2 million fiscal year-end unappropriated
surplus.
Pennsylvania's general obligation debt is rated "AA-" by S&P and Fitch and
"A1" by Moody's.
PENNSYLVANIA TAXES. Interest derived by the Pennsylvania Fund from
obligations which are statutorily free from state taxation in Pennsylvania
("Exempt Obligations") are not taxable on pass through to shareholders for
purposes of the Pennsylvania personal income tax. The term "Exempt Obligations"
includes (i) those obligations issued by the Commonwealth of Pennsylvania and
its political subdivisions, agencies and instrumentalities, the interest from
which is statutorily free from state taxation in the Commonwealth of
Pennsylvania, and (ii) certain qualifying obligations of U.S. territories and
possessions, or U.S. Government obligations. Distributions attributable to most
other sources, including capital gains, will not be exempt from Pennsylvania
personal income tax.
Corporate shareholders that are subject to the Pennsylvania corporate net
income tax will not be subject to corporate net income tax on distributions of
interest made by the Pennsylvania Fund, provided such distributions are
attributable to Exempt Obligations. Distributions of capital gain attributable
to Exempt Obligations are subject to the Pennsylvania corporate net income tax.
An investment in the Pennsylvania Fund is also exempt from the Pennsylvania
Gross Premiums tax.
Shares of the Pennsylvania Fund which are held by individual shareholders
who are Pennsylvania residents and subject to the Pennsylvania county personal
property tax will be exempt from such tax to the extent that the obligations
held by the Pennsylvania Portfolio consist of Exempt Obligations on the annual
assessment date. Corporations are not subject to Pennsylvania personal property
taxes.
For individual shareholders who are residents of the City of Philadelphia,
distributions of interest derived from Exempt Obligations will not be taxable
for purposes of the Philadelphia School District Investment Net Income Tax
("Philadelphia School District Tax"), provided that the Pennsylvania Portfolio
reports to its investors the percentage of Exempt Obligations held by it for the
year. The Pennsylvania Portfolio will report such percentage to its investors.
PUERTO RICO, GUAM, AND THE U.S. VIRGIN ISLANDS. The economy of Puerto Rico
is dominated by the manufacturing and service sectors. Although the economy of
Puerto Rico expanded significantly from fiscal 1984 through fiscal 1990, the
rate of this expansion slowed during fiscal years 1991, 1992 and 1993. Growth in
fiscal 1994 will depend on several factors, including the state of the U.S.
economy and the relative stability in the price of oil, the exchange rate of the
U.S. dollar and the cost of borrowing. Although the Puerto Rico unemployment
rate has declined substantially since 1985, the seasonally adjusted unemployment
rate for February, 1995 was approximately 12.5%. The North American Free Trade
Agreement (NAFTA), which became effective January 1, 1994, could lead to the
loss of Puerto Rico's lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it
Baa1; these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a stable outlook on Puerto Rico on April 26, 1994.
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS 725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
LIMITED MATURITY TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
C-LC8/1P
[LOGO]
EV Classic
Limited Maturity
Tax Free funds
Prospectus
August 1, 1995
o EV Classic California
Limited Maturity Tax Free Fund
o EV Classic Connecticut
Limited Maturity Tax Free Fund
o EV Classic Florida
Limited Maturity Tax Free Fund
o EV Classic Massachusetts
Limited Maturity Tax Free Fund
o EV Classic Michigan
Limited Maturity Tax Free Fund
o EV Classic New Jersey
Limited Maturity Tax Free Fund
o EV Classic New York
Limited Maturity Tax Free Fund
o EV Classic Ohio
Limited Maturity Tax Free Fund
o EV Classic Pennsylvania
Limited Maturity Tax Free Fund
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1995
<TABLE>
EV CLASSIC LIMITED MATURITY TAX FREE FUNDS
<C> <C>
EV CLASSIC CALIFORNIA LIMITED MATURITY TAX FREE FUND EV CLASSIC NEW JERSEY LIMITED MATURITY TAX FREE FUND
EV CLASSIC CONNECTICUT LIMITED MATURITY TAX FREE FUND EV CLASSIC NEW YORK LIMITED MATURITY TAX FREE FUND
EV CLASSIC FLORIDA LIMITED MATURITY TAX FREE FUND EV CLASSIC OHIO LIMITED MATURITY TAX FREE FUND
EV CLASSIC MASSACHUSETTS LIMITED MATURITY TAX FREE FUND EV CLASSIC PENNSYLVANIA LIMITED MATURITY TAX FREE FUND
EV CLASSIC MICHIGAN LIMITED MATURITY TAX FREE FUND
</TABLE>
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Investment Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Part II provides information solely about a Fund and
its corresponding Portfolio. Where appropriate, Part I includes cross-references
to the relevant sections of Part II.
TABLE OF CONTENTS
PART I
Page
Additional Information About Investment Policies ..................... 1
Investment Restrictions .............................................. 8
Trustees and Officers ................................................ 8
Investment Adviser and Administrator ................................. 10
Custodian ............................................................ 12
Service for Withdrawal ............................................... 12
Determination of Net Asset Value ..................................... 13
Investment Performance ............................................... 13
Taxes ................................................................ 16
Principal Underwriter ................................................ 18
Distribution Plan .................................................... 18
Portfolio Security Transactions ...................................... 20
Other Information .................................................... 22
Independent Certified Public Accountants ............................. 23
Financial Statements ................................................. 23
Appendix ............................................................. 24
PART II
<TABLE>
<S> <C>
EV Classic California Limited Maturity Tax Free Fund ... a-1 EV Classic New Jersey Limited Maturity Tax Free Fund . f-1
EV Classic Connecticut Limited Maturity Tax Free Fund .. b-1 EV Classic New York Limited Maturity Tax Free Fund ... g-1
EV Classic Florida Limited Maturity Tax Free Fund ...... c-1 EV Classic Ohio Limited Maturity Tax Free Fund ....... h-1
EV Classic Massachusetts Limited Maturity Tax Free Fund d-1 EV Classic Pennsylvania Limited Maturity Tax Free Fund i-1
EV Classic Michigan Limited Maturity Tax Free Fund ..... e-1
</TABLE>
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Statement of Additional Information regarding another Fund because the
Funds use this combined Statement of Additional Information. The Trustees of
the Trust have considered this factor in approving the use of a combined
Statement of Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED AUGUST 1, 1995, AS SUPPLEMENTED
FROM TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED
WITHOUT CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this Statement of
Additional Information and not otherwise defined have the meanings given them
in the Fund's Prospectus. The Fund is subject to the same investment policies
as those of the Portfolio. The Fund currently seeks to achieve its objective
by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such 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. 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 Federal alternative minimum tax: (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. In assessing the Federal income tax treatment of interest on
any municipal obligation, the Portfolio 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.
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 the 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 Federal alternative minimum tax. For corporate
shareholders, the Fund's distributions derived from interest on all municipal
obligations (whenever issued) is included in "adjusted current earnings" for
purposes of the Federal alternative minimum tax as applied to corporations (to
the extent not already included in alternative minimum taxable income as
income attributable to private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 is taxable as ordinary income. A long-term debt
obligation is generally treated as acquired at a market discount if the
secondary market purchase price is 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 minimus
amount.
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.
The principal security for a revenue bond is generally 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.
The 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.
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.
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. The 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
Boston Management and Research (the "Investment Adviser")) to evaluate or
protect any real estate, facilities or other assets securing any such
obligation or acquired by the Portfolio as a result of any such event, and the
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 Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and Fitch Investors Service, Inc.
("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 municipal obligations will normally fluctuate with changes in interest
rates, and therefore the net asset value of the Portfolio will be affected by
such changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in particular issuers of
municipal obligations, see "Risks of Concentration" in the Fund's Part II of
this Statement of Additional Information.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or
more of its total assets in municipal obligations whose issuers are located in
the same state or 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 the industrial
revenue bonds listed above 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.
Pollution control and other industrial development bonds are issued by
state or local agencies to finance various projects, including those of
domestic steel producers, and may be backed solely by agreements with such
companies. Domestic steel companies are expected to suffer the consequences of
such adverse trends as high labor costs, high foreign imports encouraged by
foreign productivity increases and a strong U.S. dollar, and other cost
pressures such as those imposed by anti-pollution legislation. Domestic steel
capacity is being reduced currently by large-scale plant closings and this
period of rationalization may not end until further legislative protection is
provided through tariff price supports or mandatory import quotas, such as
those recently enacted for certain specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state industrial
development authorities. Since the bonds are normally secured only by the
revenues of each facility and not by state or local government tax payments,
they are subject to a wide variety of risks. Primarily, the projects must
maintain adequate occupancy levels to be able to provide revenues sufficient
to meet debt service payments. Moreover, since a portion of housing, medical
care and other services may be financed by an initial deposit, it is important
that the facility maintain adequate financial reserves to secure estimated
actuarial liabilities. The ability of management to accurately forecast
inflationary cost pressures is an important factor in this process. The
facilities may also be affected adversely by regulatory cost restrictions
applied to health care delivery in general, particularly state regulations or
changes in Medicare and Medicaid payments or qualifications, or restrictions
imposed by medical insurance companies. They may also face competition from
alternative health care or conventional housing facilities in the private or
public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in its Prospectus, the Portfolio may
invest 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 affecting the issuers
of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. Manufacturing is the largest sector in terms of gross
domestic product and is more diversified than during earlier phases of Puerto
Rico's industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and
manufacturing (16.4%). These three sectors represent 39%, 11% and 39%,
respectively, of the gross domestic product. The service sector is the fastest
growing, while the government and manufacturing sectors have been stagnant for
the past five years. This decline was broad based among all manufacturing
industries. The North American Free Trade Agreement (NAFTA), which became
effective January 1, 1994, could lead to the loss of Puerto Rico's lower
salaried or labor intensive jobs to Mexico. The February, 1995 unemployment
rate was 12.5%, down from 16% for 1994.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it 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 Internal Revenue Code was amended and provided
for two alternative limitations to the Section 936 credit. The first option
will limit the credit against such income to 40% of the credit allowable under
current law, with a five year phase-in period starting at 60% of the allowable
credit. The second option is a wage and depreciation based credit. The
reduction of the 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 these modifications 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.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether they wished to retain their Commonwealth status,
become a state or establish an independent nation. The measure was defeated,
with 48.5% voting to remain a Commonwealth, 46% voting for statehood and 4%
voting for independence. Retaining Commonwealth status will leave intact the
current relationship with the Federal government. There can be no assurance
that the statehood issue will not be brought to a vote in the future. A
successful statehood vote in Puerto Rico would then require the U.S. Congress
to ratify the election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. Population, after reaching a peak of 110,800 in 1985, declined to
101,809 in 1990. The economy is heavily reliant on the tourism industry, with
roughly 43% of non-agricultural employment in tourist-related trade and
services. As of April, 1993, unemployment stood at 2.7%. The tourism industry
is economically sensitive and would likely be adversely affected by a
recession in either the United States or Europe.
An important component of the USVI revenue base is the Federal excise tax
on rum exports. Tax revenues rebated by the Federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI experienced budget
deficits in fiscal years 1989 and 1990: in 1989 due to wage settlements with
the unionized government employees, and in 1990 as a result of Hurricane Hugo.
The USVI recorded a small surplus in fiscal year 1991. At the end of fiscal
1992, the last year for which results are available, the USVI had an
unreserved General Fund deficit of approximately $8.31 million, or
approximately 2.1% of expenditures. In order to close a forecasted fiscal 1994
revenue gap of $45.6 million, the Department of Finance has proposed several
tax increases and fund transfers. There is currently no rated, unenhanced
Virgin Islands debt outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast
of Tokyo. Population, 133,000 in 1990, up 26% from the 1980 census level. The
U.S. military is a key component of Guam's economy. The Federal government
directly comprises more than 10% of the employment base, with a substantial
component of the service sector to support these personnel. Guam is expected
to benefit from the closure of the Subic Bay Naval Base and the Clark Air
Force Base in the Philippines. The Naval Air Station, one of several U.S.
military facilities on the island, has been slated for closure by the Defense
Base Closure and Realignment Committee; however, the administration plans to
use these facilities to expand the Island's commercial airport. Guam is also
heavily reliant on tourists, particularly the Japanese. Unemployment was 3.2%
in 1991. For 1994, the financial position of Guam has weakened further as it
incurred an unaudited General Fund operating deficit. The administration has
taken steps to improve its financial position; however, there are no
guarantees that an improvement will be realized. Guam's general obligation
debt is rated Baa by Moody's.
MUNICIPAL LEASES
The 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. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in
many leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease
or contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not
appropriate funds for lease payments.
Certain municipal lease obligations owned by the 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 the 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 the Portfolio. In the event the 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. Zero coupon bonds
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be
insured as to their scheduled payment of principal and interest under either
(i) an insurance policy obtained by the issuer or underwriter of the
obligation at the time of its original issuance or (ii) an insurance policy
obtained by the Portfolio or a third party subsequent to the obligation's
original issuance (which may not be reflected in the obligation's market
value). In either event, such insurance may provide that in the event of non-
payment of interest or principal when due with respect to an insured
obligation, the insurer is not required to make such payment until a specified
time has lapsed (which may be 30 days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. 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.
See "Portfolio of Investments" in the "Financial Statements" incorporated
by reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell 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 the 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. The Portfolio anticipates that its
annual portfolio turnover rate will generally not exceed 100% (excluding
turnover of securities having a maturity of one year or less).
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
taking place within a specified number of days after the date of the
Portfolio's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. The 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 the Portfolio to
buy such securities on a settlement date that could be several months or
several years in the future.
The 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 the Portfolio
enters into the purchase commitment. The Portfolio's custodian will segregate
cash or high grade liquid debt securities in a separate account of the
Portfolio in an amount at least equal to the when-issued commitments. If the
value of the securities placed in the separate account declines, additional
cash or high grade liquid debt securities will be placed in the account on a
daily basis so that the value of the account will at least equal the amount of
the Portfolio's when-issued commitments. When the 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 the
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 the 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.
FLOATING OR VARIABLE RATE OBLIGATIONS
The Portfolio may purchase floating or variable rate obligations. Floating
or variable rate instruments provide for adjustments in the interest rate at
specified intervals (weekly, monthly, semi-annually, etc.). The revised rates
are usually set at the issuer's discretion, in which case the investor
normally enjoys the right to "put" the security back to the issuer or his
agent. Rate revisions may alternatively be determined by formula or in some
other contractual fashion. Floating or variable rate obligations normally
provide that the holder can demand payment of the obligation on short notice
at par with accrued interest and are frequently secured by letters of credit
or other credit support arrangements provided by banks. To the extent that
such letters of credit or other arrangements constitute an unconditional
guarantee of the issuer's obligations, a bank may be treated as the issuer of
a security for the purpose of complying with the diversification requirements
set forth in Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2
thereunder. The Portfolio would anticipate using these obligations as cash
equivalents pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier.
Also, some bonds may have "put" or "demand" features that allow early
redemption by the bondholder. Interest income generated by certain bonds
having demand features may not qualify as tax-exempt interest. 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. By acquiring these kinds of obligations the
Portfolio obtains the contractual right to require the issuer of the security
or some other person (other than a broker or dealer) to purchase the security
at an agreed upon price, which right is contained in the obligation itself
rather than in a separate agreement with the seller or some other person.
Because this right is assignable with the security, which is readily
marketable and valued in the customary manner, the Portfolio will not assign
any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also 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.
The 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 the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates.
A separate put option may not be marketable or otherwise assignable, and sale
of the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The 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 features may not qualify
as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by the
Portfolio's custodian and maintained on a current basis at an amount at least
equal to the market value of the securities loaned, which will be marked to
market daily. Cash equivalents include short-term municipal obligations as
well as taxable certificates of deposit, commercial paper and other short-term
money market instruments. The Portfolio would have the right to call a loan
and obtain the securities loaned at any time on up to five business days'
notice. During the existence of a loan, the Portfolio will continue to receive
the equivalent of the interest paid by the issuer on the securities loaned and
will also receive a fee, or all or a portion of the interest on investment of
the collateral, if any. However, the Portfolio may pay lending fees to such
borrowers. The Portfolio would not have the right to vote any securities
having voting rights during the existence of the loan, but would call the loan
in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks
of delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Portfolio's management to be of good
standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of
the securities loaned would not exceed 30% of the Portfolio's total assets.
The Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects
to purchase). To hedge against changes in rates, the Portfolio may enter into
(i) futures contracts for the purchase or sale of debt securities, (ii)
futures contracts on securities indices and (iii) futures contracts on other
financial instruments and indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or
foreign exchange or board of trade.
The Portfolio will engage in futures and related options transactions only
for bona fide 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 are substantially related to price
fluctuations in securities held by the Portfolio or which it expects to
purchase. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold to
protect against a decline in the price of securities that the Portfolio owns,
or futures contracts will be purchased to protect the Portfolio against an
increase in the price of securities it intends to purchase. As evidence of
this hedging intent, the Portfolio expects that on 75% or more of the
occasions on which it takes a long futures (or option) position (involving the
purchase of futures contracts), the Portfolio will have purchased, or will be
in the process of purchasing, equivalent amounts of related securities in the
cash market at the time when the futures (or option) position is closed out.
However, in particular cases, when it is economically advantageous for the
Portfolio to do so, a long futures position may be terminated (or an option
may expire) without the corresponding purchase of securities. The Portfolio
will engage in transactions in futures and related options contracts only to
the extent such transactions are consistent with the requirements of the
Internal Revenue Code for maintaining qualification of the Fund as a regulated
investment company for Federal income tax purposes (see "Taxes").
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. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked
to market daily.
SHORT-TERM OBLIGATIONS
Although the Portfolio will normally attempt to invest substantially all
of its assets in municipal obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its net assets in short-term obligations the
interest on which is subject to regular Federal income tax, Federal
alternative minimum tax and/or State taxes. Although the Portfolio is
permitted to invest up to 20% of its assets in short-term taxable obligations
under normal market conditions, the Portfolio does not expect to invest more
than 5% of its assets in such securities under such conditions. Such short-
term taxable obligations may include, but are not limited to, certificates of
deposit, commercial paper, short-term notes and obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
During periods of adverse market conditions, the Portfolio may temporarily
invest more than 20% of its assets in such short-term taxable obligations, all
of which will be high quality.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate would occur, for example, if all the securities held
by the Portfolio were replaced once in a period of one year. A high turnover
rate (100% or more) necessarily involves greater expenses to the Portfolio.
The Portfolio engages in portfolio trading (including short-term trading) if
it believes that a transaction including all costs will help in achieving its
investment objective.
INVESTMENT RESTRICTIONS
Certain investment restrictions of the Fund are designated as fundamental
policies and as such cannot be changed without the approval of the holders of
a majority of the Fund's outstanding voting securities, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the shares
of the Fund present or represented by proxy at a meeting if the holders of
more than 50% of the shares are present or represented at the meeting or (b)
more than 50% of the shares of the Fund. The Fund's fundamental investment
restrictions are set forth under "Investment Restrictions" in Part II of this
Statement of Additional Information.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
Investment Company Act of 1940 (the "1940 Act"). Whenever the Trust is
requested to vote on a change in the fundamental investment restrictions of
the Portfolio (or the Portfolio's 80% investment policy with respect to State
obligations described in the Fund's current Prospectus), the Trust will hold a
meeting of Fund shareholders and will cast its vote as instructed by the
shareholders.
The Fund and the Portfolio have also adopted nonfundamental investment
policies which may be changed by the Trustees of the Trust with respect to the
Fund without approval by the Fund's shareholders or by the Trustees of the
Portfolio with respect to the Portfolio without the approval of the Fund or
the Portfolio's other investors. The Fund's non-fundamental investment
policies are set forth under "Investment Restrictions" in Part II of this
Statement of Additional Information.
For purposes of the 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.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other
offices in the same company for the last five years. Unless otherwise noted,
the business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"),
which is a wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance");
of Eaton Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton
Vance's trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-
owned subsidiaries of EVC. Those Trustees who are "interested persons" of the
Trust, the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act,
by virtue of their affiliation with any one or more of the Trust, the
Portfolio, BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New
England, Inc., since 1983. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of
EVC and EV. Director, Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02163
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Trust Company. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (51), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and
the Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and
employee of Eaton Vance since March 8, 1991. Fidelity Investments --
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice President of
the Trust on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management
& Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of
the Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Trust's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees
who are not members of the Eaton Vance organization, and making
recommendations to the Trustees regarding candidates to fill vacancies, as and
when they occur, in the ranks of those Trustees who are not "interested
persons" of the Trust, the Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
with such accountants and the Treasurer of the Trust and of the Portfolio
matters relative to accounting and auditing practices and procedures,
accounting records, internal accounting controls, and the functions performed
by the custodian and transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio 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
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred
fees invested by the 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 Plan will
be determined based upon the performance of such investments. Deferral of
Trustees' fees in accordance with the Plan will have a negligible effect on
the Portfolio's assets, liabilities, and net income per share, and will not
obligate the Portfolio to retain the services of any Trustee or obligate the
Portfolio to pay any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of approximately $15 billion.
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing
investment companies since 1931. They maintain a large staff of experienced
fixed-income and equity investment professionals to service the needs of their
clients. The fixed-income division focuses on all kinds of taxable investment-
grade and high-yield securities, tax-exempt investment-grade and high-yield
securities, and U.S. Government securities. The equity division covers stocks
ranging from blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio 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. The 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. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. For
additional information about the Investment Advisory Agreement, including the
net assets of the Portfolio and the investment advisory fees that the
Portfolio paid BMR under the Investment Advisory Agreement, see "Fees and
Expenses" in Part II of this Statement of Additional Information.
The Investment Advisory Agreement with BMR may be continued indefinitely
so long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of
the Portfolio or of BMR 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. The 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.
The Agreement provides that BMR may render services to others and engage in
other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The 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.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator,
see "Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) registration
of the Trust under the 1940 Act, (iii) commissions, fees and other expenses
connected with the purchase or sale of securities and other investments, (iv)
auditing, accounting and legal expenses, (v) taxes and interest, (vi)
governmental fees, (vii) expenses of issue, sale, repurchase and redemption of
shares, (viii) expenses of registering and qualifying the Fund and its shares
under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV 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 which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. 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 and Directors of EVC and EV. As of June 30,
1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Ahern, Fetter, Hender, MacIntosh, Murphy,
O'Connor and Woodbury and Ms. Sanders, are officers of the Trust and/or the
Portfolio and are also members of the BMR, Eaton Vance and EV organizations.
BMR will receive the fees paid under the Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy
Corp. (which is engaged in oil and gas operations) and 77.3% of the stock of
Investors Bank & Trust Company, custodian of the Fund and the Portfolio, which
provides custodial, trustee and other fiduciary services to investors,
including individuals, employee benefit plans, corporations, investment
companies, savings banks and other institutions. In addition, Eaton Vance owns
all of the stock of Northeast Properties, Inc., which is engaged in real
estate investment, consulting and management. EVC owns all of the stock of
Fulcrum Management, Inc. and MinVen Inc., which are engaged in the development
of precious metal properties. EVC, BMR, Eaton Vance and EV may also enter into
other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. 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.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's
assets, maintains the general ledger of the Portfolio and the Fund and
computes the daily net asset value of interests in the 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 Portfolio's investments, receives and disburses all funds and
performs various other ministerial duties upon receipt of proper instructions
from the Fund and the Portfolio. IBT charges custody fees which are
competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of Fund and
Portfolio net assets and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then reduced by
a credit for cash balances of the particular investment company at the
custodian equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied
to the particular investment company's average daily collected balances for
the week. In view of the ownership of EVC in IBT, the Portfolio is treated as
a self-custodian pursuant to Rule 17f-2 under the 1940 Act, and the
Portfolio's investments held by IBT as custodian are thus subject to the
additional examinations by the Portfolio's independent certified public
accountants as called for by such Rule. For the custody fees that the
Portfolio and the Fund paid to IBT, see "Fees and Expenses" in Part II of this
Statement of Additional Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal 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.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value) will have to be deposited with the
Transfer Agent. 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.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current Prospectus. The net asset value of the Portfolio
is also 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 transaction 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 services uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities, various relationships between securities, and yield to
maturity in determining value. Taxable obligations for which price quotations
are readily available normally will be valued at the mean between the latest
available bid and asked prices. Open futures positions on debt securities are
valued at the most recent settlement prices, unless such price does not
reflect the fair value of the contract, in which case the positions will be
valued by or at the direction of the Trustees of the Portfolio. Other assets
are valued at fair value using methods determined in good faith by or at the
direction of the Trustees of the Portfolio. The Fund and the Portfolio will be
closed for business and will not price their respective shares or interests on
the following business holidays: New Years' Day, Presidents' Day, Good Friday
(a New York Stock Exchange holiday), Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the 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.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a
hypothetical initial purchase order of $1,000 by the average annual compound
rate of return (including capital appreciation/depreciation, and dividends and
distributions paid and reinvested) for the stated period and annualizing the
results. The calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period and
a complete redemption of the investment and, if applicable, the deduction of
the contingent deferred sales charge at the end of the period. For information
concerning the total return of the Fund, see "Performance Information" in Part
II of this Statement of Additional Information.
The Fund's yield is computed 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 (net asset value) 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
expenses for the period with the resulting number being divided by the average
daily number of Fund shares outstanding and entitled to receive dividends
during the period. This yield figure does not reflect the deduction of the
contingent deferred sales charge imposed on certain redemptions of shares
within one year of their purchase. See "How to Redeem Fund Shares" in the
Prospectus. A taxable-equivalent yield is computed by dividing the tax-exempt
yield by 1 minus a stated rate. For the yield and taxable equivalent yield of
the Fund, see "Performance Information" in Part II of this Statement of
Additional Information.
The Fund may also publish the distribution rate and/or the effective
distribution rate. The Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized, by the current net
asset value per share. The Fund's effective distribution rate is computed by
dividing the distribution rate by the ratio (the days in a year divided by the
accrued days of the monthly period) used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed
reinvestment. Investors should note that the Fund's yield is calculated using
a standardized formula, the income component of which is computed from the
yields to maturity of all debt obligations held by the Portfolio based on
prescribed methods (with all purchases and sales of securities during such
period included in the income calculation on a settlement date basis), whereas
the distribution rate is based on the Fund's last monthly distribution which
tends to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month. See "Distributions and Taxes" in the Fund's current
Prospectus. For the Fund's distribution rate and effective distribution rate,
see "Performance Information" in Part II of this Statement of Additional
Information.
The Fund's total return may be compared to the Consumer Price Index and to
the domestic securities indices of the Bond Buyer 25 Revenue Bond Index and
the Lehman Brothers Municipal Bond Index. The Fund's total return and
comparisons with these indices may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio,
including other investment companies.
From time to time, evaluations of the Fund's performance made by
independent sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger
and Morningstar, Inc., may be used in advertisements and in information
furnished to present or prospective shareholders.
From time to time, information, charts and illustrations relating to the
relative effects of changes in interest rates on values of securities of
varying durations may be included in advertisements and other material
supplied to present and prospective shareholders. For example, the following
chart illustrates that bond prices move inversely with interest rates --
values decrease if interest rates rise, and values increase when rates fall.
The shorter a bond's duration, the less its price fluctuates for a given
interest-rate change. For example, if interest rates change by 1%, a limited
maturity bond with a 6-year duration will change by 6%, compared to a 12%
change for a 12-year duration bond. Source: Eaton Vance Management.
The Limited Maturity Volatility Advantage
If interest rates change 1%, a 6-yr. duration bond will change in value by 6% --
half the change of a 12-yr. duration bond.
Approximate % change in value Bond duration
if interest rates change by 1% (in years)
0 0
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example, after 10 years, the purchasing power of $25,000
would shrink to $16,621, $14,968, $13,465 and $12,100, if the annual rates of
inflation during such period were 4%, 5%, 6% and 7%, respectively. (To
calculate the purchasing power, the value at the end of each year is reduced
by the above inflation rates for 10 consecutive years.)
From time to time, information about portfolio allocation and holdings of
the 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. For an example of the Portfolio's diversification by
quality ratings, see "Performance Information" in Part II of this Statement of
Additional Information.
The Fund is designed for investors seeking
* a higher level of after-tax income than normally provided by taxable
and tax-free money funds, certificates of deposit or other short-
term investments, and
* more price stability than investments in long-term municipal bonds
or bond funds.
Comparative information about the yield or distribution rate of the 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. A bank certificate of deposit,
unlike the Fund's shares, pays a fixed rate of interest and entitles the
depositor to receive the face amount of the certificate of deposit at
maturity. A bank money market deposit account is a form of savings account
which pays a variable rate of interest. Unlike the Fund's shares, bank
certificates of deposit and bank money market deposit accounts are insured by
the Federal Deposit Insurance Corporation. A money market mutual fund is
designed to maintain a constant value of $1.00 per share and, thus, a money
market fund's shares are subject to less price fluctuation than the Fund's
shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Advertisements and other material furnished to present and prospective
shareholders may also compare the taxable equivalent yield of the Fund to
after-tax yields of certificates of deposits, bank money market deposit
accounts and money market mutual funds over various income tax brackets.
Such materials may also compare taxable certificate of deposit rates of
return with rates of return in intermediate municipal bond indices and taxable
equivalents of such rates of return. An example of such an index is the Lehman
Brothers 7-Year Municipal Bond Index.
From time to time, information, charts and illustrations relating to the
relative total return performance of Intermediate-Term Tax Free Funds and Tax
Free Money Market Funds, based on information supplied by Lipper Analytical
Services, Inc., may be included in advertisements and other materials
furnished to present and prospective shareholders. For example, for the 10
years ended December 31, 1994, cumulative total returns were: Intermediate-
Term Tax Free Funds, 107.40%; Tax Free Money Market Funds, 48.83%.
A comparison of the Total Return Advantage of intermediate-term tax free
funds over 3-month certificates of deposit (after taxes, assuming a 36%
Federal bracket) and tax free money market mutual funds may also be provided.
In such an illustration, sources of information are Lipper Analytical
Services, Inc., The Federal Reserve Bulletin, and The Wall Street Journal.
The Total Return Advantage
Lipper Tax Free
Money Market Funds 48.83%
3-Month Certificates
of Deposit 47.90% (after taxes, assuming 36% bracket)
Lipper Intermediate-Term
Tax Free Funds 107.40%
Total returns (cumulative change in value with all distributions reinvested)
for 10 years ended December 31, 1994. Sources: Lipper Analytical Services, Inc.,
Federal Reserve Bulletin, The Wall Street Journal.
Total return is a common way to evaluate the results of any mutual fund
investment, because it includes any change in principal value and assumes the
reinvestment of all dividends and capital gains in additional shares. Most tax
free money market funds are designed to maintain a $1 share price by investing
in short-term municipal instruments, while certificates of deposit are insured
by the FDIC. This illustration is not meant to imply or predict any future
rate of return for the Fund.
Information used in advertisements and in materials furnished to present
and prospective shareholders may include statements or illustrations relating
to the appropriateness of types of securities and/or mutual funds which may be
employed to meet specific financial goals, such as (1) funding retirement, (2)
paying for children's education, and (3) financially supporting aging parents.
These three financial goals may be referred to in such advertisements or
materials as the "Triple Squeeze." Such information may also suggest the
appropriateness of the Fund as an investment for certain types of investors
such as: conservative investors who want higher after-tax income, but are
concerned about the potential volatility of long-term bonds or bond funds;
dual-income couples in a high tax bracket; and investors with long-term
municipal bonds or fund portfolios who are seeking diversification.
For additional information, charts and illustrations relating to the
Fund's investment performance, see "Performance Information" in Part II of
this Statement of Additional Information.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus and the
Fund's Part II of this Statement of Additional Information.
Each series of the Trust is treated as a separate entity for Federal
income tax purposes. The Fund has elected to be treated and intends to qualify
each year, as a regulated investment company ("RIC") under the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund intends
to satisfy certain requirements relating to sources of its income and
diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains (after reduction
by any available capital loss carryforwards) in accordance with the timing
requirements imposed by the Code, so as to avoid any Federal income or excise
tax on the Fund. The Fund so qualified for its fiscal year ended March 31,
1995 (see the Notes to the Financial Statements incorporated by reference in
this Statement of Additional Information). Because the Fund invests its assets
in the Portfolio, the Portfolio normally must satisfy the applicable source of
income and diversification requirements in order for the Fund to satisfy them.
The Portfolio will allocate at least annually among its investors, including
the Fund, each investor's distributive share of the Portfolio's net taxable
(if any) and tax-exempt investment income, net realized capital gains, and any
other items of income, gain, loss, deduction or credit. For purposes of
applying the requirements of the Code regarding qualification as a RIC, the
Fund will be deemed (i) to own its proportionate share of each of the assets
of the Portfolio and (ii) to be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid Federal excise tax, the Code requires that the 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 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 any available
capital loss carryforwards, and 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 the Fund
qualifies as a RIC for Federal income tax purposes and the Portfolio is
treated as a partnership for Massachusetts and Federal tax purposes, neither
the Fund nor the Portfolio is liable for any income, corporate excise or
franchise tax in the Commonwealth of Massachusetts.
The 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 Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund, the
Portfolio may be required to liquidate portfolio securities that it might
otherwise have continued to hold in order to generate cash that the Fund may
withdraw from the Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the 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 the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the 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. 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 Federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
Federal income tax returns.
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
the Portfolio and the value of the securities held by the Portfolio may be
affected.
In the course of managing its investments, the 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. The Portfolio may also
realize taxable income from certain short-term taxable obligations, securities
loans, a portion of original issue discount with respect to certain stripped
municipal obligations or their stripped coupons and certain realized accrued
market discount. Any distributions by the Fund of its share of such capital
gains (after reduction by any capital loss carryforwards) 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 Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will
be taxed to shareholders as if received on December 31 of the year in which
they are declared.
The 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
the 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 the 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 period of
Portfolio securities and conversion of short-term into long-term capital
losses. The Portfolio may have to limit its activities in options and futures
contracts in order to enable the Fund to maintain its qualification as a RIC
for Federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a
tax holding period of 6 months or less will be treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares. Any loss realized on the sale or exchange of shares
which have been held for tax purposes for 6 months or less (or such shorter
period as may be prescribed by Treasury regulations) will be disallowed to the
extent the shareholder has received tax-exempt interest with respect to such
shares. In addition, a loss realized on a redemption of Fund shares will be
disallowed to the extent the shareholder acquired other Fund shares within the
period beginning 30 days before the redemption of the loss shares and ending
30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
and certain required certifications, as well as shareholders with respect to
whom the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income 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 treaty. Distributions
from the excess of the 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 result if
the shareholder is engaged in a trade or business in the United States, 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 fails to provide any required
certifications regarding 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 the 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 or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as
principal in selling shares of the Fund. The expenses of printing copies of
prospectuses used to offer shares to financial service firms or investors 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 the Fund and its shares under
Federal and state securities laws are borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan
as described in the Fund's current Prospectus; the provisions of the plan
relating to such payments are included in the Distribution Agreement. The
Distribution Agreement is renewable annually by the Trust's Board of Trustees
(including a majority of its Trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in the operation
of the Fund's 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 voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Fund 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. The Principal Underwriter
estimates that the expenses incurred by it in acting as repurchase agent for
the Fund will exceed the amounts paid therefor by the Fund. For the amount
paid by the Fund to the Principal Underwriter for acting as repurchase agent,
see "Fees and Expenses" in Part II of this Statement of Additional
Information.
DISTRIBUTION PLAN
The Distribution Plan ("the Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the
sales charge rule of the National Association of Securities Dealers, Inc. (the
"NASD Rule"). The purpose of the Plan is to compensate the Principal
Underwriter for its distribution services and facilities provided to the Fund
by paying the Principal Underwriter sales commissions and a separate
distribution fee in connection with sales of Fund shares. The following
supplements the discussion of the Plan contained in the Fund's Prospectus.
The amount payable to the Principal Underwriter pursuant to the Plan as
sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
Fund's net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on
such day, income on portfolio investments of the Portfolio accrued and
allocated to the Fund on such day, and any dividends and distributions
declared on Fund shares. The Fund does not accrue possible future payments as
a liability of the Fund or reduce the Fund's current net assets in respect of
unknown amounts which may become payable under the Plan in the future because
the standards for accrual of such a liability under accounting principles have
not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and 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. Contingent deferred sales charges and accrued
amounts will be paid by the Fund to the Principal Underwriter whenever there
exist Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low
level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Conversely, periods with a low level of sales of Fund shares accompanied by a
high level of early redemptions of Fund shares resulting in the imposition of
contingent deferred sales charges will tend to reduce the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
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 and
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges therefore 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 Fund shares, the nature of such sales (i.e.,
whether they result from exchange transactions, reinvestments or from cash
sales through Authorized Firms), the level and timing of redemptions of Fund
shares upon which a contingent deferred sales charge will be imposed, the
level and timing of redemptions of Fund shares upon which no contingent
deferred sales charge will be imposed (including redemptions involving
exchanges of Fund shares for shares of another fund in the Eaton Vance Classic
Group of Funds which result in a reduction of Uncovered Distribution Charges),
changes in the level of the net assets of the Fund, and changes in the
interest rate used in the calculation of the distribution fee under the Plan.
(For shares sold prior to January 30, 1995, Plan payments are as follows: the
Principal Underwriter pays monthly sales commissions and service fee payments
to Authorized Firms equivalent to approximately .75% and .15%, respectively,
annualized of the assets maintained in the Fund by their customers beginning
at the time of sale. No payments were made at the time of sale and there is no
contingent deferred sales charge.)
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal
Underwriter and service fees to the Principal Underwriter and Authorized Firms
which may be equivalent, on an aggregate basis during any fiscal year of the
Fund, to .90% of the Fund's average daily net assets for such year. For the
sales commission and service fee payments made by the Fund and the outstanding
Uncovered Distribution Charges of the Principal Underwriter, see "Fees and
Expenses -- Distribution Plan" in the Fund's Part II of this Statement of
Additional Information. The Fund believes that the combined rate of all these
payments may be higher than the rate of payments made under distribution plans
adopted by other investment companies pursuant to Rule 12b-1. Although the
Principal Underwriter will use its own funds (which may be borrowed from
banks) to pay sales commissions at the time of sale, it is anticipated that
the Eaton Vance organization will profit by reason of the operation of the
Plan through an increase in the Fund's assets (thereby increasing the advisory
fee payable to BMR by the Portfolio) resulting from the sale of Fund shares
and through the amounts paid to the Principal Underwriter, including
contingent deferred sales charges, pursuant to the Plan. The Eaton Vance
organization may be considered to have realized a profit under the Plan if at
any point in time the aggregate amounts therefore received by the Principal
Underwriter pursuant to the Plan and from contingent deferred sales charges
have exceeded the total expenses theretofore incurred by such organization in
distributing 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 Fund.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of both a majority of
(i) the Trustees of the Trust who are not interested persons of the Trust and
who have no direct or indirect financial interest in the operation of the Plan
or any agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all
of the Trustees then in office, and the Distribution Agreement contains a
similar provision. The Plan and Distribution Agreement may be terminated at
any time by a vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the outstanding voting securities of the Fund. The provisions of
the Plan relating to payments of sales commissions and distribution fees to
the Principal Underwriter are also included in the Distribution Agreement
between the Trust on behalf of the Fund and the Principal Underwriter. Under
the Plan the President or a Vice President of the Trust shall provide to the
Trustees for their review, and the Trustees shall review at least quarterly, a
written report of the amount expended under the Plan and the purposes for
which such expenditures were made. The Plan may not be amended to increase
materially the payments described therein without approval of the shareholders
of the Fund, and all material amendments of the Plan must also be approved by
the Trustees as required by Rule 12b-1. So long as the Plan is in effect, the
selection and nomination of Trustees who are not interested persons of the
Trust shall be committed to the discretion of the Trustees who are not such
interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which have benefited and will continue to benefit the Fund and its
shareholders. Payments for sales commissions and distribution fees made to the
Principal Underwriter under the Plan will compensate the Principal Underwriter
for its services and expenses in distributing shares of the Fund. Service fee
payments made to the Principal Underwriter and Authorized Firms under the Plan
provide incentives to provide continuing personal services to investors and
the maintenance of shareholder accounts. By providing incentives to the
Principal Underwriter and Authorized Firms, the 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 have
determined that in their judgment there is a reasonable likelihood that the
Plan will benefit the Fund and its shareholders.
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 the 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 the 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 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 Portfolio 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 Portfolio may also purchase municipal obligations from
underwriters, the cost of which may include undisclosed fees and concessions
to the underwriters. While it is anticipated that the Portfolio will not pay
significant brokerage commissions in connection with such portfolio security
transactions, 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 Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
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 the
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 commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either 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, 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 Portfolio transactions and from
third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic and market reviews,
industry and company reviews, evaluations of securities and portfolio
strategies and transactions and 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 the 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 commissions 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.
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 firm with whom portfolio orders
may be placed the fact that such firm has sold or is selling shares of the
Fund or of other investment companies sponsored by BMR or Eaton Vance. This
policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc., which rule provides that no firm which is a member
of the Association 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 Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure 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 Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the brokerage
commissions paid by the Portfolio on portfolio transactions, see "Fees and
Expenses" in Part II of this Statement of Additional Information.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes. The Trust, which is a
Massachusetts business trust established in 1985, was originally called Eaton
Vance California Municipals Trust. The Trust changed its name to Eaton Vance
Investment Trust on April 28, 1992.
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 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. In addition, the By-laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed
from office either by declaration in writing filed with the custodian of the
assets of the Trust or by votes cast in person or by proxy at a meeting called
for the purpose.
In accordance with the Declaration of Trust of the 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 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 the 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.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any
emergency as determined by the Commission which makes it impracticable for the
Portfolio to dispose of its securities or value its assets, or during any
other period permitted by order of the Commission for the protection of
investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual
Report accompanies this Statement of Additional Information.
<PAGE>
APPENDIX
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 edge." 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 fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
-------------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information 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 the Portfolio's fiscal year end.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. the
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
affecting 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
VMIG, 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 VMIG 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.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months.
Issuers rated PRIME-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA have 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 differ 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 Standard & Poor's 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.
PROVISIONAL RATINGS: 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: Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus(+) designation.
SP-2: Satisfactory capacity to pay principal and interest; with some
vulnerability to adverse financial and economic charges over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
S&P commercial paper ratings is a current assessments of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
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 had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
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.
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 actual or imminent default of 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 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 is likely to 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. The 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>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC CALIFORNIA LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1) a
high level of current income exempt from regular Federal income tax and
California State personal income taxes and (2) limited principal fluctuation.
The Fund currently seeks to achieve its investment objective by investing its
assets in the California Limited Maturity Tax Free Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
lnvestment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests in
real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor the
Portfolio may (a) 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 its net
assets (taken at current value) is held as collateral for such sales at any one
time. (The Fund and the Portfolio will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes); (b)
purchase or retain in its portfolio securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust or of the Portfolio, or is a member, officer, director or trustee of
any investment adviser of the Fund or of the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (c)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
or the Portfolio in units or attached to securities may be deemed to be without
value. The Fund and the Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it,
would be so invested. Neither the Fund nor the Portfolio intends to invest in
reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain California considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in California issuers. Such information 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 California issuers. Neither the Trust nor the Portfolio
has independently verified this information.
Constitutional Limitations on Taxes and Appropriations
Limitation on Taxes. Certain California municipal obligations may be obligations
of issuers which rely in whole or in part, directly or indirectly, on ad valorem
property taxes as a source of revenue. The taxing powers of California local
governments and districts are limited by Article XIII A of the California
Constitution, enacted by the voters in 1978 and commonly known as "Proposition
13." Briefly, Article XIII A limits to 1% of full cash value the rate of ad
valorem property taxes on real property and generally restricts the reassessment
of property to 2% per year, except upon new construction or change of ownership
(subject to a number of exemptions). Taxing entities may, however, raise ad
valorem taxes above the 1% limit to pay debt service on certain voter-approved
bonded indebtedness.
Under Article XIII A, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This system
has resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13. The U.S. Supreme Court recently heard one of these
lawsuits, and on June 18, 1992 announced a decision upholding Proposition 13.
Article XIII A prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." A
California Supreme Court decision, however, allowed the levy, without voter
approval, of "general taxes" which were not dedicated to a specific use. In
response to these decisions, the voters of the State in 1986 adopted an
initiative statute which imposed significant new limits on the ability of local
entities to raise or levy general taxes, except by receiving majority local
voter approval. Significant elements of this initiative, "Proposition 62," have
been overturned in recent court cases. An initiative proposed to reenact the
provisions of Proposition 62 as a constitutional amendment was defeated by the
voters in November 1990, but such a proposal may be renewed in the future.
Appropriations Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIII B of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Proposition 98 and 111 in 1988 and 1990, respectively. Article XIII B prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIII B appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post-
1989 increases in gasoline taxes and vehicle weight fees, and (5) appropriations
made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized by Proposition 111 to follow more closely growth in the State's
economy. "Excess" revenues are measured over a two-year cycle. Local
governments, must return any excess to taxpayers by rate reductions. With more
liberal annual adjustment factors since 1988, and depressed revenues since 1990
because of the recession, few governments are currently operating near their
spending limits, but this condition may change over time. Local governments may
by voter approval exceed their spending limit for up to four years.
Because of the complex nature of Articles XIII A and XIII B of the
California Constitution, the ambiguities and possible inconsistencies in their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIII A or Article XIII B on California municipal obligations or on the
ability of the State or local governments to pay debt service on such
obligations. It is not presently possible to predict the outcome of any pending
litigation with respect to the ultimate scope, impact or constitutionality of
either Article XIII A or Article XIII B, or the impact of any such
determinations upon State agencies or local governments, or upon their ability
to pay debt service on their obligations. Future initiatives or legislative
changes in laws or the California Constitution may also affect the ability of
the State or local issuers to repay their obligations.
Obligations of the State of California
As of April 1, 1995, the State had approximately $19.2 billion of general
obligation bonds outstanding, and $3.3 billion remained authorized but unissued.
In addition, at June 30, 1994, the State had lease-purchase obligations, payable
from the State's general fund, of approximately $6.0 billion with authorized but
unissued lease purchase debt of $1.3 billion. The State's outstanding general
obligation bond debt has gradually risen in recent years: from approximately
$15.9 billion in 1991-92 to approximately $19.2 billion in 1994-95. Of the
State's outstanding general obligation debt, approximately 22% is presently
self-liquidating (for which program revenues are anticipated to be sufficient to
reimburse the general fund for debt service payments). Three general obligation
bond propositions, totalling $3.7 billion, were approved by voters in 1992. The
State has paid the principal of and interest on its general obligation bonds,
lease-purchase debt and short-term obligations when due.
As of the date of this Statement of Additional Information, general
obligation bonds issued by the State of California are rated A1, A, A by
Moody's, S&P and Fitch, respectively. Starting in 1991 and continuing through
the middle of 1994, there has been a relatively steady deterioration in the
State's general obligation bond rating. On July 15, 1994, all three of the
rating agencies rating the State's long-term debt lowered their ratings of the
State's general obligation bonds. Moody's lowered its rating from "AA" to "A1,"
S&P lowered its rating from "A+" to "A" and termed its outlook as "stable," and
Fitch lowered its rating from "AA" to "A." An explanation of such actions may be
obtained only from the respective rating agencies. Future deterioration in the
State's fiscal condition could result in additional downgrades by the rating
agencies.
Recent Financial Results
Since the start of the 1990-91 Fiscal Year, the State has faced the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), exports and financial services, among
others, have all been severely affected. Job losses have been the worst of any
post-war recession and continued through the end of 1993. Following Department
of Finance projections that non-farm employment levels would be stable in 1994,
employment grew 3% between November 1993 and November 1994. However,
unemployment was well above the national average through 1994.
The recession has seriously affected State tax revenues, which basically
mirror economic conditions. It has also caused increased expenditures for health
and welfare programs. The State has also been facing a structural imbalance in
its budget with the largest programs supported by the General Fund -- K-12
schools and community colleges, health and welfare, and corrections -- growing
at rates higher than the growth rates for the principal revenue sources of the
General Fund. As a result, the State has experienced recurring budget deficits.
The State Controller reports that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92, and were essentially equal in 1992-93. By
June 30, 1993, according to the Department of Finance, the State's Special Fund
for Economic Uncertainties had a deficit, on a budget basis, of approximately
$2.8 billion. The 1993-94 Budget Act incorporated a Deficit Retirement Plan to
repay this deficit over two fiscal years. The original budget for 1993-94
reflected revenues which exceeded expenditures by approximately $2.0 billion. As
a result of the continuing recession, the excess of revenues over expenditures
for the fiscal year was only about $522 million. Thus the accumulated budget
deficit at June 30, 1994 was approximately $2.0 billion, and the deficit will
not be retired by June 30, 1995 as planned.
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget, and
reduction of available internal borrowable funds, have combined to significantly
deplete the State's cash resources to pay its ongoing expenses. In order to meet
its cash needs, the State has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year.
The 1994-95 Budget Act is projected to have $41.9 billion of General Fund
revenues and transfers and $40.0 billion of budget expenditures. In addition,
the 1994-95 Budget Act anticipates deferring retirement of about $1 billion of
the accumulated budget deficit to the 1995-96 Fiscal Year when it is intended to
be fully retired by June 30, 1996.
1993-94 Budget. The 1993-94 budget represented the third consecutive year of
extremely difficult budget choices for the State, in view of the continuing
recession. The budget act, signed on June 30, 1993, provided for General Fund
expenditures of $38.5 billion, a 6.3% decline from the prior year. Revenues were
projected at $40.6 billion, about $400 million below the prior year. To bring
the budget into balance, the budget act and related legislation provided for
transfer of $2.6 billion of local property taxes to school districts, thus
relieving State support obligations; reductions in health and welfare
expenditures; reductions in support for higher education institutions; a
two-year suspension of the renters' tax credit; and miscellaneous cuts in
general government spending and certain one-time and accounting adjustments.
There were no general State tax increases, but a 0.5% temporary State sales tax
scheduled to expire on June 30 was extended for six months, and dedicated to
support local government public safety costs.
Revenues for 1993-94 were $800 million lower than original projections and
expenditures were $780 million higher as a result of higher health and welfare
caseloads, lower property taxes and lower than anticipated federal government
payments for immigration-related costs.
1994-95 Budget. The 1994-95 fiscal year represents the fourth consecutive
year the Governor and Legislature were faced with a very difficult budget
environment to produce a balanced budget. Many program cuts and budgetary
adjustments have already been made in the last three years. The Budget
recognized that the accumulated deficit could not be repaid in one year, and
proposed a two-year solution. The budget projects operating surpluses for the
budget for both 1994-95 and 1995-96, and lead to the elimination of the
accumulated budget deficit, estimated at about $2.0 billion at June 30, 1994, by
June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projects
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflects the Administration's forecast of an improving economy.
The Budget Act projects the effective receipt of about $770 million from the
Federal Government, $360 million of which is to reimburse the State's costs for
immigrant-related expenses and the balance is attributable to federal
subventions thus reducing State expenditures. Little or none of this money is
now expected to be received. The Legislature took no action on a proposal in the
January Governor's Budget to undertake an expansion of the transfer of certain
programs to counties, which would also have transferred to counties 0.5% of the
State's current sales tax. The Budget Act projects Special Fund revenues of
$12.1 billion, a decrease of 2.4% from 1993-94 estimated revenues. The
Governor's 1995-96 Budget proposal of January, 1995 included an upward revision
of General Fund revenues to $42.4 billion for the 1994-95 fiscal year.
The 1994-95 Budget Act projects General Fund expenditures of $40.9 billion,
an increase of $1.6 billion over 1993-94. The Budget Act also projects Special
Fund expenditures of $13.7 billion, a 5.4% increase over 1993-94 estimated
expenditures. Although, the 1994-95 Budget Act contains no tax increases, under
legislation enacted for the 1993-94 Budget, the renters' tax credit was
suspended for two years (1993 and 1994). A ballot proposition to permanently
restore the renters' tax credit after this year failed at the June, 1994
election. The Legislature enacted a further one-year suspension of the renters'
tax credit, for 1995, saving about $390 million in the 1995-96 Fiscal Year. The
1994-95 Budget assumes that the State will use a cash flow borrowing program in
1994-95 which combines one-year notes and certain warrants. Issuance of the
warrants allows the State to defer repayment of approximately $1.0 billion of
its accumulated budget deficit into the 1995-96 Fiscal Year. The Budget
Adjustment Law, enacted along with the 1994-95 Budget Act is designed to ensure
that the warrants will be repaid in the 1995-96 Fiscal Year. The State's severe
financial difficulties for the current budget year will result in continued
pressure upon almost all local governments, particularly school districts and
counties which depend on State aid. Despite efforts in recent years to increase
taxes and reduce governmental expenditures, there can be no assurance that the
State will not face budget gaps in the future.
Proposed 1995-96 Budget. On January 10, 1995, the Governor presented his
proposed fiscal year 1995-96 Budget. This budget projects total General Fund
revenues and transfers of $42.5 billion, and expenditures of $41.7 billion, to
complete the elimination of the accumulated budget deficits from earlier years.
However, this proposal leaves no cushion, as the projected budget reserve at
June 30, 1996 would be only about $92 million. While proposing increases in
funding for schools, universities and corrections, the Governor proposes further
cuts in welfare programs, and a continuation of the "realignment" of functions
with counties which would save the State about $240 million. The Governor also
expects about $800 million in new federal aid for the State's costs of
incarcerating and educating illegal immigrants. The Budget proposal also does
not account for possible additional costs if the State loses its appeals on
lawsuits which are currently pending concerning such matters as school funding
and pension payments, but these appeals could take several years to resolve.
Part of the Governor's proposal also is a 15% cut in personal income and
corporate taxes, to be phased in over three years, starting with calendar year
1996 (which would have only a small impact on 1995-96 income).
Legal Proceedings
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require the
State to make significant future expenditures or may substantially impair
revenues.
Economy
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 31 million represents 12.3%
of the total United States population and grew by 27% in the 1980s. Total
personal income in the State, at an estimated $683 billion in 1993, accounts for
about 13% of all personal income in the nation.
Reports issued by the State Department of Finance and the Commission on
State Finance indicate that the State's economy is recovering from its worst
recession since the 1930s. The largest job losses have been in Southern
California, led by declines in the aerospace and construction industries.
Weakness statewide occurred in manufacturing, construction, services and trade.
Additional military base closures will have further adverse effects on the
State's economy later in the decade. California's unemployment rate was 7.9% in
April, 1995, a significant improvement over the previous year's level of 9.3%
but still above the national rate of 5.8%.
Other Considerations
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9 of
the Federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments which caused a liquidity crisis for
the Fund and the County. More than 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1994, the County estimated the Fund's loss at about $2 billion, or 27% of its
initial deposits of around $7.4 billion. These losses could increase as the
County sells investments to restructure the Fund, or if interest rates rise.
Many of the entities which kept moneys in the Fund, including the County, are
facing cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of these
entities have, and others may in the future, default in payment of their
obligations. Moody's and S&P have suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Fund. As of December 1994, the Portfolio did not
hold any direct obligations of the County. However, the Portfolio did hold bonds
of some of the governmental units that had money invested with the County; the
impact of the loss of access to these funds, the loss of expected investment
earnings and the potential loss of some of the principal invested is not known
at this point. There can be no assurances that these holdings will maintain
their current ratings and/or liquidity in the market.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to ensure
that school districts have sufficient funds to operate. Longer term, this
financial crisis could have an adverse impact on the economic recovery that has
only recently taken hold in Southern California.
In early June, 1995, Orange County filed a proposal with the bankruptcy
court that would require holders of the County's short-term notes to wait a year
before being repaid. The existence of this proposal and its adoption could
disrupt the market for short-term debt in California and possibly drive up the
State's borrowing costs.
The repayment of industrial development securities and other obligations
secured by real property may be affected by California laws limiting foreclosure
rights of creditors. Securities backed by healthcare and hospital revenues may
be affected by changes in State regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program), including
risks related to the policy of awarding exclusive contracts to certain
hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project area decline (e.g., because of a major
natural disaster such as an earthquake), or there is a deemphasis or
reallocation of property taxes by legislation or initiative, the tax increment
revenue may be insufficient to make principal and interest payments on these
bonds. Both Moody's and S&P suspended ratings on California tax allocation bonds
after the enactment of Articles XIII A and XIII B, and only resumed such ratings
on a selective basis.
Proposition 87, approved by California voters in 1988, required that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay the entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not presently possible to predict the extent to which any such legislation
will be enacted. Nor is it presently possible to determine the impact of any
such legislation on California municipal obligations in which the Portfolio may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California municipal obligations.
Certain California obligations may be payable solely from the revenues of
health care institutions. Such revenues may be negatively affected by efforts of
the state and of private health plans and insurers to contract with such
institutions for fixed, discounted payments for services to Medicaid and
insurance beneficiaries. Such California obligations may be insured by the
state. In the event of a default by the health care institution, the state has
the option of issuing replacement debentures payable from a reserve fund.
However, this reserve fund has been found to be underfunded in a study conducted
in 1986 and is subject to reappropriation by the California Legislature for
other purposes.
Certain California obligations may be secured by real estate mortgages or
deeds of trust. California has several statutory provisions that may limit the
remedies of secured creditors, such as issuers of California obligations. A
creditor's right to obtain a deficiency judgment is barred when a foreclosure is
accomplished through a nonjudicial trustee's sale. A secured creditor is also
required to exhaust its real property security by foreclosure before bringing a
personal action against the debtor. Any deficiency judgment following a judicial
sale of foreclosed property is limited to the excess of the outstanding debt
over the fair value of the property at the time of sale, even if the actual bids
at such sale were lower than such value. Finally, the debtor has the right to
redeem the foreclosed property from any judicial foreclosure sale that could
result in a deficiency judgment.
Due to certain limitations on a creditor's private powers of sale after
foreclosure, the effective minimum period for foreclosing on a mortgage could
exceed seven months after the initial default. Such delays in collections could
disrupt the flow of revenues to an issuer for the payment of debt service on
California obligations secured by real estate mortgages. In some cases, the
nonjudicial sale of property by an issuer could be precluded as a violation of
constitutional due process.
Under California's anti-deficiency law, there is no personal recourse
against a mortgagor of a single family residence purchased with a loan secured
by a mortgage. California law also limits the charges that may be imposed with
respect to voluntary mortgage prepayments. These provisions could affect the
flow of revenues available for debt service to the issuers of California
obligations secured by single family home mortgages.
Substantially all of California is within an active geologic region subject
to major seismic activity. Any California municipal obligation in the Portfolio
could be affected by an interruption of revenues because of damaged facilities,
or, consequently, income tax deduction for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage at
reasonable rates; (ii) an insurer to perform on its contracts of insurance in
the event of widespread losses; or (iii) the Federal or State government to
appropriate sufficient funds within their respective budget limitations.
On January 17, 1994, an earthquake struck Los Angeles causing significant
damage to public and private structures and facilities. Although some
individuals and businesses suffered losses totaling in the billions of dollars,
the overall effect of the earthquake on the regional and State economy is not
expected to be serious.
The State has shifted responsibility for certain health and welfare programs
and provided the counties with increased taxing powers to cover their costs.
While the State expects that the increased taxes will be sufficient to cover
increased costs, there can be no assurance that this will be the case. If the
increased costs are not covered by the increased taxes, the counties will be
responsible to fund the difference. Any added expenditures in excess of
increased revenues and subsequent adverse effect upon county finances would
likely have a negative impact upon individual county and local bond prices.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $82,343,725. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$418,800 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, May 3, 1993,
to March 31, 1994, absent a fee reduction, the Portfolio would have paid BMR
advisory fees of $278,603 (equivalent to 0.45% (annualized) of the Portfolio's
average daily net assets for such period). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $32,971.
The Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992
and remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended March 31, 1995 and for the period from the start of business,
December 8, 1993, to March 31, 1994, $34,529 and $8,889, respectively, of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees, as
required by Rule 12b-1. For the fiscal year ended March 31, 1995, the Fund made
sales commission payments under the Plan to the Principal Underwriter
aggregating $86,137, of which $85,585 was paid by the Principal Underwriter to
Authorized Firms as sales commissions and the balance of which was retained by
the Principal Underwriter. As at March 31, 1995 the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $1,286,000 (which amount was equivalent to 16.1% of
the Fund's net assets on such day). For the fiscal year ended March 31, 1995,
the Fund made service fee payments to the Principal Underwriter under the Plan
aggregating $17,159, of which $17,009 was paid as service fee payments to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $260.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $3,884. For the
fiscal year ended March 31, 1995, the Portfolio paid IBT $11,626.
BROKERAGE
For the fiscal year ended March 31, 1995 and for the period from the start
of business, May 3, 1993, to March 31, 1994, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the other funds in
the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $34 $1,174(2) $135,000(4)
Samuel L. Hayes, III ...... 33 1,213(3) 147,500(5)
Norton H. Reamer .......... 31 1,258 135,000
John L. Thorndike ......... 32 1,322 140,000
Jack L. Treynor ........... 34 1,240 140,000
------------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $199 of deferred compensation.
(3) Includes $393 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March 31,
1995. The total return and percentage changes for the period prior to the Fund's
commencement of operations on December 8, 1993 reflect the Portfolio's total
return and percentage changes (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT*
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund 05/29/92 $1,000 $1,140.80 $1,140.80 14.08% 4.75% 14.08% 4.75%
1 Year
Ended 3/31/95 03/31/94 $1,000 $1,038.01 $1,028.06 3.80% 3.80% 2.81% 2.81%
<CAPTION>
PERCENTAGE CHANGES* 5/29/92 -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/93 -- 7.66% -- -- 6.66% --
3/31/94 2.07% 9.90% 5.27% 1.15% 9.90% 5.27%
3/31/95 3.80% 14.08% 4.75% 2.81% 14.08% 4.75%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
* If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
** No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares acquired
through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no such charge is
imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange Privilege" in
the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.81%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.81% would be 5.83%, assuming a
combined Federal and State tax rate of 34.70%. If a portion of the Fund's
expenses had not been allocated to the Administrator, the Fund would have had a
lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 22, 1995) was 3.75%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.82%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 58.7%
Aa or AA 22.0
A 17.3
Baa or BBB 2.0
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets used in the table are
the combined Federal brackets applicable for 1995 and the California State
income tax brackets applicable for 1994: 20.10% for single filers with taxable
income up to $23,350 and joint filers up to $39,000; 34.70% for single filers
with taxable income from $23,351 to $56,550 and joint filers from $39,001 to
$94,250; 37.90% for single filers with taxable income from $56,551 to $117,950
and joint filers from $94,251 to $143,600; 43.04% for single filers with taxable
income from $117,951 to $256,500 and joint filers from $143,601 to $256,500; and
46.24% for single and joint filers with taxable income over $256,500. These
brackets are calculated using 1995 Federal tax rates, the highest 1994
California state rate applicable at the upper portion of the brackets and assume
that California taxes are deducted on the Federal income tax return. The
applicable Federal tax rates within each of these combined brackets are 15%,
28%, 31%, 36% and 39.6%, over the same ranges of income. Tax brackets are
calculated using the highest state rate within each bracket. These brackets do
not take into account the phaseout of personal exemptions and limitation on
deductibility of itemized deductions over certain ranges of income. Investors
who are subject to such phaseout or limitation may be subject to higher combined
tax rates than indicated above. Investors should consult with their tax advisers
for more information.
<TABLE>
<CAPTION>
TAX BRACKET
20.10% 34.70% 37.90% 43.04% 46.24%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............. 5.01 6.13 6.44 7.02 7.44
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.60 2.12 2.02 1.85 1.75
</TABLE>
The following is an illustration of the Tax Free Yield Advantage, comparing
the after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.00%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax free
investment yielding 4.00%, and compares the after-tax return of such
investments. The chart is based on 3-month bank CDs (Source: The Wall Street
Journal) and current limited maturity municipal bond yields, compiled by Eaton
Vance Management. This illustration is not meant to imply or predict any future
rate of return for the Fund. See your financial adviser for the Fund's current
yield and actual CD rates.
The Tax Free Yield Advantage
(43.04% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.85% After-tax yield
4.00% Tax free investment
7.02% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ...
3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,398.80) NONE
After-tax income: $1,851.20 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (43.04% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (43.04% bracket)
1985 7.34 7.86 13.80
1986 5.74 6.23 10.94
1987 7.25 6.43 11.29
1988 8.10 6.61 11.60
1989 7.82 6.73 11.82
1990 7.38 6.69 11.75
1991 5.36 6.00 10.53
1992 3.08 5.38 9.45
1993 2.69 4.65 8.16
1994 3.22 5.40 9.48
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
<PAGE>
ADDITIONAL TAX MATTERS
Individual shareholders of the Fund who reside in California will not be
subject to California personal income tax on distributions received from the
Fund to the extent such distributions are attributable to interest on
obligations the interest on which is exempt under either Federal or California
law from taxation by the State of California, provided that at least 50% of the
Portfolio's assets at the close of each quarter of its taxable year is invested
in such obligations. Distributions from the Fund which are attributable to
sources other than those in the preceding sentence will generally be taxable to
such individual shareholders as ordinary income. Distributions of the Fund's net
capital gains (the excess of net long-term capital gain over net short-term
capital loss) are taxable to shareholders as long-term capital gains for
California personal income tax purposes. In addition, distributions other than
exempt-interest dividends are includable in income subject to the California
alternative minimum tax. Shares of the Fund will not be subject to the
California property tax.
Distributions of investment income and long-term and short-term capital
gains from the Fund will not be excluded from taxable income in determining
California corporate taxes for corporate shareholders. However, distributions of
the Fund's net capital gains are treated as long-term capital gains for
California corporate tax purposes. In addition, distributions may be includable
in income subject to the alternative minimum tax.
California tax law resembles Federal tax law in restricting the
deductibility of interest on indebtedness incurred by shareholders to purchase
shares and the allowance of losses realized by a shareholder upon the sale or
redemption of shares.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 62.4% of the outstanding shares, which
were 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.
In addition, as of June 30, 1995, Painewebber FBO Joan D. McCauley TTEE, San
Francisco, CA owned beneficially and of record 6.79% of the outstanding shares
of the Fund. To the Trust's knowledge, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the 1995 regular Federal income
tax rates and California State income tax laws and tax rates applicable for
1994. It gives 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%.
<TABLE>
<CAPTION>
A FEDERAL AND CALIFORNIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------------------------- CA 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 $ 23,350 Up to $ 39,000 20.1% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 34.7 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 56,551 - $117,950 $ 94,251 - $143,600 37.9 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$117,951 - $256,500 $143,601 - $256,500 43.0 7.02 7.90 8.78 9.66 10.53 11.41 12.29
Over $256,500 Over $256,500 46.2 7.44 8.37 9.30 10.23 11.16 12.09 13.02
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
*Net amount subject to Federal and California personal income tax after
deductions and exemptions.
+The combined Federal and California tax brackets are calculated using the
highest California State rate applicable at the upper portion of these
brackets and assume that taxpayers deduct California State income taxes paid
on their Federal income tax returns. An investor with taxable income within
these brackets may have a lower combined tax rate than the combined rate
shown. 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.
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including California State Income Taxes)
for taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Classic California Limited Maturity
Tax Free Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations the interest from
which is exempt from the regular Federal income tax and California personal
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. The table does not take into account state or local taxes, if
any, payable on Fund distributions except for California personal income taxes.
It should also be noted that 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 or
increase the recipient's liability for the Federal alternative minimum tax. The
illustrations assume that the Federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC CONNECTICUT LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1)
a high level of current income exempt from regular Federal income tax and
Connecticut State personal income taxes and (2) limited principal fluctuation.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Connecticut Limited Maturity Tax Free Portfolio (the
"Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund 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. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust, or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) 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, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund is permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
are not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate (including limited partnership interests,
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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its principal underwriter, as
principal; however, any such persons or concerns may be employed as a broker
upon customary terms;
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may 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 that the Board of Trustees of the Trust or the
Portfolio, or its delegate, determines to be liquid, based upon the trading
markets for the specific security; provided, however, that the Fund may invest
without limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio in another investment
company with substantially the same investment objective. Neither the Fund nor
the Portfolio may 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. The Fund and Portfolio may
purchase put options on municipal obligations only if, after such purchase,
not more than 5% of its net assets, as measured by the aggregate of the
premiums paid for such options held by it, would be so invested. Neither the
Fund nor the Portfolio may invest in warrants, valued at the lower of cost or
market, exceeding 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of its net assets, may be warrants
which are not listed on the New York or American Stock Exchange. Warrants
acquired by the Fund or the Portfolio in units or attached to securities may
be deemed to be without value. Neither the Fund nor the Portfolio intends to
invest in reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Connecticut considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Connecticut issuers. Such information 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 Connecticut issuers. Neither the Trust nor
the Portfolio has independently verified this information.
Although the manufacturing sector has traditionally been of prime economic
importance to Connecticut, the non-manufacturing sector of employment
(primarily aircraft engines, helicopters and submarines) now dominate the
State's economy. Approximately 82% of the State's non-agricultural employment
is in the non-manufacturing sector, with 30% of the total in the service
sector, 22% in the wholesale and retail trade sector, and 14% in the
government sector. Defense-related business plays an important role in the
Connecticut economy, and defense awards to Connecticut have traditionally been
among the highest in the nation on a per capita basis. However, in recent
years the Federal government has reduced defense-related spending which has
had an adverse impact on the Connecticut economy.
As of April 1995, the unemployment rate in Connecticut on a seasonally
adjusted basis was 4.9%, compared to 5.86% for the nation. Between March 1994
and March 1995, the State gained 13,700 non-farm jobs, with gains in the
services, trade and construction sectors offsetting losses in the
manufacturing (durable goods), finance, insurance and real estate sectors of
the economy. The State's economy is beginning a slow recovery, constrained by
military spending cuts and cost containment pressures in the insurance and
biomedical industries. The full economic impact of continued corporate
downsizing in the defense and insurance industries may not be fully realized.
The State derives over 70% of its revenues from taxes imposed by the
State. The two major taxes have been the sales and use tax and the corporation
business tax, each of which is sensitive to changes in the level of economic
activity in the State, but the Connecticut personal income tax on individuals,
trusts, and estates enacted in 1991 is expected to supersede them in
importance. In order to promote economic stability and provide a positive
business climate, several tax changes were adopted during the 1993 legislative
session. Among the most significant changes were the changes to the
Corporation Business Tax -- a 4 year gradual rate reduction to 11.25%
beginning January 1, 1995; 11% beginning January 1, 1996; 10.5% beginning
January 1, 1997 and 10% beginning January 1, 1998.
During fiscal 1991-92, the State issued $965.7 million of Economic
Recovery Notes, of which $555.6 million remained outstanding as of October 1,
1994. The State ended the 1992-93 fiscal year with a $113.5 million General
Fund operating surplus and a $19.7 million General Fund surplus for the 1993-
94 fiscal year.
The State, its officers and employees are defendants in numerous lawsuits.
According to the State Attorney General's Office, an adverse decision in any
of the cases summarized herein could materially affect the State's financial
position: (i) an action to enforce the spending cap provision of the State's
constitution by seeking to require that the General Assembly define certain
terms used therein and to enjoin certain increases in "general budget
expenditures" until this is done; (ii) litigation on behalf of black and
hispanic school children in the City of Hartford seeking "integrated
education" within the greater Hartford metropolitan area; (iii) litigation
involving claims by Indian tribes to less than 1/10 of 1% of the State's land
area; (iv) litigation challenging the State's method of financing elementary
and secondary public schools on the grounds that it denies equal access to
education; (v) an action in which two retarded persons seek placement outside
a State hospital, new programs, and damages on behalf of themselves and all
mentally retarded patients at the hospital; (vi) litigation involving claims
for refunds of taxes by several cable television companies; (vii) an action on
behalf of all persons with retardation or traumatic brain injury, 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; (viii) an
action by the Connecticut Hospital Association and 33 hospitals seeking to
require the State to reimburse hospitals for in-patient medical services on a
more favorable basis; (ix) a class action by the Connecticut Criminal Defense
Lawyers Association claiming a campaign of illegal surveillance activity and
seeking damages and injunctive relief; (x) two actions for monetary damages
brought by a former patient at a State mental hospital stemming from an
attempted suicide that left her brain-damaged; (xi) an action challenging the
validity of the State's imposition of surcharges on hospital charges to
finance certain uncompensated care costs incurred by hospitals; and (xii) an
action challenging the validity of the State's imposition of gross earnings
taxes on hospital revenues to finance certain uncompensated care costs.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $17,315,618. For the
fiscal year ended March 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $80,031 (equivalent to 0.45% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of the full amount of its advisory fee and BMR
was allocated a portion of the expenses related to the operation of the
Portfolio in the amount of $8,932. For the period from the Portfolio"s start
of business, April 16, 1993, to March 31, 1994, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $34,054 (equivalent to 0.44%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of the full
amount of its advisory fee and BMR was allocated a portion of the expenses
related to the operation of the Portfolio in the amount of $14,314. The
Portfolio's Investment Advisory Agreement with BMR is dated April 9, 1993 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended March 31, 1995 and for the period from the start of business,
December 27, 1993, to March 31, 1994, $24,567 and $2,897, respectively, of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, including the Rule 12b-1
Trustees, as required by Rule 12b-1. For the fiscal year ended March 31, 1995,
the Fund made sales commission payments under the Plan to the Principal
Underwriter aggregating $16,580, of which $16,394 was paid by the Principal
Underwriter to Authorized Firms as sales commissions and the balance of which
was retained by the Principal Underwriter. As at March 31, 1995 the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $217,000 (which amount was
equivalent to 13.7% of the Fund's net assets on such day). For the fiscal year
ended March 31, 1995, the Fund made service fee payments to the Principal
Underwriter under the Plan aggregating $3,302, of which $3,236 was paid as
service fees to Authorized Firms and the balance of which was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $115.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $5,331. For
the fiscal year end March 31, 1995, the Portfolio paid IBT $9,588.
BROKERAGE
For the fiscal year ended March 31, 1995, and for the period from the
start of business, April 16, 1993, to March 31, 1994, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the other funds in
the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... --0-- $34(2) $135,000(4)
Samuel L. Hayes, III ...... --0-- 33(3) 147,500(5)
Norton H. Reamer .......... --0-- 31 135,000
John L. Thorndike ......... --0-- 32 140,000
Jack L. Treynor ........... --0-- 34 140,000
------------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $5 of deferred compensation.
(3) Includes $10 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
WILLIAM H. AHERN (36), Vice President of the Portfolio
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Portfolio
on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March
31, 1995. The total return and percentage changes for the period prior to the
Fund's commencement of operations on December 27, 1993 reflect the Portfolio's
total return and percentage changes (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Such performance has not been
adjusted to reflect the Fund's distribution fees and certain other expenses.
If such an adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT*
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund 4/15/93 $1,000 $1,041.75 $1,041.75 4.17% 2.11% 4.17% 2.11%
1 Year Ended
3/31/95 3/31/94 $1,000 $1,037.81 $1,027.85 3.78% 3.78% 2.79% 2.79%
<CAPTION>
PERCENTAGE CHANGES* 4/15/93 -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/94 -- 0.38% -- -- -0.57% --
3/31/95 3.78% 4.17% 2.11% 2.79% 4.17% 2.11%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
* If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
** No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares
acquired through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no
such charge is imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.73%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 3.73% would be 5.67%,
assuming a combined Federal and State tax rate of 34.11%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, respectively, the Fund would have had a lower
yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid March 22, 1995) was 3.63%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.69%. If a portion of the Portfolio's and the
Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower distribution rate
and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
------------------------- --------------------
Aaa or AAA 41.5%
Aa or AA 30.8
A 23.8
Baa or BBB 3.9
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 3.50% with the after-tax yield
of a certificate of deposit yielding 3.25%. The tax brackets used in the table
are the combined Federal and Connecticut tax brackets applicable for 1995:
18.25% for single filers with taxable income up to $23,350 and joint filers up
to $39,000; 31.24% for single filers with taxable income from $23,351 to
$56,550 and joint filers from $39,001 to $94,250; 34.11% for single filers
with taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 38.88% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 42.32% for single and
joint filers with taxable income over $256,500. The applicable Federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The highest effective Connecticut State income
tax rate is 4.5%. 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 brackets use the highest effective Connecticut tax rate
for single or joint filers within each combined bracket. Taxpayers with
taxable income within these brackets may have a lower combined tax rate than
indicated above. The combined brackets are not simply the sum of each of the
taxes, as they assume that State taxes are deducted on the Federal income tax
return, reducing the effective combined tax brackets. These brackets also do
not take into account the phaseout of personal exemptions and limitations on
deductibility of itemized deductions over certain ranges of income. Investors
who are subject to such phaseout or limitation may be subject to higher
combined tax rates than indicated above. Investors should consult with their
tax advisers for more information.
TAX BRACKET
18.25% 31.24% 34.11% 38.88% 42.32%
------------------------------------------
Tax free yield .............. 3.50% 3.50% 3.50% 3.50% 3.50%
Taxable equivalent .......... 4.28 5.09 5.31 5.73 6.07
Certificates of deposit:
Yield ................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ......... 2.66 2.23 2.14 1.99 1.87
The following is an illustration of the Tax Free Yield Advantage,
comparing after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 3.50%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax
free investment yielding 3.50%, and compares the after-tax return of such
investments. The chart is based on 3-month bank CDs (Source: The Wall Street
Journal) and current limited maturity municipal bond yields, compiled by Eaton
Vance Management. This illustration is not meant to imply or predict any
future rate of return for the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
The Tax Free Yield Advantage
(38.88% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.99% After-tax yield
3.50% Tax free investment
5.73% Taxable equivalent yield
3.50% Tax free yield
Example:
Two $100,000 investments ..
3.25% CD 3.50% Tax free
Pretax income: $3,250.00 $3,500.00
Tax: (1,263.60) NONE
After-tax income: $1,986.40 $3,500.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (38.88% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (38.88% bracket)
1985 7.34 7.86 12.86
1986 5.74 6.23 10.19
1987 7.25 6.43 10.52
1988 8.10 6.61 10.81
1989 7.82 6.73 11.01
1990 7.38 6.69 10.95
1991 5.36 6.00 9.82
1992 3.08 5.38 8.80
1993 2.69 4.65 7.61
1994 3.22 5.40 8.84
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick,
NJ, was the record owner of approximately 60.8% of the outstanding shares,
which were 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. To the Trust's knowledge, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and Connecticut State income tax laws and tax rates applicable for 1995.
It gives 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 3.5% to 7%.
<TABLE>
<CAPTION>
COMBINED
FEDERAL A FEDERAL AND CONNECTICUT STATE
AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN CT STATE 3.5% 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------- ------------------- TAX ------------------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
---------------------------------------- ------- ------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.25 4.28% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95% 8.56%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 31.24 5.09 5.82 6.54 7.27 8.00 8.73 9.45 10.18
$ 56,551 - $117,950 $ 94,251 - $143,600 34.11 5.31 6.07 6.83 7.59 8.35 9.11 9.86 10.62
$117,951 - $256,500 $143,601 - $256,500 38.88 5.73 6.54 7.36 8.18 9.00 9.82 10.63 11.45
Over $256,500 Over $256,500 42.32 6.07 6.93 7.80 8.67 9.54 10.40 11.27 12.14
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
* Net amount subject to Federal and Connecticut personal income tax after deductions and exemptions.
+ The Connecticut personal income tax rate is 4.5%. 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
Federal and State tax brackets use the highest effective Connecticut tax rate for single or joint
filers (reduced by available tax credits) within each combined bracket and do not take into account
Connecticut personal exemptions which might be available. Taxpayers with taxable income within these
brackets may have a lower combined bracket and taxable equivalent yield than indicated above. The
combined tax rates 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.
</TABLE>
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Connecticut State Income Taxes)
for taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Classic Connecticut Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the interest
from which is exempt from the regular Federal income tax and Connecticut
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for Connecticut personal
income taxes. It should also be noted that 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 or increase the recipient's liability for the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC FLORIDA LIMITED MATURITY
TAX FREE FUND. The investment objective of the Fund is to provide (1) a high
level of current income exempt from regular Federal income tax in the form of an
investment exempt from Florida intangibles tax and (2) limited principal
fluctuation. The Fund currently seeks to achieve its investment objective by
investing its assets in the Florida Limited Maturity Tax Free Portfolio (the
Portfolio).
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests in
real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor the
Portfolio may (a) 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 its net
assets (taken at current value) is held as collateral for such sales at any one
time. (The Fund and the Portfolio will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes); (b)
purchase or retain in its portfolio securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust or of the Portfolio, or is a member, officer, director or trustee of
any investment adviser of the Fund or of the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (c)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
or the Portfolio in units or attached to securities may be deemed to be without
value. The Fund and the Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it,
would be so invested. Neither the Fund nor the Portfolio intends to invest in
reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Florida issuers. Such information 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 Florida issuers. Neither the Trust nor the Portfolio has
independently verified this information.
Florida is characterized by rapid population growth and substantial capital
needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a fiscal
biennium for its appropriations and expenditures and is constitutionally bound
to maintain a balanced budget. The State's financial operations are considerably
different than most other states because, under the State's constitution, there
is no state income tax. A constitutional amendment would therefore be necessary
to impose an income tax. Only seven states currently do not impose income taxes
upon their residents. The lack of an income tax exposes total State tax
collections to considerably more volatility than would otherwise be the case
and, in the event of an economic downswing, could affect the State's ability to
pay principal and interest in a timely manner.
The 1992-1993 Florida budget authorized $11.862 billion in General Fund
spending, an increase of 6.5% from the final 1991-1992 level. New taxes,
including a 0.5 mill ($0.50 per $1,000 of valuation) increase in the intangible
personal property tax, were expected to produce an additional $378.2 million in
revenue to fund school and prison construction. Other tax changes included a 1%
sales tax increase on taxable purchases of telecommunications and electric
services, an increase in documentary stamp taxes, and the inclusion of several
previously exempt services for the sales tax. Revenue collections were $200
million over initial estimates, with $170 million due to normal economic
activity and $30 million attributed to rebuilding after Hurricane Andrew.
Combined general revenue fund and working capital unencumbered reserves
increased to $441.4 million, or 3.7% of expenditures.
Unencumbered reserves are projected to be $252.6 million or 1.8% of
expenditures for fiscal year 1995. Non-recurring revenue from rebuilding efforts
following Hurricane Andrew was $220 million in 1993-94 and is estimated to be
$159 million in 1994-95. In 1993-94, $190 million was transferred to a hurricane
relief trust fund and $159 million is budgeted to be transferred in 1994-95.
In 1993, the Florida state constitution was amended to limit the annual
growth in the assessed valuation of residential property. This amendment could,
over time, constrain the growth in property taxes, a major revenue source for
local governments. The amendment restricts annual increases in assessed
valuation to the lesser of 3% or the Consumer Price Index. The amendment applies
only to residential properties eligible for the homestead exemption and does not
affect the valuation of rental, commercial, or industrial properties. When sold,
residential property would be reassessed at market value. While no immediate
ratings implications are expected, the amendment could have a negative impact on
the financial performance of local governments over time and lead to ratings
revisions which may have a negative impact on the prices of affected bonds.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $164,578,915. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$821,095 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, May 3, 1993,
to March 31, 1994, the Portfolio paid BMR advisory fees of $591,314 (equivalent
to 0.45% (annualized) of the Portfolio's average daily net assets for such
period). The Portfolio's Investment Advisory Agreement with BMR is dated October
13, 1992 and remains in effect until February 28, 1996. The Agreement may be
continued as described under "Investment Adviser and Administrator" in Part I of
this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended March 31, 1995 and for the period from the start of business,
December 8, 1993, to March 31, 1994, $37,904 and $15,261, respectively, of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996, and may be continued as described under Distribution Plan in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees, as
required by Rule 12b-1. For the fiscal year ended March 31, 1995, the Fund made
sales commission payments to the Principal Underwriter under the Plan
aggregating $138,135, of which $137,059 was paid by the Principal Underwriter to
Authorized Firms as sales commissions and the balance of which was retained by
the Principal Underwriter. During such period no contingent deferred sales
charges were paid to the Principal Underwriter. As at March 31, 1995 the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $2,826,000 (which amount was
equivalent to 20.52% of the Fund's net assets on such day). For the fiscal year
ended March 31, 1995, the Fund made service fee payments to the Principal
Underwriter under the Plan aggregating $27,256, which was paid by the Principal
Underwriter as service fees to Authorized Firms.
BROKERAGE
For the fiscal year ended March 31, 1995 and for the period from the start
of business, May 3, 1993, to March 31, 1994, the Portfolio paid no brokerage
commissions on portfolio transactions.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $620.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $4,976. For the
fiscal year ended March 31, 1995, the Portfolio paid IBT $35,497.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the other funds
in the Eaton Vance fund complex(1)
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $34 $2,114(2) $135,000(4)
Samuel L. Hayes, III ...... 33 2,133(3) 147,500(5)
Norton H. Reamer .......... 31 2,140 135,000
John L. Thorndike ......... 32 2,228 140,000
Jack L. Treynor ........... 34 2,205 140,000
------------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $350 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March 31,
1995. The total return and percentage changes for the period to the Fund's
commencement of operations on December 8, 1993 reflect the Portfolio's total
return and percentage changes (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT*
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE DE- TOTAL RETURN AFTER DE-
THE CONTINGENT CONTINGENT DUCTING THE CONTINGENT DUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund 5/29/92 $1,000 $1,143.64 $1,143.64 14.36% 4.84% 14.36% 4.84%
1 Year
Ended 3/31/95 3/31/94 $1,000 $1,048.05 $1,038.05 4.81% 4.81% 3.81% 3.81%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES* 5/29/92 -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
FISCAL YEAR
ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
------------ ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/93 -- 7.94% -- -- 6.94% --
3/31/94 1.09% 9.12% 4.86% 0.17% 9.12% 4.86%
3/31/95 4.81% 14.36% 4.84% 3.81% 14.36% 4.84%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
----------
*If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
**No contingent deferred sales charge is imposed on shares purchased more than
one year prior to the redemption, shares acquired through the reinvestment of
distributions, or any appreciation in value of other shares in the account,
and no such charge is imposed on exchanges of Fund shares for shares of one or
more other funds listed under "The Eaton Vance Exchange Privilege" in the
Fund's current Prospectus.
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.77%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.77% would be 5.46%, assuming a
Federal tax rate of 31%. If a portion of the Fund's expenses had not been
allocated to the Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 22, 1995) was 3.76%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.83%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 65.1%
Aa or AA 14.2
A 14.1
Baa or BBB 5.5
Ba or BB --
B --
Below B --
Not rated 1.1
----
Total 100.0%
The State of Florida generally imposes an intangibles personal property tax
on the value of all stocks, notes, bonds and mutual fund shares. The rate of
intangibles tax after exemptions in Florida is $.20 per $100 in value. Bank
deposits such as bank money market deposit accounts and certificates of deposit
are exempt from the Florida intangibles tax. The Florida intangibles tax, which
is a fixed rate based on the fair market value of an investment, will vary as a
percentage of income with the yield of the investment subject to tax. For
example, shares of a mutual fund valued at $10,000 would generally be subject to
Florida intangibles tax equaling $20. If the mutual fund shares were yielding
4.00%, generating $400 in annual income, the intangibles tax expressed as a
percentage of income would be $20/$400 or 5.00%.
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.00% with the after-tax yield of
a certificate of deposit yielding 3.25%. The Federal income tax brackets
applicable for 1995 are: 15% for single filers with taxable income up to $23,350
and joint filers up to $39,000; 28% for single filers with taxable income from
$23,351 to $56,550 and joint filers from $39,001 to $94,250; 31% for single
filers with taxable income from $56,551 to $117,950 and joint filers from
$94,251 to $143,600; 36% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 39.6% for single and
joint filers with taxable income over $256,500. Combined Federal and Florida
intangibles tax rates expressed as a percentage of income on an investment
yielding 4.00%, assuming the deductibility of intangibles taxes on the Federal
return for 1995 would be 19.25%, 31.60%, 34.45%, 39.20% and 42.62% over the same
ranges of income. This Part II contains a tax equivalent yield table which
reflects the tax equivalent yield of the Fund earning hypothetical yields over
various Federal income tax brackets as well as a tax equivalent yield table
which takes into account the effect of the Florida intangibles tax on the rate
of combined Federal and Florida intangibles taxes paid as a percentage of income
by a Florida resident. These brackets do not take into account the phaseout of
personal exemptions and limitation on deductibility of itemized deductions over
certain ranges of income, which increase the effective top Federal tax rate for
certain taxpayers. The after-tax yields of certificates of deposit are not
reduced by the effect of the Florida intangibles tax as bank deposits are
generally exempt from the tax. Investors should consult with their tax advisers
for additional information.
TAX BRACKET
19.25% 31.60% 34.45% 39.20% 42.62%
---------------------------------------------
Tax free yield ............ 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ........ 4.95 5.85 6.10 6.58 6.97
TAX BRACKET*
15% 28% 31% 36% 39.6%
---------------------------------------------
Certificates of deposit:
Yield ................. 3.25 3.25 3.25 3.25 3.25
After tax yield ...... 2.76 2.34 2.24 2.08 1.96
*CDs are generally exempt from the Florida intangibles tax. Accordingly, the
combined tax brackets applicable to after-tax yields are 15%, 28%, 31%, 36% and
39.6%.
The following is an illustration of the Tax Free Yield Advantage, comparing
the after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.00%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax free
investment yielding 4.00%, and compares the after-tax return of such
investments. The chart is based on 3-month bank CDs (Source: The Wall Street
Journal) and current limited maturity municipal bond yields, compiled by Eaton
Vance Management. (The tax bracket used in calculating the CD after-tax yield is
36%, as bank CDs are generally exempt from Florida intangibles tax.) The
illustration is not meant to imply or predict any future rate of return for the
Fund. See your financial adviser for the Fund's current yield and actual CD
rates.
The Tax Free Yield Advantage
(39.20% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After-tax yield
4.00% Tax free investment
6.58% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ...
3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,170.00) NONE
After-tax income: $2,080.00 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
<PAGE>
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (36% bracket)
(plot points for vertical bar chart follow)
Taxable Equivalent Yield
Average Ltd Mat (36% Federal bracket plus
Year CD Rate Muni Yields FL intangibles tax)
1985 7.34 7.86 12.60
1986 5.74 6.23 10.06
1987 7.25 6.43 10.37
1988 8.10 6.61 10.65
1989 7.82 6.73 10.84
1990 7.38 6.69 10.78
1991 5.36 6.00 9.70
1992 3.08 5.38 8.73
1993 2.69 4.65 7.59
1994 3.22 5.40 8.76
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ,
was the record owner of approximately 44.9% of the outstanding shares, which
were 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.
In addition, the following shareholder owned beneficially and of record the
approximate percentage of outstanding shares of the Fund indicated after his
name: Elmer M. Seaman TTEE, Elmer M. Seaman Trust DTD June 25 1985 FBO Elmer M.
Seaman, Boca Raton, FL (5.3%). To the Trust's knowledge, no other person owned
of record or beneficially 5% or more of the Fund's outstanding shares as of such
date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below show the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and the Florida intangibles tax laws and tax rates applicable for 1995. They
show 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%.
<TABLE>
<CAPTION>
YOU ARE IN IN YOUR BRACKET, A TAX-FREE YIELD OF
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON THIS FEDERAL -------------------------------------------------
YOUR SINGLE RETRN IS* YOUR JOINT RETURN IS* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
---------------------------- ------------------------- ------------ -------------------------------------------------
EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551 - $117,950 $ 94,251 - $143,600 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951 - $256,500 $143,601 - $256,500 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
</TABLE>
<TABLE>
<CAPTION>
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON
YOUR SINGLE RETRN IS* YOUR JOINT RETURN IS* 4% 4.5% 5% 5.5% 6% 6.5% 7%
---------------------------- ------------------------- -------------------------------------------------
TAX EQUIVALENT YIELD REFLECTING EXEMPTION FROM
INTANGIBLES TAX:**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 56,551 - $117,950 $ 94,251 - $143,600 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$117,951 - $256,500 $143,601 - $256,500 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $256,500 Over $256,500 6.97 7.80 8.62 9.45 10.28 11.10 11.93
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
*Net amount subject to Federal personal income tax
after deductions and exemptions.
**A Florida intangibles tax on personal property of $2.00 per $1,000 is
generally imposed after exemptions on the value of stocks, bonds, other
evidences of indebtedness and mutual fund shares. An example of the effect of
the Florida intangibles tax on the tax brackets of Florida taxpayers is as
follows. A $10,000 investment subject to the tax would require payment of $20
annually in intangibles taxes. If the investment yielded 4% annually or $400,
the intangibles tax as a percentage of income would be $20/$400 or 5%. If a
taxpayer were in the 36% Federal income tax bracket, assuming the intangibles
taxes were deducted as an Itemized Deduction on the Federal return, the
taxpayer would be in a combined Federal and Florida State tax bracket of
39.20% [36% + (1 - .36) X 5%] with respect to such investment. A Florida
taxpayer whose intangible personal property is exempt or partially exempt from
tax due to the availability of exemptions will have a lower taxable equivalent
yield than indicated above.
Note: The above-indicated Federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
taxpayers with adjusted gross income in excess of $114,700, nor the effects of
phaseout of personal exemptions for single and joint filers with adjusted gross
incomes in excess of $114,700 and $172,050, respectively. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Of course, no assurance can be given that EV Classic Florida Limited Maturity
Tax Free Fund will achieve any specific tax exempt yield. While it is expected
that a substantial portion of the interest income distributed to the Fund
shareholders will be exempt from the regular Federal income tax, other income
received by the Portfolio and allocated to the Fund may be taxable. This table
does not take into account the Florida intangibles tax, state or local taxes, if
any, payable on Fund distributions to individuals who are not Florida residents,
or intangibles taxes, if any, imposed under the laws of other states. It should
also be noted that 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 or
increase the recipient's liability for the Federal alternative minimum tax. The
illustrations assume that the Federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC MASSACHUSETTS LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1) a
high level of current income exempt from regular Federal income tax and
Massachusetts state personal income taxes and (2) limited principal fluctuation.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Massachusetts Limited Maturity Tax Free Portfolio (the
"Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests in
real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor the
Portfolio may (a) 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 its net
assets (taken at current value) is held as collateral for such sales at any one
time. (The Fund and the Portfolio will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes); (b)
purchase or retain in its portfolio securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust or of the Portfolio, or is a member, officer, director or trustee of
any investment adviser of the Fund or of the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (c)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
or the Portfolio in units or attached to securities may be deemed to be without
value. The Fund and the Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it,
would be so invested. Neither the Fund nor the Portfolio intends to invest in
reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Massachusetts considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Massachusetts issuers. Such information 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 Massachusetts issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Beginning in 1989, the Commonwealth's economy slowed significantly. Most of
the employment growth during this period was experienced in the services and
trade sectors of the economy, while the manufacturing sector continues to suffer
employment losses. Like most other industrial states, Massachusetts has seen a
shift in employment from manufacturing to more technology and service- based
industries. Between 1992 and 1993, per capita personal income in Massachusetts
increased 0.7% as compared to 0.2% for the nation as a whole. The unemployment
rate for the Commonwealth fell from 6.2% in December 1993 to 5.7% for December
1994. The national unemployment rate for December 1994 was 5.4%, changed from
6.4% in December 1994.
1994 Fiscal Year. The budgeted operating funds of the Commonwealth ended
fiscal 1994 with a surplus of revenues and other sources over expenditures and
other uses of $26.8 million and aggregate ending fund balances in the budgeted
operating funds of the Commonwealth of approximately $589.3 million. Budgeted
revenues and other sources for fiscal 1994 totalled approximately $15.550
billion, including tax revenues of $10.607 billion, $87 million below the
Department of Revenue's fiscal 1994 tax revenue estimate of $10.694 billion.
Total revenues and other sources increased by approximately 5.7% from fiscal
1993 to 1994 while tax revenues increased by 6.8% for the same period.
Commonwealth budgeted expenditures and other uses in fiscal 1994 totalled
$15.523 billion, which is $826.5 million or approximately 5.6% higher than
fiscal 1993 budgeted expenditures and other uses.
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base spending
of $1.288 billion of approximately $175 million in fiscal 1994. The Executive
Office for Administration and Finance expects annual increases in expenditures
above the fiscal 1993 base spending of $1.288 billion (after the expenditure of
approximately $396 million in fiscal 1995) of $628 million in fiscal 1996 and
$868 million in fiscal 1997. Additional annual increases are also expected in
later fiscal years.
On June 21, 1995 the Governor signed into law a $16.8 billion budget for
fiscal 1996. Most programs are level funded under the fiscal plan, which
represents a 2.6% increase over the fiscal 1995 budget. However, as projected,
Commonwealth aid to cities and towns, including a $232 million hike in education
funding, rose 8.3%. The budget projects that the Commonwealth will collect $11.6
billion in tax revenues during the coming year.
Major infrastructure projects are anticipated over the next decade. It is
currently anticipated that the federal government will assume responsibility for
approximately 90% of the $5 billion cost. The projects include the depression of
the central artery which traverses the City of Boston and the construction of a
third harbor tunnel linking downtown Boston to Logan Airport.
The fiscal viability of the Commonwealth's authorities and Municipalities is
inextricably linked to that of the Commonwealth. The Commonwealth guarantees the
debt of several authorities, most notably the Massachusetts Bay Transportation
Authority and the University of Massachusetts Building Authority. Their ratings
are based on this guarantee and can be expected to move in tandem. Several other
authorities are funded in part or in whole by the Commonwealth and their debt
ratings may be adversely affected by a negative change in those of the
Commonwealth.
Massachusetts' municipal governments are constrained in their ability to
increase local revenues by an initiative passed in 1980, "Proposition 2 1/2".
Proposition 2 1/2 limits the amount of property taxes that can be levied in a
fiscal year to the lower of 2.5% of fair value or 102.5% of the previous year's
levy unless overridden by a majority of local voters. Proposition 2 1/2 also
limits the amount the municipality can be charged by certain government entities
such as counties. While Proposition 2 1/2 is not a constitutional question and
can therefore be amended or abolished by the legislature, no significant
challenge has been raised since it took effect. Increased revenues received by
the state and passed on to local governments during the 1980's ameliorated the
effect of this initiative and made local governments in Massachusetts more
dependent on state aid than those in other states. Therefore, the recent fiscal
problems encountered by the state have amplified the economic and fiscal
problems encountered by cities and towns throughout the Commonwealth. A
continuation of the Commonwealth's fiscal problems resulting in further local
aid reductions could, in the absence of overrides, result in payment defaults by
local cities and towns and/or ratings downgrades resulting in an erosion of
their market value.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $119,119,542. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$559,365 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, May 3, 1993,
to March 31, 1994, the Portfolio paid BMR advisory fees of $400,279 (equivalent
to 0.45% (annualized) of the Portfolio's average daily net assets for such
period). The Portfolio's Investment Advisory Agreement with BMR is dated October
13, 1992 and remains in effect until February 28, 1996. The Agreement may be
continued as described under "Investment Adviser and Administrator" in Part I of
this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended March 31, 1995 and for the period from the start of business,
December 9, 1993, to March 31, 1994, $21,812 and $6,900 of the Fund's operating
expenses were allocated to the Administrator, respectively.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust including the Rule 12b-1 Trustees, as
required by Rule 12b-1. For the fiscal year ended March 31, 1995, the Fund made
sales commission payments to the Principal Underwriter under the Plan
aggregating $43,950, of which $43,683 was paid by the Principal Underwriter to
Authorized Firms as sales commissions and the balance of which was retained by
the Principal Underwriter. As at March 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $594,000 (which amount was equivalent to 11.04% of the
Fund's net assets on such day). For the fiscal year ended March 31, 1995, the
Fund made service fee payments to the Principal Underwriter under the Plan
aggregating $8,794, of which $8,729 was paid as service fee payments to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $222.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $4,957. For the
fiscal year ended March 31, 1995, the Portfolio paid IBT $29,628.
BROKERAGE
For the fiscal year ended March 31, 1995, and for the period from the start
of business, May 3, 1993, to March 31, 1994, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the other funds in
the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $25 $1,577(2) $135,000(4)
Samuel L. Hayes, III ...... 24 1,607(3) 147,500(5)
Norton H. Reamer .......... 23 1,636 135,000
John L. Thorndike ......... 24 1,710 140,000
Jack L. Treynor ........... 26 1,654 140,000
------------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $264 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March 31,
1995. The total return and percentage changes for the period prior to the Fund's
commencement of operations on December 9, 1993 reflect the Portfolio's total
return and percentage changes (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT*
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund 6/1/92 $1,000 $1,136.46 $1,136.46 13.65% 4.62% 13.65% 4.62%
1 Year
Ended 3/31/95 3/31/94 $1,000 $1,048.97 $1,038.97 4.90% 4.90% 3.90% 3.90%
<CAPTION>
PERCENTAGE CHANGES* 6/1/92 -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/93 -- 6.95% -- -- 5.95% --
3/31/94 1.30% 8.34% 4.48% 0.38% 8.34% 4.48%
3/31/95 4.90% 13.65% 4.62% 3.90% 13.65% 4.62%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
* If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
** No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares
acquired through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no
such charge is imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.85%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.85% (considering both State and
Federal taxes) would be 6.08%, assuming a combined Federal and State tax rate of
36.64%. If a portion of the Fund's expenses had not been allocated to the
Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 22, 1995) was 3.84%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.91%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
---------------------- -----------------
Aaa or AAA 58.4%
Aa or AA 11.9
A 24.5
Baa or BBB 3.6
Ba or BB
B
Below B
Not rated 1.6
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% yield with the after-tax
yield of a certificate of deposit yielding 3.25%. The tax brackets indicated in
determining the hypothetical taxable equivalent yield of the Fund and the
after-tax yield of the certificate of deposit are the combined Federal and
Massachusetts State income tax brackets applicable for 1995: 25.20% for single
filers with taxable income up to $23,350 and joint filers up to $39,000; 36.64%
for single filers with taxable income from $23,351 to $56,550 and joint filers
from $39,001 to $94,250; 39.28% for single filers with taxable income from
$56,551 to $117,950 and joint filers from $94,251 to $143,600; 43.68% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 46.85% for single and joint filers with taxable income
over $256,500. The applicable Federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
Massachusetts investment personal income tax rate is 12% applicable to dividends
and non-Massachusetts bank account interest. The combined brackets are not
simply the sum of each of the taxes, as they assume that state taxes are
deducted on the Federal income tax return, reducing the effective combined tax
brackets. The tax brackets used in calculating the after-tax yields of
certificates of deposit are 20.06%, 32.28%, 35.11%, 39.81% and 43.19% over the
same ranges of income, reflecting the lower state tax rate on Massachusetts bank
account interest. These brackets do not take into account the phaseout of
personal exemptions and limitation on deductibility of itemized deductions over
certain ranges of income. Investors who are subject to such phaseout or
limitation may be subject to higher combined tax rates than indicated above.
Investors should consult with their tax advisers for more information.
<TABLE>
<CAPTION>
TAX BRACKET
25.20% 36.64% 39.28% 43.68% 46.85%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ................................. 5.35 6.31 6.59 7.10 7.53
TAX BRACKET*
20.06% 32.28% 35.11% 39.81% 43.19%
---------------------------------------------------------------------------
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.60 2.20 2.11 1.96 1.85
</TABLE>
*Massachusetts bank CD interest is subject to a lower rate of tax than other
types of investment income. Accordingly, the combined tax brackets applicable
to after-tax yields are 20.06%, 32.28%, 35.11%, 39.81% and 43.19%.
The following is an illustration of the Tax Free Yield Advantage, comparing
the after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.0%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax free
investment yielding 4.0%, and compares the after-tax return of such investments.
The chart is based on 3-month bank CDs (Source: The Wall Street Journal) and
current limited maturity municipal bond yields, compiled by Eaton Vance
Management. (The tax bracket used in calculating the CD after-tax yield is
39.81%, reflecting the lower Massachusetts tax rate payable on Massachusetts
bank account interest.) This illustration is not meant to imply or predict any
future rate of return for the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
The Tax Free Yield Advantage
(43.68% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
4.00% Tax free investment
7.10% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments . . . 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,293.83) NONE
After-tax income $1,956.17 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (43.68% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (43.68% bracket)
1985 7.34 7.86 13.96
1986 5.74 6.23 11.06
1987 7.25 6.43 11.42
1988 8.10 6.61 11.74
1989 7.82 6.73 11.95
1990 7.38 6.69 11.88
1991 5.36 6.00 10.65
1992 3.08 5.38 9.55
1993 2.69 4.65 8.26
1994 3.22 5.40 9.59
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ,
was the record owner of approximately 34.5% of the outstanding shares, which
were 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.
In addition, as of June 30, 1995, Ronnie Z. Siegel, Hyannis, MA and Robert F.
Johnson c/o Beacon Hill Financial, Cohasset, MA owned beneficially and of record
9.12% and 8.98%, respectively, of the outstanding shares of the Fund. To the
Trust's knowledge, no other person owned of record or beneficially 5% or more of
the Fund's outstanding shares as of such date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Massachusetts State income tax laws and tax rates applicable for 1995. It
gives 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%.
<TABLE>
<CAPTION>
A FEDERAL AND MASSACHUSETTS STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------------- ------------------ MA 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 $ 23,350 Up to $ 39,000 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551 - $117,950 $ 94,251 - $143,600 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$117,951 - $256,500 $143,601 - $256,500 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $256,500 Over $256,500 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
*Net amount subject to Federal and Massachusetts personal income tax after
deductions and exemptions.
+The combined tax rates include a Massachusetts tax rate of 12% applicable to
taxable bond interest and dividends, and assume that Massachusetts 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.
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Massachusetts state income
taxes) for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint filers
with Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Classic Massachusetts Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the interest
from which is exempt from the regular Federal income tax and Massachusetts
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for Massachusetts personal
income taxes. It should also be noted that 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 or increase the recipient's liability for the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC MICHIGAN LIMITED MATURITY
TAX FREE FUND. The investment objective of the Fund is to provide (1) a high
level of current income exempt from regular Federal income tax and Michigan
State and City income and single business taxes in the form of an investment
exempt from Michigan intangibles tax, and (2) limited principal fluctuation. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Michigan Limited Maturity Tax Free Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund 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. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of the total outstanding voting securities of such
issuer to be held by the Fund; provided, however, that the Fund may invest all
or part of its investable assets in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust, or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the shares or securities or both (all taken at market value) of such
issuer and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities or both (all
taken at market value);
(5) 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, or participate on a joint or a joint and
several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund is permitted to incur. The Fund will not purchase
securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis are
not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate (including limited partnership interests,
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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures contracts on securities and on securities, economic and
other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its principal underwriter, as
principal; however, any such persons or concerns may be employed as a broker
upon customary terms;
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. Neither the Fund nor the
Portfolio may 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 that the Board of
Trustees of the Trust or the Portfolio, or its delegate, determines to be
liquid, based upon the trading markets for the specific security; provided,
however, that the Fund may invest without limitation in the Portfolio or in
another investment company with substantially the same investment objective.
Neither the Fund nor the Portfolio may purchase securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years, if by reason thereof the value of its aggregate investment in
such class of securities will exceed 5% of its total assets, provided that the
issuers of securities rated by Moody's, S&P, Fitch or any other nationally
recognized rating service shall not be considered "unseasoned"; provided,
however, that the Fund may invest without limitation in the Portfolio in another
investment company with substantially the same investment objective. Neither the
Fund nor the Portfolio may 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. The Fund and Portfolio
may purchase put options on municipal obligations only if, after such purchase,
not more than 5% of its net assets, as measured by the aggregate of the premiums
paid for such options held by it, would be so invested. Neither the Fund nor the
Portfolio may invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
or the Portfolio in units or attached to securities may be deemed to be without
value. Neither the Fund nor the Portfolio intends to invest in reverse
repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
<PAGE>
RISKS OF CONCENTRATION
The following information as to certain Michigan considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Michigan issuers. Such information 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 Michigan issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The State's economy is overly dependent on the manufacturing sector, more
specifically the auto industry. Manufacturing accounts for 23% of total
employment as compared to the national average of 17%. The dependency on
manufacturing makes the State economy overly susceptible to economic downturns.
For the first time since 1966, the unemployment rate was below the national
average. An improving economy and successful cost containment have enabled the
State to improve its financial position. For 1994, the Budget Stabilization Fund
was $779 million and is projected to reach $1.1 billion for 1995. The Governor
has proposed reducing individual and business income taxes. For 1996, revenues
are estimated to grow 4.7% while expenditures will grow by a similar rate.
In March, 1994, Michigan voters approved a change in the tax system. The
most significant provisions were an increase in the sales tax rate from 4% to
6%, a reduction in the income tax rate from 4.6% to 4.4% and the creation of a
statewide property tax. These changes are expected to provide sufficient
revenues to offset the elimination of property taxes for school district
operating purposes. There can be no assurance that school districts will receive
sufficient revenues to be able to service any limited tax bonds they may have
outstanding and which may be held by the Portfolio.
Under the State Constitution, the Legislature is prohibited from raising
taxes if doing so would cause total State revenues (except Federal aid) to
exceed 10% of State personal income. 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. 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, 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
Consumer Price Index rate instead of at the higher actual growth rate. Thus, if
taxable property values rise faster than consumer prices, the maximum authorized
tax rate would be increased at the Consumer Price Index rate. Conversely, if
taxable property values rise slower than consumer prices, tax rates may be
raised accordingly, but never higher than the rate authorized on December 23,
1978, without elector approval.
The ability of the State to pay the principal and interest on its general
obligation bonds may be affected by the limitations described above. Similarly,
the ability of local units to levy taxes to pay the principal of and interest on
their general obligations is subject to the constitutional, statutory and
charter limits described below.
<PAGE>
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $33,198,016. For the
fiscal year ended March 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $163,811 (equivalent to 0.46% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $40,822.
For the period from the start of business, April 16, 1993, to the fiscal year
ended March 31, 1994, absent a fee reduction, BMR would have earned advisory
fees of $80,215 (equivalent to 0.44% (annualized) of the Portfolio's average
daily net assets for such period). To enhance the net income of the Portfolio,
BMR made a reduction in the full amount of its advisory fee and BMR was
allocated expenses related to the operation of the Portfolio in the amount of
$17,786. The Portfolio's Investment Advisory Agreement with BMR is dated April
9, 1993 and remains in effect until February 28, 1996. The Agreement may be
continued as described under "Investment Adviser and Administrator" in Part I of
this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended March 31, 1995, $25,718 of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees, as
required by Rule 12b-1. For the fiscal year ended March 31, 1995, the Fund made
sales commission payments under the Plan to the Principal Underwriter
aggregating $61,842 of which $61,510 was paid by the Principal Underwriter to
Authorized Firms as sales commissions and the balance of which was retained by
the Principal Underwriter. As at March 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $856,000 (which amount was equivalent to 12.39% of the
Fund's net assets on such day). For the fiscal year ended March 31, 1995, the
Fund made service fee payments under the Plan aggregating $12,347, which was
paid to the Principal Underwriter. The Principal Underwriter paid $12,302 as
service fee payments to Authorized Firms and the balance was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $297.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Portfolio paid IBT $10,848.
For the fiscal year ended March 31, 1995, the Fund paid IBT $5,042.
BROKERAGE
For the fiscal year ended March 31, 1995 and for the period from the start
of business, April 16, 1993, to March 31, 1994, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the other funds
in the Eaton Vance fund complex(1):
<PAGE>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $34 $336(2) $135,000(4)
Samuel L. Hayes, III ...... 33 328(3) 147,500(5)
Norton H. Reamer .......... 31 315 135,000
John L. Thorndike ......... 32 323 140,000
Jack L. Treynor 34 345 140,000
------------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $54 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
WILLIAM H. AHERN (36), VICE PRESIDENT OF THE PORTFOLIO
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Portfolio
on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March 31,
1995. The total return and percentage changes for the period prior to the Fund's
commencement of operations on December 8, 1993 reflect the Portfolio's total
return and percentage changes (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT*
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
CONTINGENT CONTINGENT DEDUCTING CONTINGENT DEDUCTING CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund 4/15/93 $1,000 $1,040.54 $1,040.54 4.05% 2.05% 4.05% 2.05%
1 Year
Ended
3/31/95 3/31/94 $1,000 $1,042.60 $1,032.61 4.26% 4.26% 3.26% 3.26%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES* 4/15/93 -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
------------ ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/94 -- -0.19% -- -- -1.14% --
3/31/95 4.26% 4.05% 2.05% 3.26% 4.05% 2.05%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
* If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
** No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares acquired
through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no such charge is
imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange Privilege" in
the Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.65%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.65% (considering both State and
Federal taxes) would be 5.56%, assuming a combined Federal and State tax rate of
34.46%. If a portion of the Portfolio's and the Fund's expenses had not been
allocated to the Investment Adviser and the Administrator, respectively, the
Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 22, 1995) was 3.78%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.84%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- ------------------
Aaa or AAA 29.8%
Aa or AA 31.2
A 28.8
Baa or BBB 10.2
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets indicated in
determining the hypothetical taxable equivalent yield of the Fund and the
after-tax yield of the certificate of deposit are the combined Federal and
Michigan income tax brackets applicable for 1995: 22.23% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 34.12% for single
filers with taxable income from $23,351 to $56,550 and joint filers from $39,001
to $94,250; 36.87% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 41.44% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 44.73% for single and joint filers with taxable income over
$256,500. The applicable Federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. The
<PAGE>
combined tax brackets include a Michigan state income tax rate of 4.4%, a
Michigan city income tax rate of 1% (which may vary by city), and a Michigan
intangibles tax rate of 2.625%. These brackets do not take into account the
phaseout of personal exemptions and limitation on deductibility of itemized
deductions over certain ranges of income, which increase the effective top
Federal tax rate for certain taxpayers. The combined brackets are not simply the
sum of each of the taxes, as they assume that state and city taxes are deducted
on the Federal income tax return reducing the effective combined tax brackets.
The combined tax brackets used in calculating the after-tax yields of the
certificate of deposit differ. Bank deposits are not subject to the Michigan
intangibles tax. The combined tax brackets used in calculating the after-tax
yield of the certificate of deposit are 19.46%, 31.60%, 34.45% 39.20% and 42.62%
over the same ranges of income. Investors should consult with their tax advisers
for more information.
<TABLE>
<CAPTION>
TAX BRACKET
22.23% 34.12% 36.87% 41.44% 44.73%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............. 5.14 6.07 6.34 6.83 7.24
TAX BRACKET*
<CAPTION>
19.46% 31.60% 34.45% 39.20% 42.62%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.62 2.22 2.13 1.97 1.86
----------
*CD interest is not subject to intangibles tax. Accordingly, the combined tax brackets applicable to after-tax yields are 19.46%,
31.60%, 34.45%, 39.20% and 42.62%.
</TABLE>
The following is an illustration of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 4.0%. This illustration also quantifies the Federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a hypothetical tax free investment yielding 4.0%, and
compares the after-tax return of such investments. The chart is based on 3-month
bank CDs (Source: The Wall Street Journal) and current limited maturity
municipal bond yields, compiled by Eaton Vance Management. CD interest is not
subject to Michigan intangibles tax. Accordingly, the combined tax bracket
applicable to the after-tax CD yield is 39.20%. This illustration is not meant
to imply or predict any future rate of return for the Fund. See your financial
adviser for the Fund's current yield and actual CD rates.
The Tax Free Yield Advantage
(41.44% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.97% After-tax yield
4.00% Tax free investment
6.83% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ...
3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,274.00) NONE
After-tax income: $1,976.00 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (41.44% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (41.44% bracket)
1985 7.34 7.86 13.49
1986 5.74 6.23 10.69
1987 7.25 6.43 11.04
1988 8.10 6.61 11.35
1989 7.82 6.73 11.55
1990 7.38 6.69 11.48
1991 5.36 6.00 10.30
1992 3.08 5.38 9.23
1993 2.69 4.65 7.98
1994 3.22 5.40 9.22
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 60.75% of the outstanding shares, which
were 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.
To the knowledge of the Trust, no other person owned of record or beneficially
5% or more of the Fund's outstanding shares as of such date.
<PAGE>
TAX EQUIVALENT YIELD TABLES
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax.
Michigan State income tax, Michigan State intangibles tax and Michigan City
income tax laws and tax rates applicable for 1995. It gives the approximate
yield a taxable security must earn a various income brackets to produce
after-tax yields equivalent to those of tax exempt bonds yielding from 4% to 7%.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND MICHIGAN STATE 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 $ 23,350 Up to $ 39,000 21.82% 5.12% 5.76% 6.40% 7.04% 7.67% 8.31% 8.95
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.78 6.04 6.80 7.55 8.31 9.06 9.82 10.57
$ 56,551 - $117,950 $ 94,251 - $143,600 36.54 6.30 7.09 7.88 8.67 9.45 10.24 11.03
$117,951 - $256,500 $143,601 - $256,500 41.14 6.80 7.64 8.49 9.34 10.19 11.04 11.89
Over $256,500 Over $256,500 44.45 7.20 8.10 9.00 9.90 10.80 11.70 12.60
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
*Net amount subject to Federal and Michigan personal income tax after deductions
and exemptions.
+The combined tax brackets include a Michigan state income tax rate of 4.4%,
Michigan City income tax rate of 1% (which may vary by city), and a Michigan
intangibles tax rate of 2.625%, and assume that Michigan 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.
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Michigan State Income Taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Classic Michigan Limited Maturity
Tax Free Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations the interest from
which is exempt from the regular Federal income tax and Michigan personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for Michigan personal income taxes. It
should also be noted that 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 or
increase the recipients' liability for the Federal alternative minimum tax. The
illustrations assume that the Federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC NEW JERSEY LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1) a
high level of current income exempt from regular Federal income tax and New
Jersey State personal income taxes and (2) limited principal fluctuation. The
Fund currently seeks to achieve its investment objective by investing its assets
in the New Jersey Limited Maturity Tax Free Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
lnvestment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests in
real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor the
Portfolio may (a) 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 its net
assets (taken at current value) is held as collateral for such sales at any one
time. (The Fund and the Portfolio will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes); (b)
purchase or retain in its portfolio securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust or of the Portfolio, or is a member, officer, director or trustee of
any investment adviser of the Fund or of the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (c)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
or the Portfolio in units or attached to securities may be deemed to be without
value. The Fund and the Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it,
would be so invested. Neither the Fund nor the Portfolio intends to invest in
reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain New Jersey considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in New Jersey issuers. Such information 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 New Jersey issuers. Neither the Trust nor the Portfolio
has independently verified this information.
New Jersey has a well diversified economy and high wealth levels. Per capita
income ranks as one of the highest in the nation. The State's economy benefits
from its proximity to New York and other major eastern seaboard cities. New
Jersey's economy, like most states, suffered during the recent recession with
unemployment increasing and surpassing the national average. New Jersey's
adjusted unemployment rate for May 1995 was 6.5% compared to 5.7% nationally.
As of the date of this Statement of Additional Information, New Jersey's
general obligation debt was rated Aa1, AA+ and AA+, by Moody's, S&P and Fitch,
respectively. As a result of New Jersey's fiscal weakness, evidenced by
declining fund balances, S&P placed the State's general obligation debt and
related agency and lease obligations on CreditWatch with negative implications
in June 1991. In July, 1991 S&P downgraded the State's general obligation debt
from AAA to AA+. As part of this action, numerous agency and lease obligation
debts were also downgraded accordingly. These downgrades did not affect state
university and college ratings. In August 1992, Moody's downgraded New Jersey to
Aa1 from Aaa due to the use of one-time revenue items, revenue shortfalls and
ongoing operating deficits. S&P affirmed their AA+ rating for the State, but
retained the negative outlook. On December 16, 1992, Fitch lowered their rating
on the State to AA+ from AAA. The rating action was due to the State's decision,
with the most recent bond issuance, to defer debt service in the immediate
future in order to provide for unmet capital needs, while increasing debt
service requirements in future years wnen additional resources may or may not be
available.
As part of the 1992-1993 budget, the Legislature cut approximately $1
billion in spending from the Governor's budget, including cutbacks in both the
State's homestead rebate and general assistance programs. To cover the shortfall
resulting from the cutbacks, the State employee pension fund was revalued,
allowing the State to reduce its contribution, and a surplus in the school aid
funds was applied to the General Fund. The State ended fiscal 1993 with an $855
million surplus, approximately half of which was used in the 1994 budget. 1994
had an appropriation for all funds of $15.7 billion, up 4.8% from fiscal 1993
revised appropriations of $14.7 billion. Both years benefited from $412 million
in nonrecurring revenues from retroactive Federal Medicaid payments. After the
Legislature reduced the Governor's fiscal 1994 requests by $182 million, about
half the $855 million fiscal 1993 total surplus was used for fiscal 1994, with a
June 30, 1994 forecast of $416 million -- $110 million allocated to the General
Fund and over $305 million to rainy day and taxpayer relief funds.
In 1994, New Jersey adopted a 5% personal income tax cut retroactive to
January 1, 1994. In 1995, New Jersey adopted a 10% personal income tax cut
retroactive to January 1, 1995. On June 26, 1995, the New Jersey State
Legislature passed an additional 15% reduction to take effect January 1, 1996.
State officials estimate the revenue loss resulting from these tax cuts at over
$1 billion for fiscal 1996. To accommodate the tax cut, the fiscal 1996 budget
would rely on non-recurring revenues and the use of prior years' surplus.
Furthermore, a major focus of the spending reductions has been employer
contributions to retiree health care and pension systems which were cut by over
$863 million in fiscal 1995. There can be no assurance that the tax cuts will
not have an adverse impact on the State's finances and the demand for municipal
bonds in the State.
General obligation bonds of New Jersey are the primary method for New Jersey
financing of capital projects. These bonds are backed by the full faith and
credit of New Jersey. New Jersey tax revenues and certain other fees are pledged
to meet the principal and interest payments required to fully pay the debt. No
general obligation debt can be issued by New Jersey without prior voter
approval, except that, pursuant to a constitutional amendment, no voter approval
is required for any law authorizing the creation of a debt for the purpose of
refinancing all or a portion of the outstanding debt of New Jersey, so long as
such law requires that the refinancing provided debt service savings. The New
Jersey Constitution also provides that no voter approval is required for debt
issued for purposes of war, to repel invasion, to suppress insurrection or to
meet an emergency caused by disaster or act of God. Capital construction can
also be funded by appropriation of current revenues on a pay- as-you-go basis.
All appropriations for capital projects and all proposals for State bond
authorizations are subject to the review and recommendation of the New Jersey
Commission on Capital Budgeting and Planning.
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. The rental for such buildings is equal to the debt service
relating thereto plus payments in lieu of real estate taxes. Legislation
provides for future appropriations for State aid to local school districts equal
to debt service on a maximum principal amount of $280,000,000 of bonds issued by
such local school districts for construction and renovation of school facilities
and for State aid to counties equal to debt service on up to $80,000,000 of
bonds issued by counties for construction of county college facilities.
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 insufficient
to cover all property tax requirements. These are numerous other State-created
entities with outstanding debt. This debt is supported by revenues derived from
or assets of the various projects financed by such entities.
The Local Budget Law imposes specific budgetary procedures upon counties and
municipalities, subject to review by the Director of the Division of Local
Government Services. State law also regulates the issuance of debt by counties
and municipalities by limiting the amount of tax anticipation notes that may be
issued and requiring their repayment within three months of the end of the
fiscal year in which they are issued. The Local Bond Law governs the issuance of
bonds and notes and bars the issuance of bonds for the payment of current
expenses or to pay outstanding obligations, except where permitted by the Local
Finance Board. State law also authorizes State officials to supervise fiscal
administration in any municipality facing financial difficulties.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $97,279,675. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$468,562 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, May 3, 1993,
to March 31, 1994, the Portfolio paid BMR advisory fees of $353,231 (equivalent
to 0.45% (annualized) of the Portfolio's average daily net assets for such
period). The Portfolio's Investment Advisory Agreement with BMR is dated October
13, 1992 and remains in effect until February 28, 1996. The Agreement may be
continued as described under "Investment Adviser and Administrator" in Part I of
this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended March 31, 1995 and for the period from the start of business,
December 8, 1993, to March 31, 1994, $20,569 and $6,466, respectively, of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust including the Rule 12b-1 Trustees, as
required by Rule 12b-1. For the fiscal year ended March 31, 1995, the Fund made
sales commission payments under the Plan to the Principal Underwriter
aggregating $28,072, of which $27,446 was paid by the Principal Underwriter to
Authorized Firms as sales commissions and the balance of which was retained by
the Principal Underwriter. As at March 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $326,000 (which amount was equivalent to 9.85% of the
Fund's net assets on such day). For the fiscal year ended March 31, 1995, the
Fund made service fee payments to the Principal Underwriter under the Plan
aggregating $5,599, of which $5,530 was paid as service fee payments to
Authorized Firms and the balance of which was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $175.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $5,163. For the
fiscal year ended March 31, 1995, the Portfolio paid IBT $26,901.
BROKERAGE
For the fiscal year ended March 31, 1995 and for the period from the start
of business, May 3, 1993, to March 31, 1994, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the other funds in
the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $0 $1,478(2) $135,000(4)
Samuel L. Hayes, III ...... 0 1,509(3) 147,500(5)
Norton H. Reamer .......... 0 1,543 135,000
John L. Thorndike ......... 0 1,615 140,000
Jack L. Treynor ........... 0 1,553 140,000
------------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $231 of deferred compensation.
(3) Includes $424 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
WILLIAM H. AHERN (36), VICE PRESIDENT OF THE PORTFOLIO
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Portfolio
on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March 31,
1995. The total return and percentage changes for the period prior to the Fund's
commencement of operations on December 8, 1993 reflect the Portfolio's total
return and percentage changes (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT*
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund 6/1/92* $1,000 $1,142.50 $1,142.50 14.25% 4.82% 14.25% 4.82%
1 Year Ended
3/31/95 3/31/94 $1,000 $1,044.93 $1,034.93 4.49% 4.49% 3.49% 3.49%
<CAPTION>
PERCENTAGE CHANGES* 6/1/92 -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/93 -- 7.71% -- -- 6.71% --
3/31/94 1.50% 9.33% 5.00% 0.58% 9.33% 5.00%
3/31/95 4.49% 14.25% 4.82% 3.49% 14.25% 4.82%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
* If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
** No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares acquired
through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no such charge is
imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange Privilege" in
the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.55%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.55% (considering both State and
Federal taxes) would be 5.51%, assuming a combined Federal and State tax rate of
35.54%. If a portion of the Fund's expenses had not been allocated to the
Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 22, 1995) was 3.67%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.73%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 40.9%
Aa or AA 32.4
A 25.7
Baa or BBB 0.4
Ba or BB --
B --
Below B --
Not rated 0.6
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets used in the table are
the combined Federal and New Jersey State income tax brackets applicable for
1995: 16.81% for single filers with taxable income up to $23,350 and joint
filers up to $39,000; 32.33% for single filers with taxable income from $23,351
to $56,550 and joint filers from $39,001 to $94,250; 35.54% for single filers
with taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 40.21% for single filers with taxable income from $117,951 to $256,500
and joint filers from $143,601 to $256,500; and 43.57% for single and joint
filers with taxable income over $256,500. The applicable Federal tax rates
within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%, over
the same ranges of income. These brackets are calculated using the highest New
Jersey State rate applicable at the upper portion of the brackets and assume
that New Jersey taxes are deducted on the Federal income tax return. These
brackets do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income. Investors who are subject to such phaseout or limitation may be subject
to higher combined tax rates than indicated above. Investors should consult with
their tax advisers for more information.
<TABLE>
<CAPTION>
TAX BRACKET
16.81% 32.33% 35.54% 40.21% 43.57%
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ...................... 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent .................. 4.81 5.91 6.21 6.69 7.09
Certificates of deposit:
Yield ........................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................. 2.70 2.20 2.09 1.94 1.83
</TABLE>
The following is an illustration of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 4.0%. This illustration also quantifies the Federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a hypothetical tax free investment yielding 4.0%, and
compares the after-tax return of such investments. The chart is based on 3-month
bank CDs (Source: The Wall Street Journal) and current limited maturity
municipal bond yields, compiled by Eaton Vance Management. This illustration is
not meant to imply or predict any future rate of return for the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
The Tax Free Yield Advantage
(40.21% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.94% After-tax yield
4.00% Tax free investment
6.69% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments .. 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4.000.00
Tax: (1,306.83) NONE
After-tax income: $1,943.17 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (40.21% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (40.21% bracket)
1985 7.34 7.86 13.21
1986 5.74 6.23 10.47
1987 7.25 6.43 10.80
1988 8.10 6.61 11.11
1989 7.82 6.73 11.31
1990 7.38 6.69 11.24
1991 5.36 6.00 10.08
1992 3.08 5.38 9.04
1993 2.69 4.65 7.81
1994 3.22 5.40 9.03
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
ADDITIONAL TAX MATTERS
STATE AND LOCAL TAXES
If, in any year in which the Fund is subject to New Jersey taxation, it is
treated as a qualified investment fund under New Jersey law, as defined below,
the Fund will not be required to pay any New Jersey state tax, except for a $250
New Jersey Corporation business (franchise) tax.
A "qualified investment fund" is any investment company or trust registered
with the Securities and Exchange Commission, or any series of such investment
company or trust, which, for the calendar year in which the distribution is
paid, (a) has no investments other than interest-bearing obligations,
obligations issued at a discount, and cash and cash items, including
receivables, and (b) has not less than 80% (determined at the end of each fiscal
quarter) of the aggregate principal amount of all of its investments, excluding
cash and cash items (including receivables), in obligations (1) issued by or on
behalf of New Jersey or any county, municipality, school or other district,
agency, authority, commission, instrumentality, public corporation, body
corporate and politic or political subdivision of New Jersey, or (2) statutorily
free from New Jersey or local taxation under other acts of New Jersey or under
the laws of the United States, including, but not limited to, obligations of
Puerto Rico, the Virgin Islands and Guam (collectively, "Qualifying
Investments").
In the opinion of Wilentz, Goldman, & Spitzer, P.A., special counsel to the
Fund, under existing New Jersey law:
(i) provided the Fund qualifies, and continues to qualify, as a
qualified investment fund, shareholders will not be required to include in
their New Jersey gross income distributions from the Fund to the extent that
such distributions are attributable to interest or gains from Qualifying
Investments. The foregoing exclusion applies only to shareholders who are
individuals, estates or trusts subject to the New Jersey gross income tax.
Distributions from the Fund will not be excluded from net income and shares
of the Fund will not be excluded from investment capital in determining New
Jersey corporation business (franchise) and corporation income taxes for
corporate Shareholders; and
(ii) provided the Fund qualifies, and continues to qualify, as a
regulated investment company pursuant to Chapter 1, subchapter M, part I,
Section 852(a), of the Code, the Fund will be subject only to a $250.00 New
Jersey corporation business (franchise) tax and will be exempt from all
other New Jersey corporation business (franchise) and corporation income
taxes.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995 the following shareholders owned of record the percentages of
shares indicated after their names: Brookview Gardens Inc., Bergenfield, NJ
(13.26%); Michael J. Waldman & Sandra C. Waldman JTWROS, Scottsdale, AZ (11.99%)
and the Estate of Jose M. Garcia, Jorge Corominal and Roswitha Klahn
co-executors, Bergenfield, NJ (6.63%). In addition, as of June 30, 1995, Merrill
Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ was the record owner of
approximately 17.5% of the outstanding shares, which were 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. To the Trust's knowledge, no
other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and New Jersey State income tax laws and tax rates applicable for 1995. It gives
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%.
<TABLE>
<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 $ 23,350 Up to $ 39,000 16.81% 4.81% 5.41% 6.01% 6.61% 7.21% 7.81% 8.41%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.33% 5.91 6.65 7.39 8.13 8.87 9.61 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.54% 6.21 6.98 7.76 8.53 9.31 10.08 10.86
$117,951 - $256,500 $143,601 - $256,500 40.21% 6.69 7.53 8.36 9.20 10.04 10.87 11.71
Over $256,500 Over $256,500 43.57% 7.09 7.98 8.86 9.75 10.63 11.52 12.41
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
*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 State rate applicable at the upper portion of these
brackets and assume the taxpayers deduct New Jersey State Income Taxes paid on
their Federal Income Tax Returns. An investor with taxable income below the
highest dollar amount in such tax brackets may have a lower combined tax rate
than the combined rates shown. The taxable equivalent yields for such an
investor may be lower than indicated above. 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.
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including New Jersey State Income Taxes)
for taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phase out of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Classic New Jersey Limited Maturity
Tax Free Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations the interest from
which is exempt from the regular Federal income tax and New Jersey personal
income taxes, other income received by the Portfolio and allocated to the Fund
may be taxable. The table does not take into account state or local taxes, if
any, payable on Fund distributions except for New Jersey personal income taxes.
It should also be noted that 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 or
increase the recipient's liability for the Federal alternative minimum tax. The
illustrations assume that the Federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC NEW YORK LIMITED MATURITY
TAX FREE FUND. The investment objective of the Fund is to provide (1) a high
level of current income exempt from regular Federal income tax and New York
State and New York City personal income taxes and (2) limited principal
fluctuation. The Fund currently seeks to achieve its investment objective by
investing its assets in the New York Limited Maturity Tax Free Portfolio (the
"Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests in
real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor the
Portfolio may (a) 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 its net
assets (taken at current value) is held as collateral for such sales at any one
time. (The Fund and the Portfolio will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes); (b)
purchase or retain in its portfolio securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust or of the Portfolio, or is a member, officer, director or trustee of
any investment adviser of the Fund or of the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (c)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
or the Portfolio in units or attached to securities may be deemed to be without
value. The Fund and the Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it,
would be so invested. The Portfolio may limit its securities lending activities
in order to avoid adverse New York State and New York City tax consequences.
Neither the Fund nor the Portfolio intends to invest in reverse repurchase
agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental policies
described above. Should the Fund determine that any such commitment is no longer
in the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
New York issuers. Such information 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 New York issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been below
the national average primarily due to significant cutbacks in the computer,
manufacturing, defense and banking industries. New York's economy is expected to
continue to expand modestly during 1995 with a pronounced slow- down during the
course of the year. The unemployment rate for the State for 1995 is projected to
be 6.4%, compared to the national rate of 5.6%. New York City's unemployment
rate was 8.1% in June 1995, down from 8.5% a year earlier.
For the fiscal year 1991-92, the State incurred an operating deficit in the
General Fund of $575 million, which, after a $44 million withdrawal from the Tax
Stabilization Reserve Fund, was financed through the public issuance of $531
million of 1992 Deficit Notes on March 30, 1992.
In the 1992-1993 fiscal year, the State began the process of financial
reform closing the fiscal year with fund surpluses totalling $738 million. The
1992-1993 fiscal year marked the first time in four years that the State did not
have to issue deficit notes to close a budget gap.
The 1993-1994 fiscal year ended with combined fund balances of $1.539
billion due to an improving national economy, State employment growth, better
than projected tax collections and disbursements that were below projections.
The 1994-1995 fiscal year, which included tax reductions of $476 million,
closed with the General Fund in balance and positive fund balances of $157
million and $1 million in the Tax Stabilization Reserve Fund and the Contingency
Reserve Fund, respectively. Tax revenues for the fiscal year fell short of
original projections by $1.16 billion, the shortfall being offset by
disbursements which were lower than projected and planned spending reductions.
The 1995-1996 fiscal year budget, adopted in June 1995, includes a planned
three-year 20% reduction in the State's personal income tax and is the first
budget in over 50 years which projects a decline in General Fund disbursements
and spending on State operations. The 1995-1996 State Financial Plan, based on
the enacted budget, includes gap-closing actions to offset a previously
projected budget gap of $5 billion, the largest in the State's history. Such
gap-closing actions include, among others, substantial reductions in social and
medical entitlement programs, reductions in State services and capital programs
and increased lottery revenues. There can be no assurance that additional
gap-closing measures will not be required and there is no assurance that any
such measures will enable the State to achieve a balanced budget for its
1995-1996 fiscal year.
In 1994 and 1995, the State legislature passed a proposed constitutional
amendment on debt reform. The proposed amendment would permit the State to issue
non-voter approved revenue bonds secured by a pledge of certain tax receipts, up
to a cap equal to 5% of State personal income. If approved by the voters in
November 1995, such amendment would become effective January 1, 1996.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7 billion
dollar cap, net of LGAC proceeds, on the seasonal borrowing program. As of June
1995, LGAC had issued bonds and notes to provide net proceeds of $4.7 billion
completing the program. This cap may be exceeded in cases where the Governor and
the legislature have certified the need for additional borrowing and have
devised a method for reducing it back to the cap no later than the fourth fiscal
year after the limit is exceeded. If this cap were to be exceeded, it could
result in action by the rating agencies which could adversely affect prices of
bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each of
the 1981 through 1994 fiscal years, the City achieved balanced operating results
as reported in accordance with generally accepted accounting principles.
Pursuant to the laws of the State, the City prepares a four-year annual
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City
implemented various actions to close budget gaps of $3.3 billion, $2.1 billion
and $3.5 billion for the 1992, 1994 and 1995 fiscal years, respectively. Such
actions included, among others, tax increases, service and personnel reductions,
productivity savings, debt refinancings, asset sales and cost savings related to
employee benefits. For the 1996 fiscal year, the City has projected a budget gap
of $3.1 billion and has proposed to implement various gap-closing actions to
balance the 1996 fiscal year budget including, among others, substantial
reductions in entitlement programs, service and personnel reductions, cost
saving initiatives related to labor and pension costs and increases in certain
lease and fee payments due the City. The City currently projects budget gaps of
$888 million, $1.459 billion and $1.484 billion for its 1997, 1998 and 1999
fiscal years, respectively. The City's gap-closing plans for the 1997 through
1999 fiscal years include reductions in City agency expenditures and cost saving
actions related to entitlement programs and procurement. There can be no
assurance that additional gap- closing measures will not be required, the
implementation of which could adversely affect the City's economic base, and
there is no assurance that such measures will enable the City to achieve a
balanced budget, as required by State law, for any of the 1996 through 1999
fiscal years. The fiscal health of New York City, which is the largest issuer of
municipal bonds in the country and a leading international commercial center,
exerts a significant influence upon the fiscal health and bond values of issues
throughout the State. Bond values of the Municipal Assistance Corporation, the
State of New York, the New York Local Government Assistance Corporation, the New
York State Dormitory Authority -- City University, the New York City Municipal
Water Finance Authority and The Metropolitan Transportation Authority would be
particularly affected by serious financial difficulties encountered by New York
City. The Portfolio could be expected to hold bonds issued by many, if not all
of these issuers, at any given time.
Moody's rates the City's general obligation bonds "Baa1" and Fitch rates
such bonds "A-". On July 10, 1995, S&P revised downward its rating on City
general obligation bonds from A- to BBB+. S&P stated that the downgrade was a
reflection of the City's inability to eliminate a structural budget imbalance
due to persistent softness in the City's economy, weak job growth, a trend of
using nonrecurring budget devices, optimistic projections of State and federal
aid and high levels of debt service. There is no assurance that such ratings
will continue for any given period of time or that they will not be revised
downward or withdrawn entirely. Any such downward revision or withdrawal could
have an adverse effect on obligations held by the Portfolio.
The State's economic and fiscal viability are mutually and intricately tied
to those of its authorities and localities, which make up the major portion of
State bond issuance. Any serious financial difficulties encountered by these
entities, including their inability to access capital markets, would have a
significant, adverse effect upon the value of bonds issued elsewhere within the
State and thus upon the value of the interests in the Portfolio. State plans to
reduce aid to local cities and towns may have a negative impact on municipal
finances and ratings throughout the State. Such ratings changes could erode the
value of their bonds and/or lead to defaults.
The State either guarantees or supports lease-purchase agreements or
contractual obligations, financing arrangements or through moral obligation
provisions, a large amount of Authority indebtedness. While debt service is
normally paid out of revenues generated by the projects of the Authorities, the
State has, from time to time, had to appropriate amounts to enable the
Authorities to meet their financial obligations and, in some cases, to prevent
default. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISORY
As of March 31, 1995, the Portfolio had net assets of $173,632,424. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$845,836 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the start of business, May 3, 1993, to March 31,
1994, the Portfolio paid BMR advisory fees of $615,822 (equivalent to 0.45%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended March 31, 1995 and for the period from the start of business,
December 8, 1993, to March 31, 1994, $31,253 and $5,697, respectively, of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996, and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees, as
required by Rule 12b-1. For the fiscal year ended March 31, 1995, the Fund made
sales commission payments under the Plan to the Principal Underwriter
aggregating $61,550, of which $60,417 was paid by the Principal Underwriter to
Authorized Firms as sales commissions and the balance of which was retained by
the Principal Underwriter. As at March 31, 1995 the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $748,000 (which amount was equivalent to 12.38% of the
Fund's net assets on such day). For the fiscal year ended March 31, 1995, the
Fund made service fee payments under the Plan aggregating $12,332, which was
paid to the Principal Underwriter. The Principal Underwriter paid $12,039 as
service fee payments to Authorized Firms and the balance was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $295.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Portfolio paid IBT $36,810.
For the fiscal year ended March 31, 1995, the Fund paid IBT $4,959.
BROKERAGE
For the fiscal year ended March 31, 1995, and for the period from the start
of business, May 3, 1993, to March 31, 1994, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the other funds
in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $34 $2,114(2) $135,000(4)
Samuel L. Hayes, III ...... 33 2,133(3) 147,500(5)
Norton H. Reamer .......... 31 2,140 135,000
John L. Thorndike ......... 32 2,228 140,000
Jack L. Treynor ........... 34 2,205 140,000
------------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $350 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March 31,
1995. The total return and percentage changes for the period prior to the Fund's
commencement of operations on December 8, 1993 reflect the Portfolio's total
return and percentage changes (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT*
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund 5/29/92 $1,000 $1,138.70 $1,138.70 13.87% 4.68% 13.87% 4.68%
1 Year Ended
3/31/95 3/31/94 $1,000 $1,042.61 $1,032.62 4.26% 4.26% 3.26% 3.26%
<CAPTION>
PERCENTAGE CHANGES* 5/29/92 -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/93 -- 7.95% -- -- 6.95% --
3/31/94 1.18% 9.22% 4.91% 0.26% 9.22% 4.91%
3/31/95 4.26% 13.87% 4.68% 3.26% 13.87% 4.68%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
* If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
** No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares
acquired through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no
such charge is imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.90%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.90% (considering both State and
Federal taxes) would be 6.17%, assuming a combined Federal and State tax rate of
36.84%. If a portion of the Fund's expenses had not been allocated to the
Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 22, 1995) was 3.77%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.84%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 50.2%
Aa or AA 22.0
A 20.3
Baa or BBB 7.5
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets indicated in
determining the hypothetical taxable equivalent yield of the Fund and the
after-tax yield of the certificate of deposit are the Federal and New York
income tax brackets applicable for 1995: (1) for taxpayers subject to New York
City income tax - 25.19% for single filers with taxable income up to $23,350 and
joint filers up to $39,000; 36.64% for single filers with taxable income from
$23,351 to $56,550 and joint filers from $39,001 to $94,250; 39.32% for single
filers with taxable income from $56,551 to $117,950 and joint filers from
$94,251 to $143,600; 43.71% for single filers with taxable income from $117,951
to $256,500 and joint filers from $143,601 to $256,500; and 46.88% for single
and joint filers with taxable income over $256,500; and (2) for taxpayers not
subject to New York City income tax - 21.45% for single filers with taxable
income up to $23,350 and joint filers up to $39,000; 33.47% for single filers
with taxable income from $23,351 to $56,550 and joint filers from $39,001 to
$94,250; 36.24% for single filers with taxable income from $56,551 to $117,950
and joint filers from $94,251 to $143,600; 40.86% for single filers with taxable
income from $117,951 to $256,500 and joint filers from $143,601 to $256,500; and
44.19% for single and joint filers with taxable income over $256,500. The
applicable Federal tax rates within each of these combined tax brackets are 15%,
28%, 31%, 36% and 39.6% over the same ranges of income. The combined tax
brackets are based on the highest New York State and New York City income tax
rate within each bracket, and are not simply the sum of each of the taxes, as
they assume that State and City taxes are deducted on the Federal income tax
return, thereby reducing the effective combined tax rates. These brackets do not
take into account the phaseout of personal exemptions and limitation on
deductibility of itemized deductions over certain ranges of income, which
increase the effective top Federal tax rate for certain taxpayers. Investors
should consult with their tax advisers for more information.
<TABLE>
<CAPTION>
FOR TAXPAYERS SUBJECT TO NEW YORK CITY INCOME TAX:
TAX BRACKET
25.19% 36.64% 39.32% 43.71% 46.88%
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................................ 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............................ 5.35 6.31 6.59 7.11 7.53
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.43 2.05 1.97 1.83 1.73
</TABLE>
<TABLE>
<CAPTION>
FOR TAXPAYERS NOT SUBJECT TO NEW YORK CITY INCOME TAX:
TAX BRACKET
21.45% 33.47% 36.24% 40.86% 44.19%
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................................ 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............................ 5.09 6.01 6.27 6.76 7.17
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.55 2.16 2.07 1.92 1.81
</TABLE>
The following are illustrations of the Tax Free Yield Advantage, comparing
the after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.0%. The 1995 combined tax bracket
takes into account Federal, New York State and/or New York City income taxes.
These illustrations also quantify the Federal income tax payable on hypothetical
investments of $100,000 in a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.0%, and compare the after-tax return
of such investments. The charts are based on 3-month bank CDs (Source: The Wall
Street Journal) and current limited maturity municipal bond yields, compiled by
Eaton Vance Management. These illustrations are not meant to imply or predict
any future rate of return for the Fund. See your financial adviser for the
Fund's current yield and actual CD rates.
SUBJECT TO NEW YORK CITY INCOME TAX
The Tax Free Yield Advantage
(43.71% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.83% After-tax yield
4.00% Tax free investment
7.11% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,420.58) NONE
After-tax income: $1,829.42 $4,000.00
NOT SUBJECT TO NEW YORK CITY INCOME TAX
The Tax Free Yield Advantage
(40.86% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.92% After-tax yield
4.00% Tax free investment
6.76% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,327.95) NONE
After-tax income: $1,922.05 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (43.71% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (43.71% bracket) (inc NYC)
1985 7.34 7.86 14.01
1986 5.74 6.23 11.10
1987 7.25 6.43 11.46
1988 8.10 6.61 11.78
1989 7.82 6.73 11.99
1990 7.38 6.69 11.92
1991 5.36 6.00 10.69
1992 3.08 5.38 9.59
1993 2.69 4.65 8.29
1994 3.22 5.40 9.59
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
ADDITIONAL TAX MATTERS
In any year in which the Fund is subject to New York taxation, qualifies as
a regulated investment company under Subchapter M of the Code and incurs no
Federal income tax, the Fund will not be required to pay any New York State
franchise tax or New York City general corporation tax, with the possible
exception of certain nominal minimum taxes.
Distributions from the Fund will not be excluded from net income and shares
of the Fund will not be excluded from investment capital in determining New York
State or City franchise and corporation taxes for corporate shareholders.
Shares of the Fund will not be subject to the New York State or City
property tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 19.25% of the outstanding shares, which
were 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.
In addition, as of such date the following shareholders owned of record, the
percentages of shares indicated after their names: PaineWebber for the benefit
of Design Tex Fabrics Inc., Attn. Ralph Saltzman, New York, NY (9.44%); Samuel
Kleiner & Leona Kleiner JTWROS, North Moodmere, NY (5.88%); and Arthur N. Wassen
& Veronica Wasson TTEE FBO Verna Dellibovi Trust dtd. 7/ 21/93, Albany, NY
(5.85%). To the knowledge of the Trust, no other person owned or record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLES
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and New York State and New York City income tax laws in effect for 1995. It
gives 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%.
<TABLE>
<CAPTION>
COMBINED
FEDERAL,
SINGLE RETURN JOINT RETURN NY STATE A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
------------------------------------ AND NY CITY-----------------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
--------------------------------------------------------------------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 25.19% 5.35% 6.01% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551 - $117,950 $ 94,251 - $143,600 39.32 6.59 7.42 8.24 9.06 9.89 10.71 11.54
$117,951 - $256,500 $143,601 - $256,500 43.71 7.11 7.99 8.88 9.77 10.66 11.55 12.44
Over $256,500 Over $256,500 46.88 7.53 8.47 9.41 10.35 11.29 12.24 13.18
</TABLE>
Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield.
*Net amount subject to Federal, New York State and New York City personal
income tax (including New York City personal income tax surcharges) after
deductions and exemptions.
+The combined tax rate for the two lowest income tax brackets are calculated
using the highest State rate (7.59375% effective annualized State tax rate
based on a rate of 7.875% for the first 3 months of the 1995 tax year and
7.5% for the remaining 9 months) and the highest City rate applicable at the
upper portion of that bracket. Therefore, an investor with taxable income
below the highest dollar amount in the two lowest brackets may have a lower
combined tax rate than the combined rate shown for that bracket. The
applicable State and City rates are at their maximum (7.59375% and 4.457%,
respectively) throughout all other brackets.
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and New York State income tax laws in effect for 1995. It gives 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%.
<TABLE>
<CAPTION>
COMBINED
FEDERAL,
SINGLE RETURN JOINT RETURN AND A FEDERAL AND NEW YORK CITY TAX EXEMPT YIELD OF:
------------------------------------ NY STATE-----------------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ 4% 4.5% 5% 5.5% 6% 6.5% 7%
--------------------------------------------------------------------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 21.45% 5.09% 5.73% 6.37% 7.00% 7.64% 8.28% 8.91%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.47 6.01 6.76 7.52 8.27 9.02 9.77 10.52
$ 56,551 - $117,950 $ 94,251 - $143,600 36.24 6.27 7.06 7.84 8.63 9.41 10.19 10.98
$117,951 - $256,500 $143,601 - $256,500 40.86 6.76 7.61 8.45 9.30 10.15 10.99 11.84
Over $256,500 Over $256,500 44.19 7.17 8.06 8.96 9.85 10.75 11.65 12.54
</TABLE>
Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield.
*Net amount subject to Federal and New York State and personal income tax
after deductions and exemptions.
+The combined tax rate for the two lowest income tax brackets are calculated
using the highest State rate (7.59375% effective annualized State tax rate
based on a rate of 7.875% for the first 3 months of the 1995 tax year and
7.5% for the remaining 9 months) applicable at the upper portion of that
bracket. Therefore, an investor with taxable income below the highest dollar
amount in the two lowest brackets may have a lower combined tax rate than the
combined rate shown for that bracket. The applicable State rate is the
maximum rate, 7.59375%, throughout all other brackets.
Note: Of course, no assurance can be given that EV Classic New York Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the interest
from which is exempt from the regular Federal income tax and New York State and
New York City personal income taxes, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account state
or local taxes, if any, payable on Fund distributions except for New York State
and New York City personal income taxes. It should also be noted that 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 or increase the recipient's liability
for the federal alternative minimum tax.
The above-indicated combined Federal and New York State/City income brackets
assume State and City taxes are Itemized Deductions and do not take into account
the effect of a reduction in the deductibility of Itemized Deductions (including
New York State and City Income Taxes) for taxpayers with Adjusted Gross Income
in excess of $114,700, nor do they reflect phaseout of personal exemptions for
single and joint filers with Adjusted Gross Income in excess of $114,700 and
$172,050, respectively. The effective combined tax brackets and equivalent
taxable yields of taxpayers who do not itemize or who are subject to such
limitations will be higher than those indicated above. In addition, investors
who do not itemize deductions on their Federal income tax returns will have
higher combined brackets and equivalent taxable yields than indicated above. The
illustrations assume that the Federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC OHIO LIMITED MATURITY TAX
FREE FUND. The investment objective of the Fund is to provide (1) a high level
of current income exempt from regular Federal income tax and Ohio State personal
income taxes and (2) limited principal fluctuation. The Fund currently seeks to
achieve its investment objective by investing its assets in the Ohio Limited
Maturity Tax Free Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund 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. (The Fund will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of the total outstanding voting securities of such
issuer to be held by the Fund; provided, however, that the Fund may invest all
or part of its investable assets in an open-end management investment company
with substantially the same investment objective, policies and restrictions as
the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust, or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of such
issuer by the Fund one or more of such persons owns beneficially more than 1/2
of 1% of the shares or securities or both (all taken at market value) of such
issuer and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities or both (all
taken at market value);
(5) 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, or participate on a joint or a joint and
several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of its
net assets (excluding the amount borrowed) and then only if such borrowing is
incurred as a temporary measure for extraordinary or emergency purposes or to
facilitate the orderly sale of portfolio securities to accommodate redemption
requests; or issue securities other than its shares of beneficial interest,
except as appropriate to evidence indebtedness, including reverse repurchase
agreements, which the Fund is permitted to incur. The Fund will not purchase
securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis are
not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate (including limited partnership interests,
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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter into
all types of futures contracts on securities and on securities, economic and
other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its principal underwriter, as
principal; however, any such persons or concerns may be employed as a broker
upon customary terms;
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. Neither the Fund nor the
Portfolio may 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 that the Board of
Trustees of the Trust or the Portfolio, or its delegate, determines to be
liquid, based upon the trading markets for the specific security; provided,
however, that the Fund may invest without limitation in the Portfolio or in
another investment company with substantially the same investment objective.
Neither the Fund nor the Portfolio may purchase securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years, if by reason thereof the value of its aggregate investment in
such class of securities will exceed 5% of its total assets, provided that the
issuers of securities rated by Moody's, S&P, Fitch or any other nationally
recognized rating service shall not be considered "unseasoned"; provided,
however, that the Fund may invest without limitation in the Portfolio in another
investment company with substantially the same investment objective. Neither the
Fund nor the Portfolio may 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. The Fund and Portfolio
may purchase put options on municipal obligations only if, after such purchase,
not more than 5% of its net assets, as measured by the aggregate of the premiums
paid for such options held by it, would be so invested. Neither the Fund nor the
Portfolio may invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
or the Portfolio in units or attached to securities may be deemed to be without
value. Neither the Fund nor the Portfolio intends to invest in reverse
repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental policies
described above. Should the Fund determine that any such commitment is no longer
in the best interests of the Fund and its shareholders, it will revoke the
commitment by terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Ohio considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Ohio issuers. Such information 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 Ohio issuers. Neither the Trust nor the Portfolio has independently
verified this information.
The State of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. The State is effectively prohibited by law from
ending a fiscal year or a biennium in a deficit position. The Governor has the
power to order State agencies to operate within the State's means. The State
carries out most of its operations through the General Revenue Fund ("GRF")
which receives general State revenues not otherwise dedicated. GRF revenues are
derived mainly from personal income and sales taxes and corporate franchise
taxes. State GRF figures generally show a pattern related to national economic
conditions, evident in growth and depletion of its GRF ending fund balances,
with the June 30 (end of fiscal year) GRF fund balance reduced during less
favorable national economic periods and increased during more favorable economic
periods.
The general appropriations act for the 1994-95 biennium was signed by the
Governor on July 1, 1993. This act appropriated $30.7 billion for GRF purposes.
Appropriations for the first fiscal year of the biennium were approximately 9.2%
above those for fiscal year 1993 while those for the second year were
approximately 6.6% higher than those for fiscal year 1994. These additional
appropriations were mainly for increased costs in most State financed programs
such as education, Medicaid, mental health and corrections. During the 1991-1993
biennium, the national economic downturn required a $200 million transfer from
the Budget Stabilization Fund to the GRF. As fiscal year 1992 progressed,
reduced tax collections led to a revenue shortfall. This, in combination with
additional expenditures, produced a budget deficit. The State addressed this
deficit through a combination of budget cuts, tax payment accelerations and a
depletion of the Budget Stabilization Fund. A projected fiscal year 1993 gap of
$520 million was covered through a combination of tax increases and a reduction
in appropriations. The fiscal year 1994 budget was balanced, and the State's GRF
had an ending fund balance of $560 million.
Local school districts in Ohio receive a major portion of their operating
monies from State subsidies, but are dependent upon local taxes for significant
portions of their budgets. School districts may submit for voter approval income
taxes on the district income of individuals and estates. To date, this income
tax has been approved in 120 of the State's 600+ local school districts. A small
number of local school districts have in any year required emergency advances
from the State under a prior program in order to avoid year-end deficits.
Forty-four school districts borrowed $68.6 million in fiscal year 1992 and 27
districts borrowed $94.5 million in 1993, including Cleveland which borrowed $75
million. Twenty-eight districts borrowed $41.1 million in fiscal year 1994.
Schools were affected by budget-balancing expenditure reductions discussed
above.
Litigation, similar to that in other states, is pending questioning the
constitutionality of Ohio's system of school funding. A trial court recently
concluded that aspects of the system (including basic operating assistance) are
unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State has appealed. At this time, it
is not possible to determine either the outcome or the financial burden which an
unfavorable decision would have on either the State's or the local school
districts' financial health.
Resolutions have been introduced in both houses of the General Assembly that
would submit at the November 1995 election constitutional amendments relating to
State debt. One amendment would authorize, among other things, the issuance of
State general obligation debt for a variety of purposes and without additional
vote of the people to the extent that debt service on all State general
obligation debt and GRF-supported obligations would not exceed 5% of the
preceding fiscal year's GRF expenditures. It cannot be predicted whether any of
the proposed amendments will in fact be submitted, or, if submitted, approved by
the electors.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $39,435,374. For the
fiscal year ended March 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $185,368 (equivalent to 0.46% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $44,856.
For the period from the start of business, April 16, 1993, to the fiscal year
ended March 31, 1994, absent a fee reduction, the Portfolio would have paid BMR
advisory fees of $78,138 (equivalent to 0.44% (annualized) of the Portfolio's
average daily net assets for such period). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the amount of $78,138 and
BMR was allocated expenses related to the operation of the Portfolio in the
amount of $18,702. The Portfolio's Investment Advisory Agreement with BMR is
dated April 9, 1993 and remains in effect until February 28, 1996. The Agreement
may be continued as described under "Investment Adviser and Administrator" in
Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended March 31, 1995 and for the period from the start of business,
December 8, 1993, to March 31, 1994, $23,965 and $2,420, respectively, of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996, and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees, as
required by Rule 12b-1. For the fiscal year ended March 31, 1995, the Fund made
sales commission payments under the Plan to the Principal Underwriter
aggregating $46,357, of which $46,177 was paid by the Principal Underwriter to
Authorized Firms as sales commissions and the balance of which was retained by
the Principal Underwriter. As at March 31, 1995 the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $677,000 (which amount was equivalent to 13.3% of the
Fund's net assets on such day). For the fiscal year ended March 31, 1995, the
Fund made service fee payments under the Plan aggregating $9,262, which was paid
to the Principal Underwriter. The Principal Underwriter paid $9,176 as service
fee payments to Authorized Firms and the balance was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $265.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Portfolio paid IBT $11,030.
For the fiscal year ended March 31, 1995, the Fund paid IBT $4,679.
BROKERAGE
For the fiscal year ended March 31, 1995 and for the period from the start
of business, April 16, 1993, to the fiscal year ended March 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the other funds
in the Eaton Vance fund complex(1):
<PAGE>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight ......... $34 $336(2) $135,000(4)
Samuel L. Hayes, III ..... 33 328(3) 147,500(5)
Norton H. Reamer ......... 31 315 135,000
John L. Thorndike ........ 32 323 140,000
Jack L. Treynor .......... 34 345 140,000
----------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $54 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
WILLIAM H. AHERN (36), Vice President of the Portfolio
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Portfolio
on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March 31,
1995. The total return and percentage changes for the period prior to the Fund's
commencement of operations on December 8, 1993 reflect the Portfolio's total
return and percentage changes (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT*
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE TOTAL RETURN AFTER
CONTINGENT CONTINGENT DEDUCTING CONTINGENT DEDUCTING CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund 4/15/93 $1,000 $1,054.70 $1,054.70 5.47% 2.76% 5.47% 2.76%
1 Year Ended
3/31/95 3/31/94 $1,000 $1,046.29 $1,036.29 4.63% 4.63% 3.63% 3.63%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES* 4/15/93 -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/94 -- 0.80% -- -- -0.15% --
3/31/95 4.63% 5.47% 2.76% 3.63% 5.47% 2.76%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
* If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
** No contingent deferred sales charge is imposed on shares purchased more than one year prior to the redemption, shares acquired
through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no such charge is
imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange Privilege" in
the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.64%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.64% (considering both State and
Federal taxes) would be 5.38%, assuming a combined Federal and State tax rate of
32.28%. If a portion of the Portfolio's and the Fund's expenses had not been
allocated to the Investment Adviser and the Administrator, respectively, the
Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 22, 1995) was 3.70%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.77%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
----------------------------------- -------------------------
Aaa or AAA 43.4%
Aa or AA 12.9
A 27.7
Baa or BBB 4.0
Ba or BB --
B --
Below B --
Not rated 12.0
----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets indicated in
determining the hypothetical taxable equivalent yield of the Fund and the
after-tax yield of the certificate of deposit are the Federal and Ohio income
tax brackets applicable for 1995: 18.79% for single filers with taxable income
up to $23,350 and joint filers up to $39,000; 32.28% for single filers with
taxable income from $23,351 to $56,550 and joint filers from $39,001 to $94,250;
35.76% for single filers with taxable income from $56,551 to $117,950 and joint
filers from $94,251 to $143,600; 40.80% for single filers with taxable income
from $117,951 to $256,500 and joint filers from $143,601 to $256,500; and 44.13%
for single and joint filers with taxable income over $256,500. The applicable
Federal tax rates within each of these combined brackets are 15%, 28%, 31%, 36%
and 39.6% over the same ranges of income. The combined brackets are not simply
<PAGE>
the sum of each of the taxes, as they assume that state taxes are deducted on
the Federal income tax return (reducing the effective combined tax brackets) and
are based on the highest or the average of the highest state income tax rates
for single and joint taxpayers within the brackets. These brackets do not take
into account the phaseout of personal exemptions and limitation on deductibility
of itemized deductions over certain ranges of income, which increase the
effective top Federal tax rate for certain taxpayers. Investors should consult
with their tax advisers for more information.
<TABLE>
<CAPTION>
TAX BRACKET
18.79% 32.28% 35.76% 40.80% 44.13%
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................................ 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............................ 4.93 5.91 6.23 6.76 7.16
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.64 2.20 2.09 1.92 1.82
</TABLE>
The following is an illustration of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 4.0%. This illustration also quantifies the Federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a hypothetical tax free investment yielding 4.0%, and
compares the after-tax return of such investments. The chart is based on 3-month
bank CDs (Source: The Wall Street Journal) and current limited maturity
municipal bond yields, compiled by Eaton Vance Management. This illustration is
not meant to imply or predict any future rate of return for the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
The Tax Free Yield Advantage
(40.80% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.92% After-tax yield
4.00% Tax free investment
6.76% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,326.00) NONE
After-tax income: $1,924.00 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (40.80% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (40.80% bracket)
1985 7.34 7.86 13.28
1986 5.74 6.23 10.52
1987 7.25 6.43 10.86
1988 8.10 6.61 11.17
1989 7.82 6.73 11.37
1990 7.38 6.69 11.30
1991 5.36 6.00 10.14
1992 3.08 5.38 9.09
1993 2.69 4.65 7.85
1994 3.22 5.40 9.12
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
TAXES
In the opinion of special tax counsel to the Fund, Squire, Sanders &
Dempsey, under Ohio law, provided that the Fund continues to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Fund consists of obligations issued by
or on behalf of the State of Ohio, political subdivisions thereof or agencies or
instrumentalities of Ohio or its political subdivisions ("Ohio Obligations"), or
similar obligations of other states or their subdivisions (a fund satisfying
such requirements being referred to herein as an "Ohio fund"), (i) distributions
paid by the Fund will be exempt from Ohio personal income tax and any Ohio
municipal income taxes or Ohio school district income taxes for individuals who
reside in Ohio to the extent such dividends are derived from interest payments
on Ohio Obligations, and (ii) distributions of "capital gain dividends," as
defined in the Code, that are properly attributable to the Fund's capital gains
on the sale or other disposition of Ohio Obligations, will be exempt from Ohio
personal income tax and any municipal or school district income taxes in Ohio.
Except as described below, other distributions from the Fund will generally not
be exempt from Ohio personal income tax, Ohio municipal income taxes or Ohio
school district income tax.
Provided the Fund qualifies as an Ohio fund, (1) distributions from the Fund
will be excluded from net income for purposes of the Ohio corporation franchise
tax to the extent that such distributions are excludable from gross income for
Federal income tax purposes or are derived from interest payments on Ohio
Obligations, and (2) distributions that are properly attributable to the Fund's
capital gains on the sale or other disposition of Ohio Obligations, also will be
excluded from net income for purposes of the Ohio corporation franchise tax.
However, shares of the Fund will not be excluded from net worth for purposes of
such tax.
Provided the Fund qualifies as an Ohio fund, distributions by the Fund that
are properly attributable to interest on obligations of the United States or the
governments of Puerto Rico, the Virgin Islands or Guam or their authorities or
municipalities are exempt from Ohio personal income tax, Ohio municipal income
taxes and Ohio school district income taxes, and are excluded from the net
income base of the Ohio corporate franchise tax to the same extent that such
interest would be so exempt or excluded if the obligations were held directly by
the shareholders.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ
was the record owner of approximately 34.0% of the outstanding shares, which
were 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.
In addition, as of such date, the following shareholder owned of record, the
percentage of shares indicated: Herbert Hampson & Lois Hampson JTTEN S ACCT,
Grafton, OH (19.2%). To the knowledge of the Trust, no other person owned of
record or beneficially 5% or more of the Fund's outstanding shares as of such
date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and the Ohio State Income tax laws and tax rates applicable for 1995. It gives
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%.
<TABLE>
<CAPTION>
COMBINED
FEDERAL, A FEDERAL AND OHIO TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN AND OHIO 4% 4.5% 5% 5.5% 6% 6.5% 7%
-------------------- ------------- 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 $ 23,350 Up to $ 39,000 18.79% 4.93% 5.54% 6.16% 6.77% 7.39% 8.00% 8.62%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.28 5.91 6.64 7.38 8.12 8.86 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 35.76 6.23 7.01 7.78 8.56 9.34 10.12 10.90
$117,951 - $256,500 $143,601 - $256,500 40.80 6.76 7.60 8.45 9.29 10.14 10.98 11.82
Over $256,500 Over $256,500 44.13 7.16 8.05 8.95 9.84 10.74 11.63 12.53
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
*Net amount subject to Federal and Ohio personal income tax after deductions and
exemptions.
+The combined Federal and Ohio tax brackets are calculated using the highest
Ohio State rate applicable at the upper portion of these brackets and assume
that taxpayers deduct Ohio State income taxes paid on their Federal income tax
returns. 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.
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Ohio State Income Taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Classic Ohio Limited Maturity Tax
Free Fund will achieve any specific tax exempt yield. While it is expected that
the Portfolio will invest principally in obligations the interest from which is
exempt from the regular Federal income tax and Ohio personal income taxes, other
income received by the Portfolio and allocated to the Fund may be taxable. The
table does not take into account state or local taxes, if any, payable on Fund
distributions except for Ohio personal income taxes. It should also be noted
that 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 or increase the recipient's
liability for the Federal alternative minimum tax. The illustrations assume that
the Federal alternative minimum tax is not applicable and do not take into
account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC PENNSYLVANIA LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1) a
high level of current income exempt from regular Federal income tax and
Pennsylvania State and local taxes in the form of an investment exempt from
Pennsylvania personal property taxes, and (2) limited principal fluctuation. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Pennsylvania Limited Maturity Tax Free Portfolio (the Portfolio).
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests in
real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor the
Portfolio may (a) 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 its net
assets (taken at current value) is held as collateral for such sales at any one
time. (The Fund and the Portfolio will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes); (b)
purchase or retain in its portfolio securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust or of the Portfolio, or is a member, officer, director or trustee of
any investment adviser of the Fund or of the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (c)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
or the Portfolio in units or attached to securities may be deemed to be without
value. The Fund and the Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it,
would be so invested. Neither the Fund nor the Portfolio intends to invest in
reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Pennsylvania considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Pennsylvania issuers. Such information 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 Pennsylvania issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Pennsylvania historically has been identified as a heavy industry state,
although that reputation has changed with the decline of the coal, steel and
railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the service
sector, including trade, medical and health services, education and financial
institutions. Pennsylvania continues, however, to have a greater percentage of
its workers employed in manufacturing than the national average, leaving the
economy somewhat cyclical and vulnerable to recessionary forces. During 1993,
manufacturing accounted for 18% of employment. As of May 1995, the unadjusted
unemployment rate for Pennsylvania and the United States was 5.7%. Per capita
income in Pennsylvania for 1993 of $21,352 was higher than the per capita income
of the United States of $20,817.
REVENUES AND EXPENDITURES. Pennsylvania utilizes the fund method of accounting.
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 years ended June 30, 1992, June 30,
1993 and June 30, 1994 with fund balances of $87,455, $698,945 and $892,940,
respectively.
The Governor's fiscal year 1996 budget contains no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending will
increase 2.3% over fiscal year 1995 appropriations. The fiscal year 1996 budget
included tax reductions of approximately $214.8 million and projects a $3.2
million fiscal year-end unappropriated surplus. The state Tax Stabilization Fund
had a balance at March 31, 1995 of $65.3 million.
The Pennsylvania Constitution requires all proceeds of motor fuels taxes,
vehicle registration fees, license taxes, operators' license fees and other
excise taxes imposed on products used in motor transportation to be used
exclusively for construction, reconstruction, maintenance and repair of and
safety on highways and bridges and for the payment of debt service on
obligations incurred for such purposes. The Motor License Fund is the fund
through which such revenues are accounted for and expended.
The Motor License Fund ended fiscal year ended June 30, 1994 with an
unappropriated balance of $107.5 million on a budgetary basis. State revenue
collections for fiscal year 1995 are projected to increase slightly from fiscal
1994. The budget for fiscal year 1996 includes a 2.3% increase in appropriations
from the prior year. The unappropriated balance of the General Fund at June 30,
1995 is projected to be approximately $3 million on a budgetary basis.
PENNSYLVANIA DEBT. The current Constitutional provisions pertaining to the
Pennsylvania debt permit the issuance of the following types of debt: (i) debt
to suppress insurrection or rehabilitate areas affected by disaster, (ii)
electorate approved debt, (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years (this debt need not be approved by the electorate)
and (iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.
Total outstanding general obligation debt totalled $5,075.8 million as of
June 30, 1994, an increase of $37.0 million from June 30, 1993. In its current
debt financing plans, Pennsylvania is emphasizing infrastructure investment to
improve and rehabilitate existing capital facilities, such as water supply
systems, and to construct new facilities, such as flood control systems and
public buildings.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes, which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
outstanding, may not exceed in the aggregate 20% of the revenues estimated to
accrue to the appropriate fund in the fiscal year. The State is not permitted to
fund deficits between fiscal years with any form of debt. All year end deficit
balances must be funded within the succeeding fiscal year's budget.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years.
STATE-RELATED OBLIGATIONS. Certain state-created agencies have statutory
authorization to incur debt for which no legislation providing for state
appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of or revenues derived from the various projects
financed; it is not an obligation of the State. Some of these agencies, however,
are indirectly dependent on state appropriations. State- related agencies and
their outstanding debt as of December 31, 1994 include the Delaware River Joint
Toll Bridge Commission ($56.3 million), the Delaware River Port Authority
($233.9 million), the Pennsylvania Economic Development Financing Authority
($659.9 million), the Pennsylvania Energy Development Authority ($162.1
million), the Pennsylvania Higher Education Assistance Agency ($1,283.8
million), the Pennsylvania Higher Education Facilities Authority ($1,965.8
million), the Pennsylvania Industrial Development Authority ($357.3 million),
the Pennsylvania Infrastructure Investment Authority ($227.5 million), the
Pennsylvania Turnpike Commission ($1,252.6 million), the Philadelphia Regional
Port Authority ($63.9 million) and the State Public School Building Authority
($286.8 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 $2,300 million of bonds and
notes outstanding, and the Hospitals and Higher Education Facilities Authority
of Philadelphia which issued $21.1 million in bonds in 1993.
LOCAL GOVERNMENT DEBT. Local government in Pennsylvania consists of numerous
individual units. Each unit is distinct and independent of other local units,
although they may overlap geographically.
There is extensive general legislation applying to local government. For
example, the Local Government Unit Debt Act provides for uniform debt limits for
local government units, including municipalities and school districts, and
prescribes methods of incurring, evidencing, securing and collecting debt. Under
the Local Government Unit Debt Act, the ability of Pennsylvania municipalities
and school districts to engage in general obligation borrowing without electoral
approval is generally limited by their recent revenue collection experience.
Generally such subdivisions can levy real property taxes unlimited as to rate or
amount to pay debt service on general obligation borrowings.
Municipalities may also issue revenue obligations without limit and without
affecting their general obligation borrowing capacity if the obligations are
projected to be paid solely from project revenues.
Municipal authorities and industrial development authorities are widespread
in Pennsylvania. An authority is organized by a municipality acting singly or
jointly with another municipality and is governed by a board appointed by the
governing unit of the creating municipality or municipalities. Typically,
authorities are established to acquire, own and lease or operate one or more
projects and to borrow money and issue revenue bonds to finance them.
As of the date of this Statement of Additional Information, the City of
Philadelphia's general obligations are rated Ba, B and BB, by Moody's, S&P and
Fitch, respectively.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $113,606,045. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$554,521 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the start of business, May 3, 1993, to March 31,
1994, the Portfolio paid BMR advisory fees of $400,931 (equivalent to 0.45%
(annualized) of the Portfolio's average daily net assets for such period). The
Portfolio's Investment Advisory Agreement with BMR is dated October 13, 1992 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended March 31, 1995, $44,656 of the Fund's operating expenses were
allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996, and may be continued as described under Distribution Plan in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees, as
required by Rule 12b-1. During the fiscal year ended March 31, 1995, the Fund
paid sales commissions in the amount of $91,518 to the Principal Underwriter.
The Principal Underwriter paid such amount as sales commissions to Authorized
Firms. During such period, no contingent deferred sales charges were paid to the
Principal Underwriter. As at March 31, 1995 the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $1,391,000 (which amount was equivalent to 14.3% of
the Fund's net assets on such day). For the fiscal year ended March 31, 1995,
the Fund paid service fees under the Plan aggregating $18,315 to the Principal
Underwriter. The Principal Underwriter paid such amount as service fee payments
to Authorized Firms.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Princial
Underwriter $517.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $5,550. For the
fiscal year ended March 31, 1995, the Portfolio paid IBT $29,811.
BROKERAGE
For the fiscal year ended March 31, 1995 and for the period from the start
of business, May 3, 1993, to March 31, 1994, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the other funds
in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight ....... $34 $1,577(2) $135,000(4)
Samuel L. Hayes, III ... 33 1,607(3) 147,500(5)
Norton H. Reamer ....... 31 1,636 135,000
John L. Thorndike ...... 32 1,710 140,000
Jack L. Treynor ........ 34 1,654 140,000
------------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $264 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992, Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March 31,
1995. The total return and percentage changes for the period prior to the Fund's
commencement of operations on December 8, 1993 reflect the Portfolio's total
return and percentage changes (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT*
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund* 6/1/92 $1,000 $1,152.66 $1,152.66 15.27% 5.15% 15.27% 5.15%
1 Year
Ended
3/31/95 3/31/94 $1,000 $1,047.88 $1,037.88 4.79% 4.79% 3.79% 3.79%
<PAGE>
<CAPTION>
PERCENTAGE CHANGES* 6/1/92 -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/93 -- 8.19% -- -- 7.19% --
3/31/94 1.68% 10.00% 5.35% 0.76% 10.00% 5.35%
3/31/95 4.79% 15.27% 5.15% 3.79% 15.27% 5.15%
</TABLE>
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more or
less than their original cost.
----------
* If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
** No contingent deferred sales charge is imposed on shares purchased more than
one year prior to the redemption, shares acquired through the reinvestment of
distributions, or any appreciation in value of other shares in the account,
and no such charge is imposed on exchanges of Fund shares for shares of one
or more other funds listed under "The Eaton Vance Exchange Privilege" in the
Fund's current Prospectus.
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.80%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.80% (considering both State and
Federal taxes) would be 6.38%, assuming a combined Federal and State tax rate of
40.38%. If a portion of the Fund's expenses had not been allocated to the
Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 22, 1995) was 3.84%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.91%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 67.9%
Aa or AA 16.7
A 8.9
Baa or BBB 5.1
Ba or BB --
B --
Below B --
Not rated 1.4
-----
Total 100.0%
The following information compare the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets used in the table are
the combined Federal and Pennsylvania income tax brackets for 1995: The tax
brackets for Pennsylvania residents subject to Pennsylvania income tax and
Pennsylvania county personal property tax are 24.18% for single filers with
taxable income up to $23,350 and joint filers up to $39,000, 35.78% for single
filers with taxable income from $23,351 to $56,550 and joint filers from $39,001
to $94,250, 38.45% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 42.91% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 46.12% for single and joint filers with taxable income over
$256,500. The applicable Federal tax rates within each of these combined
brackets are 15%, 28%, 31 %, 36% and 39.6% over the same ranges of income. These
brackets reflect the Pennsylvania county personal property tax ($.40 per $100 in
value) expressed as a percentage of an investment yielding 4%, as well as
Pennsylvania income tax (2.80%) and Federal income tax. The tax brackets used in
calculating the after-tax yield of the certificate of deposit are 17.38%,
30.02%, 32.93%, 37.79% and 41.29% and do not reflect the Pennsylvania county
personal property tax as bank deposits are generally exempt from such tax.
The tax brackets used in calculating the taxable equivalent of a
hypothetical 4% yield of the Fund for individuals who reside in Philadelphia are
30.10%, 40.79%, 43.25%, 47.37% and 50.33%. These brackets reflect the
Pennsylvania county personal property tax ($.40 per $100 in value) expressed as
a percentage of an investment yielding 4%, the City of Philadelphia School
District investment income tax of 4.96%, and Federal and Pennsylvania state
income taxes. The tax brackets used in calculating the after-tax yield of the
certificate of deposit are 17.38%, 30.02%, 32.93%, 37.79% and 41.29% over the
same ranges of income. Bank deposits are generally exempt from the Pennsylvania
county personal property tax and Philadelphia School District income tax.
All of the above tax brackets assume that state and local taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize, or who
are subject to phaseout of personal exemptions or limitation on the
deductibility of itemized deductions may have higher tax brackets than indicated
above. Investors should consult with their tax advisers for more information
prior to investing in the Fund.
For taxpayers subject to Philadelphia tax:
<TABLE>
<CAPTION>
TAX BRACKET
30.10% 40.79% 43.25% 47.37% 50.33%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............. 5.72 6.75 7.04 7.60 8.05
<CAPTION>
TAX BRACKET*
17.38% 30.02% 32.93% 37.79% 41.29%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit:
Yield ...................... 3.25% 3.25% 3.25% 3.25% 3.25%
After-tax yield ............ 2.69 2.27 2.18 2.02 1.91
<CAPTION>
For taxpayers not subject to Philadelphia income tax:
TAX BRACKET
24.18% 35.78% 38.45% 42.91% 46.12%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............. 5.40 6.37 6.65 7.17 7.59
<CAPTION>
TAX BRACKET*
17.38% 30.02% 32.93% 37.79% 41.29%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit:
Yield ...................... 3.25% 3.25% 3.25% 3.25% 3.25%
After-tax yield ............ 2.69 2.27 2.18 2.02 1.91
*Bank CDs are exempt from Pennsylvania county personal property tax and Philadelphia School District income tax. Accordingly, the
combined tax brackets applicable to after-tax yields are 17.38%, 30.02%, 32.93%, 37.79% and 41.29%.
</TABLE>
The following are illustrations of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 4%. The illustrations also quantify the Federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a hypothetical tax free investment yielding 4%, and
compare the after-tax return of such investments. The charts are based on 3-
month bank CDs (Source: The Wall Street Journal) and current limited maturity
municipal bond yields, compiled by Eaton Vance Management. (The tax bracket used
in calculating the CD after-tax yield is 37.79%, as bank CDs are generally
exempt from Pennsylvania county personal property tax and Philadelphia School
District income tax.) These illustrations are not meant to imply or predict any
future rate of return for the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
The Tax Free Yield Advantage: Philadelphia Residents
(47.37% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.02% After-tax yield
4.00% Tax free investment
7.60% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,228.18) NONE
After-tax income: $2,021.82 $4,000.00
The Tax Free Yield Advantage: Excluding Philadelphia Residents
(42.91% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.02% After-tax yield
4.00% Tax free investment
7.17% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,228.18) NONE
After-tax income: $2,021.82 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (36% bracket)
(plot points for vertical bar chart follow)
Taxable Equivalent Yield
Average Ltd Mat (36% Fed bracket plus
Year CD Rate Muni Yields applic. PA state & cty taxes)
1985 7.34 7.86 13.33
1986 5.74 6.23 10.72
1987 7.25 6.43 11.04
1988 8.10 6.61 11.33
1989 7.82 6.73 11.52
1990 7.38 6.69 11.46
1991 5.36 6.00 10.36
1992 3.08 5.38 9.36
1993 2.69 4.65 8.20
1994 3.22 5.40 9.40
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995 the following shareholders owned of record, the percentages of
shares indicated after their names: Stephen Berman, Newtown Square, PA (12.43%),
BHC Securities Inc. FBO 22439700, Attn: Mutual Fund Dept., Philadelphia, PA
(10.99%), Albert Berman, Glen Mills, PA (7.92%). In addition, as of June 30,
1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ was the
record owner of approximately 24.62% of the outstanding shares, which were 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. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Pennsylvania State and local tax laws in effect for 1995. It gives 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 6%.
<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 PITTSBURGH
SINGLE RETURN JOINT RETURN INCOME TAX INCOME TAX TAXES (1) TAXES (2) TAXES (3)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 2.80% 7.26% 7.80% 9.14%
$ 23,351 $ 56,550 $ 39,001 $ 94,250 28.00 2.80 8.57 9.20 10.79
$ 56,551 $117,950 $ 94,251 $143,600 31.00 2.80 8.95 9.60 11.26
$117,951 $256,500 $143,601 $256,500 36.00 2.80 9.65 10.36 12.14
Over $256,500 Over $256,500 39.60 2.80 10.22 10.97 12.87
----------------------------------------------------------------------------------------------------------------
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. 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 minus savings from itemizing state and local
taxes and a 2.80% Pennsylvania income tax. (1) Applies to residents of Allegheny
County (which includes the City of Pittsburgh) and reflects the repeal of the 4
mil Allegheny County personal property tax, the 4 mil City of Pittsburgh
personal property tax and the 4 mil Pittsburgh School District personal property
tax effective January 1, 1995, (2) Includes a 4 mil county personal property
tax, and (3) Includes a 4 mil county personal property tax and a 4.96% school
income tax.
Note: The above-indicated Federal Income tax brackets do not take into account
the effect of a reduction in the deductibility of Itemized Deductions (including
Pennsylvania State and Local Taxes) for taxpayers with Adjusted Gross Income in
excess of $114,700. The tax brackets and taxable equivalent yields also do not
show the effects of phaseout of personal exemptions for single filers with
Adjusted Gross Income in excess of $114,700 and joint filers with Adjusted Gross
Income in excess of $172,050. The effective Federal tax brackets and equivalent
taxable yields of such taxpayers will be higher than those indicated above. In
addition, the equivalent taxable yields for investors who do not itemize will be
higher than indicated above.
Of course, no assurance can be given that EV Classic Pennsylvania Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the interest
from which is exempt from the regular Federal income tax and Pennsylvania state
and local income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. It should also be noted that 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 or increase the recipient's liability for the Federal
alternative minimum tax. The illustrations assume the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
LIMITED MATURITY TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
C-CL8/1SAI
[Logo]
EV CLASSIC
LIMITED MATURITY
TAX FREE FUNDS
STATEMENT OF
ADDITIONAL INFORMATION
AUGUST 1, 1995
*EV CLASSIC CALIFORNIA
LIMITED MATURITY TAX FREE FUND
*EV CLASSIC CONNECTICUT
LIMITED MATURITY TAX FREE FUND
*EV CLASSIC FLORIDA
LIMITED MATURITY TAX FREE FUND
*EV CLASSIC MASSACHUSETTS
LIMITED MATURITY TAX FREE FUND
*EV CLASSIC MICHIGAN
LIMITED MATURITY TAX FREE FUND
*EV CLASSIC NEW JERSEY
LIMITED MATURITY TAX FREE FUND
*EV CLASSIC NEW YORK
LIMITED MATURITY TAX FREE FUND
*EV CLASSIC OHIO
LIMITED MATURITY TAX FREE FUND
*EV CLASSIC PENNSYLVANIA
LIMITED MATURITY TAX FREE FUND
<PAGE>
EV MARATHON LIMITED MATURITY TAX FREE FUNDS
EV MARATHON ARIZONA LIMITED MATURITY TAX FREE FUND
EV MARATHON CALIFORNIA LIMITED MATURITY TAX FREE FUND
EV MARATHON CONNECTICUT LIMITED MATURITY TAX FREE FUND
EV MARATHON FLORIDA LIMITED MATURITY TAX FREE FUND
EV MARATHON MASSACHUSETTS LIMITED MATURITY TAX FREE FUND
EV MARATHON MICHIGAN LIMITED MATURITY TAX FREE FUND
EV MARATHON NEW JERSEY LIMITED MATURITY TAX FREE FUND
EV MARATHON NEW YORK LIMITED MATURITY TAX FREE FUND
EV MARATHON NORTH CAROLINA LIMITED MATURITY TAX FREE FUND
EV MARATHON OHIO LIMITED MATURITY TAX FREE FUND
EV MARATHON PENNSYLVANIA LIMITED MATURITY TAX FREE FUND
EV MARATHON VIRGINIA LIMITED MATURITY TAX FREE FUND
THE EV MARATHON LIMITED MATURITY TAX FREE FUNDS (THE "FUNDS") ARE MUTUAL
FUNDS SEEKING TO PROVIDE (1) A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND THEIR RESPECTIVE STATE TAXES DESCRIBED UNDER
"THE FUNDS" INVESTMENT OBJECTIVES'' IN THIS PROSPECTUS AND (2) LIMITED
PRINCIPAL FLUCTUATION. EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON-
DIVERSIFIED OPEN-END INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY INVESTING DIRECTLY IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY STRUCTURED
MUTUAL FUNDS. EACH FUND IS A SERIES OF EATON VANCE INVESTMENT TRUST (THE
"TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of
some or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future
reference. A combined Statement of Additional Information dated August 1, 1995
for the Funds, as supplemented from time to time, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference.
This Statement of Additional Information is available without charge from the
Funds' principal underwriter, Eaton Vance Distributors, Inc. (the "Principal
Underwriter"), 24 Federal Street, Boston, MA 02110 (telephone (800) 225-6265).
The Portfolios' investment adviser is Boston Management and Research (the
"Investment Adviser"), a wholly-owned subsidiary of Eaton Vance Management,
and Eaton Vance Management is the administrator (the "Administrator") of the
Funds. The offices of the Investment Adviser and the Administrator are located
at 24 Federal Street, Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE
FOR PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR
YOUR BROKER FOR FURTHER INFORMATION.
--------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
PROSPECTUS DATED AUGUST 1, 1995
<PAGE>
TABLE OF CONTENTS
Shareholder and Fund Expenses ......................................... 3
The Funds' Financial Highlights ....................................... 5
The Funds' Investment Objectives ...................................... 9
How the Funds and the Portfolios Invest their Assets .................. 10
Organization of the Funds and the Portfolios .......................... 14
Management of the Funds and the Portfolios ............................ 17
Distribution Plans .................................................... 20
Valuing Fund Shares ................................................... 22
How to Buy Fund Shares ................................................ 22
How to Redeem Fund Shares ............................................. 24
Reports to Shareholders ............................................... 26
The Lifetime Investing Account/Distribution Options ................... 26
The Eaton Vance Exchange Privilege .................................... 27
Eaton Vance Shareholder Services ...................................... 28
Distributions and Taxes ............................................... 29
Performance Information ............................................... 30
Appendix -- State Specific Information ................................ 32
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER AND FUND EXPENSES
-------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on Redemptions During the
First Five Years (as a percentage of redemption proceeds exclusive of all reinvestments
and capital appreciation in the account) 3.00% - 0%
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets) ARIZONA CALIFORNIA CONNECTICUT FLORIDA MASSACHUSETTS MICHIGAN
FUND FUND FUND FUND FUND FUND
------- ---------- ----------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment Adviser Fee
(after any fee reduction) 0.00% 0.46% 0.00% 0.46% 0.46% 0.35%
Rule 12b-1 Distribution (and Service) Fees 0.80 0.82 0.80 0.83 0.83 0.82
Other Expenses (after any expense reduction) 0.25 0.27 0.43 0.21 0.28 0.38
---- ---- ---- ---- ---- ----
Total Operating Expenses (after any
reductions) 1.05% 1.55% 1.23% 1.50% 1.57% 1.55%
==== ==== ==== ==== ==== ====
<CAPTION>
EXAMPLES
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment, assuming (a) 5% annual
return and (b) redemption at the end of each period:
ARIZONA CALIFORNIA CONNECTICUT FLORIDA MASSACHUSETTS MICHIGAN
FUND FUND FUND FUND FUND FUND
------- ---------- ----------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
1 Year ..................................... $ 45 $ 46 $ 43 $ 45 $ 46 $ 46
3 Years ..................................... 67 69 59 67 70 69
5 Years ..................................... -- 84 68 82 86 --
10 Years ..................................... -- 185 149 179 187 --
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no redemptions:
1 Year ..................................... $ 15 $ 16 $ 13 $ 15 $ 16 $ 16
3 Years ..................................... 47 49 39 47 50 49
5 Years ..................................... -- 84 68 82 86 --
10 Years ..................................... -- 185 149 179 187 --
<CAPTION>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets) NORTH
NEW JERSEY NEW YORK CAROLINA OHIO PENNSYLVANIA VIRGINIA
FUND FUND FUND FUND FUND FUND
---------- -------- -------- ---- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Investment Adviser Fee
(after any fee reduction) 0.46% 0.46% 0.00% 0.35% 0.46% 0.00%
Rule 12b-1 Distribution (and Service) Fees 0.83 0.84 0.80 0.80 0.84 0.80
Other Expenses (after any expense reduction) 0.27 0.21 0.25 0.34 0.27 0.25
---- ---- ---- ---- ---- ----
Total Operating Expenses (after any
reductions) 1.56% 1.51% 1.05% 1.49% 1.57% 1.05%
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES
An investor would pay the following contingent deferred sales charge and expenses on a $1,000 investment, assuming (a) 5% annual
return and (b) redemption at the end of each period:
NORTH
NEW JERSEY NEW YORK CAROLINA OHIO PENNSYLVANIA VIRGINIA
FUND FUND FUND FUND FUND FUND
---------- -------- -------- ---- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1 Year ..................................... $ 46 $ 45 $ 45 $ 45 $ 46 $45
3 Years ..................................... 69 68 66 67 70 67
5 Years ..................................... 85 82 -- 81 86 --
10 Years ..................................... 186 180 -- 178 187 --
An investor would pay the following expenses on the same investment, assuming (a) 5% annual return and (b) no redemptions:
1 Year ..................................... $ 16 $ 15 $ 15 $ 15 $ 16 $15
3 Years ..................................... 49 48 46 47 50 47
5 Years ..................................... 85 82 -- 81 86 --
10 Years ..................................... 186 180 -- 178 187 --
</TABLE>
Notes:
The tables and Examples summarize the aggregate expenses of the Funds and
the Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund.
Information for each of the California, Connecticut, Florida, Massachusetts,
Michigan, New Jersey, New York, Ohio and Pennsylvania Funds is based on such
Fund's expenses for the most recent fiscal year. Absent a fee reduction and an
expense allocation, the Investment Adviser Fee and Other Expenses would have
been 0.45% and 0.56%, respectively, for the Connecticut Fund. Absent a fee
reduction, the Investment Adviser Fee would have been 0.46% for both the
Michigan Fund and the Ohio Fund. Because the Arizona, North Carolina and
Virginia Funds do not yet have sufficient operating histories, the information
for each Fund is based on such Fund's estimated expenses for the current
fiscal year. The Investment Adviser Fees and Other Expenses for the Arizona,
North Carolina and Virginia Funds reflect the expected fee reduction and
expense allocation for the current fiscal year, absent which the Investment
Adviser Fees would be estimated to be 0.44%, 0.42% and 0.45%, respectively,
and the Other Expenses would be estimated to be 0.60%, 0.60% and 0.60%,
respectively.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe that, over time, the aggregate per share expenses of a Fund and its
corresponding Portfolio should be approximately equal to, or less than, the
per share expenses the Fund would incur if the Fund were instead to retain the
services of an investment adviser and its assets were invested directly in the
types of securities being held by its corresponding Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual
annual return will vary. For further information regarding the expenses of
both the Funds and the Portfolios see "Organization of the Funds and the
Portfolios," "Management of the Funds and the Portfolios" and "How to Redeem
Fund Shares". A long-term shareholder in the Fund may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
rules of the National Assocation of Securities Dealers, Inc.
No contingent deferred sales charge is imposed on (a) shares purchased
more than four years prior to redemption, (b) shares acquired through the
reinvestment of distributions or (c) any appreciation in value of other shares
in the account, and no such charge is imposed on exchanges of Fund shares for
shares of one or more other funds listed under "The Eaton Vance Exchange
Privilege." See "How to Redeem Fund Shares."
Each Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the
fee schedule on page 18.
Other investment companies with different distribution arrangements and
fees are investing in the Portfolios and additional such companies and
investors may do so in the future. See "Organization of the Funds and the
Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's Annual Report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon the report of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of a Fund is contained in its Annual
Report to shareholders which may be obtained without charge by contacting the
Principal Underwriter, Eaton Vance Distributors, Inc.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------
CALIFORNIA FUND FLORIDA FUND
-------------------------------------- ------------------------------------
1995 1994 1993<F2> 1995 1994 1993<F2>
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year ............ $10.050 $10.340 $10.000 $ 10.060 $ 10.360 $10.000
------- ------- ------- -------- -------- -------
INCOME FROM OPERATIONS:
Net investment income ....................... $0.367 $0.380 $ 0.333 $ 0.375 $ 0.387 $ 0.333
Net realized and unrealized gain (loss)
on investments ............................ (0.027) (0.180) 0.443 0.090 (0.200) 0.469
------- ------- ------- -------- -------- -------
Total income from operations .............. $ 0.340 $ 0.200 $ 0.776 $ 0.465 $ 0.187 $ 0.802
------- ------- ------- -------- -------- -------
LESS DISTRIBUTIONS:
From net investment income .................. $(0.367) $(0.380) $(0.333) $ (0.375) $ (0.387) $(0.333)
From net realized gain (loss) on investments (0.007) (0.014) -- (0.012) (0.008) --
In excess of net investment income .......... (0.066) (0.096) -- (0.058) (0.092) --
In excess of net realized gain on investments -- -- -- -- -- --
From paid-in capital ........................ -- -- (0.103) -- -- (0.109)
------- ------- ------- -------- -------- -------
Total distributions ....................... $(0.440) $(0.490) $(0.436) $ (0.445) $ (0.487) $(0.442)
------- ------- ------- -------- -------- -------
NET ASSET VALUE, end of year .................. $9.950 $10.050 $10.340 $ 10.080 $ 10.060 $10.360
======= ======= ======= ======== ======== =======
TOTAL RETURN <F3> ............................. 3.53% 1.86% 7.67% 4.79% 1.68% 7.94%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000 omitted) ..... $73,857 $82,451 $37,214 $149,581 $162,999 $90,210
Ratio of net expenses to average daily
net assets <F4> ........................... 1.55% 1.40% 1.33%<F1> 1.50% 1.42% 1.24%<F1>
Ratio of investment income to average daily
net assets ................................ 3.72% 3.55% 3.77%<F1> 3.77% 3.57% 3.73%<F1>
PORTFOLIO TURNOVER <F5> ....................... -- 0% 24% -- 0% 11%
* For the following periods, the operating expenses of the Funds and the Portfolios reflect a reduction of expenses by the
Administrator and/or the Investment Adviser. Had such actions not been taken, net investment income per share and the ratios
would have been as follows:
NET INVESTMENT INCOME PER SHARE ............... $ 0.377 $ 0.299 $ 0.311
======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses <F4> .............................. 1.48% 1.72%<F1> 1.49%<F1>
Net investment income ...................... 3.47% 3.38%<F1> 3.48%<F1>
<FN>
<F1> Computed on an annualized basis.
<F2> For the period from the start of business, May 29, 1992, to March 31, 1993.
<F3> Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Amount is computed on a nonannualized basis.
<F4> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F5> Where stated, portfolio turnover represents the rate of portfolio activity for the period while a Fund was making investments
directly in securities. The portfolio turnover rate for the period since a Fund transferred its assets to its corresponding
Portfolio is shown in the Portfolio's financial statements, which are included in the Fund's annual report.
<PAGE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------
MASSACHUSETTS FUND NEW JERSEY FUND NEW YORK FUND
---------------------------- ----------------------------- ---------------------------
1995 1994 1993<F2> 1995 1994 1993<F2> 1995 1994 1993<F2>
---- ---- -------- ---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year ............... $ 9.960 $ 10.270 $10.000 $10.030 $10.350 $10.000 $ 10.040 $ 10.360 $10.000
-------- -------- ------- ------- ------- ------- -------- -------- -------
INCOME FROM OPERATIONS:
Net investment income ........... $ 0.383 $ 0.385 $ 0.334 $ 0.370 $ 0.374 $ 0.325 $ 0.378 $ 0.387 $ 0.327
Net realized and unrealized gain
(loss) on investments ......... 0.082 (0.197) 0.368 0.068 (0.216)<F3> 0.453 0.049 (0.219) 0.475
-------- -------- ------- ------- ------- ------- -------- -------- -------
Total income from
operations .................. $ 0.465 $ 0.188 $ 0.702 $ 0.438 $ 0.158 $ 0.778 $ 0.427 $ 0.168 $ 0.802
-------- -------- ------- ------- ------- ------- -------- -------- -------
LESS DISTRIBUTIONS:
From net investment
income ........................ $ (0.383) $ (0.385) $(0.334) $(0.370) $(0.374) $(0.325) $ (0.378) $ (0.387) $(0.327)
From net realized gain (loss)
on investments ................ (0.007) (0.018) -- (0.018) (0.012) -- (0.004) (0.008) --
In excess of net investment
income......................... (0.055) (0.095) -- (0.060) (0.092) -- (0.055) (0.093) --
In excess of net realized gain on
investments ................... -- -- -- -- -- -- -- -- --
From paid-in capital............. -- -- (0.098) -- -- (0.103) -- -- (0.115)
-------- -------- ------- ------- ------- ------- -------- -------- -------
Total distributions ........... $ (0.445) $ (0.498) $(0.432) $(0.448) $(0.478) $(0.428) $ (0.437) $ (0.488) $(0.442)
-------- -------- ------- ------- ------- ------- -------- -------- -------
NET ASSET VALUE, end of year....... $ 9.980 $ 9.960 $10.270 $10.020 $10.030 $10.350 $ 10.030 $ 10.040 $10.360
======== ======== ======= ======= ======= ======= ======== ======== =======
TOTAL RETURN <F4>.................. 4.84% 1.75% 6.95% 4.53% 1.44% 7.71% 4.41% 1.46% 7.95%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) ................. $113,338 $115,121 $55,737 $93,361 $99,743 $58,527 $166,691 $178,251 $93,819
Ratio of net expenses to average
daily net assets<F5>........... 1.57% 1.46% 1.24%<F1> 1.56% 1.51% 1.25%<F1> 1.51% 1.40% 1.21%<F1>
Ratio of investment income to
average daily net assets....... 3.89% 3.61% 3.88%<F1> 3.73% 3.50% 3.71%<F1> 3.81% 3.56% 3.69%<F1>
PORTFOLIO TURNOVER<F6> ............ -- 2% 21% -- 0% 9% -- 0% 11%
* For the following periods, the operating expenses of the Funds and the Portfolios reflect a reduction of expenses by the
Administrator and/or the Investment Adviser. Had such actions not been taken, net investment income per share and the ratios
would have been as follows:
NET INVESTMENT INCOME PER SHARE ..................... $ 0.307 $ 0.299 $ 0.305
======= ======== =======
RATIOS (As a percentage of average daily net assets):
Expenses<F5> ..................................... 1.55%<F1> 1.55%<F1> 1.47%<F1>
Net investment income ............................ 3.57%<F1> 3.41%<F1> 3.43%<F1>
<FN>
<F1> Computed on an annualized basis.
<F2> For the period from the start of business, May 29, 1992, to March 31, 1993 for the New York Fund; for the period from the
start of business, June 1, 1992, to March 31, 1993 for the Massachusetts, New Jersey and Pennsylvania Funds; and for the
period from the start of business, April 16, 1993, to March 31, 1994 for the Connecticut, Michigan and Ohio Funds.
<F3> 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 New Jersey Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F4> Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Amount is computed on a nonannualized basis.
<F5> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F6> Where stated, portfolio turnover represents the rate of portfolio activity for the period while a Fund was making investments
directly in securities. The portfolio turnover rate for the period since a Fund transferred its assets to its corresponding
Portfolio is shown in the Portfolio's financial statements, which are included in the Fund's annual report.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------
PENNSYLVANIA FUND CONNECTICUT FUND MICHIGAN FUND OHIO FUND
---------------------------- ------------------ ------------------- -----------------
1995 1994 1993<F2> 1995 1994<F2> 1995 1994<F2> 1995 1994<F2>
---- ---- -------- ---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
beginning of year ............... $ 10.100 $ 10.390 $10.000 $ 9.690 $10.000 $ 9.650 $10.000 $ 9.730 $10.000
-------- -------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM OPERATIONS:
Net investment income ........... $ 0.374 $ 0.399 $ 0.336 $ 0.373 $ 0.343 $ 0.364 $ 0.345 $ 0.382 $ 0.354
Net realized and unrealized gain
(loss) on investments ......... 0.065 (0.195) 0.490 0.026 (0.243) 0.030 (0.279) 0.032 (0.194)
-------- -------- ------- ------- ------- ------- ------- ------- -------
Total income from
operations .................. $ 0.439 $ 0.204 $ 0.826 $ 0.399 $ 0.100 $ 0.394 $ 0.066 $ 0.414 $ 0.160
-------- -------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income ........................ $ (0.374) $ (0.399) $(0.336) $(0.373) $(0.343) $(0.364) $(0.345) $(0.382) $(0.354)
From net realized gain (loss)
on investments ................ (0.006) (0.012) -- -- -- -- -- -- --
In excess of net investment
income......................... (0.069) (0.083) -- (0.026) (0.056) (0.050) (0.071) (0.032) (0.076)
In excess of net realized gain on
investments ................... -- -- -- -- (0.011) -- -- -- --
From paid-in capital............. -- -- (0.100) -- -- -- -- -- --
-------- -------- ------- ------- ------- ------- ------- ------- -------
Total distributions ........... $ (0.449) $ (0.494) $(0.436) $(0.399) $(0.410) $(0.414) $(0.416) $(0.414) $(0.430)
-------- -------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, end of year....... $ 10.090 $ 10.100 $10.390 $ 9.690 $ 9.690 $ 9.630 $ 9.650 $ 9.730 $ 9.730
-------- -------- ------- ------- ------- ------- ------- ------- -------
TOTAL RETURN <F4>.................. 4.50% 1.89% 8.19% 4.27% 0.73% 4.24% 0.37% 4.41% 1.23%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period
(000 omitted) ................. $103,553 $109,515 $65,005 $15,613 $14,752 $26,048 $26,788 $34,279 $32,002
Ratio of net expenses to average
daily net assets<F5>........... 1.57% 1.45% 1.29%<F1> 1.23% 0.86%<F1> 1.55% 0.91%<F1> 1.49% 1.03%<F1>
Ratio of investment income to
average daily net assets....... 3.75% 3.63% 3.88%<F1> 3.89% 3.50%<F1> 3.82% 3.56%<F1> 3.95% 3.53%<F1>
PORTFOLIO TURNOVER<F6> ............ -- 0% 18% -- -- -- -- -- --
* For the following periods, the operating expenses of the Funds and the Portfolios reflect a reduction of expenses by the
Administrator and/or the Investment Adviser. Had such actions not been taken, net investment income per share and the ratios
would have been as follows:
NET INVESTMENT INCOME PER SHARE ..................... $ 0.315 $ 0.317 $ 0.229 $ 0.354 $ 0.275 $ 0.371 $ 0.293
======= ======= ======= ======= ======= ======= ========
RATIOS (As a percentage of average daily net assets):
Expenses<F5> ..................................... 1.53%<F1> 1.81% 2.02%<F1> 1.66% 1.63%<F1> 1.60% 1.63%<F1>
Net investment income ............................ 3.64%<F1> 3.31% 2.34%<F1> 3.71% 2.84%<F1> 3.84% 2.93%<F1>
<FN>
<F1> Computed on an annualized basis.
<F2> For the period from the start of business, May 29, 1992, to March 31, 1993 for the New York Fund; for the period from the
start of business, June 1, 1992, to March 31, 1993 for the Massachusetts, New Jersey and Pennsylvania Funds; and for the
period from the start of business, April 16, 1993, to March 31, 1994 for the Connecticut, Michigan and Ohio Funds.
<F3> 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 New Jersey Fund shares and the amount of per share realized and unrealized gains and losses at such time.
<F4> Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Amount is computed on a nonannualized basis.
<F5> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
<F6> Where stated, portfolio turnover represents the rate of portfolio activity for the period while a Fund was making investments
directly in securities. The portfolio turnover rate for the period since a Fund transferred its assets to its corresponding
Portfolio is shown in the Portfolio's financial statements, which are included in the Fund's annual report.
</TABLE>
<PAGE>
<TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<CAPTION>
PERIOD ENDED MARCH 31,
---------------------------------------------------------------------
ARIZONA FUND NORTH CAROLINA FUND VIRGINIA FUND
1995<F2> 1995<F2> 1995<F2>
---------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE,
beginning of year ....................... $10.000 $10.000 $10.000
------- ------- -------
INCOME FROM OPERATIONS:
Net investment income ................... $ 0.155 $ 0.112 $ 0.149
Net realized and unrealized gain on
investments ........................... 0.253 0.236 0.344
------- ------- -------
Total income from operations ........ $ 0.408 $ 0.348 $ 0.493
------- ------- -------
LESS DISTRIBUTIONS:
From net investment income .............. $(0.155) $(0.112) $(0.149)
From net realized gain on investments ... -- -- --
In excess of net investment income....... (0.003) (0.026) (0.004)
In excess of net realized gain on
investments ........................... -- -- --
From paid-in capital..................... -- -- --
------- ------- -------
Total distributions ................. $(0.158) $(0.138) $(0.153)
------- ------- -------
NET ASSET VALUE, end of year .............. $10.250 $10.210 $10.340
======= ======= =======
TOTAL RETURN <F3>........................... 4.02% 3.31% 4.82%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000 omitted) . $499 $135 $118
Ratio of net expenses to average daily
net assets<F4>.......................... 0.75%<F1> 0.75%<F1> 0.93%<F1>
Ratio of investment income to average
daily net assets....................... 3.78%<F1> 3.04%<F1> 3.77%<F1>
*For the following periods, the operating expenses of the Funds and the
Portfolios reflect a reduction of expenses by the Administrator and/or the
Investment Adviser.
NET INVESTMENT INCOME PER SHARE ........... $0.066 $(0.045) $(0.0117)
======= ======= =======
RATIOS (As a percentage of average daily net assets):
Expenses<F4> ............................ 2.92%<F1> 5.00%<F1> 7.66%<F1>
Net investment income .................. 1.61%<F1> (1.21)%<F1> (2.96)%<F1>
<FN>
<F1> Computed on an annualized basis.
<F2> For the period from the start of business, November 3, 1994, November 28, 1994, and November 11, 1994, respectively, to March
31, 1995 for the Arizona, North Carolina and Virginia Funds.
<F3> Total investment return is calculated assuming a purchase at the net asset value on the first day and a sale at the net asset
value on the last day of each period reported. Dividends and distributions, if any, are assumed to be reinvested at the net
asset value on the payable date. Amount is computed on a nonannualized basis.
<F4> Includes the Fund's share of its corresponding Portfolio's allocated expenses.
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) having a
dollar weighted average duration of between three and nine years and which are
rated at least investment grade by a major rating agency or, if unrated,
determined to be of at least investment grade quality by the Investment
Adviser. Each Portfolio has the same investment objective as its corresponding
Fund.
EV MARATHON ARIZONA LIMITED MATURITY TAX FREE FUND (the "Arizona Fund")
seeks to provide (1) a high level of current income exempt from regular
Federal income tax and Arizona State personal income taxes, and (2) limited
principal fluctuation. The Arizona Fund seeks to meet its objective by
investing its assets in the Arizona Limited Maturity Tax Free Portfolio (the
"Arizona Portfolio").
EV MARATHON CALIFORNIA LIMITED MATURITY TAX FREE FUND (the "California
Fund") seeks to provide (1) a high level of current income exempt from regular
Federal income tax and California State personal income taxes, and (2) limited
principal fluctuation. The California Fund seeks to meet its objective by
investing its assets in the California Limited Maturity Tax Free Portfolio
(the "California Portfolio").
EV MARATHON CONNECTICUT LIMITED MATURITY TAX FREE FUND (the "Connecticut
Fund") seeks to provide (1) a high level of current income exempt from regular
Federal income tax and Connecticut State personal income taxes, and (2)
limited principal fluctuation. The Connecticut Fund seeks to meet its
objective by investing its assets in the Connecticut Limited Maturity Tax Free
Portfolio (the "Connecticut Portfolio").
EV MARATHON FLORIDA LIMITED MATURITY TAX FREE FUND (the "Florida Fund")
seeks to provide (1) a high level of current income exempt from regular
Federal income tax in the form of an investment exempt from Florida
intangibles tax, and (2) limited principal fluctuation. The Florida Fund seeks
to meet its objective by investing its assets in the Florida Limited Maturity
Tax Free Portfolio (the "Florida Portfolio").
EV MARATHON MASSACHUSETTS LIMITED MATURITY TAX FREE FUND (the
"Massachusetts Fund") seeks to provide (1) a high level of current income
exempt from regular Federal income tax and Massachusetts State personal income
taxes, and (2) limited principal fluctuation. The Massachusetts Fund seeks to
meet its objective by investing its assets in the Massachusetts Limited
Maturity Tax Free Portfolio (the "Massachusetts Portfolio").
EV MARATHON MICHIGAN LIMITED MATURITY TAX FREE FUND (the "Michigan Fund")
seeks to provide (1) a high level of current income exempt from regular
Federal income tax and Michigan State and City income and single business
taxes in the form of an investment exempt from Michigan intangibles tax, and
(2) limited principal fluctuation. The Michigan Fund seeks to meet its
objective by investing its assets in the Michigan Limited Maturity Tax Free
Portfolio (the "Michigan Portfolio").
EV MARATHON NEW JERSEY LIMITED MATURITY TAX FREE FUND (the "New Jersey
Fund") seeks to provide (1) a high level of current income exempt from regular
Federal income tax and New Jersey State personal income taxes, and (2) limited
principal fluctuation. The New Jersey Fund seeks to meet its objective by
investing its assets in the New Jersey Limited Maturity Tax Free Portfolio
(the "New Jersey Portfolio").
EV MARATHON NEW YORK LIMITED MATURITY TAX FREE FUND (the "New York Fund")
seeks to provide (1) a high level of current income exempt from regular
Federal income tax and New York State and New York City personal income taxes,
and (2) limited principal fluctuation. The New York Fund seeks to meet its
objective by investing its assets in the New York Limited Maturity Tax Free
Portfolio (the "New York Portfolio").
EV MARATHON NORTH CAROLINA LIMITED MATURITY TAX FREE FUND (the "North
Carolina Fund") seeks to provide (1) a high level of current income exempt
from regular Federal income tax and North Carolina State personal income
taxes, and (2) limited principal fluctuation. The North Carolina Fund seeks to
meet its objective by investing its assets in the North Carolina Limited
Maturity Tax Free Portfolio (the "North Carolina Portfolio").
EV MARATHON OHIO LIMITED MATURITY TAX FREE FUND (the "Ohio Fund") seeks to
provide (1) a high level of current income exempt from regular Federal income
tax and Ohio State personal income taxes, and (2) limited principal
fluctuation. The Ohio Fund seeks to meet its objective by investing its assets
in the Ohio Limited Maturity Tax Free Portfolio (the "Ohio Portfolio").
EV MARATHON PENNSYLVANIA LIMITED MATURITY TAX FREE FUND (the "Pennsylvania
Fund") seeks to provide (1) a high level of current income exempt from regular
Federal income tax and Pennsylvania State and local taxes in the form of an
investment exempt from Pennsylvania personal property taxes, and (2) limited
principal fluctuation. The Pennsylvania Fund seeks to meet its objective by
investing its assets in the Pennsylvania Limited Maturity Tax Free Portfolio
(the "Pennsylvania Portfolio").
EV MARATHON VIRGINIA LIMITED MATURITY TAX FREE FUND (the "Virginia Fund")
seeks to provide (1) a high level of current income exempt from regular
Federal income tax and Virginia State personal income taxes, and (2) limited
principal fluctuation. The Virginia Fund seeks to meet its objective by
investing its assets in the Virginia Limited Maturity Tax Free Portfolio (the
"Virginia Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER
DIRECTLY OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY
PRIMARILY (I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL
MARKET CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF ITS
CORRESPONDING STATE AND ITS POLITICAL SUBDIVISIONS, AND THE GOVERNMENTS OF
PUERTO RICO, THE U.S. VIRGIN ISLANDS AND GUAM, THE INTEREST ON WHICH IS EXEMPT
FROM REGULAR FEDERAL INCOME TAX, IS NOT A TAX PREFERENCE ITEM UNDER THE
FEDERAL ALTERNATIVE MINIMUM TAX, AND IS EXEMPT FROM THE RELEVANT STATE TAXES
SET FORTH ABOVE. IN THE CASE OF THE CONNECTICUT FUND, THE FUND MAY INVEST IN
DEBT OBLIGATIONS OF THE GOVERNMENTS OF PUERTO RICO, THE U.S. VIRGIN ISLANDS
AND GUAM, THE INTEREST ON WHICH CANNOT BE TAXED BY ANY STATE UNDER FEDERAL
LAW. The foregoing policy is a fundamental policy of each Fund and its
corresponding Portfolio and may not be changed unless authorized by a vote of
the Fund's shareholders or that Portfolio's investors, as the case may be.
At least 80% of each Portfolio's net assets will normally be invested in
obligations rated at least investment grade at the time of investment (which
are those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's")
or BBB or higher by either Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("Fitch")) or, if unrated, determined by the
Investment Adviser to be of at least investment grade quality. The balance of
each Portfolio's net assets may be invested in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
unrated municipal obligations considered to be of comparable quality by the
Investment Adviser. Municipal obligations rated Baa or BBB may have
speculative characteristics. Also, changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher rated obligations. Securities
rated below Baa or BBB are commonly known as "junk bonds". A Portfolio may
retain an obligation whose rating drops below B after its acquisition if such
retention is considered desirable by the Investment Adviser. See "Risk
Considerations." For a description of municipal obligation ratings, see the
Statement of Additional Information.
In pursuing its investment objective, each Portfolio seeks to invest in a
portfolio having a dollar weighted average duration of between three and nine
years. Duration represents the dollar weighted average maturity of expected
cash flows (i.e., interest and principal payments) on one or more debt
obligations, discounted to their present values. The duration of an obligation
is usually not more than its stated maturity and is related to the degree of
volatility in the market value of the obligation. Maturity measures only the
time until a bond or other debt security provides its final payment; it does
not take into account the pattern of a security's payments over time. Duration
takes both interest and principal payments into account and, thus, in the
Investment Adviser's opinion, is a more accurate measure of a debt security's
sensitivity to changes in interest rates. In computing the duration of its
portfolio, a Portfolio will have to estimate the duration of debt obligations
that are subject to prepayment or redemption by the issuer, based on projected
cash flows from such obligations.
Each Portfolio may use various techniques to shorten or lengthen the
dollar weighted average duration of its portfolio, including the acquisition
of debt obligations at a premium or discount, and transactions in futures
contracts and options on futures. Subject to the requirement that its dollar
weighted average portfolio duration will not exceed nine years, a Portfolio
may invest in individual debt obligations of any maturity.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public
and private purposes, the interest on which is, in the opinion of bond
counsel, exempt from regular Federal income tax. Public purpose municipal
bonds include general obligation and revenue bonds. General obligation bonds
are backed by the taxing power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility. Municipal notes include bond
anticipation, tax anticipation, revenue anticipation, and construction loan
notes. Bond, tax and revenue anticipation notes are short-term obligations
that will be retired with the proceeds of an anticipated bond issue, tax
revenue or facility revenue, respectively. Construction loan notes are short-
term obligations that will be retired with the proceeds of long-term mortgage
financing. Under normal market conditions, a Portfolio will invest at least
65% of its total assets in obligations issued by its respective State or its
political subdivisions.
Interest income from certain types of municipal obligations may subject
the recipient to or increase the recipient's liability for the Federal
alternative minimum tax. A Portfolio may not invest more than 20% of its net
assets in these obligations and obligations that pay interest subject to
regular Federal income tax and/or the relevant State taxes. As at March 31,
1995, the Portfolios had invested in private activity bonds as follows (as a
percentage of net assets): Arizona Portfolio (0%); California Portfolio
(1.2%); Connecticut Portfolio (8.3%); Florida Portfolio (0%); Massachusetts
Portfolio (8.8%); Michigan Portfolio (5.5%); New Jersey Portfolio (5.6%); New
York Portfolio (0%); North Carolina Portfolio (0%); Ohio Portfolio (6.1%);
Pennsylvania Portfolio (0%); and Virginia Portfolio (0%). Distributions to
corporate investors of certain interest income may also be subject to the
Federal alternative minimum tax.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State. Each Portfolio is, therefore, more
susceptible to factors adversely affecting issuers in one State than mutual
funds which do not concentrate in a specific State. Municipal obligations of
issuers in a single State may be adversely effected by economic developments
and by legislation and other governmental activities in that State. To the
extent that a Portfolio's assets are concentrated in municipal obligations of
issuers of a single State, that Portfolio may be subject to an increased risk
of loss. Each Portfolio may also invest in obligations issued by the
governments of Puerto Rico, the U.S. Virgin Islands and Guam. See the Appendix
to this Prospectus for a description of economic and other factors relating to
the States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities;
obligations of State and local housing finance authorities, municipal
utilities systems or public housing authorities; obligations for hospitals or
life care facilities; or industrial development or pollution control bonds
issued for electric utility systems, steel companies, paper companies or other
purposes. This may make a Portfolio more susceptible to adverse economic,
political, or regulatory occurrences affecting a particular category of
issuer. For example, health care-related issuers are susceptible to medicaid
reimbursement policies, and national and state health care legislation. As a
Portfolio's concentration increases, so does the potential for fluctuation in
the value of the corresponding Fund's shares.
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its assets, more than 5% (but not
more than 25%) of its assets in the securities of any issuer. A Portfolio is
likely to invest a greater percentage of its assets in the securities of a
single issuer than would a diversified fund. Therefore, a Portfolio would be
more susceptible to any single adverse economic or political occurrence or
development affecting issuers of the relevant State's municipal obligations.
OTHER INVESTMENT PRACTICES
Each Portfolio may engage in the following investment practices, some of
which may be considered to involve "derivative" instruments because they
derive their value from another instrument, security or index.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce a Fund's current yield.
Insurance generally will be obtained from insurers with a claims-paying
ability rated Aaa by Moody's or AAA by S&P or Fitch. The insurance does not
guarantee the market value of the insured obligations or the net asset value
of a Fund's shares.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities 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. However, the market value of the
securities may fluctuate prior to delivery and upon delivery the securities
may be worth more or less than a Portfolio agreed to pay for them. Each
Portfolio may also purchase instruments that give the Portfolio the option to
purchase a municipal obligation when and if issued.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the
Municipal Bond Index traded on the Chicago Board of Trade) and other financial
instruments and indices. Such transactions involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices, which
may exceed a Portfolio's initial investment in these contracts. A Portfolio
may not purchase or sell futures contracts or related options, except for
closing purchase or sale transactions, if immediately thereafter the sum of
the amount of margin deposits and premiums paid on the Portfolio's outstanding
positions would exceed 5% of the market value of the Portfolio's net assets.
These transactions involve transaction costs. There can be no assurance that
the Investment Adviser's use of futures will be advantageous to a Portfolio.
Distributions by a Fund of any gains realized on its corresponding Portfolio's
transactions in futures and options on futures will be taxable.
RISK CONSIDERATIONS
Many municipal obligations offering high current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, each Portfolio may invest in municipal obligations rated
below investment grade (but not lower than B by Moody's, S&P or Fitch) and
comparable unrated obligations. The lowest investment grade, lower rated and
comparable unrated municipal obligations in which a Portfolio may invest will
have speculative characteristics in varying degrees. While such 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.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by a Portfolio which
are rated below investment grade but which, subsequent to the assignment of
such rating, are backed by escrow accounts containing U.S. Government
obligations may be determined by the Investment Adviser to be of investment
grade quality for purposes of the Portfolio's investment policies. A Portfolio
may retain in its portfolio an obligation whose rating drops below B after its
acquisition, if such retention is considered desirable by the Investment
Adviser; provided, however, that holdings of obligations rated below Baa or
BBB will not exceed 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 its credit quality limitations. For a description of
municipal obligation ratings, see the Statement of Additional Information.
The net asset value of shares of a Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by its corresponding Portfolio. When interest rates decline,
the value of securities held by a Portfolio can be expected to rise.
Conversely, when interest rates rise, the value of most portfolio security
holdings can be expected to decline. Because each Portfolio intends to limit
its average portfolio duration to no more than nine years, the net asset value
of its corresponding Fund can be expected to be less sensitive to changes in
interest rates than that of a fund with a longer average portfolio duration.
Changes in the credit quality of the issuers of municipal obligations held by
a Portfolio will affect the principal value of (and possibly the income earned
on) on such obligations. In addition, the values of such securities are
affected by changes in general economic conditions and business conditions
affecting the specific industries of their issuers. Changes by recognized
rating services in their ratings of a security and in the ability of the
issuer to make payments of principal and interest may also affect the value of
a Portfolio's investments. The amount of information about the financial
condition of an issuer of municipal obligations may not be as extensive as
that made available by corporations whose securities are publicly traded. An
investment in shares of a Fund will not constitute a complete investment
program.
At times, a substantial portion of the Portfolio's assets may be invested
in securities as to which the Portfolio, by itself or together with other
accounts managed by the Investment Adviser and its affiliates, holds a major
portion or all of such securities. Under adverse market or economic conditions
or in the event of adverse changes in the financial condition of the issuer,
the Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its 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.
Certain securities held by the Portfolio may permit the issuer at its
option to "call", or redeem, its securities. If an issuer were to redeem
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.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in
response to changes in market interest rates than bonds which pay interest
currently. Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals during the
life of the security. Each Portfolio is required to accrue and distribute
income from zero-coupon bonds on a current basis, even though it does not
receive that income currently in cash. Thus, a Portfolio may have to sell
other investments to obtain cash needed to make income distributions.
Each Portfolio may invest in 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. 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.
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EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT FUNDAMENTAL POLICIES
AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO
WITHOUT OBTAINING THE APPROVAL OF A FUND'S SHAREHOLDERS OR THE INVESTORS IN
THE CORRESPONDING PORTFOLIO, AS THE CASE MAY BE. IF ANY CHANGES WERE MADE IN A
FUND'S INVESTMENT OBJECTIVE, THE FUND MIGHT HAVE INVESTMENT OBJECTIVES
DIFFERENT FROM THE OBJECTIVE WHICH AN INVESTOR CONSIDERED APPROPRIATE AT THE
TIME THE INVESTOR BECAME A SHAREHOLDER IN THE FUND.
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ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
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Each Fund is a non-diversified series of Eaton Vance Investment Trust, a
business trust established under Massachusetts law pursuant to a Declaration
of Trust dated October 23, 1985, as amended and restated. The Trust is a
mutual fund -- an open-end management investment company. THE TRUSTEES OF THE
TRUST ARE RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF ITS
AFFAIRS. The Trust may issue an unlimited number of shares of beneficial
interest (no par value per share) in one or more series and because the Trust
can offer separate series (such as the Funds), it is known as a "series
company." The Trust is initially offering Class I shares of each Fund. After
receipt of a ruling from the Internal Revenue Service, the Trustees will
divide the shares of each Fund into two classes (Class I and Class II) and fix
and determine the relative rights and preferences as between, and all
provisions applicable to, each Class. Shares of different Classes may be sold
under different sales arrangements. Each Class of shares of a Fund will
represent interests in the same assets held by the Fund, except that: (1)
Class I shares will be subject to the Fund's Rule 12b-1 distribution plan,
which provides for payments of sales commissions and distribution fees to the
Principal Underwriter in amounts not exceeding .75% of the Fund's average
daily net assets attributable to the Class I shares for each fiscal year, and
subject to service fees payable under the plan (see "Distribution Plans"); (2)
Class II shares would be subject to service fees payable under such plan; (3)
any other Class of shares established may be subject to a Rule 12b-1
distribution plan or service fee applicable thereto; (4) a higher transfer
agency fee may be imposed on Class I shares than on other Classes of shares;
(5) only the Class I shares will have a conversion feature providing for the
automatic conversion to Class II shares four full years after purchase; (6)
the shareholders of any Class subject to a Rule 12b-1 distribution plan will
have exclusive voting rights with respect to the plan applicable to their
respective Class; (7) each Class of shares may have different exchange
privileges; and (8) each Class of shares will bear the expenses which are
properly attributable to such Class. Upon creation of additional Classes of
shares, the Funds' offering documents will be revised in an appropriate manner
to reflect such events.
When issued and outstanding, each Fund's shares are fully paid and
nonassessable by the Trust and redeemable as described under "How to Redeem
Fund Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares have no preemptive or
conversion rights and are freely transferable. In the event of the liquidation
of a Fund, shareholders of each Class of that Fund are entitled to share pro
rata in the net assets attributable to the Class available for distribution to
shareholders.
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. The
Portfolios, as well as the Trust, intend to comply with all applicable Federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that
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 a 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 Funds nor
their shareholders will be adversely affected by reason of the Funds investing
in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
a Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in its
corresponding Portfolio (although the Fund may temporarily hold a de minimus
amount of cash), which is a separate investment company with an identical
investment objective. Therefore, a Fund's interest in the securities owned by
its corresponding Portfolio is indirect. In addition to selling an interest to
its corresponding Fund, a Portfolio may sell interests to other affiliated and
non-affiliated mutual funds or institutional investors. Such investors will
invest in a Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in a Portfolio are not required to sell their shares at the same
public offering price as the corresponding Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in a Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in its corresponding
Portfolio. Such differences in returns are also present in other mutual fund
structures, including funds that have multiple classes of shares. For
information regarding the investment objective, policies and restrictions of
the Portfolios, see "The Funds' Investment Objectives" and "How the Funds and
the Portfolios Invest their Assets". Further information regarding investment
practices may be found in the Statement of Additional Information.
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 substantial growth in the
assets of the Portfolios, and affords the potential for economies of scale for
each Fund, at least when the assets of its corresponding Portfolio exceed $500
million. The public shareholders of each of the California, Florida,
Massachusetts, New Jersey, New York and Pennsylvania Funds have previously
approved the policy of investing such Fund's assets in an interest in its
corresponding Portfolio.
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. The
investment objective and the nonfundamental investment policies of each Fund
and Portfolio may be changed by the Trustees of the Trust and the Portfolio
without obtaining the approval of the shareholders of that Fund or the
investors in that Portfolio, as the case may be. Any such change of an
investment objective will be preceded by thirty days' advance written notice
to the shareholders of the Fund or the investors in the Portfolio, as the case
may be. If a shareholder redeems shares because of a change in the
nonfundamental objective or policies of a Fund, those shares may be subject to
a contingent deferred sales charge, as described in "How to Redeem Fund
Shares". 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, such 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 from its
corresponding Portfolio.
Information regarding other pooled investment entities or funds which
invest in a Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc. (the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA
02110, (617) 482-8260. Smaller investors in a Portfolio may be adversely
affected by the actions of larger investors in the Portfolio. For example, if
a large investor withdraws from a Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, a Portfolio may become less diverse, resulting in
increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured mutual
funds which have large or institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a
separate investment company are a relatively new development in the mutual
fund industry and, therefore, the Funds may be subject to additional
regulations than historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolios as partnerships for Federal income tax purposes.
See "Distributions and Taxes" for further information. Whenever a Fund as an
investor in a Portfolio is requested to vote on matters pertaining to the
Portfolio (other than the termination of the Portfolio's business, which may
be determined by the Trustees of the Portfolio without investor approval), the
Fund will hold a meeting of Fund shareholders and will vote its interest in
the Portfolio for or against such matters proportionately to the instructions
to vote for or against such matters received from Fund shareholders. A Fund
shall vote shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting instructions. Other
investors in a Portfolio may alone or collectively acquire sufficient voting
interests in the Portfolio to control matters relating to the operation of the
Portfolio, which may require the corresponding Fund to withdraw its investment
in the Portfolio or take other appropriate action. Any such withdrawal could
result in a distribution "in kind" of portfolio securities (as opposed to a
cash distribution from the Portfolio). If securities are distributed, a Fund
could incur brokerage, tax or other charges in converting the securities to
cash. In addition, the distribution in kind may result in a less diversified
portfolio of investments or adversely affect the liquidity of a Fund.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address
any potential conflicts of interest arising from the fact that the Trustees of
the Trust and the Trustees of each Portfolio are the same. Such procedures
require each Board to take action to resolve any conflict of interest between
a Fund and its corresponding Portfolio, and it is possible that the creation
of separate Boards may be considered. For further information concerning the
Trustees and officers of the Trust and the Portfolios, see the Statement of
Additional Information.
Although each Fund offers only its own shares of beneficial interest, it
is possible that a Fund might become liable for a misstatement or omission in
this Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
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EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT
ADVISER. EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN
MANAGING ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING
INVESTMENT COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs. Under its
investment advisory agreement with a Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset-based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in
the same Category bears to the total daily net assets on such day) in
each Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
1 up to $500 million .................. 0.300% 3.00%
2 $500 million but less than $1 billion 0.275% 2.75%
3 $1 billion but less than $1.5 billion 0.250% 2.50%
4 $1.5 billion but less than $2 billion 0.225% 2.25%
5 $2 billion but less than $3 billion .. 0.200% 2.00%
6 $3 billion and over .................. 0.175% 1.75%
Each Portfolio paid (or, absent a fee reduction, would have paid) advisory
fees for the fiscal year ended March 31, 1995 equivalent to the annualized
percentage of average daily net assets stated below. BMR furnishes for the use
of each Portfolio office space and all necessary office facilities, equipment
and personnel for servicing the investments of the Portfolios.
NET ASSETS
AS OF
PORTFOLIO MARCH 31, 1995 ADVISORY FEE
--------- -------------- ------------
Arizona ............................. $ 590,456 0.44%(1)
California .......................... 82,343,725 0.46%
Connecticut ......................... 17,315,618 0.45%(2)
Florida ............................. 164,578,915 0.46%
Massachusetts ....................... 119,119,542 0.46%
Michigan ............................ 33,198,016 0.46%(3)
New Jersey .......................... 97,279,675 0.46%
New York ............................ 173,632,424 0.46%
North Carolina ...................... 235,759 0.42%(4)
Ohio ................................ 39,435,374 0.46%(5)
Pennsylvania ........................ 113,606,045 0.46%
Virginia ............................ 220,628 0.45%(6)
(1) For the period from the start of business November 3, 1994, to the fiscal
year ended March 31, 1995. To enhance the net income of the Arizona
Portfolio, BMR made a reduction of its advisory fee in the full amount of
such fee and BMR was allocated $1,640 of expenses related to the operation
of such Portfolio. The fee stated above is annualized.
(2) To enhance the net income of the Connecticut Portfolio, BMR made a reduction
of its advisory fee in the full amount of such fee and BMR was allocated
$8,932 of expenses related to the operation of such Portfolio.
(3) To enhance the net income of the Michigan Portfolio, BMR made a reduction of
its advisory fee in the amount of $40,822.
(4) For the period from the start of business, November 28, 1994, to the fiscal
year ended March 31, 1995. To enhance the net income of the North Carolina
Portfolio, BMR made a reduction of its advisory fee in the full amount of
such fee and BMR was allocated $1,083 of expenses related to the operation
of such Portfolio. The fee stated above is annualized.
(5) To enhance the net income of the Ohio Portfolio, BMR made a reduction of its
advisory fee in the amount of $44,856.
(6) For the period from the start of business, November 11, 1994, to the fiscal
year ended March 31, 1995. To enhance the net income of the Virginia
Portfolio, BMR made a reduction of its advisory fee in the full amount of
such fee and BMR was allocated $1,160 of expenses related to the operation
of such Portfolio. The fee stated above is annualized.
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account.
Such firms attempt to profit from such transactions by buying at the bid price
and selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject
to the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
Raymond E. Hender has acted as the portfolio manager of the Arizona,
California, Florida, Massachusetts, New York and Pennsylvania Portfolios since
they commenced operations. He joined Eaton Vance and BMR as a Vice President
in 1992. Previously, he was a Senior Vice President of Bank of New England
(1989-1992) and a Portfolio Manager of Fidelity Management & Research Company
(1977-1988).
William H. Ahern has acted as the portfolio manager of the North Carolina
and Virginia Portfolios since they commenced operations and of the
Connecticut, Michigan, New Jersey and Ohio Portfolios since October 1994. He
has been an Assistant Vice President of Eaton Vance since 1994 and an employee
since 1989.
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real
estate investment, consulting and management, and development of precious
metals properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing the Fund's assets in its corresponding Portfolio. As Administrator,
Eaton Vance provides the Funds with general office facilities and supervises
the overall administration of the Funds. For these services Eaton Vance
currently receives no compensation. The Trustees of the Trust may determine,
in the future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be
payable by BMR under the investment advisory agreement, by Eaton Vance under
the administrative services agreement, or by EVD under the distribution
agreement. Such costs and expenses to be borne by the Portfolios and the
Funds, as the case may be, include, without limitation: custody and transfer
agency fees and expenses, including those incurred for determining net asset
value and keeping accounting books and records; expenses of pricing and
valuation services; the cost of share certificates; membership dues in
investment company organizations; expenses of acquiring, holding and disposing
of securities and other investments; fees and expenses of registering under
the securities laws and the governmental fees; expenses of reporting to
shareholders and investors; proxy statements and other expenses of
shareholders' or investors' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with BMR or Eaton Vance;
and investment advisory fees, and, if any, administrative services fees. The
Portfolios and the Funds will also each bear expenses incurred in connection
with litigation in which each of the Portfolios or the Funds, as the case may
be, is a party and any legal obligation to indemnify its respective officers
and Trustees with respect thereto.
DISTRIBUTION PLANS
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EACH FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(A "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. Rule 12b-1 permits a
mutual fund, such as a Fund, to finance distribution activities and bear
expenses associated with the distribution of its shares provided that any
payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. Each Plan is subject to, and complies with, the
sales charge rule of the National Association of Securities Dealers, Inc. (the
"NASD Rule"). Each Fund's Plan is described further in the Statement of
Additional Information, and the following is a description of the salient
features of the Plans. Each Fund's Plan provides that the Fund, subject to the
NASD Rule, will pay sales commissions and distribution fees to the Principal
Underwriter only after and as a result of the sale of Class I shares of the
Fund. On each sale of Class I shares (excluding reinvestment of distributions)
a Fund will pay the Principal Underwriter amounts representing (i) sales
commissions for each Class I 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. The California, Florida,
Massachusetts, New Jersey, New York, and Pennsylvania Funds each pay the
Principal Underwriter sales commissions equal to 3% of the amount received for
each Class I share sold. The Arizona, Connecticut, Michigan, North Carolina,
Ohio and Virginia Funds each pay the Principal Underwriter sales commissions
equal to 3.5% of the amount received for each Class I share sold. The
Principal Underwriter currently expects to pay sales commissions (except on
exchange transactions and reinvestments) to a financial service firm (an
"Authorized Firm") at the time of sale equal to 2.5% of the purchase price of
the Class I shares sold by such Firm. The Principal Underwriter will use its
own funds (which may be borrowed from banks) to pay such commissions. Because
the payment of the sales commissions and distribution fees to the Principal
Underwriter is subject to the NASD Rule described below, it will take the
Principal Underwriter a number of years to recoup the sales commissions paid
by it to Authorized Firms from the payments received by it from a Fund
pursuant to a Plan.
THE NASD RULE REQUIRES EACH FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT
NOT EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO THE
CLASS I SHARES FOR EACH FISCAL YEAR. Under its Plan, a Fund accrues daily an
amount at the rate of 1/365 of .75% of the Fund's net assets attributable to
Class I shares, and pays such accrued amounts monthly to the Principal
Underwriter. Each Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily
and, briefly, are equivalent to all unpaid sales commissions and distribution
fees to which the Principal Underwriter is entitled under a Plan less all
contingent deferred sales charges theretofore paid to the Principal
Underwriter. The Eaton Vance organization may be considered to have realized a
profit under a Fund's Plan if at any point in time the aggregate amounts of
all payments received by the Principal Underwriter from the Fund pursuant to
the Plan, including any contingent deferred sales charges, have exceeded the
total expenses theretofore incurred by such organization in distributing Class
I 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.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Class I shares during the initial years of a Fund's
operations would cause a large portion of the sales commissions attributable
to a sale of Class I shares to be accrued and paid by the Fund to the
Principal Underwriter in fiscal years subsequent to the year in which such
Class I shares were sold. This spreading of sales commissions payments under
each Fund's Plan over an extended period would result in the incurrence and
payment of increased distribution fees under the Plan.
During the fiscal year ended March 31, 1995, the California, Connecticut,
Florida, Massachusetts, Michigan, New Jersey, New York, Ohio and Pennsylvania
Funds each paid sales commissions under its Plan equivalent to .75% of such
Fund's average daily net assets for such year. For the period from the start
of business, November 3, 1994, November 28, 1994, and November 11, 1994 to
March 31, 1995, the Arizona, North Carolina and Virginia Funds, respectively,
each paid sales commissions under its Plan equivalent to .75% (annualized) of
such Fund's average daily net assets for such period. As of March 31, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under each Fund's Plan amounted to $16,831 (equivalent to 3.4% of
net assets on such day) in the case of the Arizona Fund, $1,496,539
(equivalent to 2.0% of net assets on such day) in the case of the California
Fund, $445,972 (equivalent to 2.9% of net assets on such day) in the case of
the Connecticut Fund, $2,844,726 (equivalent to 1.9% of net assets on such
day) in the case of the Florida Fund, $2,146,730 (equivalent to 1.9% of net
assets on such day) in the case of the Massachusetts Fund, $734,600
(equivalent to 2.8% of net assets on such day) in the case of the Michigan
Fund, $1,749,374 (equivalent to 1.9% of net assets on such day) in the case of
the New Jersey Fund, $3,137,537 (equivalent to 1.9% of net assets on such day)
in the case of the New York Fund, $5,546 (equivalent to 4.1% of net assets on
such day) in the case of the North Carolina Fund, $973,394 (equivalent to 2.8%
of net assets on such day) in the case of the Ohio Fund, $1,838,484
(equivalent to 1.8% of net assets on such day) in the case of the Pennsylvania
Fund, and $4,001 (equivalent to 3.4% of net assets on such day) in the case of
the Virginia Fund. As of the date of this Prospectus, the Funds have issued
only Class I shares.
EACH PLAN ALSO AUTHORIZES A FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO ALL
CLASSES OF SHARES FOR EACH FISCAL YEAR. The Trustees of the Trust have
initially implemented this provision of each Fund's Plan by authorizing the
Fund to make quarterly payments of service fees to the Principal Underwriter
and Authorized Firms in amounts not expected to exceed .15% of the Fund's
average daily net assets attributable to both Class I and Class II shares for
each fiscal year based on the value of Fund shares sold by such persons and
remaining outstanding for at least twelve months. However, each Fund's Plan
authorizes the Trustees of the Trust on behalf of the Fund to increase
payments to the Principal Underwriter, Authorized Firms and other persons from
time to time without further action by shareholders of the Fund, provided that
the aggregate amount of payments made to such persons under the Plan in any
fiscal year of the Fund does not exceed .25% of the Fund's average daily net
assets attributable to all Classes of shares. As permitted by the NASD Rule,
such payments are made for personal services and/or the maintenance of
shareholder accounts. Service fees are separate and distinct from the sales
commissions and distribution fees payable by a Fund to the Principal
Underwriter, and as such are not subject to automatic discontinuance when
there are no outstanding Uncovered Distribution Charges of the Principal
Underwriter. For the fiscal year ended March 31, 1995, the California,
Connecticut, Florida, Massachusetts, Michigan, New Jersey, New York, Ohio and
Pennsylvania Funds paid or accrued service fees under its Plan equivalent to
0.07%, 0.05%, 0.08%, 0.08%, 0.07%, 0.08%, 0.09%, 0.05% and 0.09%,
respectively, of such Fund's average daily net assets for such year. Each of
the Arizona, North Carolina and Virginia Funds expects to commence accruing
for its service fee payments during the quarter ending December 31, 1995.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of a Fund's Class I shares
and/or shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain
Authorized Firms whose representatives are expected to sell significant
amounts of Class I shares. In addition, the Principal Underwriter may from
time to time increase or decrease the sales commissions payable to Authorized
Firms.
Each Fund may, in its absolute discretion, suspend, discontinue or limit
the offering of its Class I shares at any time. In determining whether any
such action should be taken, the Funds' management intends to consider all
relevant factors, including without limitation the size of a Fund, the
investment climate and market conditions, the volume of sales and redemptions
of Class I shares, and the amount of Uncovered Distribution Charges of the
Principal Underwriter. Each Plan may continue in effect and payments may be
made under the Plan following any such suspension, discontinuance or
limitation of the offering of Class I shares; however, no Fund is
contractually obligated to continue its Plan for any particular period of
time. Suspension of the offering of Class I shares would not, of course,
affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
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EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the
Trust. Net asset value is computed by dividing the value of a Fund's total
assets, less its liabilities, by the number of shares outstanding. Because
each Fund invests its assets in an interest in its corresponding Portfolio, a
Fund's net asset value will reflect the value of its interest in the Portfolio
(which, in turn, reflects the underlying value of the Portfolio's assets and
liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio) based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of a Portfolio from the value of its total assets. Municipal
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolios' assets, see "Determination of Net Asset Value" in the Statement of
Additional Information. Eaton Vance Corp. owns 77.3% of the outstanding stock
of IBT, the Funds' and the Portfolios' custodian.
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SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
--------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
-------------------------------------------------------------------------------
CLASS I SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN
EXCHANGE FOR SECURITIES. Pursuant to a rule of the Commission, each Fund has
adopted a multi-class plan and may offer more than one Class of shares after
receiving a private letter ruling from the Internal Revenue Service. There is
no assurance that a Fund will be able to obtain such ruling.
CLASS I SHARES
Investors may purchase Class I shares of a Fund through Authorized Firms
at the net asset value per Class I share of the Fund next determined after an
order is effective. A Fund may suspend the offering of shares at any time and
may refuse an order for the purchase of shares. Shares of each Fund are
offered for sale only in States where such shares may be legally sold.
An initial investment in Class I shares of a Fund must be at least $1,000.
Once an account has been established the investor may send investments of $50
or more at any time directly to the Funds' transfer agent (the "Transfer
Agent") as follows: The Shareholder Services Group, Inc., BOS725, P.O. Box
1559, Boston, MA 02104. The $1,000 minimum initial investment is waived for
Bank Automated Investing accounts, which may be established with an investment
of $50 or more. See "Eaton Vance Shareholder Services."
CONVERSION FEATURE. Class I shares (except those in the sub-account described
below) held for four full years will, at the commencement of the fifth year,
automatically convert into Class II shares, and a pro rata portion of the
Class I shares in the sub-account will also convert to Class II shares (such
portion to be determined by the ratio that the shareholder's Class I shares
being converted bears to the shareholder's total Class I shares not acquired
through reinvestment of distributions). A Fund's ability to implement this
conversion feature will be dependent on obtaining the ruling referred to
above. All distributions on Class I shares which the shareholder elects to
reinvest will be reinvested in Class I shares; for purposes of conversion to
Class II shares, Class I shares acquired through reinvestment of such
distributions will be considered to be held in a separate sub-account.
CLASS II SHARES Class II shares will be issued only after receipt of a
private letter ruling from the Internal Revenue Service. Such shares will be
issued automatically in connection with the conversion feature referred to
above. Class II shares are not subject to the sales commissions and
distribution fees payable from assets attributable to the Class I shares, but
bear service fees payable under a Fund's distribution plan (see "Distribution
Plans"). Class II shares may bear lower transfer agency fees than Class I
shares. The Trustees of the Trust may also allow Class II shares to be
available for acquisition by limited classes of investors identified in the
Funds' offering documents.
If deemed appropriate by the Trustees, a Fund may in the future offer
additional Classes of shares the terms of which would be determined by the
Trustees.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent,
will receive securities acceptable to Eaton Vance, as Administrator, in
exchange for Class I shares at their net asset value as determined above. The
minimum value of securities (or securities and cash) accepted for deposit is
$5,000. Securities accepted will be sold by IBT as agent for the account of
their owner on the day of their receipt by IBT or as soon thereafter as
possible. The number of Class I shares to be issued in exchange for securities
will be the aggregate proceeds from the sale of such securities, divided by
the applicable net asset value per Class I share 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 the securities.
Securities determined to be acceptable should be transferred via book
entry or physically delivered, in proper form for transfer, through an
Authorized Firm, together with a completed and signed Letter of Transmittal in
approved form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon [State name] Limited Maturity Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon [State name] Limited Maturity Tax Free Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, are advised to contact Eaton Vance to
determine whether the securities are acceptable before forwarding such
securities to IBT. Eaton Vance reserves the right to reject any securities.
Exchanging securities for Fund 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 for Fund
shares.
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IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
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HOW TO REDEEM FUND SHARES
--------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's
STAMP program or the New York Stock Exchange's Medallion Signature Program, or
certain banks, savings and loan institutions, credit unions, securities
dealers, securities exchanges, clearing agencies and registered securities
associations as required by a regulation of the Securities and Exchange
Commission and acceptable to The Shareholder Services Group, Inc. In addition,
in some cases, good order may require the furnishing of additional documents
such as where shares are registered in the name of a corporation, partnership
or fiduciary.
Within seven days after receipt of a redemption request in good order by
The Shareholder Services Group, Inc., a Fund will make payment in cash for the
net asset value of the shares as of the date determined above, reduced by the
amount of any applicable contingent deferred sales charges (described below)
imposed on Class I shares and any Federal income tax required to be withheld.
Although each Fund normally expects to make payment 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 by that Fund 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.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It
is the Authorized Firm's responsibility to transmit promptly repurchase orders
to EVD. Throughout this Prospectus, the word "redemption" is generally meant
to include a repurchase.
If shares were recently purchased, the proceeds of a redemption (or
repurchase) will not be sent until the check (including a certified or
cashier's check) received for the shares purchased has cleared. Payment for
shares tendered for redemption may be delayed up to fifteen days from the
purchase date when the purchase check has not yet cleared. Redemptions or
repurchases may result in a taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required by a Fund if the cause of the
low account balance was a reduction in the net asset value of Fund shares. No
contingent deferred sales charge will be imposed with respect to such
involuntary redemptions of Class I shares.
CONTINGENT DEFERRED SALES CHARGE. Class I shares redeemed within the
first four years of their purchase (except shares acquired through the
reinvestment of distributions) generally will be subject to a contingent
deferred sales charge. This contingent deferred sales charge is imposed on any
redemption the amount of which exceeds the aggregate value at the time of
redemption of (a) all Class I shares in the account purchased more than four
years prior to the redemption, (b) all Class I shares in the account acquired
through reinvestment of distributions, and (c) the increase, if any, in the
value of all other shares in the account (namely those purchased within the
four years preceding the redemption) over the purchase price of such shares.
Redemptions are processed in a manner to maximize the amount of redemption
proceeds which will not be subject to a contingent deferred sales charge. That
is, each redemption will be assumed to have been made first from the exempt
amounts referred to in clauses (a), (b) and (c) above, and second through
liquidation of those shares in the account referred to in clause (c) on a
first-in-first-out basis. Any contingent deferred sales charge which is
required to be imposed on share redemptions will be made in accordance with
the following schedule:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ....................... 3.0%
Second ...................... 2.5%
Third ....................... 2.0%
Fourth ...................... 1.0%
Fifth and following ......... 0.0%
In calculating the contingent deferred sales charge upon the redemption of
Class I shares acquired in an exchange of shares of a fund currently listed
under "The Eaton Vance Exchange Privilege," the contingent deferred sales
charge schedule applicable to the shares at the time of purchase will apply
and the purchase of Class I shares acquired in the exchange is deemed to have
occurred at the time of the original purchase of the exchanged shares. The
contingent deferred sales charge applicable to Class I shares will be waived
for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance
Shareholder Services"), (2) as part of a required distribution from a tax-
sheltered retirement plan or (3) following the death of all beneficial owners
of such shares, provided the redemption is requested within one year of death
(a death certificate and other applicable documents may be required).
Redemption requests placed by shareholders who own both Class I and Class
II shares of a Fund will be satisfied first by redeeming the shareholder's
Class II shares, unless the shareholder has made a specific election to redeem
Class I shares.
No contingent deferred sales charge will be imposed on redemptions of
Class II shares of a Fund. No contingent deferred sales charge will be imposed
on Fund shares which have been sold to Eaton Vance or its affiliates, or to
their respective employees or clients. The contingent deferred sales charge
will be paid to the Principal Underwriter or a Fund.
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THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT DEFERRED
SALES CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF A FUND'S CLASS I
SHARES AND THAT 16 MONTHS LATER THE VALUE OF THE ACCOUNT HAS GROWN THROUGH
INVESTMENT PERFORMANCE AND REINVESTMENT OF DIVIDENDS TO $12,000. THE
INVESTOR THEN MAY REDEEM UP TO $2,000 OF CLASS I SHARES WITHOUT INCURRING A
CONTINGENT DEFERRED SALES CHARGE. IF THE INVESTOR SHOULD REDEEM $3,000 OF
CLASS I SHARES, A CHARGE WOULD BE IMPOSED ON $1,000 OF THE REDEMPTION. THE
RATE WOULD BE 2.5% BECAUSE THE REDEMPTION WAS MADE IN THE SECOND YEAR AFTER
THE PURCHASE WAS MADE AND THE CHARGE WOULD BE $25.
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REPORTS TO SHAREHOLDERS
--------------------------------------------------------------------------------
EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual
reports are audited by the Funds' independent certified public accountants.
Shortly after the end of each calendar year, each Fund will furnish its
shareholders with information necessary for preparing Federal and State tax
returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS'
TRANSFER AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME
INVESTING ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This
account is a complete record of all transactions between the investor and the
Fund which at all times shows the balance and Class of shares owned. A Fund
will not issue share certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance and Class of shares in the
account. THE LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE
ADDITIONAL INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE
to The Shareholder Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725,
P.O. Box 1559, Boston, MA, 02104 (please provide the name of the shareholder,
the Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Funds' dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in
additional shares of the same Class.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares of the same Class.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States
Postal Service as not deliverable or which remain uncashed for six months or
more will be reinvested in the account in the same Class of shares at the then
current net asset value. Furthermore, the distribution option on the account
will be automatically changed to the Share Option until such time as the
shareholder selects a different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options
set forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a
shareholder should obtain a prospectus of the other Eaton Vance fund and
consider its objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the
account, or to obtain information about the account. The transfer of shares in
a "street name" account to an account with another dealer or to an account
directly with the Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares in
the account from the Authorized Firm. Before establishing a "street name"
account with an investment firm, or transferring the account to another
investment firm, an investor wishing to reinvest distributions should
determine whether the firm which will hold the shares allows reinvestment of
distributions in "street name" accounts.
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UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
--------------------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
------------------------------------------------------------------------------
Shares of each Fund currently may be exchanged for shares of one or more other
funds in the Eaton Vance Marathon Group of Funds (which includes Eaton Vance
Equity-Income Trust and any EV Marathon fund) or Eaton Vance Money Market
Fund, which are distributed subject to a contingent deferred sales charge.
Shares of each Fund may also be exchanged for shares of Eaton Vance Prime Rate
Reserves which are subject to an early withdrawal charge. Any such exchange
will be made on the basis of the net asset value per share of each fund at the
time of the exchange, provided that such exchange offers are available only in
States where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the
exchange privilege for any shareholder account engaged in Market Timing
activity. Any shareholder account for which more than two round-trip exchanges
are made within any twelve month period will be deemed to be engaged in Market
Timing. Furthermore, a group of unrelated accounts for which exchanges are
entered contemporaneously by a financial intermediary will be considered to be
engaged in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next
determined net asset value after receiving an exchange request in good order
(see "How to Redeem Fund Shares"). Consult The Shareholder Services Group,
Inc. for additional information concerning the exchange privilege.
Applications and prospectuses of other funds are available from Authorized
Firms or the Principal Underwriter. The prospectus for each fund describes its
investment objectives and policies, and shareholders should obtain a
prospectus and consider these objectives and policies carefully before
requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes
of calculating the contingent deferred sales charge upon the redemption of
Class I shares acquired in an exchange, the contingent deferred sales charge
or early withdrawal charge schedule applicable to the shares at the time of
purchase will apply and the purchase of Class I shares acquired in one or more
exchanges is deemed to have occurred at the time of the original purchase of
the exchanged shares. For the contingent deferred sales charge or early
withdrawal charge schedule applicable to Class I shares of any EV Marathon
Limited Maturity Fund and to shares of EV Marathon Strategic Income Fund and
Eaton Vance Prime Rate Reserves, see "How to Redeem Fund Shares". The
contingent deferred sales charge schedule applicable to the other funds in the
Eaton Vance Marathon Group of Funds is 5%, 5%, 4%, 3%, 2%, or 1% in the event
of a redemption occurring in the first, second, third, fourth, fifth or sixth
year, respectively, after the original share purchase.
Shares of the other funds in the Eaton Vance Marathon Group of Funds and
shares of Eaton Vance Money Market Fund may be exchanged for Class I shares of
a Fund on the basis of the net asset value per share of each fund at the time
of the exchange, but subject to any restrictions or qualifications set forth
in the current prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.,
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as
the shares being exchanged. Neither the Funds, the Principal Underwriter nor
The Shareholder Services Group, Inc. will be responsible for the authenticity
of exchange instructions received by telephone, provided that reasonable
procedures to confirm that instructions communicated are genuine have been
followed. Telephone instructions will be tape recorded. In times of drastic
economic or market changes, a telephone exchange may be difficult to
implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
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THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter.
The cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the
Fund being purchased may be mailed directly to The Shareholder Services Group,
Inc., BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not
distributions are reinvested. The name of the shareholder, the Fund, the Class
of shares and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments
of $50 or more may be made automatically each month or quarter from a
shareholder's bank account. The $1,000 minimum initial investment and small
account redemption policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed
annually 12% of the account balance at the time the plan is established. Such
amount will not be subject to a contingent deferred sales charge. See "How to
Redeem Fund Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED CLASS I
SHARES MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES
PAID ON THE REPURCHASED OR REDEEMED CLASS I SHARES, ANY PORTION OR ALL OF THE
REPURCHASE OR REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A
FRACTIONAL SHARE TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN CLASS
I SHARES OF A FUND, provided that the reinvestment is effected within 60 days
after such repurchase or redemption, and the privilege has not been used more
than once in the prior 12 months. Class I shares are sold to a reinvesting
shareholder at the next determined net asset value following timely receipt of
a written purchase order by the Principal Underwriter or by a Fund (or by the
Fund's Transfer Agent). To the extent that any Class I shares of a Fund are
sold at a loss and the proceeds are reinvested in Class I shares of the Fund
(or other Class I shares of the Fund are acquired within the period beginning
30 days before and ending 30 days after the date of the redemption) some or
all of the loss generally will not be allowed as a tax deduction. Shareholders
should consult their tax advisers concerning the tax consequences of
reinvestments.
DISTRIBUTIONS AND TAXES
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SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL
BE DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME
OF DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the fifteenth day of each month
or the next business day thereafter. Each Fund anticipates that for tax
purposes the entire distribution, whether paid in cash or reinvested in
additional shares of the Fund, will constitute tax-exempt income to the Class
I shareholders, except for the proportionate part of the distribution that may
be considered taxable income if the Fund has taxable income during the
calendar year. Shareholders reinvesting the monthly distribution should treat
the amount of the entire distribution as the tax cost basis of the additional
Class I shares acquired by reason of such reinvestment. Daily distribution
crediting will commence on the day that collected funds for the purchase of
Fund shares are available at the Transfer Agent. Shareholders of a Fund will
receive timely Federal income tax information as to the tax-exempt or taxable
status of all distributions made by the Fund during the calendar year. A
Fund's net realized capital gains, if any, consist of the net realized capital
gains allocated to the Fund by its corresponding Portfolio for tax purposes,
after taking into account any available capital loss carryovers; a Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of Federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
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AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS PARTNERSHIPS
UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR EXCISE TAXES.
--------------------------------------------------------------------------------
Distributions of interest on certain municipal obligations constitute a
tax preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 11). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder.
Distributions are taxed in the manner described above whether paid in cash or
reinvested in additional shares of a Fund.
Tax-exempt distributions received from a Fund are includable in the tax
base for determining the taxability of social security and railroad retirement
benefits.
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 distribution 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 would likely be interpreted to include private activity
bonds issued to finance similar facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE
TAXES. Shareholders should consult their own tax advisers with respect to the
State, local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL
TOTAL RETURN OF CLASS I SHARES. The current yield of a Fund's Class I shares
is calculated by dividing the net investment income per share earned during a
recent 30-day period by the maximum offering price per share (net asset value)
on the last day of the period and annualizing the resulting figure. A taxable-
equivalent yield is computed by using the tax-exempt yield figure and dividing
by one minus the tax rate. The average annual total return of a Fund's Class I
shares is determined by computing the average annual percentage change in
value of $1,000 invested in Class I shares at the maximum public offering
price (net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all distributions. The average
annual total return calculation assumes a complete redemption of the
investment and the deduction of any applicable contingent deferred sales
charge for Class I shares at the end of the period. Each Fund may publish
annual and cumulative total return figures for Class I shares from time to
time.
Each Fund may also publish its distribution rate and/or its effective
distribution rate for Class I shares. The distribution rate of a Fund's Class
I shares is computed by dividing the most recent monthly distribution per
share of the Class annualized by the current maximum offering price per share
of the Class (net asset value). The effective distribution rate of a Fund's
Class I shares is computed by dividing the distribution rate by the ratio used
to annualize the most recent monthly distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investors should note that the
yield on Class I shares is calculated using a standardized formula the income
component of which is computed from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate on
Class I shares is based on a Fund's last monthly distribution which tends to
be relatively stable and may be more or less than the amount of net investment
income and short-term capital gain actually earned by the Fund during the
month.
The Fund may also publish total return figures which do not take into
account any contingent deferred sales charge which may be imposed upon
redemptions at the end of the specified period. Any performance figure which
does not take into account the contingent deferred sales charge would be
reduced to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of a Fund's yield, total return, distribution
rate or effective distribution rate for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be
in any future period. If the expenses related to the operation of a Fund or
its corresponding Portfolio are allocated to Eaton Vance, the Fund's
performance will be higher.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in
the obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net
assets in obligations issued by the governments of Guam and the U.S. Virgin
Islands and up to 35% of its assets in obligations issued by the government of
Puerto Rico. Set forth below is certain economic and tax information
concerning the States in which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this
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. Arizona's economy is primarily based on the service, high-tech
manufacturing, construction and tourism industries, as well as the military.
The State experienced rapid economic and population growth in the 1980s, which
has slowed somewhat in the 1990s. The problems associated with such growth
(air quality, transportation and public infrastructure) continue to be
addressed by the State legislature. The State's unemployment rate in April
1995 was 5.4%, below the national rate of 5.8%.
The State's ability to raise revenues is limited by Constitutional and
legislative restrictions on property tax increases. There is also a limit on
annual spending. The State does not issue general obligation bonds, but relies
on pay-as-you-go capital outlays, revenue bonds and certificates of
participation to finance projects. Each of these projects is individually
rated based on its specific creditworthiness.
ARIZONA TAXES. Based upon the advice of Arizona tax counsel, the
management of the Fund believes that under Arizona law, dividends paid by the
Fund will be exempt from Arizona income tax imposed on individuals,
corporations and estates and trusts that are subject to Arizona taxation to
the extent such dividends are excluded from gross income for Federal income
tax purposes and are derived from interest payments on Arizona obligations. In
addition, dividends paid by the Fund will be exempt from Arizona income tax
imposed on such persons, though included in gross income for Federal income
tax purposes, to the extent such dividends are derived from interest payments
on direct obligations of the United States. Other distributions from the Fund,
including distributions derived from net short-term and long-term capital
gains, are generally not exempt from Arizona income tax.
Interest on 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.
CALIFORNIA. California has experienced severe economic and fiscal stress
over the past several years. Between 1990 and 1993, California lost 3% of its
total employment base and nearly 16% of higher paying manufacturing jobs. This
was during a period when population increased 6%. The unemployment rate in
California was 9.1% in 1992 and 9.2% in 1993, well above the U.S. rates of
7.4% and 6.8% for the same periods, respectively. Unemployment was 7.9% in
April 1995, compared to a U.S. rate of 5.8%.
The weak economy has seriously undermined the government's ability to
accurately estimate tax revenues and has increased social service expenditures
for recession-related welfare case loads. In addition, the continued influx of
illegal immigrants has strained the State's welfare and health care systems.
The result of these various problems is a $2 billion accumulated budget
deficit and a heavy reliance on short-term borrowing for day-to-day
operations. Short-term borrowing increased from 7.8% of general fund receipts
in 1990 to 12.4% in 1992 to a projected 16% in 1995. In July, 1994, the State
issued $7 billion in short-term debt, an unprecedented amount for a State.
The $2 billion budget deficit built up during the 1991 and 1992 fiscal
years and was not adequately addressed during the 1993 or 1994 fiscal years,
despite a Deficit Retirement and Reduction Plan put in place in June, 1993.
The budget for fiscal year 1995 (which commenced on July 1, 1994) includes
general fund expenditures of $40.9 billion, a 4.2% increase over 1993-94, and
general fund revenues of $41.9 billion, a 5.2% increase. A revised Deficit
Retirement and Reduction Plan was adopted which anticipated the elimination of
the deficit by April, 1996. Key to this revised plan is the assumed receipt of
$2.8 billion in Federal aid from the Federal government to offset the mounting
costs associated with illegal immigrants. As this money is in no way assured,
the budget includes a "trigger" mechanism that would require automatic
spending cuts should actual cash flow deviate significantly from projections.
There can be no assurances that bonds, some of which may be held by the
Portfolio, issued by California entities would not be adversely affected
should this "trigger" be used.
On January 17, 1994, a major earthquake struck the Los Angeles area
causing significant property damage. Preliminary estimates of total property
damage approximate $15 billion. The Federal government has approved $9.5
billion for earthquake relief. The Governor has estimated that the State will
have to pay approximately $1.9 billion for relief not otherwise covered by the
Federal aid. The Governor had proposed to cover $1.05 billion of relief costs
from a general obligation bond issue, but the proposal was rejected by
California voters in June 1994. The Governor subsequently announced that funds
earmarked for other projects would be used for earthquake relief.
On December 7, 1994, Orange County, California (the "County"), together
with its pooled investment fund (the "Fund") filed for protection under
Chapter 9 of the Federal Bankruptcy Code, after reports that the Fund had
suffered significant market losses in its investments caused a liquidity
crisis for the Fund and the County. More than 180 other public entities, most
but not all located in the County, were also depositors in the Fund. As of
December 13, 1994, the County estimated the Fund's loss at about $2 billion,
or 27% of its initial deposits of around $7.4 billion. These losses could
increase as the County sells investments to restructure the Fund, or if
interest rates rise. Many of the entities which kept moneys in the Fund,
including the County, are facing cash flow difficulties because of the
bankruptcy filing and may be required to reduce programs or capital projects.
The County and some of these entities have, and others may in the future,
default in payment of their obligations. Moody's and S&P have suspended,
reduced to below investment grade levels, or placed on "Credit Watch" various
securities of the County and the entities participating in the Fund. As of
December 1994, the Portfolio did not hold any direct obligations of the
County. However, the Portfolio did hold bonds of some of the governmental
units that had money invested with the County; the impact of the loss of
access to these funds, the loss of expected investment earnings and the
potential loss of some of the principal invested is not known at this point.
There can be no assurances that these holdings will maintain their current
ratings and/or liquidity in the market.
In early June 1995, the County filed a proposal with the bankruptcy court
that would require holders of the County's short-term notes to wait one-year
before being repaid. The existence of this proposal and its adoption could
disrupt the market for short-term debt in California and possibly drive up the
State's borrowing costs. On June 27, 1995 the voters in Orange County rejected
a proposed one half cent increase in the sales tax, the revenues from which
would have been used to help the County emerge from bankruptcy. The failure of
this measure increases the likelihood that the County will default on some of
their obligations and, more broadly, could have a negative impact on the
perceived credit quality of municipal obligations throughout California.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to
ensure that school districts have sufficient funds to operate. Longer term,
this financial crisis could have an adverse impact on the economic recovery
that has only recently taken hold in Southern California.
California voters have approved a series of amendments to the California
State constitution which have imposed certain limits on the taxing and
spending powers of the State and local governments. While the State
legislature has, in the past, enacted legislation designed to assist
California issuers in meeting their debt service obligations, other laws
limiting the State's authority to provide financial assistance to localities
have also been enacted. Because of the uncertain impact of such constitutional
amendments and statutes, the possible inconsistencies in their respective
terms and the impossibility of predicting the level of future appropriations
and applicability of related statutes to such questions, it is not currently
possible to assess the impact of such legislation and policies on the ability
of California issuers to pay interest or repay principal on their obligations.
As a result of the significant economic and fiscal problems described
above, the State's debt has been downgraded by all three rating agencies from
Aa to A1 by Moody's, from A+ to A by S&P, and from AA to A by Fitch.
CALIFORNIA TAXES. California law provides that dividends paid by the
California Fund and designated by the California Fund as tax-exempt are exempt
from California personal income tax on individuals who reside in California to
the extent such dividends are derived from interest payments on municipal
obligations exempt from regular Federal income tax and California State
personal income taxes, provided that at least 50% of the assets of the
California Portfolio at the close of each quarter of its taxable year are
invested in obligations the interest on which is exempt under either Federal
or California law from taxation by the State of California. Distributions of
short-term capital gains are treated as ordinary income, and distributions of
long-term capital gains are treated as long-term capital gains under the
California personal income tax.
CONNECTICUT. Historically, Connecticut's economic structure has been
concentrated in manufacturing, including a heavy component of defense-related
industries, which increases the State's vulnerability to economic cycles and
to declines in Federal government defense spending. More recently,
Connecticut's level of manufacturing activity has declined, but this has been
partially offset by extensive urban development, a large insurance sector,
relocations of corporate headquarters to Connecticut (specifically to
Fairfield County), and the extension of other service sectors. As of April
1995, the unemployment rate in Connecticut on a seasonally adjusted basis was
4.9%, as compared to a rate of 5.8% nationwide.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. The State has about $6 billion of general obligation bonds
outstanding, of which more than half have been issued for general state
purposes. The remaining general obligation bonds were issued for highway
construction, mass transit, and rental housing. Debt indicators have been
rising and are high at $1,850 per capita. Certain Connecticut municipalities
have experienced severe fiscal difficulties and have reported operating and
accumulated deficits in recent years. Regional economic difficulties,
reductions in revenues, and increased expenses could lead to further fiscal
problems for the State and its political subdivisions, authorities, and
agencies. This could result in declines in the value of their outstanding
obligations, reductions in their ability to pay interest and principal
thereon, and increases in their future borrowing costs.
General obligations of the State of Connecticut are rated AA-, Aa and AA+
by S&P, Moody's and Fitch, respectively.
CONNECTICUT TAXES. In the opinion of Day, Berry & Howard, special
Connecticut tax counsel to the Connecticut Fund, shareholders of the
Connecticut Fund will not be subject to the Connecticut personal income tax on
the Connecticut taxable income of individuals, trusts, and estates in the case
of distributions received from the Connecticut Fund to the extent that such
distributions qualify as exempt-interest dividends for Federal income tax
purposes and are derived from interest on tax-exempt obligations issued by or
on behalf of the State of Connecticut and its political subdivisions or the
authorities, instrumentalities, or districts of any of them, or on tax-exempt
obligations the interest on which Connecticut is prohibited from taxing by
Federal law that are issued by the governments of Puerto Rico, the U.S. Virgin
Islands and 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 capital gain dividends derived from obligations issued
by or on behalf of the State of Connecticut or its political subdivisions may
not be subject to such tax. 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 obligations issued by or on behalf of the
State of Connecticut and its political subdivisions or the authorities,
instrumentalities, or districts of any of them, or from obligations the
interest on which Connecticut is prohibited from taxing by Federal law that
are issued by the governments of Puerto Rico, the U.S. Virgin Islands and
Guam, but other distributions from the Fund that constitute items of tax
preference for purposes of the Federal alternative minimum tax could cause
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 Connecticut
personal income tax and 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 that might qualify for the dividends-received
deduction provided under that tax, and all such distributions may be subject
to state and local taxes in states other than Connecticut.
FLORIDA. Florida's financial operations are considerably different than
most other states because, under the State's constitution, there is no state
income tax. The lack of an income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the
event of an economic downswing, could effect the State's ability to pay
principal and interest in a timely manner. The General Fund budget for 1994-95
includes revenues of $14.6 billion and expenditures of $14.3 billion. Due to
longer than expected revenue collections, revenue estimates have been reduced
by 1.1% for 1994-95. Unencumbered reserves are projected to be $252.6 million,
or 1.8% of expenditures for fiscal year 1995. Unemployment in the State for
April, 1995 was 5.6%, compared to the national unemployment rate of 5.8%.
In 1993, the State constitution was amended to limit the annual growth in
the assessed valuation of residential property and which, over time, could
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the
amendment could have a negative impact on the financial performance of local
governments over time and lead to ratings revisions which may have a negative
impact on the prices of affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as
stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Fund that are subject to the Florida intangibles
tax will not be required to include the value of their Florida Fund shares in
their taxable intangible property if all of the Florida Portfolio's
investments on the annual assessment date are obligations that would be exempt
from such tax if held directly by such shareholders, such as Florida and U.S.
Government obligations. The Florida Portfolio will normally attempt to invest
substantially all of its assets in tax-exempt obligations of Florida, the
United States, the Territories or political subdivisions of the United States
or Florids ("Florida Obligations"), and it will ensure that all of its assets
held on the annual assessment date are exempt from the Florida intangibles
tax. Accordingly, the value of the Florida Fund shares held by a shareholder
should under normal circumstances be exempt from the Florida intangibles tax.
MASSACHUSETTS. In recent years, the Commonwealth has experienced a
significant economic slowdown, and has experienced shifts in employment from
labor-intensive manufacturing industries to technology and service-based
industries. The unemployment rate was 5.0% as of May, 1995, while the national
unemployment rate was 5.7%.
Effective July 1, 1990, limitations were placed on the amount of direct
bonds the Commonwealth could have outstanding in a fiscal year, and the amount
of the total appropriation in any fiscal year that may be expended for debt
service on general obligation debt of the Commonwealth (other than certain
debt incurred to pay the fiscal 1990 deficit and certain Medicaid
reimbursement payments for prior years) was limited to 10%. In addition, the
power of Massachusetts cities and towns and certain tax-supported districts
and public agencies to raise revenue from property taxes to support their
operations, including the payment of debt service, is limited. Property taxes
are virtually the only source of tax revenues available to cities and towns to
meet local costs. This limitation on cities and towns to generate revenues
could create a demand for increases in state-funded local aid. The recent
difficulties experienced by the Commonwealth have resulted in a substantial
reduction in local aid from the Commonwealth, which may create financial
difficulties for certain municipalities.
General obligations of Massachusetts are rated A1, A+ and A+ by Moody's,
S&P and Fitch, respectively.
MASSACHUSETTS TAXES. The Massachusetts Portfolio has received a letter
ruling (the "Ruling") from the Department of Revenue of The Commonwealth of
Massachusetts to the effect that it will be classified as a partnership for
Massachusetts tax purposes. The Ruling provides that, consequently, interest
income received by the Massachusetts Portfolio on (1) debt obligations issued
by The Commonwealth of Massachusetts or its political subdivisions, including
agencies or instrumentalities thereof ("Massachusetts Obligations"), (2) the
Governments of Puerto Rico, Guam, or the United States Virgin Islands
("Possessions Obligations"), or (3) the United States ("United States
Obligations") will be treated as if realized directly by investors in the
Massachusetts Portfolio. The Ruling concludes that, provided that an investor
in the Massachusetts Portfolio qualifies as a regulated investment company
("RIC") under the Code and satisfies certain notice requirements of
Massachusetts law, (1) dividends paid by such a RIC that are treated as tax-
exempt interest under the Code and that are directly attributable to interest
on Massachusetts Obligations (including the RIC's allocable share of interest
earned by the Massachusetts Portfolio on such obligations) and (2) dividends
paid by such a RIC that are directly attributable to interest on Possessions
Obligations or United States Obligations (including the RIC's allocable share
of interest earned by the Massachusetts Portfolio on such obligations) will,
in each case, be excluded from Massachusetts gross income. Because the
Massachusetts Fund intends to continue to invest in the Massachusetts
Portfolio, qualify for treatment as a RIC under the Code, and satisfy the
applicable notice requirements, the Massachusetts Fund's distributions to its
shareholders of its allocable share of the interest received by the
Massachusetts Portfolio that is attributable to Massachusetts Obligations,
Possessions Obligations or United States Obligations should consequently be
excluded from Massachusetts gross income for individuals, estates and trusts
that are subject to Massachusetts taxation. Distributions properly designated
as capital gain dividends under the Code and attributable to gains realized by
the Massachusetts Portfolio and allocated to the Massachusetts Fund on the
sale of certain Massachusetts tax-exempt obligations issued pursuant to
statutes that specifically exempt such gains from Massachusetts taxation will
also be exempt from Massachusetts personal income tax. Other distributions
from the Massachusetts Fund that are included in a shareholder's Federal gross
income, including distributions derived from net long-term capital gains not
described in the preceding sentence and net short-term capital gains, are
generally not exempt from Massachusetts personal income tax.
Beginning in 1996, long-term capital gains will generally be taxed in
Massachusetts on a sliding scale at rates ranging from 5% to 0%, with the
applicable tax rate declining as the tax holding period of the asset
(beginning on the later of January 1, 1995 or the date of actual acquisition)
increases from more than one year to more than six years. It is not clear what
Massachusetts tax rate will be applicable to capital gain dividends for
taxable years beginning after 1995.
Distributions from the Massachusetts Fund will be included in net income,
and in the case of intangible property corporations, shares of the
Massachusetts Fund will be included in net worth for purposes of determining
the Massachusetts excise tax on corporations subject to Massachusetts
taxation.
MICHIGAN. Michigan has long had a large representation in and is dominated
by the automobile industry and related industries and tends to be more
vulnerable to economic cycles than other states and the nation as a whole. As
of April, 1994 Michigan's unemployment rate was 5.7%, as compared to the
national rate of 6.4%. In March, 1994, Michigan voters approved changes to the
tax system resulting in, among other things, an increase in the sales tax
rate, a reduction in the income tax rate and the creation of a statewide
property tax.
Michigan's general obligation debt is rated A1, AA and AA, by Moody's, S&P
and Fitch, respectively.
MICHIGAN TAXES. The Michigan Fund has received an opinion from Butzel
Long, special Michigan tax counsel to the Michigan Fund, to the effect that
shareholders of the Michigan Fund who are subject to the Michigan state income
tax, municipal income tax or single business tax will not be subject to such
taxes on their Michigan Fund dividends to the extent that such distributions
are exempt-interest dividends for Federal income tax purposes and are
attributable to interest on obligations held by the Michigan Portfolio and
allocated to the Michigan Fund which is exempt from regular Federal income
tax, is not a tax preference item under the Federal alternative minimum tax
and is exempt from Michigan State and City income taxes, Michigan single
business tax and in the form of an investment exempt from the Michigan
intangibles tax ("Michigan tax-exempt obligations"). Other distributions with
respect to shares of the Michigan Fund including, but not limited to, long or
short-term capital gains, will be subject to the Michigan income tax or single
business tax and may be subject to the city income taxes imposed by certain
Michigan cities. The opinion also provides that shares of the Michigan Fund
will be exempt from the Michigan intangibles tax to the extent the Michigan
Portfolio's assets consist of Michigan tax-exempt obligations and any other
securities or obligations that are exempt from the Michigan intangibles tax.
NEW JERSEY. The fiscal year 1995 budget included total spending of $15.5
billion. However, the proposed fiscal year 1996 budget (for the fiscal period
ending June 30, 1996) includes total spending of $15.987 billion, or a 3.14%
increase over fiscal 1995. In addition, New Jersey has adoped a 10% personal
income tax cut retroactive to January 1, 1995. Furthermore, on June 26, 1995,
the New Jersey Legislature passed an additional 15% reduction to take effect
January 1, 1996. State officials estimate the revenue loss resulting from
these tax cuts at over $1 billion for fiscal 1996. To accommodate the tax cut,
the fiscal 1996 budget would rely on non-recurring revenues and the use of
prior years' surplus. Also, a major focus of the spending reductions has been
employer contributions to retiree health care and pension systems which were
cust by over $863 million in fiscal 1995. There can be no assurance that the
tax cuts will not have an adverse impact on the State's finances and the
demand for municipal bonds in the State.
New Jersey's general obligation debt is rated Aa1, AA+ and AA+ by Moody's,
S&P and Fitch, respectively.
NEW JERSEY TAXES. The New Jersey Fund intends to satisfy New Jersey's
statutory requirements for treatment as a "Qualified Investment Fund." The
Fund has obtained an opinion of its special tax counsel, Wilentz, Goldman &
Spitzer, P.A., that, provided the New Jersey Fund limits its investments to
those described in this Prospectus and otherwise satisfies such statutory
requirements, shareholders of the New Jersey Fund which are individuals,
estates or trusts will not be required to include in their New Jersey gross
income distributions from the New Jersey Fund that are attributable to
interest or gain realized by the New Jersey Fund from obligations the interest
on which is exempt from regular Federal income tax, is not a tax preference
item under the Federal minimum 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.
NEW YORK. New York is the third most populous state in the nation and has
a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a comparatively
small share of the nation's farming and mining activity. However, as the
result of a recession ending in the first quarter of 1993, 560,000 jobs were
lost statewide (equal to 6.7% of the peak employment figure for 1989).
Although the State has added approximately 185,000 jobs since November 1992,
employment growth in the State has been hindered during recent years by
significant cutbacks in the computer, manufacturing, defense and banking
industries. New York's economy is expected to continue to expand modestly
during 1995 with a pronounced slow-down during the course of the year. In the
1992-1993 fiscal year, however, the State began the process of financial
reform. The State Financial Plans for the 1992-1993, 1993-1994 and 1994-1995
fiscal years produced positive fund balances at the end of all three fiscal
years.
The fiscal stability of New York State is related, at least in part, to
the fiscal stability of its localities and authorities. Various State
agencies, authorities and localities have issued large amounts of bonds and
notes either guaranteed or supported by the State. In some cases, the State
has had to provide special assistance in recent years to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to
obtain additional financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in
recent years and currently continues to experience such difficulties owing, in
part, to lower than anticipated revenues. Because New York City taxes comprise
approximately 40% of the State's tax base, the City's difficulties adversely
affect the State.
In June, 1995, the Governor approved the 1995-1996 budget, which included
adoption of a three-year 20% reduction in the State's personal income tax. In
combination with business tax reductions enacted in 1994, State taxes will be
reduced by $5.5 billion by the 1997-1998 fiscal year. The 1995-1996 State
Financial Plan, based on the enacted 1995-1996 budget, includes gap-closing
actions to offset a projected budget gap of $5 billion, the largest in the
State's history.
On June 7, 1995, the New York State Legislature passed the State's 1995-
1996 $33.1 billion budget, which was $344 million less than the actual level
of spending in the 1994-1995 fiscal year. Significant year to year spending
reductions are projected in Medicaid and State agency operating costs.
Legislation was enacted to reduce by 20 percent the State's personal income
tax. Under this three-year legislation, tax rates will drop, tax brackets will
be accelerated, and standard deductions will be increased.
New York's general obligations are rated A, A- and A+ by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as positive. New York City obligations are rated Baa1, BBB+ and A-
by Moody's, S&P and Fitch, respectively. On July 10, 1995, S&P revised
downward its rating on City general obligation bonds from A- to BBB+ and
removed City bonds from CreditWatch. S&P stated that the downdgrade was a
reflection of the City's inability to eliminate a structural budget imbalance
due to persistent softness in the City's economy, weak job growth, a trend of
using nonrecurring budget devices, optimistic projections of State and federal
aid and high levels of debt service.
NEW YORK TAXES. In the opinion of Brown & Wood, under New York law, for
individuals subject to the New York State or New York City personal income
tax, dividends paid by the New York Fund are exempt from New York State and
New York City income tax for individuals who reside in New York to the extent
such dividends are excluded from gross income for Federal income tax purposes
and are derived from interest payments on tax-exempt obligations issued by or
on behalf of New York State and its political subdivisions and agencies, and
the governments or Puerto Rico, the U.S. Virgin Islands and Guam. Other
distributions from the New York Fund, including distributions derived from
taxable ordinary income and net short-term and long-term capital gains, are
generally not exempt from New York State or City personal income tax.
NORTH CAROLINA. North Carolina has an economy largely dependent on textile
and furniture manufacturing, and agriculture, although finance, services and
trade are becoming increasingly important. Manufacturing, which continues to
be far more important in North Carolina than in the nation, has been adversely
affected by international competition. Tobacco farming continues to be
affected by Federal legislation and regulatory measures and by international
competition. State personal wealth levels remain well below those of the
nation.
The North Carolina State Constitution requires that the total expenditures
of the State for a fiscal period shall not exceed the total of receipts during
the fiscal period and the surplus remaining in the State Treasury at the
beginning of the period. Apparently due to both increased tax and fee revenue
and the previously enacted spending reductions, the State had a budget surplus
of approximately $887 million at the end of fiscal 1993-94. After review of
the 1994-95 continuation budget adopted in 1993, the General Assembly approved
spending expansion funds, in part to restore certain employee salaries to
budgeted levels, which amounts had been deferred to balance the budgets in
1989-1993, and to authorize funding for new initiatives for economic
development, education, human services and environmental programs.
General obligations of the State of North Carolina are rated Aaa, AAA and
AAA by Moody's, S&P and Fitch, respectively. In July, 1992, S&P revised its
outlook for the State's general obligations from "Negative" to "Stable". Fitch
views the State's credit trend as "Stable".
NORTH CAROLINA TAXES. Based upon the advice of North Carolina tax counsel
the management of the Fund believes that distributions from the Fund will not
be subject to North Carolina individual, trust, or estate income taxation to
the extent that such distributions are either (i) excluded from Federal gross
income and represent interest the Fund, either directly or through the
Portfolio, receives on obligations of North Carolina or its political
subdivisions, non-profit educational institutions organized or chartered under
the laws of North Carolina, or Puerto Rico, United States Virgin Islands, or
Guam or (ii) represent interest the Fund, either directly or through the
Portfolio, receives on direct obligations of the United States. These North
Carolina income tax exemptions will be available only if the Fund complies
with the requirement of the Code that at least 50% of the value of its assets
at the close of each quarter of its taxable years is invested, either directly
or through the Portfolio, in state, municipal, or other obligations described
in (S) 103(a) of the Code. The Fund intends to comply with that requirement.
Any capital gains distributed by the Fund (except for capital gains
attributable to the sale by the Fund or the Portfolio of an obligation the
profit from which is exempt by North Carolina statute) or gains realized by
the shareholder from a redemption or sale of shares of the Fund will be
subject to North Carolina individual, trust, or estate income taxation.
Interest on indebtedness incurred (directly or indirectly) by a
shareholder of the Fund to purchase or carry shares of the Fund generally will
not be deductible for North Carolina income tax purposes.
The advice of North Carolina tax counsel is based on a ruling of the North
Carolina Department of Revenue obtained by it on behalf of a fund basically
identical to the Fund. That ruling is subject to change.
OHIO. The State's economy is reliant in part on durable goods
manufacturing, largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. As a result, economic activity in
Ohio tends to be more cyclical than in some other states and in the nation as
a whole. In fiscal 1993, a projected $520 million budget gap was addressed
through tax increases and appropriation cuts. The fiscal year 1994 budget was
balanced, and the State's General Revenue Fund had an ending fund balance of
$560 million.
General obligations of Ohio are rated Aa and AA by S&P and Moody's,
respectively (except that highway obligations are rated Aaa by S&P). Fitch
does not currently rate the State's general obligations.
OHIO TAXES. In the opinion of special tax counsel to the Ohio Fund,
Squire, Sanders & Dempsey, under Ohio law individuals who are otherwise
subject to the Ohio personal income tax will not be subject to such tax on
dividends paid by the Ohio Fund to the extent such dividends are properly
attributable to interest on obligations issued by or on behalf of the State of
Ohio or its political subdivisions, or the agencies or instrumentalities
thereof ("Ohio obligations"). Dividends paid by the Ohio Fund also will be
excluded from the net income base of the Ohio corporation franchise tax to the
extent such dividends are excluded from gross income for Federal income tax
purposes or are properly attributable to interest on Ohio obligations.
However, the Ohio Fund's shares will be included in the tax base for purposes
of computing the Ohio corporation franchise tax on the net worth basis. These
conclusions regarding Ohio taxation are based on the assumption that the Ohio
Fund will continue to qualify as a regulated investment company under the Code
and that at all times at least 50% of the value of the total assets of the
Ohio Fund will consist of Ohio obligations or similar obligations of other
states or their subdivisions determined, to the extent the Ohio Fund invests
in the Ohio Portfolio, by treating the Ohio Fund as owning its proportionate
share of the assets owned by the Ohio Portfolio.
PENNSYLVANIA. Pennsylvania has long had a large representation in the
steel, mining and manufacturing industries and adverse conditions in those or
other significant industries within Pennsylvania may from time to time have a
correspondingly adverse effect on specific issuers within Pennsylvania or on
anticipated revenue to the Commonwealth. In recent years Pennsylvania's
economy has become more diversified with major new sources of growth in the
service sector, including trade, medical and the health services, education
and financial institutions. The unadjusted unemployment rate for both
Pennsylvania and the United States for May, 1995 was 5.7%.
The Governor's fiscal year 1996 budget contained no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending
increased 2.3% over fiscal year 1995 appropriations. The fiscal year 1996
budget included tax reductions of approximately $214.8 million. The State Tax
Stabilization Reserve Fund had a balance at March 31, 1995 of $65.3 million.
The fiscal year 1996 budget projects a $3.2 million fiscal year-end
unappropriated surplus.
Pennsylvania's general obligation debt is rated "AA-" by S&P and Fitch and
"A1" by Moody's.
PENNSYLVANIA TAXES. Interest derived by the Pennsylvania Fund from
obligations which are statutorily free from state taxation in Pennsylvania
("Exempt Obligations") are not taxable on pass through to shareholders for
purposes of the Pennsylvania personal income tax. The term "Exempt
Obligations" includes (i) those obligations issued by the Commonwealth of
Pennsylvania and its political subdivisions, agencies and instrumentalities,
the interest from which is statutorily free from state taxation in the
Commonwealth of Pennsylvania, and (ii) certain qualifying obligations of U.S.
territories and possessions, or U.S. Government obligations. Distributions
attributable to most other sources, including capital gains, will not be
exempt from Pennsylvania personal income tax.
Corporate shareholders that are subject to the Pennsylvania corporate net
income tax will not be subject to corporate net income tax on distributions of
interest made by the Pennsylvania Fund, provided such distributions are
attributable to Exempt Obligations. Distributions of capital gain attributable
to Exempt Obligations are subject to the Pennsylvania corporate net income
tax. An investment in the Pennsylvania Fund is also exempt from the
Pennsylvania Gross Premiums tax.
Shares of the Pennsylvania Fund which are held by individual shareholders
who are Pennsylvania residents and subject to the Pennsylvania county personal
property tax will be exempt from such tax to the extent that the obligations
held by the Pennsylvania Portfolio consist of Exempt Obligations on the annual
assessment date. Corporations are not subject to Pennsylvania personal
property taxes.
For individual shareholders who are residents of the City of Philadelphia,
distributions of interest derived from Exempt Obligations will not be taxable
for purposes of the Philadelphia School District Investment Net Income Tax
("Philadelphia School District Tax"), provided that the Pennsylvania Portfolio
reports to its investors the percentage of Exempt Obligations held by it for
the year. The Pennsylvania Portfolio will report such percentage to its
investors.
VIRGINIA. The Constitution of Virginia requires a balanced budget and
limits the ability of the Commonwealth to create debt. General obligation debt
may be incurred to meet certain short-term needs, to finance capital projects
and, under less stringent restrictions, to finance revenue-producing capital
projects. Also, "special fund" revenue bonds, to which the constitutional debt
restrictions do not apply and which are not supported by the full faith and
credit of the Commonwealth, may be issued to finance qualifying Commonwealth
revenue projects.
General obligations of cities, towns and counties are payable from the
general revenues of the entity, including ad valorem tax revenues on property
within the jurisdiction. Nevertheless, the ability of a bond holder to obtain
a writ of mandamus to require the levy of taxes if problematic. Revenue
obligations issued by other entities are customarily payable only from
revenues from the particular project or projects involved. Holders of any
defaulted general obligation bonds may petition the Governor for remedial
action.
The economy of Virginia is based primarily on manufacturing, the
government sector, agriculture, mining and tourism, and unemployment rates
have been below the national average. The Commonwealth has a long history of
fiscal stability, due in large part to conservative financial operations and
diverse sources of revenue. In the past decade, however, the Commonwealth has
experienced cycles of financial stringency. No significant new taxes or
increases were enacted by the General Assembly at the 1995 session.
As a result of litigation involving proceedings before the United States
Supreme Court, the Commonwealth may be obligated to refund tax payments made
by federal pensioners of up to $707.5 million. Legislation has been enacted to
effect a settlement of the litigation, but the claimants have not accepted its
terms.
General obligations of Virginia are rated Aaa, AAA, and AAA by Moody's,
Fitch and S&P, respectively.
VIRGINIA TAXES. In the opinion of Hunton & Williams, special Virginia tax
counsel to the Virginia Fund, under existing Virginia law, distributions from
the Virginia Fund will not be subject to Virginia individual, trust, estate,
or corporate income taxation to the extent that such distributions are either
(i) excluded from Federal gross income and attributable to interest the
Virginia Fund, either directly or through the Virginia Portfolio, receives on
obligations of Virginia, its political subdivisions, or its instrumentalities,
or Puerto Rico, United States Virgin Islands, or Guam or (ii) attributable to
interest the Virginia Fund, either directly or through the Virginia Portfolio,
receives on obligations of Virginia, its political subdivisions, or its
instrumentalities, or Puerto Rico, U.S. Virgin Islands, or Guam or (ii)
attributable to interest the Virginia Fund, either directly or through the
Virginia Portfolio, receives on direct obligations of the United States. These
Virginia income tax exemptions will be available only if the Virginia Fund
complies with the requirement of the Code that at least 50% of the value of
its assets at the close of each quarter of its taxable year is invested,
either directly or through the Virginia Portfolio, in state, municipal, or
other obligations described in (S)103(a) of the Code. The Virginia Fund
intends to comply with that requirement.
Other distributions from the Virginia Fund, including capital gains,
generally will not be exempt from Virginia income taxation.
Interest on indebtedness incurred (directly or indirectly) by shareholders
to purchase or carry shares of the Virginia Fund generally will not be
deductible for Virginia income tax purposes.
Neither the Trust nor the Virginia Fund will be subject to any Virginia
intangible property tax on any obligations in the Virginia Portfolio. In
addition, shares of the Virginia Fund held for investment purposes will not be
subject to any Virginia intangible personal property tax.
PUERTO RICO, GUAM, AND THE U.S. VIRGIN ISLANDS. The economy of Puerto Rico
is dominated by the manufacturing and service sectors. Although the economy of
Puerto Rico expanded significantly from fiscal 1984 through fiscal 1990, the
rate of this expansion slowed during fiscal years 1991, 1992 and 1993. Growth
in fiscal 1994 will depend on several factors, including the state of the U.S.
economy and the relative stability in the price of oil, the exchange rate of
the U.S. dollar and the cost of borrowing. Although the Puerto Rico
unemployment rate has declined substantially since 1985, the seasonally
adjusted unemployment rate for February, 1995 was approximately 12.5%. The
North American Free Trade Agreement (NAFTA), which became effective January 1,
1994, could lead to the loss of Puerto Rico's lower salaried or labor
intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it
Baa1; these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a stable outlook on Puerto Rico on April 26, 1994.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON
LIMITED MATURITY TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
M-LC8/1P
[LOGO]
EV MARATHON
LIMITED MATURITY
TAX FREE FUNDS
PROSPECTUS
AUGUST 1, 1995
o EV Marathon Arizona
Limited Maturity Tax Free Fund
o EV Marathon California
Limited Maturity Tax Free Fund
o EV Marathon Connecticut
Limited Maturity Tax Free Fund
o EV Marathon Florida
Limited Maturity Tax Free Fund
o EV Marathon Massachusetts
Limited Maturity Tax Free Fund
o EV Marathon Michigan
Limited Maturity Tax Free Fund
o EV Marathon New Jersey
Limited Maturity Tax Free Fund
o EV Marathon New York
Limited Maturity Tax Free Fund
o EV Marathon North Carolina
Limited Maturity Tax Free Fund
o EV Marathon Ohio
Limited Maturity Tax Free Fund
o EV Marathon Pennsylvania
Limited Maturity Tax Free Fund
o EV Marathon Virginia
Limited Maturity Tax Free Fund
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1995
<TABLE>
EV MARATHON LIMITED MATURITY TAX FREE FUNDS
<C> <C>
EV MARATHON ARIZONA LIMITED MATURITY TAX FREE FUND EV MARATHON NEW JERSEY LIMITED MATURITY TAX FREE FUND
EV MARATHON CALIFORNIA LIMITED MATURITY TAX FREE FUND EV MARATHON NEW YORK LIMITED MATURITY TAX FREE FUND
EV MARATHON CONNECTICUT LIMITED MATURITY TAX FREE FUND EV MARATHON NORTH CAROLINA LIMITED MATURITY TAX FREE FUND
EV MARATHON FLORIDA LIMITED MATURITY TAX FREE FUND EV MARATHON OHIO LIMITED MATURITY TAX FREE FUND
EV MARATHON MASSACHUSETTS LIMITED MATURITY TAX FREE FUND EV MARATHON PENNSYLVANIA LIMITED MATURITY TAX FREE FUND
EV MARATHON MICHIGAN LIMITED MATURITY TAX FREE FUND EV MARATHON VIRGINIA LIMITED MATURITY TAX FREE FUND
</TABLE>
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Investment Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Part II provides information solely about a Fund and
its corresponding Portfolio. Where appropriate, Part I includes cross-references
to the relevant sections of Part II.
TABLE OF CONTENTS
PART I
Page
Additional Information About Investment Policies ..................... 1
Investment Restrictions .............................................. 8
Trustees and Officers ................................................ 8
Investment Adviser and Administrator ................................. 10
Custodian ............................................................ 12
Service for Withdrawal ............................................... 12
Determination of Net Asset Value ..................................... 13
Investment Performance ............................................... 13
Taxes ................................................................ 16
Principal Underwriter ................................................ 18
Distribution Plan .................................................... 18
Portfolio Security Transactions ...................................... 20
Other Information .................................................... 22
Independent Certified Public Accountants ............................. 23
Financial Statements ................................................. 23
Appendix ............................................................. 24
PART II
<TABLE>
<S> <C>
EV Marathon Arizona Limited Maturity Tax Free Fund ..... a-1 EV Marathon New Jersey Limited Maturity Tax Free Fund ... g-1
EV Marathon California Limited Maturity Tax Free Fund .. b-1 EV Marathon New York Limited Maturity Tax Free Fund ..... h-1
EV Marathon Connecticut Limited Maturity Tax Free Fund . c-1 EV Marathon North Carolina Limited Maturity Tax Free Fund i-1
EV Marathon Florida Limited Maturity Tax Free Fund ..... d-1 EV Marathon Ohio Limited Maturity Tax Free Fund ......... j-1
EV Marathon Massachusetts Limited Maturity Tax Free Fund e-1 EV Marathon Pennsylvania Limited Maturity Tax Free Fund . k-1
EV Marathon Michigan Limited Maturity Tax Free Fund .... f-1 EV Marathon Virginia Limited Maturity Tax Free Fund ..... l-1
</TABLE>
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in
this Statement of Additional Information regarding another Fund because the
Funds use this combined Statement of Additional Information. The Trustees of
the Trust have considered this factor in approving the use of a combined
Statement of Additional Information.
THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED AUGUST 1, 1995, AS SUPPLEMENTED
FROM TIME TO TIME. THIS COMBINED STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED
WITHOUT CHARGE BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL
UNDERWRITER") (SEE BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund, certain other series of
the Trust and the Portfolio. Capitalized terms used in this Statement of
Additional Information and not otherwise defined have the meanings given them
in the Fund's Prospectus. The Fund is subject to the same investment policies
as those of the Portfolio. The Fund currently seeks to achieve its objective
by investing in the Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such 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. 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 Federal alternative minimum tax: (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. In assessing the Federal income tax treatment of interest on
any municipal obligation, the Portfolio 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.
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 the 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 Federal alternative minimum tax. For corporate
shareholders, the Fund's distributions derived from interest on all municipal
obligations (whenever issued) is included in "adjusted current earnings" for
purposes of the Federal alternative minimum tax as applied to corporations (to
the extent not already included in alternative minimum taxable income as
income attributable to private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary
market after April 30, 1993 is taxable as ordinary income. A long-term debt
obligation is generally treated as acquired at a market discount if the
secondary market purchase price is 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 minimus
amount.
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.
The principal security for a revenue bond is generally 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 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.
The 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.
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.
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. The 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
Boston Management and Research (the "Investment Adviser")) to evaluate or
protect any real estate, facilities or other assets securing any such
obligation or acquired by the Portfolio as a result of any such event, and the
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 Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") and Fitch Investors Service, Inc.
("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 municipal obligations will normally fluctuate with changes in interest
rates, and therefore the net asset value of the Portfolio will be affected by
such changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in particular issuers of
municipal obligations, see "Risks of Concentration" in the Fund's Part II of
this Statement of Additional Information.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or
more of its total assets in municipal obligations whose issuers are located in
the same state or 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 the industrial
revenue bonds listed above 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.
Pollution control and other industrial development bonds are issued by
state or local agencies to finance various projects, including those of
domestic steel producers, and may be backed solely by agreements with such
companies. Domestic steel companies are expected to suffer the consequences of
such adverse trends as high labor costs, high foreign imports encouraged by
foreign productivity increases and a strong U.S. dollar, and other cost
pressures such as those imposed by anti-pollution legislation. Domestic steel
capacity is being reduced currently by large-scale plant closings and this
period of rationalization may not end until further legislative protection is
provided through tariff price supports or mandatory import quotas, such as
those recently enacted for certain specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style
and, if needed, the comprehensive care of nursing home services. Bonds to
finance these facilities have been issued by various state industrial
development authorities. Since the bonds are normally secured only by the
revenues of each facility and not by state or local government tax payments,
they are subject to a wide variety of risks. Primarily, the projects must
maintain adequate occupancy levels to be able to provide revenues sufficient
to meet debt service payments. Moreover, since a portion of housing, medical
care and other services may be financed by an initial deposit, it is important
that the facility maintain adequate financial reserves to secure estimated
actuarial liabilities. The ability of management to accurately forecast
inflationary cost pressures is an important factor in this process. The
facilities may also be affected adversely by regulatory cost restrictions
applied to health care delivery in general, particularly state regulations or
changes in Medicare and Medicaid payments or qualifications, or restrictions
imposed by medical insurance companies. They may also face competition from
alternative health care or conventional housing facilities in the private or
public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in its Prospectus, the Portfolio may
invest 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 affecting the issuers
of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. Manufacturing is the largest sector in terms of gross
domestic product and is more diversified than during earlier phases of Puerto
Rico's industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and
manufacturing (16.4%). These three sectors represent 39%, 11% and 39%,
respectively, of the gross domestic product. The service sector is the fastest
growing, while the government and manufacturing sectors have been stagnant for
the past five years. This decline was broad based among all manufacturing
industries. The North American Free Trade Agreement (NAFTA), which became
effective January 1, 1994, could lead to the loss of Puerto Rico's lower
salaried or labor intensive jobs to Mexico. The February, 1995 unemployment
rate was 12.5%, down from 16% for 1994.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it 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 Internal Revenue Code was amended and provided
for two alternative limitations to the Section 936 credit. The first option
will limit the credit against such income to 40% of the credit allowable under
current law, with a five year phase-in period starting at 60% of the allowable
credit. The second option is a wage and depreciation based credit. The
reduction of the 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 these modifications 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.
Puerto Rico's financial reporting was first conformed to generally
accepted accounting principles in fiscal 1990. Nonrecurring revenues have been
used frequently to balance recent years' budgets. In November, 1993 Puerto
Ricans voted on whether they wished to retain their Commonwealth status,
become a state or establish an independent nation. The measure was defeated,
with 48.5% voting to remain a Commonwealth, 46% voting for statehood and 4%
voting for independence. Retaining Commonwealth status will leave intact the
current relationship with the Federal government. There can be no assurance
that the statehood issue will not be brought to a vote in the future. A
successful statehood vote in Puerto Rico would then require the U.S. Congress
to ratify the election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. Population, after reaching a peak of 110,800 in 1985, declined to
101,809 in 1990. The economy is heavily reliant on the tourism industry, with
roughly 43% of non-agricultural employment in tourist-related trade and
services. As of April, 1993, unemployment stood at 2.7%. The tourism industry
is economically sensitive and would likely be adversely affected by a
recession in either the United States or Europe.
An important component of the USVI revenue base is the Federal excise tax
on rum exports. Tax revenues rebated by the Federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI experienced budget
deficits in fiscal years 1989 and 1990: in 1989 due to wage settlements with
the unionized government employees, and in 1990 as a result of Hurricane Hugo.
The USVI recorded a small surplus in fiscal year 1991. At the end of fiscal
1992, the last year for which results are available, the USVI had an
unreserved General Fund deficit of approximately $8.31 million, or
approximately 2.1% of expenditures. In order to close a forecasted fiscal 1994
revenue gap of $45.6 million, the Department of Finance has proposed several
tax increases and fund transfers. There is currently no rated, unenhanced
Virgin Islands debt outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast
of Tokyo. Population, 133,000 in 1990, up 26% from the 1980 census level. The
U.S. military is a key component of Guam's economy. The Federal government
directly comprises more than 10% of the employment base, with a substantial
component of the service sector to support these personnel. Guam is expected
to benefit from the closure of the Subic Bay Naval Base and the Clark Air
Force Base in the Philippines. The Naval Air Station, one of several U.S.
military facilities on the island, has been slated for closure by the Defense
Base Closure and Realignment Committee; however, the administration plans to
use these facilities to expand the Island's commercial airport. Guam is also
heavily reliant on tourists, particularly the Japanese. Unemployment was 3.2%
in 1991. For 1994, the financial position of Guam has weakened further as it
incurred an unaudited General Fund operating deficit. The administration has
taken steps to improve its financial position; however, there are no
guarantees that an improvement will be realized. Guam's general obligation
debt is rated Baa by Moody's.
MUNICIPAL LEASES
The 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. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in
many leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease
or contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not
appropriate funds for lease payments.
Certain municipal lease obligations owned by the 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 the 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 the Portfolio. In the event the 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. Zero coupon bonds
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be
insured as to their scheduled payment of principal and interest under either
(i) an insurance policy obtained by the issuer or underwriter of the
obligation at the time of its original issuance or (ii) an insurance policy
obtained by the Portfolio or a third party subsequent to the obligation's
original issuance (which may not be reflected in the obligation's market
value). In either event, such insurance may provide that in the event of non-
payment of interest or principal when due with respect to an insured
obligation, the insurer is not required to make such payment until a specified
time has lapsed (which may be 30 days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. 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.
See "Portfolio of Investments" in the "Financial Statements" incorporated
by reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell 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 the 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. The Portfolio anticipates that its
annual portfolio turnover rate will generally not exceed 100% (excluding
turnover of securities having a maturity of one year or less).
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
taking place within a specified number of days after the date of the
Portfolio's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. The 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 the Portfolio to
buy such securities on a settlement date that could be several months or
several years in the future.
The 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 the Portfolio
enters into the purchase commitment. The Portfolio's custodian will segregate
cash or high grade liquid debt securities in a separate account of the
Portfolio in an amount at least equal to the when-issued commitments. If the
value of the securities placed in the separate account declines, additional
cash or high grade liquid debt securities will be placed in the account on a
daily basis so that the value of the account will at least equal the amount of
the Portfolio's when-issued commitments. When the 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 the
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 the 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.
FLOATING OR VARIABLE RATE OBLIGATIONS
The Portfolio may purchase floating or variable rate obligations. Floating
or variable rate instruments provide for adjustments in the interest rate at
specified intervals (weekly, monthly, semi-annually, etc.). The revised rates
are usually set at the issuer's discretion, in which case the investor
normally enjoys the right to "put" the security back to the issuer or his
agent. Rate revisions may alternatively be determined by formula or in some
other contractual fashion. Floating or variable rate obligations normally
provide that the holder can demand payment of the obligation on short notice
at par with accrued interest and are frequently secured by letters of credit
or other credit support arrangements provided by banks. To the extent that
such letters of credit or other arrangements constitute an unconditional
guarantee of the issuer's obligations, a bank may be treated as the issuer of
a security for the purpose of complying with the diversification requirements
set forth in Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2
thereunder. The Portfolio would anticipate using these obligations as cash
equivalents pending longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier.
Also, some bonds may have "put" or "demand" features that allow early
redemption by the bondholder. Interest income generated by certain bonds
having demand features may not qualify as tax-exempt interest. 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. By acquiring these kinds of obligations the
Portfolio obtains the contractual right to require the issuer of the security
or some other person (other than a broker or dealer) to purchase the security
at an agreed upon price, which right is contained in the obligation itself
rather than in a separate agreement with the seller or some other person.
Because this right is assignable with the security, which is readily
marketable and valued in the customary manner, the Portfolio will not assign
any separate value to such right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also 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.
The 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 the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates.
A separate put option may not be marketable or otherwise assignable, and sale
of the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The 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 features may not qualify
as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government securities held by the
Portfolio's custodian and maintained on a current basis at an amount at least
equal to the market value of the securities loaned, which will be marked to
market daily. Cash equivalents include short-term municipal obligations as
well as taxable certificates of deposit, commercial paper and other short-term
money market instruments. The Portfolio would have the right to call a loan
and obtain the securities loaned at any time on up to five business days'
notice. During the existence of a loan, the Portfolio will continue to receive
the equivalent of the interest paid by the issuer on the securities loaned and
will also receive a fee, or all or a portion of the interest on investment of
the collateral, if any. However, the Portfolio may pay lending fees to such
borrowers. The Portfolio would not have the right to vote any securities
having voting rights during the existence of the loan, but would call the loan
in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit there are risks
of delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Portfolio's management to be of good
standing and when, in the judgment of the Portfolio's management, the
consideration which can be earned from securities loans of this type justifies
the attendant risk. Distributions by the Fund of any income realized by the
Portfolio from securities loans will be taxable. If the management of the
Portfolio decides to make securities loans, it is intended that the value of
the securities loaned would not exceed 30% of the Portfolio's total assets.
The Portfolio has no present intention of engaging in securities lending.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects
to purchase). To hedge against changes in rates, the Portfolio may enter into
(i) futures contracts for the purchase or sale of debt securities, (ii)
futures contracts on securities indices and (iii) futures contracts on other
financial instruments and indices. All futures contracts entered into by the
Portfolio are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Portfolio may purchase and write call and
put options on futures contracts which are traded on a United States or
foreign exchange or board of trade.
The Portfolio will engage in futures and related options transactions for
bona fide 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 are substantially related to price fluctuations in
securities held by the Portfolio or which it expects to purchase. The
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold to protect against a
decline in the price of securities that the Portfolio owns, or futures
contracts will be purchased to protect the Portfolio against an increase in
the price of securities it intends to purchase. As evidence of this hedging
intent, the Portfolio expects that on 75% or more of the occasions on which it
takes a long futures (or option) position (involving the purchase of futures
contracts), the Portfolio will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures (or option) position is closed out. However, in
particular cases, when it is economically advantageous for the Portfolio to do
so, a long futures position may be terminated (or an option may expire)
without the corresponding purchase of securities. The Portfolio will engage in
transactions in futures and related options contracts only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
for maintaining qualification of the Fund as a regulated investment company
for Federal income tax purposes (see "Taxes").
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. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked
to market daily.
SHORT-TERM OBLIGATIONS
Although the Portfolio will normally attempt to invest substantially all
of its assets in municipal obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its net assets in short-term obligations the
interest on which is subject to regular Federal income tax, Federal
alternative minimum tax and/or State taxes. Although the Portfolio is
permitted to invest up to 20% of its assets in short-term taxable obligations
under normal market conditions, the Portfolio does not expect to invest more
than 5% of its assets in such securities under such conditions. Such short-
term taxable obligations may include, but are not limited to, certificates of
deposit, commercial paper, short-term notes and obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
During periods of adverse market conditions, the Portfolio may temporarily
invest more than 20% of its assets in such short-term taxable obligations, all
of which will be high quality.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but
it is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A
100% annual turnover rate would occur, for example, if all the securities held
by the Portfolio were replaced once in a period of one year. A high turnover
rate (100% or more) necessarily involves greater expenses to the Portfolio.
The Portfolio engages in portfolio trading (including short-term trading) if
it believes that a transaction including all costs will help in achieving its
investment objective.
INVESTMENT RESTRICTIONS
Certain investment restrictions of the Fund are designated as fundamental
policies and as such cannot be changed without the approval of the holders of
a majority of the Fund's outstanding voting securities, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the shares
of the Fund present or represented by proxy at a meeting if the holders of
more than 50% of the shares are present or represented at the meeting or (b)
more than 50% of the shares of the Fund. The Fund's fundamental investment
restrictions are set forth under "Investment Restrictions" in Part II of this
Statement of Additional Information.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the
outstanding voting securities of the Portfolio present or represented by proxy
at a meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or (b)
more than 50% of the outstanding voting securities of the Portfolio. The term
"voting securities" as used in this paragraph has the same meaning as in the
Investment Company Act of 1940 (the "1940 Act"). Whenever the Trust is
requested to vote on a change in the fundamental investment restrictions of
the Portfolio (or the Portfolio's 80% investment policy with respect to State
obligations described in the Fund's current Prospectus), the Trust will hold a
meeting of Fund shareholders and will cast its vote as instructed by the
shareholders.
The Fund and the Portfolio have also adopted nonfundamental investment
policies which may be changed by the Trustees of the Trust with respect to the
Fund without approval by the Fund's shareholders or by the Trustees of the
Portfolio with respect to the Portfolio without the approval of the Fund or
the Portfolio's other investors. The Fund's non-fundamental investment
policies are set forth under "Investment Restrictions" in Part II of this
Statement of Additional Information.
For purposes of the 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.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other
offices in the same company for the last five years. Unless otherwise noted,
the business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New
England, Inc., since 1983. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of
EVC and EV. Director, Trustee and officer of various investment companies
managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02163
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Trust Company. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (51), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and
the Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992 and of Eaton Vance and EV, and
employee of Eaton Vance since March 8, 1991. Fidelity Investments --
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR. Mr. MacIntosh was elected Vice President of
the Trust on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management
& Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of
the Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Trust's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees
who are not members of the Eaton Vance organization, and making
recommendations to the Trustees regarding candidates to fill vacancies, as and
when they occur, in the ranks of those Trustees who are not "interested
persons" of the Trust, the Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolio. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
with such accountants and the Treasurer of the Trust and of the Portfolio
matters relative to accounting and auditing practices and procedures,
accounting records, internal accounting controls, and the functions performed
by the custodian and transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio 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
"Plan"). Under the Plan, an eligible Trustee may elect to have his deferred
fees invested by the 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 Plan will
be determined based upon the performance of such investments. Deferral of
Trustees' fees in accordance with the Plan will have a negligible effect on
the Portfolio's assets, liabilities, and net income per share, and will not
obligate the Portfolio to retain the services of any Trustee or obligate the
Portfolio to pay any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to
investment companies and various individual and institutional clients with
combined assets under management of approximately $15 billion.
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and managing
investment companies since 1931. They maintain a large staff of experienced
fixed-income and equity investment professionals to service the needs of their
clients. The fixed-income division focuses on all kinds of taxable investment-
grade and high-yield securities, tax-exempt investment-grade and high-yield
securities, and U.S. Government securities. The equity division covers stocks
ranging from blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the
Portfolio 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. The 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. The Portfolio is responsible for all
expenses not expressly stated to be payable by BMR under the Investment
Advisory Agreement, including, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of
the Portfolio under the 1940 Act, (iii) commissions, fees and other expenses
connected with the acquisition, holding and disposition of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under Federal and state
securities laws and of preparing and printing registration statements or other
offering statements or memoranda for such purposes and for distributing the
same to investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports
and notices to investors and of meetings of investors and proxy solicitations
therefor, (x) expenses of reports to governmental officers and commissions,
(xi) insurance expenses, (xii) association membership dues, (xiii) fees,
expenses and disbursements of custodians and subcustodians for all services to
the Portfolio (including without limitation safekeeping of funds, securities
and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax
capital account balances), (xiv) fees, expenses and disbursements of transfer
agents, dividend disbursing agents, investor servicing agents and registrars
for all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of
the Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio
who are not members of BMR's organization, and (xviii) such non-recurring
items as may arise, including expenses incurred in connection with litigation,
proceedings and claims and the obligation of the Portfolio to indemnify its
Trustees, officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under
the Investment Advisory Agreement, see the Fund's current Prospectus. For
additional information about the Investment Advisory Agreement, including the
net assets of the Portfolio and the investment advisory fees that the
Portfolio paid BMR under the Investment Advisory Agreement, see "Fees and
Expenses" in the Fund's Part II of this Statement of Additional Information.
The Investment Advisory Agreement with BMR may be continued indefinitely
so long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of
the Portfolio or of BMR 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. The 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.
The Agreement provides that BMR may render services to others and engage in
other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The 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.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator,
see "Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro
rata share of the registration of the Trust under the 1940 Act, (iii)
commissions, fees and other expenses connected with the purchase or sale of
securities and other investments, (iv) auditing, accounting and legal
expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses of
issue, sale, repurchase and redemption of shares, (viii) expenses of
registering and qualifying the Fund and its shares under federal and state
securities laws and of preparing and printing prospectuses for such purposes
and for distributing the same to shareholders and investors, and fees and
expenses of registering and maintaining registrations of the Fund and of the
Fund's principal underwriter, if any, as broker-dealer or agent under state
securities laws, (ix) expenses of reports and notices to shareholders and of
meetings of shareholders and proxy solicitations therefor, (x) expenses of
reports to governmental officers and commissions, (xi) insurance expenses,
(xii) association membership dues, (xiii) fees, expenses and disbursements of
custodians and subcustodians for all services to the Fund (including without
limitation safekeeping of funds, securities and other investments, keeping of
books and accounts and determination of net asset values), (xiv) fees,
expenses and disbursements of transfer agents, dividend disbursing agents,
shareholder servicing agents and registrars for all services to the Fund, (xv)
expenses for servicing shareholder accounts, (xvi) any direct charges to
shareholders approved by the Trustees of the Trust, (xvii) compensation and
expenses of Trustees of the Trust who are not members of the Eaton Vance
organization, and (xviii) such non-recurring items as may arise, including
expenses incurred in connection with litigation, proceedings and claims and
the obligation of the Trust to indemnify its Trustees and officers with
respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are
both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both
Massachusetts business trusts, and EV is the trustee of BMR and Eaton Vance.
The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier
Gardner, James B. Hawkes and Benjamin A. Rowland, Jr. The Directors of EVC
consist of the same persons and John G. L. Cabot and Ralph Z. Sorenson. Mr.
Clay is chairman and Mr. Gardner is president and chief executive officer of
EVC, BMR, Eaton Vance and EV. All of the issued and outstanding shares of
Eaton Vance and EV 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 which expires on December 31,
1996, the Voting Trustees of which are Messrs. Clay, Brigham, Gardner, Hawkes
and Rowland. 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 and Directors of EVC and EV. As of June 30,
1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively, of
such voting trust receipts. Messrs. Hawkes and Otis are officers or Trustees
of the Trust and the Portfolio and are members of the EVC, BMR, Eaton Vance
and EV organizations. Messrs. Ahern, Fetter, Hender, MacIntosh, Murphy,
O'Connor and Woodbury and Ms. Sanders are officers of the Trust and/or the
Portfolio and are also members of the BMR, Eaton Vance and EV organizations.
BMR will receive the fees paid under the Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy
Corp. (which is engaged in oil and gas operations) and 77.3% of the stock of
Investors Bank & Trust Company, custodian of the Fund and the Portfolio, which
provides custodial, trustee and other fiduciary services to investors,
including individuals, employee benefit plans, corporations, investment
companies, savings banks and other institutions. In addition, Eaton Vance owns
all of the stock of Northeast Properties, Inc., which is engaged in real
estate investment, consulting and management. EVC owns all of the stock of
Fulcrum Management, Inc. and MinVen Inc., which are engaged in the development
of precious metal properties. EVC, BMR, Eaton Vance and EV may also enter into
other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. 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.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's
assets, maintains the general ledger of the Portfolio and the Fund and
computes the daily net asset value of interests in the 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 Portfolio's investments, receives and disburses all funds and
performs various other ministerial duties upon receipt of proper instructions
from the Fund and the Portfolio. IBT charges fees which are competitive within
the industry. A portion of the fee relates to custody, bookkeeping and
valuation services and is based upon a percentage of Fund and Portfolio net
assets and a portion of the fee relates to activity charges, primarily the
number of portfolio transactions. These fees are then reduced by a credit for
cash balances of the particular investment company at the custodian equal to
75% of the 91-day, U.S. Treasury Bill auction rate applied to the particular
investment company's average daily collected balances for the week. In view of
the ownership of EVC in IBT, the Portfolio is treated as a self-custodian
pursuant to Rule 17f-2 under the 1940 Act, and the Portfolio's investments
held by IBT as custodian are thus subject to the additional examinations by
the Portfolio's independent certified public accountants as called for by such
Rule. For the custody fees that the Portfolio and the Fund paid to IBT, see
"Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal 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.
To use this service, at least $5,000 in cash or shares at the public
offering price (i.e., net asset value) will have to be deposited with the
Transfer Agent. 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.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as
agent and custodian for the Fund) in the manner described under "Valuing Fund
Shares" in the Fund's current Prospectus. The net asset value of the Portfolio
is also 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 transaction 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 services uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities, various relationships between securities, and yield to
maturity in determining value. Taxable obligations for which price quotations
are readily available normally will be valued at the mean between the latest
available bid and asked prices. Open futures positions on debt securities are
valued at the most recent settlement prices, unless such price does not
reflect the fair value of the contract, in which case the positions will be
valued by or at the direction of the Trustees of the Portfolio. Other assets
are valued at fair value using methods determined in good faith by or at the
direction of the Trustees of the Portfolio. The Fund and the Portfolio will be
closed for business and will not price their respective shares or interests on
the following business holidays: New Years' Day, Presidents' Day, Good Friday
(a New York Stock Exchange holiday), Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the 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.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a
hypothetical initial purchase order of $1,000 by the average annual compound
rate of return (including capital appreciation/depreciation, and dividends and
distributions paid and reinvested) for the stated period and annualizing the
results. The calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period, a
complete redemption of the investment and, with respect to Class I shares, the
deduction of the contingent deferred sales charge at the end of the period.
For information concerning the total return of the Fund, see "Performance
Information" in the Fund's Part II of this Statement of Additional
Information.
The yield of the Fund is computed 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 (net asset value) 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
expenses for the period with the resulting number being divided by the average
daily number of Fund shares outstanding and entitled to receive dividends
during the period. This yield figure does not reflect the deduction of any
contingent deferred sales charges which are imposed upon certain redemptions
of Class I shares at the rates set forth under "How to Redeem Fund Shares" in
the Fund's current prospectus. A taxable-equivalent yield is computed by
dividing the tax-exempt yield by 1 minus the tax rate. For the yield and
taxable equivalent yield of the Fund, see "Performance Information" in the
Fund's Part II of this Statement of Additional Information.
The Fund may also publish the distribution rate and/or the effective
distribution rate. The Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized, by the current net
asset value per share. The Fund's effective distribution rate is computed by
dividing the distribution rate by the ratio (the days in a year divided by the
accrual days of the monthly period) used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed
reinvestment. Investors should note that the Fund's yield is calculated using
a standardized formula, the income component of which is computed from the
yields to maturity of all debt obligations held by the Portfolio based on
prescribed methods (with all purchases and sales of securities during such
period included in the income calculation on a settlement date basis), whereas
the distribution rate is based on the Fund's last monthly distribution which
tends to be relatively stable and may be more or less than the amount of net
investment income and short-term capital gain actually earned by the Fund
during the month. See "Distributions and Taxes" in the Fund's current
Prospectus. For the Fund's distribution rate and effective distribution rate,
see "Performance Information" in the Fund's Part II of this Statement of
Additional Information.
The Fund's total return may be compared to the Consumer Price Index and to
the domestic securities indices of the Bond Buyer 25 Revenue Bond Index and
the Lehman Brothers Municipal Bond Index. The Fund's total return and
comparisons with these indices may be used in advertisements and in
information furnished to present or prospective shareholders. The Fund's
performance may differ from that of other investors in the Portfolio,
including other investment companies.
From time to time, evaluations of the Fund's performance made by
independent sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger
and Morningstar, Inc., may be used in advertisements and in information
furnished to present or prospective shareholders.
From time to time, information, charts and illustrations relating to the
relative effects of changes in interest rates on values of securities of
varying durations may be included in advertisements and other material
supplied to present and prospective shareholders. For example, the following
chart illustrates that bond prices move inversely with interest rates --
values decrease if interest rates rise, and values increase when rates fall.
The shorter a bond's duration, the less its price fluctuates for a given
interest-rate change. For example, if interest rates change by 1%, a limited
maturity bond with a 6-year duration will change by 6%, compared to a 12%
change for a 12-year duration bond. Source: Eaton Vance Management.
The Limited Maturity Volatility Advantage
If interest rates change 1%, a 6-yr. duration bond will change in value by 6% --
half the change of a 12-yr. duration bond.
Approximate % change in value Bond duration
if interest rates change by 1% (in years)
0 0
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example, after 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100, if the annual rates of
inflation during such period were 4%, 5%, 6% and 7%, respectively. (To calculate
the purchasing power, the value at the end of each year is reduced by the above
inflation rates for 10 consecutive years.)
From time to time, information about portfolio allocation and holdings of
the 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. For an example of the Portfolio's
diversification by quality ratings, see "Performance Information" in Part II
of this Statement of Additional Information.
The Fund is designed for investors seeking
* a higher level of after tax income than normally provided by taxable
and tax-free money funds, certificates of deposit or other short-
term investments, and
* more price stability than investments in long-term municipal bonds
or bond funds.
Comparative information about the yield or distribution rate of the 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. A bank certificate of deposit,
unlike the Fund's shares, pays a fixed rate of interest and entitles the
depositor to receive the face amount of the certificate of deposit at
maturity. A bank money market deposit account is a form of savings account
which pays a variable rate of interest. Unlike the Fund's shares, bank
certificates of deposit and bank money market deposit accounts are insured by
the Federal Deposit Insurance Corporation. A money market mutual fund is
designed to maintain a constant value of $1.00 per share and, thus, a money
market fund's shares are subject to less price fluctuation than the Fund's
shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Advertisements and other material furnished to present and prospective
shareholders may also compare the taxable equivalent yield of the Fund to
after-tax yields of certificates of deposits, bank money market deposit
accounts and money market mutual funds over various Federal income tax
brackets.
Such materials may also compare taxable certificate of deposit rates of
return with rates of return in intermediate municipal bond indices and taxable
equivalents of such rates of return. An example of such an index is the Lehman
Brothers, Inc. 7-Year General Obligation Municipal Bond Index.
From time to time, information, charts and illustrations relating to the
relative total return performance of Intermediate-Term Tax Free Funds and Tax
Free Money Market Funds, based on information supplied by Lipper Analytical
Services, Inc., may be included in advertisements and other materials
furnished to present and prospective shareholders. For example, for the 10
years ended December 31, 1994, cumulative total returns were: Intermediate-
Term Tax Free Funds, 107.40%; Tax Free Money Market Funds, 48.83%.
A comparison of the Total Return Advantage of intermediate-term tax free
funds over 3-month certificates of deposit (after taxes, assuming a 36%
Federal bracket) and tax free money market mutual funds may also be provided.
In such an illustration, sources of information are Lipper Analytical
Services, Inc., The Federal Reserve Bulletin, and The Wall Street Journal.
The Total Return Advantage
Lipper Tax Free
Money Market Funds 48.83%
3-Month Certificates
of Deposit 47.90% (after taxes, assuming 36% bracket)
Lipper Intermediate-Term
Tax Free Funds 107.40%
Total returns (cumulative change in value with all distributions reinvested)
for 10 years ended December 31, 1994. Sources: Lipper Analytical Services, Inc.,
Federal Reserve Bulletin, The Wall Street Journal.
Total return is a common way to evaluate the results of any mutual fund
investment, because it includes any change in principal value and assumes the
reinvestment of all dividends and capital gains in additional shares. Most tax
free money market funds are designed to maintain a $1 share price by investing
in short-term municipal instruments, while certificates of deposit are insured
by the FDIC. This illustration is not meant to imply or predict any future
rate of return for the Fund.
Information used in advertisements and in materials furnished to present
and prospective shareholders may include statements or illustrations relating
to the appropriateness of types of securities and/or mutual funds which may be
employed to meet specific financial goals, such as (1) funding retirement, (2)
paying for children's education, and (3) financially supporting aging parents.
These three financial goals may be referred to in such advertisements or
materials as the "Triple Squeeze." Such information may also suggest the
appropriateness of the Fund as an investment for certain types of investors
such as: conservative investors who want higher after-tax income, but are
concerned about the potential volatility of long-term bonds or bond funds;
dual-income couples in a high tax bracket; and investors with long-term
municipal bonds or fund portfolios who are seeking diversification.
For additional information, charts and illustrations relating to the
Fund's investment performance, see "Performance Information" in the Fund's
Part II of this Statement of Additional Information.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus and the
Fund's Part II of this Statement of Additional Information.
Each series of the Trust is treated as a separate entity for Federal
income tax purposes. The Fund has elected to be treated and intends to qualify
each year, as a regulated investment company ("RIC") under the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund intends
to satisfy certain requirements relating to sources of its income and
diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains (after reduction
by any available capital loss carryforwards) in accordance with the timing
requirements imposed by the Code, so as to avoid any Federal income or excise
tax on the Fund. The Fund so qualified for its fiscal year ended March 31,
1995 (see the Notes to the Financial Statements incorporated by reference in
this Statement of Additional Information). The Trust has applied for a private
letter ruling from the Internal Revenue Service to the effect that its
distributions will not constitute "preferential dividends" for tax purposes.
The multiple class structure proposed by the Fund resembles that sanctioned in
many existing private letter rulings. Because the Fund invests its assets in
the Portfolio, the Portfolio normally must satisfy the applicable source of
income and diversification requirements in order for the Fund to satisfy them.
The Portfolio will allocate at least annually among its investors, including
the Fund, each investor's distributive share of the Portfolio's net taxable
(if any) and tax-exempt investment income, net realized capital gains, and any
other items of income, gain, loss, deduction or credit. For purposes of
applying the requirements of the Code regarding qualification as a RIC, the
Fund will be deemed (i) to own its proportionate share of each of the assets
of the Portfolio and (ii) to be entitled to the gross income of the Portfolio
attributable to such share.
In order to avoid Federal excise tax, the Code requires that the 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 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 any available
capital loss carryforwards, and 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 the Fund
qualifies as a RIC for Federal income tax purposes and the Portfolio is
treated as a partnership for Massachusetts and Federal tax purposes, neither
the Fund nor the Portfolio is liable for any income, corporate excise or
franchise tax in the Commonwealth of Massachusetts.
The 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 Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund, the
Portfolio may be required to liquidate portfolio securities that it might
otherwise have continued to hold in order to generate cash that the Fund may
withdraw from the Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the 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 the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the 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. 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 Federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
Federal income tax returns.
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
the Portfolio and the value of the securities held by the Portfolio may be
affected.
In the course of managing its investments, the 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. The Portfolio may also
realize taxable income from certain short-term taxable obligations, securities
loans, a portion of original issue discount with respect to certain stripped
municipal obligations or their stripped coupons and certain realized accrued
market discount. Any distributions by the Fund of its share of such capital
gains (after reduction by any capital loss carryforwards) 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 Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will
be taxed to shareholders as if received on December 31 of the year in which
they are declared.
The 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
the 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 the 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 period of
Portfolio securities and conversion of short-term into long-term capital
losses. The Portfolio may have to limit its activities in options and futures
contracts in order to enable the Fund to maintain its qualification as a RIC
for Federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a
tax holding period of 6 months or less will be treated as a long-term capital
loss to the extent of any distribution of net long-term capital gains with
respect to such shares. Any loss realized on the sale or exchange of shares
which have been held for tax purposes for 6 months or less (or such shorter
period as may be prescribed by Treasury regulations) will be disallowed to the
extent the shareholder has received tax-exempt interest with respect to such
shares. In addition, a loss realized on a redemption of Fund shares will be
disallowed to the extent the shareholder acquired other Fund shares within the
period beginning 30 days before the redemption of the loss shares and ending
30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
and certain required certifications, as well as shareholders with respect to
whom the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income 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 treaty. Distributions
from the excess of the 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 result if
the shareholder is engaged in a trade or business in the United States, 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 fails to provide any required
certifications regarding 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 the 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 or foreign tax consequences
of investing in the Fund.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as
principal in selling shares of the Fund. The expenses of printing copies of
prospectuses used to offer shares to financial service firms or investors 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 the Fund and its shares under
Federal and state securities laws are borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan
as described in the Fund's current Prospectus; the provisions of the plan
relating to such payments are included in the Distribution Agreement. The
Distribution Agreement is renewable annually by the Trust's Board of Trustees
(including a majority of its Trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in the operation
of the Fund's 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 voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold. The Fund 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. The Principal Underwriter
estimates that the expenses incurred by it in acting as repurchase agent for
the Fund will exceed the amounts paid therefor by the Fund. For the amount
paid by the Fund to the Principal Underwriter for acting as repurchase agent,
see "Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
DISTRIBUTION PLAN
The Distribution Plan ("the Plan") applicable to Class I shares is
described in the Prospectus and is designed to meet the requirements of Rule
12b-1 under the 1940 Act and the sales charge rule of the National Association
of Securities Dealers, Inc. (the "NASD Rule"). The purpose of the Plan is to
compensate the Principal Underwriter for its distribution services and
facilities provided to the Fund by paying the Principal Underwriter sales
commissions and a separate distribution fee in connection with sales of Fund
shares. The following supplements the discussion of the Plan contained in the
Fund's Prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to
the Plan as sales commissions and distribution fees with respect to each day
will be accrued on such day as a liability of Class I and will accordingly
reduce the net assets of the Class upon such accrual, all in accordance with
generally accepted accounting principles. The amount payable on each day by
the Fund is limited to 1/365 of .75% of the Fund's net assets attributable to
Class I shares on such day. The level of the Fund's net assets attributable to
Class I shares changes each day and depends upon the amount of sales and
redemptions of Class I shares, the changes in the value of the investments
made by its corresponding Portfolio, the expenses of the Fund attributable to
Class I shares and of its corresponding Portfolio accrued and allocated to the
Fund on such day, income on portfolio investments of its corresponding
Portfolio accrued and allocated to the Fund on such day, and any dividends and
distributions declared on the Fund's Class I shares. The Fund does not accrue
possible future payments as a liability of Class I or reduce its current net
assets of the Class in respect of unknown amounts which may become payable
under its Plan in the future because the standards for accrual of such a
liability under accounting principles have not been satisfied.
The Fund's Plan provides that the Fund will receive all contingent
deferred sales charges and will make no payments to the Principal Underwriter
in respect of any day on which there are no outstanding Uncovered Distribution
Charges under the Fund's Plan. Contingent deferred sales charges and accrued
amounts will be paid by the Fund to the Principal Underwriter whenever there
exist Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Class I shares accompanied by a low
level of early redemptions of Class I shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Conversely, periods with a low level of sales of Class I shares accompanied by
a high level of early redemptions of Class I shares resulting in the
imposition of contingent deferred sales charges will tend to reduce the time
during which there will exist Uncovered Distribution Charges of the Principal
Underwriter.
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 and
payable under the Plan by the Fund on behalf of Class I to the Principal
Underwriter and contingent deferred sales charges with respect to Class I
shares theretofore paid and 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 Class I shares, the nature of such sales (i.e.,
whether they result from exchange transactions, reinvestments or from cash
sales through Authorized Firms), the level and timing of redemptions of Class
I shares upon which a contingent deferred sales charge will be imposed, the
level and timing of redemptions of Class I shares upon which no contingent
deferred sales charge will be imposed (including redemptions involving
exchanges of Class I shares for shares of another fund in the Eaton Vance
Marathon Group of Funds which result in a reduction of Uncovered Distribution
Charges), changes in the level of the net assets attributable to Class I
shares, and changes in the interest rate used in the calculation of the
distribution fee under the Plan.
As currently implemented by the Trustees, the Fund's Plan authorizes
payments of sales commissions and distribution fees to the Principal
Underwriter and service fees to the Principal Underwriter and Authorized Firms
which may be equivalent, on an aggregate basis during any fiscal year of the
Fund, to .90% of the Fund's average daily net assets for such year. For the
sales commission and service fee payments made by the Fund and the outstanding
Uncovered Distribution Charges of the Principal Underwriter, see "Fees and
Expenses -- Distribution Plan" in the Fund's Part II of this Statement of
Additional Information. The Fund believes that the combined rate of all these
payments may be higher than the rate of payments made under distribution plans
adopted by other investment companies pursuant to Rule 12b-1. Although the
Principal Underwriter will use its own funds (which may be borrowed from
banks) to pay sales commissions at the time of sale, it is anticipated that
the Eaton Vance organization will profit by reason of the operation of the
Plan through an increase in the Fund's assets (thereby increasing the advisory
fee payable to BMR by the Portfolio) resulting from the sale of Class I shares
and through the amounts paid to the Principal Underwriter, including
contingent deferred sales charges, pursuant to the Plan. The Eaton Vance
organization may be considered to have realized a profit under the Plan if at
any point in time the aggregate amounts therefore received by the Principal
Underwriter pursuant to the Plan and from contingent deferred sales charges
have exceeded the total expenses theretofore incurred by such organization in
distributing Class I 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
Fund.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of both a majority of
(i) the Trustees of the Trust who are not interested persons of the Trust and
who have no direct or indirect financial interest in the operation of the Plan
or any agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all
of the Trustees then in office, and the Distribution Agreement contains a
similar provision. The Plan and Distribution Agreement may be terminated at
any time with respect to one or more classes of shares of the Fund by a vote
of a majority of the Rule 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of that class. The provisions of the Plan
relating to payments of sales commissions and distribution fees to the
Principal Underwriter are also included in the Distribution Agreement between
the Trust on behalf of the Fund and the Principal Underwriter. Under the Plan
the President or a Vice President of the Trust shall provide to the Trustees
for their review, and the Trustees shall review at least quarterly, a written
report of the amount expended under the Plan and the purposes for which such
expenditures were made. The Plan may not be amended to increase materially the
payments described therein without approval of the shareholders of the
affected class of the Fund, and all material amendments of the Plan must also
be approved by the Trustees as required by Rule 12b-1. So long as the Plan is
in effect, the selection and nomination of Trustees who are not interested
persons of the Trust shall be committed to the discretion of the Trustees who
are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, resulting in increased investment flexibility and
advantages which will benefit the Fund and its shareholders. Payments for
sales commissions and distribution fees made to the Principal Underwriter
under the Plan will compensate the Principal Underwriter for its services and
expenses in distributing shares of the Fund. Service fee payments made to the
Principal Underwriter and Authorized Firms under the Plan provide incentives
to provide continuing personal services to investors and the maintenance of
shareholder accounts. By providing incentives to the Principal Underwriter
and Authorized Firms, the 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 have determined that in their
judgment there is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
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 the 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 the 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 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 Portfolio 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 Portfolio may also purchase municipal obligations from
underwriters, the cost of which may include undisclosed fees and concessions
to the underwriters. While it is anticipated that the Portfolio will not pay
significant brokerage commissions in connection with such portfolio security
transactions, 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 Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
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 the 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 commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either 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, 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 Portfolio transactions and from
third parties with which these broker-dealers have arrangements. These
Research Services include such matters as general economic and market reviews,
industry and company reviews, evaluations of securities and portfolio
strategies and transactions and 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 the 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 commissions 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.
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 firm with whom portfolio orders
may be placed the fact that such firm has sold or is selling shares of the
Fund or of other investment companies sponsored by BMR or Eaton Vance. This
policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc., which rule provides that no firm which is a member
of the Association 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 Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among
the Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell
securities by the Portfolio and one or more of such other accounts
simultaneously. In making such allocations, the main factors to be considered
are the respective investment objectives of the Portfolio and such other
accounts, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment by the Portfolio and such
accounts, the size of investment commitments generally held by the Portfolio
and such accounts and the opinions of the persons responsible for recommending
investments to the Portfolio and such accounts. While this procedure 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 Portfolio that the benefits available from the BMR organization
outweigh any disadvantage that may arise from exposure to simultaneous
transactions. For the brokerage commissions paid by the Portfolio on portfolio
transactions, see "Fees and Expenses" in the Fund's Part II of this Statement
of Additional Information.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes. The Trust, which is a
Massachusetts business trust established in 1985, was originally called Eaton
Vance California Municipals Trust. The Trust changed its name to Eaton Vance
Investment Trust on April 28, 1992.
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 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. In addition, the By-laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed
from office either by declaration in writing filed with the custodian of the
assets of the Trust or by votes cast in person or by proxy at a meeting called
for the purpose.
In accordance with the Declaration of Trust of the 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 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 the 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.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any
emergency as determined by the Commission which makes it impracticable for the
Portfolio to dispose of its securities or value its assets, or during any
other period permitted by order of the Commission for the protection of
investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual
Report accompanies this Statement of Additional Information.
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
----------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information 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 the Portfolio's fiscal year end.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of 365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
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.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considered short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
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 had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
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. The 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>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON CALIFORNIA LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1)
a high level of current income exempt from regular Federal income tax and
California State personal income taxes and (2) limited principal fluctuation.
The Fund currently seeks to achieve its investment objective by investing its
assets in the California Limited Maturity Tax Free Portfolio (the
"Portfolio"). The Fund changed its name from Eaton Vance California Limited
Maturity Tax Free Fund to EV Marathon California Limited Maturity Tax Free
Fund on January 11, 1994.
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
lnvestment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest
or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor
the Portfolio may (a) 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 its net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund and the Portfolio will make such sales
only for the purpose of deferring realization of gain or loss for Federal
income tax purposes); (b) purchase or retain in its portfolio securities
issued by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Trust or of the Portfolio, or is a
member, officer, director or trustee of any investment adviser of the Fund or
of the Portfolio, if after the purchase of the securities of such issuer by
the Fund or the Portfolio one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value); (c) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio, or its
delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the
Fund or the Portfolio in units or attached to securities may be deemed to be
without value. The Fund and the Portfolio may purchase put options on
municipal obligations only if, after such purchase, not more than 5% of its
net assets, as measured by the aggregate of the premiums paid for such options
held by it, would be so invested. Neither the Fund nor the Portfolio intends
to invest in reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain California considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in California issuers. Such information 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 California issuers. Neither the Trust nor
the Portfolio has independently verified this information.
Constitutional Limitations on Taxes and Appropriations
Limitation on Taxes. Certain California municipal obligations may be obligations
of issuers which rely in whole or in part, directly or indirectly, on ad valorem
property taxes as a source of revenue. The taxing powers of California local
governments and districts are limited by Article XIII A of the California
Constitution, enacted by the voters in 1978 and commonly known as "Proposition
13." Briefly, Article XIII A limits to 1% of full cash value the rate of ad
valorem property taxes on real property and generally restricts the reassessment
of property to 2% per year, except upon new construction or change of ownership
(subject to a number of exemptions). Taxing entities may, however, raise ad
valorem taxes above the 1% limit to pay debt service on certain voter-approved
bonded indebtedness.
Under Article XIII A, the basic 1% ad valorem tax levy is applied against
the assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13. The U.S. Supreme Court recently heard one
of these lawsuits, and on June 18, 1992 announced a decision upholding
Proposition 13.
Article XIII A prohibits local governments from raising revenues through
ad valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." A
California Supreme Court decision, however, allowed the levy, without voter
approval, of "general taxes" which were not dedicated to a specific use. In
response to these decisions, the voters of the State in 1986 adopted an
initiative statute which imposed significant new limits on the ability of
local entities to raise or levy general taxes, except by receiving majority
local voter approval. Significant elements of this initiative, "Proposition
62," have been overturned in recent court cases. An initiative proposed to re-
enact the provisions of Proposition 62 as a constitutional amendment was
defeated by the voters in November 1990, but such a proposal may be renewed in
the future.
Appropriations Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIII B of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Proposition 98 and 111 in 1988 and 1990, respectively. Article XIII B
prohibits the State or any covered local government from spending
"appropriations subject to limitation" in excess of the appropriations limit
imposed. "Appropriations subject to limitation" are authorizations to spend
"proceeds of taxes," which consist of tax revenues and certain other funds,
including proceeds from regulatory licenses, user charges or other fees, to
the extent that such proceeds exceed the cost of providing the product or
service, but "proceeds of taxes" exclude most State subventions to local
governments. No limit is imposed on appropriations of funds which are not
"proceeds of taxes," such as reasonable user charges or fees, and certain
other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIII B appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post-
1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such
adjustments were liberalized by Proposition 111 to follow more closely growth
in the State's economy. "Excess" revenues are measured over a two-year cycle.
Local governments, must return any excess to taxpayers by rate reductions.
With more liberal annual adjustment factors since 1988, and depressed revenues
since 1990 because of the recession, few governments are currently operating
near their spending limits, but this condition may change over time. Local
governments may by voter approval exceed their spending limit for up to four
years.
Because of the complex nature of Articles XIII A and XIII B of the
California Constitution, the ambiguities and possible inconsistencies in their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIII A or Article XIII B on California municipal obligations or on the
ability of the State or local governments to pay debt service on such
obligations. It is not presently possible to predict the outcome of any
pending litigation with respect to the ultimate scope, impact or
constitutionality of either Article XIII A or Article XIII B, or the impact of
any such determinations upon State agencies or local governments, or upon
their ability to pay debt service on their obligations. Future initiatives or
legislative changes in laws or the California Constitution may also affect
the ability of the State or local issuers to repay their obligations.
Obligations of the State of California
As of April 1, 1995, the State had approximately $19.2 billion of general
obligation bonds outstanding, and $3.3 billion remained authorized but
unissued. In addition, at June 30, 1994, the State had lease-purchase
obligations, payable from the State's general fund, of approximately $6.0
billion with authorized but unissued lease purchase debt of $1.3 billion. The
State's outstanding general obligation bond debt has gradually risen in recent
years: from approximately $15.9 billion in 1991-92 to approximately $19.2
billion in 1994-95. Of the State's outstanding general obligation debt,
approximately 22% is presently self-liquidating (for which program revenues
are anticipated to be sufficient to reimburse the general fund for debt
service payments). Three general obligation bond propositions, totalling $3.7
billion, were approved by voters in 1992. The State has paid the principal of
and interest on its general obligation bonds, lease-purchase debt and short-
term obligations when due.
As of the date of this Statement of Additional Information, general
obligation bonds issued by the State of California are rated A1, A, A by
Moody's, S&P and Fitch, respectively. Starting in 1991 and continuing through
the middle of 1994, there has been a relatively steady deterioration in the
State's general obligation bond rating. On July 15, 1994, all three of the
rating agencies rating the State's long-term debt lowered their ratings of the
State's general obligation bonds. Moody's lowered its rating from "AA" to
"A1," S&P lowered its rating from "A+" to "A" and termed its outlook as
"stable," and Fitch lowered its rating from "AA" to "A." An explanation of
such actions may be obtained only from the respective rating agencies. Future
deterioration in the State's fiscal condition could result in additional
downgrades by the rating agencies.
Recent Financial Results
Since the start of the 1990-91 Fiscal Year, the State has faced the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), exports and financial services, among
others, have all been severely affected. Job losses have been the worst of any
post-war recession and continued through the end of 1993. Following Department
of Finance projections that non-farm employment levels would be stable in
1994, employment grew 3% between November 1993 and November 1994. However,
unemployment was well above the national average through 1994.
The recession has seriously affected State tax revenues, which basically
mirror economic conditions. It has also caused increased expenditures for
health and welfare programs. The State has also been facing a structural
imbalance in its budget with the largest programs supported by the General
Fund -- K-12 schools and community colleges, health and welfare, and
corrections -- growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. As a result, the State has experienced
recurring budget deficits. The State Controller reports that expenditures
exceeded revenues for four of the five fiscal years ending with 1991-92, and
were essentially equal in 1992-93. By June 30, 1993, according to the
Department of Finance, the State's Special Fund for Economic Uncertainties had
a deficit, on a budget basis, of approximately $2.8 billion. The 1993-94
Budget Act incorporated a Deficit Retirement Plan to repay this deficit over
two fiscal years. The original budget for 1993-94 reflected revenues which
exceeded expenditures by approximately $2.0 billion. As a result of the
continuing recession, the excess of revenues over expenditures for the fiscal
year was only about $522 million. Thus the accumulated budget deficit at June
30, 1994 was approximately $2.0 billion, and the deficit will not be retired
by June 30, 1995 as planned.
The accumulated budget deficits over the past several years, together with
expenditures for school funding which have not been reflected in the budget,
and reduction of available internal borrowable funds, have combined to
significantly deplete the State's cash resources to pay its ongoing expenses.
In order to meet its cash needs, the State has had to rely for several years
on a series of external borrowings, including borrowings past the end of a
fiscal year.
The 1994-95 Budget Act is projected to have $41.9 billion of General Fund
revenues and transfers and $40.0 billion of budget expenditures. In addition,
the 1994-95 Budget Act anticipates deferring retirement of about $1 billion of
the accumulated budget deficit to the 1995-96 Fiscal Year when it is intended
to be fully retired by June 30, 1996.
1993-94 Budget. The 1993-94 budget represented the third consecutive year
of extremely difficult budget choices for the State, in view of the continuing
recession. The budget act, signed on June 30, 1993, provided for General Fund
expenditures of $38.5 billion, a 6.3% decline from the prior year. Revenues
were projected at $40.6 billion, about $400 million below the prior year. To
bring the budget into balance, the budget act and related legislation provided
for transfer of $2.6 billion of local property taxes to school districts, thus
relieving State support obligations; reductions in health and welfare
expenditures; reductions in support for higher education institutions; a two-
year suspension of the renters' tax credit; and miscellaneous cuts in general
government spending and certain one-time and accounting adjustments. There
were no general State tax increases, but a 0.5% temporary State sales tax
scheduled to expire on June 30 was extended for six months, and dedicated to
support local government public safety costs.
Revenues for 1993-94 were $800 million lower than original projections and
expenditures were $780 million higher as a result of higher health and
welfare caseloads, lower property taxes and lower than anticipated federal
government payments for immigration-related costs.
1994-95 Budget. The 1994-95 fiscal year represents the fourth consecutive
year the Governor and Legislature were faced with a very difficult budget
environment to produce a balanced budget. Many program cuts and budgetary
adjustments have already been made in the last three years. The Budget
recognized that the accumulated deficit could not be repaid in one year, and
proposed a two-year solution. The budget projects operating surpluses for the
budget for both 1994-95 and 1995-96, and lead to the elimination of the
accumulated budget deficit, estimated at about $2.0 billion at June 30, 1994,
by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projects
revenues and transfers of $41.9 billion, $2.1 billion higher than revenues in
1993-94. This reflects the Administration's forecast of an improving economy.
The Budget Act projects the effective receipt of about $770 million from the
Federal Government, $360 million of which is to reimburse the State's costs
for immigrant-related expenses and the balance is attributable to federal
subventions thus reducing State expenditures. Little or none of this money is
now expected to be received. The Legislature took no action on a proposal in
the January Governor's Budget to undertake an expansion of the transfer of
certain programs to counties, which would also have transferred to counties
0.5% of the State's current sales tax. The Budget Act projects Special Fund
revenues of $12.1 billion, a decrease of 2.4% from 1993-94 estimated revenues.
The Governor's 1995-96 Budget proposal of January, 1995 included on upward
revision of General Fund revenues to $42.4 billion for the 1994-95 fiscal
year.
The 1994-95 Budget Act projects General Fund expenditures of $40.9
billion, an increase of $1.6 billion over 1993-94. The Budget Act also
projects Special Fund expenditures of $13.7 billion, a 5.4% increase over
1993-94 estimated expenditures. Although, the 1994-95 Budget Act contains no
tax increases, under legislation enacted for the 1993-94 Budget, the renters'
tax credit was suspended for two years (1993 and 1994). A ballot proposition
to permanently restore the renters' tax credit after this year failed at the
June, 1994 election. The Legislature enacted a further one-year suspension of
the renters' tax credit, for 1995, saving about $390 million in the 1995-96
Fiscal Year. The 1994-95 Budget assumes that the State will use a cash flow
borrowing program in 1994-95 which combines one-year notes and certain
warrants. Issuance of the warrants allows the State to defer repayment of
approximately $1.0 billion of its accumulated budget deficit into the 1995-96
Fiscal Year. The Budget Adjustment Law, enacted along with the 1994-95 Budget
Act is designed to ensure that the warrants will be repaid in the 1995-96
Fiscal Year. The State's severe financial difficulties for the current budget
year will result in continued pressure upon almost all local governments,
particularly school districts and counties which depend on State aid. Despite
efforts in recent years to increase taxes and reduce governmental
expenditures, there can be no assurance that the State will not face budget
gaps in the future.
Proposed 1995-96 Budget. On January 10, 1995, the Governor presented his
proposed fiscal year 1995-96 Budget. This budget projects total General Fund
revenues and transfers of $42.5 billion, and expenditures of $41.7 billion, to
complete the elimination of the accumulated budget deficits from earlier
years. However, this proposal leaves no cushion, as the projected budget
reserve at June 30, 1996 would be only about $92 million. While proposing
increases in funding for schools, universities and corrections, the Governor
proposes further cuts in welfare programs, and a continuation of the
"realignment" of functions with counties which would save the State about $240
million. The Governor also expects about $800 million in new federal aid for
the State's costs of incarcerating and educating illegal immigrants. The
Budget proposal also does not account for possible additional costs if the
State loses its appeals on lawsuits which are currently pending concerning
such matters as school funding and pension payments, but these appeals could
take several years to resolve. Part of the Governor's proposal also is a 15%
cut in personal income and corporate taxes, to be phased in over three years,
starting with calendar year 1996 (which would have only a small impact on
1995-96 income).
Legal Proceedings
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues.
Economy
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 31 million represents
12.3% of the total United States population and grew by 27% in the 1980s.
Total personal income in the State, at an estimated $683 billion in 1993,
accounts for about 13% of all personal income in the nation.
Reports issued by the State Department of Finance and the Commission on
State Finance indicate that the State's economy is recovering from its worst
recession since the 1930s. The largest job losses have been in Southern
California, led by declines in the aerospace and construction industries.
Weakness statewide occurred in manufacturing, construction, services and
trade. Additional military base closures will have further adverse effects on
the State's economy later in the decade. California's unemployment rate was
7.9% in April, 1995, a significant improvement over the previous year's level
of 9.3% but still above the national rate of 5.8%.
Other Considerations
On December 7, 1994, Orange County, California (the "County"), together
with its pooled investment fund (the "Fund") filed for protection under
Chapter 9 of the Federal Bankruptcy Code, after reports that the Fund had
suffered significant market losses in its investments which caused a liquidity
crisis for the Fund and the County. More than 180 other public entities, most
but not all located in the County, were also depositors in the Fund. As of
December 13, 1994, the County estimated the Fund's loss at about $2 billion,
or 27% of its initial deposits of around $7.4 billion. These losses could
increase as the County sells investments to restructure the Fund, or if
interest rates rise. Many of the entities which kept moneys in the Fund,
including the County, are facing cash flow difficulties because of the
bankruptcy filing and may be required to reduce programs or capital projects.
The County and some of these entities have, and others may in the future,
default in payment of their obligations. Moody's and S&P have suspended,
reduced to below investment grade levels, or placed on "Credit Watch" various
securities of the County and the entities participating in the Fund. As of
December 1994, the Portfolio did not hold any direct obligations of the
County. However, the Portfolio did hold bonds of some of the governmental
units that had money invested with the County; the impact of the loss of
access to these funds, the loss of expected investment earnings and the
potential loss of some of the principal invested is not known at this point.
There can be no assurances that these holdings will maintain their current
ratings and/or liquidity in the market.
Although the State of California has no obligation with respect to any
obligations or securities of the County or any of the other participating
entities, under existing legal precedents, the State may be obligated to
ensure that school districts have sufficient funds to operate. Longer term,
this financial crisis could have an adverse impact on the economic recovery
that has only recently taken hold in Southern California.
In early June, 1995, Orange County filed a proposal with the bankruptcy
court that would require holders of the County's short-term notes to wait a
year before being repaid. The existence of this proposal and its adoption
could disrupt the market for short-term debt in California and possibly drive
up the State's borrowing costs.
The repayment of industrial development securities and other obligations
secured by real property may be affected by California laws limiting
foreclosure rights of creditors. Securities backed by healthcare and hospital
revenues may be affected by changes in State regulations governing cost
reimbursements to health care providers under Medi-Cal (the State's Medicaid
program), including risks related to the policy of awarding exclusive
contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment
project area after the start of redevelopment activity. In the event that
assessed values in the redevelopment project area decline (e.g., because of a
major natural disaster such as an earthquake), or there is a deemphasis or
reallocation of property taxes by legislation or initiative, the tax increment
revenue may be insufficient to make principal and interest payments on these
bonds. Both Moody's and S&P suspended ratings on California tax allocation
bonds after the enactment of Articles XIII A and XIII B, and only resumed such
ratings on a selective basis.
Proposition 87, approved by California voters in 1988, required that all
revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay the entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are the
issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to predict the extent to which
any such legislation will be enacted. Nor is it presently possible to
determine the impact of any such legislation on California municipal
obligations in which the Portfolio may invest, future allocations of state
revenues to local governments or the abilities of state or local governments
to pay the interest on, or repay the principal of, such California municipal
obligations.
Certain California obligations may be payable solely from the revenues of
health care institutions. Such revenues may be negatively affected by efforts
of the state and of private health plans and insurers to contract with such
institutions for fixed, discounted payments for services to Medicaid and
insurance beneficiaries. Such California obligations may be insured by the
state. In the event of a default by the health care institution, the state has
the option of issuing replacement debentures payable from a reserve fund.
However, this reserve fund has been found to be underfunded in a study
conducted in 1986 and is subject to reappropriation by the California
Legislature for other purposes.
Certain California obligations may be secured by real estate mortgages or
deeds of trust. California has several statutory provisions that may limit the
remedies of secured creditors, such as issuers of California obligations. A
creditor's right to obtain a deficiency judgment is barred when a foreclosure
is accomplished through a nonjudicial trustee's sale. A secured creditor is
also required to exhaust its real property security by foreclosure before
bringing a personal action against the debtor. Any deficiency judgment
following a judicial sale of foreclosed property is limited to the excess of
the outstanding debt over the fair value of the property at the time of sale,
even if the actual bids at such sale were lower than such value. Finally, the
debtor has the right to redeem the foreclosed property from any judicial
foreclosure sale that could result in a deficiency judgment.
Due to certain limitations on a creditor's private powers of sale after
foreclosure, the effective minimum period for foreclosing on a mortgage could
exceed seven months after the initial default. Such delays in collections
could disrupt the flow of revenues to an issuer for the payment of debt
service on California obligations secured by real estate mortgages. In some
cases, the nonjudicial sale of property by an issuer could be precluded as a
violation of constitutional due process.
Under California's anti-deficiency law, there is no personal recourse
against a mortgagor of a single family residence purchased with a loan secured
by a mortgage. California law also limits the charges that may be imposed with
respect to voluntary mortgage prepayments. These provisions could affect the
flow of revenues available for debt service to the issuers of California
obligations secured by single family home mortgages.
Substantially all of California is within an active geologic region
subject to major seismic activity. Any California municipal obligation in the
Portfolio could be affected by an interruption of revenues because of damaged
facilities, or, consequently, income tax deduction for casualty losses or
property tax assessment reductions. Compensatory financial assistance could be
constrained by the inability of (i) an issuer to have obtained earthquake
insurance coverage at reasonable rates; (ii) an insurer to perform on its
contracts of insurance in the event of widespread losses; or (iii) the Federal
or State government to appropriate sufficient funds within their respective
budget limitations.
On January 17, 1994, an earthquake struck Los Angeles causing significant
damage to public and private structures and facilities. Although some
individuals and businesses suffered losses totaling in the billions of
dollars, the overall effect of the earthquake on the regional and State
economy is not expected to be serious.
The State has shifted responsibility for certain health and welfare
programs and provided the counties with increased taxing powers to cover their
costs. While the State expects that the increased taxes will be sufficient to
cover increased costs, there can be no assurance that this will be the case.
If the increased costs are not covered by the increased taxes, the counties
will be responsible to fund the difference. Any added expenditures in excess
of increased revenues and subsequent adverse effect upon county finances would
likely have a negative impact upon individual county and local bond prices.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $82,343,725. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$418,800 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, May 3,
1993, to March 31, 1994, absent a fee reduction, the Portfolio would have paid
BMR advisory fees of $278,603 (equivalent to 0.45% (annualized) of the
Portfolio's average daily net assets for such period). To enhance the net
income of the Portfolio, BMR made a reduction of its advisory fee in the
amount of $32,971. The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to May 3, 1993 (when the Fund transferred substantially all of its
assets to the Portfolio in exchange for an interest in the Portfolio), the
Fund retained Eaton Vance as its investment adviser. For the period from April
1, 1993 to May 3, 1993, absent a fee reduction, the Fund would have paid Eaton
Vance advisory fees of $15,625 (equivalent to 0.43% (annualized) of the Fund's
average daily net assets for such period). To enhance the net income of the
Fund, Eaton Vance made a reduction of the full amount its advisory fee during
such period. For the period from the Fund's start of business, May 29, 1992,
to the fiscal year ended March 31, 1993, Eaton Vance would have earned, absent
a fee reduction, advisory fees of $66,810 (equivalent to 0.45% (annualized) of
the Fund's average daily net assets for such period). To enhance the net
income of the Fund, Eaton Vance made a reduction of its advisory fee in the
amount of $56,810.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, including the Rule 12b-1 Trustees, as required by Rule 12b-1. The
Fund pays the Principal Underwriter sales commissions equal to 3% of the amount
received by the Fund for each Class I share sold (excluding reinvestment of
dividends and distributions). For the fiscal year ended March 31, 1995, the Fund
made sales commission payments under the Plan to the Principal Underwriter
aggregating $599,338, which amount was used by the Principal Underwriter to
defray sales commissions aggregating $157,113 paid during such period by the
Principal Underwriter to Authorized Firms on sales of Class I shares of the Fund
and to reduce Uncovered Distribution Charges. During such period, contingent
deferred sales charges aggregating approximately $283,558 were imposed on early
redeeming shareholders and paid to the Principal Underwriter, which amount was
used by the Principal Underwriter to reduce Uncovered Distribution Charges. As
at March 31, 1995, the outstanding Uncovered Distribution Charges of the
Principal Underwriter calculated under the Plan amounted to approximately
$1,496,539 (which amount was equivalent to 2.0% of the Fund's net assets
attributable to Class I shares on such day). During the fiscal year ended March
31, 1995, the Fund accrued service fee payments under the Plan aggregating
$56,696, of which $46,525 was paid to the Principal Underwriter. The Principal
Underwriter paid $46,453 as service fees to Authorized Firms and the balance was
retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $855.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $8,287. For
the fiscal year ended March 31, 1995, the Portfolio paid IBT $11,626.
BROKERAGE
For the fiscal year ended March 31, 1995, and for the period from the
start of business, May 3, 1993, to March 31, 1994, the Portfolio paid no
brokerage commissions on portfolio transactions. For the period from the start
of business, May 29, 1992, to March 31, 1993, and for the period from April 1,
1993 to May 3, 1993 (when the Fund transferred substantially all of its assets
to the Portfolio in exchange for an interest in the Portfolio), the Fund paid
no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Trust
or the Portfolio.) During the fiscal year ended March 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the other funds in the Eaton Vance fund
complex:(1)
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $336 $1,174(2) $135,000(4)
Samuel L. Hayes, III ...... 328 1,213(3) 147,500(5)
Norton H. Reamer .......... 315 1,258 135,000
John L. Thorndike ......... 323 1,322 140,000
Jack L. Treynor ........... 345 1,240 140,000
------------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $199 of deferred compensation.
(3) Includes $393 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from May 29, 1992 through March 31, 1995 and
the one year period ended March 31, 1995.
<PAGE>
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE***
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE*** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 5/29/92* $1,000 $1,135.37 $1,115.47 13.54% 4.57% 11.55% 3.93%
1 Year
Ended
3/31/95 3/31/94 $1,000 $1,035.32 $1,005.62 3.53% 3.53% 0.56% 0.56%
<CAPTION>
PERCENTAGE CHANGES 5/29/92* -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/93** -- 7.66% -- -- 4.66% --
3/31/94** 1.86% 9.66% 5.15% -1.06% -7.16% 3.84%
3/31/95 3.53% 13.54% 4.57% 0.56% 11.55% 3.93%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
* Investment operations began on May 29, 1992.
** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
*** No contingent deferred sales charge is imposed on shares purchased more than four years prior to the redemption, shares
acquired through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no such
charge is imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange
Privilege" in the Fund's current prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.77%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 3.77% would be 5.77%,
assuming a combined Federal and State tax rate of 34.70%.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid March 15, 1995) was 3.90%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.97%.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------------------- ------------------------
Aaa or AAA 58.7%
Aa or AA 22.0
A 17.3
Baa or BBB 2.0
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield
of a certificate of deposit yielding 3.25%. The tax brackets used in the table
are the combined Federal brackets applicable for 1995 and the California State
income tax brackets applicable for 1994: 20.10% for single filers with taxable
income up to $23,350 and joint filers up to $39,000; 34.70% for single filers
with taxable income from $23,351 to $56,550 and joint filers from $39,001 to
$94,250; 37.90% for single filers with taxable income from $56,551 to $117,950
and joint filers from $94,251 to $143,600; 43.04% for single filers with
taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 46.24% for single and joint filers with taxable income over
$256,500. These brackets are calculated using 1995 Federal tax rates, the
highest 1994 California state rate applicable at the upper portion of the
brackets and assume that California taxes are deducted on the Federal income
tax return. The applicable Federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. Tax
brackets are calculated using the highest state rate within each bracket.
These brackets do not take into account the phaseout of personal exemptions
and limitation on deductibility of itemized deductions over certain ranges of
income. Investors who are subject to such phaseout or limitation may be
subject to higher combined tax rates than indicated above. Investors should
consult with their tax advisers for more information.
TAX BRACKET
20.10% 34.70% 37.90% 43.04% 46.24%
------------------------------------------
Tax free yield .............. 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent .......... 5.01 6.13 6.44 7.02 7.44
Certificates of deposit:
Yield ................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ......... 2.60 2.12 2.02 1.85 1.75
The following is an illustration of the Tax Free Yield Advantage,
comparing the after-tax yields of a certificate of deposit yielding 3.25% and
a hypothetical tax free investment yielding 4.0%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax free
investment yielding 4.0%, and compares the after-tax return of such investments.
The chart is based on 3-month bank CDs (Source: The Wall Street Journal) and
current limited maturity municipal bond yields, compiled by Eaton Vance
Management. This illustration is not meant to imply or predict any future rate
of return for the Fund. See your financial adviser for the Fund's current yield
and actual CD rates.
The Tax Free Yield Advantage
(43.04% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.85% After-tax yield
4.00% Tax free investment
7.02% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,398.80) NONE
After-tax income: $1,851.20 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (43.04% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (43.04% bracket)
1985 7.34 7.86 13.80
1986 5.74 6.23 10.94
1987 7.25 6.43 11.29
1988 8.10 6.61 11.60
1989 7.82 6.73 11.82
1990 7.38 6.69 11.75
1991 5.36 6.00 10.53
1992 3.08 5.38 9.45
1993 2.69 4.65 8.16
1994 3.22 5.40 9.48
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
<PAGE>
ADDITIONAL TAX MATTERS
Individual shareholders of the Fund who reside in California will not be
subject to California personal income tax on distributions received from the
Fund to the extent such distributions are attributable to interest on
obligations the interest on which is exempt under either Federal or California
law from taxation by the State of California, provided that at least 50% of
the Portfolio's assets at the close of each quarter of its taxable year is
invested in such obligations. Distributions from the Fund which are
attributable to sources other than those in the preceding sentence will
generally be taxable to such individual shareholders as ordinary income.
Distributions of the Fund's net capital gains (the excess of net long-term
capital gain over net short-term capital loss) are taxable to shareholders as
long-term capital gains for California personal income tax purposes. In
addition, distributions other than exempt-interest dividends are includable in
income subject to the California alternative minimum tax. Shares of the Fund
will not be subject to the California property tax.
Distributions of investment income and long-term and short-term capital
gains from the Fund will not be excluded from taxable income in determining
California corporate taxes for corporate shareholders. However, distributions
of the Fund's net capital gains are treated as long-term capital gains for
California corporate tax purposes. In addition, distributions may be
includable in income subject to the alternative minimum tax.
California tax law resembles Federal tax law in restricting the
deductibility of interest on indebtedness incurred by shareholders to purchase
shares and the allowance of losses realized by a shareholder upon the sale or
redemption of shares.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ,
was the record owner of approximately 25.96% of the outstanding shares, which it
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. To the
Trust's knowledge, no other person owned of record or beneficially 5% or more of
the Fund's outstanding shares as of such date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the 1995 regular Federal
income tax rates and California State income tax laws and tax rates applicable
for 1994. It gives 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%.
<TABLE>
<CAPTION>
COMBINED
FEDERAL A FEDERAL AND CALIFORNIA STATE
AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN CA STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------- ------------------- TAX ----------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
---------------------------------------- ------- ----------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 56,551 - $117,950 $ 94,251 - $143,600 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27
$117,951 - $256,500 $143,601 - $256,500 43.04 7.02 7.90 8.78 9.66 10.53 11.41 12.29
Over $256,500 Over $256,500 46.24 7.44 8.37 9.30 10.23 11.16 12.09 13.02
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
* Net amount subject to Federal and California personal income tax after deductions and exemptions.
+ The combined Federal and California tax brackets are calculated using the highest California
State rate applicable at the upper portion of these brackets and assume that taxpayers deduct
California State income taxes paid on their Federal income tax returns. An investor with taxable
income within these brackets may have a lower combined tax rate than the combined rate shown.
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.
</TABLE>
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including California State Income Taxes)
for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint
filers with Adjusted Gross Income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Of course, no assurance can be given that EV Marathon California Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the
interest from which is exempt from the regular Federal income tax and
California personal income taxes, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for
California personal income taxes. It should also be noted that 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 or increase the recipient's
liability for the Federal alternative minimum tax. The illustrations assume
that the Federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON CONNECTICUT LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1)
a high level of current income exempt from regular Federal income tax and
Connecticut State personal income taxes and (2) limited principal fluctuation.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Connecticut Limited Maturity Tax Free Portfolio (the
"Portfolio"). The Fund changed its name from Eaton Vance Connecticut Limited
Maturity Tax Free Fund to EV Marathon Connecticut Limited Maturity Tax Free
Fund on August 1, 1994.
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund 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. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust, or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) 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, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund is permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
are not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate (including limited partnership interests,
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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its principal underwriter, as
principal; however, any such persons or concerns may be employed as a broker
upon customary terms;
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have each adopted the following nonfundamental
investment policies. Neither the Fund nor the Portfolio may invest more than
15% of 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 that the Board of Trustees of the Trust or the Portfolio, or its
delegate, determines to be liquid, based upon the trading markets for the
specific security; provided, however, that the Fund may invest without
limitation in the Portfolio or in another investment company with
substantially the same investment objective. Neither the Fund nor the
Portfolio may purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; provided, however, that
the Fund may invest without limitation in the Portfolio in another investment
company with substantially the same investment objective. Neither the Fund nor
the Portfolio may 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. The Fund and Portfolio may
purchase put options on municipal obligations only if, after such purchase,
not more than 5% of its net assets, as measured by the aggregate of the
premiums paid for such options held by it, would be so invested. Neither the
Fund nor the Portfolio may invest in warrants, valued at the lower of cost or
market, exceeding 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of its net assets, may be warrants
which are not listed on the New York or American Stock Exchange. Warrants
acquired by the Fund or the Portfolio in units or attached to securities may
be deemed to be without value. Neither the Fund nor the Portfolio intends to
invest in reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Connecticut considerations is
given to investors in view of the Portfolio's policy of concentrating its
investments in Connecticut issuers. Such information 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 Connecticut issuers. Neither the Trust nor
the Portfolio has independently verified this information.
Although the manufacturing sector has traditionally been of prime economic
importance to Connecticut, the non-manufacturing sector of employment
(primarily aircraft engines, helicopters and submarines) now dominate the
State's economy. Approximately 82% of the State's non-agricultural employment
is in the non-manufacturing sector, with 30% of the total in the service
sector, 22% in the wholesale and retail trade sector, and 14% in the
government sector. Defense-related business plays an important role in the
Connecticut economy, and defense awards to Connecticut have traditionally been
among the highest in the nation on a per capita basis. However, in recent
years the Federal government has reduced defense-related spending which has
had an adverse impact on the Connecticut economy.
As of April 1995, the unemployment rate in Connecticut on a seasonally
adjusted basis was 4.9%, compared to 5.68% for the nation. Between March 1994
and March 1995, the State gained 13,700 non-farm jobs, with gains in the
services, trade and government sectors offsetting losses in the manufacturing
(durable goods), finance, insurance and real estate sectors of the economy.
The State's economy is beginning a slow recovery, constrained by military
spending cuts and cost containment pressures in the insurance and biomedical
industries. The full economic impact of continued corporate downsizing in the
defense and insurance industries may not be fully realized.
The State derives over 70% of its revenues from taxes imposed by the
State. The two major taxes have been the sales and use tax and the corporation
business tax, each of which is sensitive to changes in the level of economic
activity in the State, but the Connecticut personal income tax on individuals,
trusts, and estates enacted in 1991 is expected to supersede them in
importance. In order to promote economic stability and provide a positive
business climate, several tax changes were adopted during the 1993 legislative
session. Among the most significant changes were the changes to the
Corporation Business Tax -- a 4 year gradual rate reduction to 11.25%
beginning January 1, 1995; 11% beginning January 1, 1996; 10.5% beginning
January 1, 1997 and 10% beginning January 1, 1998.
During fiscal 1991-92, the State issued $965.7 million of Economic
Recovery Notes, of which $555.6 million remained outstanding as of October 1,
1994. The State ended the 1992-93 fiscal year with a $113.5 million General
Fund operating surplus and a $19.7 million General Fund surplus for the 1993-
1994 fiscal year.
The State, its officers and employees are defendants in numerous lawsuits.
According to the State Attorney General's Office, an adverse decision in any
of the cases summarized herein could materially affect the State's financial
position: (i) an action to enforce the spending cap provision of the State's
constitution by seeking to require that the General Assembly define certain
terms used therein and to enjoin certain increases in "general budget
expenditures" until this is done; (ii) litigation on behalf of black and
hispanic school children in the City of Hartford seeking "integrated
education" within the greater Hartford metropolitan area; (iii) litigation
involving claims by Indian tribes to less than 1/10 of 1% of the State's land
area; (iv) litigation challenging the State's method of financing elementary
and secondary public schools on the grounds that it denies equal access to
education; (v) an action in which two retarded persons seek placement outside
a State hospital, new programs, and damages on behalf of themselves and all
mentally retarded patients at the hospital; (vi) litigation involving claims
for refunds of taxes by several cable television companies; (vii) an action on
behalf of all persons with retardation or traumatic brain injury, 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; (viii) an
action by the Connecticut Hospital Association and 33 hospitals seeking to
require the State to reimburse hospitals for in-patient medical services on a
more favorable basis; (ix) a class action by the Connecticut Criminal Defense
Lawyers Association claiming a campaign of illegal surveillance activity and
seeking damages and injunctive relief; (x) two actions for monetary damages
brought by a former patient at a State mental hospital stemming from an
attempted suicide that left her brain-damaged; (xi) an action challenging the
validity of the State's imposition of surcharges on hospital charges to
finance certain uncompensated care costs incurred by hospitals; and (xii) an
action challenging the validity of the State's imposition of gross earnings
taxes on hospital revenues to finance certain uncompensated care costs.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $17,315,618. For the
fiscal year ended March 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $80,031 (equivalent to 0.45% of the Portfolio's
average daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of the full amount of its advisory fee and BMR
was allocated a portion of the expenses related to the operation of the
Portfolio in the amount of $8,932. For the period from the Portfolio's start
of business, April 16, 1993, to March 31, 1994, absent a fee reduction, the
Portfolio would have paid BMR advisory fees of $34,054 (equivalent to 0.44%
(annualized) of the Portfolio's average daily net assets for such period). To
enhance the net income of the Portfolio, BMR made a reduction of the full
amount of its advisory fee and BMR was allocated a portion of the expenses
related to the operation of the Portfolio in the amount of $14,314. The
Portfolio's Investment Advisory Agreement with BMR is dated April 9, 1993 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the fiscal
year ended March 31, 1995, and for the period from the start of business,
April 16, 1993, to March 31, 1994, $12,014 and $43,220, respectively, of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, including the Rule 12b-1
Trustees, as required by Rule 12b-1. The Fund pays the Principal Underwriter
sales commissions equal to 3.5% of the amount received by the Fund for each
Class I share sold (excluding reinvestment of distributions). During the
fiscal year ended March 31, 1995, the Fund made sales commission payments
under the Plan to the Principal Underwriter aggregating $115,401, which amount
was used by the Principal Underwriter to defray sales commissions aggregating
$39,974 paid during such period by the Principal Underwriter to Authorized
Firms on sales of Class I shares of the Fund and to reduce Uncovered
Distribution Charges. During such period contingent deferred sales charges
aggregating approximately $33,483 were imposed on early redeeming shareholders
and paid to the Principal Underwriter, which amount was used by the Principal
Underwriter to reduce Uncovered Distribution Charges. As at March 31, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $445,972 (which amount was
equivalent to 2.9% of the Fund's net assets attributable to Class I shares on
such day). During the fiscal year ended March 31, 1995, the Fund accrued
service fee payments under the Plan aggregating $8,098, of which $4,775 was
paid to the Principal Underwriter. The Principal Underwriter paid $4,763 as
service fees to Authorized Firms and the balance was retained by the Principal
Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $200.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $8,395. For
the fiscal year ended March 31, 1995, the Portfolio paid IBT $9,588.
BROKERAGE
For the fiscal year ended March 31, 1995, and for the period from the
start of business, April 16, 1993, to March 31, 1994, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Trust
or the Portfolio.) During the fiscal year ended March 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the other funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $34 $34(2) $135,000(4)
Samuel L. Hayes, III ...... $33 33(3) 147,500(5)
Norton H. Reamer .......... 31 31 135,000
John L. Thorndike ......... 32 32 140,000
Jack L. Treynor ........... 34 34 140,000
----------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $5 of deferred compensation.
(3) Includes $10 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
WILLIAM H. AHERN (36), VICE PRESIDENT OF THE PORTFOLIO
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Portfolio
on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund covering the life of the Fund from April 16, 1993 through March 31,
1995, and for the one-year period ended March 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT*
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE***
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE*** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 4/16/93* $1,000 $1,050.21 $1,025.99 5.02% 2.53% 2.60% 1.32%
1 Year Ended
3/31/95** 3/31/94 $1,000 $1,042.67 $1,012.67 4.27% 4.27% 1.27% 1.27%
<CAPTION>
PERCENTAGE CHANGES 4/16/93* -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE*** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- -------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/94** -- 0.73% -- -- -2.18% --
3/31/95** 4.27% 5.02% 2.53% 1.27% 2.60% 1.32%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
* Investment operations began on April 16, 1993.
** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower
returns.
*** No contingent deferred sales charge is imposed on shares purchased more than four years prior to the redemption, shares
acquired through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no
such charge is imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Fund's current Prospectus.
----------
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
4.09%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.09% would be 6.20%,
assuming a combined Federal and State tax rate of 34.11%. If a portion of the
Portfolio's and the Fund's expenses had not been allocated to the Investment
Adviser and the Administrator, respectively, the Fund would have had a lower
yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid March 15, 1995) was 3.66%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.73%. If a portion of the Portfolio's and the
Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower distribution rate
and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------- --------------------
Aaa or AAA 41.5%
Aa or AA 30.8
A 23.8
Baa or BBB 3.9
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.00% with the after-tax yield
of a certificate of deposit yielding 3.25%. The tax brackets used in the table
are the combined Federal and Connecticut tax brackets applicable for 1995:
18.25% for single filers with taxable income up to $23,350 and joint filers up
to $39,000; 31.24% for single filers with taxable income from $23,351 to
$56,550 and joint filers from $39,001 to $94,250; 34.11% for single filers
with taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 38.88% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 42.32% for single and
joint filers with taxable income over $256,500. The applicable Federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%
over the same ranges of income. The highest effective Connecticut State income
tax rate is 4.5%. 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 brackets use the highest effective Connecticut tax rate
for single or joint filers within each combined bracket. Taxpayers with
taxable income within these brackets may have a lower combined tax rate than
indicated above. The combined brackets are not simply the sum of each of the
taxes, as they assume that State taxes are deducted on the Federal income tax
return, reducing the effective combined tax brackets. These brackets also do
not take into account the phaseout of personal exemptions and limitations on
deductibility of itemized deductions over certain ranges of income. Investors
who are subject to such phaseout or limitation may be subject to higher
combined tax rates than indicated above. Investors should consult with their
tax advisers for more information.
TAX BRACKET
18.25% 31.24% 34.11% 38.88% 42.32%
------------------------------------------
Tax free yield .............. 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent .......... 4.89 5.82 6.07 6.54 6.93
Certificates of deposit:
Yield ................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ......... 2.66 2.23 2.14 1.99 1.87
The following is an illustration of the Tax Free Yield Advantage,
comparing after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.00%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax
free investment yielding 4.00%, and compares the after-tax return of such
investments. The chart is based on 3-month bank CDs (Source: The Wall Street
Journal ) and current limited maturity municipal bond yields, compiled by
Eaton Vance Management. This illustration is not meant to imply or predict any
future rate of return for the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
The Tax Free Yield Advantage
(38.88% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.99% After-tax yield
4.00% Tax free investment
6.54% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,263.60) NONE
After-tax income: $1,986.40 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (38.88% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (38.88% bracket)
1985 7.34 7.86 12.86
1986 5.74 6.23 10.19
1987 7.25 6.43 10.52
1988 8.10 6.61 10.81
1989 7.82 6.73 11.01
1990 7.38 6.69 10.95
1991 5.36 6.00 9.82
1992 3.08 5.38 8.80
1993 2.69 4.65 7.61
1994 3.22 5.40 8.84
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick,
NJ, was the record owner of approximately 21.4% of the outstanding shares,
which were 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. To the Trust's knowledge, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and Connecticut State income tax laws and tax rates applicable for 1995.
It gives 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%.
<TABLE>
<CAPTION>
COMBINED
FEDERAL A FEDERAL AND CONNECTICUT STATE
AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN CT STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------- ------------------- TAX ----------------------------------------------
(TAXABLE INCOME*) BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
---------------------------------------- ------- ----------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 18.25% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95% 8.56%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18
$ 56,551 - $117,950 $ 94,251 - $143,600 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62
$117,951 - $256,500 $143,601 - $256,500 38.88 6.54 7.36 8.18 9.00 9.82 10.63 11.45
Over $256,500 Over $256,500 42.32 6.93 7.80 8.67 9.54 10.40 11.27 12.14
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
* Net amount subject to Federal and Connecticut personal income tax after deductions and exemptions.
+ The Connecticut personal income tax rate is 4.5%. 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 Federal and State tax brackets use the highest effective Connecticut tax rate for single
or joint filers (reduced by available tax credits) within each combined bracket and do not take
into account Connecticut personal exemptions which might be available. Taxpayers with taxable
income within these brackets may have a lower combined bracket and taxable equivalent yield than
indicated above. The combined tax rates 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.
</TABLE>
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Connecticut State Income
Taxes) for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint
filers with Adjusted Gross Income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Of course, no assurance can be given that EV Marathon Connecticut Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the
interest from which is exempt from the regular Federal income tax and
Connecticut personal income taxes, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for
Connecticut personal income taxes. It should also be noted that 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 or increase the recipient's
liability for the Federal alternative minimum tax. The illustrations assume
that the Federal alternative minimum tax is not applicable and do not take
into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON FLORIDA LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1)
a high level of current income exempt from regular Federal income tax in the
form of an investment exempt from Florida intangibles tax and (2) limited
principal fluctuation. The Fund currently seeks to achieve its investment
objective by investing its assets in the Florida Limited Maturity Tax Free
Portfolio (the "Portfolio"). The Fund changed its name from Eaton Vance
Florida Limited Maturity Tax Free Fund to EV Marathon Florida Limited Maturity
Tax Free Fund on January 11, 1994.
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest
or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor
the Portfolio may (a) 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 its net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund and the Portfolio will make such sales
only for the purpose of deferring realization of gain or loss for Federal
income tax purposes); (b) purchase or retain in its portfolio securities
issued by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Trust or of the Portfolio, or is a
member, officer, director or trustee of any investment adviser of the Fund or
of the Portfolio, if after the purchase of the securities of such issuer by
the Fund or the Portfolio one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value); (c) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio, or its
delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the
Fund or the Portfolio in units or attached to securities may be deemed to be
without value. The Fund and the Portfolio may purchase put options on
municipal obligations only if, after such purchase, not more than 5% of its
net assets, as measured by the aggregate of the premiums paid for such options
held by it, would be so invested. Neither the Fund nor the Portfolio intends
to invest in reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Florida issuers. Such information 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 Florida issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Florida is characterized by rapid population growth and substantial
capital needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a
fiscal biennium for its appropriations and expenditures and is
constitutionally bound to maintain a balanced budget. The State's financial
operations are considerably different than most other states because, under
the State's constitution, there is no state income tax. A constitutional
amendment would therefore be necessary to impose an income tax. Only seven
states currently do not impose income taxes upon their residents. The lack of
an income tax exposes total State tax collections to considerably more
volatility than would otherwise be the case and, in the event of an economic
downswing, could affect the State's ability to pay principal and interest in a
timely manner.
The 1992-1993 Florida budget authorized $11.862 billion in General Fund
spending, an increase of 6.5% from the final 1991-1992 level. New taxes,
including a 0.5 mill ($0.50 per $1,000 of valuation) increase in the
intangible personal property tax, were expected to produce an additional
$378.2 million in revenue to fund school and prison construction. Other tax
changes included a 1% sales tax increase on taxable purchases of
telecommunications and electric services, an increase in documentary stamp
taxes, and the inclusion of several previously exempt services for the sales
tax. Revenue collections were $200 million over initial estimates, with $170
million due to normal economic activity and $30 million attributed to
rebuilding after Hurricane Andrew. Combined general revenue fund and working
capital unencumbered reserves increased to $441.4 million, or 3.7% of
expenditures.
Non-recurring revenue from rebuilding efforts following Hurricane Andrew
was $220 million in 1993-94 and is estimated to be $159 million in 1994-95. In
1993-94, $190 million was transferred to a hurricane relief trust fund and
$159 million is budgeted to be transferred in 1994-95.
In 1993, the Florida state constitution was amended to limit the annual
growth in the assessed valuation of residential property. This amendment
could, over time, constrain the growth in property taxes, a major revenue
source for local governments. The amendment restricts annual increases in
assessed valuation to the lesser of 3% or the Consumer Price Index. The
amendment applies only to residential properties eligible for the homestead
exemption and does not affect the valuation of rental, commercial, or
industrial properties. When sold, residential property would be reassessed at
market value. While no immediate ratings implications are expected, the
amendment could have a negative impact on the financial performance of local
governments over time and lead to ratings revisions which may have a negative
impact on the prices of affected bonds.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $164,578,915. For
the fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$821,095 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, May 3,
1993, to March 31, 1994, the Portfolio paid BMR advisory fees of $591,314
(equivalent to 0.45% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to May 3, 1993 (when the Fund transferred substantially all of its
assets to the Portfolio in exchange for an interest in the Portfolio), the
Fund retained Eaton Vance as its investment adviser. For the period from April
1, 1993, to May 3, 1993, the Fund paid Eaton Vance advisory fees of $37,256
(equivalent to 0.49% (annualized) of the Fund's average daily net asset for
such period). For the period from the start of business, May 29, 1992, to
March 31, 1993, Eaton Vance would have earned, absent a fee reduction,
advisory fees of $162,932 (equivalent to 0.45% (annualized) of the Fund's
average daily net assets for such period). To enhance the net income of the
Fund, Eaton Vance made a reduction of its fee in the amount of $88,144 during
such period.
ADMINISTRATOR
As stated under "Investment Advisor and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996, and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, including the Rule 12b-1 Trustees, as required by Rule
12b-1. The Fund pays the Principal Underwriter sales commissions equal to 3%
of the amount received by the Fund for each Class I share sold (excluding
reinvestment of distributions). During the fiscal year ended March 31, 1995,
the Fund made sales commission payments under the Plan to the Principal
Underwriter aggregating $1,204,269, which amount was used by the Principal
Underwriter to defray sales commissions aggregating $282,335 paid during such
period by the Principal Underwriter to Authorized Firms on sales of Class I
shares of the Fund and to reduce Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $585,779
were imposed on early redeeming shareholders and paid to the Principal
Underwriter, which amount was used by the Principal Underwriter to defray such
sales commissions and to reduce Uncovered Distribution Charges. As at March
31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $2,844,726
(which amount was equivalent to 1.9% of the Fund's net assets attributable to
Class I shares on such day). During the fiscal year ended March 31, 1995 the
Fund accrued service fee payments under the Plan aggregating $121,408, of
which $99,019 was paid to the Principal Underwriter. The Principal Underwriter
paid $98,690 as service fees to Authorized Firms and the balance was retained
by the Principal Underwriter.
BROKERAGE
For the fiscal year ended March 31, 1995, and for the period from the
start of business, May 3, 1993, to March 31, 1994, the Portfolio paid no
brokerage commissions on portfolio transactions. For the period from the start
of business, May 29, 1992, to March 31, 1993, and for the period from April 1,
1993 to May 3, 1993 (when the Fund transferred substantially all of its assets
to the Portfolio in exchange for an interest in the Portfolio), the Fund paid
no brokerage commissions on portfolio transactions.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Princial
Underwriter $1,745.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Portfolio paid IBT $35,497.
For the fiscal year ended March 31, 1995, the Fund paid IBT $13,434.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Trust
or the Portfolio.) During the fiscal year ended March 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the other funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $672 $2,114(2) $135,000(4)
Samuel L. Hayes, III ...... 657 2,133(3) 147,500(5)
Norton H. Reamer .......... 630 2,140 135,000
John L. Thorndike ......... 647 2,228 140,000
Jack L. Treynor ........... 689 2,205 140,000
------------
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $54 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund covering the life of the Fund from May 29, 1992 through March 31,
1995, and for the one-year period ended March 31, 1995.
<PAGE>
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE**
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE*** ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund** 5/29/92* $1,000 $1,150.08 $1,130.08 15.01% 5.05% 13.01% 4.40%
1 Year
Ended 3/31/95 3/31/94 $1,000 $1,047.87 $1,017.87 4.79% 4.79% 1.79% 1.79%
<CAPTION>
PERCENTAGE CHANGES 5/29/92* -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE*** WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/93** -- 7.94% -- -- 4.94% --
3/31/94 1.68% 9.75% 5.19% -1.23% 7.25% 3.88%
3/31/95 4.79% 15.01% 5.05% 1.79% 13.01% 4.40%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
* Investment operations began on May 29, 1992.
** If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
*** No contingent deferred sales charge is imposed on shares purchased more than four years prior to the redemption, shares
acquired through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no such
charge is imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange
Privilege" in the Fund's current prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.72%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 3.72% would be 5.39%
(assuming a Federal tax rate of 31%).
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid March 15, 1995) was 3.85%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.92%.
The Portfolio's diversification by quality ratings as of June 30, 1995 was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
------------------------- --------------------
Aaa or AAA 65.1%
Aa or AA 14.2
A 14.1
Baa or BBB 5.5
Ba or BB --
B --
Below B --
Not rated 1.1
-----
Total 100.0%
The State of Florida generally imposes an intangibles personal property
tax on the value of all stocks, notes, bonds and mutual fund shares. The rate
of intangibles tax after exemptions in Florida is $.20 per $100 in value. Bank
deposits such as bank money market deposit accounts and certificates of
deposit are exempt from the Florida intangibles tax. The Florida intangibles
tax, which is a fixed rate based on the fair market value of an investment,
will vary as a percentage of income with the yield of the investment subject
to tax. For example, shares of a mutual fund valued at $10,000 would generally
be subject to Florida intangibles tax equaling $20. If the mutual fund shares
were yielding 4.00%, generating $400 in annual income, the intangibles tax
expressed as a percentage of income would be $20/$400 or 5.00%.
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.00% with the after-tax yield
of a certificate of deposit yielding 3.25%. The Federal income tax brackets
applicable for 1995 are: 15% for single filers with taxable income up to
$23,350 and joint filers up to $39,000; 28% for single filers with taxable
income from $23,351 to $56,550 and joint filers from $39,001 to $94,250; 31%
for single filers with taxable income from $56,551 to $117,950 and joint
filers from $94,251 to $143,600; 36% for single filers with taxable income
from $117,951 to $256,500 and joint filers from $143,601 to $256,500; and
39.6% for single and joint filers with taxable income over $256,500. Combined
Federal and Florida intangibles tax rates expressed as a percentage of income
on an investment yielding 4.00%, assuming the deductibility of intangibles
taxes on the Federal return for 1995 would be 19.25%, 31.60%, 34.45%, 39.20%
and 42.62% over the same ranges of income. This Part II contains a tax
equivalent yield table which reflects the tax equivalent yield of the Fund
earning hypothetical yields over various Federal income tax brackets as well
as a tax equivalent yield table which takes into account the effect of the
Florida intangibles tax on the rate of combined Federal and Florida
intangibles taxes paid as a percentage of income by a Florida resident.These
brackets do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income, which increase the effective top Federal tax rate for certain
taxpayers. The after-tax yields of certificates of deposit are not reduced by
the effect of the Florida intangibles tax as bank deposits are generally
exempt from the tax. Investors should consult with their tax advisers for
additional information.
TAX BRACKET
19.25% 31.60% 34.45% 39.20% 42.62%
---------------------------------------------
Tax free yield ............ 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ........ 4.95 5.85 6.10 6.58 6.97
TAX BRACKET*
15% 28% 31% 36% 39.6%
---------------------------------------------
Certificates of deposit:
Yield ................. 3.25% 3.25% 3.25% 3.25% 3.25%
After tax yield ...... 2.76 2.34 2.24 2.08 1.96
*CDs are generally exempt from the Florida intangibles tax. Accordingly, the
combined tax brackets applicable to after-tax yields are 15%, 28%, 31%, 36%
and 39.6%.
The following is an illustration of the Tax Free Yield Advantage,
comparing the after-tax yields of a certificate of deposit yielding 3.25% and
a hypothetical tax free investment yielding 4.00%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax
free investment yielding 4.00%, and compares the after-tax return of such
investments. The chart is based on 3-month bank CDs (Source: The Wall Street
Journal) and current limited maturity municipal bond yields, complied by Eaton
Vance Management. (The tax bracket used in calculating the CD after-tax yield
is 36%, as bank CDs are generally exempt from Florida intangibles tax.) The
illustration is not meant to imply or predict any future rate of return for
the Fund. See your financial adviser for the Fund's current yield and actual
CD rates.
The Tax Free Yield Advantage
(39.20% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After-tax yield
4.00% Tax free investment
6.58% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ...
3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,170.00) NONE
After-tax income: $2,080.00 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity munciipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (36% bracket)
(plot points for vertical bar chart follow)
Taxable Equivalent Yield
Average Ltd Mat (36% Federal bracket plus
Year CD Rate Muni Yields FL intangibles tax)
1985 7.34 7.86 12.60
1986 5.74 6.23 10.06
1987 7.25 6.43 10.37
1988 8.10 6.61 10.65
1989 7.82 6.73 10.84
1990 7.38 6.69 10.78
1991 5.36 6.00 9.70
1992 3.08 5.38 8.73
1993 2.69 4.65 7.59
1994 3.22 5.40 8.76
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick,
NJ, was the record owner of approximately 22.1% of the outstanding shares,
which it 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. To the Trust's knowledge, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The tables below show the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and the Florida intangibles tax laws and tax rates applicable for 1995. They
show 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%.
<TABLE>
<CAPTION>
YOU ARE IN IN YOUR BRACKET, A TAX-FREE YIELD OF
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON THIS FEDERAL -----------------------------------------------------------------
YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------------ ------------------------ ------------ -----------------------------------------------------------------
EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551 - $117,950 $ 94,251 - $143,600 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951 - $256,500 $143,601 - $256,500 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON
YOUR SINGLE RETURN IS* YOUR JOINT RETURN IS* 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------------ ------------------------ -----------------------------------------------------------------
TAX EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX:**
Up to $ 23,350 Up to $ 39,000 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 56,551 - $117,950 $ 94,251 - $143,600 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$117,951 - $256,500 $143,601 - $256,500 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $256,500 Over $256,500 6.97 7.80 8.62 9.45 10.28 11.10 11.93
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
* Net amount subject to Federal personal income tax after deductions and exemptions.
** A Florida intangibles tax on personal property of $2.00 per $1,000 is generally imposed after exemptions on the value of stocks,
bonds, other evidences of indebtedness and mutual fund shares. An example of the effect of the Florida intangibles tax on the
tax brackets of Florida taxpayers is as follows. A $10,000 investment subject to the tax would require payment of $20 annually
in intangibles taxes. If the investment yielded 4% annually or $400, the intangibles tax as a percentage of income would be
$20/$400 or 5%. If a taxpayer were in the 36% Federal income tax bracket, assuming the intangibles taxes were deducted as an
Itemized Deduction on the Federal return, the taxpayer would be in a combined Federal and Florida State tax bracket of 39.20%
[36% + (1 - .36) X 5%] with respect to such investment. A Florida taxpayer whose intangible personal property is exempt or
partially exempt from tax due to the availability of exemptions will have a lower taxable equivalent yield than indicated above.
</TABLE>
Note: The above-indicated Federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
taxpayers with adjusted gross income in excess of $114,700, nor the effects of
phaseout of personal exemptions for single and joint filers with adjusted gross
incomes in excess of $114,700 and $172,050, respectively. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Of course, no assurance can be given that EV Marathon Florida Limited Maturity
Tax Free Fund will achieve any specific tax exempt yield. While it is expected
that a substantial portion of the interest income distributed to the Fund
shareholders will be exempt from the regular Federal income tax, other income
received by the Portfolio and allocated to the Fund may be taxable. This table
does not take into account the Florida intangibles tax, state or local taxes, if
any, payable on Fund distributions to individuals who are not Florida residents,
or intangibles taxes, if any, imposed under the laws of other states. It should
also be noted that 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 or
increase the recipient's liability for the Federal alternative minimum tax. The
illustrations assume that the Federal alternative minimum tax is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MASSACHUSETTS LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1) a
high level of current income exempt from regular Federal income tax and
Massachusetts state personal income taxes and (2) limited principal fluctuation.
The Fund currently seeks to achieve its investment objective by investing its
assets in the Massachusetts Limited Maturity Tax Free Portfolio (the
"Portfolio"). The Fund changed its name from Eaton Vance Massachusetts Limited
Maturity Tax Free Fund to EV Marathon Massachusetts Limited Maturity Tax Free
Fund on January 11, 1994.
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests in
real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor the
Portfolio may (a) 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 its net
assets (taken at current value) is held as collateral for such sales at any one
time. (The Fund and the Portfolio will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes); (b)
purchase or retain in its portfolio securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust or of the Portfolio, or is a member, officer, director or trustee of
any investment adviser of the Fund or of the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (c)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
or the Portfolio in units or attached to securities may be deemed to be without
value. The Fund and the Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it,
would be so invested. Neither the Fund nor the Portfolio intends to invest in
reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Massachusetts considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Massachusetts issuers. Such information 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 Massachusetts issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Beginning in 1989, the Commonwealth's economy slowed significantly. Most of
the employment growth during this period was experienced in the services and
trade sectors of the economy, while the manufacturing sector continues to suffer
employment losses. Like most other industrial states, Massachusetts has seen a
shift in employment from manufacturing to more technology and service- based
industries. Between 1992 and 1993, per capita personal income in Massachusetts
increased 0.7% as compared to 0.2% for the nation as a whole. The unemployment
rate for the Commonwealth fell from 6.2% in December 1993 to 5.7% for December
1994. The national unemployment rate for December 1994 was 5.4%, changed from
6.4% in December 1994.
1994 Fiscal Year. The budgeted operating funds of the Commonwealth ended
fiscal 1994 with a surplus of revenues and other sources over expenditures and
other uses of $26.8 million and aggregate ending fund balances in the budgeted
operating funds of the Commonwealth of approximately $589.3 million. Budgeted
revenues and other sources for fiscal 1994 totalled approximately $15.550
billion, including tax revenues of $10.607 billion, $87 million below the
Department of Revenue's fiscal 1994 tax revenue estimate of $10.694 billion.
Total revenues and other sources increased by approximately 5.7% from fiscal
1993 to 1994 while tax revenues increased by 6.8% for the same period.
Commonwealth budgeted expenditures and other uses in fiscal 1994 totalled
$15.523 billion, which is $826.5 million or approximately 5.6% higher than
fiscal 1993 budgeted expenditures and other uses.
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base spending
of $1.288 billion of approximately $175 million in fiscal 1994. The Executive
Office for Administration and Finance expects annual increases in expenditures
above the fiscal 1993 base spending of $1.288 billion (after the expenditure of
approximately $396 million in fiscal 1995) of $628 million in fiscal 1996 and
$868 million in fiscal 1997. Additional annual increases are also expected in
later fiscal years.
On June 21, 1995 the Governor signed into law a $16.8 billion budget for
fiscal 1996. Most programs are level funded under the fiscal plan, which
represents a 2.6% increase over the fiscal 1995 budget. However, as projected,
Commonwealth aid to cities and towns, including a $232 million hike in education
funding, rose 8.3%. The budget projects that the Commonwealth will collect $11.6
billion in tax revenues during the coming year.
Major infrastructure projects are anticipated over the next decade. It is
currently anticipated that the federal government will assume responsibility for
approximately 90% of the $5 billion cost. The projects include the depression of
the central artery which traverses the City of Boston and the construction of a
third harbor tunnel linking downtown Boston to Logan Airport.
The fiscal viability of the Commonwealth's authorities and Municipalities is
inextricably linked to that of the Commonwealth. The Commonwealth guarantees the
debt of several authorities, most notably the Massachusetts Bay Transportation
Authority and the University of Massachusetts Building Authority. Their ratings
are based on this guarantee and can be expected to move in tandem. Several other
authorities are funded in part or in whole by the Commonwealth and their debt
ratings may be adversely affected by a negative change in those of the
Commonwealth.
Massachusetts' municipal governments are constrained in their ability to
increase local revenues by an initiative passed in 1980, "Proposition 2 1/2".
Proposition 2 1/2 limits the amount of property taxes that can be levied in a
fiscal year to the lower of 2.5% of fair value or 102.5% of the previous year's
levy unless overridden by a majority of local voters. Proposition 2 1/2 also
limits the amount the municipality can be charged by certain government entities
such as counties. While Proposition 2 1/2 is not a constitutional question and
can therefore be amended or abolished by the legislature, no significant
challenge has been raised since it took effect. Increased revenues received by
the state and passed on to local governments during the 1980's ameliorated the
effect of this initiative and made local governments in Massachusetts more
dependent on state aid than those in other states. Therefore, the recent fiscal
problems encountered by the state have amplified the economic and fiscal
problems encountered by cities and towns throughout the Commonwealth. A
continuation of the Commonwealth's fiscal problems resulting in further local
aid reductions could, in the absence of overrides, result in payment defaults by
local cities and towns and/or ratings downgrades resulting in an erosion of
their market value.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $119,119,542. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$559,365 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, May 3, 1993,
to March 31, 1994, the Portfolio paid BMR advisory fees of $400,279 (equivalent
to 0.45% (annualized) of the Portfolio's average daily net assets for such
period). The Portfolio's Investment Advisory Agreement with BMR is dated October
13, 1992 and remains in effect until February 28, 1996. The Agreement may be
continued as described under "Investment Adviser and Administrator" in Part I of
this Statement of Additional Information.
Prior to May 3, 1993 (when the Fund transferred substantially all of its
assets to the Portfolio in exchange for an interest in the Portfolio), the Fund
retained Eaton Vance as its investment adviser. For the period from April 1,
1993 to May 3, 1993, the Fund paid Eaton Vance advisory fees of $23,442
(equivalent to 0.49% (annualized) of the Fund's average daily net assets for
such period). For the period from the Fund's start of business, June 1, 1992, to
March 31, 1993 Eaton Vance would have earned, absent a fee reduction, advisory
fees of $110,480 (equivalent to 0.44% (annualized) of the Fund's average daily
net assets for such period). To enhance the net income of the Fund, Eaton Vance
made a reduction of its advisory fee in the amount of $76,314.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, including the Rule 12b-1 Trustees, as required by Rule 12b-1. The
Fund pays the Principal Underwriter sales commissions equal to 3% of the amount
received by the Fund for each Class I share sold (excluding reinvestment of
distributions). For the fiscal year ended March 31, 1995, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$859,720, which amount was used by the Principal Underwriter to defray sales
commissions aggregating $266,625 paid during such period by the Principal
Underwriter to Authorized Firms on sales of Class I shares of the Fund and to
reduce Uncovered Distribution Charges. During such period, contingent deferred
sales charges aggregating approximately $278,752 were imposed on early redeeming
shareholders and paid to the Principal Underwriter, which amount was used by the
Principal Underwriter to reduce Uncovered Distribution Charges. As at March 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $2,146,730
(which amount was equivalent to 1.9% of the Fund's net assets attributable to
Class I shares on such day). During the fiscal year ended March 31, 1995, the
Fund accrued service fee payments under the Plan aggregating $93,681, of which
$75,865 was paid to the Principal Underwriter. The Principal Underwriter paid
$73,933 as service fee payments to Authorized Firms and the balance was retained
by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $1,287.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $9,998. For the
fiscal year ended March 31, 1995, the Portfolio paid IBT $29,628.
BROKERAGE
For the fiscal year ended March 31, 1995, and for the period from the start
of business, May 3, 1993, to March 31, 1994, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from the start of
business, June 1, 1992, to March 31, 1993, and for the period from April 1, 1993
to May 3, 1993 (when the Fund transferred substantially all of its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the other funds in
the Eaton Vance fund complex:<1>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight .......... $672 $1,577(2) $135,000(4)
Samuel L. Hayes, III ...... 657 1,607(3) 147,500(5)
Norton H. Reamer .......... 630 1,636 135,000
John L. Thorndike ......... 647 1,710 140,000
Jack L. Treynor ........... 689 1,654 140,000
----------
(1) The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
(2) Includes $264 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from June 1, 1992 through March 31, 1995 and
for the one-year period ended March 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING TOTAL RETURN BEFORE
THE THE DEDUCTING TOTAL RETURN AFTER DEDUCTING
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED THE CONTINGENT DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F3>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F3> --------------------------- ---------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
--------- ---------- ---------- ------------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F2> 6/1/92<F1> $1,000 $1,140.81 $1,120.85 14.08% 4.76% 12.09% 4.11%
1 Year Ended
3/31/95 3/31/94 $1,000 $1,048.42 $1,018.42 4.84% 4.84% 1.84% 1.84%
<CAPTION>
PERCENTAGE CHANGES 6/1/92<F1>--3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE<F3> WITH ALL DISTRIBUTIONS REINVESTED
--------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
3/31/93<F2> -- 6.95% -- -- 3.95% --
3/31/94 1.75% 8.81% 4.72% -1.16% 6.32% 3.41%
3/31/95 4.84% 14.08% 4.76% 1.84% 12.09% 4.11%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
<FN>
<F1> Investment operations began on June 1, 1992.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
<F3> No contingent deferred sales charge is imposed on shares purchased more than four years prior to the redemption, shares
acquired through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no such
charge is imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange
Privilege" in the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.68%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.68% would be 5.81%, assuming a
combined Federal and State tax rate of 36.64%.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 15, 1995) was 3.94%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.01%.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 58.4%
Aa or AA 11.9
A 24.5
Baa or BBB 3.6
Ba or BB --
B --
Below B --
Not rated 1.6
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets indicated in
determining the hypothetical taxable equivalent yield of the Fund and the
after-tax yield of the certificate of deposit are the combined Federal and
Massachusetts State income tax brackets applicable for 1995: 25.20% for single
filers with taxable income up to $23,350 and joint filers up to $39,000; 36.64%
for single filers with taxable income from $23,351 to $56,550 and joint filers
from $39,001 to $94,250; 39.28% for single filers with taxable income from
$56,551 to $117,950 and joint filers from $94,251 to $143,600; 43.68% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 46.85% for single and joint filers with taxable income
over $256,500. The applicable Federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
Massachusetts investment personal income tax rate is 12% applicable to dividends
and non-Massachusetts bank account interest. The combined brackets are not
simply the sum of each of the taxes, as they assume that state taxes are
deducted on the Federal income tax return, reducing the effective combined tax
brackets. The tax brackets used in calculating the after-tax yields of
certificates of deposit are 20.06%, 32.28%, 35.11%, 39.81% and 43.19% over the
same ranges of income, reflecting the lower state tax rate on Massachusetts bank
account interest. These brackets do not take into account the phaseout of
personal exemptions and limitation on deductibility of itemized deductions over
certain ranges of income. Investors who are subject to such phaseout or
limitation may be subject to higher combined tax rates than indicated above.
Investors should consult with their tax advisers for more information.
<TABLE>
<CAPTION>
TAX BRACKET
25.20% 36.64% 39.28% 43.68% 46.85%
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ..................................... 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ................................. 5.35 6.31 6.59 7.10 7.53
TAX BRACKET<F1>
20.06% 32.28% 35.11% 39.81% 43.19%
---------------------------------------------------------------------------
Certificates of deposit:
Yield .......................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................................ 2.60 2.20 2.11 1.96 1.85
<FN>
<F1> Massachusetts bank CD interest is subject to a lower rate of tax than other types of investment income. Accordingly, the
combined tax brackets applicable to after-tax yields are 20.06%, 32.28%, 35.11%, 39.81% and 43.19%.
</TABLE>
The following is an illustration of the Tax Free Yield Advantage, comparing
the after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.0%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax free
investment yielding 4.0%, and compares the after-tax return of such investments.
The chart is based on 3-month bank CDs (Source: The Wall Street Journal) and
current limited maturity municipal bond yields, compiled by Eaton Vance
Management. (The tax bracket used in calculating the CD after-tax yield is
39.81%, reflecting the lower Massachusetts tax rate payable on Massachusetts
bank account interest.) This illustration is not meant to imply or predict any
future rate of return for the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
The Tax Free Yield Advantage
(43.68% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
4.00% Tax free investment
7.10% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,293.83) NONE
After-tax income: $1,956.17 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (43.68% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (43.68% bracket)
1985 7.34 7.86 13.96
1986 5.74 6.23 11.06
1987 7.25 6.43 11.42
1988 8.10 6.61 11.74
1989 7.82 6.73 11.95
1990 7.38 6.69 11.88
1991 5.36 6.00 10.65
1992 3.08 5.38 9.55
1993 2.69 4.65 8.26
1994 3.22 5.40 9.59
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ,
was the record owner of approximately 18.58% of the outstanding shares, which
were 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.
To the Trust's knowledge, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Massachusetts State income tax laws and tax rates applicable for 1995. It
gives 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%.
<TABLE>
<CAPTION>
COMBINED A FEDERAL AND MASSACHUSETTS STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN MA STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------- ----------------- TAX -----------------------------------------------------------------------------
(TAXABLE INCOME)<F1> BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 25.20% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551-$117,950 $ 94,251-$143,600 39.28 6.59 7.41 8.23 9.06 9.88 10.70 11.53
$117,951-$256,500 $143,601-$256,500 43.68 7.10 7.99 8.88 9.77 10.65 11.54 12.43
Over $256,500 Over $256,500 46.85 7.53 8.47 9.41 10.35 11.29 12.23 13.17
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
<FN>
<F1> Net amount subject to Federal and Massachusetts personal income tax after deductions and exemptions.
<F2> The combined tax rates include a Massachusetts tax rate of 12% applicable to taxable bond interest and dividends, and assume
that Massachusetts 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.
</TABLE>
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Massachusetts state income
taxes) for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint filers
with Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Marathon Massachusetts Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the interest
from which is exempt from the regular Federal income tax and Massachusetts
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for Massachusetts personal
income taxes. It should also be noted that 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 or increase the recipient's liability for the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON MICHIGAN LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1)
a high level of current income exempt from regular Federal income tax and
Michigan State and City income and single business taxes in the form of an
investment exempt from Michigan intangibles tax, and (2) limited principal
fluctuation. The Fund currently seeks to achieve its investment objective by
investing its assets in the Michigan Limited Maturity Tax Free Portfolio (the
"Portfolio"). The Fund changed its name from Eaton Vance Michigan Limited
Maturity Tax Free Fund to EV Marathon Michigan Limited Maturity Tax Free Fund
on August 1, 1994.
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund 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. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust, or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) 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, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund is permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
are not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate (including limited partnership interests,
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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its principal underwriter, as
principal; however, any such persons or concerns may be employed as a broker
upon customary terms;
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. Neither the Fund nor the
Portfolio may 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 that the Board of
Trustees of the Trust or the Portfolio, or its delegate, determines to be
liquid, based upon the trading markets for the specific security; provided,
however, that the Fund may invest without limitation in the Portfolio or in
another investment company with substantially the same investment objective.
Neither the Fund nor the Portfolio may purchase securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years, if by reason thereof the value of its aggregate investment
in such class of securities will exceed 5% of its total assets, provided that
the issuers of securities rated by Moody's, S&P, Fitch or any other nationally
recognized rating service shall not be considered "unseasoned"; provided,
however, that the Fund may invest without limitation in the Portfolio in
another investment company with substantially the same investment objective.
Neither the Fund nor the Portfolio may 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. The
Fund and Portfolio may purchase put options on municipal obligations only if,
after such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Michigan considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in Michigan issuers. Such information 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 Michigan issuers. Neither the Trust nor
the Portfolio has independently verified this information.
The State's economy is overly dependent on the manufacturing sector, more
specifically the auto industry. Manufacturing accounts for 23% of total
employment as compared to the national average of 17%. The dependency on
manufacturing makes the State economy overly susceptible to economic
downturns. For the first time since 1966, the unemployment rate was below the
national average. An improving economy and successful cost containment have
enabled the State to improve its financial position. For 1994, the Budget
Stabilization Fund was $779 million and is projected to reach $1.1 billion for
1995. The Governor has proposed reducing individual and business income taxes.
For 1996, revenues are estimated to grow 4.7% while expenditures will grow by
a similar rate.
In March, 1994, Michigan voters approved a change in the tax system. The
most significant provisions were an increase in the sales tax rate from 4% to
6%, a reduction in the income tax rate from 4.6% to 4.4% and the creation of a
statewide property tax. These changes are expected to provide sufficient
revenues to offset the elimination of property taxes for school district
operating purposes. There can be no assurance that school districts will
receive sufficient revenues to be able to service any limited tax bonds they
may have outstanding and which may be held by the Portfolio.
Under the State Constitution, the Legislature is prohibited from raising
taxes if doing so would cause total State revenues (except Federal aid) to
exceed 10% of State personal income. 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. 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,
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 Consumer Price Index rate instead of at the higher
actual growth rate. Thus, if taxable property values rise faster than consumer
prices, the maximum authorized tax rate would be increased at the Consumer
Price Index rate. Conversely, if taxable property values rise slower than
consumer prices, tax rates may be raised accordingly, but never higher than
the rate authorized on December 23, 1978, without elector approval.
The ability of the State to pay the principal and interest on its general
obligation bonds may be affected by the limitations described above.
Similarly, the ability of local units to levy taxes to pay the principal of
and interest on their general obligations is subject to the constitutional,
statutory and charter limits described below.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $33,198,016. For the
fiscal year ended March 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $163,811 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$40,822. For the period from the start of business, April 16, 1993, to the
fiscal year ended March 31, 1994, absent a fee reduction, BMR would have
earned advisory fees of $80,215 (equivalent to 0.44% (annualized) of the
Portfolio's average daily net assets for such period). To enhance the net
income of the Portfolio, BMR made a reduction of the full amount of its
advisory fee and BMR was allocated expenses related to the operation of the
Portfolio in the amount of $17,786. The Portfolio's Investment Advisory
Agreement with BMR is dated April 9, 1993 and remains in effect until February
28, 1996. The Agreement may be continued as described under "Investment
Adviser and Administrator" in Part I of this Statement of Additional
Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the period
from the start of business, April 16, 1993, to March 31, 1994, $34,349 of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, including the Rule 12b-1
Trustees, as required by Rule 12b-1. The Fund pays the Principal Underwriter
sales commissions equal to 3.5% of the amount received by the Fund for each
Class I share sold (excluding reinvestment of distributions). For the fiscal
year ended March 31, 1995, the Fund made sales commission payments under the
Plan to the Principal Underwriter aggregating $203,664, which amount was used
by the Principal Underwriter to defray sales commissions aggregating $86,028
paid during such period by the Principal Underwriter to Authorized Firms on
sales of Class I shares of the Fund and to reduce Uncovered Distribution
Charges. During such period, contingent deferred sales charges aggregating
approximately $111,776 were imposed on early redeeming shareholders and paid
to the Principal Underwriter, which amount was used by the Principal
Underwriter to reduce Uncovered Distribution Charges. As at March 31, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $734,600 (which amount was
equivalent to 2.8% of the Fund's net assets attributable to Class I shares on
such day). During the fiscal year ended March 31, 1995, the Fund accrued
service fee payments under the Plan aggregating $19,052, of which $11,159 was
paid to the Principal Underwriter. The Principal Underwriter paid the entire
amount as service fees to Authorized Firms.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $357.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $5,323. For
the fiscal year ended March 31, 1995, the Portfolio paid IBT $10,848.
BROKERAGE
For the fiscal year ended March 31, 1995, and for the period from the
start of business, April 16, 1993, to March 31, 1994, the Portfolio paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and of the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the other funds
in the Eaton Vance fund complex<F1> :
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
<S> <C> <C> <C>
Donald R. Dwight ........................................... $34 $336<F2> $135,000<F4>
Samuel L. Hayes, III ....................................... $33 $328<F3> $147,500<F5>
Norton H. Reamer ........................................... 31 315 135,000
John L. Thorndike .......................................... 32 323 140,000
Jack L. Treynor ............................................ 34 345 140,000
------------
<F1>The Eaton Vance fund complex consists of 205 registered investment companies or series thereof.
<F2>Includes $54 of deferred compensation.
<F3>Includes $103 of deferred compensation.
<F4>Includes $17,500 of deferred compensation.
<F4>Includes $33,500 of deferred compensation.
</TABLE>
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
WILLIAM H. AHERN (36), Vice President of the Portfolio
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Portfolio
on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund covering the life of the Fund from April 16, 1993 through March 31,
1995 and for the one year period ended March 31, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN TOTAL RETURN
MENT BEFORE DE- MENT AFTER DE- BEFORE DEDUCTING THE AFTER DEDUCTING THE
DUCTING THE CON- DUCTING THE CON- CONTINGENT DEFERRED CONTINGENT DEFERRED
TINGENT DEFERRED TINGENT DEFERRED SALES CHARGE SALES CHARGE<F3>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F3> ---------------------- ---------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------------- ------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 4/16/93<F1> $1,000 $1,046.16 $1,022.09 4.62% 2.33% 2.21% 1.12%
1 Year
Ended
3/31/95<F2> 3/31/94 $1,000 $1,042.37 $1,012.43 4.24% 4.24% 1.24% 1.24%
PERCENTAGE CHANGES 4/16/93<F1>--3/31/95
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE*** WITH ALL DISTRIBUTIONS REINVESTED
--------------------------------------------------------------------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
------------ ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
3/31/94<F2> -- 0.37% -- -- -2.53% --
3/31/95<F2> 4.24% 4.62% 2.33% 1.24% 2.21% 1.12%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
----------
<FN>
<F1> Investment operations began on April 16, 1993.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
<F3> No contingent deferred sales charge is imposed on shares purchased more
than four years prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value of other
shares in the account, and no such charge is imposed on exchanges of Fund
shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Fund's current prospectus.
----------
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.79%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 3.79% (considering both
State and Federal taxes) would be 5.78%, assuming a combined Federal and State
tax rate of 34.45%. If a portion of the Portfolio's expenses had not been
allocated to the Investment Adviser the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid March 15, 1995) was 3.85%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.92%. If a portion of the Portfolio's expenses had
not been allocated to the Investment Adviser, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 29.8%
Aa or AA 31.2
A 28.8
Baa or BBB 10.2
Ba or BB --
B --
Below B --
Not rated --
----
100.0%
Total
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield
of a certificate of deposit yielding 3.25%. The tax brackets used in the table
are the combined Federal and Michigan income tax brackets applicable for 1995:
22.23% for single filers with taxable income up to $23,350 and joint filers up
to $39,000; 34.12% for single filers with taxable income from $23,351 to
$56,550 and joint filers from $39,001 to $94,250; 36.87% for single filers
with taxable income from $56,551 to $117,950 and joint filers from $94,251 to
$143,600; 41.44% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 44.73% for single and
joint filers with taxable income over $256,500. The applicable Federal tax
rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6%,
over the same ranges of income. The combined tax brackets include a Michigan
state income tax rate of 4.4%, a Michigan city income tax rate of 1% (which
may vary by city), and a Michigan intangibles tax rate of 2.625%. These
brackets do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income, which increase the effective top Federal tax rate for certain
taxpayers. The combined brackets are not simply the sum of each of the taxes,
as they assume that state and city taxes are deducted on the Federal income
tax return reducing the effective combined tax brackets. The combined tax
brackets used in calculating the after-tax yields of the certificate of
deposit differ. Bank deposits are not subject to the Michigan intangibles tax.
The combined tax brackets used in calculating the after-tax yield of the
certificate of deposit are 19.46%, 31.60%, 34.45%, 39.20% and 42.62% over the
same ranges of income. Investors should consult with their tax advisers for
more information.
<TABLE>
<CAPTION>
TAX BRACKET
22.23% 34.12% 36.87% 41.44% 44.73%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............. 5.14 6.07 6.34 6.83 7.24
<CAPTION>
TAX BRACKET<F1>
19.46% 31.60% 34.45% 39.20% 42.62%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit:
Yield ...................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............ 2.62 2.22 2.13 1.97 1.86
<FN>
----------
<F1> CD interest is not subject to intangibles tax. Accordingly, the combined
tax brackets applicable to after-tax yields are 19.46%, 31.60%, 34.45%,
39.20% and 42.62%.
</TABLE>
The following is an illustration of the Tax Free Yield Advantage,
comparing after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.0%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax
free investment yielding 4.0%, and compares the after-tax return of such
investments. The chart is based on 3-month bank CDs (Source: The Wall Street
Journal) and current limited maturity municipal bond yields, compiled by Eaton
Vance Management. CD interest is not subject to Michigan intangibles tax.
Accordingly, the combined tax bracket applicable to the after-tax CD yield is
39.20%. This illustration is not meant to imply or predict any future rate of
return for the Fund. See your financial adviser for the Fund's current yield
and actual CD rates.
The Tax Free Yield Advantage
(41.44% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.97% After-tax yield
4.00% Tax free investment
6.83% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ...
3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,274.00) NONE
After-tax income: $1,976.00 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (41.44% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (41.44% bracket)
1985 7.34 7.86 13.49
1986 5.74 6.23 10.69
1987 7.25 6.43 11.04
1988 8.10 6.61 11.35
1989 7.82 6.73 11.55
1990 7.38 6.69 11.48
1991 5.36 6.00 10.30
1992 3.08 5.38 9.23
1993 2.69 4.65 7.98
1994 3.22 5.40 9.22
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick,
NJ was the record owner of approximately 26.5% of the outstanding shares,
which were 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. In addition, as of such date the following shareholder owned of
record, the percentage of shares indicated: NFSC FEBO #OBV-578177 Peter J.
Edema and Mary Edema, Byron Center, MI (5.0%). To the knowledge of the Trust,
no other person owned of record or beneficially 5% or more of the Fund's
outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax, Michigan State income tax, Michigan State intangibles tax and Michigan
City income tax laws and tax rates applicable for 1995. It gives 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%.
<TABLE>
<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<F1>) TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
------------------------------ -------------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 21.82% 5.12% 5.76% 6.40% 7.04% 7.67% 8.31% 8.95%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 33.78 6.04 6.80 7.55 8.31 9.06 9.82 10.57
$ 56,551-$117,950 $ 94,251-$143,600 36.54 6.30 7.09 7.88 8.67 9.45 10.24 11.03
$117,951-$256,500 $143,601-$256,500 41.14 6.80 7.64 8.49 9.34 10.19 11.04 11.89
Over $256,500 Over $256,500 44.45 7.20 8.10 9.00 9.90 10.80 11.70 12.60
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<F1>Net amount subject to Federal and Michigan personal income tax after
deductions and exemptions.
<F2>The combined tax brackets include a Michigan State income tax rate of 4.4%,
Michigan City income tax rate of 1% (which may vary by city), and a Michigan
intangibles tax rate of 2.625%, and assume that Michigan 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.
</TABLE>
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Michigan State Income Taxes)
for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint
filers with Adjusted Gross Income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Of course, no assurance can be given that EV Marathon Michigan Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the
interest from which is exempt from the regular Federal income tax and Michigan
personal income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. The table does not take into account state or local
taxes, if any, payable on Fund distributions except for Michigan personal
income taxes. It should also be noted that 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 or increase the recipient's liability for the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits
that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NEW JERSEY LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1)
a high level of current income exempt from regular Federal income tax and New
Jersey State personal income taxes and (2) limited principal fluctuation. The
Fund currently seeks to achieve its investment objective by investing its
assets in the New Jersey Limited Maturity Tax Free Portfolio (the
"Portfolio"). The Fund changed its name from Eaton Vance New Jersey Limited
Maturity Tax Free Fund to EV Marathon New Jersey Limited Maturity Tax Free
Fund on January 11, 1994.
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
lnvestment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest
or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor
the Portfolio may (a) 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 its net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund and the Portfolio will make such sales
only for the purpose of deferring realization of gain or loss for Federal
income tax purposes); (b) purchase or retain in its portfolio securities
issued by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Trust or of the Portfolio, or is a
member, officer, director or trustee of any investment adviser of the Fund or
of the Portfolio, if after the purchase of the securities of such issuer by
the Fund or the Portfolio one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value); (c) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio, or its
delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the
Fund or the Portfolio in units or attached to securities may be deemed to be
without value. The Fund and the Portfolio may purchase put options on
municipal obligations only if, after such purchase, not more than 5% of its
net assets, as measured by the aggregate of the premiums paid for such options
held by it, would be so invested. Neither the Fund nor the Portfolio intends
to invest in reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain New Jersey considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in New Jersey issuers. Such information 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 New Jersey issuers. Neither the Trust nor
the Portfolio has independently verified this information.
New Jersey has a well diversified economy and high wealth levels. Per
capita income ranks as one of the highest in the nation. The State's economy
benefits from its proximity to New York and other major eastern seaboard
cities. New Jersey's economy, like most states, suffered during the recent
recession with unemployment increasing and surpassing the national average.
New Jersey's adjusted unemployment rate for May 1995 was 6.5% compared to 5.7%
nationally.
As of the date of this Statement of Additional Information, New Jersey's
general obligation debt was rated Aa1, AA+ and AA+, by Moody's, S&P and Fitch,
respectively. As a result of New Jersey's fiscal weakness, evidenced by
declining fund balances, S&P placed the State's general obligation debt and
related agency and lease obligations on CreditWatch with negative implications
in June 1991. In July, 1991 S&P downgraded the State's general obligation debt
from AAA to AA+. As part of this action, numerous agency and lease obligation
debts were also downgraded accordingly. These downgrades did not affect state
university and college ratings. In August 1992, Moody's downgraded New Jersey
to Aa1 from Aaa due to the use of one-time revenue items, revenue shortfalls
and ongoing operating deficits. S&P affirmed their AA+ rating for the State,
but retained the negative outlook. On December 16, 1992, Fitch lowered their
rating on the State to AA+ from AAA. The rating action was due to the State's
decision, with the most recent bond issuance, to defer debt service in the
immediate future in order to provide for unmet capital needs, while increasing
debt service requirements in future years wnen additional resources may or may
not be available.
As part of the 1992-1993 budget, the Legislature cut approximately $1
billion in spending from the Governor's budget, including cutbacks in both the
State's homestead rebate and general assistance programs. To cover the
shortfall resulting from the cutbacks, the State employee pension fund was
revalued, allowing the State to reduce its contribution, and a surplus in the
school aid funds was applied to the General Fund. The State ended fiscal 1993
with an $855 million surplus, approximately half of which was used in the 1994
budget. 1994 had an appropriation for all funds of $15.7 billion, up 4.8% from
fiscal 1993 revised appropriations of $14.7 billion. Both years benefited from
$412 million in nonrecurring revenues from retroactive Federal Medicaid
payments. After the Legislature reduced the Governor's fiscal 1994 requests by
$182 million, about half the $855 million fiscal 1993 total surplus was used
for fiscal 1994, with a June 30, 1994 forecast of $416 million -- $110 million
allocated to the General Fund and over $305 million to rainy day and taxpayer
relief funds.
In 1994, New Jersey adopted a 5% personal income tax cut retroactive to
January 1, 1994. In 1995, New Jersey adopted a 10% personal income tax cut
retroactive to January 1, 1995. On June 26, 1995, the New Jersey State
Legislature passed an additional 15% reduction to take effect January 1, 1996.
State officials estimate the revenue loss resulting from these tax cuts at
over $1 billion for fiscal 1996. To accommodate the tax cut, the fiscal 1996
budget would rely on non-recurring revenues and the use of prior years'
surplus. Furthermore, a major focus of the spending reductions has been
employer contributions to retiree health care and pension systems which were
cut by over $863 million in fiscal 1995. There can be no assurance that the
tax cuts will not have an adverse impact on the State's finances and the
demand for municipal bonds in the State.
General obligation bonds of New Jersey are the primary method for New
Jersey financing of capital projects. These bonds are backed by the full faith
and credit of New Jersey. New Jersey tax revenues and certain other fees are
pledged to meet the principal and interest payments required to fully pay the
debt. No general obligation debt can be issued by New Jersey without prior
voter approval, except that, pursuant to a constitutional amendment, no voter
approval is required for any law authorizing the creation of a debt for the
purpose of refinancing all or a portion of the outstanding debt of New Jersey,
so long as such law requires that the refinancing provided debt service
savings. The New Jersey Constitution also provides that no voter approval is
required for debt issued for purposes of war, to repel invasion, to suppress
insurrection or to meet an emergency caused by disaster or act of God. Capital
construction can also be funded by appropriation of current revenues on a pay-
as-you-go basis. All appropriations for capital projects and all proposals for
State bond authorizations are subject to the review and recommendation of the
New Jersey Commission on Capital Budgeting and Planning.
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. The rental for such buildings is equal to the debt
service relating thereto plus payments in lieu of real estate taxes.
Legislation provides for future appropriations for State aid to local school
districts equal to debt service on a maximum principal amount of $280,000,000
of bonds issued by such local school districts for construction and renovation
of school facilities and for State aid to counties equal to debt service on up
to $80,000,000 of bonds issued by counties for construction of county college
facilities.
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 insufficient to cover all property tax requirements. These are
numerous other State-created entities with outstanding debt. This debt is
supported by revenues derived from or assets of the various projects financed
by such entities.
The Local Budget Law imposes specific budgetary procedures upon counties
and municipalities, subject to review by the Director of the Division of Local
Government Services. State law also regulates the issuance of debt by counties
and municipalities by limiting the amount of tax anticipation notes that may
be issued and requiring their repayment within three months of the end of the
fiscal year in which they are issued. The Local Bond Law governs the issuance
of bonds and notes and bars the issuance of bonds for the payment of current
expenses or to pay outstanding obligations, except where permitted by the
Local Finance Board. State law also authorizes State officials to supervise
fiscal administration in any municipality facing financial difficulties.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $97,279,675. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$468,562 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, May 3,
1993, to March 31, 1994, the Portfolio paid BMR advisory fees of $353,231
(equivalent to 0.45% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
Prior to May 3, 1993 (when the Fund transferred substantially all of its
assets to the Portfolio in exchange for an interest in the Portfolio), the
Fund retained Eaton Vance as its investment adviser. For the period from April
1, 1993 to May 3, 1993, the Fund paid Eaton Vance advisory fees of $24,088
(equivalent to 0.48% (annualized) of the Fund's average daily net assets for
such period). For the period from the Fund's start of business, June 1, 1992,
to March 31, 1993, Eaton Vance would have earned, absent a fee reduction,
advisory fees of $107,299 (equivalent to 0.45% (annualized) of the Fund's
average daily net assets for such period). To enhance the net income of the
Fund, Eaton Vance made a reduction of its advisory fee in the amount of
$72,668.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, including the Rule 12b-1 Trustees, as required by Rule
12b-1. The Fund pays the Principal Underwriter sales commissions equal to 3%
of the amount received by the Fund for each Class I share sold (excluding
reinvestment of distributions). During the fiscal year ended March 31, 1995,
the Fund made sales commission payments under the Plan to the Principal
Underwriter aggregating $736,863, which amount was used by the Principal
Underwriter to defray sales commissions aggregating $218,989 paid during such
period by the Principal Underwriter to Authorized Firms on sales of Class I
shares of the Fund and to reduce Uncovered Distribution Charges. During such
period, contingent deferred sales charges aggregating approximately $363,579
were imposed on early redeeming shareholders and paid to the Principal
Underwriter, which amount was used by the Principal Underwriter to reduce
Uncovered Distribution Charges. As at March 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under
the Plan amounted to approximately $1,749,374 (which amount was equivalent to
1.87% of the Fund's net assets attributable to Class I shares on such day).
During the fiscal year ended March 31, 1995, the Fund accrued service fee
payments under the Plan aggregating $79,288, of which $68,941 was paid to the
Principal Underwriter. The Principal Underwriter paid $68,590 as service fees
to Authorized Firms and the balance was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $1,470.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $10,895. For
the fiscal year ended March 31, 1995, the Portfolio paid IBT $26,901.
BROKERAGE
For the fiscal year ended, March 31, 1995, and for the period from the
start of business, May 3, 1993, to March 31, 1994, the Portfolio paid no
brokerage commissions on portfolio transactions. For the period from the start
of business, June 1, 1992, to March 31, 1993, and for the period from April 1,
1993 to May 3, 1993 (when the Fund transferred substantially all of its assets
to the Portfolio in exchange for an interest in the Portfolio), the Fund paid
no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Trust
or the Portfolio.) During the fiscal year ended March 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the other funds in the Eaton Vance fund
complex:(1)
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
----- ------------ -------------- ------------------
Donald R. Dwight .......... $501 $1,478(2) $135,000(4)
Samuel L. Hayes, III ...... 488 1,509(3) 147,500(5)
Norton H. Reamer .......... 471 1,543 135,000
John L. Thorndike ......... 482 1,615 140,000
Jack L. Treynor ........... 517 1,553 140,000
----------
(1)The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2)Includes $231 of deferred compensation.
(3)Includes $424 of deferred compensation.
(4)Includes $17,500 of deferred compensation.
(5)Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
WILLIAM H. AHERN (36), Vice President of the Portfolio
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Portfolio
on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund covering the life of the Fund from June 1, 1992 through March 31,
1995 and the one-year period ended March 31, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF INVEST- VALUE OF INVEST- TOTAL RETURN TOTAL RETURN
MENT BEFORE DE- MENT AFTER DE- BEFORE DEDUCTING AFTER DEDUCTING
DUCTING THE DUCTING THE THE CONTINGENT THE CONTINGENT
CONTINGENT CONTINGENT DEFERRED DEFERRED
DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F3>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F3> --------------------------- ---------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ------------ ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 6/1/92<F1> $1,000 $1,142.13 $1,122.13 14.21% 4.81% 12.21% 4.16%
1 Year
Ended
3/31/95 3/31/94 $1,000 $1,045.30 $1,015.33 4.53% 4.53% 1.53% 1.53%
PERCENTAGE CHANGES 6/1/92<F1>--3/31/95
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE<F3> WITH ALL DISTRIBUTIONS REINVESTED
--------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
3/31/93<F2> -- 7.71% -- -- 4.71% --
3/31/94 1.44% 9.26% 4.96% -1.47% 6.76% 3.64%
3/31/95 4.53% 14.21% 4.81% 1.53% 12.21% 4.16%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
----------
<F1>Investment operations began on June 1, 1992.
<F2>If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
<F3>No contingent deferred sales charge is imposed on shares purchased more
than four years prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value of other
shares in the account, and no such charge is imposed on exchanges of Fund
shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.73%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 3.73% would be 5.79%,
assuming a combined Federal and State tax rate of 35.54%.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid March 15, 1995) was 3.84%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.91%.
The Portfolio's diversification by quality ratings as of June 30, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 40.9%
Aa or AA 32.4
A 25.7
Baa or BBB 0.4
Ba or BB --
B --
Below B --
Not rated 0.6
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield
of a certificate of deposit yielding 3.25%. The tax brackets used in the table
are the combined Federal and New Jersey State income tax brackets applicable
for 1995: 16.81% for single filers with taxable income up to $23,350 and joint
filers up to $39,000; 32.33% for single filers with taxable income from
$23,351 to $56,550 and joint filers from $39,001 to $94,250; 35.54% for single
filers with taxable income from $56,551 to $117,950 and joint filers from
$94,251 to $143,600; 40.21% for single filers with taxable income from
$117,951 to $256,500 and joint filers from $143,601 to $256,500; and 43.57%
for single and joint filers with taxable income over $256,500. The applicable
Federal tax rates within each of these combined brackets are 15%, 28%, 31%,
36% and 39.6%, over the same ranges of income. These brackets are calculated
using the highest New Jersey State rate applicable at the upper portion of the
brackets and assume that New Jersey taxes are deducted on the Federal income
tax return. These brackets do not take into account the phaseout of personal
exemptions and limitation on deductibility of itemized deductions over certain
ranges of income. Investors who are subject to such phaseout or limitation may
be subject to higher combined tax rates than indicated above. Investors should
consult with their tax advisers for more information.
<TABLE>
<CAPTION>
TAX BRACKET
16.81% 32.33% 35.54% 40.21% 43.57%
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ...................... 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent .................. 4.81 5.91 6.21 6.69 7.09
Certificates of deposit:
Yield ........................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ................. 2.70 2.20 2.09 1.94 1.83
</TABLE>
The following is an illustration of the Tax Free Yield Advantage,
comparing after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.0%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax
free investment yielding 4.0%, and compares the after-tax return of such
investments. The chart is based on 3-month bank CDs (Source: The Wall Street
Journal) and current limited maturity municipal bond yields, compiled by Eaton
Vance Management. This illustration is not meant to imply or predict any
future rate of return for the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
The Tax Free Yield Advantage
(40.21% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.94% After-tax yield
4.00% Tax free investment
6.69% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4.000.00
Tax: (1,306.83) NONE
After-tax income: $1,943.17 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (40.21% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (40.21% bracket)
1985 7.34 7.86 13.21
1986 5.74 6.23 10.47
1987 7.25 6.43 10.80
1988 8.10 6.61 11.11
1989 7.82 6.73 11.31
1990 7.38 6.69 11.24
1991 5.36 6.00 10.08
1992 3.08 5.38 9.04
1993 2.69 4.65 7.81
1994 3.22 5.40 9.03
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
ADDITIONAL TAX MATTERS
STATE AND LOCAL TAXES
If, in any year in which the Fund is subject to New Jersey taxation, it is
treated as a qualified investment fund under New Jersey law, as defined below,
the Fund will not be required to pay any New Jersey state tax, except for a
$250 New Jersey Corporation business (franchise) tax.
A "qualified investment fund" is any investment company or trust
registered with the Securities and Exchange Commission, or any series of such
investment company or trust, which, for the calendar year in which the
distribution is paid, (a) has no investments other than interest-bearing
obligations, obligations issued at a discount, and cash and cash items,
including receivables, and (b) has not less than 80% (determined at the end of
each fiscal quarter) of the aggregate principal amount of all of its
investments, excluding cash and cash items (including receivables), in
obligations (1) issued by or on behalf of New Jersey or any county,
municipality, school or other district, agency, authority, commission,
instrumentality, public corporation, body corporate and politic or political
subdivision of New Jersey, or (2) statutorily free from New Jersey or local
taxation under other acts of New Jersey or under the laws of the United
States, including, but not limited to, obligations of Puerto Rico, the Virgin
Islands and Guam (collectively, "Qualifying Investments").
In the opinion of Wilentz, Goldman, & Spitzer, P.A., special counsel to
the Fund, under existing New Jersey law:
(i) provided the Fund qualifies, and continues to qualify, as a
qualified investment fund, shareholders will not be required to include in
their New Jersey gross income distributions from the Fund to the extent
that such distributions are attributable to interest or gains from
Qualifying Investments. The foregoing exclusion applies only to
shareholders who are individuals, estates or trusts subject to the New
Jersey gross income tax. Distributions from the Fund will not be excluded
from net income and shares of the Fund will not be excluded from
investment capital in determining New Jersey corporation business
(franchise) and corporation income taxes for corporate Shareholders; and
(ii) provided the Fund qualifies, and continues to qualify, as a
regulated investment company pursuant to Chapter 1, subchapter M, part I,
Section 852(a), of the Code, the Fund will be subject only to a $250.00
New Jersey corporation business (franchise) tax and will be exempt from
all other New Jersey corporation business (franchise) and corporation
income taxes.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick,
NJ, was the record owner of approximately 16.4% of the outstanding shares,
which it 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. To the Trust's knowledge no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and New Jersey State income tax laws and tax rates applicable for 1995. It
gives 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%.
<TABLE>
<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)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 16.81% 4.81% 5.41% 6.01% 6.61% 7.21% 7.81% 8.41%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 32.33% 5.91 6.65 7.39 8.13 8.87 9.61 10.34
$ 56,551-$117,950 $ 94,251-$143,600 35.54% 6.21 6.98 7.76 8.53 9.31 10.08 10.86
$117,951-$256,500 $143,601-$256,500 40.21% 6.69 7.53 8.36 9.20 10.04 10.87 11.71
Over $256,500 Over $256,500 43.57% 7.09 7.98 8.86 9.75 10.63 11.52 12.41
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<F1>Net amount subject to Federal and New Jersey personal income tax after
deductions and exemptions.
<F2>The combined Federal and New Jersey tax brackets are calculated using the
highest New Jersey State rate applicable at the upper portion of these
brackets and assume the taxpayers deduct New Jersey State Income Taxes paid
on their Federal Income Tax Returns. An investor with taxable income below
the highest dollar amount in such tax brackets may have a lower combined tax
rate than the combined rates shown. The taxable equivalent yields for such
an investor may be lower than indicated above. 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.
</TABLE>
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including New Jersey State Income Taxes)
for taxpayers with Adjusted Gross Income in excess of $114,700. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with Adjusted Gross Income in excess of $114,700 and joint
filers with Adjusted Gross Income in excess of $172,050. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Of course, no assurance can be given that EV Marathon New Jersey Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the
interest from which is exempt from the regular Federal income tax and New
Jersey personal income taxes, other income received by the Portfolio and
allocated to the Fund may be taxable. The table does not take into account
state or local taxes, if any, payable on Fund distributions except for New
Jersey personal income taxes. It should also be noted that 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 or increase the recipient's liability for the
Federal alternative minimum tax. The illustrations assume that the Federal
alternative minimum tax is not applicable and do not take into account any tax
credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NEW YORK LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1)
a high level of current income exempt from regular Federal income tax and New
York State and New York City personal income taxes and (2) limited principal
fluctuation. The Fund currently seeks to achieve its investment objective by
investing its assets in the New York Limited Maturity Tax Free Portfolio (the
"Portfolio"). The Fund changed its name from Eaton Vance New York Limited
Maturity Tax Free Fund to EV Marathon New York Limited Maturity Tax Free Fund
on January 1, 1994.
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest
or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor
the Portfolio may (a) 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 its net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund and the Portfolio will make such sales
only for the purpose of deferring realization of gain or loss for Federal
income tax purposes); (b) purchase or retain in its portfolio securities
issued by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Trust or of the Portfolio, or is a
member, officer, director or trustee of any investment adviser of the Fund or
of the Portfolio, if after the purchase of the securities of such issuer by
the Fund or the Portfolio one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value); (c) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio, or its
delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the
Fund or the Portfolio in units or attached to securities may be deemed to be
without value. The Fund and the Portfolio may purchase put options on
municipal obligations only if, after such purchase, not more than 5% of its
net assets, as measured by the aggregate of the premiums paid for such options
held by it, would be so invested. The Portfolio may limit its securities
lending activities in order to avoid adverse New York State and New York City
tax consequences. Neither the Fund nor the Portfolio intends to invest in
reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in New York issuers. Such information 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 New York issuers. Neither the Trust nor
the Portfolio has independently verified this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been
below the national average primarily due to significant cutbacks in the
computer, manufacturing, defense and banking industries. New York's economy is
expected to continue to expand modestly during 1995 with a pronounced slow-
down during the course of the year. The unemployment rate for the State for
1995 is projected to be 6.4%, compared to the national rate of 5.6%. New York
City's unemployment rate was 8.1% in June 1995, down from 8.5% a year earlier.
For the fiscal year 1991-92, the State incurred an operating deficit in
the General Fund of $575 million, which, after a $44 million withdrawal from
the Tax Stabilization Reserve Fund, was financed through the public issuance
of $531 million of 1992 Deficit Notes on March 30, 1992.
In the 1992-1993 fiscal year, the State began the process of financial
reform closing the fiscal year with fund surpluses totalling $738 million. The
1992-1993 fiscal year marked the first time in four years that the State did
not have to issue deficit notes to close a budget gap.
The 1993-1994 fiscal year ended with combined fund balances of $1.539
billion due to an improving national economy, State employment growth, better
than projected tax collections and disbursements that were below projections.
The 1994-1995 fiscal year, which included tax reductions of $476 million,
closed with the General Fund in balance and positive fund balances of $157
million and $1 million in the Tax Stabilization Reserve Fund and the
Contingency Reserve Fund, respectively. Tax revenues for the fiscal year fell
short of original projections by $1.16 billion, the shortfall being offset by
disbursements which were lower than projected and planned spending reductions.
The 1995-1996 fiscal year budget, adopted in June 1995, includes a planned
three-year 20% reduction in the State's personal income tax and is the first
budget in over 50 years which projects a decline in General Fund disbursements
and spending on State operations. The 1995-1996 State Financial Plan, based on
the enacted budget, includes gap-closing actions to offset a previously
projected budget gap of $5 billion, the largest in the State's history. Such
gap-closing actions include, among others, substantial reductions in social
and medical entitlement programs, reductions in State services and capital
programs and increased lottery revenues. There can be no assurance that
additional gap-closing measures will not be required and there is no assurance
that any such measures will enable the State to achieve a balanced budget for
its 1995-1996 fiscal year.
In 1994 and 1995, the State legislature passed a proposed constitutional
amendment on debt reform. The proposed amendment would permit the State to
issue non-voter approved revenue bonds secured by a pledge of certain tax
receipts, up to a cap equal to 5% of State personal income. If approved by the
voters in November 1995, such amendment would become effective January 1,
1996.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7
billion dollar cap, net of LGAC proceeds, on the seasonal borrowing program.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion completing the program. This cap may be exceeded in cases where
the Governor and the legislature have certified the need for additional
borrowing and have devised a method for reducing it back to the cap no later
than the fourth fiscal year after the limit is exceeded. If this cap were to
be exceeded, it could result in action by the rating agencies which could
adversely affect prices of bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each
of the 1981 through 1994 fiscal years, the City achieved balanced operating
results as reported in accordance with generally accepted accounting
principles. Pursuant to the laws of the State, the City prepares a four-year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City implemented various actions to close budget gaps of $3.3 billion,
$2.1 billion and $3.5 billion for the 1992, 1994 and 1995 fiscal years,
respectively. Such actions included, among others, tax increases, service and
personnel reductions, productivity savings, debt refinancings, asset sales and
cost savings related to employee benefits. For the 1996 fiscal year, the City
has projected a budget gap of $3.1 billion and has proposed to implement
various gap-closing actions to balance the 1996 fiscal year budget including,
among others, substantial reductions in entitlement programs, service and
personnel reductions, cost saving initiatives related to labor and pension
costs and increases in certain lease and fee payments due the City. The City
currently projects budget gaps of $888 million, $1.459 billion and $1.484
billion for its 1997, 1998 and 1999 fiscal years, respectively. The City's
gap-closing plans for the 1997 through 1999 fiscal years include reductions in
City agency expenditures and cost saving actions related to entitlement
programs and procurement. There can be no assurance that additional gap-
closing measures will not be required, the implementation of which could
adversely affect the City's economic base, and there is no assurance that such
measures will enable the City to achieve a balanced budget, as required by
State law, for any of the 1996 through 1999 fiscal years. The fiscal health of
New York City, which is the largest issuer of municipal bonds in the country
and a leading international commercial center, exerts a significant influence
upon the fiscal health and bond values of issues throughout the State. Bond
values of the Municipal Assistance Corporation, the State of New York, the New
York Local Government Assistance Corporation, the New York State Dormitory
Authority, the New York City Municipal Water Finance Authority and The
Metropolitan Transportation Authority would be particularly affected by
serious financial difficulties encountered by New York City. The Portfolio
could be expected to hold bonds issued by many, if not all of these issuers,
at any given time.
Moody's rates the City's general obligation bonds "Baa1" and Fitch rates
such bonds "A-". On July 10, 1995, S&P revised downward its rating on City
general obligation bonds from A- to BBB+. S&P stated that the downgrade was a
reflection of the City's inability to eliminate a structural budget imbalance
due to persistent softness in the City's economy, weak job growth, a trend of
using nonrecurring budget devices, optimistic projections of State and federal
aid and high levels of debt service. There is no assurance that such ratings
will continue for any given period of time or that they will not be revised
downward or withdrawn entirely. Any such downward revision or withdrawal could
have an adverse effect on obligations held by the Portfolio.
The State's economic and fiscal viability are mutually and intricately
tied to those of its authorities and localities, which make up the major
portion of State bond issuance. Any serious financial difficulties encountered
by these entities, including their inability to access capital markets, would
have a significant, adverse effect upon the value of bonds issued elsewhere
within the State and thus upon the value of the interests in the Portfolio.
State plans to reduce aid to local cities and towns may have a negative impact
on municipal finances and ratings throughout the State. Such ratings changes
could erode the value of their bonds and/or lead to defaults.
The State either guarantees or supports lease-purchase agreements or
contractual obligations, financing arrangements or through moral obligation
provisions, a large amount of Authority indebtedness. While debt service is
normally paid out of revenues generated by the projects of the Authorities,
the State has, from time to time, had to appropriate amounts to enable the
Authorities to meet their financial obligations and, in some cases, to prevent
default. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISORY
As of March 31, 1995, the Portfolio had net assets of $173,632,424. For
the fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$845,836 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year. For the period from the start of business, May 3, 1993, to March
31, 1994, the Portfolio paid BMR advisory fees of $615,822 (equivalent to
0.45% (annualized) of the Portfolio's average daily net assets for such
period). The Portfolio's Investment Advisory Agreement with BMR is dated
October 13, 1992 and remains in effect until February 28, 1996. The Agreement
may be continued as described under "Investment Adviser and Administrator" in
Part I of this Statement of Additional Information.
Prior to May 3, 1993 (when the Fund transferred substantially all of its
assets to the Portfolio in exchange for an interest in the Portfolio), the
Fund retained Eaton Vance as its investment adviser. For the period from April
1, 1993 to May 3, 1993, the Fund paid Eaton Vance advisory fees of $39,113
(equivalent to 0.48% (annualized) of the Fund's average daily net assets for
such period). For the period from the Fund's start of business, May 29, 1992,
to March 31, 1993, Eaton Vance would have earned, absent a fee reduction,
advisory fees of $161,993 (equivalent to 0.45% (annualized) of the Fund's
average daily net assets for such period). To enhance the net income of the
Fund, Eaton Vance made a reduction of its advisory fee in the amount of
$93,338.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's shareholders and by the Board of
Trustees of the Trust, including the Rule 12b-1 Trustees, as required by Rule
12b-1. The Fund pays the Principal Underwriter sales commissions equal to 3%
of the amount received by the Fund for each Class I share sold (excluding
reinvestment of dividends and distributions). During the fiscal year ended
March 31, 1995, the Fund made sales commission payments under the Plan to the
Principal Underwriter aggregating $1,316,016, which amount was used by the
Principal Underwriter to defray sales commissions aggregating $334,465 paid
during such period by the Principal Underwriter to Authorized Firms on sales
of Class I shares of the Fund and to reduce Uncovered Distribution Charges.
During such period, contingent deferred sales charges aggregating
approximately $590,906 were imposed on early redeeming shareholders and paid
to the Principal Underwriter, which amount was used by the Principal
Underwriter to reduce Uncovered Distribution Charges. As at March 31, 1995,
the outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $3,137,537 (which amount
was equivalent to 1.9% of the Fund's net assets attributable to Class I shares
on such day). During the fiscal year ended March 31, 1995, the Fund accrued
service fee payments under the Plan aggregating $149,368, of which $116,822
was paid to the Principal Underwriter. The Principal Underwriter paid $116,540
as service fees to Authorized Firms and the balance was retained by the
Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $1,935.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Portfolio paid IBT $36,810.
For the fiscal year ended March 31, 1995, the Fund paid IBT $12,296.
BROKERAGE
For the fiscal year ended March 31, 1995, and for the period from the
start of business, May 3, 1993 to March 31, 1994, the Portfolio paid no
brokerage commissions on portfolio transactions. For the period from the start
of business, May 29, 1992, to March 31, 1993, and for the period from April 1,
1993 to May 3, 1993 (when the Fund transferred substantially all of its assets
to the Portfolio in exchange for an interest in the Portfolio), the Fund paid
no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization receive no compensation from the Trust
or the Portfolio.) During the fiscal year ended March 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
the other funds in the Eaton Vance fund
complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight ........ $672 $2,114(2) $135,000(4)
Samuel L. Hayes, III .... 657 2,133(3) 147,500(5)
Norton H. Reamer ........ 630 2,140 135,000
John L. Thorndike ....... 647 2,228 140,000
Jack L. Treynor ......... 689 2,205 140,000
----------
(1)The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2)Includes $350 of deferred compensation.
(3)Includes $682 of deferred compensation.
(4)Includes $17,500 of deferred compensation.
(5)Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund covering the life of the Fund from May 29, 1992 through March 31,
1995 and for the one-year period ended March 31, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
VALUE OF
INVESTMENT VALUE OF
BEFORE INVESTMENT
DEDUCTING AFTER DEDUCTING TOTAL RETURN BEFORE DE- TOTAL RETURN AFTER DE-
THE CONTINGENT THE CONTINGENT DUCTING THE CONTINGENT DUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE<F3>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F3> ------------------------ ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Life of
the Fund<F2> 5/29/92<F1> $1,000 $1,143.45 $1,123.45 14.35% 4.84% 12.35% 4.19%
1 Year
Ended
3/31/95<F2> 3/31/94 $1,000 $1,044.11 $1,014.14 4.41% 4.41% 1.41% 1.41%
PERCENTAGE CHANGES 5/29/92<F1> -- 3/31/95
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED<F3>
---------------------------------------------- -------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
3/31/93<F2> -- 7.95% -- -- 4.95% --
3/31/94 1.46% 9.52% 5.07% -1.45% 7.02% 3.76%
3/31/95 4.41% 14.35% 4.84% 1.41% 12.35% 4.19%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
----------
<F1>Investment operations began on May 29, 1992.
<F2>If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
<F3>No contingent deferred sales charge is imposed on shares purchased more
than four years prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value of other
shares in the account, and no such charge is imposed on exchanges of Fund
shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.81%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 3.81% (considering both
State and Federal taxes) would be 6.03%, assuming a combined Federal and State
tax rate of 36.84%.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid March 15, 1995) was 3.87%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.94%.
The Portfolio's diversification by quality ratings as of June 30, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 50.2%
Aa or AA 22.0
A 20.3
Baa or BBB 7.5
Ba or BB --
B --
Below B --
Not rated --
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield
of a certificate of deposit yielding 3.25%. The tax brackets used in the table
are the Federal and New York income tax brackets applicable for 1995: (1) for
taxpayers subject to New York City income tax -- 25.19% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 36.64% for single
filers with taxable income from $23,351 to $56,550 and joint filers from
$39,001 to $94,250; 39.32% for single filers with taxable income from $56,551
to $117,950 and joint filers from $94,251 to $143,600; 43.71% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 46.88% for single and joint filers with taxable
income over $256,500; and (2) for taxpayers not subject to New York City
income tax -- 21.45% for single filers with taxable income up to $23,350 and
joint filers up to $39,000; 33.47% for single filers with taxable income from
$23,351 to $56,550 and joint filers from $39,001 to $94,250; 36.24% for single
filers with taxable income from $56,551 to $117,950 and joint filers from
$94,251 to $143,600; 40.86% for single filers with taxable income from
$117,951 to $256,500 and joint filers from $143,601 to $256,500; and 44.19%
for single and joint filers with taxable income over $256,500. The applicable
Federal tax rates within each of these combined tax brackets are 15%, 28%,
31%, 36% and 39.6% over the same ranges of income. The combined tax brackets
are based on the highest New York State and/or New York City income tax rate
within each bracket, and are not simply the sum of each of the taxes, as they
assume that State and City taxes are deducted on the Federal income tax
return, thereby reducing the effective combined tax rates. These brackets do
not take into account the phaseout of personal exemptions and limitation on
deductibility of itemized deductions over certain ranges of income, which
increase the effective top Federal tax rate for certain taxpayers. Investors
should consult with their tax advisers for more information.
<TABLE>
FOR TAXPAYERS SUBJECT TO NEW YORK CITY INCOME TAX:
<CAPTION>
TAX BRACKET
25.19% 36.64% 39.32% 43.71% 46.88%
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................................ 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............................ 5.35 6.31 6.59 7.11 7.53
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.43 2.05 1.97 1.83 1.73
FOR TAXPAYERS NOT SUBJECT TO NEW YORK CITY INCOME TAX:
<CAPTION>
TAX BRACKET
21.45% 33.47% 36.24% 40.86% 44.19%
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................................ 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............................ 5.09 6.01 6.27 6.76 7.17
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.55 2.16 2.07 1.92 1.81
</TABLE>
The following are illustrations of the Tax Free Yield Advantage, comparing
the after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.0%. The 1995 combined tax bracket
takes into account Federal, New York State and/or New York City income taxes.
These illustrations also quantify the Federal income tax payable on
hypothetical investments of $100,000 in a certificate of deposit yielding
3.25% and a hypothetical tax free investment yielding 4.0%, and compares the
after-tax return of such investments. The charts are based on 3-month bank
CDs (Source: The Wall Street Journal) and current limited maturity municipal
bond yields, compiled by Eaton Vance Management. These illustrations are not
meant to imply or predict any future rate of return for the Fund. See your
financial adviser for the Fund's current yield and actual CD rates.
SUBJECT TO NEW YORK CITY INCOME TAX
Marathon New York (NYC included)
The Tax Free Yield Advantage
(43.71% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.83% After-tax yield
4.00% Tax free investment
7.11% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,420.58) NONE
After-tax income: $1,829.42 $4,000.00
NOT SUBJECT TO NEW YORK CITY INCOME TAX
Marathon New York
The Tax Free Yield Advantage
(40.86% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.92% After-tax yield
4.00% Tax free investment
6.76% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,327.95) NONE
After-tax income: $1,922.05 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (43.71% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (43.71% bracket) (inc NYC)
1985 7.34 7.86 14.01
1986 5.74 6.23 11.10
1987 7.25 6.43 11.46
1988 8.10 6.61 11.78
1989 7.82 6.73 11.99
1990 7.38 6.69 11.92
1991 5.36 6.00 10.69
1992 3.08 5.38 9.59
1993 2.69 4.65 8.29
1994 3.22 5.40 9.59
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
ADDITIONAL TAX MATTERS
In any year in which the Fund is subject to New York taxation, qualifies
as a regulated investment company under Subchapter M of the Code and incurs no
Federal income tax, the Fund will not be required to pay any New York State
franchise tax or New York City general corporation tax, with the possible
exception of certain nominal minimum taxes.
Distributions from the Fund will not be excluded from net income and
shares of the Fund will not be excluded from investment capital in determining
New York State or City franchise and corporation taxes for corporate
shareholders.
Shares of the Fund will not be subject to the New York State or City
property tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick,
NJ, was the record owner of approximately 22% of the outstanding shares, which
were 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. To the knowledge of the Trust, no other person owned of record
or beneficially 5% or more of the Fund's outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and New York State and New York City income tax laws in effect for 1995.
It gives 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%.
<TABLE>
<CAPTION>
COMBINED
FEDERAL,
SINGLE RETURN JOINT RETURN NY STATE A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
------------- ------------ AND NY CITY ----------------------------------------------------------------------
(TAXABLE INCOME<F1>) TAX BRACKET<F2> 4% 4.5% 5% 5.5% 6% 6.5% 7%
-----------------------------------------------------------------------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 25.19% 5.35% 6.01% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351-$ 56,500 $ 39,001-$ 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551-$117,950 $ 94,251-$143,600 39.32 6.59 7.42 8.24 9.06 9.89 10.71 11.54
$117,951-$256,500 $143,601-$256,500 43.71 7.11 7.99 8.88 9.77 10.66 11.55 12.44
Over $256,500 Over $256,500 46.88 7.53 8.47 9.41 10.35 11.29 12.24 13.18
Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield.
<F1>Net amount subject to Federal, New York State and New York City personal
income tax (including New York City personal income tax surcharges) after
deductions and exemptions.
<F2>The combined tax rate for the two lowest income tax brackets are calculated
using the highest State rate (7.59375% effective annualized State tax rate
based on a rate of 7.875% for the first 3 months of the 1995 tax year and
7.5% for the remaining 9 months) and the highest City rate applicable at the
upper portion of that bracket. Therefore, an investor with taxable income
below the highest dollar amount in the two lowest brackets may have a lower
combined tax rate than the combined rate shown for that bracket. The
applicable State and City rates are at their maximum (7.59375% and 4.457%,
respectively) throughout all other brackets.
</TABLE>
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and New York State income tax laws in effect for 1995. It gives 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%.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD OF:
------------- ------------ NY STATE ----------------------------------------------------------------------
(TAXABLE INCOME<F1>) TAX BRACKET<F2> 4% 4.5% 5% 5.5% 6% 6.5% 7%
-----------------------------------------------------------------------------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 21.45% 5.09% 5.73% 6.37% 7.00% 7.64% 8.28% 8.91%
$ 23,351-$ 56,500 $ 39,001-$ 94,250 33.47 6.01 6.76 7.52 8.27 9.02 9.77 10.52
$ 56,551-$117,950 $ 94,251-$143,600 36.24 6.27 7.06 7.84 8.63 9.41 10.19 10.98
$117,951-$256,500 $143,601-$256,500 40.86 6.76 7.61 8.45 9.30 10.15 10.99 11.84
Over $256,500 Over $256,500 44.19 7.17 8.06 8.96 9.85 10.75 11.65 12.54
Yields shown are for illustration purposes only and are not meant to
represent the Fund's actual yield.
<F1>Net amount subject to Federal and New York State personal income tax after
deductions and exemptions.
<F2> The combined tax rate for the two lowest income tax brackets are calculated
using the highest State rate (7.59375% effective annualized State tax rate
based on a rate of 7.875% for the first 3 months of the 1995 tax year and
7.5% for the remaining 9 months) applicable at the upper portion of that
bracket. Therefore, an investor with taxable income below the highest dollar
amount in the two lowest brackets may have a lower combined tax rate than
the combined rate shown for that bracket. The applicable State rate is the
maximum rate, 7.59375%, throughout all other brackets.
</TABLE>
Note: Of course, no assurance can be given that EV Marathon New York Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the
interest from which is exempt from the regular Federal income tax and New York
State and New York City personal income taxes, other income received by the
Portfolio and allocated to the Fund may be taxable. The table does not take
into account state or local taxes, if any, payable on Fund distributions
except for New York State and New York City personal income taxes. It should
also be noted that 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 or
increase the recipient's liability for the Federal alternative minimum tax.
The above-indicated combined Federal and New York State/City income brackets
assume State and City taxes are Itemized Deductions and do not take into
account the effect of a reduction in the deductibility of Itemized Deductions
(including New York State and City Income Taxes) for taxpayers with Adjusted
Gross Income in excess of $114,700, nor do they reflect phaseout of personal
exemptions for single and joint filers with Adjusted Gross Income in excess
of $114,700 and $172,050, respectively. The effective combined tax brackets
and equivalent taxable yields of taxpayers who do not itemize or who are
subject to such limitations will be higher than those indicated above. In
addition, investors who do not itemize deductions on their Federal income tax
returns will have higher combined brackets and equivalent taxable yields than
indicated above. The illustrations assume that the Federal alternative minimum
tax is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON OHIO LIMITED MATURITY
TAX FREE FUND. The investment objective of the Fund is to provide (1) a high
level of current income exempt from regular Federal income tax and Ohio State
personal income taxes and (2) limited principal fluctuation. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Ohio Limited Maturity Tax Free Portfolio (the "Portfolio"). The Fund
changed its name from Eaton Vance Ohio Limited Maturity Tax Free Fund to EV
Marathon Ohio Limited Maturity Tax Free Fund on August 1, 1994.
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund 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. (The Fund will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes);
(3) Purchase securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the total outstanding voting securities
of such issuer to be held by the Fund; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund;
(4) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust, or is a member, officer, director or trustee of any
investment adviser of the Fund, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value);
(5) 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, or participate on a joint or a
joint and several basis in any trading account in securities;
(6) Lend any of its funds or other assets to any person, directly or
indirectly, except (i) through repurchase agreements and (ii) through the loan
of a portfolio security; (The purchase of a portion of an issue of debt
obligations, whether or not the purchase is made on the original issuance, is
not considered the making of a loan);
(7) Borrow money or pledge its assets in excess of 1/3 of the value of
its net assets (excluding the amount borrowed) and then only if such borrowing
is incurred as a temporary measure for extraordinary or emergency purposes or
to facilitate the orderly sale of portfolio securities to accommodate
redemption requests; or issue securities other than its shares of beneficial
interest, except as appropriate to evidence indebtedness, including reverse
repurchase agreements, which the Fund is permitted to incur. The Fund will not
purchase securities while outstanding borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; provided, however, that the Fund
may increase its interest in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund while such borrowings are outstanding. The deposit of cash, cash
equivalents and liquid debt securities in a segregated account with the Fund's
custodian and/or with a broker in connection with futures contracts or related
options transactions and the purchase of securities on a "when-issued" basis
are not deemed to be a pledge;
(8) Invest for the purpose of exercising control or management of other
companies; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with
substantially the same investment objective, policies and restrictions as the
Fund;
(9) Purchase or sell real estate (including limited partnership interests,
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);
(10) Purchase or sell physical commodities or futures contracts for the
purchase or sale of physical commodities, provided that the Fund may enter
into all types of futures contracts on securities and on securities, economic
and other indices and may purchase and sell options on such futures contracts;
(11) Buy investment securities from or sell them to any of the officers or
Trustees of the Trust, its investment adviser or its principal underwriter, as
principal; however, any such persons or concerns may be employed as a broker
upon customary terms;
(12) Purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development programs.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. Neither the Fund nor the
Portfolio may 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 that the Board of
Trustees of the Trust or the Portfolio, or its delegate, determines to be
liquid, based upon the trading markets for the specific security; provided,
however, that the Fund may invest without limitation in the Portfolio or in
another investment company with substantially the same investment objective.
Neither the Fund nor the Portfolio may purchase securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years, if by reason thereof the value of its aggregate investment
in such class of securities will exceed 5% of its total assets, provided that
the issuers of securities rated by Moody's, S&P, Fitch or any other nationally
recognized rating service shall not be considered "unseasoned"; provided,
however, that the Fund may invest without limitation in the Portfolio in
another investment company with substantially the same investment objective.
Neither the Fund nor the Portfolio may 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. The
Fund and Portfolio may purchase put options on municipal obligations only if,
after such purchase, not more than 5% of its net assets, as measured by the
aggregate of the premiums paid for such options held by it, would be so
invested. Neither the Fund nor the Portfolio may invest in warrants, valued at
the lower of cost or market, exceeding 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund or the Portfolio in units or attached
to securities may be deemed to be without value. Neither the Fund nor the
Portfolio intends to invest in reverse repurchase agreements during the
current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Ohio considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Ohio issuers. Such information 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 Ohio issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The State of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. The State is effectively prohibited by law
from ending a fiscal year or a biennium in a deficit position. The Governor
has the power to order State agencies to operate within the State's means. The
State carries out most of its operations through the General Revenue Fund
("GRF") which receives general State revenues not otherwise dedicated. GRF
revenues are derived mainly from personal income and sales taxes and corporate
franchise taxes. State GRF figures generally show a pattern related to
national economic conditions, evident in growth and depletion of its GRF
ending fund balances, with the June 30 (end of fiscal year) GRF fund balance
reduced during less favorable national economic periods and increased during
more favorable economic periods.
The general appropriations act for the 1994-95 biennium was signed by the
Governor on July 1, 1993. This act appropriated $30.7 billion for GRF
purposes. Appropriations for the first fiscal year of the biennium were
approximately 9.2% above those for fiscal year 1993 while those for the second
year were approximately 6.6% higher than those for fiscal year 1994. These
additional appropriations were mainly for increased costs in most State
financed programs such as education, Medicaid, mental health and corrections.
During the 1991-1993 biennium, the national economic downturn required a $200
million transfer from the Budget Stabilization Fund to the GRF. As fiscal year
1992 progressed, reduced tax collections led to a revenue shortfall. This, in
combination with additional expenditures, produced a budget deficit. The State
addressed this deficit through a combination of budget cuts, tax payment
accelerations and a depletion of the Budget Stabilization Fund. A projected
fiscal year 1993 gap of $520 million was covered through a combination of tax
increases and a reduction in appropriations. The fiscal year 1994 budget was
balanced, and the State's GRF had an ending fund balance of $560 million.
Local school districts in Ohio receive a major portion of their operating
monies from State subsidies, but are dependent upon local taxes for
significant portions of their budgets. School districts may submit for voter
approval income taxes on the district income of individuals and estates. To
date, this income tax has been approved in 120 of the State's 600+ local
school districts. A small number of local school districts have in any year
required emergency advances from the State under a prior program in order to
avoid year-end deficits. Forty-four school districts borrowed $68.6 million in
fiscal year 1992 and 27 districts borrowed $94.5 million in 1993, including
Cleveland which borrowed $75 million. Twenty-eight districts borrowed $41.1
million in fiscal year 1994. Schools were affected by budget-balancing
expenditure reductions discussed above.
Litigation, similar to that in other states, is pending questioning the
constitutionality of Ohio's system of school funding. A trial court recently
concluded that aspects of the system (including basic operating assistance)
are unconstitutional, and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State has appealed. At this time, it
is not possible to determine either the outcome or the financial burden which
an unfavorable decision would have on either the State's or the local school
districts' financial health.
Resolutions have been introduced in both houses of the General Assembly
that would submit at the November 1995 election constitutional amendments
relating to State debt. One amendment would authorize, among other things, the
issuance of State general obligation debt for a variety of purposes and
without additional vote of the people to the extent that debt service on all
State general obligation debt and GRF-supported obligations would not exceed
5% of the preceding fiscal year's GRF expenditures. It cannot be predicted
whether any of the proposed amendments will in fact be submitted, or, if
submitted, approved by the electors.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $39,435,374. For the
fiscal year ended March 31, 1995, absent a fee reduction, the Portfolio would
have paid BMR advisory fees of $185,368 (equivalent to 0.46% of the
Portfolio's average daily net assets for such year). To enhance the net income
of the Portfolio, BMR made a reduction of its advisory fee in the amount of
$44,856. For the period from the start of business, April 16, 1993, to the
fiscal year ended March 31, 1994, BMR would have earned, absent a fee
reduction, advisory fees of $78,138 (equivalent to 0.44% (annualized) of the
Portfolio's average daily net assets for such period). To enhance the net
income of the Portfolio, BMR made a reduction of the full amount of its
advisory fee and BMR was allocated expenses related to the operation of the
Portfolio in the amount of $18,702. The Portfolio's Investment Advisory
Agreement with BMR is dated April 9, 1993 and remains in effect until February
28, 1996. The Agreement may be continued as described under "Investment
Adviser and Administrator" in Part I of this Statement of Additional
Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the period
from the start of business, April 16, 1993, to March 31, 1994, $13,276 of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1,
the Plan has been approved by the Fund's initial sole shareholder (Eaton
Vance) and by the Board of Trustees of the Trust, including the Rule 12b-1
Trustees, as required by the Rule. The Fund pays the Principal Underwriter
sales commissions equal to 3.5% of the amount received by the Fund for each
Class I share sold (excluding reinvestment of dividends and distributions).
For the fiscal year ended March 31, 1995, the Fund made sales commission
payments under the Plan to the Principal Underwriter aggregating $252,885,
which amount was used by the Principal Underwriter to defray sales commissions
aggregating $101,205 paid during such period by the Principal Underwriter to
Authorized Firms on sales of Class I shares of the Fund and to Reduce
Uncovered Distribution Charges. As at March 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under
the Plan amounted to approximately $973,394 (which amount was equivalent to
2.8% of the Fund's net assets attributable to Class I shares on such day).
During such period, contingent deferred sales charges aggregating
approximately $72,204 were imposed on early redeeming shareholders and paid to
the Principal Underwriter, which amount was used by the Principal Underwriter
to reduce Uncovered Distribution Charges. The Fund commenced accruing for its
service fee payments during the quarter ended June 30, 1994. During the fiscal
year ended March 31, 1995, the Fund accrued service fee payments under the
Plan aggregating $17,230, of which $10,897 was paid to the Principal
Underwriter. The Principal Underwriter paid $10,888 as service fees to
Authorized Firms and the balance was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $350.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $9,392. For
the fiscal year ended March 31, 1995, the Portfolio paid IBT $11,030.
BROKERAGE
For the fiscal year ended March 31, 1995 and for the period from the start
of business, April 16, 1993, to the fiscal year ended March 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Trust or the Portfolio.) During the fiscal year ended March 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
the other funds in the Eaton Vance fund complex:
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX(1)
---- ------------ ------------- ------------------
Donald R. Dwight ........... $34 $336(2) $135,000(4)
Samuel L. Hayes, III ....... 33 328(3) 147,500(5)
Norton H. Reamer ........... 31 315 135,000
John L. Thorndike .......... 32 323 140,000
Jack L. Treynor ............ 34 345 140,000
----------
(1) The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
(2) Includes $54 of deferred compensation.
(3) Includes $103 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
WILLIAM H. AHERN (36), Vice President of the Portfolio
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Portfolio
on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in
the Fund covering the life of the Fund from April 16, 1993 through March 31,
1995, and for the one-year period ended March 31, 1995.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN
BEFORE AFTER TOTAL RETURN AFTER DEDUCTING
DEDUCTING THE DEDUCTING THE BEFORE DEDUCTING THE CONTINGENT
CONTINGENT CONTINGENT THE CONTINGENT DEFERRED DEFERRED
DEFERRED DEFERRED SALES CHARGE SALES CHARGE<F3>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F3> -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
-------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of
the Fund<F2> 4/16/93 $1,000 $1,056.86 $1,032.54 5.69% 2.87% 3.25% 1.65%
1 Year
Ended
3/31/95<F2> 3/31/94 $1,000 $1,044.06 $1,014.06 4.41% 4.41% 1.41% 1.41%
</TABLE>
<TABLE>
PERCENTAGE CHANGES 4/16/93<F1> -- 3/31/95
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE<F3> WITH ALL DISTRIBUTIONS REINVESTED
------------------------------------------------ -------------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
3/31/94<F2> -- 1.23% -- -- -1.69% --
3/31/95<F2> 4.41% 5.69% 2.87% 1.41% 3.25% 1.65%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
<FN>
----------
<F1> Investment operations began on April 16, 1993.
<F2> If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
<F3>No contingent deferred sales charge is imposed on shares purchased more
than four years prior to the redemption, shares acquired through the
reinvestment of distributions, or any appreciation in value of other
shares in the account, and no such charge is imposed on exchanges of Fund
shares for shares of one or more other funds listed under "The Eaton Vance
Exchange Privilege" in the Fund's current prospectus.
</TABLE>
----------
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.76%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 3.76% (considering both
State and Federal taxes) would be 5.55%, assuming a combined Federal and State
tax rate of 32.28%. If a portion of the Portfolio's expenses had not been
allocated to the Investment Adviser, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid March 15, 1995) was 3.80%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.87%. If a portion of the Portfolio's expenses had
not been allocated to the Investment Adviser, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995,
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
-------------------------------- -----------------------
Aaa or AAA 43.4%
Aa or AA 12.9
A 27.7
Baa or BBB 4.0
Ba or BB --
B --
Below B --
Not rated 12.0
-----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield
of a certificate of deposit yielding a hypothetical 3.25%. The tax brackets
used in the table are the combined Federal and Ohio income tax brackets
applicable for 1995: 18.79% for single filers with taxable income up to
$23,350 and joint filers up to $39,000; 32.28% for single filers with taxable
income from $23,351 to $56,550 and joint filers from $39,001 to $94,250;
35.76% for single filers with taxable income from $56,551 to $117,950 and
joint filers from $94,251 to $143,600; 40.80% for single filers with taxable
income from $117,951 to $256,500 and joint filers from $143,601 to $256,500;
and 44.13% for single and joint filers with taxable income over $256,500. The
applicable Federal tax rates within each of these combined brackets are 15%,
28%, 31%, 36% and 39.6% over the same ranges of income. The combined brackets
are not simply the sum of each of the taxes, as they assume that state taxes
are deducted on the Federal income tax return (reducing the effective combined
tax brackets) and are based on the highest or the average of the highest state
income tax rates for single and joint taxpayers within the brackets. These
brackets do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income, which increase the effective top Federal tax rate for certain
taxpayers. Investors should consult with their tax advisers for more
information.
TAX BRACKET
18.79% 32.28% 35.76% 40.80% 44.13%
---------------------------------------------
Tax free yield .................... 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ................ 4.93 5.91 6.23 6.76 7.16
Certificates of deposit:
Yield ......................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ............... 2.64 2.20 2.09 1.92 1.82
The following is an illustration of the Tax Free Yield Advantage,
comparing after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.0%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax
free investment yielding 4.0%, and compares the after-tax return of such
investments. The chart is based on 3-month bank CDs (Source: The Wall Street
Journal) and current limited maturity municipal bond yields, compiled by Eaton
Vance Management. This illustration is not meant to imply or predict any
future rate of return for the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
The Tax Free Yield Advantage
(40.80% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.92% After-tax yield
4.00% Tax free investment
6.76% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,326.00) NONE
After-tax income: $1,924.00 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (40.80% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (40.80% bracket)
1985 7.34 7.86 13.28
1986 5.74 6.23 10.52
1987 7.25 6.43 10.86
1988 8.10 6.61 11.17
1989 7.82 6.73 11.37
1990 7.38 6.69 11.30
1991 5.36 6.00 10.14
1992 3.08 5.38 9.09
1993 2.69 4.65 7.85
1994 3.22 5.40 9.12
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
TAXES
In the opinion of special tax counsel to the Fund, Squire, Sanders &
Dempsey, under Ohio law, provided that the Fund continues to qualify as a
regulated investment company under the Code and that at all times at least 50%
of the value of the total assets of the Fund consists of obligations issued by
or on behalf of the State of Ohio, political subdivisions thereof or agencies
or instrumentalities of Ohio or its political subdivisions ("Ohio
Obligations"), or similar obligations of other states or their subdivisions (a
fund satisfying such requirements being referred to herein as an "Ohio fund"),
(i) distributions paid by the Fund will be exempt from Ohio personal income
tax and any Ohio municipal income taxes or Ohio school district income taxes
for individuals who reside in Ohio to the extent such dividends are derived
from interest payments on Ohio Obligations, and (ii) distributions that are
properly attributable to the Fund's capital gains on the sale or other
disposition of Ohio Obligations, will be exempt from Ohio personal income tax
and any municipal or school district income taxes. Except as described below,
other distributions from the Fund will generally not be exempt from Ohio
personal income tax, Ohio municipal income taxes or Ohio school district
income tax.
Provided the Fund qualifies as an Ohio fund, (1) distributions from the
Fund will be excluded from net income for purposes of the Ohio corporation
franchise tax to the extent that such distributions are excludable from gross
income for Federal income tax purposes or are derived from interest payments
on Ohio Obligations, and (2) distributions that are properly attributable to
the Fund's capital gains on the sale or other disposition of Ohio Obligations,
also will be excluded from net income for purposes of the Ohio corporation
franchise tax. However, shares of the Fund will not be excluded from net worth
for purposes of such tax.
Provided that the Fund qualifies as an Ohio fund, distributions by the
Fund that are properly attributable to interest on obligations of the United
States or the governments of Puerto Rico, the Virgin Islands or Guam or their
authorities or municipalities are exempt from Ohio personal income tax, Ohio
municipal income taxes and Ohio school district income taxes, and are excluded
from the net income base of the Ohio corporate franchise tax to the same
extent that such interest would be so exempt or excluded if the obligations
were held directly by the shareholders.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick,
NJ, was the record owner of approximately 7.3% of the outstanding shares,
which were 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. To the knowledge of the Trust, no other person owned of record
or beneficially 5% or more of the Fund's outstanding shares as of such date.
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and Ohio State income tax laws and tax rates applicable for 1995. It gives
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%.
<TABLE>
<CAPTION>
A FEDERAL AND OHIO STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------------------------ OHIO STATE --------------------------------------------------------------------
(TAXABLE INCOME)<F1> TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
------------------------------------------- ----------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 $18.79% 4.93% 5.54% 6.16% 6.77% 7.39% 8.00% 8.62%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 $32.28 5.91 6.64 7.38 8.12 8.86 9.60 10.34
$ 56,551 - $117,950 $ 94,251 - $143,600 $35.76 6.23 7.01 7.78 8.56 9.34 10.12 10.90
$117,951 - $256,500 $143,601 - $256,500 $40.80 6.76 7.60 8.45 9.29 10.14 10.98 11.82
Over $256,500 Over $256,500 $44.13 7.16 8.05 8.95 9.84 10.74 11.63 12.53
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
<F1> Net amount subject to Federal and Ohio personal income tax after deductions
and exemptions.
<F2> The combined Federal and Ohio tax brackets are calculated using the highest
Ohio State rate applicable at the upper portion of these brackets and
assume that taxpayers deduct Ohio State income taxes paid on their Federal
income tax returns. 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.
</TABLE>
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Ohio State Income Taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those
indicated above.
Of course, no assurance can be given that EV Marathon Ohio Limited Maturity
Tax Free Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations the interest from
which is exempt from the regular Federal income tax and Ohio personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for Ohio personal income taxes. It should
also be noted that 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 or
increase the recipients liability for the Federal alternative minimum tax. The
illustrations assume that the Federal alternative minimum tax is not
applicable and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON PENNSYLVANIA LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1) a
high level of current income exempt from regular Federal income tax and
Pennsylvania State and local taxes in the form of an investment exempt from
Pennsylvania personal property taxes, and (2) limited principal fluctuation. The
Fund currently seeks to achieve its investment objective by investing its assets
in the Pennsylvania Limited Maturity Tax Free Portfolio (the "Portfolio"). The
Fund changed its name from Eaton Vance Pennsylvania Limited Maturity Tax Free
Fund to EV Marathon Pennsylvania Limited Maturity Tax Free Fund on January 11,
1994.
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests in
real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor the
Portfolio may (a) 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 its net
assets (taken at current value) is held as collateral for such sales at any one
time. (The Fund and the Portfolio will make such sales only for the purpose of
deferring realization of gain or loss for Federal income tax purposes); (b)
purchase or retain in its portfolio securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Trust or of the Portfolio, or is a member, officer, director or trustee of
any investment adviser of the Fund or of the Portfolio, if after the purchase of
the securities of such issuer by the Fund or the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities or
both (all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities or both (all taken at market value); (c)
purchase oil, gas or other mineral leases or purchase partnership interests in
oil, gas or other mineral exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
or the Portfolio in units or attached to securities may be deemed to be without
value. The Fund and the Portfolio may purchase put options on municipal
obligations only if, after such purchase, not more than 5% of its net assets, as
measured by the aggregate of the premiums paid for such options held by it,
would be so invested. Neither the Fund nor the Portfolio intends to invest in
reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Pennsylvania considerations is given
to investors in view of the Portfolio's policy of concentrating its investments
in Pennsylvania issuers. Such information 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 Pennsylvania issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Pennsylvania historically has been identified as a heavy industry state,
although that reputation has changed with the decline of the coal, steel and
railroad industries and the resulting diversification of Pennsylvania's
industrial composition. The major new sources of growth are in the service
sector, including trade, medical and health services, education and financial
institutions. Pennsylvania continues, however, to have a greater percentage of
its workers employed in manufacturing than the national average, leaving the
economy somewhat cyclical and vulnerable to recessionary forces. During 1993,
manufacturing accounted for 18% of employment. As of May 1995, the unadjusted
unemployment rate for Pennsylvania and the United States was 5.7%. Per capita
income in Pennsylvania for 1993 of $21,352 was higher than the per capita income
of the United States of $20,817.
REVENUES AND EXPENDITURES. Pennsylvania utilizes the fund method of accounting.
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 years ended June 30, 1992, June 30,
1993 and June 30, 1994 with fund balances of $87,455, $698,945 and $892,940,
respectively.
The Governor's fiscal year 1996 budget contains no new taxes and proposed
numerous cost reduction programs. Under the 1996 budget, state spending will
increase 2.3% over fiscal year 1995 appropriations. The fiscal year 1996 budget
included tax reductions of approximately $214.8 million and projects a $3.2
million fiscal year-end unappropriated surplus. The state Tax Stabilization Fund
had a balance at March 31, 1995 of $65.3 million.
The Pennsylvania Constitution requires all proceeds of motor fuels taxes,
vehicle registration fees, license taxes, operators' license fees and other
excise taxes imposed on products used in motor transportation to be used
exclusively for construction, reconstruction, maintenance and repair of and
safety on highways and bridges and for the payment of debt service on
obligations incurred for such purposes. The Motor License Fund is the fund
through which such revenues are accounted for and expended.
The Motor License Fund ended fiscal year ended June 30, 1994 with an
unappropriated balance of $107.5 million on a budgetary basis. State revenue
collections for fiscal year 1995 are projected to increase slightly from fiscal
1994. The budget for fiscal year 1996 includes a 2.3% increase in appropriations
from the prior year. The unappropriated balance of the General Fund at June 30,
1995 is projected to be approximately $3 million on a budgetary basis.
PENNSYLVANIA DEBT. The current Constitutional provisions pertaining to the
Pennsylvania debt permit the issuance of the following types of debt: (i) debt
to suppress insurrection or rehabilitate areas affected by disaster, (ii)
electorate approved debt, (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years (this debt need not be approved by the electorate)
and (iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.
Total outstanding general obligation debt totalled $5,075.8 million as of
June 30, 1994, an increase of $37.0 million from June 30, 1993. In its current
debt financing plans, Pennsylvania is emphasizing infrastructure investment to
improve and rehabilitate existing capital facilities, such as water supply
systems, and to construct new facilities, such as flood control systems and
public buildings.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes, which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
outstanding, may not exceed in the aggregate 20% of the revenues estimated to
accrue to the appropriate fund in the fiscal year. The State is not permitted to
fund deficits between fiscal years with any form of debt. All year end deficit
balances must be funded within the succeeding fiscal year's budget.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years.
STATE-RELATED OBLIGATIONS. Certain state-created agencies have statutory
authorization to incur debt for which no legislation providing for state
appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of or revenues derived from the various projects
financed; it is not an obligation of the State. Some of these agencies, however,
are indirectly dependent on state appropriations. State- related agencies and
their outstanding debt as of December 31, 1994 include the Delaware River Joint
Toll Bridge Commission ($56.3 million), the Delaware River Port Authority
($233.9 million), the Pennsylvania Economic Development Financing Authority
($659.9 million), the Pennsylvania Energy Development Authority ($162.1
million), the Pennsylvania Higher Education Assistance Agency ($1,283.8
million), the Pennsylvania Higher Education Facilities Authority ($1,965.8
million), the Pennsylvania Industrial Development Authority ($357.3 million),
the Pennsylvania Infrastructure Investment Authority ($227.5 million), the
Pennsylvania Turnpike Commission ($1,252.6 million), the Philadelphia Regional
Port Authority ($63.9 million) and the State Public School Building Authority
($286.8 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 $2,300 million of bonds and
notes outstanding, and the Hospitals and Higher Education Facilities Authority
of Philadelphia which issued $21.1 million in bonds in 1993.
LOCAL GOVERNMENT DEBT. Local government in Pennsylvania consists of numerous
individual units. Each unit is distinct and independent of other local units,
although they may overlap geographically.
There is extensive general legislation applying to local government. For
example, the Local Government Unit Debt Act provides for uniform debt limits for
local government units, including municipalities and school districts, and
prescribes methods of incurring, evidencing, securing and collecting debt. Under
the Local Government Unit Debt Act, the ability of Pennsylvania municipalities
and school districts to engage in general obligation borrowing without electoral
approval is generally limited by their recent revenue collection experience.
Generally such subdivisions can levy real property taxes unlimited as to rate or
amount to pay debt service on general obligation borrowings.
Municipalities may also issue revenue obligations without limit and without
affecting their general obligation borrowing capacity if the obligations are
projected to be paid solely from project revenues.
Municipal authorities and industrial development authorities are widespread
in Pennsylvania. An authority is organized by a municipality acting singly or
jointly with another municipality and is governed by a board appointed by the
governing unit of the creating municipality or municipalities. Typically,
authorities are established to acquire, own and lease or operate one or more
projects and to borrow money and issue revenue bonds to finance them.
As of the date of this Statement of Additional Information, the City of
Philadelphia's general obligations are rated Ba, B and BB, by Moody's, S&P and
Fitch, respectively.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $113,606,045. For the
period from the Portfolio's start of business, May 3, 1993, to March 31, 1994,
the Portfolio paid BMR advisory fees of $400,931 (equivalent to 0.45%
(annualized) of the Portfolio's average daily net assets for such period). For
the fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$554,521 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). The Portfolio's Investment Advisory Agreement with BMR is dated
October 13, 1992 and remains in effect until February 28, 1996. The Agreement
may be continued as described under "Investment Adviser and Administrator" in
Part I of this Statement of Additional Information.
Prior to May 3, 1993 (when the Fund transferred substantially all of its
assets to the Portfolio in exchange for an interest in the Portfolio), the Fund
retained Eaton Vance as its investment adviser. For the period from April 1,
1993 to May 3, 1993, the Fund paid Eaton Vance advisory fees of $27,140
(equivalent to 0.49% (annualized) of the Fund's average daily net assets for
such period). For the period from the Fund's start of business, June 1, 1992, to
March 31, 1993, Eaton Vance would have earned, absent a fee reduction, advisory
fees of $137,229 (equivalent to 0.45% (annualized) of the Fund's average daily
net assets for such period). To enhance the net income of the Fund, Eaton Vance
made a reduction of its advisory fee in the amount of $71,952.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's shareholders and by the Board of Trustees
of the Trust, including the Rule 12b-1 Trustees as required by Rule 12b-1. The
Fund pays the Principal Underwriter sales commissions equal to 3% of the amount
received by the Fund for each Class I share sold (excluding reinvestment of
distributions). During the fiscal year ended March 31, 1995, the Fund made sales
commission payments under the Plan to the Principal Underwriter aggregating
$812,606, which amount was used by the Principal Underwriter to defray sales
commissions aggregating $182,218 paid during such period by the Principal
Underwriter to Authorized Firms on sales of Class I shares of the Fund and to
reduce Uncovered Distribution Charges. During such period, contingent deferred
sales charges aggregating approximately $334,414 were imposed on early redeeming
shareholders and paid to the Principal Underwriter, which amount was used by the
Principal Underwriter to reduce Uncovered Distribution Charges. As at March 31,
1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $1,838,484
(which amount was equivalent to 1.8% of the Fund's net assets attributable to
Class I shares on such day). During the fiscal year ended March 31, 1995, the
Fund accrued service fee payments under the Plan aggregating $97,262, of which
$79,607 was paid to the Principal Underwriter. The Principal Underwriter paid
such amount as service fee payments to Authorized Firms and the balance was
retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $1,437.00 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
During the fiscal year ended March 31, 1995, the Fund paid IBT $8,295. For
the fiscal year ended March 31, 1995, the Portfolio paid IBT $29,811.
BROKERAGE
For the fiscal year ended March 31, 1995, and for the period from the start
of business, May 3, 1993, to March 31, 1994, the Portfolio paid no brokerage
commissions on portfolio transactions. For the period from the start of
business, June 1, 1992, to March 31, 1993, and for the period from April 1, 1993
to May 3, 1993 (when the Fund transferred substantially all of its assets to the
Portfolio in exchange for an interest in the Portfolio), the Fund paid no
brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio, and the other funds
in the Eaton Vance fund complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
---- ------------ ------------ ------------
Donald R. Dwight ........ $672 $1,577(2) $135,000(4)
Samuel L. Hayes, III .... 657 1,607(3) 147,500(5)
Norton H. Reamer ........ 630 1,636 135,000
John L. Thorndike ....... 647 1,710 140,000
Jack L. Treynor ......... 689 1,654 140,000
----------
(1) The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
(2) Includes $264 of deferred compensation.
(3) Includes $517 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from June 1, 1992 through March 31, 1995 and
the one-year period ended March 31, 1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT<F1>
VALUE OF VALUE OF
INVESTMENT INVESTMENT
BEFORE AFTER
DEDUCTING DEDUCTING THE TOTAL RETURN BEFORE TOTAL RETURN AFTER
THE CONTINGENT CONTINGENT DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DEFERRED DEFERRED DEFERRED SALES CHARGE DEFERRED SALES CHARGE<F3>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE SALES CHARGE<F3> ----------------------- ------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund<F2> 6/1/92<F1> $1,000 $1,152.92 $1,131.92 15.19% 5.12% 13.19% 4.48%
1 Year Ended 3/31/95 3/31/94 $1,000 $1,045.04 $1,015.07 4.50% 4.50% 1.51% 1.51%
PERCENTAGE CHANGES 6/1/92<F1>--3/31/95
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED SALES CHARGE<F3> WITH ALL DISTRIBUTIONS REINVESTED
FISCAL --------------------------------------------------------------------------------------------------------
YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
---------- ------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
3/31/93<F2> -- 8.19% -- -- 5.19% --
3/31/94 1.89% 10.23% 5.46% -1.03% 7.73% 4.15%
3/31/95 4.50% 15.19% 5.12% 1.51% 13.19% 4.48%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
<FN>
<F1> Investment operations began on June 1, 1992.
<F2> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
<F3> No contingent deferred sales charge is imposed on shares purchased more than four years prior to the redemption, shares
acquired through the reinvestment of distributions or any appreciation in value of other shares in the account, and no such
charge is imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange
Privilege" in the Fund's current Prospectus.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.73%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.73% (considering both State and
Federal taxes) would be 6.28%, assuming a combined Federal and State tax rate of
40.54%.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 15, 1995) was 3.93%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.01%.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 67.9%
Aa or AA 16.7
A 8.9
Baa or BBB 5.1
Ba or BB --
B --
Below B --
Not rated 1.4
-----
Total 100.0%
The following information compares taxable equivalent yield of an investment
in the Fund yielding a hypothetical 4.0% with the after-tax yield of a
certificate of deposit yielding 3.25%. The tax brackets used in the table are
the combined Federal and Pennsylvania income tax brackets for 1995: The tax
brackets for Pennsylvania residents subject to Pennsylvania income tax and
Pennsylvania county personal property tax are 24.18% for single filers with
taxable income up to $23,350 and joint filers up to $39,000, 35.78% for single
filers with taxable income from $23,351 to $56,550 and joint filers from $39,001
to $94,250, 38.45% for single filers with taxable income from $56,551 to
$117,950 and joint filers from $94,251 to $143,600; 42.91% for single filers
with taxable income from $117,951 to $256,500 and joint filers from $143,601 to
$256,500; and 46.12% for single and joint filers with taxable income over
$256,500. The applicable Federal tax rates within each of these combined
brackets are 15%, 28%, 31 %, 36% and 39.6% over the same ranges of income. These
brackets reflect the Pennsylvania county personal property tax ($.40 per $100 in
value) expressed as a percentage of an investment yielding 4%, as well as
Pennsylvania income tax (2.80%) and Federal income tax. The tax brackets used in
calculating the after-tax yield of the certificate of deposit are 17.38%,
30.02%, 32.93%, 37.79% and 41.29% and do not reflect the Pennsylvania county
personal property tax as bank deposits are generally exempt from such tax.
The tax brackets used in calculating the taxable equivalent of a
hypothetical 4% yield of the Fund for individuals who reside in Philadelphia are
30.10%, 40.79%, 43.25%, 47.37% and 50.33%. These brackets reflect the
Pennsylvania county personal property tax ($.40 per $100 in value) expressed as
a percentage of an investment yielding 4%, the City of Philadelphia School
District investment income tax of 4.96%, and Federal and Pennsylvania state
income taxes. The tax brackets used in calculating the after-tax yield of the
certificate of deposit are 17.38%, 30.02%, 32.93%, 37.79% and 41.29% over the
same ranges of income. Bank deposits are generally exempt from the Pennsylvania
county personal property tax and Philadelphia School District income tax.
All of the above tax brackets assume that state and local taxes are itemized
deductions for federal income tax purposes. Investors who do not itemize, or who
are subject to phaseout of personal exemptions or limitation on the
deductibility of itemized deductions may have higher tax brackets than indicated
above. Investors should consult with their tax advisers for more information
prior to investing in the Fund.
For taxpayers subject to Philadelphia tax:
<TABLE>
<CAPTION>
TAX BRACKET
30.10% 40.79% 43.25% 47.37% 50.33%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............. 5.72 6.75 7.04 7.60 8.05
<CAPTION>
TAX BRACKET<F1>
17.38% 30.02% 32.93% 37.79% 41.29%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit:
Yield ...................... 3.25% 3.25% 3.25% 3.25% 3.25%
After-tax yield ............ 2.69 2.27 2.18 2.02 1.91
For taxpayers not subject to Philadelphia income tax:
<CAPTION>
TAX BRACKET
24.18% 35.78% 38.45% 42.91% 46.12%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................. 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............. 5.40 6.37 6.65 7.17 7.59
<CAPTION>
TAX BRACKET<F1>
17.38% 30.02% 32.93% 37.79% 41.29%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit:
Yield ...................... 3.25% 3.25% 3.25% 3.25% 3.25%
After-tax yield ............ 2.69 2.27 2.18 2.02 1.91
<FN>
<F1> Bank CDs are exempt from Pennsylvania county personal property tax and Philadelphia School District income tax. Accordingly,
the combined tax brackets applicable to after-tax yields are 17.38%, 30.02%, 32.93%, 37.79% and 41.29%.
</TABLE>
The following are illustrations of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 4%. The illustrations also quantify the Federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a hypothetical tax free investment yielding 4%, and
compare the after-tax return of such investments. The charts are based on 3-
month bank CDs (Source: The Wall Street Journal) and current limited maturity
municipal bond yields, compiled by Eaton Vance Management. (The tax bracket used
in calculating the CD after-tax yield is 37.79%, as bank CDs are generally
exempt from Pennsylvania county personal property tax and Philadelphia School
District income tax.) These illustrations are not meant to imply or predict any
future rate of return for the Fund. See your financial adviser for the Fund's
current yield and actual CD rates.
The Tax Free Yield Advantage: Philadelphia Residents
(47.37% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.02% After-tax yield
4.00% Tax free investment
7.60% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,228.18) NONE
After-tax income: $2,021.82 $4,000.00
The Tax Free Yield Advantage: Excluding Philadelphia Residents
(42.91% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.02% After-tax yield
4.00% Tax free investment
7.17% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,228.18) NONE
After-tax income: $2,021.82 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
<PAGE>
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (36% bracket)
(plot points for vertical bar chart follow)
Taxable Equivalent Yield
Average Ltd Mat (36% Fed bracket plus
Year CD Rate Muni Yields applic. PA state & cty taxes)
1985 7.34 7.86 13.33
1986 5.74 6.23 10.72
1987 7.25 6.43 11.04
1988 8.10 6.61 11.33
1989 7.82 6.73 11.52
1990 7.38 6.69 11.46
1991 5.36 6.00 10.36
1992 3.08 5.38 9.36
1993 2.69 4.65 8.20
1994 3.22 5.40 9.40
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick, NJ,
was the record owner of approximately 25.29% of the outstanding shares, which it
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. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more of the Fund's outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Pennsylvania State and local tax laws in effect for 1995. It gives 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 6%.
<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 PITTSBURGH
SINGLE RETURN JOINT RETURN INCOME TAX INCOME TAX TAXES(1) TAXES(2) TAXES(3)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 2.80% 7.26% 7.80% 9.14%
$ 23,351 $ 56,550 $ 39,001 $ 94,250 28.00 2.80 8.57 9.20 10.79
$ 56,551 $117,950 $ 94,251 $143,600 31.00 2.80 8.95 9.60 11.26
$117,951 $256,500 $143,601 $256,500 36.00 2.80 9.65 10.36 12.14
Over $256,500 Over $256,500 39.60 2.80 10.22 10.97 12.87
----------------------------------------------------------------------------------------------------------------
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. 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 minus savings from itemizing state and local
taxes and a 2.80% Pennsylvania income tax. (1) Applies to residents of Allegheny
County (which includes the City of Pittsburgh) and reflects the repeal of the 4
mil Allegheny County personal property tax, the 4 mil City of Pittsburgh
personal property tax and the 4 mil Pittsburgh School District personal property
tax effective January 1, 1995; (2) Includes a 4 mil county personal property
tax, and (3) Includes a 4 mil county personal property tax and a 4.96% school
income tax.
Note: The above-indicated Federal Income tax brackets do not take into account
the effect of a reduction in the deductibility of Itemized Deductions (including
Pennsylvania State and Local Taxes) for taxpayers with Adjusted Gross Income in
excess of $114,700. The tax brackets and taxable equivalent yields also do not
show the effects of phaseout of personal exemptions for single filers with
Adjusted Gross Income in excess of $114,700 and joint filers with Adjusted Gross
Income in excess of $172,050. The effective Federal tax brackets and equivalent
taxable yields of such taxpayers will be higher than those indicated above. In
addition, the equivalent taxable yields for investors who do not itemize will be
higher than indicated above.
Of course, no assurance can be given that EV Marathon Pennsylvania Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that the Portfolio will invest principally in obligations the interest
from which is exempt from the regular Federal income tax and Pennsylvania state
and local income taxes, other income received by the Portfolio and allocated to
the Fund may be taxable. It should also be noted that 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 or increases the recipient's liability for the Federal
alternative minimum tax. The illustrations assume the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON VIRGINIA LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1) a
high level of current income exempt from regular Federal income tax and Virginia
State personal income taxes and (2) limited principal fluctuation. The Fund
currently seeks to achieve its investment objective by investing its assets in
the Virginia Limited Maturity Tax Free Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling a
portfolio security under circumstances which may require the registration of the
same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests in
real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest or
deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor the
Portfolio may (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; (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 that the Board of Trustees of the Trust or the
Portfolio, or its delegate, determines to be liquid, based upon the trading
markets for the specific security; (d) purchase or retain in its portfolio any
securities issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Trustee of the Trust or the Portfolio or is a
member, officer, director or trustee of any investment adviser of the Trust or
the Portfolio, if after the purchase of the securities of such issuer by the
Fund or the Portfolio one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities or both (all taken at market value) of
such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value); or (e) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Virginia considerations is given to
investors in view of the Portfolio's policy of concentrating its investments in
Virginia issuers. Such information 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 Virginia issuers. Neither the Trust nor the Portfolio has
independently verified this information.
The Commonwealth of Virginia has had a tradition of low debt, and a large
proportion of its general obligation bonds has been supported by particular
revenue-producing projects. However, a trend towards more use of non-general
obligation debt, which is not subject to constitutional limits on borrowing, is
now changing the Commonwealth's debt profile. In recent years, the Commonwealth
has expanded its limited obligation borrowings through various financing
vehicles such as the Virginia Public Building Authority and the Virginia College
Building Authority, and has embarked upon a substantial transportation bonding
program to which certain increases in retail sales and motor vehicle-related
taxes enacted in 1986 are dedicated. The General Fund is the Commonwealth's
major operating fund and accounts for about half of Commonwealth expenditures.
It covers all functions except highways and Federal grant disbursements, for
which there are special revenue funds.
While the Commonwealth has had a long history of sound financial operations,
variations of a cyclical nature have occurred during the past several years.
During fiscal year 1992, financial operations were somewhat more favorable than
expected. Revenues of $5.6 billion exceeded expenditures by approximately $150
million with $44 million in increased revenues and the balance in decreased
expenditures ordered by the Governor in December of 1991. The closing balance at
June 30, 1992 was $195.1 million, of which $142.3 million will be
reappropriated, leaving $52.8 million as an unreserved, undesignated balance,
the first such balance in four years. The fiscal 1993 ending balance for the
General Fund was $331.8 million of which $59.7 million is unreserved,
undesignated. Revenues for the 1993 fiscal year were 8.9% higher than fiscal
year 1992, a $103 million increase. At the close of the biennium ending June 30,
1994, the Fund balance amounted to $518.7 million of which $81 million was
reserved, including $79.9 million for the Revenue Stabilization Fund.
Virginia's economy is generally affected by economic trends throughout the
country and in the Mid-Atlantic region, and it is particularly influenced by
Federal civilian and military installations and the growth of suburban
communities around Washington, D.C. Also significant to the economy of Virginia
are manufacturing (such as electronic equipment, shipbuilding and chemical
products), minerals (chiefly coal), service sector occupations (including
banking and insurance), agriculture and tourism. Unemployment rates are
typically below the national average, but because of a large military and
civilian government employment component, and the related civilian employment, a
substantial decrease in defense or other governmental spending could have a
material adverse effect on both the unemployment rate and the economy of the
Commonwealth in general.
FEES AND EXPENSES
INVESTMENT ADVISER
As at March 31, 1995, the Portfolio had net assets of $220,628. For the
period from the start of business, November 11, 1994, to March 31, 1995, absent
a fee reduction, the Portfolio would have paid BMR advisory fees of $300
(equivalent to 0.45% (annualized) of the Portfolio's average daily net assets
for such period). To enhance the net income of the Portfolio, BMR made a
reduction in the full amount of its advisory fee and BMR was allocated expenses
related to the operation of the Portfolio in the amount of $1,160. The
Portfolio's Investment Advisory Agreement with BMR is dated October 25, 1994 and
remains in effect until February 28, 1996. The Agreement may be continued as
described under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the period
from the start of business, November 11, 1994, to March 31, 1995, $1,284 of the
Fund's operating expenses were allocated to the Administrator.
DISTRIBUTION PLAN
The Distribution Plan and Distribution Agreement remain in effect until
April 28, 1996 and may be continued as described under "Distribution Plan" in
Part I of this Statement of Additional Information. Pursuant to Rule 12b-1, the
Plan has been approved by the Fund's initial sole shareholder (Eaton Vance) and
by the Board of Trustees of the Trust, including the Rule 12b-1 Trustees, as
required by Rule 12b-1. For the period from the start of business, November 11,
1994, to March 31, 1995, the Fund made sales commission payments under the Plan
to the Principal Underwriter aggregating $220, which amount was used by the
Prinicipal Underwriter to partially defray sales commissions aggregating $265
paid during such period by the Principal Underwriter to Authorized Firms on
sales of Class I shares of the Fund. During such period contingent deferred
sales charges aggregating approximately $316 were imposed on early redeeming
shareholders and paid to the Principal Underwriter, which amount was used by the
Principal Underwriter to defray such sales commissions and to reduce Uncovered
Distribution Charges. As at March 31, 1995, the outstanding Uncovered
Distribution Charges of the Principal Underwriter calculated under the Plan
amounted to approximately $4,001 (which amount was equivalent to 3.4% of the
Fund's net assets attributable to Class I shares on such day). The Fund expects
to begin accruing for its service fee payments during the quarter ending
December 31, 1995.
PRINCIPAL UNDERWRITER
For the period from the start of business, November 11, 1994, to March 31,
1995, the Fund paid no fee to the Principal Underwriter for repurchase
transactions handled by the Principal Underwriter.
CUSTODIAN
For the period from the start of business, November 11, 1994, to March 31,
1995, the Fund paid IBT $251. For the period from the start of business,
November 11, 1994, to March 31, 1995 the Portfolio paid no custodian fees to
IBT.
BROKERAGE
For the period from the start of business, November 11, 1994, to March 31,
1995, the Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the other funds in
the Eaton Vance fund complex(1):
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
---- ------------ ------------ ------------------
Donald R. Dwight ........... $ 0 $ 0 $135,000(2)
Samuel L. Hayes, III ....... 0 0 147,500(3)
Norton H. Reamer ........... 0 0 135,000
John L. Thorndike .......... 0 0 140,000
Jack L. Treynor ............ 0 0 140,000
------------
(1)The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2)Includes $17,500 of deferred compensation.
(3)Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
WILLIAM H. AHERN Jr. (36), Vice President of the Portfolio
Assistant Vice President of BMR, Eaton Vance and EV and an employee of Eaton
Vance since July 17, 1989. Officer of various investment companies managed
by Eaton Vance or BMR. Mr. Ahern was elected Vice President of the Portfolio
on June 19, 1995.
PERFORMANCE INFORMATION
The table below indicates the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from November 11, 1994 through March 31,
1995.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
VALUE OF
INVESTMENT VALUE OF INVEST- TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE DE- MENT AFTER DEDUCT- DEDUCTING THE CONTINGENT DEDUCTING THE CONTINGENT
DUCTING THE CON- ING THE CONTINGENT DEFERRED DEFERRED
TINGENT DEFERRED DEFERRED SALES SALES CHARGE SALES CHARGE<F2>
INVESTMENT INVESTMENT AMOUNT OF SALES CHARGE CHARGE<F2> -------------------------- --------------------------
PERIOD DATE INVESTMENT ON 3/31/95 ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------------- ---------- ---------- ---------------- ------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund<F3> 11/11/94<F1> $1,000 $1,048.21 $1,018.21 4.82% -- 1.82% --
PERCENTAGE CHANGES 11/11/94<F1> - 3/31/95
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE
NET ASSET VALUE TO NET ASSET VALUE AFTER DEDUCTING THE CONTINGENT DEFERRED
BEFORE DEDUCTING THE CONTINGENT DEFERRED SALES CHARGE<F2> WITH ALL DISTRIBUTIONS
SALES CHARGE WITH ALL DISTRIBUTIONS REINVESTED REINVESTED
---------------------------------------------- ----------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
-------------------- ---------- -------------- ------------------ ---------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
3/31/95<F3> -- 4.82% -- -- 1.82% --
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
------------
<FN>
<F1> Investment operations began on November 11, 1994.
<F2> No contingent deferred sales charge is imposed on shares purchased more than four years prior to the redemption, shares
acquired through the reinvestment of distributions, or any appreciation in value of other shares in the account, and no such
charge is imposed on exchanges of Fund shares for shares of one or more other funds listed under "The Eaton Vance Exchange
Privilege" in the Prospectus.
<F3> If a portion of the Portfolio's and/or the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.06%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.06% would be 4.51%, assuming a
combined Federal and State tax rate of 32.14%. If a portion of the Portfolio's
and the Fund's expenses had not been allocated to the Investment Adviser and the
Administrator, respectively, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 15, 1995) was 3.92%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 3.99%. If a portion of the Portfolio's and the Fund's
expenses had not been allocated to the Investment Adviser and the Administrator,
respectively, the Fund would have had a lower distribution rate and effective
distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995, was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 44.2%
Aa or AA 27.9%
A 23.8%
Baa or BBB 4.1%
Ba or BB --
B --
Below B --
Not rated --
----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield of
a certificate of deposit yielding 3.25%. The tax brackets used are the combined
Federal and Virginia income tax brackets applicable for 1995: 19.89% for single
filers with taxable income up to $23,350 and joint filers up to $39,000; 32.14%
for single filers with taxable income from $23,351 to $56,550 and joint filers
from $39,001 to $94,250; 34.97% for single filers with taxable income from
$56,551 to $117,950 and joint filers from $94,251 to $143,600; 39.68% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 43.07% for single and joint filers with taxable income
over $256,500. The applicable Federal tax rates within each of these combined
brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income. These
brackets also do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income, which increase the effective top Federal tax rate for certain taxpayers.
Taxpayers who do not itemize or who are subject to such phaseout or limitation
will have higher combined brackets than indicated above. The first tax bracket
is calculated using the highest Virginia tax rate within the bracket. Taxpayers
with taxable income within this bracket may have a lower combined bracket and
taxable equivalent yield than indicated above. Investors should consult with
their tax advisers for additional information.
<TABLE>
<CAPTION>
TAX BRACKET
19.89% 32.14% 34.97% 39.68% 43.07%
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................................ 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............................ 4.99 5.89 6.15 6.63 7.03
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.60 2.21 2.11 1.96 1.85
</TABLE>
The following is an illustration of the Tax Free Yield Advantage, comparing
the after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.0%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax free
investment yielding 4.0%, and compares the after-tax return of such investments.
The chart is based on 3-month bank CDs (Source: The Wall Street Journal) and
current limited maturity municipal bond yields, compiled by Eaton Vance
Management. The illustration is not meant to imply or predict any future rate of
return for the Fund. See your financial adviser for the Fund's current yield and
actual CD rates.
The Tax Free Yield Advantage (39.68% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.96% After-tax yield
4.00% Tax free investment
6.63% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments ... 3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,289.60) NONE
After-tax income: $1,960.40 $4,000.00
From time to time, information, charts and illustrations, showing changes
in certificate of deposit yields, and yields and taxable equivalent yields of
limited maturity municipal bonds may be included in advertisements and other
material supplied to present and prospective shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (39.68% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (39.68% bracket)
1985 7.34 7.86 13.03
1986 5.74 6.23 10.33
1987 7.25 6.43 10.66
1988 8.10 6.61 10.96
1989 7.82 6.73 11.16
1990 7.38 6.69 11.09
1991 5.36 6.00 9.95
1992 3.08 5.38 8.92
1993 2.69 4.65 7.71
1994 3.22 5.40 8.95
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, the following shareholders owned beneficially and of record the
percentage of outstanding shares of the Fund indicated after their name: Hiroko
Imamura, Vienna, VA (30.99%), Eaton Vance Management, Boston, MA (22.33%), Henry
Michael Tacoronte & Patricia Ann Tacoronte, JTWROS, Chesapeake, VA (16.97%),
PaineWebber FBO The Carol Baker Avery Revocable Trust dated 10/12/92, James R.
Olin, Trustee, Roanoke, VA (14.15%), Eaton Vance Distributors, Inc., Boston, MA
(10.92%). To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of the Fund's outstanding shares.
TAX EQUIVALENT YIELD TABLE
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income tax
and Virginia State income tax laws and tax rates applicable for 1995. It gives
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%.
<TABLE>
A FEDERAL AND VIRGINIA STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------------------------- VA STATE -----------------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET<F2> IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
------------------------------------- ----------- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 19.89 4.99% 5.62% 6.24% 6.87% 7.49% 8.11% 8.74%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 32.14 5.89 6.63 7.37 8.10 8.84 9.58 10.32
$ 56,551 - $117,950 $ 94,251 - $143,600 34.97 6.15 6.92 7.69 8.46 9.23 10.00 10.76
$117,951 - $256,500 $143,601 - $256,500 39.68 6.63 7.46 8.29 9.12 9.95 10.78 11.60
Over $256,500 Over $256,500 43.07 7.03 7.90 8.78 9.66 10.54 11.42 12.30
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
<FN>
<F1> Net amount subject to Federal and Virginia personal income tax after deductions and exemptions.
<F2> The combined Federal and Virginia tax brackets are calculated using the highest Virginia 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 rates assume that Virginia taxes are Itemized Deductions for Federal income tax purposes.
Investors who do not itemize deductions on their Federal Income Tax Return will have a higher combined bracket and higher
taxable equivalent yield than those indicated above.
</TABLE>
Note: The Federal Income Tax portion of above-indicated combined income tax
brackets does not take into account the effect of a reduction in the
deductibility of Itemized Deductions (including Virginia State Income Taxes) for
taxpayers with Adjusted Gross Income in excess of $114,700. The tax brackets
also do not show the effects of phaseout of personal exemptions for single
filers with Adjusted Gross Income in excess of $114,700 and joint filers with
Adjusted Gross Income in excess of $172,050. The effective tax brackets and
equivalent taxable yields of such taxpayers will be higher than those indicated
above.
Of course, no assurance can be given that EV Marathon Virginia Limited Maturity
Tax Free Fund will achieve any specific tax exempt yield. While it is expected
that the Portfolio will invest principally in obligations the interest from
which is exempt from the regular Federal income tax and Virginia personal income
taxes, other income received by the Portfolio and allocated to the Fund may be
taxable. The table does not take into account state or local taxes, if any,
payable on Fund distributions except for regular Virginia personal income taxes.
It should also be noted that the interest earned on certain "private activity
bonds" issued after August 7, 1986, while exempt from the regular Federal income
tax, and regular Virginia personal income taxes is treated as a tax preference
item which could subject the recipient to the Federal alternative minimum tax.
The illustrations assume that the Federal and Virginia alternative minimum taxes
are not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
STATEMENT OF ADDITIONAL
INFORMATION
AUGUST 1, 1995
* EV MARATHON ARIZONA
LIMITED MATURITY TAX FREE FUND
* EV MARATHON CALIFORNIA
LIMITED MATURITY TAX FREE FUND
* EV MARATHON CONNECTICUT
LIMITED MATURITY TAX FREE FUND
* EV MARATHON FLORIDA
LIMITED MATURITY TAX FREE FUND
* EV MARATHON MASSACHUSETTS
LIMITED MATURITY TAX FREE FUND
* EV MARATHON MICHIGAN
LIMITED MATURITY TAX FREE FUND
* EV MARATHON NEW JERSEY
LIMITED MATURITY TAX FREE FUND
* EV MARATHON NEW YORK
LIMITED MATURITY TAX FREE FUND
* EV MARATHON NORTH CAROLINA
LIMITED MATURITY TAX FREE FUND
* EV MARATHON OHIO
LIMITED MATURITY TAX FREE FUND
* EV MARATHON PENNSYLVANIA
LIMITED MATURITY TAX FREE FUND
* EV MARATHON VIRGINIA
LIMITED MATURITY TAX FREE FUND
EV MARATHON LIMITED MATURITY
TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
M-CL8/1SAI
<PAGE>
EV TRADITIONAL
LIMITED MATURITY TAX FREE FUNDS
EV TRADITIONAL FLORIDA LIMITED MATURITY TAX FREE FUND
EV TRADITIONAL NEW YORK LIMITED MATURITY TAX FREE FUND
THE EV TRADITIONAL LIMITED MATURITY TAX FREE FUNDS (THE "FUNDS") ARE MUTUAL
FUNDS SEEKING TO PROVIDE (1) A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX AND THEIR RESPECTIVE STATE TAXES DESCRIBED UNDER "THE FUNDS"
INVESTMENT OBJECTIVES" IN THIS PROSPECTUS AND (2) LIMITED PRINCIPAL FLUCTUATION.
EACH FUND INVESTS ITS ASSETS IN A CORRESPONDING NON- DIVERSIFIED OPEN-END
INVESTMENT COMPANY (A "PORTFOLIO") HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND, RATHER THAN BY INVESTING DIRECTLY IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. EACH FUND IS A SERIES
OF EATON VANCE INVESTMENT TRUST (THE "TRUST").
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Funds involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This combined Prospectus is designed to provide you with information you
should know before investing. Please retain this document for future reference.
A combined Statement of Additional Information dated August 1, 1995 for the
Funds, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. This Statement of
Additional Information is available without charge from the Funds' principal
underwriter, Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24
Federal Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolios'
investment adviser is Boston Management and Research (the "Investment Adviser"),
a wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management
is the administrator (the "Administrator") of the Funds. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
AS OF THE DATE OF THIS COMBINED PROSPECTUS, A FUND MAY NOT BE AVAILABLE
FOR PURCHASE IN CERTAIN STATES. PLEASE CONTACT THE PRINCIPAL UNDERWRITER OR
YOUR BROKER FOR FURTHER INFORMATION.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROSPECTUS DATED AUGUST 1, 1995
<PAGE>
TABLE OF CONTENTS
Shareholder and Fund Expenses ............................................. 3
The Funds' Financial Highlights ........................................... 4
The Funds' Investment Objectives .......................................... 5
How the Funds and the Portfolios Invest their Assets ...................... 5
Organization of the Funds and the Portfolios .............................. 9
Management of the Funds and the Portfolios ................................ 11
Service Plans ............................................................. 13
Valuing Fund Shares ....................................................... 14
How to Buy Fund Shares .................................................... 14
How to Redeem Fund Shares ................................................. 16
Reports to Shareholders ................................................... 17
The Lifetime Investing Account/Distribution Options ....................... 17
The Eaton Vance Exchange Privilege ........................................ 18
Eaton Vance Shareholder Services .......................................... 19
Distributions and Taxes ................................................... 20
Performance Information ................................................... 22
Statement of Intention and Escrow Agreement ............................... 22
Appendix -- State Specific Information .................................... 24
<PAGE>
SHAREHOLDER AND FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) 2.50%
Sales Charges Imposed on Reinvested Distributions None
Redemption Fees None
Fees to Exchange Shares None
Contingent Deferred Sales Charges Imposed on Redemptions None
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
(as a percentage of average daily net assets)
FLORIDA NEW YORK
FUND FUND
------- --------
Investment Adviser Fee 0.46% 0.46%
Rule 12b-1 Fees (Service Plan) 0.05 0.05
Other Expenses (after expense reductions) 0.25 0.25
---- ----
Total Operating Expenses (after expense
reductions) 0.76% 0.76%
==== ====
EXAMPLES
An investor would pay the following maximum initial sales charge and expenses on
a $1,000 investment, assuming (a) 5% annual return and (b) redemption at the end
of each period:
FLORIDA NEW YORK
FUND FUND
------- --------
1 Year ..................................... $33 $33
3 Years ..................................... 49 49
Notes:
The tables and Examples summarize the aggregate expenses of the Funds and
the Portfolios and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in a Fund. Because
the Funds do not yet have a sufficient operating history, the information for
the Funds is based on such Fund's estimated expenses for the current fiscal
year. The Other Expenses for the Funds reflect the expected expense allocation
for the current fiscal year, absent which the Other Expenses would be estimated
to be 0.60% for each Fund.
Each Fund invests exclusively in its corresponding Portfolio. The Trustees
believe that, over time, the aggregate per share expenses of a Fund and its
corresponding Portfolio should be approximately equal to, or less than, the per
share expenses the Fund would incur if the Fund were instead to retain the
services of an investment adviser and its assets were invested directly in the
types of securities being held by its corresponding Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual annual
return will vary. For further information regarding the expenses of both the
Funds and the Portfolios see "Organization of the Funds and the Portfolios",
"Management of the Funds and the Portfolios" and "How to Redeem Fund Shares".
Each Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 12.
Other investment companies with different distribution arrangements and fees
are investing in the Portfolios and additional such companies and investors may
do so in the future. See "Organization of the Funds and the Portfolios".
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
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The following information should be read in conjunction with the audited
financial statements included in the Funds' Annual Report to shareholders
which is incorporated by reference into the Statement of Additional
Information in reliance upon the report of Deloitte & Touche LLP, independent
certified public accountants, as experts in accounting and auditing. Further
information regarding the performance of a Fund is contained in its Annual
Report to shareholders which may be obtained without charge by contacting the
Principal Underwriter.
------------------------------------------------------------------------------
FLORIDA NEW YORK
FUND* FUND*
------- --------
NET ASSET VALUE, beginning of period ..... $10.000 $10.000
------- -------
INCOME FROM OPERATIONS:
Net investment income .................. $ 0.321 $ 0.325
Net realized and unrealized gain on
investments .......................... 0.088 0.051
------- -------
Total income from operations ......... $ 0.409 $ 0.376
------- -------
LESS DISTRIBUTIONS:
From net investment income ............. $(0.321) $(0.325)
In excess of net investment income ..... (0.018) (0.021)
------- -------
Total distributions .................. $(0.339) $(0.346)
------- -------
NET ASSET VALUE, end of period ........... $10.070 $10.030
======= =======
TOTAL RETURN(1) .......................... 4.19% 3.87%
RATIOS/SUPPLEMENTAL DATA**:
Net assets, end of period (000's
omitted) ............................. $ 241 $ 180
Ratio of net expenses to average daily
net assets(2) ........................ 0.74%+ 0.98%+
Ratio of investment income to average
daily net assets ..................... 4.52%+ 5.96%+
**The operating expenses of each Fund reflect an allocation of expenses to the
Administrator. Had such actions not been taken, net investment income (loss)
per share and the ratios would have been as follows:
NET INVESTMENT LOSS PER SHARE ............ $(0.506) $(1.178)
======= =======
RATIOS (As a percentage of average daily net assets):
Expenses(2) ........................... 12.20%+ 28.54%+
Net investment loss ................... (6.94%)+ (21.60%)+
* For the Florida Fund and the New York Fund, Financial Highlights are for the
period from the start of business, July 5, 1994 and July 6, 1994,
respectively, to March 31, 1995.
+ Computed on an annualized basis.
(1) Total return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of the period
reported. Dividends and distributions, if any, are assumed to be reinvested
at the net asset value on the payable date. Computed on a nonannualized
basis.
(2) Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES
------------------------------------------------------------------------------
The investment objective of each Fund is set forth below. Each Fund currently
seeks to meet its investment objective by investing its assets in a separate
corresponding open-end management investment company (a "Portfolio") which
invests primarily in municipal obligations (as described below) having a dollar
weighted average duration of between three and nine years and which are rated at
least investment grade by a major rating agency or, if unrated, determined to be
of at least investment grade quality by the Investment Adviser. Each Portfolio
has the same investment objective as its corresponding Fund.
EV TRADITIONAL FLORIDA LIMITED MATURITY TAX FREE FUND (the "Florida Fund") seeks
to provide (1) a high level of current income exempt from regular Federal income
tax in the form of an investment exempt from Florida intangibles tax, and (2)
limited principal fluctuation. The Florida Fund seeks to meet its objective by
investing its assets in the Florida Limited Maturity Tax Free Portfolio (the
"Florida Portfolio").
EV TRADITIONAL NEW YORK LIMITED MATURITY TAX FREE FUND (the "New York Fund")
seeks to provide (1) a high level of current income exempt from regular Federal
income tax and New York State and New York City personal income taxes, and (2)
limited principal fluctuation. The New York Fund seeks to meet its objective by
investing its assets in the New York Limited Maturity Tax Free Portfolio (the
"New York Portfolio").
HOW THE FUNDS AND THE PORTFOLIOS INVEST THEIR ASSETS
------------------------------------------------------------------------------
EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF ITS CORRESPONDING
STATE AND ITS POLITICAL SUBDIVISIONS, AND THE GOVERNMENTS OF PUERTO RICO, THE
U.S. VIRGIN ISLANDS AND GUAM, THE INTEREST ON WHICH IS EXEMPT FROM REGULAR
FEDERAL INCOME TAX, IS NOT A TAX PREFERENCE ITEM UNDER THE FEDERAL ALTERNATIVE
MINIMUM TAX, AND IS EXEMPT FROM THE RELEVANT STATE TAXES SET FORTH ABOVE. The
foregoing policy is a fundamental policy of each Fund and its corresponding
Portfolio and may not be changed unless authorized by a vote of the Fund's
shareholders or that Portfolio's investors, as the case may be.
At least 80% of each Portfolio's net assets will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch")) or, if unrated, determined by the Investment Adviser to
be of at least investment grade quality. The balance of each Portfolio's net
assets may be invested in municipal obligations rated below investment grade
(but not lower than B by Moody's, S&P or Fitch) and unrated municipal
obligations considered to be of comparable quality by the Investment Adviser.
Municipal obligations rated Baa or BBB may have speculative characteristics.
Also, changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than in the
case of higher rated obligations. Securities rated below Baa or BBB are commonly
known as "junk bonds". A Portfolio may retain an obligation whose rating drops
below B after its acquisition if such retention is considered desirable by the
Investment Adviser. See "Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
In pursuing its investment objective, each Portfolio seeks to invest in a
portfolio having a dollar weighted average duration of between three and nine
years. Duration represents the dollar weighted average maturity of expected cash
flows (i.e., interest and principal payments) on one or more debt obligations,
discounted to their present values. The duration of an obligation is usually not
more than its stated maturity and is related to the degree of volatility in the
market value of the obligation. Maturity measures only the time until a bond or
other debt security provides its final payment; it does not take into account
the pattern of a security's payments over time. Duration takes both interest and
principal payments into account and, thus, in the Investment Adviser's opinion,
is a more accurate measure of a debt security's sensitivity to changes in
interest rates. In computing the duration of its portfolio, a Portfolio will
have to estimate the duration of debt obligations that are subject to prepayment
or redemption by the issuer, based on projected cash flows from such
obligations.
Each Portfolio may use various techniques to shorten or lengthen the dollar
weighted average duration of its portfolio, including the acquisition of debt
obligations at a premium or discount, and transactions in futures contracts and
options on futures. Subject to the requirement that its dollar weighted average
portfolio duration will not exceed nine years, a Portfolio may invest in
individual debt obligations of any maturity.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and commercial
paper issued by a municipality for a wide variety of both public and private
purposes, the interest on which is, in the opinion of bond counsel, exempt from
regular Federal income tax. Public purpose municipal bonds include general
obligation and revenue bonds. General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed by the revenues of a
project or facility. Municipal notes include bond anticipation, tax
anticipation, revenue anticipation, and construction loan notes. Bond, tax and
revenue anticipation notes are short-term obligations that will be retired with
the proceeds of an anticipated bond issue, tax revenue or facility revenue,
respectively. Construction loan notes are short-term obligations that will be
retired with the proceeds of long-term mortgage financing. Under normal market
conditions, a Portfolio will invest at least 65% of its total assets in
obligations issued by its respective State or its political subdivisions.
Interest income from certain types of municipal obligations may subject the
recipient to or increase the recipient's liability for the Federal alternative
minimum tax. A Portfolio may not invest more than 20% of its net assets in these
obligations and obligations subject to regular Federal income tax and/or the
relevant State taxes. As at March 31, 1995, the Portfolios had invested in
private activity bonds as follows (as a percentage of net assets): Florida
Portfolio (0%); and New York Portfolio (0%). Distributions to corporate
investors of certain interest income may also be subject to the Federal
alternative minimum tax.
CONCENTRATION. Each Portfolio will concentrate its investments in municipal
obligations issued by its respective State. Each Portfolio is, therefore, more
susceptible to factors adversely affecting issuers in one State than mutual
funds which do not concentrate in a specific State. Municipal obligations of
issuers in a single State may be adversely effected by economic developments and
by legislation and other governmental activities in that State. To the extent
that a Portfolio's assets are concentrated in municipal obligations of issuers
of a single State, that Portfolio may be subject to an increased risk of loss.
Each Portfolio may also invest in obligations issued by the governments of
Puerto Rico, the U.S. Virgin Islands and Guam. See the Appendix to this
Prospectus for a description of economic and other factors relating to the
States and Puerto Rico.
In addition, each Portfolio may invest 25% or more of its assets in
municipal obligations of the same type, including, without limitation, the
following: lease rental obligations of State and local authorities; obligations
of State and local housing finance authorities, municipal utilities systems or
public housing authorities; obligations for hospitals or life care facilities;
or industrial development or pollution control bonds issued for electric utility
systems, steel companies, paper companies or other purposes. This may make a
Portfolio more susceptible to adverse economic, political, or regulatory
occurrences affecting a particular category of issuer. For example, health
care-related issuers are susceptible to medicaid reimbursement policies, and
national and state health care legislation. As a Portfolio's concentration
increases, so does the potential for fluctuation in the value of the
corresponding Fund's shares.
NON-DIVERSIFIED STATUS. Each Portfolio's classification under the Investment
Company Act of 1940 (the "1940 Act") as a "non-diversified" investment company
allows it to invest, with respect to 50% of its assets, more than 5% (but not
more than 25%) of its assets in the securities of any issuer. A Portfolio is
likely to invest a greater percentage of its assets in the securities of a
single issuer than would a diversified fund. Therefore, a Portfolio would be
more susceptible to any single adverse economic or political occurrence or
development affecting issuers of the relevant State's municipal obligations.
OTHER INVESTMENT PRACTICES. Each Portfolio may engage in the following
investment practices, some of which may be considered to involve "derivative"
instruments because they derive their value from another instrument, security or
index.
INSURED OBLIGATIONS. Each Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce a Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of a Fund's shares.
WHEN-ISSUED SECURITIES. Each Portfolio may purchase securities 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. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than a Portfolio agreed to pay for them. Each Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
FUTURES TRANSACTIONS. Each Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the Municipal
Bond Index traded on the Chicago Board of Trade) and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed a
Portfolio's initial investment in these contracts. A Portfolio may not purchase
or sell futures contracts or related options, except for closing purchase or
sale transactions, if immediately thereafter the sum of the amount of margin
deposits and premiums paid on the Portfolio's outstanding positions would exceed
5% of the market value of the Portfolio's net assets. These transactions involve
transaction costs. There can be no assurance that the Investment Adviser's use
of futures will be advantageous to a Portfolio. Distributions by a Fund of any
gains realized on its corresponding Portfolio's transactions in futures and
options on futures will be taxable.
RISK CONSIDERATIONS
Many municipal obligations offering high current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, each Portfolio may invest in municipal obligations rated below
investment grade (but not lower than B by Moody's, S&P or Fitch) and comparable
unrated obligations. The lowest investment grade, lower rated and comparable
unrated municipal obligations in which a Portfolio may invest will have
speculative characteristics in varying degrees. While such 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.
Each Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, a Portfolio may incur additional expense seeking recovery
of its investment. Municipal obligations held by a Portfolio which are rated
below investment grade but which, subsequent to the assignment of such rating,
are backed by escrow accounts containing U.S. Government obligations may be
determined by the Investment Adviser to be of investment grade quality for
purposes of the Portfolio's investment policies. A Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition, if
such retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will not exceed 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 its credit
quality limitations. For a description of municipal obligation ratings, see the
Statement of Additional Information.
The net asset value of shares of a Fund will change in response to
fluctuations in prevailing interest rates and changes in the value of the
securities held by its corresponding Portfolio. When interest rates decline, the
value of securities held by a Portfolio can be expected to rise. Conversely,
when interest rates rise, the value of most portfolio security holdings can be
expected to decline. Because each Portfolio intends to limit its average
portfolio duration to no more than nine years, the net asset value of its
corresponding Fund can be expected to be less sensitive to changes in interest
rates than that of a fund with a longer average portfolio duration. Changes in
the credit quality of the issuers of municipal obligations held by a Portfolio
will affect the principal value of (and possibly the income earned on) such
obligations. In addition, the values of such securities are affected by changes
in general economic conditions and business conditions affecting the specific
industries of their issuers. Changes by recognized rating services in their
ratings of a security and in the ability of the issuer to make payments of
principal and interst may also affect the value of a Portfolio's investments.
The amount of information about the financial condition of an issuer of
municipal obligations may not be as extensive as that made available by
corporations whose securities are publicly traded. An investment in shares of a
Fund will not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be invested in
securities as to which the Portfolio, by itself or together with other accounts
managed by the Investment Adviser and its affiliates, holds a major portion or
all of such securities. Under adverse market or economic conditions or in the
event of adverse changes in the financial condition of the issuer, the Portfolio
could find it more difficult to sell such securities when the Investment Adviser
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of such
securities for purposes of computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a State
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. The Portfolio will not invest in illiquid securities if more than
15% of its 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, the 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.
Certain securities held by the Portfolio may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem 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.
Some of the securities in which a Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. Each Portfolio is required to accrue and distribute income from
zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, a Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
Each Portfolio may invest in 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.
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.
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EACH FUND AND PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER
VOTE AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED
RESTRICTIONS AND AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT
OBJECTIVE AND POLICIES OF EACH FUND AND PORTFOLIO ARE NOT FUNDAMENTAL
POLICIES AND ACCORDINGLY MAY BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE
PORTFOLIO WITHOUT OBTAINING THE APPROVAL OF A FUND'S SHAREHOLDERS OR THE
INVESTORS IN THE CORRESPONDING PORTFOLIO, AS THE CASE MAY BE. IF ANY CHANGES
WERE MADE IN A FUND'S INVESTMENT OBJECTIVE, THE FUND MIGHT HAVE INVESTMENT
OBJECTIVES DIFFERENT FROM THE OBJECTIVE WHICH AN INVESTOR CONSIDERED
APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN THE FUND.
------------------------------------------------------------------------------
ORGANIZATION OF THE FUNDS AND THE PORTFOLIOS
------------------------------------------------------------------------------
Each Fund is a non-diversified series of Eaton Vance Investment Trust, a
business trust established under Massachusetts law pursuant to a Declaration of
Trust dated October 23, 1985, as amended and restated. The Trust is a mutual
fund -- an open-end management investment company. THE TRUSTEES OF THE TRUST ARE
RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF ITS AFFAIRS. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series and because the Trust can offer separate series
(such as the Funds) it is known as a "series company." Each share represents an
equal proportionate beneficial interest in a Fund. When issued and outstanding,
each Fund's shares are fully paid and nonassessable by the Trust and redeemable
as described under "How to Redeem Fund Shares." Shareholders are entitled to one
vote for each full share held. Fractional shares may be voted proportionately.
Shares have no preemptive or conversion rights and are freely transferable. In
the event of the liquidation of a Fund, shareholders of that Fund are entitled
to share pro rata in the net assets available for distribution to shareholders.
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. The
Portfolios, as well as the Trust, intend to comply with all applicable Federal
and state securities laws. Each Portfolio's Declaration of Trust provides that
its corresponding Fund and other entities permitted to invest in that 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 a 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 Funds nor their shareholders will be
adversely affected by reason of the Funds investing in the Portfolios.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in a
Fund should be aware that the Fund, unlike mutual funds which directly acquire
and manage their own portfolios of securities, seeks to achieve its investment
objective by investing its assets in an interest in its corresponding Portfolio
(although the Fund may temporarily hold a de minimus amount of cash), which is a
separate investment company with an identical investment objective. Therefore, a
Fund's interest in the securities owned by its corresponding Portfolio is
indirect. In addition to selling an interest to its corresponding Fund, a
Portfolio may sell interests to other affiliated and non-affiliated mutual funds
or institutional investors. Such investors will invest in a Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in a Portfolio are not required
to sell their shares at the same public offering price as the corresponding Fund
due to variations in sales commissions and other operating expenses. Therefore,
investors in a Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in its corresponding Portfolio. Such differences in returns are also present in
other mutual fund structures, including funds that have multiple classes of
shares. For information regarding the investment objective, policies and
restrictions of the Portfolios, see "The Funds" Investment Objectives" and "How
the Funds and the Portfolios Invest their Assets". Further information regarding
investment practices may be found in the Statement of Additional Information.
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 substantial growth in the assets of
the Portfolios, and affords the potential for economies of scale for each Fund,
at least when the assets of its corresponding Portfolio exceed $500 million.
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. The investment
objective and the nonfundamental investment policies of each Fund and Portfolio
may be changed by the Trustees of the Trust and the Portfolio without obtaining
the approval of the shareholders of that Fund or the investors in that
Portfolio, as the case may be. Any such change of an investment objective will
be preceded by thirty days' advance written notice to the shareholders of the
Fund or the investors in the Portfolio, as the case may be. 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, such 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
from its corresponding Portfolio.
Information regarding other pooled investment entities or funds which invest
in a Portfolio may be obtained by contacting Eaton Vance Distributors, Inc. (the
"Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA 02110, (617)
482-8260. Smaller investors in a Portfolio may be adversely affected by the
actions of larger investors in the Portfolio. For example, if a large investor
withdraws from a Portfolio, the remaining investors may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, a
Portfolio may become less diverse, resulting in increased portfolio risk, and
experience decreasing economies of scale. However, this possibility exists as
well for historically structured funds which have large or institutional
investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Funds may be subject to additional regulations than
historically structured funds.
Each Portfolio's Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of a Fund or any other investor
in the Portfolio, unless either the remaining investors, by unanimous vote at a
meeting of such investors, or a majority of the Trustees of the Portfolio, by
written instrument consented to by all investors, agree to continue the business
of the Portfolio. This provision is consistent with treatment of the Portfolios
as partnerships for Federal income tax purposes. See "Distributions and Taxes"
for further information. Whenever a Fund as an investor in a Portfolio is
requested to vote on matters pertaining to the Portfolio (other than the
termination of the Portfolio's business, which may be determined by the Trustees
of the Portfolio without investor approval), the Fund will hold a meeting of
Fund shareholders and will vote its interest in the Portfolio for or against
such matters proportionately to the instructions to vote for or against such
matters received from Fund shareholders. A Fund shall vote shares for which it
receives no voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the
corresponding Fund to withdraw its investment in the Portfolio or take other
appropriate action. Any such withdrawal could result in a distribution "in kind"
of portfolio securities (as opposed to a cash distribution from the Portfolio).
If securities are distributed, a Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of a Fund. Notwithstanding the above, there are other means
for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of each Portfolio are the same. Such procedures require
each Board to take action to resolve any conflict of interest between a Fund and
its corresponding Portfolio, and it is possible that the creation of separate
Boards may be considered. For further information concerning the Trustees and
officers of the Trust and the Portfolios, see the Statement of Additional
Information.
Although each Fund offers only its own shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Prospectus regarding another Fund because the Funds use this combined
Prospectus. The Trustees of the Trust have considered this factor in approving
the use of a combined Prospectus.
MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS
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EACH PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of each
Portfolio, BMR manages each Portfolio's investments and affairs. Under its
investment advisory agreement with a Portfolio, BMR receives a monthly advisory
fee equal to the aggregate of
(a) a daily asset-based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross income
on such day as that portion of the total daily net assets in the same
Category bears to the total daily net assets on such day) in each
Category as indicated below:
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ---------------- ---------- -----------
1 up to $500 million .................... 0.300% 3.00%
2 $500 million but less than $1 billion . 0.275% 2.75%
3 $1 billion but less than $1.5 billion . 0.250% 2.50%
4 $1.5 billion but less than $2 billion . 0.225% 2.25%
5 $2 billion but less than $3 billion ... 0.200% 2.00%
6 $3 billion and over ................... 0.175% 1.75%
For the period ended March 31, 1995, each Portfolio paid advisory fees
equivalent to the annualized percentage of average daily net assets stated
below. BMR furnishes for the use of each Portfolio office space and all
necessary office facilities, equipment and personnel for servicing the
investments of the Portfolios.
NET ASSETS
AS OF
PORTFOLIO MARCH 31, 1995 ADVISORY FEE
--------- -------------- ------------
Florida ............................ $164,578,915 0.46%
New York .......................... 173,632,424 0.46%
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolios and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Funds or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
Raymond E. Hender has acted as the portfolio manager of each Portfolio since
it commenced operations. He joined Eaton Vance and BMR as a Vice President in
1992. Previously, he was a Senior Vice President of Bank of New England
(1989-1992) and a Portfolio Manager of Fidelity Management & Research Company
(1977-1988).
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Funds. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of each Fund by
investing the Fund's assets in its corresponding Portfolio. As Administrator,
Eaton Vance provides the Funds with general office facilities and supervises the
overall administration of the Fund. For these services Eaton Vance currently
receives no compensation. The Trustees of the Trust may determine, in the
future, to compensate Eaton Vance for such services.
The Portfolios and the Funds, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
Such costs and expenses to be borne by the Portfolios and the Funds, as the case
may be, include, without limitation; custody and transfer agency fees and
expenses, including those incurred for determining net asset value and keeping
accounting books and records; expenses of pricing and valuation services; the
cost of share certificates; membership dues in investment company organizations;
expenses of acquiring, holding and disposing of securities and other
investments; fees and expenses of registering under the securities laws and the
governmental fees; expenses of reporting to shareholders and investors; proxy
statements and other expenses of shareholders' or investors' meetings; insurance
premiums; printing and mailing expenses; interest, taxes and corporate fees;
legal and accounting expenses; compensation and expenses of Trustees not
affiliated with BMR or Eaton Vance; and investment advisory fees, and, if any,
administrative services fees. The Portfolios and the Funds will also each bear
expenses incurred in connection with litigation in which each of the Portfolios
or the Funds, as the case may be, is a party and any legal obligation to
indemnify its respective officers and Trustees with respect thereto.
SERVICE PLANS
-------------------------------------------------------------------------------
In addition to advisory fees and other expenses, each Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the requirements of
Rule 12b-1 under the 1940 Act and the service fee requirements of the revised
sales charge rule of the National Association of Securities Dealers, Inc. EACH
FUND'S PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE PAYMENTS FOR PERSONAL
SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO THE PRINCIPAL
UNDERWRITER, FINANCIAL SERVICE FIRMS ("AUTHORIZED FIRMS") AND OTHER PERSONS IN
AMOUNTS NOT EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR ANY FISCAL
YEAR. The Trustees of the Trust have initially implemented each Fund's Plan by
authorizing the Fund to make quarterly service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .15% of the
Fund's average daily net assets for any fiscal year based on the value of Fund
shares sold by such persons and remaining outstanding for at least twelve
months. However, each Fund's Plan authorizes the Trustees of the Trust on behalf
of the Fund to increase payments to the Principal Underwriter, Authorized Firms
and other persons from time to time without further action by shareholders of
the Fund, provided that the aggregate amount of payments made to such persons
under the Plan in any fiscal year of the Fund does not exceed .25% of the Fund's
average daily net assets. Each Fund expects to begin accruing for its service
fee payments during the quarter ending September 30, 1995. The Plan is described
further in the Statement of Additional Information.
VALUING FUND SHARES
------------------------------------------------------------------------------
EACH FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). Each Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of a Fund's total assets, less
its liabilities, by the number of shares outstanding. Because each Fund invests
its assets in an interest in its corresponding Portfolio, the Fund's net asset
value will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share and the public offering price
based thereon. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter, which is a wholly-owned subsidiary of
Eaton Vance.
Each Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio), based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of the Portfolio from the value of its total assets. Municipal
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolios' assets, see "Determination of Net Asset Value" in the Statement of
Additional Information. Eaton Vance Corp. owns 77.3% of the outstanding stock of
IBT, the Funds' and the Portfolios' custodian.
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SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
------------------------------------------------------------------------------
SHARES OF A FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of a Fund through Authorized Firms at
the effective public offering price, which price is based on the effective net
asset value per share plus the applicable sales charge. A Fund receives the net
asset value, while the sales charge is divided between the Authorized Firm and
the Principal Underwriter. The Principal Underwriter will furnish the names of
Authorized Firms to an investor upon request. A Fund may suspend the offering of
shares at any time and may refuse an order for the purchase of shares. Shares of
each Fund are offered for sale only in States where such shares may be legally
sold.
The sales charge may vary depending on the size of the purchase and the
number of shares of Eaton Vance funds the investor may already own, any
arrangement to purchase additional shares during a 13-month period or special
purchase programs. Complete details of how investors may purchase shares at
reduced sales charges under a Statement of Intention, Right of Accumulation, or
various Employee Benefit Plans are available from Authorized Firms or the
Principal Underwriter.
The current sales charges and dealer commissions are:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER COMMISSION
AS PERCENTAGE OF AS PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
<S> <C> <C> <C>
Less than $50,000 ............................................... 2.50% 2.56% 2.75%
$50,000 but less than $100,000 .................................. 2.25 2.30 2.50
$100,000 but less than $250,000 ................................. 1.75 1.78 2.00
$250,000 but less than $500,000 ................................. 1.25 1.27 1.50
$500,000 but less than $1,000,000 ............................... 0.75 0.76 1.00
$1,000,000 or more .............................................. 0.00<F1> 0.00<F1> 0.25<F2>
<FN>
<F1> Fund shares purchased before March 27, 1995, at net asset value with no
initial sales charge by virtue of the purchase having been in the amount
of $1 million or more may be subject to a contingent deferred sales
charge upon redemption.
<F2> The Principal Underwriter may pay Authorized Firms that initiate and are
responsible for purchases of $1 million or more a commission at an annual
rate of 0.25% of average daily net assets paid quarterly for one year.
</TABLE>
The Principal Underwriter may at times allow discounts up to the full sales
charge. During periods when the discount includes the full sales charge,
Authorized Firms may be deemed to be underwriters as that term is defined in the
Securities Act of 1933. The Principal Underwriter may, from time to time, at its
own expense, provide additional incentives to Authorized Firms which employ
registered representatives who sell a minimum dollar amount of a Fund's shares
and/or shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of shares.
An initial investment in a Fund must be at least $1,000. Once an account has
been established the investor may send investments of $50 or more at any time
directly to the Funds' transfer agent (the "Transfer Agent") as follows: The
Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104. The
$1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
Shares of a Fund may be sold at net asset value to current and retired
Directors and Trustees of Eaton Vance funds, including the Portfolios; to
officers and employees and clients of Eaton Vance and its affiliates; to
registered representatives and employees of Authorized Firms and bank employees
who refer customers to registered representatives of Authorized Firms; and to
such persons' spouses and children under the age of 21 and their beneficial
accounts. Shares may also be issued at net asset value (1) in connection with
the merger of an investment company with a Fund, (2) to investors making an
investment as part of a fixed fee program whereby an entity unaffiliated with
the Investment Adviser provides multiple investment services, such as
management, brokerage and custody, and (3) where the amount invested represents
redemption proceeds from a mutual fund unaffiliated with Eaton Vance, if the
redemption occurred no more than 60 days prior to the purchase of Fund shares
and the redeemed shares were subject to a sales charge.
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 at the applicable public offering price as determined above. The
minimum value of securities (or securities and cash) accepted for deposit is
$5,000. Securities accepted will be sold by IBT as agent for the account of
their owner on the day of their receipt by IBT 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 per Fund share 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 the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Traditional [State name] Limited Maturity Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional [State name] Limited Maturity Tax Free Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of a
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities. Exchanging securities
for Fund 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 for Fund shares.
------------------------------------------------------------------------------
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
------------------------------------------------------------------------------
HOW TO REDEEM FUND SHARES
------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per share of the applicable Fund next computed after such
delivery. Good order means that all relevant documents must be endorsed by the
record owner(s) exactly as the shares are registered and the signature(s) must
be guaranteed by a member of either the Securities Transfer Association's STAMP
program or the New York Stock Exchange's Medallion Signature Program, or certain
banks, savings and loan institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered securities associations
as required by a regulation of the Securities and Exchange Commission (the
"Commission") and acceptable to The Shareholder Services Group, Inc. In
addition, in some cases, good order may require the furnishing of additional
documents such as where shares are registered in the name of a corporation,
partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by The
Shareholder Services Group, Inc., a Fund will make payment in cash for the net
asset value of the shares as of the date determined above and reduced by the
amount of any Federal income tax required to be withheld. Although each Fund
normally expects to make payment 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 by that Fund
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.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Funds' agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of a redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, each Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make
additional purchases. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares.
REPORTS TO SHAREHOLDERS
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EACH FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Funds' independent certified public accountants. Shortly
after the end of each calendar year, each Fund will furnish its shareholders
with information necessary for preparing Federal and State tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
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AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUNDS' TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE APPLICABLE FUND'S RECORDS. This account is a
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. A Fund will not issue share
certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS IN
SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE to The Shareholder Services
Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA, 02104 (please provide the name of the shareholder, the
Fund and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Funds' dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in additional
shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options set
forth above, dividends and/or capital gains may be invested in additional shares
of another Eaton Vance fund. Before selecting this option, a shareholder should
obtain a prospectus of the other Eaton Vance fund and consider its objectives
and policies carefully.
"STREET NAME" ACCOUNTS. If shares of a Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with a
Fund involves special procedures and will require the beneficial owner to obtain
historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
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UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF A FUND BY SENDING A CHECK FOR $50 OR MORE.
------------------------------------------------------------------------------
THE EATON VANCE EXCHANGE PRIVILEGE
------------------------------------------------------------------------------
Shares of a Fund currently may be exchanged for shares of any of the following
funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of Boston,
Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any fund
in the Eaton Vance Traditional Group of Funds on the basis of the net asset
value per share of each fund at the time of the exchange (plus, in the case of
an exchange made within six months of the date of purchase, an amount equal to
the difference, if any, between the sales charge previously paid on the shares
being exchanged and the sales charge payable on the shares being acquired). Such
exchange offers are available only in States where shares of the fund being
acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Funds do not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain other funds advised or administered by Eaton Vance may be
exchanged for Fund shares on the basis of the net asset value per share of each
fund at the time of the exchange, but subject to any restrictions or
qualifications set forth in the current prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.,
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as the
shares being exchanged. Neither the Funds, the Principal Underwriter nor The
Shareholder Services Group, Inc. will be responsible for the authenticity of
exchange instructions received by telephone, provided that reasonable procedures
to confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An exchange
may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
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THE FUNDS OFFER THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the applicable Fund as an expense to all
shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
being purchased may be mailed directly to The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104 at any time -- whether or not
distributions are reinvested. The name of the shareholder, the Fund and the
account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
STATEMENT OF INTENTION: Purchases of $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "Statement of Intention and
Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges when the
current market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Shares of the Eaton Vance funds listed under
"The Eaton Vance Exchange Privilege" may be combined under the Statement of
Intention and Right of Accumulation.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A
minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST AT NET ASSET VALUE ANY PORTION OR ALL OF THE REPURCHASE OR REDEMPTION
PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO ROUND OFF
THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF A FUND, or, provided that
the shares repurchased or redeemed have been held for at least 60 days, in
shares of any of the other funds offered by the Principal Underwriter subject to
an initial sales charge, provided that the reinvestment is effected within 60
days after such repurchase or redemption, and the privilege has not been used
more than once in the prior 12 months. Shares are sold to a reinvesting
shareholder at the next determined net asset value following timely receipt of a
written purchase order by the Principal Underwriter or by the fund whose shares
are to be purchased (or by such fund's transfer agent). The privilege is also
available to holders of shares of the other funds offered by the Principal
Underwriter subject to an initial sales charge who wish to reinvest such
redemption or repurchase proceeds in shares of a Fund. To the extent that any
shares of a Fund are sold at a loss and the proceeds are reinvested in shares of
the Fund (or other shares of the Fund are acquired within the period beginning
30 days before and ending 30 days after the date of the redemption) some or all
of the loss generally will not be allowed as a tax deduction. Special rules may
apply to the computation of gain or loss and to the deduction of loss on a
repurchase or redemption followed by a reinvestment. See "Distributions and
Taxes". Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
DISTRIBUTIONS AND TAXES
------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO A FUND BY ITS
CORRESPONDING PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE
DECLARED DAILY AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF
DECLARATION. Such distributions, whether taken in cash or reinvested in
additional shares, will ordinarily be paid on the last day of each month or the
next business day thereafter. Each Fund anticipates that for tax purposes the
entire distribution, whether paid in cash or reinvested in additional shares,
will constitute tax-exempt income to shareholders, except for the proportionate
part of the distribution that may be considered taxable income if the Fund has
taxable income during the calendar year. Shareholders reinvesting the monthly
distribution should treat the amount of the entire distribution as the tax cost
basis of the additional shares acquired by reason of such reinvestment. Daily
distribution crediting will commence on the day that collected funds for the
purchase of Fund shares are available at the Transfer Agent. Shareholders of a
Fund will receive timely Federal income tax information as to the tax-exempt or
taxable status of all distributions made by the Fund during the calendar year. A
Fund's net realized capital gains, if any, consist of the net realized capital
gains allocated to the Fund by its corresponding Portfolio for tax purposes,
after taking into account any available capital loss carryovers; a Fund's net
realized capital gains, if any, will be distributed at least once a year,
usually in December.
Sales charges paid upon a purchase of Fund shares 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 shares of a
Fund or of another fund are subsequently acquired pursuant to a Fund's
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.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of Federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, each Fund will
treat itself as owning its proportionate share of each of its corresponding
Portfolio's assets and as entitled to the income of the Portfolio properly
attributable to such share.
------------------------------------------------------------------------------
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, EACH FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO
SHAREHOLDERS ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN
ACCORDANCE WITH THE TIMING REQUIREMENTS IMPOSED BY THE CODE. AS PARTNERSHIPS
UNDER THE CODE, THE PORTFOLIOS DO NOT PAY FEDERAL INCOME OR EXCISE TAXES.
------------------------------------------------------------------------------
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 6). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares of a Fund.
Tax-exempt distributions received from a Fund are includable in the tax base
for determining the taxability of social security and railroad retirement
benefits.
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 distribution 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 would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
SEE THE APPENDIX TO THIS PROSPECTUS FOR INFORMATION CONCERNING STATE TAXES.
Shareholders should consult their own tax advisers with respect to the State,
local and foreign tax consequences of investing in a Fund.
PERFORMANCE INFORMATION
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FROM TIME TO TIME, EACH FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. Each Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share of the Fund on the last day of the period and annualizing the
resulting figure. A taxable-equivalent yield is computed by using the tax-exempt
yield figure and dividing by one minus the tax rate. Each Fund's average annual
total return is determined by multiplying a hypothetical initial purchase order
of $1,000 by the average annual compounded rate of return (including capital
appreciation/depreciation, and dividends and distributions paid and reinvested)
for the stated period and annualizing the result. The average annual total
return calculation assumes the maximum sales charge is deducted from the initial
$1,000 purchase order and that all distributions are reinvested at net asset
value on the reinvestment dates during the period. Each Fund may publish annual
and cumulative total return figures from time to time. The Fund may quote total
return for the period prior to commencement of operations which would reflect
the Portfolio's total return (and that of its predecessor) adjusted to reflect
any applicable Fund sales charge.
Each Fund may also publish its distribution rate and/or its effective
distribution rate. Each Fund's distribution rate is computed by dividing the
most recent monthly distribution per share annualized by the current maximum
offering price per share (including the maximum sales charge). Each Fund's
effective distribution rate is computed by dividing the distribution rate by the
ratio used to annualize the most recent monthly distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investors should note that a
Fund's yield is calculated using a standardized formula the income component of
which is computed from the yields to maturity of all debt obligations held by
the Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on a Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
The Funds may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which is
based on a Fund's net asset value per share would be reduced if a sales charge
were taken into account.
Investors should note that the investment results of a Fund will fluctuate
over time, and any presentation of the Fund's yield, total return, distribution
rate or effective distribution rate for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period. If the expenses related to the operation of a Fund or its
corresponding Portfolio are allocated to Eaton Vance, the Fund's performance
will be higher.
STATEMENT OF INTENTION AND ESCROW AGREEMENT
------------------------------------------------------------------------------
TERMS OF ESCROW. If the investor, on an application, makes a Statement of
Intention to invest a specified amount over a thirteen-month period, then out of
the initial purchase (or subsequent purchases if necessary) 5% of the dollar
amount specified on the application shall be held in escrow by the escrow agent
in the form of shares (computed to the nearest full share at the public offering
price applicable to the initial purchase hereunder) registered in the investor's
name. All income dividends and capital gains distributions on escrowed shares
will be paid to the investor or to the investor's order.
When the minimum investment so specified is completed, the escrowed shares
will be delivered to the investor. If the investor has an accumulation account
the shares will remain on deposit under the investor's account.
If total purchases under this Statement of Intention are less than the
amount specified, the investor will promptly remit to EVD any difference between
the sales charge on the amount specified and on the amount actually purchased.
If the investor does not within 20 days after written request by EVD or the
Authorized Firm pay such difference in sales charge, the escrow agent will
redeem an appropriate number of the escrowed shares in order to realize such
difference. Full shares remaining after any such redemption together with any
excess cash proceeds of the shares so redeemed will be delivered to the investor
or to the investor's order by the escrow agent.
In signing the application, the investor irrevocably constitutes and
appoints the escrow agent the investor's attorney to surrender for redemption
any or all escrowed shares with full power of substitution in the premises.
PROVISION FOR RETROACTIVE PRICE ADJUSTMENT. If total purchases made under this
Statement are large enough to qualify for a lower sales charge than that
applicable to the amount specified, all transactions will be computed at the
expiration date of this Statement to give effect to the lower charge. Any
difference in sales charge will be refunded to the investor in cash, or applied
to the purchase of additional shares at the lower charge if specified by the
investor. This refund will be made by the Authorized Firm and by EVD. If at the
time of the recomputation a firm other than the original firm is placing the
orders, the adjustment will be made only on those shares purchased through the
firm then handling the investor's account.
<PAGE>
APPENDIX
STATE SPECIFIC INFORMATION
Because each Portfolio will normally invest at least 65% of its assets in
the obligations within its corresponding State, it is susceptible to factors
affecting that State. Each Portfolio may also invest up to 5% of its net assets
in obligations issued by the governments of Guam and the U.S. Virgin Islands and
up to 35% of its assets in obligations issued by the government of Puerto Rico.
Set forth below is certain economic and tax information concerning the States in
which the Portfolios invest and Puerto Rico.
The bond ratings provided below are current as of the date of this
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.
FLORIDA. Florida's financial operations are considerably different than most
other states because, under the State's constitution, there is no state income
tax. The lack of an income tax exposes total State tax collections to
considerably more volatility than would otherwise be the case and, in the event
of an economic downswing, could effect the State's ability to pay principal and
interest in a timely manner. The General Fund budget for 1994-95 includes
revenues of $14.6 billion and expenditures of $14.3 billion. Due to lower than
expected revenue collections, revenue estimates have been reduced by 1.1% for
1994-95. Unencumbered reserves are projected to be $252.6 million, or 1.8% of
expenditures for fiscal year 1995. Unemployment in the State for April, 1995 was
5.6%, compared to the national unemployment rate of 5.8%.
In 1993, the State constitution was amended to limit the annual growth in
the assessed valuation of residential property and which, over time, could
constrain the growth in property taxes, a major revenue source for local
governments. While no immediate ratings implications are expected, the amendment
could have a negative impact on the financial performance of local governments
over time and lead to ratings revisions which may have a negative impact on the
prices of affected bonds.
General obligations of Florida are rated Aa, AA and AA by Moody's, S&P and
Fitch, respectively. S&P presently regards the outlook for the State as stable.
FLORIDA TAXES. The Florida Department of Revenue has issued a ruling that
shareholders of the Florida Fund that are subject to the Florida intangibles tax
will not be required to include the value of their Florida Fund shares in their
taxable intangible property if all of the Florida Portfolio's investments on the
annual assessment date are obligations that would be exempt from such tax if
held directly by such shareholders, such as Florida and U.S. Government
obligations. The Florida Portfolio will normally attempt to invest substantially
all of its assets in tax-exempt obligations of Florida, the United States, the
Territories or political subdivisions of the United States or Florids ("Florida
Obligations"), and it will ensure that all of its assets held on the annual
assessment date are exempt from the Florida intangibles tax. Accordingly, the
value of the Florida Fund shares held by a shareholder should under normal
circumstances be exempt from the Florida intangibles tax.
NEW YORK. New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a comparatively small share of the
nation's farming and mining activity. However, as the result of a recession
ending in the first quarter of 1993, 560,000 jobs were lost statewide (equal to
6.7% of the peak employment figure for 1989). Although the State has added
approximately 185,000 jobs since November 1992, employment growth in the State
has been hindered during recent years by significant cutbacks in the computer,
manufacturing, defense and banking industries. New York's economy is expected to
continue to expand modestly during 1995 with a pronounced slow-down during the
course of the year. In the 1992-1993 fiscal year, however, the State began the
process of financial reform. The State Financial Plans for the 1992-1993,
1993-1994 and 1994-1995 fiscal years produced positive fund balances at the end
of all three fiscal years.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State. In some cases, the State has had to
provide special assistance in recent years to enable such agencies, authorities
and localities to meet their financial obligations and, in some cases, to
prevent or cure defaults. To the extent State agencies and local governments
require State assistance to meet their financial obligations, the ability of the
State to meet its own obligations as they become due or to obtain additional
financing could be adversely affected.
Like the State, New York City has experienced financial difficulties in
recent years and currently continues to experience such difficulties owing, in
part, to lower than anticipated revenues. Because New York City taxes comprise
approximately 40% of the State's tax base, the City's difficulties adversely
affect the State.
In June, 1995, the Governor approved the 1995-1996 budget, included adoption
of a three-year 20% reduction in the State's personal income tax. In combination
with business tax reductions enacted in 1994, State taxes will be reduced by
$5.5 billion by the 1997-1998 fiscal year. The 1995-1996 State Financial Plan,
based on the enacted 1995-1996 budget, includes gap-closing actions to offset a
projected budget gap of $5 billion, the largest in the State's history.
On June 7, 1995, the New York State Legislature passed the State's 1995-
1996 $33.1 billion budget, which was $344 million less than the actual level of
spending on the 1994-1995 fiscal year. Significant year to year spending
reductions are projected in Medicaid and State agency operating costs.
Legislation was enacted to reduce by 20 percent the State's personal income tax.
Under this three-year legislation, tax rates will drop, tax brackets will be
accelerated and standard deductions will be increased.
New York's general obligations are rated A, A- and A+ by Moody's, S&P and
Fitch, respectively. S&P currently assesses the rating outlook for New York
obligations as positive. New York City obligations are rated Baa1, BBB+ and A-
by Moody's, S&P and Fitch, respectively. On July 10, 1995, S&P revised downward
its rating on City general obligation bonds from A- to BBB+ and removed City
bonds from CreditWatch. S&P stated that the downgrade was a reflection of the
City's inability to eliminate a structural budget imbalance due to persistent
softness in the City's economy, weak job growth, a trend of using nonrecurring
budget devices, optimistic projections of State and federal aid and high levels
of debt service.
NEW YORK TAXES. In the opinion of Brown & Wood, under New York law, for
individuals subject to the New York State or New York City personal income tax,
dividends paid by the New York Fund are exempt from New York State and New York
City income tax for individuals who reside in New York to the extent such
dividends are excluded from gross income for Federal income tax purposes and are
derived from interest payments on tax-exempt obligations issued by or on behalf
of New York State and its political subdivisions and agencies, and the
governments or Puerto Rico, the U.S. Virgin Islands and Guam. Other
distributions from the New York Fund, including distributions derived from
taxable ordinary income and net short-term and long-term capital gains, are
generally not exempt from New York State or City personal income tax.
PUERTO RICO, GUAM, AND THE U.S. VIRGIN ISLANDS. The economy of Puerto Rico
is dominated by the manufacturing and service sectors. Although the economy of
Puerto Rico expanded significantly from fiscal 1984 through fiscal 1990, the
rate of this expansion slowed during fiscal years 1991, 1992 and 1993. Growth in
fiscal 1994 will depend on several factors, including the state of the U.S.
economy and the relative stability in the price of oil, the exchange rate of the
U.S. dollar and the cost of borrowing. Although the Puerto Rico unemployment
rate has declined substantially since 1985, the seasonally adjusted unemployment
rate for February, 1995 was approximately 12.5%. The North American Free Trade
Agreement (NAFTA), which became effective January 1, 1994, could lead to the
loss of Puerto Rico's lower salaried or labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligations debt A, while Moody's rates it
Baa1; these ratings have been in place since 1956 and 1976, respectively. S&P
assigned a stable outlook on Puerto Rico on April 26, 1994.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV TRADITIONAL LIMITED MATURITY
TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
EV TRADITIONAL FLORIDA
LIMITED MATURITY TAX FREE FUND
EV TRADITIONAL
NEW YORK
LIMITED MATURITY
TAX FREE FUND
PROSPECTUS
AUGUST 1, 1995
T-LC8/1P
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1995
EV TRADITIONAL LIMITED MATURITY TAX FREE FUNDS
EV TRADITIONAL FLORIDA LIMITED MATURITY TAX FREE FUND
EV TRADITIONAL NEW YORK LIMITED MATURITY TAX FREE FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about the Funds listed above (each a "Fund") and
certain other series of Eaton Vance Investment Trust (the "Trust"). As described
in the Prospectus, each Fund invests its assets in a separate registered
investment company (a "Portfolio") with the same investment objective and
policies as the Fund. Each Part II provides information solely about a Fund and
its corresponding Portfolio. Where appropriate, Part I includes cross-references
to the relevant sections of Part II.
TABLE OF CONTENTS Page
PART I
Additional Information about Investment Policies .............. 1
Investment Restrictions ....................................... 8
Trustees and Officers ......................................... 8
Investment Adviser and Administrator ......................... 10
Custodian ..................................................... 12
Services for Accumulation ..................................... 12
Service for Withdrawal ........................................ 13
Determination of Net Asset Value .............................. 13
Investment Performance ........................................ 14
Taxes ......................................................... 17
Principal Underwriter ......................................... 19
Service Plan .................................................. 20
Portfolio Security Transactions ............................... 20
Other Information ............................................. 22
Independent Certified Public Accountants ...................... 23
Financial Statements .......................................... 23
Appendix ...................................................... 24
PART II
EV Traditional Florida Limited Maturity Tax Free Fund ......... a-1
EV Traditional New York Limited Maturity Tax Free Fund ........ b-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund might become liable for a misstatement or omission in this
Statement of Additional Information regarding another Fund because the Funds use
this combined Statement of Additional Information. The Trustees of the Trust
have considered this factor in approving the use of a combined Statement of
Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED AUGUST 1, 1995, AS SUPPLEMENTED FROM
TIME TO TIME. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE
BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
The Part I provides information about the Fund, certain other series of the
Trust and the Portfolio. Capitalized terms used in this Statement of Additional
Information and not otherwise defined have the meanings given them in the Fund's
Prospectus. The Fund is subject to the same investment policies as those of the
Portfolio. The Fund currently seeks to achieve its objective by investing in the
Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such 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. 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 Federal alternative minimum tax: (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. In assessing the Federal income tax treatment of interest on any
municipal obligation, the Portfolio 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.
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 the 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 Federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
Federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income as income attributable to
private activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is 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 minimus amount.
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.
The principal security for a revenue bond is generally 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.
The 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.
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.
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. The 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 Boston Management and Research (the
"Investment Adviser")) to evaluate or protect any real estate, facilities or
other assets securing any such obligation or acquired by the Portfolio as a
result of any such event, and the 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 Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P") and Fitch Investors Service, Inc. ("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 municipal obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
Municipal Obligations. For a discussion of the risks associated with the
Portfolio's policy of concentrating its investments in particular issuers of
municipal obligations, see "Risks of Concentration" in the Fund's Part II of
this Statement of Additional Information.
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or more
of its total assets in municipal obligations whose issuers are located in the
same state or 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 the industrial
revenue bonds listed above 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.
Pollution control and other industrial development bonds are issued by state
or local agencies to finance various projects, including those of domestic steel
producers, and may be backed solely by agreements with such companies. Domestic
steel companies are expected to suffer the consequences of such adverse trends
as high labor costs, high foreign imports encouraged by foreign productivity
increases and a strong U.S. dollar, and other cost pressures such as those
imposed by anti-pollution legislation. Domestic steel capacity is being reduced
currently by large-scale plant closings and this period of rationalization may
not end until further legislative protection is provided through tariff price
supports or mandatory import quotas, such as those recently enacted for certain
specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state industrial development
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject to
a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt service
payments. Moreover, since a portion of housing, medical care and other services
may be financed by an initial deposit, it is important that the facility
maintain adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost pressures is
an important factor in this process. The facilities may also be affected
adversely by regulatory cost restrictions applied to health care delivery in
general, particularly state regulations or changes in Medicare and Medicaid
payments or qualifications, or restrictions imposed by medical insurance
companies. They may also face competition from alternative health care or
conventional housing facilities in the private or public sector.
Obligations of Puerto Rico, U.S. Virgin Islands and Guam. Subject to the
Fund's investment policies as set forth in its Prospectus, the Portfolio may
invest 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 affecting the issuers
of such obligations.
Puerto Rico has a diversified economy dominated by the manufacturing and
service sectors. Manufacturing is the largest sector in terms of gross domestic
product and is more diversified than during earlier phases of Puerto Rico's
industrial development. The three largest sectors of the economy (as a
percentage of employment) are services (47%), government (22%) and manufacturing
(16.4%). These three sectors represent 39%, 11% and 39%, respectively, of the
gross domestic product. The service sector is the fastest growing, while the
government and manufacturing sectors have been stagnant for the past five years.
This decline was broad based among all manufacturing industries. The North
American Free Trade Agreement (NAFTA), which became effective January 1, 1994,
could lead to the loss of Puerto Rico's lower salaried or labor intensive jobs
to Mexico. The February, 1995 unemployment rate was 12.5%, down from 16% for
1994.
The Commonwealth of Puerto Rico exercises virtually the same control over
its internal affairs as do the fifty states; however, it 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 Internal Revenue Code was amended and provided for two
alternative limitations to the Section 936 credit. The first option will limit
the credit against such income to 40% of the credit allowable under current law,
with a five year phase-in period starting at 60% of the allowable credit. The
second option is a wage and depreciation based credit. The reduction of the 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 these modifications
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.
Puerto Rico's financial reporting was first conformed to generally accepted
accounting principles in fiscal 1990. Nonrecurring revenues have been used
frequently to balance recent years' budgets. In November, 1993 Puerto Ricans
voted on whether they wished to retain their Commonwealth status, become a state
or establish an independent nation. The measure was defeated, with 48.5% voting
to remain a Commonwealth, 46% voting for statehood and 4% voting for
independence. Retaining Commonwealth status will leave intact the current
relationship with the Federal government. There can be no assurance that the
statehood issue will not be brought to a vote in the future. A successful
statehood vote in Puerto Rico would then require the U.S. Congress to ratify the
election.
The United States Virgin Islands (USVI) are located approximately 1,100
miles east-southeast of Miami and are made up of St. Croix, St. Thomas and St.
John. Population, after reaching a peak of 110,800 in 1985, declined to 101,809
in 1990. The economy is heavily reliant on the tourism industry, with roughly
43% of non-agricultural employment in tourist-related trade and services. As of
April, 1993, unemployment stood at 2.7%. The tourism industry is economically
sensitive and would likely be adversely affected by a recession in either the
United States or Europe.
An important component of the USVI revenue base is the Federal excise tax on
rum exports. Tax revenues rebated by the Federal government to the USVI provide
the primary security of many outstanding USVI bonds. Since more than 90% of the
rum distilled in the USVI is distilled at one plant, any interruption in its
operations (as occurred after Hurricane Hugo in 1989) would adversely affect
these revenues. Consequently, there can be no assurance that rum exports to the
United States and the rebate of tax revenues to the USVI will continue at their
present levels. The preferential tariff treatment the USVI rum industry
currently enjoys could be reduced under NAFTA. Increased competition from
Mexican rum producers could reduce USVI rum imported to the U.S., decreasing
excise tax revenues generated. The USVI experienced budget deficits in fiscal
years 1989 and 1990: in 1989 due to wage settlements with the unionized
government employees, and in 1990 as a result of Hurricane Hugo. The USVI
recorded a small surplus in fiscal year 1991. At the end of fiscal 1992, the
last year for which results are available, the USVI had an unreserved General
Fund deficit of approximately $8.31 million, or approximately 2.1% of
expenditures. In order to close a forecasted fiscal 1994 revenue gap of $45.6
million, the Department of Finance has proposed several tax increases and fund
transfers. There is currently no rated, unenhanced Virgin Islands debt
outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles southeast of
Tokyo. Population, 133,000 in 1990, up 26% from the 1980 census level. The U.S.
military is a key component of Guam's economy. The Federal government directly
comprises more than 10% of the employment base, with a substantial component of
the service sector to support these personnel. Guam is expected to benefit from
the closure of the Subic Bay Naval Base and the Clark Air Force Base in the
Philippines. The Naval Air Station, one of several U.S. military facilities on
the island, has been slated for closure by the Defense Base Closure and
Realignment Committee; however, the administration plans to use these facilities
to expand the Island's commercial airport. Guam is also heavily reliant on
tourists, particularly the Japanese. Unemployment was 3.2% in 1991. For 1994,
the financial position of Guam has weakened further as it incurred an unaudited
General Fund operating deficit. The administration has taken steps to improve
its financial position; however, there are no guarantees that an improvement
will be realized. Guam's general obligation debt is rated Baa by Moody's.
MUNICIPAL LEASES
The 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. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by the 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 the 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 the Portfolio. In
the event the 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. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. 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.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SHORT-TERM TRADING
The Portfolio may sell 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
the 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. The Portfolio anticipates that its annual
portfolio turnover rate will generally not exceed 100% (excluding turnover of
securities having a maturity of one year or less).
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 taking
place within a specified number of days after the date of the Portfolio's
commitment and are subject to certain conditions such as the issuance of
satisfactory legal opinions. The 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 the Portfolio to buy such securities on
a settlement date that could be several months or several years in the future.
The 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 the Portfolio enters into the
purchase commitment. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the 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 the 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 the 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.
FLOATING OR VARIABLE RATE OBLIGATIONS
The Portfolio may purchase floating or variable rate obligations. Floating
or variable rate instruments provide for adjustments in the interest rate at
specified intervals (weekly, monthly, semi-annually, etc.). The revised rates
are usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Floating or variable rate obligations normally provide that
the holder can demand payment of the obligation on short notice at par with
accrued interest and are frequently secured by letters of credit or other credit
support arrangements provided by banks. To the extent that such letters of
credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, a bank may be treated as the issuer of a security for the
purpose of complying with the diversification requirements set forth in Section
5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder. The
Portfolio would anticipate using these obligations as cash equivalents pending
longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Interest income generated by certain bonds having demand
features may not qualify as tax-exempt interest. 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. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Because this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also 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. The
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 the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The 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 features may not qualify as tax-exempt interest.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio from securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets. The Portfolio has no present intention of engaging in securities
lending.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities, (ii) futures
contracts on securities indices and (iii) futures contracts on other financial
instruments and indices. All futures contracts entered into by the Portfolio are
traded on exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade.
The Portfolio will engage in futures and related options transactions for
bona fide 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 are substantially related to price fluctuations in
securities held by the Portfolio or which it expects to purchase. The
Portfolio's futures transactions will be entered into for traditional hedging
purposes -- that is, futures contracts will be sold to protect against a decline
in the price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent, the
Portfolio expects that on 75% or more of the occasions on which it takes a long
futures (or option) position (involving the purchase of futures contracts), the
Portfolio will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities in the cash market at the time when the
futures (or option) position is closed out. However, in particular cases, when
it is economically advantageous for the Portfolio to do so, a long futures
position may be terminated (or an option may expire) without the corresponding
purchase of securities. The Portfolio will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Internal Revenue Code for maintaining qualification
of the Fund as a regulated investment company for Federal income tax purposes
(see "Taxes").
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. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked to
market daily.
SHORT-TERM OBLIGATIONS
Although the Portfolio will normally attempt to invest substantially all of
its assets in municipal obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its net assets in short-term obligations the
interest on which is subject to regular Federal income tax, Federal alternative
minimum tax and/or State taxes. Although the Portfolio is permitted to invest up
to 20% of its assets in short-term taxable obligations under normal market
conditions, the Portfolio does not expect to invest more than 5% of its assets
in such securities under such conditions. Such short-term taxable obligations
may include, but are not limited to, certificates of deposit, commercial paper,
short-term notes and obligations issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities. During periods of adverse market
conditions, the Portfolio may temporarily invest more than 20% of its assets in
such short-term taxable obligations, all of which will be high quality.
PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but it
is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
INVESTMENT RESTRICTIONS
Certain investment restrictions of the Fund are designated as fundamental
policies and as such cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities, which as used in this
Statement of Additional Information means the lesser of (a) 67% of the shares of
the Fund present or represented by proxy at a meeting if the holders of more
than 50% of the shares are present or represented at the meeting or (b) more
than 50% of the shares of the Fund. The Fund's fundamental investment
restrictions are set forth under "Investment Restrictions" in the Fund's Part II
of this Statement of Additional Information.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this Statement
of Additional Information means the lesser of (a) 67% of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented at the meeting or (b) more than 50% of the
outstanding voting securities of the Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the Investment Company Act of
1940 (the "1940 Act"). Whenever the Trust is requested to vote on a change in
the fundamental investment restrictions of the Portfolio (or the Portfolio's 80%
investment policy with respect to State obligations described in the Fund's
current Prospectus), the Trust will hold a meeting of Fund shareholders and will
cast its vote as instructed by the shareholders.
The Fund and the Portfolio have each adopted certain nonfundamental
investment policies which may be changed by the Trust with respect to the Fund
without approval by the Fund's shareholders or by the Portfolio with respect to
the Portfolio without the approval by the Fund or its other investors. The
Fund's nonfundamental policies are set forth under "Investment Restrictions" in
the Fund's Part II of this Statement of Additional Information.
For purposes of the 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.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"),
which is a wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of
Eaton Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
SAMUEL L. HAYES, III (60), Trustee
Jacob H. Schiff Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02163
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Trust Company. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (51), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and the
Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR.
Mr. MacIntosh was elected Vice President of the Trust on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. THOMAS OTIS (63), Secretary Vice
President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management
& Research Co. (1986-1991). Mr. Murphy was elected Assistant Secretary of
the Trust and the Portfolio on March 27, 1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Trust's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio, or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Trust and of the Portfolio matters relative
to accounting and auditing practices and procedures, accounting records,
internal accounting controls, and the functions performed by the custodian and
transfer agent of the Fund and of the Portfolio.
Trustees of the Portfolio 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 "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the 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 Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio to pay
any particular level of compensation to the Trustee.
The fees and expenses of those Trustees of the Trust and the Portfolio who
are not members of the Eaton Vance organization (the noninterested Trustees) are
paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. For the compensation earned by the noninterested Trustees of the
Trust and the Portfolio, see "Fees and Expenses" in the Fund's Part II of this
Statement of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement. BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of approximately $15 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment- grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
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. The
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. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. For additional
information about the Investment Advisory Agreement, including the net assets of
the Portfolio and the investment advisory fees that the Portfolio paid BMR under
the Investment Advisory Agreement, see "Fees and Expenses" in the Fund's Part II
of this Statement of Additional Information.
The Investment Advisory Agreement with BMR may be continued indefinitely so
long as such continuance is approved at least annually (i) by the vote of a
majority of the Trustees of the Portfolio who are not interested persons of the
Portfolio or of BMR 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. The 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. The
Agreement provides that BMR may render services to others and engage in other
business activities and may permit other fund clients and other corporations and
organizations to use the words "Eaton Vance" or "Boston Management and Research"
in their names. The 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.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator, see
"Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of registration of the Trust under the 1940 Act, (iii) commissions, fees
and other expenses connected with the purchase or sale of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes
and Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons
and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman and Mr. Gardner
is president and chief executive officer of EVC, BMR, Eaton Vance and EV. All of
the issued and outstanding shares of Eaton Vance and EV 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 which
expires on December 31, 1996, the Voting Trustees of which are Messrs. Clay,
Brigham, Gardner, Hawkes and Rowland. 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 and Directors of EVC and
EV. As of June 30, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such
voting trust receipts, and Messrs. Rowland and Brigham owned 15% and 13%,
respectively, of such voting trust receipts. Messrs. Hawkes and Otis are
officers or Trustees of the Trust and the Portfolio and are members of the EVC,
BMR, Eaton Vance and EV organizations. Messrs. Ahern, Fetter, Hender, MacIntosh,
Murphy, O'Connor and Woodbury and Ms. Sanders, are officers of the Trust and/or
the Portfolio and are also members of the BMR, Eaton Vance and EV organizations.
BMR will receive the fees paid under the Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which is engaged in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, custodian of the Fund and the Portfolio, which provides
custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all of the stock of Fulcrum Management, Inc.
and MinVen Inc., which are engaged in the development of precious metal
properties. EVC, BMR, Eaton Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. 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.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's assets,
maintains the general ledger of the Portfolio and the Fund and computes the
daily net asset value of interests in the 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
Portfolio's investments, receives and disburses all funds and performs various
other ministerial duties upon receipt of proper instructions from the Fund and
the Portfolio. IBT charges custody fees which are competitive within the
industry. A portion of the fee relates to custody, bookkeeping and valuation
services and is based upon a percentage of Fund and Portfolio net assets and a
portion of the fee relates to activity charges, primarily the number of
portfolio transactions. These fees are then reduced by a credit for cash
balances of the particular investment company at the custodian equal to 75% of
the 91-day, U.S. Treasury Bill auction rate applied to the particular investment
company's average daily collected balances for the week. In view of the
ownership of EVC in IBT, the Portfolio is treated as a self-custodian pursuant
to Rule 17f-2 under the 1940 Act, and the Portfolio's investments held by IBT as
custodian are thus subject to the additional examinations by the Portfolio's
independent certified public accountants as called for by such Rule. For the
custody fees that the Portfolio and the Fund paid to IBT, see "Fees and
Expenses" in the Fund's Part II of this Statement of Additional Information.
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge, other than
the sales charge included in the offering price, and may be changed or
discontinued without penalty at any time.
Invest-by-Mail -- for periodic share accumulation. Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of the Fund
may be mailed directly to The Shareholder Services Group, Inc., BOS725, P.O. Box
1559, Boston, MA 02104 at any time. The name of the shareholder, the Fund and
the account number should accompany each investment.
Bank Automated Investing -- for regular share accumulation. Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for Bank Automated Investing accounts.
Intended Quantity Investment -- Statement of Intention. If it is anticipated
that $100,000 or more of Fund shares and shares of the other continuously
offered open-end funds listed under "The Eaton Vance Exchange Privilege" in the
current Prospectus of the 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. For sales
charges and other information on quantity purchases, see "How to Buy Fund
Shares" in the Fund's current Prospectus. Any investor considering signing a
Statement of Intention should read it carefully.
Right of Accumulation -- Cumulative Quantity Discount. The applicable sales
charge level for the purchase of Fund 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 shares the shareholder owns in his
account(s) in the Fund and in the other continuously offered open-end funds
listed under "The Eaton Vance Exchange Privilege" in the current Prospectus of
the Fund. The sales charge on the shares being purchased will then be at the
rate applicable to the aggregate. For example, if the shareholder owned shares
valued at $80,000 of the Fund, and purchased an additional $20,000 of Fund
shares, the sale charge for the $20,000 purchase would be at the rate of 2.00%
of the offering price (2.04% of the net amount invested) which is the rate
applicable to single transactions of $100,000. For sales charges on quantity
purchases, see "How to Buy Fund Shares" in the Fund's current Prospectus. Shares
purchased (i) by an individual, his 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 discount to be made available, at the time of purchase a purchaser
or the Authorized Firm must provide Eaton Vance Distributors, Inc. (the
"Principal Underwriter") (in the case of a purchase made through an Authorized
Firm) 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.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Fund's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence, are a
return of principal. Income dividends and capital gain distributions in
connection with withdrawal 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.
To use this service, at least $5,000 in cash or shares at the public
offering price, (i.e., net asset value plus the applicable sales charge) will
have to be deposited with the Transfer Agent. The maintenance of a withdrawal
plan concurrently with purchases of additional Fund shares would be
disadvantageous because of the sales charge included in such purchases. 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.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current Prospectus. The net asset value of the Portfolio is also
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
transaction 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 services uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most recent
settlement prices, unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the direction of
the Trustees of the Portfolio. Other assets are valued at fair value using
methods determined in good faith by or at the direction of the Trustees of the
Portfolio. The Fund and the Portfolio will be closed for business and will not
price their respective shares or interests on the following business holidays:
New Years' Day, Presidents' Day, Good Friday (a New York Stock Exchange
holiday), Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Each investor in the Portfolio, including the 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.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the results. The
calculation assumes the maximum sales charge is deducted from the initial $1,000
purchase order and that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. For information
concerning the total return of the Fund, see "Performance Information" in the
Fund's Part II of this Statement of Additional Information.
The Fund's yield is computed pursuant to a standardized formula by dividing
its net investment income per share earned during a recent thirty-day period by
the maximum offering price (which includes the maximum sales charge) 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 expenses for the period, with the resulting number being divided by
the average daily number of Fund shares outstanding and entitled to receive
dividends during the period. Yield calculations assume a maximum sales charge
equal to 2.50% of the public offering price. Actual yield may be affected by
variations in sales charges on investments. A taxable-equivalent yield is
computed by using the tax-exempt yield figure and dividing by 1 minus a stated
rate. For the yield and taxable equivalent yield of the Fund, see "Performance
Information" in the Fund's Part II of this Statement of Additional Information.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current maximum
offering price per share. The Fund's effective distribution rate is computed by
dividing the distribution rate by the ratio (the days in a year divided by the
accrual days of the monthly period) used to annualize the most recent monthly
distribution and reinvesting the resulting amount for a full year on the basis
of such ratio. The effective distribution rate will be higher than the
distribution rate because of the compounding effect of the assumed reinvestment.
Investors should note that the Fund's yield is calculated using a standardized
formula, the income component of which is computed from the yields to maturity
of all debt obligations held by the Portfolio based on prescribed methods (with
all purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate is based
on the Fund's last monthly distribution which tends to be relatively stable and
may be more or less than the amount of net investment income and short-term
capital gain actually earned by the Fund during the month (see "Distributions
and Taxes" in the Fund's current Prospectus). For the Fund's distribution rate
and effective distribution rate, see "Performance Information" in the Fund's
Part II of this Statement of Additional Information.
The Fund's total return may be compared to the Consumer Price Index and to
the domestic securities indices of the Bond Buyer 25 Revenue Bond Index and the
Lehman Brothers Municipal Bond Index. The Fund's total return and comparisons
with these indices may be used in advertisements and in information furnished to
present or prospective shareholders. The Fund's performance may differ from that
of other investors in the Portfolio, including the other investment companies.
From time to time, evaluations of the Fund's performance made by independent
sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger and
Morningstar, Inc., may be used in advertisements and in information furnished to
present or prospective shareholders.
From time to time, information, charts and illustrations relating to the
relative effects of changes in interest rates on values of securities of varying
durations may be included in advertisements and other material supplied to
present and prospective shareholders. For example, the following chart
illustrates that bond prices move inversely with interest rates -- values
decrease if interest rates rise, and values increase when rates fall. The
shorter a bond's duration, the less its price fluctuates for a given
interest-rate change. For example, if interest rates change by 1%, a limited
maturity bond with a 6-year duration will change by 6%, compared to a 12% change
for a 12-year duration bond. Source: Eaton Vance Management.
The Limited Maturity Volatility Advantage
If interest rates change 1%, a 6-yr. duration bond will change in value by 6% --
half the change of a 12-yr. duration bond.
Approximate % change in value Bond duration
if interest rates change by 1% (in years)
0 0
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example, after 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100, if the annual rates of
inflation during such period were 4%, 5%, 6% and 7%, respectively. (To calculate
the purchasing power, the value at the end of each year is reduced by the above
inflation rates for 10 consecutive years.)
From time to time, information about portfolio allocation and holdings of
the Portfolio at a particular date (including ratings assigned by independent
ratings services such as Moody's Investors Service, Standard & Poor's Ratings
Group and Fitch Investors Service, Inc.) 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. For an example of the Portfolio's diversification by quality ratings,
see "Performance Information" in Part II of this Statement of Additional
Information.
The Fund is designed for investors seeking
* a higher level of after tax income than normally provided by taxable
and tax-free money funds, certificates of deposit or other short-term
investments, and
* more price stability than investments in long-term municipal bonds or
bond funds.
Comparative information about the yield or distribution rate of the 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. A bank certificate of deposit, unlike the Fund's
shares, pays a fixed rate of interest and entitles the depositor to receive the
face amount of the certificate of deposit at maturity. A bank money market
deposit account is a form of savings account which pays a variable rate of
interest. Unlike the Fund's shares, bank certificates of deposit and bank money
market deposit accounts are insured by the Federal Deposit Insurance
Corporation. A money market mutual fund is designed to maintain a constant value
of $1.00 per share and, thus, a money market fund's shares are subject to less
price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Advertisements and other material furnished to present and prospective
shareholders may also compare the taxable equivalent yield of the Fund to
after-tax yields of certificates of deposits, bank money market deposit accounts
and money market mutual funds over various income tax brackets.
Such materials may also compare taxable certificate of deposit rates of
return with rates of return in intermediate municipal bond indices and taxable
equivalents of such rates of return. An example of such an index is the Lehman
Brothers, Inc. 7-Year General Obligation Municipal Bond Index.
From time to time, information, charts and illustrations relating to the
relative total return performance of Intermediate-Term Tax Free Funds and Tax
Free Money Market Funds, based on information supplied by Lipper Analytical
Services, Inc., may be included in advertisements and other materials furnished
to present and prospective shareholders. For example, for the 10 years ended
December 31, 1994, cumulative total returns were: Intermediate- Term Tax Free
Funds, 107.40%; Tax Free Money Market Funds, 48.83%.
A comparison of the Total Return Advantage of intermediate-term tax free
funds over 3-month certificates of deposit (after taxes, assuming a 36% Federal
bracket) and tax free money market mutual funds may also be provided. In such an
illustration, sources of information are Lipper Analytical Services, Inc., The
Federal Reserve Bulletin, and The Wall Street Journal.
The Total Return Advantage
Lipper Tax Free
Money Market Funds 48.83%
3-Month Certificates
of Deposit 47.90% (after taxes, assuming 36% bracket)
Lipper Intermediate-Term
Tax Free Funds 107.40%
Total returns (cumulative change in value with all distributions reinvested)
for 10 years ended December 31, 1994. Sources: Lipper Analytical Services, Inc.,
Federal Reserve Bulletin, The Wall Street Journal.
Total return is a common way to evaluate the results of any mutual fund
investment, because it includes any change in principal value and assumes the
reinvestment of all dividends and capital gains in additional shares. Most tax
free money market funds are designed to maintain a $1 share price by investing
in short-term municipal instruments, while certificates of deposit are insured
by the FDIC. This illustration is not meant to imply or predict any future rate
of return for the Fund.
Information used in advertisements and in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze." Such information may also suggest the appropriateness of the
Fund as an investment for certain types of investors such as: conservative
investors who want higher after-tax income, but are concerned about the
potential volatility of long-term bonds or bond funds; dual-income couples in a
high tax bracket; and investors with long-term municipal bonds or fund
portfolios who are seeking diversification.
For additional information, charts and illustrations relating to the Fund's
investment performance, see "Performance Information" in the Fund's Part II of
this Statement of Additional Information.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus and the
Fund's Part II of this Statement of Additional Information.
Each series of the Trust is treated as a separate entity for Federal income
tax purposes. The Fund has elected to be treated and intends to qualify each
year, as a regulated investment company ("RIC") under the Internal Revenue Code
of 1986, as amended (the "Code"). Accordingly, the Fund intends to satisfy
certain requirements relating to sources of its income and diversification of
its assets and to distribute its net investment income (including tax-exempt
income) and net realized capital gains (after reduction by any available capital
loss carryforwards) in accordance with the timing requirements imposed by the
Code, so as to avoid any Federal income or excise tax on the Fund. The Fund so
qualified for its fiscal year ended March 31, 1995 (see the Notes to the
Financial Statements incorporated by reference in this Statement of Additional
Information. Because the Fund invests its assets in the Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements in order for the Fund to satisfy them. The Portfolio will allocate
at least annually among its investors, including the Fund, each investor's
distributive share of the Portfolio's net taxable (if any) and tax-exempt
investment income, net realized capital gains, and any other items of income,
gain, loss, deduction or credit. For purposes of applying the requirements of
the Code regarding qualification as a RIC, the Fund will be deemed (i) to own
its proportionate share of each of the assets of the Portfolio and (ii) to be
entitled to the gross income of the Portfolio attributable to such share.
In order to avoid Federal excise tax, the Code requires that the 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 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 any available capital loss
carryforwards, and 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 the Fund qualifies as a RIC
for Federal income tax purposes and the Portfolio is treated as a partnership
for Massachusetts and Federal tax purposes, neither the Fund nor the Portfolio
is liable for any income, corporate excise or franchise tax in the Commonwealth
of Massachusetts.
The 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 Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the 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 the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the 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. 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 Federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
Federal income tax returns.
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 the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the 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. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) 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 Portfolio and allocated to the Fund. Certain distributions of the Fund
declared in October, November or December and paid the following January will be
taxed to shareholders as if received on December 31 of the year in which they
are declared.
The 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 the
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 the 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 period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC for Federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax purposes for 6 months or less (or such shorter period as may be
prescribed by Treasury regulations) will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares. In
addition, a loss realized on a redemption of Fund shares will be disallowed to
the extent the shareholder acquired other Fund shares within the period
beginning 30 days before the redemption of the loss shares and ending 30 days
after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income 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 treaty. Distributions from the
excess of the 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 result if the shareholder
is engaged in a trade or business in the United States, 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 fails to provide any required certifications regarding 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 the
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 or foreign tax consequences of investing
in the Fund.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through certain financial service firms ("Authorized Firms") which have
agreements with Eaton Vance Distributors, Inc., the Principal Underwriter. The
Principal Underwriter is a wholly-owned subsidiary of Eaton Vance.
The public offering price is the net asset value next computed after receipt
of the order, plus, where applicable, a variable percentage (sales charge)
depending upon the amount of purchase as indicated by the sales charge table set
forth in the prospectus. Such table is applicable to purchases of the Fund alone
or in combination with purchases of the 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 Fund shares,
alone or in combination with purchases of any of the other funds offered by the
Principal Underwriter, through one dealer aggregating $100,000 or more made by
any of the persons enumerated above within a thirteen-month period starting with
the first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of the
Fund pursuant to the Right of Accumulation and declared as such at the time of
purchase (see "Services for Accumulation") .
Subject to the applicable provisions of the 1940 Act, the Fund may issue
shares at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is merged
or consolidated with or acquired by the Fund. Normally no sales charges will be
paid in connection with an exchange of Fund shares for the assets of such
investment company. Shares may be sold at net asset value to any officer,
director, trustee, general partner or employee of the Fund, the Portfolio or any
investment company for which Eaton Vance or BMR acts as investment adviser, 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,
or any officer, director or employee of any parent, subsidiary or other
affiliate of Eaton Vance. The terms "officer," "director," "trustee," "general
partner" or "employee" as used in this paragraph include any such person's
spouse and minor children, and also retired officers, directors, trustees,
general partners and employees and their spouses and minor chlldren. Shares of
the Fund may also be sold at net asset value to registered representatives and
employees of Authorized Firms and to the spouses and children under the age of
21 and beneficial accounts of such persons.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to financial
service firms or investors and other selling literature and of advertising are
borne by the Principal Underwriter. The fees end expenses of qualifying and
registering and maintaining qualifications and registrations of the Fund and its
shares under Federal and state securities laws are borne by the Fund. The
Distribution Agreement is renewable annually by the Trust's Board of Trustees
(including a majority of its Trustees who are not interested persons of the
Principal Underwriter or the Fund), may be terminated on six months' notice by
either party and is automatically terminated upon assignment. The Principal
Underwriter distributes Fund 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 Authorized Firms discounts from the applicable public
offering price which are alike for all Authorized Firms. The Principal
Underwriter may allow, upon notice to all Authorized Firms with whom it has
agreements, discounts up to the full sales charge during the periods specified
in the notice. See "How to Buy Fund Shares" in the Prospectus for the discount
allowed to Authorized Firms on the sale of Fund shares. During periods when the
discount includes the full sales charge, such Authorized Firms may be deemed to
be underwriters as that term is defined in the Securities Act of 1933.
The Fund 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. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
the Fund's Part II of this Statement of Additional Information.
SERVICE PLAN
In addition to the fees and expenses described herein under "Investment
Adviser and Administrator," the Trust on behalf of the Fund has adopted a
Service Plan (the "Plan") designed to meet the requirements of Rule 12b-1 (the
"Rule") under the 1940 Act and the service fee requirements of the revised sales
charge rule of the National Association of Securities Dealers, Inc. Pursuant to
such Rule, the Plan has been approved by the Fund's initial sole shareholder
(Eaton Vance) and by the independent Trustees of the Trust, who have no direct
or indirect financial interest in the Plan and by all of the Trustees of the
Trust on behalf of the Fund. (Management believes service fee payments are not
distribution expenses governed by the Rule, but has chosen to have the Plan
approved as if the Rule were applicable.)
The Plan provides that the Fund may make payments of service fees for
personal services and/or the maintenance of shareholder accounts to the
Principal Underwriter, Authorized Firms and other persons in amounts not
exceeding .25% of the Fund's average daily net assets for any fiscal year. For
additional information concerning the service fee, see "Fees and Expenses --
Service Plan" in the Fund's Part II of this Statement of Additional Information.
The Plan may be continued in effect indefinitely for so long as such
continuance is approved at least annually by the vote of both a majority of (i)
the Trustees of the Trust who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to the Plan (the "Rule 12b-1 Trustees") and (ii) all of
the Trustees then in office cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan. The Plan may not be amended to increase
materially the payments described herein without approval of the shareholders of
the Fund, and all material amendments of the Plan must also be approved by the
Trustees of the Trust in the manner described above. The Plan may be terminated
any time by vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the outstanding voting securities of the Fund. Under the Plan, the
President or a Vice President of the Trust shall provide to the Trustees for
their review, and the Trustees shall review at least quarterly, a written report
of the amount expended under the Plan and the purposes for which such
expenditures were made.
So long as the Plan is in effect, the selection and nomination of Trustees
who are not interested persons of the Trust shall be committed to the discretion
of the Trustees who are not such interested persons. The Trustees have
determined that in their judgment there is a reasonable likelihood that the Plan
will benefit the Fund and its shareholders.
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 the 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 the 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 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 Portfolio 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 Portfolio may also purchase municipal obligations
from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, 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 Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
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 the 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 commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either 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, 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 Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
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 the
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 commissions 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.
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 firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
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 Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure 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 Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions. For the brokerage
commissions paid by the Portfolio on portfolio transactions, see "Fees and
Expenses" in the Fund's Part II of this Statement of Additional Information.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes. The Trust, which is a Massachusetts
business trust established in 1985, was originally called Eaton Vance California
Municipals Trust. The Trust changed its name to Eaton Vance Investment Trust on
April 28, 1992.
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 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. In addition, the By-laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose.
In accordance with the Declaration of Trust of the 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 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 the 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.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual Report
accompanies this Statement of Additional Information.
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
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.
R: 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.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considered short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
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 had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
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. The 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.
+The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information 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 the Portfolio's fiscal year end.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL FLORIDA LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1)
a high level of current income exempt from regular Federal income tax in the
form of an investment exempt from Florida intangibles tax and (2) limited
principal fluctuation. The Fund currently seeks to achieve its investment
objective by investing its assets in the Florida Limited Maturity Tax Free
Portfolio (the "Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest
or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
In addition, as a matter of nonfundamental policy, neither the Fund nor
the Portfolio may (a) 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 its net assets (taken at current value) is held as collateral for
such sales at any one time. (The Fund and the Portfolio will make such sales
only for the purpose of deferring realization of gain or loss for Federal
income tax purposes); (b) purchase or retain in its portfolio securities
issued by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Trust or of the Portfolio, or is a
member, officer, director or trustee of any investment adviser of the Fund or
of the Portfolio, if after the purchase of the securities of such issuer by
the Fund or the Portfolio one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities or both (all taken at market value)
of such issuer and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities
or both (all taken at market value); (c) purchase oil, gas or other mineral
leases or purchase partnership interests in oil, gas or other mineral
exploration or development programs; (d) 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 that the Board of Trustees of the Trust or the Portfolio, or its
delegate, determines to be liquid, based upon the trading markets for the
specific security; (e) purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, if
by reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the
Fund or the Portfolio in units or attached to securities may be deemed to be
without value. The Fund and the Portfolio may purchase put options on
municipal obligations only if, after such purchase, not more than 5% of its
net assets, as measured by the aggregate of the premiums paid for such options
held by it, would be so invested. Neither the Fund nor the Portfolio intends
to invest in reverse repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain Florida considerations is given to
investors in view of the Portfolio's policy of concentrating its investments
in Florida issuers. Such information 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 Florida issuers. Neither the Trust nor the
Portfolio has independently verified this information.
Florida is characterized by rapid population growth and substantial
capital needs which are being funded through more frequent debt issuance and
pay-as-you-go financing. The State of Florida operates on the basis of a
fiscal biennium for its appropriations and expenditures and is
constitutionally bound to maintain a balanced budget. The State's financial
operations are considerably different than most other states because, under
the State's constitution, there is no state income tax. A constitutional
amendment would therefore be necessary to impose an income tax. Only seven
states currently do not impose income taxes upon their residents. The lack of
an income tax exposes total State tax collections to considerably more
volatility than would otherwise be the case and, in the event of an economic
downswing, could affect the State's ability to pay principal and interest in a
timely manner.
The 1992-1993 Florida budget authorized $11.862 billion in General Fund
spending, an increase of 6.5% from the final 1991-1992 level. New taxes,
including a 0.5 mill ($0.50 per $1,000 of valuation) increase in the
intangible personal property tax, were expected to produce an additional
$378.2 million in revenue to fund school and prison construction. Other tax
changes included a 1% sales tax increase on taxable purchases of
telecommunications and electric services, an increase in documentary stamp
taxes, and the inclusion of several previously exempt services for the sales
tax. Revenue collections were $200 million over initial estimates, with $170
million due to normal economic activity and $30 million attributed to
rebuilding after Hurricane Andrew. Combined general revenue fund and working
capital unencumbered reserves increased to $441.4 million, or 3.7% of
expenditures.
Non-recurring revenue from rebuilding efforts following Hurricane Andrew
was $220 million in 1993-94 and is estimated to be $159 million in 1994-95. In
1993-94, $190 million was transferred to a hurricane relief trust fund and
$159 million is budgeted to be transferred in 1994-95.
In 1993, the Florida state constitution was amended to limit the annual
growth in the assessed valuation of residential property. This amendment
could, over time, constrain the growth in property taxes, a major revenue
source for local governments. The amendment restricts annual increases in
assessed valuation to the lesser of 3% or the Consumer Price Index. The
amendment applies only to residential properties eligible for the homestead
exemption and does not affect the valuation of rental, commercial, or
industrial properties. When sold, residential property would be reassessed at
market value. While no immediate ratings implications are expected, the
amendment could have a negative impact on the financial performance of local
governments over time and lead to ratings revisions which may have a negative
impact on the prices of affected bonds.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $164,578,915. For
the fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$821,095 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, May 3,
1993, to March 31, 1994, the Portfolio paid BMR advisory fees of $591,314
(equivalent to 0.45% (annualized) of the Portfolio's average daily net assets
for such period). The Portfolio's Investment Advisory Agreement with BMR is
dated October 13, 1992 and remains in effect until February 28, 1996. The
Agreement may be continued as described under "Investment Adviser and
Administrator" in Part I of this Statement of Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the period
from the start of business, July 5, 1994, to March 31, 1995, $11,493 of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
Pursuant to Rule 12b-1, the Plan has been approved by the Fund's initial
sole shareholder (Eaton Vance) and by the Board of Trustees of the Trust,
including the Rule 12b-1 Trustees, as required by Rule 12b-1. The Service Plan
remains in effect until April 28, 1996 and may be continued as described under
"Service Plan" in Part I of this Statement of Additional Information. For the
period from the start of business, July 5, 1994, to March 31, 1995, the Fund
made no service fee payments under the Plan. The Fund expects to begin
accruing for its service fee payments during the quarter ending September 30,
1995.
PRINCIPAL UNDERWRITER
The total sales charges for sales of shares of the Fund for the period
from the start of business, July 5, 1994, to March 31, 1995 were $380, of
which $5 was received by the Principal Underwriter and $375 was received by
Authorized Firms.
For the period from the start of business, July 5, 1994, to March 31,
1995, the Fund paid the Principal Underwriter $5.00 for repurchase
transactions handled by the Principal Underwriter (being $2.50 for each such
transaction).
CUSTODIAN
For the period from the start of business, July 5, 1994, to March 31,
1995, the Fund paid IBT $748. For the fiscal year ended March 31, 1995, the
Portfolio paid IBT $35,497.
BROKERAGE
For the fiscal year ended March 31, 1995 and for the period from the start
of business, May 3, 1993, to March 31, 1994, the Portfolio paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and the Portfolio who are
members of the Eaton Vance organization received no compensation from the
Trust or the Portfolio.) During the fiscal year ended March 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio and
the other funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- --------- -------------- ------------
Donald R. Dwight ...... $0 $2,114(2) $135,000(4)
Samuel L. Hayes, III .. 0 2,133(3) 147,500(5)
Norton H. Reamer ...... 0 2,140 135,000
John L. Thorndike ..... 0 2,228 140,000
Jack L. Treynor ....... 0 2,205 140,000
(1) The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
(2) Includes $350 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Managment & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March
31, 1995. The total return and percentage changes for the period to the Fund's
commencement of operations on July 5, 1994 reflect the Portfolio's total
return and percentage changes (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ----------------------------- ----------------------------
PERIOD DATE INVESTMENT ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 5/29/92 $975.00 $1,127.69 15.66% 5.26% 12.77% 4.32%
1 Year Ended 3/31/95 3/31/94 $975.00 $1,027.55 5.39% 5.39% 2.76% 2.76%
<CAPTION>
PERCENTAGE CHANGES<F1> 5/29/92--3/31/95
NET ASSET VALUE TO NET ASSET VALUE MAXIMUM OFFERING PRICE TO NET ASSET VALUE
WITH ALL DISTRIBUTIONS REINVESTED WITH ALL DISTRIBUTIONS REINVESTED
---------------------------------------------- ----------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
------------ ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/93 -- 7.94% -- -- 5.24% --
3/31/94 1.68% 9.75% 5.19% -0.86% 7.01% 3.75%
3/31/95 5.39% 15.66% 5.26% 2.75% 12.77% 4.32%
Past performance is not indicative of future results. Investment return
and principal value will fluctuate; shares, when redeemed, may be worth more
or less than their original cost.
----------
<FN>
<F1> Initial investment less the current maximum sales charge of 2.50%.
<F2> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
4.11%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.11% would be 5.96%,
assuming a Federal tax rate of 31%. If a portion of the Fund's expenses had
not been allocated to the Administrator, the Fund would have had a lower
yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid March 31, 1995) was 4.55%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.65%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA 65.1%
Aa or AA 14.2
A 14.1
Baa or BBB 5.5
Ba or BB --
B --
Below B --
Not rated 1.1
-----
Total 100.0%
The State of Florida generally imposes an intangibles personal property
tax on the value of all stocks, notes, bonds and mutual fund shares. The rate
of intangibles tax after exemptions in Florida is $.20 per $100 in value. Bank
deposits such as bank money market deposit accounts and certificates of
deposit are exempt from the Florida intangibles tax. The Florida intangibles
tax, which is a fixed rate based on the fair market value of an investment,
will vary as a percentage of income with the yield of the investment subject
to tax. For example, shares of a mutual fund valued at $10,000 would generally
be subject to Florida intangibles tax equaling $20. If the mutual fund shares
were yielding 4.50%, generating $450 in annual income, the intangibles tax
expressed as a percentage of income would be $20/$450 or 4.44%.
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.50% with the after-tax yield
of a certificate of deposit yielding 3.25%. The Federal income tax brackets
applicable for 1995 are: 15% for single filers with taxable income up to
$23,350 and joint filers up to $39,000; 28% for single filers with taxable
income from $23,351 to $56,550 and joint filers from $39,001 to $94,250; 31%
for single filers with taxable income from $56,551 to $117,950 and joint
filers from $94,251 to 143,600; 36% for single filers with taxable income from
$117,951 to $256,500 and joint filers from $143,601 to $256,500; and 39.6% for
single and joint filers with taxable income over $256,500. Combined Federal
and Florida intangibles tax rates expressed as a percentage of income on an
investment yielding 4.50%, assuming the deductibility of intangibles taxes on
the Federal return, would be 18.78%, 31.20%, 34.07%, 38.84% and 42.28% over
the same ranges of income. This Part II contains a tax equivalent yield table
which reflects the tax equivalent yield of the Fund earning hypothetical
yields over various Federal income tax brackets, as well as a tax equivalent
yield table which takes into account the effect of the Florida intangibles tax
on the rate of combined Federal and Florida intangibles taxes paid as a
percentage of income by a Florida resident. These brackets do not take into
account the phaseout of personal exemptions and limitation on deductibility of
itemized deductions over certain ranges of income, which increase the
effective top Federal tax rate for certain taxpayers. The after-tax yields of
the certificate of deposit were calculated taking into account Federal income
taxes only, as bank deposits are not subject to the Florida intangibles tax.
Investors should consult with their tax advisers for additional information.
TAX BRACKET
18.78% 31.20% 34.07% 38.84% 42.28%
-----------------------------------------------------
Tax free yield .... 4.50% 4.50% 4.50% 4.50% 4.50%
Taxable equivalent 5.54 6.54 6.83 7.36 7.80
TAX BRACKET*
15% 28% 31% 36% 39.6%
-----------------------------------------------------
Certificates of
deposit:
Yield ......... 3.25% 3.25% 3.25% 3.25% 3.25%
After tax yield 2.76 2.34 2.24 2.08 1.96
* CDs are generally exempt from the Florida intangibles tax. Accordingly, the
combined tax brackets applicable to after-tax yields are 15%, 28%, 31%, 36%
and 39.6%.
The following is an illustration of the Tax Free Yield Advantage,
comparing the after-tax yields of a certificate of deposit yielding 3.25% and
a hypothetical tax free investment yielding 4.50%. This illustration also
quantifies the Federal income tax payable on hypothetical investments of
$100,000 in a certificate of deposit yielding 3.25% and a hypothetical tax
free investment yielding 4.50%, and compares the after-tax return of such
investments. The chart is based on 3-month bank CDs (Source: The Wall Street
Journal) and current limited maturity municipal bond yields, compiled by Eaton
Vance Management. (The tax bracket used in calculating the CD after-tax yield
is 36%, as bank CDs are generally exempt from Florida intangibles tax.) The
illustration is not meant to imply or predict any future rate of return for
the Fund. See your financial adviser for the Fund's current yield and actual
CD rates.
The Tax Free Yield Advantage
(38.84% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After-tax yield
4.50% Tax free investment
7.36% Taxable equivalent yield
4.50% Tax free yield
Example:
Two $100,000 investments . . . 3.25% CD 4.50% Tax free
Pretax income: $3,250.00 $4,500.00
Tax: (1,170.00) NONE
After-tax income: $2,080.00 $4,500.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (36% bracket)
(plot points for vertical bar chart follow)
Taxable Equivalent Yield
Average Ltd Mat (36% Federal bracket plus
Year CD Rate Muni Yields FL intangibles tax)
1985 7.34 7.86 12.60
1986 5.74 6.23 10.06
1987 7.25 6.43 10.37
1988 8.10 6.61 10.65
1989 7.82 6.73 10.84
1990 7.38 6.69 10.78
1991 5.36 6.00 9.70
1992 3.08 5.38 8.73
1993 2.69 4.65 7.59
1994 3.22 5.40 8.76
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, the following shareholders owned beneficially and of record
the approximate percentages of outstanding shares of the Fund indicated after
their names: Bernard Heyman & Eve Heyman TTEES, Heyman Revocable Living Trust
U/A dtd. 11/11/94, Boynton Beach, FL (48.8%); Donald W. Udell and Bettye L.
Udell, JT TEN, Santa Rosa Beach, FL (27.5%); Paine Webber FBO John A.
Pauswinski Co. TTEE, John Pauswinski REVOCABLE TR Amended 2/3/92, Ocala, FL
(16.1%); and Sigfred G. Lysne TTEE, U/A dtd. 8/20/87, Vero Beach, FL (6.7%).
To the Trust's knowledge, no other person owned of record or beneficially 5%
or more of the Fund's outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLE
The tables below show the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and the Florida intangibles tax laws and tax rates applicable for 1995.
They show 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%.
<TABLE>
<CAPTION>
YOU ARE IN IN YOUR BRACKET, A TAX-FREE YIELD OF
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON THIS FEDERAL --------------------------------------------------------
YOUR SINGLE RETURN IS<F1> YOUR JOINT RETURN IS<F1> BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
---------------------------- -------------------------- ------------- --------------------------------------------------------
EQUALS THAT OF A TAXABLE INVESTMENT YIELDING
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $23,350 Up to $39,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 56,551-$117,950 $ 94,251-$143,600 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$117,951-$256,500 $143,601-$256,500 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $256,500 Over $256,500 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON
YOUR SINGLE RETURN IS<F1> YOUR JOINT RETURN IS<F1> 4% 4.5% 5% 5.5% 6% 6.5% 7%
---------------------------- -------------------------- ------------------------------------------------------------------
TAX EQUIVALENT YIELD REFLECTING EXEMPTION FROM INTANGIBLES TAX:<F2>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $23,350 Up to $39,000 4.95% 5.54% 6.13% 6.71% 7.30% 7.89% 8.48%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 5.85 6.54 7.23 7.93 8.62 9.31 10.01
$ 56,551-$117,950 $ 94,251-$143,600 6.10 6.83 7.55 8.27 9.00 9.72 10.44
$117,951-$256,500 $143,601-$256,500 6.58 7.36 8.14 8.92 9.70 10.48 11.26
Over $256,500 Over $256,500 6.97 7.80 8.62 9.45 10.28 11.10 11.93
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
<FN>
<F1> Net amount subject to Federal personal income tax after deductions and exemptions.
<F2> A Florida intangibles tax on personal property of $2.00 per $1,000 is generally imposed after exemptions on the value of
stocks, bonds, other evidences of indebtedness and mutual fund shares. An example of the effect of the Florida intangibles
tax on the tax brackets of Florida taxpayers is as follows. A $10,000 investment subject to the tax would require payment of
$20 annually in intangibles taxes. If the investment yielded 4.5% annually or $450, the intangibles tax as a percentage of
income would be $20/$450 or 4.44%. If a taxpayer were in the 36% Federal income tax bracket, assuming the intangibles taxes
were deducted as an Itemized Deduction on the Federal return, the taxpayer would be in a combined Federal and Florida State tax
bracket of 38.84% [36% + (1 - .36) X 4.44%] with respect to such investment. A Florida taxpayer whose intangible personal
property is exempt or partially exempt from tax due to the availability of exemptions will have a lower taxable equivalent
yield than indicated above.
</TABLE>
Note: The above-indicated Federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
taxpayers with adjusted gross income in excess of $114,700, nor the effects of
phaseout of personal exemptions for single and joint filers with adjusted
gross incomes in excess of $114,700 and $172,050, respectively. The effective
tax brackets and equivalent taxable yields of such taxpayers will be higher
than those indicated above.
Of course, no assurance can be given that EV Traditional Florida Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that a substantial portion of the interest income distributed to the
Fund shareholders will be exempt from the regular Federal income tax, other
income received by the Portfolio and allocated to the Fund may be taxable.
This table does not take into account the Florida intangibles tax, state or
local taxes, if any, payable on Fund distributions to individuals who are not
Florida residents, or intangibles taxes, if any, imposed under the laws of
other states. It should also be noted that 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 or increase the recipient's liability for the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits
that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL NEW YORK LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1)
a high level of current income exempt from regular Federal income tax and New
York State and New York City personal income taxes and (2) limited principal
fluctuation. The Fund currently seeks to achieve its investment objective by
investing its assets in the New York Limited Maturity Tax Free Portfolio (the
"Portfolio").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) 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;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(3) Underwrite or participate in the marketing of securities of others,
except insofar as it may technically be deemed to be an underwriter in selling
a portfolio security under circumstances which may require the registration of
the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership interests
in real estate, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which invest
or deal in real estate or securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, and (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
As a matter of nonfundamental policy, neither the Fund nor the Portfolio
may (a) 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 its net
assets (taken at current value) is held as collateral for such sales at any
one time. (The Fund and the Portfolio will make such sales only for the
purpose of deferring realization of gain or loss for Federal income tax
purposes); (b) purchase or retain in its portfolio securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Trust or of the Portfolio, or is a member, officer,
director or trustee of any investment adviser of the Fund or of the Portfolio,
if after the purchase of the securities of such issuer by the Fund or the
Portfolio one or more of such persons owns beneficially more than 1/2 of 1%
of the shares or securities or both (all taken at market value) of such issuer
and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities or both
(all taken at market value); (c) purchase oil, gas or other mineral leases or
purchase partnership interests in oil, gas or other mineral exploration or
development programs; (d) 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
that the Board of Trustees of the Trust or the Portfolio, or its delegate,
determines to be liquid, based upon the trading markets for the specific
security; (e) purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if by
reason thereof the value of its aggregate investment in such class of
securities will exceed 5% of its total assets, provided that the issuers of
securities rated by Moody's, S&P, Fitch or any other nationally recognized
rating service shall not be considered "unseasoned"; (f) 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; or (g) invest in warrants, valued at the lower of cost or market,
exceeding 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the
Fund or the Portfolio in units or attached to securities may be deemed to be
without value. The Fund and the Portfolio may purchase put options on
municipal obligations only if, after such purchase, not more than 5% of its
net assets, as measured by the aggregate of the premiums paid for such options
held by it, would be so invested. The Portfolio may limit its securities
lending activities in order to avoid adverse New York State and City tax
consequences. Neither the Fund nor the Portfolio intends to invest in reverse
repurchase agreements during the current fiscal year.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interests of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
RISKS OF CONCENTRATION
The following information as to certain New York considerations is given
to investors in view of the Portfolio's policy of concentrating its
investments in New York issuers. Such information 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 New York issuers. Neither the Trust nor
the Portfolio has independently verified this information.
The recession lasted longer in New York and the State's economic recovery
has lagged behind the nation's. Although the State has added approximately
185,000 jobs since November 1992, employment growth in the State has been
below the national average primarily due to significant cutbacks in the
computer, manufacturing, defense and banking industries. New York's economy is
expected to continue to expand modestly during 1995 with a pronounced slow-
down during the course of the year. The unemployment rate for the State for
1995 is projected to be 6.4%, compared to the national rate of 5.6%. New York
City's unemployment rate was 8.1% in June 1995, down from 8.5% a year earlier.
For the fiscal year 1991-92, the State incurred an operating deficit in
the General Fund of $575 million, which, after a $44 million withdrawal from
the Tax Stabilization Reserve Fund, was financed through the public issuance
of $531 million of 1992 Deficit Notes on March 30, 1992.
In the 1992-1993 fiscal year, the State began the process of financial
reform closing the fiscal year with fund surpluses totalling $738 million. The
1992-1993 fiscal year marked the first time in four years that the State did
not have to issue deficit notes to close a budget gap.
The 1993-1994 fiscal year ended with combined fund balances of $1.539
billion due to an improving national economy, State employment growth, better
than projected tax collections and disbursements that were below projections.
The 1994-1995 fiscal year, which included tax reductions of $476 million,
closed with the General Fund in balance and positive fund balances of $157
million and $1 million in the Tax Stabilization Reserve Fund and the
Contingency Reserve Fund, respectively. Tax revenues for the fiscal year fell
short of original projections by $1.16 billion, the shortfall being offset by
disbursements which were lower than projected and planned spending reductions.
The 1995-1996 fiscal year budget, adopted in June 1995, includes a planned
three-year 20% reduction in the State's personal income tax and is the first
budget in over 50 years which projects a decline in General Fund disbursements
and spending on State operations. The 1995-1996 State Financial Plan, based on
the enacted budget, includes gap-closing actions to offset a previously
projected budget gap of $5 billion, the largest in the State's history. Such
gap-closing actions include, among others, substantial reductions in social
and medical entitlement programs, reductions in State services and capital
programs and increased lottery revenues. There can be no assurance that
additional gap-closing measures will not be required and there is no assurance
that any such measures will enable the State to achieve a balanced budget for
its 1995-1996 fiscal year.
In 1994 and 1995, the State legislature passed a proposed constitutional
amendment on debt reform. The proposed amendment would permit the State to
issue non-voter approved revenue bonds secured by a pledge of certain tax
receipts, up to a cap equal to 5% of State personal income. If approved by the
voters in November 1995, such amendment would become effective January 1,
1996.
During the past several years, the State has been forced to borrow on a
seasonal basis due to cash flow timing problems. In June, 1990, the Local
Government Assistance Corporation ("LGAC") was formed as a public benefit
corporation for the purpose of issuing long term obligations designed to
eliminate this need. The legislation which created the LGAC specified that the
obligations will be amortized over no more than 30 years and put a $4.7
billion dollar cap, net of LGAC proceeds, on the seasonal borrowing program.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion completing the program. This cap may be exceeded in cases where
the Governor and the legislature have certified the need for additional
borrowing and have devised a method for reducing it back to the cap no later
than the fourth fiscal year after the limit is exceeded. If this cap were to
be exceeded, it could result in action by the rating agencies which could
adversely affect prices of bonds held by the Portfolio.
In 1975, New York City encountered severe financial difficulties which
impaired and continues to impair the borrowing ability of the City. For each
of the 1981 through 1994 fiscal years, the City achieved balanced operating
results as reported in accordance with generally accepted accounting
principles. Pursuant to the laws of the State, the City prepares a four-year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City implemented various actions to close budget gaps of $3.3 billion,
$2.1 billion and $3.5 billion for the 1992, 1994 and 1995 fiscal years,
respectively. Such actions included, among others, tax increases, service and
personnel reductions, productivity savings, debt refinancings, asset sales and
cost savings related to employee benefits. For the 1996 fiscal year, the City
has projected a budget gap of $3.1 billion and has proposed to implement
various gap-closing actions to balance the 1996 fiscal year budget including,
among others, substantial reductions in entitlement programs, service and
personnel reductions, cost saving initiatives related to labor and pension
costs and increases in certain lease and fee payments due the City. The City
currently projects budget gaps of $888 million, $1.459 billion and $1.484
billion for its 1997, 1998 and 1999 fiscal years, respectively. The City's
gap-closing plans for the 1997 through 1999 fiscal years include reductions in
City agency expenditures and cost saving actions related to entitlement
programs and procurement. There can be no assurance that additional gap-
closing measures will not be required, the implementation of which could
adversely affect the City's economic base, and there is no assurance that such
measures will enable the City to achieve a balanced budget, as required by
State law, for any of the 1996 through 1999 fiscal years. The fiscal health of
New York City, which is the largest issuer of municipal bonds in the country
and a leading international commercial center, exerts a significant influence
upon the fiscal health and bond values of issues throughout the State. Bond
values of the Municipal Assistance Corporation, the State of New York, the New
York Local Government Assistance Corporation, the New York State Dormitory
Authority, the New York City Municipal Water Finance Authority and The
Metropolitan Transportation Authority would be particularly affected by
serious financial difficulties encountered by New York City. The Portfolio
could be expected to hold bonds issued by many, if not all of these issuers,
at any given time.
Moody's rates the City's general obligation bonds "Baa1" and Fitch rates
such bonds "A-". On July 10, 1995, S&P revised downward its rating on City
general obligation bonds from A- to BBB+. S&P stated that the downgrade was a
reflection of the City's inability to eliminate a strucutral budget imbalance
due to persistent softness in the City's economy, weak job growth, a trend of
using nonrecurring budget devices, optimistic projections of State and federal
aid and high levels of debt service. There is no assurance that such ratings
will continue for any given period of time or that they will not be revised
downward or withdrawn entirely. Any such downward revision or withdrawal could
have an adverse effect on obligations held by the Portfolio.
The State's economic and fiscal viability are mutually and intricately
tied to those of its authorities and localities, which make up the major
portion of State bond issuance. Any serious financial difficulties encountered
by these entities, including their inability to access capital markets, would
have a significant, adverse effect upon the value of bonds issued elsewhere
within the State and thus upon the value of the interests in the Portfolio.
State plans to reduce aid to local cities and towns may have a negative impact
on municipal finances and ratings throughout the State. Such ratings changes
could erode the value of their bonds and/or lead to defaults.
The State either guarantees or supports lease-purchase agreements or
contractual obligations, financing arrangements or through moral obligation
provisions, a large amount of Authority indebtedness. While debt service is
normally paid out of revenues generated by the projects of the Authorities,
the State has, from time to time, had to appropriate amounts to enable the
Authorities to meet their financial obligations and, in some cases, to prevent
default. Certain authorities continue to show financial weakness due to the
economy.
FEES AND EXPENSES
INVESTMENT ADVISER
As of March 31, 1995, the Portfolio had net assets of $173,632,424. For
the fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees of
$845,836 (equivalent to 0.46% of the Portfolio's average daily net assets for
such year). For the period from the Portfolio's start of business, May 3,
1993, to the fiscal year ended March 31, 1994, the Portfolio paid BMR
advisory fees of $615,822 (equivalent to 0.45% (annualized) of the Portfolio's
average daily net assets for such period). The Portfolio's Investment Advisory
Agreement with BMR is dated October 13, 1992 and remains in effect until
February 28, 1996. The Agreement may be continued as described under
"Investment Adviser and Administrator" in Part I of this Statement of
Additional Information.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the period
from the start of business, July 6, 1994, to March 31, 1995, $13,702 of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
The Trustees have initially implemented the Plan by authorizing the Fund
to make quarterly service fee payments to the Principal Underwriter and
Authorized Firms in amounts not expected to exceed .20% of the Fund's average
daily net assets for any fiscal year based on the value of Fund shares sold by
such persons and remaining outstanding for at least twelve months. The Fund
expects to begin accruing for its service fee payments during the quarter
ending September 30, 1995.
PRINCIPAL UNDERWRITER
The total sales charges for sale of shares of the Fund for the period from
the start of business, July 6, 1994, to March 31, 1995 were $3,211, of which
$13 was received by the Principal Underwriter and $3,198 was received by
Authorized Firms.
The Principal Underwriter receives $2.50 from the Fund for each repurchase
transaction it handles. For the period from the start of business, July 6,
1994, to March 31, 1995, the Fund paid no repurchase transaction fees to the
Principal Underwriter.
CUSTODIAN
For the fiscal year ended March 31, 1995, the Portfolio paid IBT $36,810.
For the period from the start of business, July 6, 1994, to March 31, 1995,
the Fund paid IBT $749.
BROKERAGE
For the fiscal year ended March 31, 1995 and for the period from the start
of business, May 3, 1993, to the fiscal year ended March 31, 1994, the
Portfolio paid no brokerage commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested
Trustees) are paid by the Fund (and the other series of the Trust) and the
Portfolio, respectively. (The Trustees of the Trust and of the Portfolio who
are members of the Eaton Vance organization receive no compensation from the
Trust or the Portfolio.) During the fiscal year ended March 31, 1995, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Fund, the Portfolio, and
the other funds in the Eaton Vance fund complex(1):
AGGREGATE AGGREGATE TOTAL COMPENSATION
COMPENSATION COMPENSATION FROM TRUST AND
NAME FROM FUND FROM PORTFOLIO FUND COMPLEX
---- ------------ -------------- ------------------
Donald R. Dwight ...... -- 0 -- $2,114(2) $135,000(4)
Samuel L. Hayes, III .. -- 0 -- 2,133(3) 147,500(5)
Norton H. Reamer ...... -- 0 -- 2,140 135,000
John L. Thorndike ..... -- 0 -- 2,228 140,000
Jack L. Treynor ....... -- 0 -- 2,205 140,000
----------
(1) The Eaton Vance fund complex consists of 205 registered investment
companies or series thereof.
(2) Includes $350 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
ADDITIONAL OFFICER INFORMATION
The Portfolio has the following officer not listed under "Officers of the
Trust and the Portfolio" in the Fund's Part I of this Statement of Additional
Information.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March
31, 1995. The total return and percentage changes for the period prior to the
Fund's commencement of operations on July 6, 1994 reflect the Portfolio's
total return and percentage changes (or that of its predecessor) adjusted to
reflect any applicable Fund sales charge. Such performance has not been
adjusted to reflect the Fund's distribution fees and certain other expenses.
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT<F1>
TOTAL RETURN TOTAL RETURN
VALUE OF EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF INVESTMENT ------------------------------ ------------------------------
PERIOD DATE INVESTMENT<F2> ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
---------- ---------- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund
(2.84 Years) 5/29/92 $975.00 $1,121.91 15.07% 5.07% 12.19% 4.13%
1 Year Ended
3/31/95 3/31/94 $975.00 $1,024.43 5.07% 5.07% 2.44% 2.44%
<CAPTION>
PERCENTAGE CHANGES<F1> 5/29/92--3/31/95
NET ASSET VALUE TO NET ASSET VALUE MAXIMUM OFFERING PRICE TO NET ASSET VALUE
WITH ALL DISTRIBUTIONS REINVESTED WITH ALL DISTRIBUTIONS REINVESTED
--------------------------------- ------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
------------ ------ ---------- -------------- ------ ---------- --------------
<C> <C> <C> <C> <C> <C> <C>
3/31/93 -- 7.95% -- -- 5.25% --
3/31/94 1.46% 9.52% 5.07% -1.08% 6.78% 3.63%
3/31/95 5.07% 15.07% 5.07% 2.44% 12.19% 4.14%
Past performance is not indicative of future results. Investment return and principal value will fluctuate; shares, when
redeemed, may be worth more or less than their original cost.
----------
<FN>
<F1> If a portion of the Fund's expenses had not been subsidized, the Fund would have had lower returns.
<F2> Initial investment less the current maximum sales charge of 2.50%.
</TABLE>
For the thirty-day period ended March 31, 1995, the yield of the Fund was
4.12%. The yield required of a taxable security that would produce an after-
tax yield equivalent to that earned by the Fund of 4.12% would be 6.52%,
assuming a combined Federal and State tax rate of 36.64%. If a portion of the
Fund's expenses had not been allocated to the Administrator, the Fund would
have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on
the Fund's monthly distribution paid March 31, 1995) was 4.57%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.66%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
The Portfolio's diversification by quality ratings as of June 30, 1995
was:
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ----------------
Aaa or AAA %
Aa or AA 50.2
A 22.0
Baa or BBB 20.3
Ba or BB 7.5
B --
Below B --
Not rated --
----
Total 100.0%
The following information compares the taxable equivalent yield of an
investment in the Fund yielding a hypothetical 4.0% with the after-tax yield
of a certificate of deposit yielding 3.25%. The tax brackets used in the table
are the Federal and New York income tax brackets applicable for 1995: (1) for
taxpayers subject to New York City income tax - 25.19% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 36.64% for single
filers with taxable income from $23,351 to $55,550 and joint filers from
$39,001 to $94,250; 39.32% for single filers with taxable income from $56,551
to $117,950 and joint filers from $94,251 to $143,600; 43.71% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 46.88% for single and joint filers with taxable
income over $256,500; and (2) for taxpayers not subject to New York City
income tax - 21.45% for single filers with taxable income up to $23,350 and
joint filers up to $39,000; 33.47% for single filers with taxable income from
$23,351 to $56,550 and joint filers from $39,001 to $91,250; 36.24% for single
filers with taxable income from $56,551 to $117,950 and joint filers from
$94,251 to $143,600; 40.86% for single filers with taxable income from
$117,951 to $256,500 and joint filers from $143,601 to $256,500; and 44.19%
for single and joint filers with taxable income over $256,500. The applicable
Federal tax rates within each of these combined tax brackets are 15%, 28%,
31%, 36% and 39.6% over the same ranges of income. The combined tax brackets
are based on the highest New York State and/or New York City income tax rate
within each bracket, and are not simply the sum of each of the taxes, as they
assume that state and city taxes are deducted on the Federal income tax
return, thereby reducing the effective combined tax rates. These brackets do
not take into account the phaseout of personal exemptions and limitation on
deductibility of itemized deductions over certain ranges of income, which
increase the effective top Federal tax rate for certain taxpayers. Investors
should consult with their tax advisers for more information.
FOR TAXPAYERS SUBJECT TO NEW YORK CITY INCOME TAX:
<TABLE>
<CAPTION>
TAX BRACKET
25.19% 36.64% 39.32% 43.71% 46.88%
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................................ 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............................ 5.35 6.31 6.59 7.11 7.53
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.43 2.05 1.97 1.83 1.73
FOR TAXPAYERS NOT SUBJECT TO NEW YORK CITY INCOME TAX:
<CAPTION>
TAX BRACKET
21.45% 33.47% 36.24% 40.86% 44.19%
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield ................................ 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent ............................ 5.09 6.01 6.27 6.76 7.17
Certificates of deposit:
Yield ..................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield ........................... 2.55 2.16 2.07 1.92 1.81
</TABLE>
The following are illustrations of the Tax Free Yield Advantage, comparing
the after-tax yields of a certificate of deposit yielding 3.25% and a
hypothetical tax free investment yielding 4.0%. The 1995 combined tax bracket
takes into account Federal, New York State and/or New York City income taxes.
These illustrations also quantify the Federal income tax payable on
hypothetical investments of $100,000 in a certificate of deposit yielding
3.25% and a hypothetical tax free investment yielding 4.0%, and compares the
after-tax return of such investments. These charts are based on 3-month bank
CDs (Source: The Wall Street Journal) and current limited maturity municipal
bond yields, compiled by Eaton Vance Management. Tax free yields are shown for
illustration purposes only and are not meant to imply or predict any future
rate of return for the Fund. See your financial adviser for the Fund's current
yield and actual CD rates.
SUBJECT TO NEW YORK CITY INCOME TAX
The Tax Free Yield Advantage
(43.71% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.83% After-tax yield
4.00% Tax free investment
7.11% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,420.58) NONE
After-tax
income: $1,829.42 $4,000.00
NOT SUBJECT TO NEW YORK CITY INCOME TAX
The Tax Free Yield Advantage
(40.86% combined tax bracket)
3.25% Certificate of deposit
3.25% Pretax yield
1.92% After-tax yield
4.00% Tax free investment
6.76% Taxable equivalent yield
4.00% Tax free yield
Example:
Two $100,000 investments...
3.25% CD 4.00% Tax free
Pretax income: $3,250.00 $4,000.00
Tax: (1,372.95) NONE
After-tax
income: $1,922.05 $4,000.00
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included
in advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (43.71% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (43.71% bracket) (inc NYC)
1985 7.34 7.86 14.01
1986 5.74 6.23 11.10
1987 7.25 6.43 11.46
1988 8.10 6.61 11.78
1989 7.82 6.73 11.99
1990 7.38 6.69 11.92
1991 5.36 6.00 10.69
1992 3.08 5.38 9.59
1993 2.69 4.65 8.29
1994 3.22 5.40 9.59
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
ADDITIONAL TAX MATTERS
In any year in which the Fund is subject to New York taxation, qualifies
as a regulated investment company under Subchapter M of the Code and incurs no
Federal income tax, the Fund will not be required to pay any New York State
franchise tax or New York City general corporation tax, with the possible
exception of certain nominal minimum taxes.
Distributions from the Fund will not be excluded from net income and
shares of the Fund will not be excluded from investment capital in determining
New York State or City franchise and corporation taxes for corporate
shareholders.
Shares of the Fund will not be subject to the New York State or City
property tax.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As
of June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., New Brunswick,
NJ, was the record owner of approximately 22% of the outstanding shares, which
were 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. To the knowledge of the Trust, no other person owned of record
or beneficially 5% or more of the Fund's outstanding shares as of such date.
TAX EQUIVALENT YIELD TABLES
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and New York State and New York City income tax laws in effect for 1995.
It gives 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%.
<TABLE>
<CAPTION>
COMBINED
FEDERAL, A FEDERAL, NEW YORK STATE AND NEW YORK CITY TAX EXEMPT YIELD
SINGLE RETURN JOINT RETURN NY STATE OF:
------------------------- ---------------------- AND NY CITY ---------------------------------------------------------------
(TAXABLE INCOME<F1> TAX BRACKET<F2> 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------------------------------------- --------------- ---------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 25.19% 5.35% 6.01% 6.68% 7.35% 8.02% 8.69% 9.36%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 36.64 6.31 7.10 7.89 8.68 9.47 10.26 11.05
$ 56,551 - $117,950 $ 94,251 - $143,600 39.32 6.59 7.42 8.24 9.06 9.89 10.71 11.54
$117,951 - $256,500 $143,601 - $256,500 43.71 7.11 7.99 8.88 9.77 10.66 11.55 12.44
Over $256,500 Over $256,500 46.88 7.53 8.47 9.41 10.35 11.29 12.24 13.18
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
<F1> Net amount subject to Federal, New York State and New York City personal income tax (including New York City personal income
tax surcharges) after deductions and exemptions.
<F2> The combined tax rate for the two lowest income tax brackets are calculated using the highest State rate (7.59375% effective
annualized State tax rate based on a rate of 7.875% for the first 3 months of the 1995 tax year and 7.5% for the remaining 9
months) and the highest City rate applicable at the upper portion of that bracket. Therefore, an investor with taxable income
below the highest dollar amount in the two lowest brackets may have a lower combined tax rate than the combined rate shown
for that bracket. The applicable State and City rates are at their maximum (7.59375% and 4.457%, respectively) throughout all
other brackets.
</TABLE>
The table below shows the effect of the tax status of bonds on the tax
equivalent yield received by their holders under the regular Federal income
tax and New York State income tax laws in effect for 1995. It gives 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%.
<TABLE>
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND NEW YORK STATE TAX EXEMPT YIELD OF:
------------------------- ---------------------- NY STATE ---------------------------------------------------------------
(TAXABLE INCOME<F1>) TAX BRACKET<F2> 4% 4.5% 5% 5.5% 6% 6.5% 7%
------------------------------------------------- --------------- ---------------------------------------------------------------
IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 21.45% 5.09% 5.73% 6.37% 7.00% 7.64% 8.28% 8.91%
$ 23,351 - $ 56,550 $ 39,001 - $ 94,250 33.47 6.01 6.76 7.52 8.27 9.02 9.77 10.52
$ 56,551 - $117,950 $ 94,251 - $143,600 36.24 6.27 7.06 7.84 8.63 9.41 10.19 10.98
$117,951 - $256,500 $143,601 - $256,500 40.86 6.76 7.61 8.45 9.30 10.15 10.99 11.84
Over $256,500 Over $256,500 44.19 7.17 8.06 8.96 9.85 10.75 11.65 12.54
Yields shown are for illustration purposes only and are not meant to represent the Fund's actual yield.
<F1> Net amount subject to Federal and New York State and personal income tax after deductions and exemptions.
<F2> The combined tax rate for the two lowest income tax brackets are calculated using the highest State rate (7.59375% effective
annualized State tax rate based on a rate of 7.875% for the first 3 months of the 1995 tax year and 7.5% for the remaining 9
months) applicable at the upper portion of that bracket. Therefore, an investor with taxable income below the highest dollar
amount in the two lowest brackets may have a lower combined tax rate than the combined rate shown for that bracket. The
applicable State rate is the maximum rate, 7.59375%, throughout all other brackets.
</TABLE>
Note: Of course, no assurance can be given that EV Traditional New York
Limited Maturity Tax Free Fund will achieve any specific tax exempt yield.
While it is expected that the Portfolio will invest principally in obligations
the interest from which is exempt from the regular Federal income tax and New
York State and New York City personal income taxes, other income received by
the Portfolio and allocated to the Fund may be taxable. The table does not
take into account state or local taxes, if any, payable on Fund distributions
except for New York State and New York City personal income taxes. It should
also be noted that 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 or
increase the recipient's liability for the Federal alternative minimum tax.
The above-indicated combined Federal and New York State/City income brackets
assume State and City taxes are Itemized Deductions and do not take into
account the effect of a reduction in the deductibility of Itemized Deductions
(including New York State and City Income Taxes) for taxpayers with Adjusted
Gross Income in excess of $114,700, nor do they reflect phaseout of personal
exemptions for single and joint filers with Adjusted Gross Income in excess
of $114,700 and $172,050, respectively. The effective combined tax brackets
and equivalent taxable yields of taxpayers who do not itemize or who are
subject to such limitations will be higher than those indicated above. In
addition, investors who do not itemize deductions on their Federal income tax
returns will have higher combined brackets and equivalent taxable yields than
indicated above. The illustrations assume that the Federal alternative minimum
tax is not applicable and do not take into account any tax credits that may be
available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent
yields set forth above.
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Boston Management and Research
24 Federal Street
Boston, MA 02110
FUND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV TRADITIONAL
FLORIDA
LIMITED MATURITY
TAX FREE FUND
EV TRADITIONAL
NEW YORK
LIMITED MATURITY
TAX FREE FUND
STATEMENT OF
ADDITIONAL
INFORMATION
AUGUST 1, 1995
EV TRADITIONAL LIMITED MATURITY
TAX FREE FUNDS
24 FEDERAL STREET
BOSTON, MA 02110
T-LC8/1SAI
<PAGE>
EV CLASSIC NATIONAL LIMITED MATURITY
TAX FREE FUND
EV CLASSIC NATIONAL LIMITED MATURITY TAX FREE FUND (THE "FUND") IS A MUTUAL
FUND SEEKING TO PROVIDE (1) A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM REGULAR
FEDERAL INCOME TAX AND (2) LIMITED PRINCIPAL FLUCTUATION. THE FUND INVESTS ITS
ASSETS IN NATIONAL LIMITED MATURITY TAX FREE PORTFOLIO (THE "PORTFOLIO"), A
DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS
THE FUND, RATHER THAN BY INVESTING DIRECTLY IN AND MANAGING ITS OWN PORTFOLIO OF
SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL FUNDS. THE FUND IS A SERIES OF
EATON VANCE INVESTMENT TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated August 1, 1995 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's principal underwriter,
Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street,
Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's investment adviser
is Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Fund. The offices of the Investment
Adviser and the Administrator are located at 24 Federal Street, Boston, MA
02110.
--------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Shareholder and Fund Expenses........... 2
The Fund's Financial Highlights......... 3
The Fund's Investment Objective......... 4
How the Fund and the Portfolio Invest
their Assets.......................... 4
Organization of the Fund and the
Portfolio............................. 9
Management of the Fund and the
Portfolio............................. 11
Distribution Plan....................... 12
Valuing Fund Shares..................... 15
How to Buy Fund Shares.................. 15
How to Redeem Fund Shares............... 16
Reports to Shareholders................. 18
The Lifetime Investing
Account/Distribution Options.......... 18
The Eaton Vance Exchange Privilege...... 20
Eaton Vance Shareholder Services........ 21
Distributions and Taxes................. 21
Performance Information................. 23
</TABLE>
--------------------------------------------------------------------------------
PROSPECTUS DATED AUGUST 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES
--------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Contingent Deferred Sales Charges Imposed on Redemptions During the
First Year (as a percentage of redemption proceeds exclusive of all
reinvestments and
capital appreciation in the account) 1.00%
</TABLE>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
<TABLE>
<S> <C>
(as a percentage of average daily net assets)
Investment Adviser Fee 0.46%
Rule 12b-1 Distribution (and Service) Fees 0.90
Other Expenses (after expense reduction) 0.21
-----
Total Operating Expenses (after expense reduction) 1.57%
======
</TABLE>
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses (including a
contingent deferred sales charge in the case of redemption
during the first year after purchase) on a $1,000
investment, assuming (a) 5% annual return and (b)
redemption at the end of each period: $ 26 $50 $86 $187
An investor would pay the following expenses on the same
investment, assuming (a) 5% annual return and (b) no
redemptions: $ 16 $50 $86 $187
</TABLE>
Notes:
The tables and Examples summarize the aggregate expenses of the Fund and
the Portfolio and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in the Fund.
Information for the Fund is based on its expenses for the most recent fiscal
year. Absent an expense allocation, Other Expenses would have been 0.45%, and
Total Operating Expenses would have been 1.81%.
The Fund invests exclusively in the Portfolio. The Trustees believe that,
over time, the aggregate per share expenses of the Fund and the Portfolio should
be approximately equal to, or less than, the per share expenses the Fund would
incur if the Fund were instead to retain the services of an investment adviser
and its assets were invested directly in the types of securities being held by
the Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual annual
return will vary. For further information regarding the expenses of both the
Fund and the Portfolio see "Organization of the Fund and the Portfolio",
"Management of the Fund and the Portfolio" and "How to Redeem Fund Shares." A
long-term shareholder in the Fund may pay more than the economic equivalent of
the maximum front-end sales charge permitted by the rules of the National
Association of Securities Dealers, Inc.
The contingent deferred sales charge is imposed on the redemption of shares
purchased on or after January 30, 1995. No contingent deferred sales charge is
imposed on (a) shares purchased more than one year prior to redemption, (b)
shares acquired through reinvestment of distributions or (c) any appreciation in
value of other shares in the account, and no such charge is imposed on exchanges
of Fund shares for shares of one or more other funds listed under "The Eaton
Vance Exchange Privilege". See "How to Redeem Fund Shares".
The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 11.
Other investment companies with different distribution arrangements and
fees are investing in the Portfolio and additional such companies and investors
may do so in the future. See "Organization of the Fund and the Portfolio".
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's Annual Report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of the Fund is contained in the Fund's annual report
to shareholders which may be obtained without charge by contacting the Principal
Underwriter.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1995 1994**
-------- --------
<S> <C> <C>
NET ASSET VALUE, beginning of period............................................ $ 9.550 $ 10.000
-------- --------
INCOME FROM OPERATIONS:
Net investment income......................................................... $ 0.375 $ 0.104
Net realized and unrealized gain (loss) on investments........................ 0.026++ (0.421)
-------- --------
Total income (loss) from operations........................................ $ 0.401 $ (0.317)
-------- --------
LESS DISTRIBUTIONS:
From net investment income.................................................... $ (0.375) $ (0.104)
In excess of net investment income............................................ (0.046) (0.029)
-------- --------
Total distributions........................................................ $ (0.421) $ (0.133)
-------- --------
NET ASSET VALUE, end of period.................................................. $ 9.530 $ 9.550
========= =========
TOTAL RETURN(1)................................................................. 4.35% (3.32)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000's omitted)..................................... $ 19,930 $ 26,046
Ratio of net expenses to average net assets(2)................................ 1.57% 1.53%+
Ratio of net investment income to average net assets.......................... 4.01% 3.10%+
*The operating expenses of the Fund reflect an allocation of expenses to the
Administrator. Had such actions not been taken, net investment income per share
and the ratios would have been as follows:
NET INVESTMENT INCOME PER SHARE................................................. $ 0.353 $ 0.093
========= =========
RATIOS (As a percentage of average daily net assets):
Expenses(2)................................................................... 1.81% 1.87%+
Net investment income......................................................... 3.77% 2.76%+
**For the period from the start of business, December 8, 1993, to March 31, 1994.
+Computed on an annualized basis.
++The per share amount is not in accord with the net realized and unrealized gain (loss) for the period
because of timing of sales of Fund shares and the amount of per share realized and unrealized gains
and losses at such time.
(1)Total return is calculated assuming a purchase at the net asset value on the first day and a sale at
the net asset value on the last day of each period reported. Dividends and distributions, if any, are
assumed to be reinvested at the net asset value on the payable date. Total return is computed on a
non-annualized basis.
(2)Includes the Fund's share of the Portfolio's allocated expenses.
</TABLE>
3
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE (1) A HIGH LEVEL OF CURRENT INCOME
EXEMPT FROM REGULAR FEDERAL INCOME TAX AND (2) LIMITED PRINCIPAL FLUCTUATION.
The Fund currently seeks to meet its investment objective by investing its
assets in National Limited Maturity Tax Free Portfolio, a separate open-end
management investment company which invests primarily in municipal obligations
(as described below) having a dollar weighted average duration of between three
and nine years and which are rated at least investment grade by a major rating
agency or, if unrated, are determined to be of at least investment grade quality
by the Investment Adviser.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
--------------------------------------------------------------------------------
THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF STATES, TERRITORIES
AND POSSESSIONS OF THE UNITED STATES, AND THE DISTRICT OF COLUMBIA AND THEIR
POLITICAL SUBDIVISIONS, AGENCIES OR INSTRUMENTALITIES, THE INTEREST ON WHICH IS
EXEMPT FROM REGULAR FEDERAL INCOME TAX AND IS NOT A TAX PREFERENCE ITEM UNDER
THE FEDERAL ALTERNATIVE MINIMUM TAX. The foregoing policy is a fundamental
policy of both the Fund and the Portfolio and may not be changed unless
authorized by a vote of the shareholders of the Fund or the investors in the
Portfolio, as the case may be.
At least 80% of the Portfolio's net assets will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch")) or, if unrated, determined by the Investment Adviser to
be of at least investment grade quality. The Portfolio may invest up to 20% of
its net assets in municipal obligations rated below investment grade (but not
lower than B by Moody's, S&P or Fitch) and unrated municipal obligations
considered to be of comparable quality by the Investment Adviser. Municipal
obligations rated Baa or BBB may have speculative characteristics. Also, changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case of
higher rated obligations. Securities rated below Baa or BBB are commonly known
as "junk bonds". The Portfolio may retain an obligation whose rating drops below
B after its acquisition if such retention is considered desirable by the
Investment Adviser. See "Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
In pursuing its investment objective, the Portfolio seeks to invest in a
portfolio having a dollar weighted average duration of between three and nine
years. Duration represents the dollar weighted average maturity of expected cash
flows (i.e., interest and principal payments) on one or more debt obligations,
discounted to their present values. The duration of an obligation is usually not
more than its stated maturity and is related to the degree of volatility in the
market value of the obligation. Maturity measures only the time until a bond or
other debt security provides its final payment; it does not take into
4
<PAGE>
account the pattern of a security's payments over time. Duration takes both
interest and principal payments into account and, thus, in the Investment
Adviser's opinion, is a more accurate measure of a debt security's sensitivity
to changes in interest rates. In computing the duration of its portfolio, the
Portfolio will have to estimate the duration of debt obligations that are
subject to prepayment or redemption by the issuer, based on projected cash flows
from such obligations.
The Portfolio may use various techniques to shorten or lengthen the dollar
weighted average duration of its portfolio, including the acquisition of debt
obligations at a premium or discount, and transactions in futures contracts and
options on futures. Subject to the requirement that the dollar weighted average
portfolio duration will not exceed nine years, the Portfolio may invest in
individual debt obligations of any maturity.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public and
private purposes, the interest on which is, in the opinion of bond counsel,
exempt from regular Federal income tax. Public purpose municipal bonds include
general obligation and revenue bonds. General obligation bonds are backed by the
taxing power of the issuing municipality. Revenue bonds are backed by the
revenues of a project or facility. Municipal notes include bond anticipation,
tax anticipation, revenue anticipation and construction loan notes. Bond, tax
and revenue anticipation notes are short-term obligations that will be retired
with the proceeds of an anticipated bond issue, tax revenue or facility revenue,
respectively. Construction loan notes are short-term obligations that will be
retired with the proceeds of long-term mortgage financing.
Interest income from certain types of municipal obligations may subject the
recipient to or increase the recipient's liability for the Federal alternative
minimum tax; as at March 31, 1995, the Portfolio had 12.7% of its net assets
invested in such private activity bonds. The Portfolio may not invest more than
20% of its net assets in these obligations and obligations that pay interest
subject to regular Federal income tax. Distributions to corporate investors of
certain interest income may also be subject to the Federal alternative minimum
tax.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in municipal
obligations of issuers located in the same state or in municipal obligations of
the same type, including without limitation the following: general obligations
of states and localities; lease rental obligations of state and local
authorities; obligations of state and local housing finance authorities,
municipal utilities systems or public housing authorities; obligations for
hospitals or life care facilities; or industrial development or pollution
control bonds issued for electric utility systems, steel companies, paper
companies or other purposes. This may make the Portfolio more susceptible to
adverse economic, political, or regulatory occurrences affecting a particular
category of issuer. For example, health care-related issuers are susceptible to
medicaid reimbursement policies, and national and state health care legislation.
As the Portfolio's concentration increases, so does the potential for
fluctuation in the value of the Fund's shares.
DIVERSIFIED STATUS. The Portfolio's classification under the Investment Company
Act of 1940 (the "1940 Act") as a "diversified" investment company means that
with respect to 75% of its total assets (1) the 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) the Portfolio may not own more than 10% of the
outstanding voting securities of any one issuer. Since municipal obligations are
not voting securities, there is no limit on the
5
<PAGE>
percentage of a single issuer's obligations which the Portfolio may own so long
as it does not invest more than 5% of its total assets in the securities of that
issuer.
OTHER INVESTMENT PRACTICES
The Portfolio may engage in the following other investment practices, some
of which may be considered to involve "derivative" instruments because they
derive their value from another instrument, security or index.
INSURED OBLIGATIONS. The Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of the Fund's shares.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities 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. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than the Portfolio agreed to pay for them. The Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
FUTURES TRANSACTIONS. The Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the Municipal
Bond Index traded on the Chicago Board of Trade) and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed the
Portfolio's initial investment in these contracts. The Portfolio may not
purchase or sell futures contracts or related options, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of margin deposits and premiums paid on the Portfolio's outstanding positions
would exceed 5% of the market value of the Portfolio's net assets. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to the Portfolio.
Distributions by the Fund of any gains realized on the Portfolio's transactions
in futures and options on futures will be taxable.
RISK CONSIDERATIONS
Many municipal obligations offering high current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, the Portfolio may invest in municipal obligations rated below
investment grade (but not lower than B by Moody's, S&P or Fitch) and comparable
unrated obligations. The lowest investment grade, lower rated and comparable
unrated municipal obligations in which the Portfolio may invest will have
speculative characteristics in varying degrees. While such 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.
6
<PAGE>
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.
The Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by the 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. The Portfolio
may retain in its portfolio an obligation whose rating drops below B after its
acquisition if such retention is considered desirable by the Investment Adviser;
provided, however, that holdings of obligations rated below Baa or BBB will not
exceed 35% of net assets. In the event the rating of an obligation held by the
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
its credit quality limitations. For a description of municipal obligation
ratings, see the Statement of Additional Information.
The net asset value of the Fund will change in response to fluctuations in
prevailing interest rates and changes in the value of the securities held by the
Portfolio. When interest rates decline, the value of securities held by the
Portfolio can be expected to rise. Conversely, when interest rates rise, the
value of most portfolio security holdings can be expected to decline. Because
the Portfolio intends to limit its average portfolio duration to no more than
nine years, the net asset value of the Fund can be expected to be less sensitive
to changes in interest rates than that of a fund with a longer average portfolio
duration. Changes in the credit quality of the issuers of municipal obligations
held by the Portfolio will affect the principal value of (and possibly the
income earned on) such obligations. In addition, the values of such securities
are affected by changes in general economic conditions and business conditions
affecting the specific industries of their issuers. Changes by recognized rating
services in their ratings of a security and in the ability of the issuer to make
payments of principal and interest may also affect the value of the Portfolio's
investments. The amount of information about the financial condition of an
issuer of municipal obligations may not be as extensive as that made available
by corporations whose securities are publicly traded. An investment in shares of
the Fund will not constitute a complete investment program.
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.
7
<PAGE>
The secondary market for some municipal obligations (including issues which
are privately placed with the Portfolio) is less liquid than that for taxable
debt obligations or other more widely traded municipal obligations. The
Portfolio will not invest in illiquid securities if more than 15% of its assets
would be invested in securities that are not readily marketable. No established
resale market exists for certain of the municipal obligations in which the
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, the Portfolio may be unable to dispose of some of these municipal
obligations at times when it would otherwise wish to do so at the prices at
which they are valued.
Certain securities held by the Portfolio may permit the issuer at its
option to "call", or redeem, its securities. If an issuer were to redeem
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.
Some of the securities in which the Portfolio invests may include so-called
"zero coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. The Portfolio is required to accrue and distribute income from
zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, a Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
The Portfolio may invest in 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.
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.
THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER VOTE
AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED RESTRICTIONS AND
AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT OBJECTIVE AND POLICES
OF THE FUND AND THE PORTFOLIO ARE NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY
BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE
APPROVAL OF THE FUND'S SHAREHOLDERS OR THE INVESTORS IN THE PORTFOLIO, AS THE
CASE MAY BE. IF ANY CHANGES WERE MADE IN THE FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVES WHICH AN
INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN
THE FUND.
8
<PAGE>
ORGANIZATION OF THE FUND AND THE PORTFOLIO
--------------------------------------------------------------------------------
The Fund is a diversified series of Eaton Vance Investment Trust, a business
trust established under Massachusetts law pursuant to a Declaration of Trust
dated October 23, 1985, as amended and restated. The Trust is a mutual fund --
an open-end management investment company. THE TRUSTEES OF THE TRUST ARE
RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF ITS AFFAIRS. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series, and because the Trust can offer separate series
(such as the Fund), it is known as a "series company." Each share represents an
equal proportionate beneficial interest in the Fund. When issued and
outstanding, the Fund's shares are fully paid and nonassessable by the Trust and
redeemable as described under "How to Redeem Fund Shares." Shareholders are
entitled to one vote for each full share held. Fractional shares may be voted
proportionately. Shares have no preemptive or conversion rights and are freely
transferable. In the event of the liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets available for distribution to
shareholders.
THE 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. The
Portfolio, as well as the Trust, intends to comply with all applicable Federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the 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.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio
(although the Fund may temporarily hold a de minimis amount of cash), which is a
separate investment company with an identical investment objective. Therefore,
the Fund's interest in the securities owned by the Portfolio is indirect. In
addition to selling an interest to the Fund, the Portfolio may sell interests to
other affiliated and non-affiliated mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions, see "The Fund's Investment
Objective" and "How the Fund and the Portfolio Invest their Assets". Further
information regarding investment practices may be found in the Statement of
Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees
9
<PAGE>
believe that the structure offers opportunities for substantial growth in the
assets of the Portfolio, and affords the potential for economies of scale for
the Fund, at least when the assets of the Portfolio exceed $500 million.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio, as the case may
be. Any such change of the investment objective of the Fund or the Portfolio
will be preceded by thirty days' advance written notice to the shareholders of
the Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of the Fund, those shares may be subject to a contingent deferred sales charge,
as described in "How to Redeem Fund Shares". In the event the Fund withdraws all
of its assets from the Portfolio, or the Board of Trustees of the Trust
determines that the investment objective of the Portfolio is no longer
consistent with the investment objective of the Fund, such Trustees would
consider what action might be taken, including investing the assets of the Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. The Fund's
investment performance may be affected by a withdrawal of all its assets from
the Portfolio.
Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc. (the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA
02110, (617) 482-8260. Smaller investors in the Portfolio may be adversely
affected by the actions of larger investors in the Portfolio. For example, if a
large investor withdraws from the Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the 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. The 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 the
Portfolio may alone or
10
<PAGE>
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, the 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 the Fund. Notwithstanding the above, there are other means for
meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of the Portfolio are the same. Such procedures require
each Board to take actions to resolve any conflict of interest between the Fund
and the Portfolio, and it is possible that the creation of separate Boards may
be considered. For further information concerning the Trustees and officers of
the Trust and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
--------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset-based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in the
same Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ------------------------------------------ ------------ -----------
<C> <S> <C> <C>
1 up to $500 million........................ 0.300% 3.00%
2 $500 million but less than $1 billion..... 0.275% 2.75%
3 $1 billion but less than $1.5 billion..... 0.250% 2.50%
4 $1.5 billion but less than $2 billion..... 0.225% 2.25%
5 $2 billion but less than $3 billion....... 0.200% 2.00%
6 $3 billion and over....................... 0.175% 1.75%
</TABLE>
11
<PAGE>
As at March 31, 1995, the Portfolio had net assets of $169,620,804. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees
equivalent to 0.46% of the Portfolio's average daily net assets for such year.
BMR furnishes for the use of the Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
Portfolio.
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolio and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
Raymond E. Hender has acted as the portfolio manager of the Portfolio since
it commenced operations. He joined Eaton Vance and BMR as a Vice President in
September 1992. Prior to joining Eaton Vance, he was a Senior Vice President of
Bank of New England (1989-1992) and a Portfolio Manager at Fidelity Management &
Research Company (1977-1988).
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing the Fund's assets in the Portfolio. As Administrator, Eaton Vance
provides the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
The Portfolio and the Fund, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLAN
--------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. Rule 12b-1 permits a
mutual fund, such as the Fund, to finance distribution activities and bear
expenses associated with the distribution of its shares provided that any
payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. The Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
12
<PAGE>
Rule"). The Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plan. The Plan provides that the Fund, subject to the NASD Rule, will pay sales
commissions and distribution fees to the Principal Underwriter only after and as
a result of the sale of shares of the Fund. On each sale of Fund shares
(excluding reinvestment of distributions) the Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 6.25% of the
amount received by the Fund for each 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. On sales of shares made prior
to January 30, 1995, the Principal Underwriter currently pays monthly sales
commissions to a financial service firm (an "Authorized Firm") in amounts
anticipated to be equivalent to .75%, annualized, of the assets maintained in
the Fund by the customers of such Firm. On sales of shares made on January 30,
1995, and thereafter, the Principal Underwriter currently expects to pay to an
Authorized Firm (a) sales commissions (except on exchange transactions and
reinvestments) at the time of sale equal to .85% of the purchase price of the
shares sold by such Firm and (b) monthly sales commissions approximately
equivalent to 1/12 of .75% of the value of shares sold by such Firm and
remaining outstanding for at least one year. The Plan is designed to permit an
investor to purchase Fund shares through an Authorized Firm without incurring an
initial sales charge and at the same time permit the Principal Underwriter to
compensate Authorized Firms in connection with the sale of Fund shares.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR.
Under its Plan, the Fund accrues daily an amount at the rate of 1/365 of .75% of
the Fund's net assets, and pays such accrued amounts monthly to the Principal
Underwriter. The Plan requires such accruals to be automatically discontinued
during any period in which there are no outstanding Uncovered Distribution
Charges under the Plan. Uncovered Distribution Charges are calculated daily and,
briefly, are equivalent to all unpaid sales commissions and distribution fees to
which the Principal Underwriter is entitled under the Plan less all contingent
deferred sales charges theretofore paid to the Principal Underwriter. The Eaton
Vance organization may be considered to have realized a profit under the Plan if
at any point in time the aggregate amounts of all payments made to the Principal
Underwriter pursuant to the Plan, including any contingent deferred sales
charges, have exceeded the total expenses theretofore incurred by such
organization in distributing 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.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Fund shares during the initial years of the Fund's
operations would cause a large portion of the sales commission attributable to a
sale of Fund shares to be accrued and paid by the Fund to the Principal
Underwriter in fiscal years subsequent to the year in which such shares were
sold. This spreading of sales commissions payments under the Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan. For the fiscal year ended March 31, 1995, the
Fund paid sales commissions under the Plan equivalent to .75% (annualized) of
the Fund's average daily net assets for such year. As at March 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $2,904,000 (equivalent to
14.6% of the Fund's net assets on such day).
13
<PAGE>
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS FOR EACH FISCAL YEAR. The
Trustees of the Trust have initially implemented this provision of the Plan by
authorizing the Fund to make monthly service fee payments to the Principal
Underwriter in amounts not expected to exceed .15% per annum of the Fund's
average daily net assets for any fiscal year. The Fund accrues the service fee
daily at the rate of 1/365 of .15% of the Fund's net assets. On sales of shares
made prior to January 30, 1995, the Principal Underwriter currently makes
monthly service fee payments to an Authorized Firm in amounts anticipated to be
equivalent to .15%, annualized, of the assets maintained in the Fund by the
customers of such Firm. On sales of shares made on January 30, 1995 and
thereafter, the Principal Underwriter currently expects to pay to an Authorized
Firm (a) a service fee (except on exchange transactions and reinvestments) at
the time of sale equal to .15% of the purchase price of the shares sold by such
Firm, and (b) monthly service fees approximately equivalent to 1/12 of .15% of
the value of shares sold by such Firm and remaining outstanding for at least one
year. However, the Plan authorizes the Trustees of the Trust on behalf of the
Fund to increase payments to the Principal Underwriter, Authorized Firms and
other persons from time to time without further action by shareholders of the
Fund, provided that the aggregate amount of payments made to such persons under
the Plan in any fiscal year of the Fund does not exceed .25% of the Fund's
average daily net assets. During the first year after a purchase of Fund shares,
the Principal Underwriter will retain the service fee as reimbursement for the
service fee payment made to the Authorized Firm at the time of sale. As
permitted by the NASD Rule, all service fee payments are made for personal
services and/or the maintenance of shareholder accounts. Service fees are
separate and distinct from the sales commissions and distribution fees payable
by the Fund to the Principal Underwriter, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of the Principal Underwriter. For the fiscal year ended March 31, 1995,
the Fund made service fee payments equivalent to .15% of the Fund's average
daily net assets for such year.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's shares and/or
shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives 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 Authorized Firms.
The Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Fund's management intends to consider all relevant factors,
including without limitation the size of the Fund, the investment climate and
market conditions, the volume of sales and redemptions of Fund shares, and the
amount of Uncovered Distribution Charges of the Principal Underwriter. The Plan
may continue in effect and payments may be made under the Plan following any
such suspension, discontinuance or limitation of the offering of Fund shares;
however, the Fund is not contractually obligated to continue the Plan for any
particular period of time. Suspension of the offering of Fund shares would not,
of course, affect a shareholder's ability to redeem shares.
14
<PAGE>
VALUING FUND SHARES
--------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio) based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of the Portfolio from the value of its total assets. Municipal
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolio's assets, see "Determination of Net Asset Value" in the Statement of
Additional Information. Eaton Vance Corp. owns 77.3% of the outstanding stock of
IBT, the Fund's and the Portfolio's custodian.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
--------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the net asset value per share of the Fund next determined after an order is
effective. The Fund may suspend the offering of shares at any time and may
refuse an order for the purchase of shares.
An initial investment in the Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Fund's transfer agent (the "Transfer Agent") as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
15
<PAGE>
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 at their net asset value as determined above. The minimum value of
securities (or securities and cash) accepted for deposit is $5,000. Securities
accepted will be sold by IBT as agent for the account of their owner on the day
of their receipt by IBT 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 net asset value per
Fund share 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 the securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Classic National Limited Maturity Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Classic National Limited Maturity Tax Free Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities. Exchanging securities
for Fund 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 for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
--------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per Fund share next computed after such delivery. Good order
means that all relevant documents
16
<PAGE>
must be endorsed by the record owner(s) exactly as the shares are registered and
the signature(s) must be guaranteed by a member of either the Securities
Transfer Association's STAMP program or the New York Stock Exchange's Medallion
Signature Program, or certain banks, savings and loan institutions, credit
unions, securities dealers, securities exchanges, clearing agencies and
registered securities associations as required by a regulation of the Securities
and Exchange Commission and acceptable to The Shareholder Services Group, Inc.
In addition, in some cases, good order may require the furnishing of additional
documents such as where shares are registered in the name of a corporation,
partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by
The Shareholder Services Group, Inc., the Fund will make payment in cash for the
net asset value of the shares as of the date determined above, reduced by the
amount of any applicable contingent deferred sales charge (described below) and
any Federal income tax required to be withheld. Although the Fund normally
expects to make payment 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 the Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn by the Fund from
the 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.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of a redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares. No contingent
deferred sales charge will be imposed with respect to such involuntary
redemptions.
CONTINGENT DEFERRED SALES CHARGE. Shares purchased on or after January 30, 1995
and redeemed within the first year of their purchase (except shares acquired
through the reinvestment of distributions) generally will be subject to a
contingent deferred sales charge. This contingent deferred sales charge is
imposed on any redemption, the amount of which exceeds the aggregate value at
the time of redemption of (a) all shares in the account purchased more than one
year prior to the redemption, (b) all shares in the account acquired through
reinvestment of distributions, and (c) the increase, if any, of value in the
other shares in the account (namely those purchased within the year preceding
the redemption) over the purchase price of such shares. Redemptions are
processed in a manner to maximize the amount of redemption proceeds which will
not be subject to a contingent deferred sales charge. That is, each redemption
will be assumed to have
17
<PAGE>
been made first from the exempt amounts referred to in clauses (a), (b) and (c)
above, and second through liquidation of those shares in the account referred to
in clause (c) on a first-in-first-out basis. Any contingent deferred sales
charge which is required to be imposed on share redemptions will be equal to 1%
of the net asset value of redeemed shares.
In calculating the contingent deferred sales charge upon the redemption of
Fund shares acquired in an exchange for shares of a fund currently listed under
"The Eaton Vance Exchange Privilege," the purchase of Fund shares acquired in
the exchange is deemed to have occurred at the time of the original purchase of
the exchanged shares.
No contingent deferred sales charge will be imposed on Fund shares which
have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will also be waived
for shares redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance
Shareholder Services"), (2) as part of a distribution from a retirement plan
qualified under Section 401, 403(b) or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"), or (3) as part of a minimum required distribution from
other tax-sheltered retirement plans. The contingent deferred sales charge will
be paid to the Principal Underwriter or the Fund.
REPORTS TO SHAREHOLDERS
--------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent certified public accountants. Shortly
after the end of each calendar year, the Fund will furnish all shareholders with
information necessary for preparing Federal and state tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a complete
record of all transactions between the investor and the Fund which at all times
shows the balance of shares owned. The Fund will not issue share certificates
except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance in the account. THE LIFETIME
INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL INVESTMENTS IN
SHARES BY SENDING A CHECK FOR $50 OR MORE to The Shareholder Services Group,
Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104 (please provide the name of the shareholder, the Fund
and the account number).
18
<PAGE>
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Fund's dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in
additional shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options
set forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a shareholder
should obtain a prospectus of the other Eaton Vance fund and consider its
objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL INVESTMENTS
IN SHARES OF THE FUND BY SENDING A CHECK FOR $50 OR MORE.
19
<PAGE>
THE EATON VANCE EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of one or more
other funds in the Eaton Vance Classic Group of Funds or Eaton Vance Money
Market Fund which are distributed subject to a contingent deferred sales charge
on the basis of the net asset value per share of each fund at the time of the
exchange, provided that such exchange offers are available only in states where
shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes
of calculating the contingent deferred sales charge upon the redemption of
shares acquired in an exchange, the purchase of shares acquired in one or more
exchanges is deemed to have occurred at the time of the original purchase of the
exchanged shares.
Shares of the other funds in the Eaton Vance Classic Group of Funds (and
shares of Eaton Vance Money Market Fund acquired as the result of an exchange
from an EV Classic Fund) may be exchanged for Fund shares on the basis of the
net asset value per share of each fund at the time of the exchange, but subject
to any restrictions or qualifications set forth in the current prospectus of any
such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as the
shares being exchanged. Neither the Fund, the Principal Underwriter nor The
Shareholder Services Group, Inc. will be responsible for the authenticity of
exchange instructions received by telephone, provided that reasonable procedures
to confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An exchange
may result in a taxable gain or loss.
20
<PAGE>
EATON VANCE SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of EV
Classic National Limited Maturity Tax Free Fund may be mailed directly to The
Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104 at any
time -- whether or not distributions are reinvested. The name of the
shareholder, the Fund and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the plan is established. Such amount will
not be subject to a contingent deferred sales charge. See "How to Redeem Fund
Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES MAY
REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID ON THE
REPURCHASED OR REDEEMED SHARES, ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF THE FUND,
provided that the reinvestment is effected within 60 days after such repurchase
or redemption, and the privilege has not been used more than once in the prior
12 months. Shares are sold to a reinvesting shareholder at the next determined
net asset value following timely receipt of a written purchase order by the
Principal Underwriter or by the Fund (or by the Fund's Transfer Agent). To the
extent that any shares of the Fund are sold at a loss and the proceeds are
reinvested in shares of the Fund (or other shares of the Fund are acquired
within the period beginning 30 days before and ending 30 days after the date of
the redemption) some or all of the loss generally will not be allowed as a tax
deduction. Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid on the twenty-second day of each month or the next
business day thereafter. The Fund anticipates that for tax purposes the entire
distribution, whether paid in cash or reinvested in additional shares of the
Fund, will constitute tax-exempt income to shareholders, except for the
proportionate part of the distribution that
21
<PAGE>
may be considered taxable income if the Fund has taxable income during the
calendar year. Shareholders reinvesting the monthly distribution should treat
the amount of the entire distribution as the tax cost basis of the additional
shares acquired by reason of such reinvestment. Daily distribution crediting
will commence on the day that collected funds for the purchase of Fund shares
are available at the Transfer Agent. Shareholders will receive timely Federal
income tax information as to the tax-exempt or taxable status of all
distributions made by the Fund during the calendar year. The Fund's net realized
capital gains, if any, consist of the net realized capital gains allocated to
the Fund by the Portfolio for tax purposes, after taking into account any
available capital loss carryovers; the Fund's net realized capital gains, if
any, will be distributed at least once a year, usually in December.
The Fund intends to qualify as a regulated investment company under the
Code, and to satisfy all requirements necessary to be relieved of Federal taxes
on income and gains it distributes to shareholders. In satisfying these
requirements, the Fund will treat itself as owning its proportionate share of
each of the Portfolio's assets and as entitled to the income of the Portfolio
properly attributable to such share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT PAY FEDERAL
INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO SHAREHOLDERS ITS NET
INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN ACCORDANCE WITH THE TIMING
REQUIREMENTS IMPOSED BY THE CODE. AS A PARTNERSHIP UNDER THE CODE, THE PORTFOLIO
DOES NOT PAY FEDERAL INCOME OR EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 5). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares of the Fund.
Tax-exempt distributions received from the Fund are includable in the tax
base for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Fund is not deductible to the extent it is deemed related
to the Fund's distribution 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 the 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 would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
22
<PAGE>
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The Fund's current yield is calculated by dividing the net investment
income per share earned during a recent 30-day period by the maximum offering
price per share (net asset value) of the Fund on the last day of the period and
annualizing the resulting figure. A taxable-equivalent yield is computed by
using the tax-exempt yield figure and dividing by one minus the tax rate. The
Fund's average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price (net asset value) for specified periods ending with the most recent
calendar quarter, assuming reinvestment of all distributions. The average annual
total return calculation assumes a complete redemption of the investment and the
deduction of any applicable contingent deferred sales charge at the end of the
period. The Fund may publish annual and cumulative total return figures from
time to time. The Fund may quote total return for the period prior to
commencement of operations which would reflect the Portfolio's total return (and
that of its predecessor) adjusted to reflect any applicable Fund sales charge.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current maximum
offering price per share (net asset value). The Fund's effective distribution
rate is computed by dividing the distribution rate by the ratio used to
annualize the most recent monthly distribution and reinvesting the resulting
amount for a full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the compounding effect
of the assumed reinvestment. Investors should note that the Fund's yield is
calculated using a standardized formula the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
The Fund may also publish total return figures which do not take into
account any contingent deferred sales charge which may be imposed upon
redemptions at the end of the specified period. Any performance figure which
does not take into account the contingent deferred sales charge would be reduced
to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's yield, total return,
distribution rate or effective distribution rate for any prior period should not
be considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period. If the expenses related to the operation of the Fund or the
Portfolio are allocated to Eaton Vance, the Fund's performance will be higher.
23
<PAGE>
INVESTMENT ADVISER OF
NATIONAL LIMITED MATURITY
TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV CLASSIC
NATIONAL LIMITED MATURITY
TAX FREE FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
NATIONAL LIMITED MATURITY
TAX FREE FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-LNAP
[LOGO]
EV CLASSIC
NATIONAL
LIMITED MATURITY
TAX FREE FUND
PROSPECTUS
AUGUST 1, 1995
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1995
EV CLASSIC NATIONAL LIMITED
MATURITY TAX FREE FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about EV Classic National Limited Maturity Tax Free
Fund (the "Fund") and certain other series of Eaton Vance Investment Trust (the
"Trust"). As described in the Prospectus, the Fund invests its assets in
National Limited Maturity Tax Free Portfolio (the "Portfolio"), a separate
registered investment company with the same investment objective and policies as
the Fund. Part II provides information solely about the Fund and the Portfolio.
Where appropriate, Part I includes cross-references to the relevant sections of
Part II.
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
PART I
<S> <C>
Additional Information about Investment Policies.............................................. 2
Investment Restrictions....................................................................... 8
Trustees and Officers......................................................................... 9
Investment Adviser and Administrator.......................................................... 11
Custodian..................................................................................... 13
Service for Withdrawal........................................................................ 13
Determination of Net Asset Value.............................................................. 13
Investment Performance........................................................................ 14
Taxes......................................................................................... 17
Portfolio Security Transactions............................................................... 19
Other Information............................................................................. 21
Independent Certified Public Accountants...................................................... 22
Financial Statements.......................................................................... 22
Appendix...................................................................................... 23
PART II
Fees and Expenses............................................................................. a-1
Principal Underwriter......................................................................... a-2
Distribution Plan............................................................................. a-2
Performance Information....................................................................... a-4
Control Persons and Principal Holders of Securities........................................... a-6
Tax Equivalent Yield Table.................................................................... a-7
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED AUGUST 1, 1995, AS SUPPLEMENTED FROM
TIME TO TIME. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE
BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund, certain other series of the
Trust and the Portfolio. Capitalized terms used in this Statement of Additional
Information and not otherwise defined have the meanings given them in the Fund's
Prospectus. The Fund is subject to the same investment policies as those of the
Portfolio. The Fund currently seeks to achieve its objective by investing in the
Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such 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. 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 Federal alternative minimum tax: (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. In
assessing the Federal income tax treatment of interest on any municipal
obligation, the Portfolio 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.
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 the 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 Federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
Federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income attributable to private
activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is 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 minimus amount.
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.
The principal security for a revenue bond is generally 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
2
<PAGE>
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 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.
The 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.
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.
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. The 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 Boston Management and Research (the"Investment
Adviser")) to evaluate or protect any real estate, facilities or other assets
securing any such obligation or acquired by the Portfolio as a result of any
such event, and the 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 are 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 Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P") and Fitch Investors Service, Inc. ("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 municipal obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or
more of its total assets in municipal obligations whose issuers are located in
the same state or in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of a similar type. In particular, investments in the industrial
revenue bonds listed above 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.
3
<PAGE>
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.
Pollution control and other industrial development bonds are issued by state
and local agencies to finance various projects, including those of domestic
steel producers, and may be backed solely by agreements with such companies.
Domestic steel companies are expected to suffer the consequences of such adverse
trends as high labor costs, high foreign imports encouraged by foreign
productivity increases and a strong U.S. dollar, and other cost pressures such
as those imposed by anti-pollution legislation. Domestic steel capacity is being
reduced currently by large-scale plant closings and this period of
rationalization may not end until further legislative protection is provided
through tariff price supports or mandatory import quotas, such as those recently
enacted for certain specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state industrial development
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject to
a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt service
payments. Moreover, since a portion of housing, medical care and other services
may be financed by an initial deposit, it is important that the facility
maintain adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost pressures is
an important factor in this process. The facilities may also be affected
adversely by regulatory cost restrictions applied to health care delivery in
general, particularly state regulations or changes in Medicare and Medicaid
payments or qualifications, or restrictions imposed by medical insurance
companies. They may also face competition from alternative health care or
conventional housing facilities in the private or public sector.
MUNICIPAL LEASES
The 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. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by the 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 the 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 the Portfolio. In
the event the 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.
4
<PAGE>
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. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. 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.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio from securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets. The Portfolio has no present intention of engaging in securities
lending.
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 taking place
within a specified number of days after the date of the Portfolio's commitment
and are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Portfolio may also purchase securities on a when-issued basis
pursuant to refunding contracts in connection with the
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refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Portfolio to buy such securities on
a settlement date that could be several months or several years in the future.
The 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 the Portfolio enters into the
purchase commitment. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the 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 the 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 the 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.
FLOATING OR VARIABLE RATE OBLIGATIONS
The Portfolio may purchase floating or variable rate obligations. Floating
or variable rate instruments provide for adjustments in the interest rate at
specified intervals (weekly, monthly, semi-annually, etc.). The revised rates
are usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Floating or variable rate obligations normally provide that
the holder can demand payment of the obligation on short notice at par with
accrued interest and which are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, the banks may be treated as the issuer of a security for
the purpose of complying with the diversification requirements set forth in
Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder. The
Portfolio would anticipate using these obligations as cash equivalents pending
longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Interest income generated by certain bonds having demand
features may not qualify as tax-exempt interest. 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. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Because this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also 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. The
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 the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The 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
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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
features may not qualify as tax-exempt interest.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities, (ii) futures
contracts on securities indices and (iii) futures contracts on other financial
instruments and indices. All futures contracts entered into by the Portfolio are
traded on exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CTFC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade.
The Portfolio will engage in futures and related options transactions for
bona fide 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. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold to
protect against a decline in the price of securities that the Portfolio owns, or
futures contracts will be purchased to protect the Portfolio against an increase
in the price of securities it intends to purchase. As evidence of this hedging
intent, the Portfolio expects that on 75% or more of the occasions on which it
takes a long futures (or option) position (involving the purchase of futures
contracts), the Portfolio will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures (or option) position is closed out. However, in particular
cases, when it is economically advantageous for the Portfolio to do so, a long
futures position may be terminated (or an option may expire) without the
corresponding purchase of securities. The Portfolio will engage in transactions
in futures contracts and related options only to the extent such transactions
are consistent with the requirements of the Internal Revenue Code for
maintaining the qualification of the Fund as a regulated investment company for
Federal income tax purposes (see "Taxes").
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. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked to
market daily.
SHORT-TERM OBLIGATIONS
Although the Portfolio will normally attempt to invest substantially all of
its assets in municipal obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its net assets in short-term obligations the
interest on which is subject to Federal income tax, and/or Federal alternative
minimum tax. Such short-term taxable obligations may include, but are not
limited to, certificates of deposit, commercial paper, short-term notes and
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities. During periods of adverse market conditions, the Portfolio
may temporarily invest more than 20% of its assets in such short-term taxable
obligations, all of which will be high quality obligations.
SHORT-TERM TRADING
The Portfolio may sell 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
the 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. The Portfolio anticipates that its annual
portfolio turnover rate will generally not exceed 100% (excluding turnover of
securities having a maturity of one year or less).
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PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but it
is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this Statement of Additional Information means the lesser of (a) 67% of the
shares of the Fund present or represented by proxy at a meeting if the holders
of more than 50% of the shares are present or represented at the meeting or (b)
more than 50% of the shares of the Fund. Accordingly, the Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of its
total assets, in the securities of a single issuer or purchase more than 10% of
the outstanding voting securities of a single issuer, except obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
except securities of other investment companies;
(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) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(4) 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;
(5) 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);
(6) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(7) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements or (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this Statement
of Additional Information means the lesser of (a) 67% of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented at the meeting or (b) more than 50% of the
outstanding voting securities of the Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the Investment Company Act of
1940 (the "1940 Act"). Whenever the Trust is requested to vote on a change in
the investment restrictions of the Portfolio (or the Portfolio's 80% investment
policy with respect to municipal obligations described in the Fund's current
Prospectus), the Trust will hold a meeting of Fund shareholders and will cast
its vote as instructed by the shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) 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
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<PAGE>
securities sold short, and unless not more than 25% of its net assets (taken at
current value) is held as collateral for such sales at any one time. (The Fund
and the Portfolio will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes); (b) purchase or
retain in its portfolio securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust or
the Portfolio, or is a member, officer, director or trustee of any investment
adviser of the Trust or the Portfolio, if after the purchase of the securities
of such issuer by the Fund or the Portfolio one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities or both (all taken
at market value) of such issuer and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities or both (all taken at market value); (c) purchase oil, gas or
other mineral leases or purchase partnership interests in oil, gas or other
mineral exploration or development programs; (d) invest more than 5% of its
total assets (taken at current value) in obligations where the payment of
principal and interest thereon is the responsibility of a company (including
predecessors) with less than three years operating history unless such
obligations are rated at the time of purchase by a nationally recognized rating
service except for debt obligations issued by or on behalf of states,
territories and possessions of the United States, and the District of Columbia
and their political subdivisions, agencies or instrumentalities; (e) invest more
than 15% of 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determine to be liquid, based upon the trading markets for the
specific security; (f) 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; or (g) invest in
warrants, valued at the lower of cost or market, exceeding 5% of the value of
its net assets. Included within that amount, but not to exceed 2% of the value
of its net assets, may be warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the Fund or the Portfolio in units
or attached to securities may be deemed to be without value. The Fund and the
Portfolio may purchase put options on municipal obligations only if, after such
purchase, not more than 5% of its net assets, as measured by the aggregate of
the premiums paid for such options held by it, would be so invested. Neither the
Fund nor the Portfolio intends to invest in reverse repurchase agreements during
the current fiscal year.
For purposes of the 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 obligation.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Trustee and Vice President*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
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SAMUEL L. HAYES (60), III, Trustee
Jacob H. Schiff, Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration, Soldiers
Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (51), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and the
Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992 and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust and the
Portfolio on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various other investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Murphy was elected Assistant Secretary on March 27,
1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Trust's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and
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<PAGE>
the Treasurer of the Trust and of the Portfolio matters relative to accounting
and auditing practices and procedures, accounting records, internal accounting
controls, and the functions performed by the custodian and transfer agent of the
Fund and of the Portfolio.
Trustees of the Portfolio 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 "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the 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 Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio to pay
any particular level of compensation to the Trustee.
For the compensation earned by the noninterested Trustees of the Trust and
the Portfolio, see "Fees and Expenses" in the Fund's Part II of this Statement
of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement dated October 13, 1992. BMR or Eaton Vance acts as investment
adviser to investment companies and various individual and institutional clients
with combined assets under management of approximately $15 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
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. The
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. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. As at March
31, 1995, the Portfolio had net assets of $169,620,804. For the fiscal year
ended March 31, 1995, the Portfolio paid BMR advisory fees of $817,082
(equivalent to 0.46% of the Portfolio's average daily net assets for such year).
For the period from the Portfolio's
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start of business, May 3, 1993, to the fiscal year ended March 31, 1994, the
Portfolio paid BMR advisory fees of $562,094 (equivalent to 0.46% (annualized)
of the Portfolio's average daily net assets for such period).
The Investment Advisory Agreement with BMR remains in effect until February
28, 1996. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1996 is approved at least annually (i) by the
vote of a majority of the Trustees of the Portfolio who are not interested
persons of the Portfolio or of BMR 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. The 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. The Agreement provides that BMR may render services to others and
engage in other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The 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.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator, see
"Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of the registration of the Trust under the 1940 Act, (iii) commissions,
fees and other expenses connected with the purchase or sale of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes
and Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons
and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman and Mr. Gardner
is president and chief executive officer of EVC, BMR, Eaton Vance and EV. All of
the issued and outstanding shares of Eaton Vance and EV 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 which
expires on December 31, 1996, the Voting Trustees of which are Messrs. Clay,
Brigham, Gardner, Hawkes and Rowland. 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 and Directors of EVC and
EV. As of June 30, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such
voting trust receipts, and Messrs. Rowland and Brigham owned 15% and 13%,
respectively, of such voting trust receipts. Messrs. Hawkes and Otis are
officers or Trustees of the Trust and the Portfolio and are members of the EVC,
BMR, Eaton Vance and EV
12
<PAGE>
organizations. Messrs. Fetter, Hender, MacIntosh, Murphy, O'Connor and Woodbury
and Ms. Sanders, are officers of the Trust and/or the Portfolio and are also
members of the BMR, Eaton Vance and EV organizations. BMR will receive the fees
paid under the Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which is engaged in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, custodian of the Fund and the Portfolio, which provides
custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all of the stock of Fulcrum Management, Inc.
and MinVen, Inc., which are engaged in the development of precious metal
properties. EVC, BMR, Eaton Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. 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.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's assets,
maintains the general ledger of the Portfolio and the Fund, and computes the
daily net asset value of interests in the 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
Portfolio's investments, receives and disburses all funds and performs various
other ministerial duties upon receipt of proper instructions from the Fund and
the Portfolio. IBT charges fees which are competitive within the industry. A
portion of the fee relates to custody, bookkeeping and valuation services and is
based upon a percentage of Fund and Portfolio net assets and a portion of the
fee relates to activity charges, primarily the number of portfolio transactions.
These fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day. U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. In view of the ownership of EVC in IBT, the
Portfolio is treated as a self-custodian pursuant to Rule 17f-2 under the 1940
Act, and the Portfolio's investments held by IBT as custodian are thus subject
to the additional examinations by the Portfolio's independent certified public
accountants as called for by such Rule. For the fiscal year ended March 31,
1995, the Portfolio paid IBT $33,898. For the custody fees that the Fund paid to
IBT, see "Fees and Expenses" in the Fund's Part II of this Statement of
Additional Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal 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.
To use this service, at least $5,000 in cash or shares at the public
offering price will have to be deposited with the Transfer Agent. The
maintenance of a withdrawal plan concurrently with purchases of Fund shares
would be disadvantageous if a sales charge is included in such purchases. 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. Either the shareholder, the Transfer Agent or the Principal
Underwriter will be able to terminate the withdrawal plan at any time without
penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the
13
<PAGE>
Portfolio is also 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 transaction prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchased on a when-issued
basis, will normally be valued on the basis of valuations furnished by a pricing
service. The pricing service uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities, various relationships between securities, and yield to maturity in
determining value. Taxable obligations for which price quotations are readily
available normally will be valued at the mean between the latest available bid
and asked prices. Open futures positions on debt securities are valued at the
most recent settlement prices, unless such price does not reflect the fair value
of the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by or at the direction of the
Trustees of the Portfolio. The Fund and the Portfolio will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, President's Day, Good Friday (a New
York Stock Exchange holiday), Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the 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 interests in the Portfolio will then be recomputed
as a percentage equal to the 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.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the results. The
calculation assumes that all dividends and distributions paid are reinvested at
the net asset value on the reinvestment dates during the period, and either (i)
the deduction of the maximum sales charge from the initial $1,000 purchase order
or (ii) a complete redemption of the investment and, if applicable, the
deduction of the contingent deferred sales charge at the end of the period. For
information concerning the total return of the Fund, see "Performance
Information" in the Fund's Part II of this Statement of Additional Information.
The Fund's yield is computed 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, if applicable, the maximum sales charge)
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 expenses for the period with the resulting number being divided by
the average daily number of Fund shares outstanding and entitled to receive
dividends during the period. The yield figure does not reflect the deduction of
any contingent deferred sales charges (if applicable) which are imposed on
certain redemptions at the rate set forth under "How to Redeem Fund Shares" in
the Fund's current Prospectus. Yield calculations assume the current maximum
sales charge (if applicable) set forth under "How to Buy Fund Shares" in the
Fund's current Prospectus. (Actual yield may be affected by variations in sales
charges or investments.) A taxable-equivalent yield is computed by using the
tax-exempt yield figure and dividing by 1 minus a stated rate. For the yield and
taxable-equivalent yield of the Fund, see "Performance Information" in the
Fund's Part II of this Statement of Additional Information.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio (the
14
<PAGE>
days in a year divided by the accrual days of the monthly period) used to
annualize the most recent monthly distribution and reinvesting the resulting
amount for a full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the compounding effect
of the assumed reinvestment. Investors should note that the yield of the Fund is
calculated using a standardized formula the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month. See "Distributions and Taxes" in the Fund's
current Prospectus. For the Fund's distribution rate and effective distribution
rate, see "Performance Information" in the Fund's Part II of this Statement of
Additional Information.
The Fund's total return may be compared to the Consumer Price Index and to
the domestic securities indices of the Bond Buyer 25 Revenue Bond Index and the
Lehman Brothers Municipal Bond Index. The Fund's total return and comparisons
with these indices may be used in advertisements and in information furnished to
present or prospective shareholders. The Fund's performance may differ from that
of other investors in the Portfolio, including the other investment companies.
From time to time, evaluations of the Fund's performance made by independent
sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger and
Morningstar, Inc., may be used in advertisements and in information furnished to
present or prospective shareholders.
From time to time, information, charts and illustrations relating to the
relative effects of changes in interest rates on values of securities of varying
durations may be included in advertisements and other material supplied to
present and prospective shareholders. For example, the following chart
illustrates that bond prices move inversely with interest rates -- values
decrease if interest rates rise, and values increase when rates fall. The
shorter a bond's duration, the less its price fluctuates for a given
interest-rate change. For example, if interest rates change by 1%, a limited
maturity bond with a 6-year duration will change by 6%, compared to a 12% change
for a 12-year duration bond. Source: Eaton Vance Management.
The Limited Maturity Volatility Advantage
If interest rates change 1%, a 6-yr. duration bond will change in value by 6% --
half the change of a 12-yr. duration bond.
Approximate % change in value Bond duration
if interest rates change by 1% (in years)
0 0
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example, after 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100 if the annual rates of inflation
during such period were 4%, 5%, 6% and 7%, respectively. (To calculate the
purchasing power, the value at the end of each year is reduced by the above
inflation rates for 10 consecutive years.)
From time to time, information about the portfolio allocation and holdings
of the Portfolio at a particular date (including ratings assigned by independent
ratings services such as Moody's Investors Service, Inc., Standard &
15
<PAGE>
Poor's Ratings Group and Fitch Investors Service, Inc.) 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.
The Portfolio's diversification by quality ratings as of June 30, 1995 was:
<TABLE>
<CAPTION>
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ------------------
<S> <C>
Aaa or AAA 44.6%
Aa or AA 32.5
A 12.9
Baa or BBB 4.0
Ba or BB --
B --
Not rated 6.0
-----
Total 100.0%
</TABLE>
The Fund is designed for investors seeking
- a higher level of after tax income than normally provided by taxable and
tax-free money market funds, certificates of deposit or other short-term
investments, and
- more price stability than investments in long-term municipal bonds or
bond funds.
Comparative information about the yield or distribution rate of the 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. A bank certificate of deposit, unlike the Fund's
shares, pays a fixed rate of interest and entitles the depositor to receive the
face amount of the certificate of deposit at maturity. A bank money market
deposit account is a form of savings account which pays a variable rate of
interest. Unlike the Fund's shares, bank certificates of deposit and bank money
market deposit accounts are insured by the Federal Deposit Insurance
Corporation. A money market mutual fund is designed to maintain a constant value
of $1.00 per share and, thus, a money market fund's shares are subject to less
price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Advertisements and other material furnished to present and prospective
shareholders may also compare the taxable equivalent yield of the Fund to
after-tax yields of certificates of deposits, bank money market deposit accounts
and money market mutual funds over various Federal income tax brackets.
Such materials may also compare taxable certificate of deposit rates of
return with rates of return in intermediate municipal bond indices and taxable
equivalents of such rates of return. An example of such an index is the Lehman
Brothers, Inc. 7-Year General Obligation Municipal Bond Index.
From time to time, information, charts and illustrations relating to the
relative total return performance of Intermediate-Term Tax Free Funds and Tax
Free Money Market Funds, based on information supplied by Lipper Analytical
Services, Inc., may be included in advertisements and other material furnished
to present and prospective shareholders. For example, for the 10 years ended
December 31, 1994, cumulative total returns were: Intermediate-Term Tax Free
Funds, 107.40%; Tax Free Money Market Funds, 48.83%.
16
<PAGE>
A comparison of the Total Return Advantage of intermediate-term tax free
funds over 3-month certificates of deposit (after taxes, assuming a 36% Federal
bracket) and tax free money market mutual funds may also be provided. In such an
illustration, sources of such information are Lipper Analytical Services, Inc.,
The Federal Reserve Bulletin, and The Wall Street Journal. For example:
The Total Return Advantage
Lipper Tax Free
Money Market Funds 48.83%
3-Month Certificates
of Deposit 47.90% (after taxes, assuming 36% bracket)
Lipper Intermediate-Term
Tax Free Funds 107.40%
Total returns (cumulative change in value with all distributions reinvested)
for 10 years ended December 31, 1994. Sources: Lipper Analytical Services, Inc.,
Federal Reserve Bulletin, The Wall Street Journal.
Total return is a common way to evaluate the results of any mutual fund
investment, because it includes any change in principal value and assumes the
reinvestment of all dividends and capital gains in additional shares. Most
tax-free money market funds are designed to maintain a $1 share price by
investing in short-term municipal instruments, while certificates of deposit are
insured by the FDIC. This illustration is not meant to imply or predict any
future rate of return for the Fund.
Information used in advertisements and in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze." Such information may also suggest the appropriateness of the
Fund as an investment for certain types of investors such as: conservative
investors who want higher after-tax income, but are concerned about the
potential volatility of long-term bonds or bond funds; dual-income couples in a
high tax bracket; and investors with long-term municipal bonds or fund
portfolios who are seeking diversification.
For additional information, charts and illustrations relating to the Fund's
investment performance, see "Performance Information" in the Fund's Part II of
this Statement of Additional Information.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for Federal income
tax purposes. The Fund has elected to be treated, has qualified, and intends to
continue to qualify each year as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains (after reduction by
any available capital loss carryforwards) in accordance with the timing
requirements imposed by the Code, so as to avoid any Federal income or excise
tax on the Fund. Because the Fund invests its assets in the Portfolio, the
Portfolio normally must satisfy the applicable source of income and
diversification requirements in order for the Fund to satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, each investor's distributive share of the Portfolio's net taxable (if any)
and tax-exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid Federal excise tax, the Code requires that the 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 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 any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that
17
<PAGE>
was not paid out during such year and on which the Fund paid no Federal income
tax. Under current law, provided that the Fund qualifies as a RIC for Federal
income tax purposes and the Portfolio is treated as a partnership for
Massachusetts and Federal tax purposes, neither the Fund nor the Portfolio is
liable for any income, corporate excise or franchise tax in the Commonwealth of
Massachusetts.
The 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 Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the 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 the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the 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. 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 Federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
Federal income tax returns.
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 the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the 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. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) 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 Portfolio and allocated to the Fund. Certain distributions of the Fund that
are declared in October, November or December and paid the following January
will be taxed to shareholders as if received on December 31 of the year in which
they are declared.
The 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 the
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 the 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 period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC for federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax
18
<PAGE>
purposes for 6 months or less (or such shorter period as may be prescribed by
Treasury regulations) will be disallowed to the extent the shareholder has
received tax-exempt interest with respect to such shares. In addition, a loss
realized on a redemption of Fund shares will be disallowed to the extent the
shareholder acquired other Fund shares within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income 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 treaty. Distributions from the
excess of the 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 result if the shareholder
is engaged in a trade or business in the United States, 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 fails to provide any required certifications regarding 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 the
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.
STATE, LOCAL AND FOREIGN TAXES
The exemption of interest income for Federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. Shareholders of the Fund may be exempt from state and
local taxes on distributions of tax-exempt interest income derived from
obligations of the state and/or municipalities of the state in which they are
resident, but taxable generally on income derived from obligations of other
jurisdictions. The Fund will report annually to shareholders, with respect to
net tax exempt income earned, the percentage representing the proportionate
ratio of such income earned in each state.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
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 the 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 the 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 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,
purchased and sold by the Portfolio 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
Portfolio may also purchase municipal obligations
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from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, 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 Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
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 the 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 commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either 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, 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 Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
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 the
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 commissions 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.
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 firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
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 Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
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investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure 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 Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions.
For the fiscal year ended March 31, 1995 and for the period from the start
of business, May 3, 1993, to the fiscal year ended March 31, 1994 the Portfolio
paid no brokerage commissions on portfolio transactions.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes. The Trust which is a Massachusetts
business trust established in 1985, was originally called Eaton Vance California
Municipals Trust. The Trust changed its name to Eaton Vance Investment Trust on
April 28, 1992.
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 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 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. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose. The By-Laws also provide that the Trustees shall promptly call a
meeting of shareholders for the purpose of voting upon a question of removal of
a Trustee when requested so to do by the recordholders of not less than 10 per
centum of the outstanding shares.
In accordance with the Declaration of Trust of the 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 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
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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 the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interests
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
meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual Report
accompanies this Statement of Additional Information.
Registrant incorporates by reference the audited financial information for
the Fund's and Portfolio's listed below for the fiscal year ended March 31, 1995
as previously filed electronically with the Securities and Exchange Commission:
EV Classic National Limited Maturity Tax Free Fund
National Limited Maturity Tax Free Portfolio
(Accession No. 0000950146-95-000244)
EV Marathon National Limited Maturity Tax Free Fund
National Limited Maturity Tax Free Portfolio
(Accession No. 0000950146-95-000249)
EV Traditional National Limited Maturity Tax Free Fund
National Limited Maturity Tax Free Portfolio
(Accession No. 0000950146-95-000241)
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
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.
---------------
[FN]
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information 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 the Portfolio's fiscal year end.
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NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
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.
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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.
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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: Very strong or 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.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considering short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
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 had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
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
obligor's 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
26
<PAGE>
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. The 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.
27
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV CLASSIC NATIONAL LIMITED MATURITY
TAX FREE FUND. The investment objective of the Fund is to provide (1) a high
level of current income exempt from regular Federal income tax, and (2) limited
principal fluctuation. The Fund currently seeks to meet its investment objective
by investing its assets in the National Limited Maturity Tax Free Portfolio (the
"Portfolio").
FEES AND EXPENSES
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator receives no compensation
for providing administrative services to the Fund. For the fiscal year ended
March 31, 1995, $55,835 of the Fund's operating expenses were allocated to the
Administrator. For the period from the start of business December 8, 1993, to
March 31, 1994, $12,555 of the Fund's operating expenses were allocated to the
Administrator.
DISTRIBUTION PLAN
For the fiscal year ended March 31, 1995, the Fund made sales commission
payments to the Principal Underwriter under the Plan aggregating $177,785, which
amount was used by the Principal Underwriter to defray sales commissions
aggregating $175,529 paid during the period by the Principal Underwriter to
Authorized Firms on sales of Fund shares and to reduce the outstanding Uncovered
Distribution Charges. During such period, no contingent deferred sales charges
were paid to the Principal Underwriter. As at March 31, 1995, the outstanding
Uncovered Distribution Charges of the Principal Underwriter calculated under the
Plan amounted to approximately $2,904,000 (which amount was equivalent to 14.6%
of the Fund's net assets on such day). For the fiscal year ended March 31, 1995,
the Fund made service fee payments of $35,593 to the Principal Underwriter. The
Principal Underwriter paid $35,048 as service fee payments to Authorized Firms
and the balance was retained by the Principal Underwriter.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $797.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $1,939.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the other funds in
the Eaton Vance fund complex(1).
<TABLE>
<CAPTION>
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
---------------------------------------- ------------ ------------ ------------------
<S> <C> <C> <C>
Donald R. Dwight........................ $34 $2,114(2) $135,000(4)
Samuel L. Hayes, III.................... 33 2,133(3) 147,500(5)
Norton H. Reamer........................ 31 2,140 135,000
John L. Thorndike....................... 32 2,228 140,000
Jack L. Treynor......................... 34 2,205 140,000
</TABLE>
[FN]
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $351 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
a-1
<PAGE>
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms ("Authorized Firms") or
investors and other selling literature and of advertising is borne by the
Principal Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws is borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan as
described in the Fund's current Prospectus; the provisions of the Fund's
Distribution Plan relating to such payments are included in the Distribution
Agreement. The Distribution Agreement is renewable annually by the Trust's Board
of Trustees (including a majority of its Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Fund's 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 voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund 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. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") is described in the Prospectus and is
designed to meet the requirements of Rule 12b-1 under the 1940 Act and the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The purpose of the Plan is to compensate the Principal Underwriter for
its distribution services and facilities provided to the Fund by paying the
Principal Underwriter sales commissions and a separate distribution fee in
connection with sales of Fund shares. The following supplements the discussion
of the Plan contained in the Fund's Prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of the Fund and will accordingly reduce the
net assets upon such accrual, all in accordance with generally accepted
accounting principles. The amount payable on each day is limited to 1/365 of
.75% of the Fund's net assets on such day. The level of the Fund's net assets
changes each day and depends upon the amount of sales and redemptions of Fund
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund and the Portfolio accrued and allocated to the Fund on such
day, income on portfolio investments of the Portfolio accrued and allocated to
the Fund on such day, and any dividends and distributions declared on the Fund
shares. The Fund does not accrue possible future payments as a liability of the
Fund or reduce the Fund's current net assets in respect of unknown amounts which
may become payable under the Plan in the future because the standards for
accrual of such a liability under accounting principles have not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and 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. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Fund's Plan.
Periods with a high level of sales of Fund shares accompanied by a low level
of early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter. Conversely,
periods with a low level of sales of Fund shares accompanied by a high level of
early redemptions of Fund shares resulting in the imposition of contingent
deferred sales charges will tend to reduce the time during which there will
exist Uncovered Distribution Charges of the Principal Underwriter.
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 and
payable under the Plan by the Fund to the Principal Underwriter and contingent
deferred sales charges theretofore paid or payable to the Principal Underwriter
will be subtracted from
a-2
<PAGE>
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 Fund shares, the nature of such sales (i.e., whether they
result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Fund shares upon which
a contingent deferred sales charge will be imposed, the level and timing of
redemptions of Fund shares upon which no contingent deferred sales charge will
be imposed (including redemptions involving exchanges of Fund shares for shares
of another fund in the Eaton Vance Classic Group of Funds which result in a
reduction of Uncovered Distribution Charges), changes in the level of the net
assets of the Fund, and changes in the interest rate used in the calculation of
the distribution fee under the Plan. (For shares sold prior to January 30, 1995,
Plan payments are as follows: the Principal Underwriter pays monthly sales
commissions and service fee payments to Authorized Firms equivalent to
approximately .75% and .15%, respectively, annualized, of the assets maintained
in the Fund by their customers beginning at the time of sale. No payments were
made at the time of sale and there is no contingent deferred sales charge.)
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions, distribution fees and service fees to the Principal
Underwriter which may be equivalent, on an aggregate basis during any fiscal
year of the Fund, to .90% of the Fund's average daily net assets for such year.
For the sales commission and service fee payments made by the Fund and the
outstanding Uncovered Distribution Charges of the Principal Underwriter, see
"Fees and Expenses -- Distribution Plan" in this Part II. The Fund believes that
the combined rate of all these payments may be higher than the rate of payments
made under distribution plans adopted by many 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 and service
fees at the time of sale, it is anticipated that the Eaton Vance organization
will profit by reason of the operation of the Plan through an increase in the
Fund's assets (thereby increasing the advisory fee payable to BMR by the
Portfolio) resulting from sale of Fund shares and through amounts paid to the
Principal Underwriter, including contingent deferred sales charges, pursuant to
the Plan. The Eaton Vance organization may be considered to have realized a
profit under the Plan if at any point in time the aggregate amounts theretofore
received by the Principal Underwriter pursuant to the Plan and from contingent
deferred sales charges have exceeded the total expenses theretofore incurred by
such organization in distributing 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
Fund.
The Plan continues in effect until April 28, 1996, and shall continue in
effect indefinitely thereafter for so long as such continuance is approved at
least annually by the vote of both a majority of (i) the Trustees of the Trust
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to the
Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees then in office,
and the Distribution Agreement contains a similar provision. The Plan and
Distribution Agreement may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees or by a vote of the majority of the outstanding voting
securities of the Fund. The provisions of the Plan relating to payments of sales
commissions and distribution fees to the Principal Underwriter are also included
in the Distribution Agreement between the Trust on behalf of the Fund and the
Principal Underwriter. Pursuant to Rule 12b-1, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, including the Rule 12b-1 Trustees. Under the Plan, the President or a
Vice President of the Trust shall provide to the Trustees for their review, and
the Trustees shall review at least quarterly, a written report of the amount
expended under the Plan and the purposes for which such expenditures were made.
The Plan may not be amended to increase materially the payments described
therein without approval of the shareholders of the Fund, and all material
amendments of the Plan must also be approved by the Trustees as required by Rule
12b-1. So long as the Plan is in effect, the selection and nomination of
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not such interested persons.
a-3
<PAGE>
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, and will result in increased investment flexibility
and advantages which will benefit the Fund and its shareholders. Payments for
sales commissions and distribution fees made to the Principal Underwriter under
the Plan will compensate the Principal Underwriter for its services and expenses
in distributing shares of the Fund. Service fee payments made to the Principal
Underwriter and Authorized Firms under the Plan provide incentives to provide
continuing personal services to investors and the maintenance of shareholder
accounts. By providing incentives to the Principal Underwriter and Authorized
Firms, the 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 have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March 31,
1995. The total return and percentage changes for the period prior to the Fund's
commencement of operations on December 8, 1993 reflect the Portfolio's total
return and percentage changes (or that of its predecessor) adjusted to reflect
any applicable Fund sales charge. Such performance has not been adjusted to
reflect the Fund's distribution fees and certain other expenses. If such an
adjustment were made, the performance would be lower.
VALUE OF A $1,000 INVESTMENT*
<TABLE>
<CAPTION>
TOTAL RETURN
VALUE OF INVESTMENT VALUE OF INVESTMENT BEFORE DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE THE CONTINGENT DEFERRED
THE CONTINGENT CONTINGENT DEFERRED SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF DEFERRED SALES SALES CHARGE** ON --------------------------
PERIOD DATE INVESTMENT CHARGE ON 3/31/95 3/31/95 CUMULATIVE ANNUALIZED
-------------- ----------- ---------- ------------------- ------------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Life of the
Fund 5/22/92 $1,000 $1,157.80 $1,157.80 15.78% 5.26%
One Year Ended
3/31/95 3/31/94 $1,000 $1,043.49 $1,033.51 4.35% 4.35%
<CAPTION>
TOTAL RETURN
AFTER DEDUCTING
THE CONTINGENT DEFERRED
SALES CHARGE**
INVESTMENT --------------------------
PERIOD CUMULATIVE ANNUALIZED
-------------- ---------- -----------
<S> <C> <C>
Life of the
Fund 15.78% 5.26%
One Year Ended
3/31/95 3.35% 3.35%
</TABLE>
PERCENTAGE CHANGES* 5/22/92 -- 3/31/95
<TABLE>
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS SALES CHARGE** WITH ALL DISTRIBUTIONS
REINVESTED REINVESTED
------------------------------------------ ------------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
----------------- ------- ---------- ---------------- ------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
3/31/93 -- 9.05% -- -- 8.05% --
3/31/94 1.75% 10.96% 5.76% 0.84% 10.96% 5.76%
3/31/95 4/35% 15.78% 5.26% 3.35% 15.78% 5.26%
</TABLE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or less
than their original cost.
---------------
[FN]
* If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
** No contingent deferred sales charge is imposed on shares purchased more than
one year prior to the redemption, shares acquired through the reinvestment of
distributions, or any appreciation in value of other shares in the account,
and no such charge is imposed on exchanges of Fund shares for shares of one
or more other funds listed under "The Eaton Vance Exchange Privilege" in the
Fund's current Prospectus.
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.93%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.93% would be 5.70%, assuming a
Federal tax rate of 31%. If a portion of the Fund's expenses had not been
allocated to the Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 22, 1995) was 3.96%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.03%. If a portion of the Fund's expenses has not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
a-4
<PAGE>
The following table compares the taxable equivalent yield of an investment
in the Fund yielding a hypothetical 4.0% with the after-tax yield of a
certificate of deposit yielding 3.25%. The tax brackets used in the table are
the Federal income tax brackets applicable for 1995: 15% for single filers with
taxable income up to $23,350 and joint filers up to $39,000; 28% for single
filers with taxable income from $23,351 to $56,550 and joint filers from $39,001
to $94,250; 31% for single filers with taxable income from $56,551 to 117,950
and joint filers from $94,251 to $143,600; 36% for single filers with taxable
income from $117,951 to $256,500 and joint filers from $143,601 to $256,500; and
39.6% for single and joint filers with taxable income over $256,500. These
brackets do not take into account the phaseout of personal exemptions and
limitation on deductibility of itemized deductions over certain ranges of
income, which increase the effective top Federal tax rate for certain taxpayers.
Investors should consult with their tax advisers for more information.
<TABLE>
<CAPTION>
TAX BRACKET
15% 28% 31% 36% 39.6%
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield..................................... 4.00% 4.00% 4.00% 4.00% 4.00 %
Taxable equivalent................................. 4.71 5.56 5.80 6.25 6.62
Certificates of deposit:
Yield............................................ 3.25 3.25 3.25 3.25 3.25
After-tax yield.................................. 2.76 2.34 2.24 2.08 1.96
</TABLE>
The following is an illustration of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 4.0%. This illustration also quantifies the Federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a tax free investment yielding 4.0%, and compares the
after-tax return of such investments. The chart is based on 3-month bank CDs
(Source: The Wall Street Journal) and current limited maturity municipal bond
yields, compiled by Eaton Vance Management. Tax free yields are for illustration
purposes only and are not meant to imply or predict any future rate of return
for the Fund. See your financial adviser for the Fund's current yield and actual
CD rates.
Bar graph depicting The Tax Free Yield Advantage
(36% Federal tax bracket)
Example:
Two $100,000 Investments...
<TABLE>
<CAPTION>
4.00%
3.25% Tax
CD free
----- -----
<S> <C> <C>
Pretax income: $3,250.00 $4,000.00
Tax: (1,170.00) NONE
--------- ---------
After-tax income: $2,080.00 $4,000.00
</TABLE>
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
a-5
<PAGE>
[Bar Chart depicting how far CD yields have fallen
from 1985 to 1994.]
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (36% bracket)
(plot points for vertical bar chart follow)
NATIONAL
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (36% bracket)
1985 7.34 7.86 12.28
1986 5.74 6.23 9.73
1987 7.25 6.43 10.05
1988 8.10 6.61 10.33
1989 7.82 6.73 10.52
1990 7.38 6.69 10.45
1991 5.36 6.00 9.38
1992 3.08 5.38 8.41
1993 2.69 4.65 7.27
1994 3.22 5.40 8.44
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Inc., Jacksonville, FL was
the record owner of approximately 47.3% of the outstanding shares, which were
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. In
addition, as of such date, the following shareholder owned beneficially and of
record the percentage of outstanding shares of the Fund indicated: PaineWebber
FBO James Beckett, III, Municipal Bond A/C, Dallas, TX (6.5%). To the Trust's
knowledge, no other person owned of record or beneficially 5% or more of the
Fund's outstanding shares as of such date.
a-6
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the approximate taxable bond yields which are
equivalent to tax-exempt bond yields from 5% to 8% under the regular Federal
income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
MARGINAL
SINGLE RETURN JOINT RETURN INCOME TAX-EXEMPT YIELD
----------------- ----------------- TAX ------------------------------------------------------------------
(TAXABLE INCOME)* BRACKET 5% 5.5% 6% 6.5% 7% 7.5% 8%
--------------------------------------- --------- ------------------------------------------------------------------
EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 28.00 6.94 7.64 8.33 9.03 9.72 10.42 11.11
$ 56,551-$117,950 $ 94,251-$143,600 31.00 7.25 7.97 8.70 9.42 10.14 10.87 11.59
$117,951-$256,500 $143,601-$256,500 36.00 7.81 8.59 9.38 10.16 10.94 11.72 12.50
Over $256,500 Over $256,500 39.60 8.28 9.11 9.93 10.76 11.59 12.42 13.25
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
[FN]
* Net amount subject to Federal personal income tax after deductions and
exemptions.
Note: The above-indicated Federal Income Tax Brackets do not take into account
the effect of a reduction in the deductibility of Itemized Deductions for
taxpayers with Adjusted Gross Income in excess of $114,700, nor the effects of
phaseout of personal exemptions for single and joint filers with Adjusted Gross
Incomes in excess of $114,700 and $172,050, respectively. The effective top
marginal Federal income tax brackets of taxpayers over ranges of income subject
to these reductions or phaseouts will be higher than indicated above.
Of course, no assurance can be given that EV Classic National Limited Maturity
Tax Free Fund will achieve any specific tax exempt yield. While it is expected
that a substantial portion of the interest income distributed to the Fund's
shareholders will be exempt from the regular Federal income tax, other income
received by the Portfolio and allocated to the Fund may be taxable. This table
does not take into account state or local taxes, if any, payable on Fund
distributions. It should also be noted that 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 or increase the recipient's liability for the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
a-7
<PAGE>
INVESTMENT ADVISER OF
NATIONAL LIMITED MATURITY
TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF
EV CLASSIC
NATIONAL LIMITED MATURITY
TAX FREE FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV CLASSIC
NATIONAL LIMITED MATURITY
TAX FREE FUND
24 FEDERAL STREET
BOSTON, MA 02110
C-LNASAI
[LOGO]
EV CLASSIC
NATIONAL
LIMITED MATURITY
TAX FREE FUND
STATMENT OF
ADDITIONAL INFORMATION
AUGUST, 1, 1995
<PAGE>
EV MARATHON NATIONAL LIMITED MATURITY
TAX FREE FUND
EV MARATHON NATIONAL LIMITED MATURITY TAX FREE FUND (THE "FUND") IS A
MUTUAL FUND SEEKING TO PROVIDE (1) A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND (2) LIMITED PRINCIPAL FLUCTUATION. THE FUND
INVESTS ITS ASSETS IN NATIONAL LIMITED MATURITY TAX FREE PORTFOLIO (THE
"PORTFOLIO"), A DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY DIRECTLY INVESTING IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL
FUNDS. THE FUND IS A SERIES OF EATON VANCE INVESTMENT TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated August 1, 1995 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's principal underwriter,
Eaton Vance Distributors, Inc. (the "Principal Underwriter"), 24 Federal Street,
Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's investment adviser
is Boston Management and Research (the "Investment Adviser"), a wholly-owned
subsidiary of Eaton Vance Management, and Eaton Vance Management is the
administrator (the "Administrator") of the Fund. The offices of the Investment
Adviser and the Administrator are located at 24 Federal Street, Boston, MA
02110.
--------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Shareholder and Fund Expenses........... 2
The Fund's Financial Highlights......... 3
The Fund's Investment Objective......... 4
How the Fund and the Portfolio Invest
their Assets.......................... 4
Organization of the Fund and the
Portfolio............................. 9
Management of the Fund and the
Portfolio............................. 11
Distribution Plan....................... 13
Valuing Fund Shares..................... 15
How to Buy Fund Shares.................. 15
How to Redeem Fund Shares............... 17
Reports to Shareholders................. 20
The Lifetime Investing
Account/Distribution Options.......... 20
The Eaton Vance Exchange Privilege...... 21
Eaton Vance Shareholder Services........ 22
Distributions and Taxes................. 23
Performance Information................. 25
</TABLE>
--------------------------------------------------------------------------------
PROSPECTUS DATED AUGUST 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES
--------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charges Imposed on Purchases of Shares None
Sales Charges Imposed on Reinvested Distributions None
Fees to Exchange Shares None
Range of Declining Contingent Deferred Sales Charges Imposed on Redemptions During
the
First Five Years (as a percentage of redemption proceeds exclusive of all
reinvestments and
capital appreciation in the account) 3.00%-0%
</TABLE>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
<TABLE>
<S> <C>
(as a percentage of average daily net assets)
Investment Adviser Fee 0.46%
Rule 12b-1 Distribution (and Service) Fees 0.83
Other Expenses 0.28
----
Total Operating Expenses 1.57%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following contingent deferred
sales charge and expenses on a $1,000 investment, assuming
(a) 5% annual return and (b) redemption at the end of each
period: $ 46 $70 $86 $187
An investor would pay the following expenses on the same
investment, assuming (a) 5% annual return and (b) no
redemptions: $ 16 $50 $86 $187
</TABLE>
Notes:
The tables and Examples summarize the aggregate expenses of the Fund and
the Portfolio and are designed to help investors understand the costs and
expenses they will bear, directly or indirectly, by investing in the Fund.
Information for the Fund is based on its expenses for the most recent fiscal
year.
The Fund invests exclusively in the Portfolio. The Trustees believe that,
over time, the aggregate per share expenses of the Fund and the Portfolio should
be approximately equal to, or less than, the per share expenses the Fund would
incur if the Fund were instead to retain the services of an investment adviser
and its assets were invested directly in the types of securities being held by
the Portfolio.
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return, but actual annual
return will vary. For further information regarding the expenses of both the
Fund and the Portfolio see "Organization of the Fund and the Portfolio",
"Management of the Fund and the Portfolio" and "How to Redeem Fund Shares." A
long-term shareholder in the Fund may pay more than the economic equivalent of
the maximum front-end sales charge permitted by the rules of the National
Association of Securities Dealers, Inc.
No contingent deferred sales charge is imposed on (a) shares purchased more
than four years prior to redemption, (b) shares acquired through reinvestment of
distributions or (c) any appreciation in value of other shares in the account,
and no such charge is imposed on exchanges of Fund shares for shares of one or
more other funds listed under "The Eaton Vance Exchange Privilege". See "How to
Redeem Fund Shares".
The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 12.
Other investment companies with different distribution arrangements and
fees are investing in the Portfolio and additional such companies and investors
may do so in the future. See "Organization of the Fund and the Portfolio".
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's Annual Report to shareholders which
is incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of the Fund is contained in the Fund's annual report
to shareholders which may be obtained without charge by contacting the Principal
Underwriter.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1995 1994 1993++
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE, beginning of period................................ $ 10.160 $ 10.450 $ 10.000
-------- -------- --------
INCOME FROM OPERATIONS:
Net investment income............................................. $ 0.400 $ 0.406 $ 0.339
Net realized and unrealized gain (loss) on investments............ 0.033 (0.178) 0.573
-------- -------- --------
Total income from operations................................... $ 0.433 $ 0.228 $ 0.912
-------- -------- --------
LESS DISTRIBUTIONS:
From net investment income........................................ $ (0.400) $ (0.406) $ (0.339)
In excess of net investment income................................ (0.058) (0.091) --
From net realized gain on investments............................. (0.005) (0.021) (0.010)
From paid-in capital.............................................. -- -- (0.113)
-------- -------- --------
Total distributions............................................ $ (0.463) $ (0.518) $ (0.462)
-------- -------- --------
NET ASSET VALUE, end of period...................................... $ 10.130 $ 10.160 $ 10.450
======== ======== ========
TOTAL RETURN(1)..................................................... 4.43% 2.10% 9.05%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000's omitted)......................... $141,289 $151,787 $ 89,878
Ratio of net expenses to average net assets(2).................... 1.57% 1.46% 1.50%+
Ratio of net investment income to average net assets.............. 3.99% 3.78% 3.86%+
PORTFOLIO TURNOVER(3)............................................... -- -- 51%
*The operating expenses of the Fund reflect a reduction of the
investment adviser fee. Had such action not been taken, net
investment income per share and the ratios would have been as
follows:
NET INVESTMENT INCOME PER SHARE..................................... $ 0.323
========
RATIOS (As a percentage of average daily net assets):
Expenses.......................................................... 1.68%+
Net investment income............................................. 3.68%+
+Computed on an annualized basis.
++For the period from the start of business, May 22, 1992, to March 31, 1993.
(1)Total investment return is calculated assuming a purchase at the net asset value on the
first day and a sale at the net asset value on the last day of each period reported.
Dividends and distributions, if any, are assumed to be reinvested at the net asset value
on the payable date. Total return is computed on a non-annualized basis.
(2)Includes the Fund's share of the Portfolio's allocated expenses.
(3)Where stated, portfolio turnover represents the rate of the portfolio activity for the
period while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred its assets to the Portfolio is
shown in the Portfolio's financial statements which are included in the Fund's annual
report.
</TABLE>
3
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE (1) A HIGH LEVEL OF CURRENT INCOME
EXEMPT FROM THE REGULAR FEDERAL INCOME TAX AND (2) LIMITED PRINCIPAL
FLUCTUATION. The Fund currently seeks to meet its investment objective by
investing its assets in the National Limited Maturity Tax Free Portfolio, a
separate open-end management investment company which invests primarily in
municipal obligations (as described below) having a dollar weighted average
duration of between three and nine years and which are rated at least investment
grade by a major rating agency or, if unrated, are determined to be of at least
investment grade quality by the Investment Adviser.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
--------------------------------------------------------------------------------
THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF STATES, TERRITORIES
AND POSSESSIONS OF THE UNITED STATES, AND THE DISTRICT OF COLUMBIA AND THEIR
POLITICAL SUBDIVISIONS, AGENCIES OR INSTRUMENTALITIES, THE INTEREST ON WHICH IS
EXEMPT FROM THE REGULAR FEDERAL INCOME TAX AND IS NOT A TAX PREFERENCE ITEM
UNDER THE FEDERAL ALTERNATIVE MINIMUM TAX. The foregoing policy is a fundamental
policy of both the Fund and the Portfolio and may not be changed unless
authorized by a vote of the shareholders of the Fund or the investors in the
Portfolio, as the case may be.
At least 80% of the Portfolio's net assets will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch")) or, if unrated, determined by the Investment Adviser to
be of at least investment grade quality. The Portfolio may invest up to 20% of
its net assets in municipal obligations rated below investment grade (but not
lower than B by Moody's, S&P or Fitch) and unrated municipal obligations
considered to be of comparable quality by the Investment Adviser. Municipal
obligations rated Baa or BBB may have speculative characteristics. Also, changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case of
higher rated obligations. Securities rated below Baa or BBB are commonly known
as "junk bonds". The Portfolio may retain an obligation whose rating drops below
B after its acquisition if such retention is considered desirable by the
Investment Adviser. See "Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
In pursuing its investment objective, the Portfolio seeks to invest in a
portfolio having a dollar weighted average duration of between three and nine
years. Duration represents the dollar weighted average maturity of expected cash
flows (i.e., interest and principal payments) on one or more debt obligations,
discounted to their present values. The duration of an obligation is usually not
more than its stated maturity and is related to the degree of volatility in the
market value of the obligation. Maturity measures only the time until a bond or
other debt security provides its final payment; it does not take into
4
<PAGE>
account the pattern of a security's payments over time. Duration takes both
interest and principal payments into account and, thus, in the Investment
Adviser's opinion, is a more accurate measure of a debt security's sensitivity
to changes in interest rates. In computing the duration of its portfolio, the
Portfolio will have to estimate the duration of debt obligations that are
subject to prepayment or redemption by the issuer, based on projected cash flows
from such obligations.
The Portfolio may use various techniques to shorten or lengthen the dollar
weighted average duration of its portfolio, including the acquisition of debt
obligations at a premium or discount, and transactions in futures contracts and
options on futures. Subject to the requirement that the dollar weighted average
portfolio duration will not exceed nine years, the Portfolio may invest in
individual debt obligations of any maturity.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public and
private purposes, the interest on which is, in the opinion of bond counsel,
exempt from regular Federal income tax. Public purpose municipal bonds include
general obligation and revenue bonds. General obligation bonds are backed by the
taxing power of the issuing municipality. Revenue bonds are backed by the
revenues of a project or facility. Municipal notes include bond anticipation,
tax anticipation, revenue anticipation and construction loan notes. Bond, tax
and revenue anticipation notes are short-term obligations that will be retired
with the proceeds of an anticipated bond issue, tax revenue or facility revenue,
respectively. Construction loan notes are short-term obligations that will be
retired with the proceeds of long-term mortgage financing.
Interest income from certain types of municipal obligations may subject the
recipient to or increase the recipient's liability for the Federal alternative
minimum tax; as at March 31, 1995, the Portfolio had 12.7% of its net assets
invested in such private activity bonds. The Portfolio may not invest more than
20% of its net assets in these obligations and obligations that pay interest
subject to regular Federal income tax. Distributions to corporate investors of
certain interest income may also be subject to the Federal alternative minimum
tax.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in municipal
obligations of issuers located in the same state or in municipal obligations of
the same type, including without limitation the following: general obligations
of states and localities; lease rental obligations of state and local
authorities; obligations of state and local housing finance authorities,
municipal utilities systems or public housing authorities; obligations for
hospitals or life care facilities; or industrial development or pollution
control bonds issued for electric utility systems, steel companies, paper
companies or other purposes. This may make the Portfolio more susceptible to
adverse economic, political, or regulatory occurrences affecting a particular
category of issuer. For example, health care-related issuers are susceptible to
medicaid reimbursement policies, and national and state health care legislation.
As the Portfolio's concentration increases, so does the potential for
fluctuation in the value of the Fund's shares.
DIVERSIFIED STATUS. The Portfolio's classification under the Investment Company
Act of 1940 (the "1940 Act") as a "diversified" investment company means that
with respect to 75% of its total assets (1) the 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) the Portfolio may not own more than 10% of the
outstanding voting securities of any one issuer. Since municipal obligations are
not voting securities, there is not limit on the
5
<PAGE>
percentage of a single issuer's obligations which the Portfolio may own so long
as it does not invest more than 5% of its total assets in the securities of that
issuer.
OTHER INVESTMENT PRACTICES
The Portfolio may engage in the following investment practices, some of
which may be considered to involve "derivative" instruments because they derive
their value from another instrument, security or index.
INSURED OBLIGATIONS. The Portfolio may purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of the Fund's shares.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities 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. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than the Portfolio agreed to pay for them. The Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
FUTURES TRANSACTIONS. The Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the Municipal
Bond Index traded on the Chicago Board of Trade) and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed the
Portfolio's initial investment in these contracts. The Portfolio may not
purchase or sell futures contracts or related options, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of margin deposits and premiums paid on the Portfolio's outstanding positions
would exceed 5% of the market value of the Portfolio's net assets. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to the Portfolio.
Distributions by the Fund of any gains realized on the Portfolio's transactions
in futures and options on futures will be taxable.
RISK CONSIDERATIONS
Many municipal obligations offering high current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, the Portfolio may invest in municipal obligations rated below
investment grade (but not lower than B by Moody's, S&P or Fitch) and comparable
unrated obligations. The lowest investment grade, lower rated and comparable
unrated municipal obligations in which the Portfolio may invest will have
speculative characteristics in varying degrees. While such 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.
6
<PAGE>
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.
The Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by the 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. The Portfolio
may retain in its portfolio an obligation whose rating drops below B after its
acquisition if such retention is considered desirable by the Investment Adviser;
provided, however, that holdings of obligations rated below Baa or BBB will not
exceed 35% of net assets. In the event the rating of an obligation held by the
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
its credit quality limitations. For a description of the municipal obligation
ratings, see the Statement of Additional Information.
The net asset value of the Fund will change in response to fluctuations in
prevailing interest rates and changes in the value of the securities held by the
Portfolio. When interest rates decline, the value of securities held by the
Portfolio can be expected to rise. Conversely, when interest rates rise, the
value of most portfolio security holdings can be expected to decline. Because
the Portfolio intends to limit its average portfolio duration to no more than
nine years, the net asset value of the Fund can be expected to be less sensitive
to changes in interest rates than that of a fund with a longer average portfolio
duration. Changes in the credit quality of the issuers of municipal obligations
held by the Portfolio will affect the principal value of (and possibly the
income earned on) such obligations. In addition, the values of such securities
are affected by changes in general economic conditions and business conditions
affecting the specific industries of their issuers. Changes by recognized rating
services in their ratings of a security and in the ability of the issuer to make
payments of principal and interest may also affect the value of the Portfolio's
investments. The amount of information about the financial condition of an
issuer of municipal obligations may not be as extensive as that made available
by corporations whose securities are publicly traded. An investment in shares of
the Fund will not constitute a complete investment program.
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.
7
<PAGE>
The secondary market for some municipal obligations (including issues which
are privately placed with the Portfolio) is less liquid than that for taxable
debt obligations or other more widely traded municipal obligations. The
Portfolio will not invest in illiquid securities if more than 15% of its assets
would be invested in securities that are not readily marketable. No established
resale market exists for certain of the municipal obligations in which the
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, the 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.
Certain securities held by the Portfolio may permit the issuer at its
option to "call", or redeem, its securities. If an issuer were to redeem
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.
Some of the securities in which the Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. The Portfolio is required to accrue and distribute income from
zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, a Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
The Portfolio may invest in 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.
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.
THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER VOTE
AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED RESTRICTIONS AND
AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT OBJECTIVE AND POLICIES
OF THE FUND AND THE PORTFOLIO ARE NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY
BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE
APPROVAL OF THE FUND'S SHAREHOLDERS OR THE INVESTORS IN THE PORTFOLIO, AS THE
CASE MAY BE. IF ANY CHANGES WERE MADE IN THE FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVES WHICH AN
INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN
THE FUND.
8
<PAGE>
ORGANIZATION OF THE FUND AND THE PORTFOLIO
--------------------------------------------------------------------------------
The Fund is a diversified series of Eaton Vance Investment Trust, a business
trust established under Massachusetts law pursuant to a Declaration of Trust
dated October 23, 1985, as amended and restated. The Trust is a mutual fund --
an open-end management investment company. THE TRUSTEES OF THE TRUST ARE
RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF ITS AFFAIRS. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series, and because the Trust can offer separate series
(such as the Fund), it is known as a "series company." The Trust is initially
offering Class I shares of the Fund. After receipt of a ruling from the Internal
Revenue Service, the Trustees will divide the shares of the Fund into two
classes (Class I and Class II) and fix and determine the relative rights and
preferences as between, and all provisions applicable to, each Class. Shares of
different Classes may be sold under different sales arrangements. Each Class of
shares of the Fund will represent interests in the same assets held by the Fund,
except that: (1) Class I shares will be subject to the Fund's Rule 12b-1
distribution plan, which provides for payments of sales commissions and
distribution fees to the Principal Underwriter in amounts not exceeding .75% of
the Fund's average daily net assets attributable to the Class I shares for each
fiscal year, and subject to service fees payable under the plan (see
"Distribution Plan"); (2) Class II shares would be subject to service fees
payable under such plan; (3) any other Class of shares established may be
subject to a Rule 12b-1 distribution plan or service fee applicable thereto; (4)
a higher transfer agency fee may be imposed on Class I shares than on other
Classes of shares; (5) only the Class I shares will have a conversion feature
providing for the automatic conversion to Class II shares four full years after
purchase; (6) the shareholders of any Class subject to a Rule 12b-1 distribution
plan will have exclusive voting rights with respect to the plan applicable to
their respective Class; (7) each Class of shares may have different exchange
privileges; and (8) each Class of shares will bear the expenses which are
properly attributable to such Class. Upon creation of additional Classes of
shares, the Fund's offering documents will be revised in an appropriate manner
to reflect such events.
When issued and outstanding, the Fund's shares are fully paid and
nonassessable by the Trust and redeemable as described under "How to Redeem Fund
Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares have no preemptive or
conversion rights and are freely transferable. In the event of the liquidation
of the Fund, shareholders of each Class are entitled to share pro rata in the
net assets attributable to the Class available for distribution to shareholders.
THE 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. The
Portfolio, as well as the Trust, intends to comply with all applicable Federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the 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.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks
9
<PAGE>
to achieve its investment objective by investing its assets in an interest in
the Portfolio (although the Fund may temporarily hold a de minimis amount of
cash), which is a separate investment company with an identical investment
objective. Therefore, the Fund's interest in the securities owned by the
Portfolio is indirect. In addition to selling an interest to the Fund, the
Portfolio may sell interests to other affiliated and non-affiliated mutual funds
or institutional investors. Such investors will invest in the Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in the Portfolio are not
required to sell their shares at the same public offering price as the Fund due
to variations in sales commissions and other operating expenses. Therefore,
investors in the Fund should be aware that these differences may result in
differences in returns experienced by investors in the various funds that invest
in the Portfolio. Such differences in returns are also present in other mutual
fund structures, including funds that have multiple classes of shares. For
information regarding the investment objective, policies and restrictions, see
"The Fund's Investment Objective" and "How the Fund and the Portfolio Invest
their Assets". Further information regarding investment practices may be found
in the Statement of Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure offers opportunities for substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million. The public
shareholders of the Fund have previously approved the policy of investing the
Fund's assets in an interest in the Portfolio.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio, as the case may
be. Any such change of the investment objective of the Fund or the Portfolio
will be preceded by thirty days' advance written notice to the shareholders of
the Fund or the investors in the Portfolio, as the case may be. If a shareholder
redeems shares because of a change in the nonfundamental objective or policies
of the Fund, those shares may be subject to a contingent deferred sales charge,
as described in "How to Redeem Fund Shares". In the event the Fund withdraws all
of its assets from the Portfolio, or the Board of Trustees of the Trust
determines that the investment objective of the Portfolio is no longer
consistent with the investment objective of the Fund, such Trustees would
consider what action might be taken, including investing the assets of the Fund
in another pooled investment entity or retaining an investment adviser to manage
the Fund's assets in accordance with its investment objective. The Fund's
investment performance may be affected by a withdrawal of all its assets from
the Portfolio.
Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc. (the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA
02110, (617) 482-8260. Smaller investors in the Portfolio may be adversely
affected by the actions of larger investors in the Portfolio. For example, if a
large investor withdraws from the Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
10
<PAGE>
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the 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. The 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 the
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, the 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 the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of the Portfolio are the same. Such procedures require
each Board to take actions to resolve any conflict of interest between the Fund
and the Portfolio, and it is possible that the creation of separate Boards may
be considered. For further information concerning the Trustees and officers of
the Trust and the Portfolio, see the Statement of Additional Information.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
--------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset-based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
11
<PAGE>
(b) a daily income-based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in the
same Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ------------------------------------------ ------------ -----------
<C> <S> <C> <C>
1 up to $500 million........................ 0.300% 3.00%
2 $500 million but less than $1 billion..... 0.275% 2.75%
3 $1 billion but less than $1.5 billion..... 0.250% 2.50%
4 $1.5 billion but less than $2 billion..... 0.225% 2.25%
5 $2 billion but less than $3 billion....... 0.200% 2.00%
6 $3 billion and over....................... 0.175% 1.75%
</TABLE>
As at March 31, 1995, the Portfolio had net assets of $169,620,804. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees
equivalent to 0.46% of the Portfolio's average daily net assets for such year.
BMR furnishes for the use of the Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
Portfolio.
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolio and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
Raymond E. Hender has acted as the portfolio manager of the Portfolio since
it commenced operations. He joined Eaton Vance and BMR as a Vice President in
September 1992. Prior to joining Eaton Vance, he was a Senior Vice President of
Bank of New England (1989-1992) and a Portfolio Manager at Fidelity Management &
Research Company (1977-1988).
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing the Fund's assets in the Portfolio. As Administrator, Eaton Vance
provides the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
12
<PAGE>
The Portfolio and the Fund, as the case may be, will each be responsible
for all of its respective costs and expenses not expressly stated to be payable
by BMR under the investment advisory agreement, by Eaton Vance under the
administrative services agreement, or by EVD under the distribution agreement.
DISTRIBUTION PLAN
--------------------------------------------------------------------------------
THE FUND FINANCES DISTRIBUTION ACTIVITIES AND HAS ADOPTED A DISTRIBUTION PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE 1940 ACT. Rule 12b-1 permits a
mutual fund, such as the Fund, to finance distribution activities and bear
expenses associated with the distribution of its shares provided that any
payments made by the Fund are made pursuant to a written plan adopted in
accordance with the Rule. The Plan is subject to, and complies with, the sales
charge rule of the National Association of Securities Dealers, Inc. (the "NASD
Rule"). The Plan is described further in the Statement of Additional
Information, and the following is a description of the salient features of the
Plan. The Plan provides that the Fund, subject to the NASD Rule, will pay sales
commissions and distribution fees to the Principal Underwriter only after and as
a result of the sale of Class I shares of the Fund. On each sale of Fund shares
(excluding reinvestment of distributions) the Fund will pay the Principal
Underwriter amounts representing (i) sales commissions equal to 3% of the amount
received by the Fund for each Class I 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. The Principal Underwriter
currently expects to pay sales commissions (except on exchange transactions and
reinvestments) to a financial services firm (an "Authorized Firm") at the time
of sale equal to 2.5% of the purchase price of the Class I shares sold by such
Firm. The Principal Underwriter will use its own funds (which may be borrowed
from banks) to pay such commissions. Because the payment of the sales
commissions and distribution fees to the Principal Underwriter is subject to the
NASD Rule described below, it will take the Principal Underwriter a number of
years to recoup the sales commissions paid by it to Authorized Firms from the
payments received by it from the Fund pursuant to the Plan.
THE NASD RULE REQUIRES THE FUND TO LIMIT ITS ANNUAL PAYMENTS OF SALES
COMMISSIONS AND DISTRIBUTION FEES TO THE PRINCIPAL UNDERWRITER TO AN AMOUNT NOT
EXCEEDING .75% OF THE FUND'S AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO CLASS I
SHARES FOR EACH FISCAL YEAR. Under its Plan, the Fund accrues daily an amount at
the rate of 1/365 of .75% of the Fund's net assets attributable to Class I
shares, and pays such accrued amounts monthly to the Principal Underwriter. The
Plan requires such accruals to be automatically discontinued during any period
in which there are no outstanding Uncovered Distribution Charges under the Plan.
Uncovered Distribution Charges are calculated daily and, briefly, are equivalent
to all unpaid sales commissions and distribution fees to which the Principal
Underwriter is entitled under the Plan less all contingent deferred sales
charges theretofore paid to the Principal Underwriter. The Eaton Vance
organization may be considered to have realized a profit under the Plan if at
any point in time the aggregate amounts of all payments received by the
Principal Underwriter from the Fund pursuant to the Plan, including any
contingent deferred sales charges, have exceeded the total expenses theretofore
incurred by such organization in distributing Class I 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.
13
<PAGE>
In a transaction involving a sale of Class I shares of the Fund resulting
from an exchange of shares of the funds currently listed under "The Eaton Vance
Exchange Privilege", the Principal Underwriter will not pay a sales commission
to an Authorized Firm, inasmuch as the Principal Underwriter will have
previously paid a sales commission to the Authorized Firm when the shares of the
exchanged fund were sold.
Because of the NASD Rule limitation on the amount of sales commissions and
distribution fees paid to the Principal Underwriter during any fiscal year, a
high level of sales of Class I shares during the initial years of the Fund's
operations would cause a large portion of the sales commission attributable to a
sale of Class I shares to be accrued and paid by the Fund to the Principal
Underwriter in fiscal years subsequent to the year in which such Class I shares
were sold. This spreading of sales commissions payments under the Plan over an
extended period would result in the incurrence and payment of increased
distribution fees under the Plan. For the fiscal year ended March 31, 1995, the
Fund paid sales commissions under the Plan equivalent to .75% of the Fund's
average daily net assets attributable to Class I shares for such year. As at
March 31, 1995, the outstanding Uncovered Distribution Charges of the Principal
Underwriter calculated under the Plan amounted to approximately $2,529,000
(equivalent to 1.8% of the Fund's net assets on such day). As of the date of
this Prospectus, the Fund has issued only Class I shares.
THE PLAN ALSO AUTHORIZES THE FUND TO MAKE PAYMENTS OF SERVICE FEES TO THE
PRINCIPAL UNDERWRITER, AUTHORIZED FIRMS AND OTHER PERSONS IN AMOUNTS NOT
EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET ASSETS ATTRIBUTABLE TO ALL
CLASSES OF SHARES FOR EACH FISCAL YEAR. The Trustees of the Trust have initially
implemented this provision of the Plan by authorizing the Fund to make quarterly
payments of service fees to the Principal Underwriter and Authorized Firms in
amounts not expected to exceed .15% per annum of the Fund's average daily net
assets attributable to both Class I and Class II shares for any fiscal year
based on the value of Fund shares sold by such persons and remaining outstanding
for at least twelve months. However, the Fund's Plan authorizes the Trustees of
the Trust on behalf of the Fund to increase payments to the Principal
Underwriter, Authorized Firms and other persons from time to time without
further action by shareholders of the Fund, provided that the aggregate amount
of payments made to such persons under the Plan in any fiscal year of the Fund
does not exceed .25% of the Fund's average daily net assets attributable to all
Classes of shares. As permitted by the NASD Rule, such payments are made for
personal services and/or the maintenance of shareholder accounts. Service fees
are separate and distinct from the sales commissions and distribution fees
payable by the Fund to the Principal Underwriter, and as such are not subject to
automatic discontinuance when there are no outstanding Uncovered Distribution
Charges of the Principal Underwriter. For the fiscal year ended March 31, 1995,
the Fund made service fee payments equivalent to .08% of the Fund's average
daily net assets for such year.
The Principal Underwriter may, from time to time, at its own expense,
provide additional incentives to Authorized Firms which employ registered
representatives who sell a minimum dollar amount of the Fund's Class I shares
and/or shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of Class I
shares. In addition, the Principal Underwriter may from time to time increase or
decrease the sales commissions payable to Authorized Firms.
The Fund may, in its absolute discretion, suspend, discontinue or limit the
offering of its Class I shares at any time. In determining whether any such
action should be taken, the Fund's management intends to consider all relevant
factors, including without limitation the size of the Fund, the investment
climate and
14
<PAGE>
market conditions, the volume of sales and redemptions of Class I shares, and
the amount of Uncovered Distribution Charges of the Principal Underwriter. The
Plan may continue in effect and payments may be made under the Plan following
any such suspension, discontinuance or limitation of the offering of Class I
shares; however, the Fund is not contractually obligated to continue the Plan
for any particular period of time. Suspension of the offering of Class I shares
would not, of course, affect a shareholder's ability to redeem shares.
VALUING FUND SHARES
--------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share. It is the Authorized Firms'
responsibility to transmit orders promptly to the Principal Underwriter, which
is a wholly-owned subsidiary of Eaton Vance.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio) based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of the Portfolio from the value of its total assets. Municipal
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolio's assets, see "Determination of Net Asset Value" in the Statement of
Additional Information. Eaton Vance Corp. owns 77.3% of the outstanding stock of
IBT, the Fund's and the Portfolio's custodian.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
--------------------------------------------------------------------------------
CLASS I SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN
EXCHANGE FOR SECURITIES. Pursuant to a rule of the Commission, the Fund has
adopted a multi-class plan and may offer more than one Class of shares after
receiving a private letter ruling from the Internal Revenue Service. There is no
assurance that the Fund will be able to obtain such ruling.
15
<PAGE>
CLASS I SHARES
Investors may purchase Class I shares of the Fund through Authorized Firms
at the net asset value per Class I share of the Fund next determined after an
order is effective. The Fund may suspend the offering of shares at any time and
may refuse an order for the purchase of shares.
An initial investment in Class I shares of the Fund must be at least
$1,000. Once an account has been established the investor may send investments
of $50 or more at any time directly to the Fund's transfer agent (the "Transfer
Agent") as follows: The Shareholder Services Group, Inc., BOS725, P.O. Box 1559,
Boston, MA 02104. The $1,000 minimum initial investment is waived for Bank
Automated Investing accounts, which may be established with an investment of $50
or more. See "Eaton Vance Shareholder Services".
CONVERSION FEATURE. Class I shares (except those in the sub-account described
below) held for four full years will, at the commencement of the fifth year,
automatically convert into Class II shares, and a pro rata portion of the Class
I shares in the sub-account will also convert to Class II shares (such portion
to be determined by the ratio that the shareholder's Class I shares being
converted bears to the shareholder's total Class I shares not acquired through
reinvestment of distributions). The Fund's ability to implement this conversion
feature will be dependent on obtaining the ruling referred to above. All
distributions on Class I shares which the shareholder elects to reinvest will be
reinvested in Class I shares; for purposes of conversion to Class II shares,
Class I shares acquired through reinvestment of such distributions will be
considered to be held in a separate sub-account.
CLASS II SHARES
Class II shares will be issued only after receipt of a private letter
ruling from the Internal Revenue Service. Such shares will be issued
automatically in connection with the conversion feature referred to above. Class
II shares are not subject to the sales commissions and distribution fees payable
from assets attributable to the Class I shares, but bear service fees payable
under the Fund's distribution plan (see "Distribution Plan"). Class II shares
may bear lower transfer agency fees than Class I shares. The Trustees may also
allow Class II shares to be available for acquisition by limited classes of
investors identified in the Fund's offering documents.
If deemed appropriate by the Trustees, the Fund may in the future offer
additional Classes of shares the terms of which would be determined by the
Trustees.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as Administrator, in exchange for
Class I shares at their net asset value as determined above. The minimum value
of securities (or securities and cash) accepted for deposit is $5,000.
Securities accepted will be sold by IBT as agent for the account of their owner
on the day of their receipt by IBT or as soon thereafter as possible. The number
of Class I shares to be issued in exchange for securities will be the aggregate
proceeds from the sale of such securities, divided by the applicable net asset
value per Class I share 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 the
securities.
16
<PAGE>
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Marathon National Limited Maturity Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Marathon National Limited Maturity Tax Free Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities. Exchanging securities
for Fund 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 for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
--------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per Fund share next computed after such delivery. Good order
means that all relevant documents must be endorsed by the record owner(s)
exactly as the shares are registered and the signature(s) must be guaranteed by
a member of either the Securities Transfer Association's STAMP program or the
New York Stock Exchange's Medallion Signature Program, or certain banks, savings
and loan institutions, credit unions, securities dealers, securities exchanges,
clearing agencies and registered securities associations as required by a
regulation of the Securities and Exchange Commission and acceptable to The
Shareholder Services Group, Inc. In addition, in some cases, good order may
require the furnishing of additional documents such as where shares are
registered in the name of a corporation, partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by
The Shareholder Services Group, Inc., the Fund will make payment in cash for the
net asset value of the shares as of the date
17
<PAGE>
determined above, reduced by the amount of any applicable contingent deferred
sales charges (described below) imposed on Class I shares and any Federal income
tax required to be withheld. Although the Fund normally expects to make payment
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 the
Fund, either totally or partially, by a distribution in kind of readily
marketable securities withdrawn by the Fund from the 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.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of a redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares. No contingent
deferred sales charge will be imposed with respect to such involuntary
redemptions of Class I shares.
CONTINGENT DEFERRED SALES CHARGE. Class I shares redeemed within the first four
years of their purchase (except shares acquired through the reinvestment of
distributions) generally will be subject to a contingent deferred sales charge.
This contingent deferred sales charge is imposed on any redemption the amount of
which exceeds the aggregate value at the time of redemption of (a) all Class I
shares in the account purchased more than four years prior to the redemption,
(b) all Class I shares in the account acquired through reinvestment of
distributions, and (c) the increase, if any, in the value of all other shares in
the account (namely those purchased within the four years preceding the
redemption) over the purchase price of such shares. Redemptions are processed in
a manner to maximize the amount of redemption proceeds which will not be subject
to a contingent deferred sales charge. That is, each redemption will be assumed
to have been made first from the exempt amounts referred to in clauses (a), (b)
and (c) above, and second through liquidation of those shares in the account
referred to in clause (c) on a first-in-first-out basis. Any contingent deferred
sales charge which is required to be imposed on share redemptions will be made
in accordance with the following schedule:
18
<PAGE>
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------------------- ---------------
<S> <C>
First..................... 3.0%
Second.................... 2.5%
Third..................... 2.0%
Fourth.................... 1.0%
Fifth and following....... 0.0%
</TABLE>
In calculating the contingent deferred sales charge upon the redemption of
Class I shares acquired in an exchange of shares of a fund currently listed
under "The Eaton Vance Exchange Privilege", the contingent deferred sales charge
schedule applicable to the shares at the time of purchase will apply and the
purchase of Class I shares acquired in the exchange is deemed to have occurred
at the time of the original purchase of the exchanged shares. The contingent
deferred sales charge applicable to Class I shares will be waived for shares
redeemed (1) pursuant to a Withdrawal Plan (see "Eaton Vance Shareholder
Services"), (2) as part of a required distribution from a tax-sheltered
retirement plan or (3) following the death of all beneficial owners of such
shares, provided the redemption is requested within one year of death (a death
certificate and other applicable documents may be required).
Redemption requests placed by shareholders who own both Class I and Class
II shares of the Fund will be satisfied first by redeeming the shareholder's
Class II shares, unless the shareholder has made a specific election to redeem
Class I shares.
No contingent deferred sales charge will be imposed on Class II shares of
the Fund. No contingent deferred sales charge will be imposed on Fund shares
which have been sold to Eaton Vance or its affiliates, or to their respective
employees or clients. The contingent deferred sales charge will be paid to the
Principal Underwriter or the Fund.
THE FOLLOWING EXAMPLE ILLUSTRATES THE OPERATION OF THE CONTINGENT DEFERRED SALES
CHARGE. ASSUME THAT AN INVESTOR PURCHASES $10,000 OF THE FUND'S CLASS I SHARES
AND THAT 16 MONTHS LATER THE VALUE OF THE ACCOUNT HAS GROWN THROUGH INVESTMENT
PERFORMANCE AND REINVESTMENT OF DIVIDENDS TO $12,000. THE INVESTOR THEN MAY
REDEEM UP TO $2,000 OF CLASS I SHARES WITHOUT INCURRING A CONTINGENT DEFERRED
SALES CHARGE. IF THE INVESTOR SHOULD REDEEM $3,000 OF CLASS I SHARES, A CHARGE
WOULD BE IMPOSED ON $1,000 OF THE REDEMPTION. THE RATE WOULD BE 2.5% BECAUSE THE
REDEMPTION WAS MADE IN THE SECOND YEAR AFTER THE PURCHASE WAS MADE AND THE
CHARGE WOULD BE $25.
19
<PAGE>
REPORTS TO SHAREHOLDERS
--------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent certified public accountants. Shortly
after the end of each calendar year, the Fund will furnish all shareholders with
information necessary for preparing Federal and state tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a complete
record of all transactions between the investor and the Fund which at all times
shows the balance and Class of shares owned. The Fund will not issue share
certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current balance and Class of shares in the
account. THE LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE
ADDITIONAL INVESTMENTS IN SHARES BY SENDING A CHECK FOR $50 OR MORE to The
Shareholder Services Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104 (please provide the name of the shareholder, the Fund
and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Fund's dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in
additional shares of the same Class.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares of the same Class.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in the same Class of shares at the then current net
asset
20
<PAGE>
value. Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options
set forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a shareholder
should obtain a prospectus of the other Eaton Vance fund and consider its
objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest distributions should determine whether the firm which will
hold the shares allows reinvestment of distributions in "street name" accounts.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL INVESTMENTS
IN SHARES OF THE FUND BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of one or more
other funds in the Eaton Vance Marathon Group of Funds (which includes Eaton
Vance Equity-Income Trust and any EV Marathon fund) or Eaton Vance Money Market
Fund, which are distributed subject to a contingent deferred sales charge.
Shares of the Fund also may be exchanged for shares of Eaton Vance Prime Rate
Reserves, which are subject to an early withdrawal charge. Any such exchange
will be made on the basis of the net asset value per share of each fund at the
time of the exchange, provided that such exchange offers are available only in
states where shares of the fund being acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged
21
<PAGE>
in Market Timing. Furthermore, a group of unrelated accounts for which exchanges
are entered contemporaneously by a financial intermediary will be considered to
be engaged in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of other funds are available from Authorized Firms or the Principal
Underwriter. The prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
No contingent deferred sales charge is imposed on exchanges. For purposes
of calculating the contingent deferred sales charge upon the redemption of Class
I shares acquired in an exchange, the contingent deferred sales charge or early
withdrawal charge schedule applicable to the shares at the time of purchase will
apply and the purchase of Class I shares acquired in one or more exchanges is
deemed to have occurred at the time of the original purchase of the exchanged
shares. For the contingent deferred sales charge or early withdrawal charge
schedule applicable to Class I shares of the Fund and the other EV Marathon
Limited Maturity Tax Free Funds, and to shares of EV Marathon Strategic Income
Fund and Eaton Vance Prime Rate Reserves, see "How to Redeem Fund Shares". The
contingent deferred sales charge schedule applicable to the other funds in the
Eaton Vance Marathon Group of Funds is 5%, 5%, 4%, 3%, 2% or 1% in the event of
a redemption occurring in the first, second, third, fourth, fifth or sixth year,
respectively, after the original share purchase.
Shares of the other funds in the Eaton Vance Marathon Group of Funds and
shares of Eaton Vance Money Market Fund may be exchanged for Class I shares of
the Fund on the basis of the net asset value per share of each fund at the time
of the exchange, but subject to any restrictions or qualifications set forth in
the current prospectus of any such fund.
Telephone exchanges are accepted by The Shareholder Services Group, Inc.
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as the
shares being exchanged. Neither the Fund, the Principal Underwriter nor The
Shareholder Services Group, Inc. will be responsible for the authenticity of
exchange instructions received by telephone, provided that reasonable procedures
to confirm that instructions communicated are genuine have been followed.
Telephone instructions will be tape recorded. In times of drastic economic or
market changes, a telephone exchange may be difficult to implement. An exchange
may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of
22
<PAGE>
administering such services for the benefit of shareholders who participate in
them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of EV
Marathon National Limited Maturity Tax Free Fund may be mailed directly to The
Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104 at any
time -- whether or not distributions are reinvested. The name of the
shareholder, the Fund, the Class of shares and the account number should
accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an aggregate amount that does not exceed annually
12% of the account balance at the time the plan is established. Such amount will
not be subject to a contingent deferred sales charge. See "How to Redeem Fund
Shares". A minimum deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED CLASS I
SHARES MAY REINVEST, WITH CREDIT FOR ANY CONTINGENT DEFERRED SALES CHARGES PAID
ON THE REPURCHASED OR REDEEMED CLASS I SHARES, ANY PORTION OR ALL OF THE
REPURCHASE OR REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A
FRACTIONAL SHARE TO ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN CLASS I
SHARES OF THE FUND, provided that the reinvestment is effected within 60 days
after such repurchase or redemption, and the privilege has not been used more
than once in the prior 12 months. Class I shares are sold to a reinvesting
shareholder at the next determined net asset value following timely receipt of a
written purchase order by the Principal Underwriter or by the Fund (or by the
Fund's Transfer Agent). To the extent that any Class I shares are sold at a loss
and the proceeds are reinvested in Class I shares of the Fund (or other Class I
shares of the Fund are acquired within the period beginning 30 days before and
ending 30 days after the date of the redemption) some or all of the loss
generally will not be allowed as a tax deduction. Shareholders should consult
their tax advisers concerning the tax consequences of reinvestments.
DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid on the fifteenth day of each month or the next business
day thereafter. The Fund anticipates that for tax purposes the entire
distribution, whether paid in cash or reinvested in additional shares of the
Fund, will constitute tax-exempt income to the Class I shareholders, except for
the proportionate part of the distribution that may be considered taxable income
if the Fund has taxable income during the calendar year. Shareholders
reinvesting the monthly distribution should treat the amount of the entire
distribution as the tax cost basis of the additional Class I shares acquired by
reason of such reinvestment. Daily distribution crediting will commence on the
day that collected funds for the purchase of Fund shares are available at the
Transfer Agent. Shareholders will receive timely Federal income tax information
as to the tax-exempt or taxable
23
<PAGE>
status of all distributions made by the Fund during the calendar year. The
Fund's net realized capital gains, if any, consist of the net realized capital
gains allocated to the Fund by the Portfolio for tax purposes, after taking into
account any available capital loss carryovers; the Fund's net realized capital
gains, if any, will be distributed at least once a year, usually in December.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of Federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, the Fund will
treat itself as owning its proportionate share of each of the Portfolio's assets
and as entitled to the income of the Portfolio properly attributable to such
share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT PAY FEDERAL
INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO SHAREHOLDERS ITS NET
INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN ACCORDANCE WITH THE TIMING
REQUIREMENTS IMPOSED BY THE CODE. AS A PARTNERSHIP UNDER THE CODE, THE PORTFOLIO
DOES NOT PAY FEDERAL INCOME OR EXCISE TAXES.
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 5). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares of the Fund.
Tax-exempt distributions received from the Fund are includable in the tax
base for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Fund is not deductible to the extent it is deemed related
to the Fund's distribution 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 the 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 would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
24
<PAGE>
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE THE YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN OF CLASS I SHARES. The current yield of the Fund's Class I shares is
calculated by dividing the net investment income per share earned during a
recent 30 day period by the maximum offering price per share (net asset value)
on the last day of the period and annualizing the resulting figure. A
taxable-equivalent yield is computed by using the tax-exempt yield figure and
dividing by one minus the tax rate. The Fund's average annual total return of
the Fund's Class I shares is determined by computing the average annual
percentage change in value of $1,000 invested in Class I shares at the maximum
public offering price (net asset value) for specified periods ending with the
most recent calendar quarter, assuming reinvestment of all distributions. The
average annual total return calculation assumes a complete redemption of the
investment and the deduction of any applicable contingent deferred sales charge
for Class I shares at the end of the period. The Fund may publish annual and
cumulative total return figures for Class I shares from time to time.
The Fund may also publish the distribution rate and/or the effective
distribution rate for Class I shares. The distribution rate of Class I shares is
computed by dividing the most recent monthly distribution per share annualized,
by the current maximum offering price per share (net asset value). The effective
distribution rate of Class I shares is computed by dividing the distribution
rate by the ratio used to annualize the most recent monthly distribution and
reinvesting the resulting amount for a full year on the basis of such ratio. The
effective distribution rate will be higher than the distribution rate because of
the compounding effect of the assumed reinvestment. Investors should note that
the yield on Class I shares is calculated using a standardized formula the
income component of which is computed from the yields to maturity of all debt
obligations held by the Portfolio based on prescribed methods (with all
purchases and sales of securities during such period included in the income
calculation on a settlement date basis), whereas the distribution rate on Class
I shares is based on the Fund's last monthly distribution which tends to be
relatively stable and may be more or less than the amount of net investment
income and short-term capital gain actually earned by the Fund during the month.
The Fund may also publish total return figures which do not take into
account any contingent deferred sales charge which may be imposed upon
redemptions at the end of the specified period. Any performance figure which
does not take into account the contingent deferred sales charge would be reduced
to the extent such charge is imposed upon a redemption.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's yield, total return,
distribution rate or effective distribution rate for any prior period should not
be considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period.
25
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26
<PAGE>
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27
<PAGE>
INVESTMENT ADVISER OF
NATIONAL LIMITED MATURITY
TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV MARATHON
NATIONAL LIMITED MATURITY
TAX FREE FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON
NATIONAL LIMITED MATURITY
TAX FREE FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-LNAP
[LOGO]
EV MARATHON
NATIONAL
LIMITED MATURITY
TAX FREE
FUND
PROSPECTUS
AUGUST 1, 1995
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1995
EV MARATHON NATIONAL LIMITED
MATURITY TAX FREE FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about EV Marathon National Limited Maturity Tax
Free Fund (the "Fund") and certain other series of Eaton Vance Investment Trust
(the "Trust"). As described in the Prospectus, the Fund invests its assets in
National Limited Maturity Tax Free Portfolio (the "Portfolio"), a separate
registered investment company with the same investment objective and policies as
the Fund. Part II provides information solely about the Fund and the Portfolio.
Where appropriate, Part I includes cross-references to the relevant sections of
Part II.
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
PART I
<S> <C>
Additional Information about Investment Policies.............................................. 2
Investment Restrictions....................................................................... 8
Trustees and Officers......................................................................... 9
Investment Adviser and Administrator.......................................................... 11
Custodian..................................................................................... 13
Service for Withdrawal........................................................................ 13
Determination of Net Asset Value.............................................................. 13
Investment Performance........................................................................ 14
Taxes......................................................................................... 17
Portfolio Security Transactions............................................................... 19
Other Information............................................................................. 21
Independent Certified Public Accountants...................................................... 22
Financial Statements.......................................................................... 22
Appendix...................................................................................... 23
PART II
Fees and Expenses............................................................................. a-1
Principal Underwriter......................................................................... a-2
Distribution Plan............................................................................. a-2
Performance Information....................................................................... a-4
Control Persons and Principal Holders of Securities........................................... a-6
Tax Equivalent Yield Table.................................................................... a-7
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED AUGUST 1, 1995, AS SUPPLEMENTED FROM
TIME TO TIME. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE
BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund, certain other series of the
Trust and the Portfolio. Capitalized terms used in this Statement of Additional
Information and not otherwise defined have the meanings given them in the Fund's
Prospectus. The Fund is subject to the same investment policies as those of the
Portfolio. The Fund currently seeks to achieve its objective by investing in the
Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such 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. 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 Federal alternative minimum tax: (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. In
assessing the Federal income tax treatment of interest on any municipal
obligation, the Portfolio 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.
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 the 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 Federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
Federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income attributable to private
activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is 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 minimus amount.
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.
The principal security for a revenue bond is generally 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
2
<PAGE>
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 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.
The 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.
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.
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. The 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 Boston Management and Research (the"Investment
Adviser")) to evaluate or protect any real estate, facilities or other assets
securing any such obligation or acquired by the Portfolio as a result of any
such event, and the 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 are 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 Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P") and Fitch Investors Service, Inc. ("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 municipal obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or
more of its total assets in municipal obligations whose issuers are located in
the same state or in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of a similar type. In particular, investments in the industrial
revenue bonds listed above 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.
3
<PAGE>
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.
Pollution control and other industrial development bonds are issued by state
and local agencies to finance various projects, including those of domestic
steel producers, and may be backed solely by agreements with such companies.
Domestic steel companies are expected to suffer the consequences of such adverse
trends as high labor costs, high foreign imports encouraged by foreign
productivity increases and a strong U.S. dollar, and other cost pressures such
as those imposed by anti-pollution legislation. Domestic steel capacity is being
reduced currently by large-scale plant closings and this period of
rationalization may not end until further legislative protection is provided
through tariff price supports or mandatory import quotas, such as those recently
enacted for certain specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state industrial development
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject to
a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt service
payments. Moreover, since a portion of housing, medical care and other services
may be financed by an initial deposit, it is important that the facility
maintain adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost pressures is
an important factor in this process. The facilities may also be affected
adversely by regulatory cost restrictions applied to health care delivery in
general, particularly state regulations or changes in Medicare and Medicaid
payments or qualifications, or restrictions imposed by medical insurance
companies. They may also face competition from alternative health care or
conventional housing facilities in the private or public sector.
MUNICIPAL LEASES
The 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. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by the 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 the 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 the Portfolio. In
the event the 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.
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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. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. 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.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio from securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets. The Portfolio has no present intention of engaging in securities
lending.
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 taking place
within a specified number of days after the date of the Portfolio's commitment
and are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Portfolio may also purchase securities on a when-issued basis
pursuant to refunding contracts in connection with the
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refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Portfolio to buy such securities on
a settlement date that could be several months or several years in the future.
The 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 the Portfolio enters into the
purchase commitment. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the 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 the 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 the 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.
FLOATING OR VARIABLE RATE OBLIGATIONS
The Portfolio may purchase floating or variable rate obligations. Floating
or variable rate instruments provide for adjustments in the interest rate at
specified intervals (weekly, monthly, semi-annually, etc.). The revised rates
are usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Floating or variable rate obligations normally provide that
the holder can demand payment of the obligation on short notice at par with
accrued interest and which are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, the banks may be treated as the issuer of a security for
the purpose of complying with the diversification requirements set forth in
Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder. The
Portfolio would anticipate using these obligations as cash equivalents pending
longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Interest income generated by certain bonds having demand
features may not qualify as tax-exempt interest. 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. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Because this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also 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. The
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 the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The 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
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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
features may not qualify as tax-exempt interest.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities, (ii) futures
contracts on securities indices and (iii) futures contracts on other financial
instruments and indices. All futures contracts entered into by the Portfolio are
traded on exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CTFC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade.
The Portfolio will engage in futures and related options transactions for
bona fide 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. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold to
protect against a decline in the price of securities that the Portfolio owns, or
futures contracts will be purchased to protect the Portfolio against an increase
in the price of securities it intends to purchase. As evidence of this hedging
intent, the Portfolio expects that on 75% or more of the occasions on which it
takes a long futures (or option) position (involving the purchase of futures
contracts), the Portfolio will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures (or option) position is closed out. However, in particular
cases, when it is economically advantageous for the Portfolio to do so, a long
futures position may be terminated (or an option may expire) without the
corresponding purchase of securities. The Portfolio will engage in transactions
in futures contracts and related options only to the extent such transactions
are consistent with the requirements of the Internal Revenue Code for
maintaining the qualification of the Fund as a regulated investment company for
Federal income tax purposes (see "Taxes").
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. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked to
market daily.
SHORT-TERM OBLIGATIONS
Although the Portfolio will normally attempt to invest substantially all of
its assets in municipal obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its net assets in short-term obligations the
interest on which is subject to Federal income tax, and/or Federal alternative
minimum tax. Such short-term taxable obligations may include, but are not
limited to, certificates of deposit, commercial paper, short-term notes and
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities. During periods of adverse market conditions, the Portfolio
may temporarily invest more than 20% of its assets in such short-term taxable
obligations, all of which will be high quality obligations.
SHORT-TERM TRADING
The Portfolio may sell 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
the 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. The Portfolio anticipates that its annual
portfolio turnover rate will generally not exceed 100% (excluding turnover of
securities having a maturity of one year or less).
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PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but it
is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this Statement of Additional Information means the lesser of (a) 67% of the
shares of the Fund present or represented by proxy at a meeting if the holders
of more than 50% of the shares are present or represented at the meeting or (b)
more than 50% of the shares of the Fund. Accordingly, the Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of its
total assets, in the securities of a single issuer or purchase more than 10% of
the outstanding voting securities of a single issuer, except obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
except securities of other investment companies;
(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) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(4) 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;
(5) 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);
(6) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(7) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements or (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this Statement
of Additional Information means the lesser of (a) 67% of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented at the meeting or (b) more than 50% of the
outstanding voting securities of the Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the Investment Company Act of
1940 (the "1940 Act"). Whenever the Trust is requested to vote on a change in
the investment restrictions of the Portfolio (or the Portfolio's 80% investment
policy with respect to municipal obligations described in the Fund's current
Prospectus), the Trust will hold a meeting of Fund shareholders and will cast
its vote as instructed by the shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) 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
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securities sold short, and unless not more than 25% of its net assets (taken at
current value) is held as collateral for such sales at any one time. (The Fund
and the Portfolio will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes); (b) purchase or
retain in its portfolio securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust or
the Portfolio, or is a member, officer, director or trustee of any investment
adviser of the Trust or the Portfolio, if after the purchase of the securities
of such issuer by the Fund or the Portfolio one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities or both (all taken
at market value) of such issuer and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities or both (all taken at market value); (c) purchase oil, gas or
other mineral leases or purchase partnership interests in oil, gas or other
mineral exploration or development programs; (d) invest more than 5% of its
total assets (taken at current value) in obligations where the payment of
principal and interest thereon is the responsibility of a company (including
predecessors) with less than three years operating history unless such
obligations are rated at the time of purchase by a nationally recognized rating
service except for debt obligations issued by or on behalf of states,
territories and possessions of the United States, and the District of Columbia
and their political subdivisions, agencies or instrumentalities; (e) invest more
than 15% of 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determine to be liquid, based upon the trading markets for the
specific security; (f) 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; or (g) invest in
warrants, valued at the lower of cost or market, exceeding 5% of the value of
its net assets. Included within that amount, but not to exceed 2% of the value
of its net assets, may be warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the Fund or the Portfolio in units
or attached to securities may be deemed to be without value. The Fund and the
Portfolio may purchase put options on municipal obligations only if, after such
purchase, not more than 5% of its net assets, as measured by the aggregate of
the premiums paid for such options held by it, would be so invested. Neither the
Fund nor the Portfolio intends to invest in reverse repurchase agreements during
the current fiscal year.
For purposes of the 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 obligation.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Trustee and Vice President*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
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SAMUEL L. HAYES (60), III, Trustee
Jacob H. Schiff, Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration, Soldiers
Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (51), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and the
Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992 and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust and the
Portfolio on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various other investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Murphy was elected Assistant Secretary on March 27,
1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Trust's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and
10
<PAGE>
the Treasurer of the Trust and of the Portfolio matters relative to accounting
and auditing practices and procedures, accounting records, internal accounting
controls, and the functions performed by the custodian and transfer agent of the
Fund and of the Portfolio.
Trustees of the Portfolio 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 "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the 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 Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio to pay
any particular level of compensation to the Trustee.
For the compensation earned by the noninterested Trustees of the Trust and
the Portfolio, see "Fees and Expenses" in the Fund's Part II of this Statement
of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement dated October 13, 1992. BMR or Eaton Vance acts as investment
adviser to investment companies and various individual and institutional clients
with combined assets under management of approximately $15 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
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. The
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. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. As at March
31, 1995, the Portfolio had net assets of $169,620,804. For the fiscal year
ended March 31, 1995, the Portfolio paid BMR advisory fees of $817,082
(equivalent to 0.46% of the Portfolio's average daily net assets for such year).
For the period from the Portfolio's
11
<PAGE>
start of business, May 3, 1993, to the fiscal year ended March 31, 1994, the
Portfolio paid BMR advisory fees of $562,094 (equivalent to 0.46% (annualized)
of the Portfolio's average daily net assets for such period).
The Investment Advisory Agreement with BMR remains in effect until February
28, 1996. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1996 is approved at least annually (i) by the
vote of a majority of the Trustees of the Portfolio who are not interested
persons of the Portfolio or of BMR 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. The 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. The Agreement provides that BMR may render services to others and
engage in other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The 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.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator, see
"Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of the registration of the Trust under the 1940 Act, (iii) commissions,
fees and other expenses connected with the purchase or sale of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes
and Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons
and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman and Mr. Gardner
is president and chief executive officer of EVC, BMR, Eaton Vance and EV. All of
the issued and outstanding shares of Eaton Vance and EV 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 which
expires on December 31, 1996, the Voting Trustees of which are Messrs. Clay,
Brigham, Gardner, Hawkes and Rowland. 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 and Directors of EVC and
EV. As of June 30, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such
voting trust receipts, and Messrs. Rowland and Brigham owned 15% and 13%,
respectively, of such voting trust receipts. Messrs. Hawkes and Otis are
officers or Trustees of the Trust and the Portfolio and are members of the EVC,
BMR, Eaton Vance and EV
12
<PAGE>
organizations. Messrs. Fetter, Hender, MacIntosh, Murphy, O'Connor and Woodbury
and Ms. Sanders, are officers of the Trust and/or the Portfolio and are also
members of the BMR, Eaton Vance and EV organizations. BMR will receive the fees
paid under the Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which is engaged in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, custodian of the Fund and the Portfolio, which provides
custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all of the stock of Fulcrum Management, Inc.
and MinVen, Inc., which are engaged in the development of precious metal
properties. EVC, BMR, Eaton Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. 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.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's assets,
maintains the general ledger of the Portfolio and the Fund, and computes the
daily net asset value of interests in the 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
Portfolio's investments, receives and disburses all funds and performs various
other ministerial duties upon receipt of proper instructions from the Fund and
the Portfolio. IBT charges fees which are competitive within the industry. A
portion of the fee relates to custody, bookkeeping and valuation services and is
based upon a percentage of Fund and Portfolio net assets and a portion of the
fee relates to activity charges, primarily the number of portfolio transactions.
These fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day. U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. In view of the ownership of EVC in IBT, the
Portfolio is treated as a self-custodian pursuant to Rule 17f-2 under the 1940
Act, and the Portfolio's investments held by IBT as custodian are thus subject
to the additional examinations by the Portfolio's independent certified public
accountants as called for by such Rule. For the fiscal year ended March 31,
1995, the Portfolio paid IBT $33,898. For the custody fees that the Fund paid to
IBT, see "Fees and Expenses" in the Fund's Part II of this Statement of
Additional Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal 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.
To use this service, at least $5,000 in cash or shares at the public
offering price will have to be deposited with the Transfer Agent. The
maintenance of a withdrawal plan concurrently with purchases of Fund shares
would be disadvantageous if a sales charge is included in such purchases. 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. Either the shareholder, the Transfer Agent or the Principal
Underwriter will be able to terminate the withdrawal plan at any time without
penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the
13
<PAGE>
Portfolio is also 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 transaction prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchased on a when-issued
basis, will normally be valued on the basis of valuations furnished by a pricing
service. The pricing service uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities, various relationships between securities, and yield to maturity in
determining value. Taxable obligations for which price quotations are readily
available normally will be valued at the mean between the latest available bid
and asked prices. Open futures positions on debt securities are valued at the
most recent settlement prices, unless such price does not reflect the fair value
of the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by or at the direction of the
Trustees of the Portfolio. The Fund and the Portfolio will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, President's Day, Good Friday (a New
York Stock Exchange holiday), Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the 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 interests in the Portfolio will then be recomputed
as a percentage equal to the 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.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the results. The
calculation assumes that all dividends and distributions paid are reinvested at
the net asset value on the reinvestment dates during the period, and either (i)
the deduction of the maximum sales charge from the initial $1,000 purchase order
or (ii) a complete redemption of the investment and, if applicable, the
deduction of the contingent deferred sales charge at the end of the period. For
information concerning the total return of the Fund, see "Performance
Information" in the Fund's Part II of this Statement of Additional Information.
The Fund's yield is computed 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, if applicable, the maximum sales charge)
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 expenses for the period with the resulting number being divided by
the average daily number of Fund shares outstanding and entitled to receive
dividends during the period. The yield figure does not reflect the deduction of
any contingent deferred sales charges (if applicable) which are imposed on
certain redemptions at the rate set forth under "How to Redeem Fund Shares" in
the Fund's current Prospectus. Yield calculations assume the current maximum
sales charge (if applicable) set forth under "How to Buy Fund Shares" in the
Fund's current Prospectus. (Actual yield may be affected by variations in sales
charges or investments.) A taxable-equivalent yield is computed by using the
tax-exempt yield figure and dividing by 1 minus a stated rate. For the yield and
taxable-equivalent yield of the Fund, see "Performance Information" in the
Fund's Part II of this Statement of Additional Information.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio (the
14
<PAGE>
days in a year divided by the accrual days of the monthly period) used to
annualize the most recent monthly distribution and reinvesting the resulting
amount for a full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the compounding effect
of the assumed reinvestment. Investors should note that the yield of the Fund is
calculated using a standardized formula the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month. See "Distributions and Taxes" in the Fund's
current Prospectus. For the Fund's distribution rate and effective distribution
rate, see "Performance Information" in the Fund's Part II of this Statement of
Additional Information.
The Fund's total return may be compared to the Consumer Price Index and to
the domestic securities indices of the Bond Buyer 25 Revenue Bond Index and the
Lehman Brothers Municipal Bond Index. The Fund's total return and comparisons
with these indices may be used in advertisements and in information furnished to
present or prospective shareholders. The Fund's performance may differ from that
of other investors in the Portfolio, including the other investment companies.
From time to time, evaluations of the Fund's performance made by independent
sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger and
Morningstar, Inc., may be used in advertisements and in information furnished to
present or prospective shareholders.
From time to time, information, charts and illustrations relating to the
relative effects of changes in interest rates on values of securities of varying
durations may be included in advertisements and other material supplied to
present and prospective shareholders. For example, the following chart
illustrates that bond prices move inversely with interest rates -- values
decrease if interest rates rise, and values increase when rates fall. The
shorter a bond's duration, the less its price fluctuates for a given
interest-rate change. For example, if interest rates change by 1%, a limited
maturity bond with a 6-year duration will change by 6%, compared to a 12% change
for a 12-year duration bond. Source: Eaton Vance Management.
The Limited Maturity Volatility Advantage
If interest rates change 1%, a 6-yr. duration bond will change in value by 6% --
half the change of a 12-yr. duration bond.
Approximate % change in value Bond duration
if interest rates change by 1% (in years)
0 0
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example, after 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100 if the annual rates of inflation
during such period were 4%, 5%, 6% and 7%, respectively. (To calculate the
purchasing power, the value at the end of each year is reduced by the above
inflation rates for 10 consecutive years.)
From time to time, information about the portfolio allocation and holdings
of the Portfolio at a particular date (including ratings assigned by independent
ratings services such as Moody's Investors Service, Inc., Standard &
15
<PAGE>
Poor's Ratings Group and Fitch Investors Service, Inc.) 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.
The Portfolio's diversification by quality ratings as of June 30, 1995 was:
<TABLE>
<CAPTION>
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ------------------
<S> <C>
Aaa or AAA 44.6%
Aa or AA 32.5
A 12.9
Baa or BBB 4.0
Ba or BB --
B --
Not rated 6.0
-----
Total 100.0%
</TABLE>
The Fund is designed for investors seeking
- a higher level of after tax income than normally provided by taxable and
tax-free money market funds, certificates of deposit or other short-term
investments, and
- more price stability than investments in long-term municipal bonds or
bond funds.
Comparative information about the yield or distribution rate of the 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. A bank certificate of deposit, unlike the Fund's
shares, pays a fixed rate of interest and entitles the depositor to receive the
face amount of the certificate of deposit at maturity. A bank money market
deposit account is a form of savings account which pays a variable rate of
interest. Unlike the Fund's shares, bank certificates of deposit and bank money
market deposit accounts are insured by the Federal Deposit Insurance
Corporation. A money market mutual fund is designed to maintain a constant value
of $1.00 per share and, thus, a money market fund's shares are subject to less
price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Advertisements and other material furnished to present and prospective
shareholders may also compare the taxable equivalent yield of the Fund to
after-tax yields of certificates of deposits, bank money market deposit accounts
and money market mutual funds over various Federal income tax brackets.
Such materials may also compare taxable certificate of deposit rates of
return with rates of return in intermediate municipal bond indices and taxable
equivalents of such rates of return. An example of such an index is the Lehman
Brothers, Inc. 7-Year General Obligation Municipal Bond Index.
From time to time, information, charts and illustrations relating to the
relative total return performance of Intermediate-Term Tax Free Funds and Tax
Free Money Market Funds, based on information supplied by Lipper Analytical
Services, Inc., may be included in advertisements and other material furnished
to present and prospective shareholders. For example, for the 10 years ended
December 31, 1994, cumulative total returns were: Intermediate-Term Tax Free
Funds, 107.40%; Tax Free Money Market Funds, 48.83%.
16
<PAGE>
A comparison of the Total Return Advantage of intermediate-term tax free
funds over 3-month certificates of deposit (after taxes, assuming a 36% Federal
bracket) and tax free money market mutual funds may also be provided. In such an
illustration, sources of such information are Lipper Analytical Services, Inc.,
The Federal Reserve Bulletin, and The Wall Street Journal. For example:
The Total Return Advantage
Lipper Tax Free
Money Market Funds 48.83%
3-Month Certificates
of Deposit 47.90% (after taxes, assuming 36% bracket)
Lipper Intermediate-Term
Tax Free Funds 107.40%
Total returns (cumulative change in value with all distributions reinvested)
for 10 years ended December 31, 1994. Sources: Lipper Analytical Services, Inc.,
Federal Reserve Bulletin, The Wall Street Journal.
Total return is a common way to evaluate the results of any mutual fund
investment, because it includes any change in principal value and assumes the
reinvestment of all dividends and capital gains in additional shares. Most
tax-free money market funds are designed to maintain a $1 share price by
investing in short-term municipal instruments, while certificates of deposit are
insured by the FDIC. This illustration is not meant to imply or predict any
future rate of return for the Fund.
Information used in advertisements and in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze." Such information may also suggest the appropriateness of the
Fund as an investment for certain types of investors such as: conservative
investors who want higher after-tax income, but are concerned about the
potential volatility of long-term bonds or bond funds; dual-income couples in a
high tax bracket; and investors with long-term municipal bonds or fund
portfolios who are seeking diversification.
For additional information, charts and illustrations relating to the Fund's
investment performance, see "Performance Information" in the Fund's Part II of
this Statement of Additional Information.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for Federal income
tax purposes. The Fund has elected to be treated, has qualified, and intends to
continue to qualify each year as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains (after reduction by
any available capital loss carryforwards) in accordance with the timing
requirements imposed by the Code, so as to avoid any Federal income or excise
tax on the Fund. Because the Fund invests its assets in the Portfolio, the
Portfolio normally must satisfy the applicable source of income and
diversification requirements in order for the Fund to satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, each investor's distributive share of the Portfolio's net taxable (if any)
and tax-exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid Federal excise tax, the Code requires that the 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 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 any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that
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was not paid out during such year and on which the Fund paid no Federal income
tax. Under current law, provided that the Fund qualifies as a RIC for Federal
income tax purposes and the Portfolio is treated as a partnership for
Massachusetts and Federal tax purposes, neither the Fund nor the Portfolio is
liable for any income, corporate excise or franchise tax in the Commonwealth of
Massachusetts.
The 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 Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the 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 the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the 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. 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 Federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
Federal income tax returns.
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 the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the 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. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) 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 Portfolio and allocated to the Fund. Certain distributions of the Fund that
are declared in October, November or December and paid the following January
will be taxed to shareholders as if received on December 31 of the year in which
they are declared.
The 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 the
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 the 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 period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC for federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax
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purposes for 6 months or less (or such shorter period as may be prescribed by
Treasury regulations) will be disallowed to the extent the shareholder has
received tax-exempt interest with respect to such shares. In addition, a loss
realized on a redemption of Fund shares will be disallowed to the extent the
shareholder acquired other Fund shares within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income 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 treaty. Distributions from the
excess of the 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 result if the shareholder
is engaged in a trade or business in the United States, 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 fails to provide any required certifications regarding 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 the
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.
STATE, LOCAL AND FOREIGN TAXES
The exemption of interest income for Federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. Shareholders of the Fund may be exempt from state and
local taxes on distributions of tax-exempt interest income derived from
obligations of the state and/or municipalities of the state in which they are
resident, but taxable generally on income derived from obligations of other
jurisdictions. The Fund will report annually to shareholders, with respect to
net tax exempt income earned, the percentage representing the proportionate
ratio of such income earned in each state.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
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 the 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 the 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 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,
purchased and sold by the Portfolio 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
Portfolio may also purchase municipal obligations
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from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, 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 Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
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 the 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 commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either 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, 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 Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
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 the
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 commissions 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.
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 firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
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 Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
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investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure 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 Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions.
For the fiscal year ended March 31, 1995 and for the period from the start
of business, May 3, 1993, to the fiscal year ended March 31, 1994 the Portfolio
paid no brokerage commissions on portfolio transactions.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes. The Trust which is a Massachusetts
business trust established in 1985, was originally called Eaton Vance California
Municipals Trust. The Trust changed its name to Eaton Vance Investment Trust on
April 28, 1992.
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 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 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. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose. The By-Laws also provide that the Trustees shall promptly call a
meeting of shareholders for the purpose of voting upon a question of removal of
a Trustee when requested so to do by the recordholders of not less than 10 per
centum of the outstanding shares.
In accordance with the Declaration of Trust of the 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 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
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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 the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interests
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
meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual Report
accompanies this Statement of Additional Information.
Registrant incorporates by reference the audited financial information for
the Fund's and Portfolio's listed below for the fiscal year ended March 31, 1995
as previously filed electronically with the Securities and Exchange Commission:
EV Classic National Limited Maturity Tax Free Fund
National Limited Maturity Tax Free Portfolio
(Accession No. 0000950146-95-000244)
EV Marathon National Limited Maturity Tax Free Fund
National Limited Maturity Tax Free Portfolio
(Accession No. 0000950146-95-000249)
EV Traditional National Limited Maturity Tax Free Fund
National Limited Maturity Tax Free Portfolio
(Accession No. 0000950146-95-000241)
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
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.
---------------
[FN]
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information 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 the Portfolio's fiscal year end.
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NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
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.
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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.
25
<PAGE>
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: Very strong or 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.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considering short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
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 had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
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
obligor's 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
26
<PAGE>
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. The 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.
27
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV MARATHON NATIONAL LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1) a
high level of current income exempt from regular Federal income tax, and (2)
limited principal fluctuation. The Fund currently seeks to meet its investment
objective by investing its assets in the National Limited Maturity Tax Free
Portfolio (the "Portfolio"). The Fund changed its name from Eaton Vance National
Limited Maturity Tax Free Fund to EV Marathon National Limited Maturity Tax Free
Fund on January 11, 1994.
FEES AND EXPENSES
INVESTMENT ADVISER
Prior to May 3, 1993 (when the Fund transferred substantially all of its
assets to the Portfolio in exchange for an interest in the Portfolio), the Fund
retained Eaton Vance as its investment adviser. For the period from April 1,
1993 to May 3, 1993, the Fund paid Eaton Vance advisory fees of $37,442
(equivalent to 0.49% (annualized) of the Fund's average daily net assets for
such period). For the period from the start of business, May 22, 1992, to the
fiscal year ended March 31, 1993, Eaton Vance would have earned, absent a fee
reduction, advisory fees of $175,762 (equivalent to 0.46% (annualized) of the
Fund's average daily net assets for such period). To enhance the net income of
the Fund, Eaton Vance made a reduction of its fee in the amount of $66,658.
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund.
DISTRIBUTION PLAN
For the fiscal year ended March 31, 1995, the Fund made sales commission
payments to the Principal Underwriter under the Plan aggregating $1,122,753,
which amount was used by the Principal Underwriter to defray sales commissions
aggregating $301,752 paid during such period by the Principal Underwriter to
Authorized Firms on sales of Class I shares of the Fund and to reduce
outstanding Uncovered Distribution Charges. During such period, contingent
deferred sales charges aggregating approximately $526,200 were imposed on early
redeeming shareholders and paid to the Principal Underwriter, which amount was
used by the Principal Underwriter to defray sales commissions and to reduce
outstanding Uncovered Distribution Charges. As of March 31, 1995, the
outstanding Uncovered Distribution Charges of the Principal Underwriter
calculated under the Plan amounted to approximately $2,529,000 (which amount was
equivalent to 1.8% of the Fund's net assets attributable to Class I shares on
such day). For the fiscal year ended March 31, 1995, the Fund accrued service
fee payments under the Plan aggregating $100,697, which was paid to the
Principal Underwriter. The Principal Underwriter paid $98,038 as service fee
payments to Authorized Firms and retained the balance.
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1995, the Fund paid the Principal
Underwriter $1,877.50 for repurchase transactions handled by the Principal
Underwriter (being $2.50 for each such transaction).
CUSTODIAN
For the fiscal year ended March 31, 1995, the Fund paid IBT $6,062.
BROKERAGE
For the period from the start of business, May 22, 1992, to the fiscal year
ended March 31, 1993, and for the period from April 1, 1993 to May 3, 1993 (when
the Fund transferred substantially all of its assets to the Portfolio in
exchange for an interest in the Portfolio), the Fund paid no brokerage
commissions on portfolio transactions.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance
a-1
<PAGE>
organization receive no compensation from the Trust or the Portfolio.) During
the fiscal year ended March 31, 1995, the noninterested Trustees of the Trust
and the Portfolio earned the following compensation in their capacities as
Trustees from the Fund, the Portfolio, and the other funds in the Eaton Vance
fund complex(1):
<TABLE>
<CAPTION>
AGGREGATE
AGGREGATE COMPENSATION TOTAL COMPENSATION
COMPENSATION FROM FROM TRUST AND
NAME FROM FUND PORTFOLIO FUND COMPLEX
---- ------------ ------------ -------------------
<S> <C> <C> <C>
Donald R. Dwight $672 $2,114(2) $135,000(4)
Samuel L. Hayes, III 657 2,133(3) 147,500(5)
Norton H. Reamer 630 2,140 135,000
John L. Thorndike 647 2,228 140,000
Jack L. Treynor 689 2,205 140,000
</TABLE>
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $351 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
PRINCIPAL UNDERWRITER
Under the Distribution Agreement the Principal Underwriter acts as principal
in selling shares of the Fund. The expenses of printing copies of prospectuses
used to offer shares to financial service firms ("Authorized Firms") or
investors and other selling literature and of advertising is borne by the
Principal Underwriter. The fees and expenses of qualifying and registering and
maintaining qualifications and registrations of the Fund and its shares under
Federal and state securities laws is borne by the Fund. In addition, the Fund
makes payments to the Principal Underwriter pursuant to its Distribution Plan as
described in the Fund's current Prospectus; the provisions of the Fund's
Distribution Plan relating to such payments are included in the Distribution
Agreement. The Distribution Agreement is renewable annually by the Trust's Board
of Trustees (including a majority of its Trustees who are not interested persons
of the Trust and who have no direct or indirect financial interest in the
operation of the Fund's 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 voting securities of the Fund or on six months'
notice by the Principal Underwriter and is automatically terminated upon
assignment. The Principal Underwriter distributes Fund shares on a "best
efforts" basis under which it is required to take and pay for only such shares
as may be sold.
The Fund 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. The Principal Underwriter estimates that the
expenses incurred by it in acting as repurchase agent for the Fund will exceed
the amounts paid therefor by the Fund. For the amount paid by the Fund to the
Principal Underwriter for acting as repurchase agent, see "Fees and Expenses" in
this Part II.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") applicable to Class I shares is described
in the prospectus and is designed to meet the requirements of Rule 12b-1 under
the 1940 Act and the sales charge rule of the National Association of Securities
Dealers, Inc. (the "NASD Rule"). The purpose of the Plan is to compensate the
Principal Underwriter for its distribution services and facilities provided to
the Fund by paying the Principal Underwriter sales commissions and a separate
distribution fee in connection with sales of Fund shares. The following
supplements the discussion of the Plan contained in the Fund's Prospectus.
The amount payable by the Fund to the Principal Underwriter pursuant to the
Plan as sales commissions and distribution fees with respect to each day will be
accrued on such day as a liability of Class I shares and will accordingly reduce
the net assets of the Class I shares upon such accrual, all in accordance with
generally accepted accounting principles. The amount payable on each day is
limited to 1/365 of .75% of the Fund's net assets attributable to Class I shares
on such day. The level of the Fund's net assets attributable to Class I shares
changes each day and depends upon the amount of sales and redemptions of Class I
shares, the changes in the value of the investments held by the Portfolio, the
expenses of the Fund attributable to Class I shares and the Portfolio accrued
and allocated to the Fund on such day, income on portfolio investments of the
Portfolio accrued and allocated to the Fund on such day, and any dividends and
distributions declared on the Class I shares. The
a-2
<PAGE>
Fund does not accrue possible future payments as a liability of the Class I
shares or reduce the current net assets of the Class I shares in respect of
unknown amounts which may become payable under the Plan in the future because
the standards for accrual of such a liability under accounting principles have
not been satisfied.
The Plan provides that the Fund will receive all contingent deferred sales
charges and 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. Contingent deferred sales charges and accrued amounts
will be paid by the Fund to the Principal Underwriter whenever there exist
Uncovered Distribution Charges under the Plan.
Periods with a high level of sales of Class I shares accompanied by a low
level of early redemptions of Class I shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
Conversely, periods with a low level of sales of Class I shares accompanied by a
high level of early redemptions of Class I shares resulting in the imposition of
contingent deferred sales charges will tend to reduce the time during which
there will exist Uncovered Distribution Charges of the Principal Underwriter.
In calculating daily the amount of Uncovered Distribution Charges,
distribution charges will include the aggregate amount of sales commissions and
distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the Principal Underwriter is entitled to
be paid under the Plan since its inception. Payments theretofore paid or payable
under the Plan by the Fund on behalf of Class I to the Principal Underwriter and
contingent deferred sales charges with respect to Class I shares theretofore
paid and 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 Class I shares, the nature of such sales (i.e., whether
they result from exchange transactions, reinvestments or from cash sales through
Authorized Firms), the level and timing of redemptions of Class I shares upon
which a contingent deferred sales charge will be imposed, the level and timing
of redemptions of Class I shares upon which no contingent deferred sales charge
will be imposed (including redemptions involving exchanges of Class I shares for
shares of another fund in the Eaton Vance Marathon Group of Funds which result
in a reduction of Uncovered Distribution Charges), changes in the level of the
net assets attributable to Class I shares, and changes in the interest rate used
in the calculation of the distribution fee under the Plan.
As currently implemented by the Trustees, the Plan authorizes payments of
sales commissions and distribution fees to the Principal Underwriter and service
fees to the Principal Underwriter and Authorized Firms which may be equivalent,
on an aggregate basis during any fiscal year of the Fund, to .90% of the Fund's
average daily net assets for such year. For the sales commission and service fee
payments made by the Fund and the outstanding Uncovered Distribution Charges of
the Principal Underwriter, see "Fees and Expenses -- Distribution Plan" in this
Part II. The Fund believes that the combined rate of all these payments may be
higher than the rate of payments made under distribution plans adopted by many
other investment companies pursuant to Rule 12b-1. Although the Principal
Underwriter will use its own funds (which may be borrowed from banks) to pay
sales commissions at the time of sale, it is anticipated that the Eaton Vance
organization will profit by reason of the operation of the Plan through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from the sale of Class I shares and through
amounts paid to the Principal Underwriter, including contingent deferred sales
charges, pursuant to the Plan. The Eaton Vance organization may be considered to
have realized a profit under the Plan if at any point in time the aggregate
amounts theretofore received by the Principal Underwriter pursuant to the Plan
and from contingent deferred sales charges have exceeded the total expenses
theretofore incurred by such organization in distributing Class I 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 Fund.
The Plan continues in effect until April 28, 1996, and shall continue in
effect indefinitely thereafter for so long as such continuance is approved at
least annually by the vote of both a majority of (i) the Trustees of the Trust
a-3
<PAGE>
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to the
Plan (the "Rule 12b-1 Trustees") and (ii) all of the Trustees then in office,
and the Distribution Agreement contains a similar provision. The Plan and
Distribution Agreement may be terminated at any time with respect to one or more
classes of shares of the Fund by a vote of a majority of the Rule 12b-1 Trustees
or by a vote of a majority of the outstanding voting securities of that class of
the Fund. The provisions of the Plan relating to payments of sales commissions
and distribution fees to the Principal Underwriter are also included in the
Distribution Agreement between the Trust on behalf of the Fund and the Principal
Underwriter. Pursuant to Rule 12b-1, the Plan has been approved by the Fund's
shareholders and by the Board of Trustees of the Trust, including the Rule 12b-1
Trustees. Under the Plan the President or a Vice President of the Trust shall
provide to the Trustees for their review, and the Trustees shall review at least
quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. The Plan may not be amended to
increase materially the payments described therein without approval of the
shareholders of the affected class of the Fund, and all material amendments of
the Plan must also be approved by the Trustees as required by Rule 12b-1. So
long as the Plan is in effect, the selection and nomination of Trustees who are
not interested persons of the Trust shall be committed to the discretion of the
Trustees who are not such interested persons.
The Trustees believe that the Plan will be a significant factor in the
growth of the Fund's assets, and will result in increased investment flexibility
and advantages which will benefit the Fund and its shareholders. Payments for
sales commissions and distribution fees made to the Principal Underwriter under
the Plan will compensate the Principal Underwriter for its services and expenses
in distributing shares of the Fund. Service fee payments made to the Principal
Underwriter and Authorized Firms under the Plan provide incentives to provide
continuing personal services to investors and the maintenance of shareholder
accounts. By providing incentives to the Principal Underwriter and Authorized
Firms, the 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 have determined that in their judgment there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
PERFORMANCE INFORMATION
The tables below indicate the total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment of $1,000 in the
Fund covering the life of the Fund from May 22, 1992 through March 31, 1995 and
the one-year period ended March 31, 1995.
VALUE OF A $1,000 INVESTMENT
<TABLE>
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE
BEFORE DEDUCTING THE AFTER DEDUCTING THE DEDUCTING THE CONTINGENT
CONTINGENT DEFERRED CONTINGENT DEFERRED DEFERRED SALES CHARGE
INVESTMENT AMOUNT OF SALES CHARGE ON SALES CHARGE ON*** -------------------------
INVESTMENT PERIOD DATE INVESTMENT 3/31/95 3/31/95 CUMULATIVE ANNUALIZED
------------------- ---------- ---------- -------------------- ------------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Life of the Fund** 5/22/92* $1,000 $1,162.66 $1,142.66 16.27% 5.42%
1 Year Ended
3/31/95 3/31/94 $1,000 $1,044.26 $1,014.35 4.43% 4.43%
<CAPTION>
TOTAL RETURN AFTER
DEDUCTING THE CONTINGENT
DEFERRED SALES CHARGE***
-------------------------
INVESTMENT PERIOD CUMULATIVE ANNUALIZED
------------------- ---------- ----------
<S> <C> <C>
Life of the Fund** 14.27% 4.78%
1 Year Ended
3/31/95 1.43% 1.43%
</TABLE>
PERCENTAGE CHANGES 5/22/92* - 3/31/95
<TABLE>
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE NET ASSET VALUE TO NET ASSET VALUE
BEFORE DEDUCTING THE CONTINGENT DEFERRED AFTER DEDUCTING THE CONTINGENT DEFERRED
SALES CHARGE WITH ALL DISTRIBUTIONS SALES CHARGE*** WITH ALL DISTRIBUTIONS
REINVESTED REINVESTED
----------------------------------------- ---------------------------------------
FISCAL YEAR ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
------------------ ------- ---------- -------------- ----- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
3/31/93** -- 9.05% -- -- 6.05% --
3/31/94 2.10% 11.34% 5.95% -0.82% 8.84% 4.67%
3/31/95 4.43% 16.27% 5.42% 1.43% 14.27% 4.78%
</TABLE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate and shares, when redeemed, may be worth more or
less than their original cost.
---------------
[FN]
*Investment operations began on May 22, 1992.
**If a portion of the Portfolio's and/or the Fund's expenses had not been
subsidized, the Fund would have had lower returns.
a-4
<PAGE>
***No contingent deferred sales charge is imposed on shares purchased more than
four years prior to the redemption, shares acquired through the reinvestment
of distributions, or any appreciation in value of other shares in the
account, and no such charge is imposed on exchanges of Fund shares for shares
of one or more other funds listed under "The Eaton Vance Exchange Privilege"
in the Fund's current prospectus.
For the thirty-day period ended March 31, 1995, the yield of the Fund was
3.89%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 3.89% would be 5.64%, assuming a
Federal tax rate of 31%.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 15, 1995) was 4.07%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.14%.
The following table compares the taxable equivalent yield of an investment
in the Fund yielding a hypothetical 4.0% with the after-tax yield of a
certificate of deposit yielding a hypothetical 3.25%. The tax brackets used in
the table are the Federal income tax brackets applicable for 1995: 15% for
single filers with taxable income up to $23,350 and joint filers up to $39,000;
28% for single filers with taxable income from $23,351 to $56,550 and joint
filers from $39,001 to $94,250; 31% for single filers with taxable income from
$56,551 to 117,950 and joint filers from $94,251 to $143,600; 36% for single
filers with taxable income from $117,951 to $256,500 and joint filers from
$143,601 to $256,500; and 39.6% for single and joint filers with taxable income
over $256,500. These brackets do not take into account the phaseout of personal
exemptions and limitation on deductibility of itemized deductions over certain
ranges of income, which increase the effective top Federal tax rate for certain
taxpayers. Investors should consult with their tax advisers for more
information.
<TABLE>
<CAPTION>
TAX BRACKET
15% 28% 31% 36% 39.6%
----------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield.............................................. 4.00% 4.00% 4.00% 4.00% 4.00%
Taxable equivalent.......................................... 4.71 5.56 5.80 6.25 6.62
Certificates of deposit:
Yield..................................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield........................................... 2.76 2.34 2.24 2.08 1.96
</TABLE>
The following is an illustration of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 4.0%. This illustration also quantifies the Federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a tax free investment yielding 4.0%, and compares the
after-tax return of such investments. The chart is based on 3-month bank CDs
(Source: The Wall Street Journal) and current limited maturity municipal bond
yields, compiled by Eaton Vance Management. Tax free yields are for illustration
purposes only and are not meant to imply or predict any future rate of return
for the Fund. See your financial adviser for the Fund's current yield and actual
CD rates.
[GRAPHIC BEGINNING]
<TABLE>
<CAPTION>
MARATHON NATIONAL
THE TAX FREE YIELD ADVANTAGE
(36% FEDERAL TAX BRACKET)
-------------------------
<S> <C> <C>
3.25% Certificate of deposit
3.25% Pretax yield
2.08% After-tax yield
4.00% Tax free investment
6.25% Taxable equivalent yield
4.00% Tax free yield
-----
EXAMPLE:
TWO $100,000 INVESTMENTS...
3.25 CD 4.00% TAX FREE
---------- --------------
Pretax income: $ 3,250.00 $4,000.00
Tax: (1,170.00) NONE
---------- --------------
After-tax
income: $ 2,080.00 $4,000.00
</TABLE>
[GRAPHIC END]
a-5
<PAGE>
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (36% bracket)
(plot points for vertical bar chart follow)
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (36% bracket)
1985 7.34 7.86 12.28
1986 5.74 6.23 9.73
1987 7.25 6.43 10.05
1988 8.10 6.61 10.33
1989 7.82 6.73 10.52
1990 7.38 6.69 10.45
1991 5.36 6.00 9.38
1992 3.08 5.38 8.41
1993 2.69 4.65 7.27
1994 3.22 5.40 8.44
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch Pierce Fenner & Smith, Jacksonville, FL was the
record owner of approximately 23.1% of the outstanding shares which are held on
behalf of its customers who are the beneficial owners of such shares, and as to
which it has voting power under certain limited circumstances. To the Trust's
knowledge, no other person owned of record or beneficially 5% or more the Fund's
outstanding shares as of such date.
a-6
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the approximate taxable bond yields which are
equivalent to tax-exempt bond yields from 5% to 8% under the regular Federal
income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
MARGINAL
SINGLE RETURN JOINT RETURN INCOME TAX-EXEMPT YIELD
----------------- ----------------- TAX ------------------------------------------------------------------
(TAXABLE INCOME)* BRACKET 5% 5.5% 6% 6.5% 7% 7.5% 8%
--------------------------------------- --------- ------------------------------------------------------------------
EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 28.00 6.94 7.64 8.33 9.03 9.72 10.42 11.11
$ 56,551-$117,950 $ 94,251-$143,600 31.00 7.25 7.97 8.70 9.42 10.14 10.87 11.59
$117,951-$256,500 $143,601-$256,500 36.00 7.81 8.59 9.38 10.16 10.94 11.72 12.50
Over $256,500 Over $256,500 39.60 8.28 9.11 9.93 10.76 11.59 12.42 13.25
--------------------------------------- -------------------------------------------------------------------------------
</TABLE>
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
[FN]
* Net amount subject to Federal personal income tax after deductions and
exemptions.
Note: The above-indicated Federal Income Tax Brackets do not take into account
the effect of a reduction in the deductibility of Itemized Deductions for
taxpayers with Adjusted Gross Income in excess of $114,700, nor the effects of
phaseout of personal exemptions for single and joint filers with Adjusted Gross
Incomes in excess of $114,700 and $172,050, respectively. The effective top
marginal Federal income tax brackets of taxpayers over ranges of income subject
to these reductions or phaseouts will be higher than indicated above.
Of course, no assurance can be given that EV Marathon National Limited Maturity
Tax Free Fund will achieve any specific tax exempt yield. While it is expected
that a substantial portion of the interest income distributed to the Fund's
shareholders will be exempt from the regular Federal income tax, other income
received by the Portfolio and allocated to the Fund may be taxable. This table
does not take into account state or local taxes, if any, payable on Fund
distributions. It should also be noted that 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 or increase the recipient's liability for the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
a-7
<PAGE>
INVESTMENT ADVISER OF
NATIONAL LIMITED MATURITY
TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV MARATHON
NATIONAL LIMITED MATURITY
TAX FREE FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV MARATHON
NATIONAL LIMITED MATURITY
TAX FREE FUND
24 FEDERAL STREET
BOSTON, MA 02110
M-LNASAI
[LOGO]
EV MARATHON
NATIONAL
LIMITED MATURITY
TAX FREE
FUND
STATEMENT OF
ADDITIONAL
INFORMATION
AUGUST 1, 1995
<PAGE>
EV TRADITIONAL NATIONAL LIMITED MATURITY
TAX FREE FUND
EV TRADITIONAL NATIONAL LIMITED MATURITY TAX FREE FUND (THE "FUND") IS A
MUTUAL FUND SEEKING TO PROVIDE (1) A HIGH LEVEL OF CURRENT INCOME EXEMPT FROM
REGULAR FEDERAL INCOME TAX AND (2) LIMITED PRINCIPAL FLUCTUATION. THE FUND
INVESTS ITS ASSETS IN NATIONAL LIMITED MATURITY TAX FREE PORTFOLIO (THE
"PORTFOLIO"), A DIVERSIFIED OPEN-END INVESTMENT COMPANY HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND, RATHER THAN BY INVESTING DIRECTLY IN AND
MANAGING ITS OWN PORTFOLIO OF SECURITIES AS WITH HISTORICALLY STRUCTURED MUTUAL
FUNDS. THE FUND IS A SERIES OF EATON VANCE INVESTMENT TRUST (THE "TRUST").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Shares of the Fund involve
investment risks, including fluctuations in value and the possible loss of some
or all of the principal investment.
This Prospectus is designed to provide you with information you should know
before investing. Please retain this document for future reference. A Statement
of Additional Information dated August 1, 1995 for the Fund, as supplemented
from time to time, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. This Statement of Additional
Information is available without charge from the Fund's principal underwriter,
Eaton Vance Distributors, Inc., (the "Principal Underwriter"), 24 Federal
Street, Boston, MA 02110 (telephone (800) 225-6265). The Portfolio's investment
adviser is Boston Management and Research (the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management, and Eaton Vance Management is
the administrator (the "Administrator") of the Fund. The offices of the
Investment Adviser and the Administrator are located at 24 Federal Street,
Boston, MA 02110.
--------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Shareholder and Fund Expenses............ 2
The Fund's Financial Highlights.......... 3
The Fund's Investment Objective.......... 4
How the Fund and the Portfolio Invest
their Assets........................... 4
Organization of the Fund and the
Portfolio.............................. 8
Management of the Fund and the Portfolio. 11
Service Plan............................. 12
Valuing Fund Shares...................... 13
How to Buy Fund Shares................... 13
How to Redeem Fund Shares................ 15
Reports to Shareholders.................. 16
The Lifetime Investing
Account/Distribution Options........... 16
The Eaton Vance Exchange Privilege....... 18
Eaton Vance Shareholder Services......... 19
Distributions and Taxes.................. 20
Performance Information.................. 21
Statement of Intention and Escrow
Agreement.............................. 22
</TABLE>
--------------------------------------------------------------------------------
PROSPECTUS DATED AUGUST 1, 1995
<PAGE>
SHAREHOLDER AND FUND EXPENSES
--------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charges Imposed on Purchases of Shares (as a percentage of offering
price) 2.50%
Sales Charge Imposed on Reinvested Distributions None
Redemption Fees None
Fees to Exchange Shares None
Contingent Deferred Sales Charges Imposed on Redemptions None
</TABLE>
ANNUAL FUND AND ALLOCATED PORTFOLIO OPERATING EXPENSES
<TABLE>
<S> <C>
(as a percentage of average daily net assets)
Investment Adviser Fee 0.46%
Rule 12b-1 Fees (Service Plan) 0.05
Other Expenses (after expense reduction) 0.25
----
Total Operating Expenses (after expense reduction) 0.76%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
------ -------
<S> <C> <C>
An investor would pay the following maximum initial sales charge and
expenses on a $1,000 investment, assuming (a) 5% annual return and (b)
redemption at the end of each period: $ 33 $49
</TABLE>
Notes:
The table and Example summarize the aggregate expenses of the Fund and the
Portfolio and are designed to help investors understand the costs and expenses
they will bear, directly or indirectly, by investing in the Fund. Because the
Fund does not yet have a sufficient operating history, the information for the
Fund is based on the Fund's estimated expenses for the current fiscal year.
Other Expenses for the Fund reflects the expected expense allocation for the
current fiscal year, absent which the Other Expenses would be estimated to be
0.50%.
The Fund invests exclusively in the Portfolio. The Trustees believe that,
over time, the aggregate per share expenses of the Fund and the Portfolio should
be approximately equal to, or less than, the per share expenses the Fund would
incur if the Fund were instead to retain the services of an investment adviser
and its assets were invested directly in the types of securities being held by
the Portfolio.
The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Federal
regulations require the Example to assume a 5% annual return, but actual annual
return will vary. For further information regarding the expenses of both the
Fund and the Portfolio see "Organization of the Fund and the Portfolio",
"Management of the Fund and the Portfolio" and "How to Redeem Fund Shares."
The Portfolio's monthly advisory fee has two components, a fee based on
daily net assets and a fee based on daily gross income, as set forth in the fee
schedule on page 11.
Other investment companies with different distribution arrangements and
fees are investing in the Portfolio and additional such companies and investors
may do so in the future. See "Organization of the Fund and the Portfolio."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The following information should be read in conjunction with the audited
financial statements included in the Fund's Annual Report to shareholders which
is incorporated by reference into the Statement of Additional Information, in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. Further information
regarding the performance of the Fund is contained in the Fund's Annual Report
to shareholders which may be obtained without charge by contacting the Principal
Underwriter.
--------------------------------------------------------------------------------
FOR THE PERIOD FROM THE START OF BUSINESS, JUNE 3, 1994, TO MARCH 31, 1995:
<TABLE>
<S> <C>
NET ASSET VALUE, beginning of period....................................................... $ 10.000
--------
INCOME FROM OPERATIONS:
Net investment income.................................................................... $ 0.402
Net realized and unrealized loss on investments.......................................... (0.066)++
--------
Total income from operations.......................................................... $ 0.336
--------
LESS DISTRIBUTIONS:
From net investment income............................................................... $ (0.402)
In excess of net investment income....................................................... (0.004)
--------
Total distributions................................................................... $ (0.406)
--------
NET ASSET VALUE, end of period............................................................. $ 9.930
========
TOTAL RETURN(1)............................................................................ (3.48)%
RATIOS/SUPPLEMENTAL DATA*:
Net assets, end of period (000's omitted)................................................ $ 7,795
Ratio of net expenses to average daily net assets(2)..................................... 0.58%+
Ratio of net investment income to average daily net assets............................... 4.68%+
The operating expenses of the Fund reflect an allocation of expenses to the Administrator.
Had such action not been taken, net investment income per share and the ratios would have
been as follows:
NET INVESTMENT INCOME PER SHARE............................................................ $ 0.212
========
RATIOS (As a percentage of average daily net assets):
Expenses(2).............................................................................. 2.79%+
Net investment income.................................................................... 2.47%+
+ Computed on an annualized basis.
++ The per share amount is not in accord with the net realized and unrealized loss for the period
because of the timing of sales of Fund shares and the amount of per share realized and unrealized
gains and losses at such time.
(1) Total return is calculated assuming a purchase at the net asset value on the first day and a sale at
the net asset value on the last day of each period reported. Dividends and distributions, if any,
are assumed to be reinvested at the net asset value on the payable date. Total return is computed on
a non-annualized basis.
(2) Includes the Fund's share of the Portfolio's allocated expenses.
</TABLE>
3
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVE IS TO PROVIDE (1) A HIGH LEVEL OF CURRENT INCOME
EXEMPT FROM THE REGULAR FEDERAL INCOME TAX AND (2) LIMITED PRINCIPAL
FLUCTUATION. The Fund currently seeks to meet its investment objective by
investing its assets in the National Limited Maturity Tax Free Portfolio, a
separate open-end management investment company which invests primarily in
municipal obligations (as described below) having a dollar weighted average
duration of between three and nine years and which are rated at least investment
grade by a major rating agency or, if unrated, determined to be of at least
investment grade quality by the Investment Adviser.
HOW THE FUND AND THE PORTFOLIO INVEST THEIR ASSETS
--------------------------------------------------------------------------------
THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING EITHER DIRECTLY
OR INDIRECTLY THROUGH ANOTHER OPEN-END MANAGEMENT INVESTMENT COMPANY PRIMARILY
(I.E., AT LEAST 80% OF ITS NET ASSETS DURING PERIODS OF NORMAL MARKET
CONDITIONS) IN DEBT OBLIGATIONS ISSUED BY OR ON BEHALF OF STATES, TERRITORIES
AND POSSESSIONS OF THE UNITED STATES, AND THE DISTRICT OF COLUMBIA AND THEIR
POLITICAL SUBDIVISIONS, AGENCIES OR INSTRUMENTALITIES, THE INTEREST ON WHICH IS
EXEMPT FROM REGULAR FEDERAL INCOME TAX AND IS NOT A TAX PREFERENCE ITEM UNDER
THE FEDERAL ALTERNATIVE MINIMUM TAX. The foregoing policy is a fundamental
policy of both the Fund and the Portfolio, and may not be changed unless
authorized by a vote of the shareholders of the Fund or the investors in the
Portfolio, as the case may be.
At least 80% of the Portfolio's net assets will normally be invested in
obligations rated at least investment grade at the time of investment (which are
those rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB
or higher by either Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch")) or, if unrated, determined by the Investment Adviser to
be of at least investment grade quality. The Portfolio may invest up to 20% of
its net assets in municipal obligations rated below investment grade (but not
lower than B by Moody's, S&P or Fitch) and unrated municipal obligations
considered to be of comparable quality by the Investment Adviser. Municipal
obligations rated Baa or BBB may have speculative characteristics. Also, changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case of
higher rated obligations. Securities rated below Baa or BBB are commonly known
as "junk bonds". The Portfolio may retain an obligation whose rating drops below
B after its acquisition if such retention is considered desirable by the
Investment Adviser. See "Risk Considerations." For a description of municipal
obligation ratings, see the Statement of Additional Information.
In pursuing its investment objective, the Portfolio seeks to invest in a
portfolio having a dollar weighted average duration of between three and nine
years. Duration represents the dollar weighted average maturity of expected cash
flows (i.e. interest and principal payments) on one or more debt obligations,
discounted to their present values. The duration of an obligation is usually not
more than its stated maturity and is related to the degree of volatility in the
market value of the obligation. Maturity measures only the time until a bond or
other debt security provides its final payment; it does not take into account
the pattern of a security's payments over time. Duration takes both interest and
principal payments into account and, thus, in the Investment Adviser's opinion,
is a more accurate measure of a debt security's
4
<PAGE>
sensitivity to changes in interest rates. In computing the duration of its
portfolio, the Portfolio will have to estimate the duration of debt obligations
that are subject to prepayment or redemption by the issuer, based on projected
cash flows from such obligations.
The Portfolio may use various techniques to shorten or lengthen the dollar
weighted average duration of its portfolio, including the acquisition of debt
obligations at a premium or discount, and transactions in futures contracts and
options on futures. Subject to the requirement that the dollar weighted average
portfolio duration will not exceed nine years, the Portfolio may invest in
individual debt obligations of any maturity.
MUNICIPAL OBLIGATIONS. Municipal obligations include bonds, notes and
commercial paper issued by a municipality for a wide variety of both public and
private purposes, the interest on which is, in the opinion of bond counsel,
exempt from regular Federal income tax. Public purpose municipal bonds include
general obligation and revenue bonds. General obligation bonds are backed by the
taxing power of the issuing municipality. Revenue bonds are backed by the
revenues of a project or facility. Municipal notes include bond anticipation,
tax anticipation, revenue anticipation and construction loan notes. Bond, tax
and revenue anticipation notes are short-term obligations that will be retired
with the proceeds of an anticipated bond issue, tax revenue or facility revenue,
respectively. Construction loan notes are short-term obligations that will be
retired with the proceeds of long-term mortgage financing.
Interest income from certain types of municipal obligations may subject the
recipient to or increase the recipient's liability for the Federal alternative
minimum tax; as at March 31, 1995, the Portfolio had 12.7% of its net assets
invested in such private activity bonds. The Portfolio may not invest more than
20% of its net assets in these obligations and obligations that pay interest
subject to regular Federal income tax. Distributions to corporate investors of
certain interest income may also be subject to the Federal alternative minimum
tax.
CONCENTRATION. The Portfolio may invest 25% or more of its assets in municipal
obligations of issuers located in the same state or in municipal obligations of
the same type, including without limitation the following: general obligations
of states and localities; lease rental obligations of state and local
authorities; obligations of state and local housing finance authorities,
municipal utilities systems or public housing authorities; obligations for
hospitals or life care facilities; or industrial development or pollution
control bonds issued for electric utility systems, steel companies, paper
companies or other purposes. This may make the Portfolio more susceptible to
adverse economic, political, or regulatory occurrences affecting a particular
category of issuer. For example, health care-related issuers are susceptible to
medicaid reimbursement policies, and national and state health care legislation.
As the Portfolio's concentration increases, so does the potential for
fluctuation in the value of the Fund's shares.
DIVERSIFIED STATUS. The Portfolio's classification under the Investment Company
Act of 1940 (the "1940 Act") as a "diversified" investment company means that
with respect to 75% of its total assets (1) the 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) the Portfolio may not own more than 10% of the
outstanding voting securities of any one issuer. Since municipal obligations are
not voting securities, there is no limit on the percentage of a single issuer's
obligations which the Portfolio may own so long as it does not invest more than
5% of its total assets in the securities of that issuer.
5
<PAGE>
OTHER INVESTMENT PRACTICES
The Portfolio may engage in the following investment practices, some of
which may be considered to involve "derivative" instruments because they derive
their value from another instrument, security or index.
INSURED OBLIGATIONS. The Portfolio may also purchase municipal bonds that are
additionally secured by insurance, bank credit agreements, or escrow accounts.
The credit quality of companies which provide such credit enhancements will
affect the value of those securities. Although the insurance feature reduces
certain financial risks, the premiums for insurance and the higher market price
paid for insured obligations may reduce the Fund's current yield. Insurance
generally will be obtained from insurers with a claims-paying ability rated Aaa
by Moody's or AAA by S&P or Fitch. The insurance does not guarantee the market
value of the insured obligations or the net asset value of the Fund's shares.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities 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. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than the Portfolio agreed to pay for them. The Portfolio may also
purchase instruments that give the Portfolio the option to purchase a municipal
obligation when and if issued.
FUTURES TRANSACTIONS. The Portfolio may purchase and sell various kinds of
financial futures contracts and options thereon to hedge against changes in
interest rates. The futures contracts may be based on various debt securities
(such as U.S. Government securities), securities indices (such as the Municipal
Bond Index traded on the Chicago Board of Trade) and other financial instruments
and indices. Such transactions involve a risk of loss or depreciation due to
unanticipated adverse changes in securities prices, which may exceed the
Portfolio's initial investment in these contracts. The Portfolio may not
purchase or sell futures contracts or related options, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of margin deposits and premiums paid on the Portfolio's outstanding positions
would exceed 5% of the market value of the Portfolio's net assets. These
transactions involve transaction costs. There can be no assurance that the
Investment Adviser's use of futures will be advantageous to the Portfolio.
Distributions by the Fund of any gains realized on the Portfolio's transactions
in futures and options on futures will be taxable.
RISK CONSIDERATIONS
Many municipal obligations offering high current income are in the lowest
investment grade category (Baa or BBB), lower categories or may be unrated. As
indicated above, the Portfolio may invest in obligations rated below investment
grade (but not lower than B by Moody's, S&P or Fitch) and comparable unrated
obligations. The lowest investment grade, lower rated and comparable unrated
municipal obligations in which the Portfolio may invest will have speculative
characteristics in varying degrees. While such 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
6
<PAGE>
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.
The Portfolio may retain defaulted obligations in its portfolio when such
retention is considered desirable by the Investment Adviser. In the case of a
defaulted obligation, the Portfolio may incur additional expense seeking
recovery of its investment. Municipal obligations held by the 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. The Portfolio may retain in its
portfolio an obligation whose rating drops below B after its acquisition if such
retention is considered desirable by the Investment Adviser; provided, however,
that holdings of obligations rated below Baa or BBB will not exceed 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 its credit
quality limitations. For a description of municipal obligation ratings, see the
Statement of Additional Information. For a description of municipal obligation
ratings, see the Statement of Additional Information.
The net asset value of the Fund will change in response to fluctuations in
prevailing interest rates and changes in the value of the securities held by the
Portfolio. When interest rates decline, the value of securities held by the
Portfolio can be expected to rise. Conversely, when interest rates rise, the
value of most portfolio security holdings can be expected to decline. Because
the Portfolio intends to limit its average portfolio duration to no more than
nine years, the net asset value of the Fund can be expected to be less sensitive
to changes in interest rates than that of a fund with a longer average portfolio
duration. Changes in the credit quality of issuers of municipal obligations held
by the Portfolio will affect the principal value on (and possibly the income
earned of) on such obligations. In addition, the values of such securities are
affected by changes in general economic conditions and business conditions
affecting the specific industries of their issuers. Changes by recognized rating
services in their ratings of a security and in the ability of the issuer to make
payments of principal and interest may also affect the value of the Portfolio's
investments. The amount of information about the financial condition of an
issuer of municipal obligations may not be as extensive as that made available
by corporations whose securities are publicly traded. An investment in shares of
the Fund will not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be invested
in securities as to which the Portfolio, by itself or together with other
accounts managed by the Investment Adviser and its affiliates, holds a major
portion or all of such securities. Under adverse market or economic conditions
or in the event of adverse changes in the financial condition of the issuer, the
Portfolio could find it more difficult to sell such securities when the
Investment Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to determine the fair
value of such securities for purposes of computing the Portfolio's net asset
value.
The secondary market for some municipal obligations (including issues which
are privately placed with the Portfolio) is less liquid than that for taxable
debt obligations or other more widely traded municipal obligations. The
Portfolio will not invest in illiquid securities if more than 15% of its assets
would be invested in securities that are not readily marketable. No established
resale market exists for certain of the
7
<PAGE>
municipal obligations in which the 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, the 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.
Certain securities held by the Portfolio may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were to redeem
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.
Some of the securities in which the Portfolio invests may include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. The Portfolio is required to accrue and distribute income from
zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, the Portfolio may have to sell other investments
to obtain cash needed to make income distributions.
The Portfolio may invest in 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.
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 obligations.
THE FUND AND THE PORTFOLIO HAVE ADOPTED CERTAIN FUNDAMENTAL INVESTMENT
RESTRICTIONS WHICH ARE ENUMERATED IN DETAIL IN THE STATEMENT OF ADDITIONAL
INFORMATION AND WHICH MAY NOT BE CHANGED UNLESS AUTHORIZED BY A SHAREHOLDER VOTE
AND AN INVESTOR VOTE, RESPECTIVELY. EXCEPT FOR SUCH ENUMERATED RESTRICTIONS AND
AS OTHERWISE INDICATED IN THIS PROSPECTUS, THE INVESTMENT OBJECTIVE AND POLICIES
OF THE FUND AND THE PORTFOLIO ARE NOT FUNDAMENTAL POLICIES AND ACCORDINGLY MAY
BE CHANGED BY THE TRUSTEES OF THE TRUST AND THE PORTFOLIO WITHOUT OBTAINING THE
APPROVAL OF THE FUND'S SHAREHOLDERS OR THE INVESTORS IN THE PORTFOLIO, AS THE
CASE MAY BE. IF ANY CHANGES WERE MADE IN THE FUND'S INVESTMENT OBJECTIVE, THE
FUND MIGHT HAVE INVESTMENT OBJECTIVES DIFFERENT FROM THE OBJECTIVES WHICH AN
INVESTOR CONSIDERED APPROPRIATE AT THE TIME THE INVESTOR BECAME A SHAREHOLDER IN
THE FUND.
ORGANIZATION OF THE FUND AND THE PORTFOLIO
--------------------------------------------------------------------------------
The Fund is a diversified series of Eaton Vance Investment Trust, a business
trust established under Massachusetts law pursuant to a Declaration of Trust
dated October 23, 1985, as amended and restated. The Trust is a mutual fund --
an open-end management investment company. THE TRUSTEES OF THE TRUST ARE
RESPONSIBLE FOR THE OVERALL MANAGEMENT AND SUPERVISION OF ITS AFFAIRS. The Trust
may issue an unlimited number of shares of beneficial interest (no par value per
share) in one or more series and because the Trust can offer separate series
(such as the Fund) it is known as a "series company." Each share represents an
equal proportionate beneficial interest in the Fund. When issued and
outstanding, the Fund's shares are fully paid
8
<PAGE>
and nonassessable by the Trust and redeemable as described under "How to Redeem
Fund Shares." Shareholders are entitled to one vote for each full share held.
Fractional shares may be voted proportionately. Shares have no preemptive or
conversion rights and are freely transferable. In the event of the liquidation
of the Fund, shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders.
THE 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. The
Portfolio, as well as the Trust, intends to comply with all applicable Federal
and state securities laws. The Portfolio's Declaration of Trust provides that
the 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.
SPECIAL INFORMATION ON THE FUND/PORTFOLIO INVESTMENT STRUCTURE. An investor in
the Fund should be aware that the Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing its assets in an interest in the Portfolio
(although the Fund may temporarily hold a de minimis amount of cash), which is a
separate investment company with an identical investment objective. Therefore,
the Fund's interest in the securities owned by the Portfolio is indirect. In
addition to selling an interest to the Fund, the Portfolio may sell interests to
other affiliated and non-affiliated mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio are not required to sell their shares at
the same public offering price as the Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the various funds that invest in the Portfolio. Such
differences in returns are also present in other mutual fund structures,
including funds that have multiple classes of shares. For information regarding
the investment objective, policies and restrictions, see "The Fund's Investment
Objective" and "How the Fund and the Portfolio Invest their Assets". Further
information regarding investment practices may be found in the Statement of
Additional Information.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of the Fund in the Portfolio, as well as the advantages
and disadvantages of the two-tier format. The Trustees believe that the
structure offers opportunities for substantial growth in the assets of the
Portfolio, and affords the potential for economies of scale for the Fund, at
least when the assets of the Portfolio exceed $500 million.
The Fund may withdraw (completely redeem) all its assets from the Portfolio
at any time if the Board of Trustees of the Trust determines that it is in the
best interest of the Fund to do so. The investment objective and the
nonfundamental investment policies of the Fund and the Portfolio may be changed
by the Trustees of the Trust and the Portfolio without obtaining the approval of
the shareholders of the Fund or the investors in the Portfolio, as the case may
be. Any such change of the investment objective of the Fund or the Portfolio
will be preceded by thirty days' advance written notice to the shareholders of
the Fund or the investors in the Portfolio, as the case may be. In the event the
Fund withdraws all of its assets from the Portfolio, or the Board of Trustees of
the Trust determines that the investment objective of the
9
<PAGE>
Portfolio is no longer consistent with the investment objective of the Fund,
such Trustees would consider what action might be taken, including investing the
assets of the Fund in another pooled investment entity or retaining an
investment adviser to manage the Fund's assets in accordance with its investment
objective. The Fund's investment performance may be affected by a withdrawal of
all its assets from the Portfolio.
Information regarding other pooled investment entities or funds which
invest in the Portfolio may be obtained by contacting Eaton Vance Distributors,
Inc. (the "Principal Underwriter" or "EVD"), 24 Federal Street, Boston, MA
02110, (617) 482-8260. Smaller investors in the Portfolio may be adversely
affected by the actions of larger investors in the Portfolio. For example, if a
large investor withdraws from the Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio may become less diverse, resulting in increased
portfolio risk, and experience decreasing economies of scale. However, this
possibility exists as well for historically structured funds which have large or
institutional investors.
Until recently, the Administrator sponsored and advised historically
structured funds. Funds which invest all their assets in interests in a separate
investment company are a relatively new development in the mutual fund industry
and, therefore, the Fund may be subject to additional regulations than
historically structured funds.
The Declaration of Trust of the Portfolio provides that the Portfolio will
terminate 120 days after the complete withdrawal of the Fund or any other
investor in the Portfolio, unless either the remaining investors, by unanimous
vote at a meeting of such investors, or a majority of the Trustees of the
Portfolio, by written instrument consented to by all investors, agree to
continue the business of the Portfolio. This provision is consistent with
treatment of the Portfolio as a partnership for Federal income tax purposes. See
"Distributions and Taxes" for further information. Whenever the Fund as an
investor in the 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. The 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 the
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, the 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 the Fund. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
The Trustees of the Trust, including a majority of the noninterested
Trustees, have approved written procedures designed to identify and address any
potential conflicts of interest arising from the fact that the Trustees of the
Trust and the Trustees of the Portfolio are the same. Such procedures require
each Board to take actions to resolve any conflict of interest between the Fund
and the Portfolio, and it is possible that the creation of separate Boards may
be considered. For further information concerning the Trustees and officers of
the Trust and the Portfolio, see the Statement of Additional Information.
10
<PAGE>
MANAGEMENT OF THE FUND AND THE PORTFOLIO
--------------------------------------------------------------------------------
THE PORTFOLIO ENGAGES BOSTON MANAGEMENT AND RESEARCH ("BMR"), A WHOLLY-OWNED
SUBSIDIARY OF EATON VANCE MANAGEMENT ("EATON VANCE"), AS ITS INVESTMENT ADVISER.
EATON VANCE, ITS AFFILIATES AND ITS PREDECESSOR COMPANIES HAVE BEEN MANAGING
ASSETS OF INDIVIDUALS AND INSTITUTIONS SINCE 1924 AND MANAGING INVESTMENT
COMPANIES SINCE 1931.
Acting under the general supervision of the Board of Trustees of the
Portfolio, BMR manages the Portfolio's investments and affairs. Under its
investment advisory agreement with the Portfolio, BMR receives a monthly
advisory fee equal to the aggregate of
(a) a daily asset-based fee computed by applying the annual asset rate
applicable to that portion of the total daily net assets in each
Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily income rate
applicable to that portion of the total daily gross income (which
portion shall bear the same relationship to the total daily gross
income on such day as that portion of the total daily net assets in the
same Category bears to the total daily net assets on such day) in each
Category as indicated below:
<TABLE>
<CAPTION>
ANNUAL DAILY
CATEGORY DAILY NET ASSETS ASSET RATE INCOME RATE
-------- ------------------------------------------ ------------ -----------
<C> <S> <C> <C>
1 up to $500 million........................ 0.300% 3.00%
2 $500 million but less than $1 billion..... 0.275% 2.75%
3 $1 billion but less than $1.5 billion..... 0.250% 2.50%
4 $1.5 billion but less than $2 billion..... 0.225% 2.25%
5 $2 billion but less than $3 billion....... 0.200% 2.00%
6 $3 billion and over....................... 0.175% 1.75%
</TABLE>
As at March 31, 1995, the Portfolio had net assets of $169,620,804. For the
fiscal year ended March 31, 1995, the Portfolio paid BMR advisory fees
equivalent to 0.46% of the Portfolio's average daily net assets for such year.
BMR furnishes for the use of the Portfolio office space and all necessary office
facilities, equipment and personnel for servicing the investments of the
Portfolio.
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account. Such
firms attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market, and the difference is
customarily referred to as the spread. In selecting firms which will execute
portfolio transactions, BMR judges their professional ability and quality of
service and uses its best efforts to obtain execution at prices which are
advantageous to the Portfolio and at reasonably competitive spreads. Subject to
the foregoing, BMR may consider sales of shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance as a factor in the
selection of firms to execute portfolio transactions.
Raymond E. Hender has acted as the portfolio manager of the Portfolio since
it commenced operations. He joined Eaton Vance and BMR as a Vice President in
September 1992. Prior to joining Eaton
11
<PAGE>
Vance, he was a Senior Vice President of Bank of New England (1989-1992) and a
Portfolio Manager at Fidelity Management & Research Company (1977-1988).
BMR OR EATON VANCE ACTS AS INVESTMENT ADVISER TO INVESTMENT COMPANIES AND
VARIOUS INDIVIDUAL AND INSTITUTIONAL CLIENTS WITH ASSETS UNDER MANAGEMENT OF
APPROXIMATELY $15 BILLION. Eaton Vance is a wholly-owned subsidiary of Eaton
Vance Corp., a publicly held holding company. Eaton Vance Corp., through its
subsidiaries and affiliates, engages in investment management and marketing
activities, fiduciary and banking services, oil and gas operations, real estate
investment, consulting and management, and development of precious metals
properties.
The Trust has retained the services of Eaton Vance to act as Administrator
of the Fund. The Trust has not retained the services of an investment adviser
since the Trust seeks to achieve the investment objective of the Fund by
investing the Fund's assets in the Portfolio. As Administrator, Eaton Vance
provides the Fund with general office facilities and supervises the overall
administration of the Fund. For these services Eaton Vance currently receives no
compensation. The Trustees of the Trust may determine, in the future, to
compensate Eaton Vance for such services.
The Portfolio and the Fund, as the case may be, will each be responsible
for all respective costs and expenses not expressly stated to be payable by BMR
under the investment advisory agreement, by Eaton Vance under the administrative
services agreement, or by EVD under the distribution agreement.
SERVICE PLAN
--------------------------------------------------------------------------------
In addition to advisory fees and other expenses, the Fund pays service fees
pursuant to a Service Plan (the "Plan") designed to meet the requirements of
Rule 12b-1 under the Investment Company Act of 1940 and the service fee
requirements of the revised sales charge rule of the National Association of
Securities Dealers, Inc. THE PLAN PROVIDES THAT THE FUND MAY MAKE SERVICE FEE
PAYMENTS FOR PERSONAL SERVICES AND/OR THE MAINTENANCE OF SHAREHOLDER ACCOUNTS TO
THE PRINCIPAL UNDERWRITER, FINANCIAL SERVICE FIRMS ("AUTHORIZED FIRMS") AND
OTHER PERSONS IN AMOUNTS NOT EXCEEDING .25% OF THE FUND'S AVERAGE DAILY NET
ASSETS FOR ANY FISCAL YEAR. The Trustees of the Trust have initially implemented
the Plan by authorizing the Fund to make service fee payments to the Principal
Underwriter and Authorized Firms in amounts not expected to exceed .15% of the
Fund's average daily net assets for any fiscal year based on the value of Fund
shares sold by such persons and remaining outstanding for at least twelve
months. However, the Plan authorizes the Trustees of the Trust on behalf of the
Fund to increase payments to the Principal Underwriter, Authorized Firms and
other persons from time to time without further action by shareholders of the
Fund, provided that the aggregate amount of payments made to such persons under
the Plan in any fiscal year of the Fund does not exceed .25% of the Fund's
average daily net assets. For the period from the start of business, June 3,
1994, to the fiscal year ended March 31, 1995, the Fund did not accrue or pay
any service fees under the Plan. The Fund began accruing for its service fee
payments during the quarter ended June 30, 1995. The Plan is described further
in the Statement of Additional Information.
12
<PAGE>
VALUING FUND SHARES
--------------------------------------------------------------------------------
THE FUND VALUES ITS SHARES ONCE ON EACH DAY THE NEW YORK STOCK EXCHANGE (THE
"EXCHANGE") IS OPEN FOR TRADING, as of the close of regular trading on the
Exchange (normally 4:00 p.m. New York time). The Fund's net asset value per
share is determined by its custodian, Investors Bank & Trust Company ("IBT"),
(as agent for the Fund) in the manner authorized by the Trustees of the Trust.
Net asset value is computed by dividing the value of the Fund's total assets,
less its liabilities, by the number of shares outstanding. Because the Fund
invests its assets in an interest in the Portfolio, the Fund's net asset value
will reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Authorized Firms must communicate an investor's order to the Principal
Underwriter prior to the close of the Principal Underwriter's business day to
receive that day's net asset value per Fund share and the public offering price
based thereon. It is the Authorized Firms' responsibility to transmit orders
promptly to the Principal Underwriter, which is a wholly-owned subsidiary of
Eaton Vance.
The Portfolio's net asset value is also determined as of the close of
regular trading on the Exchange by IBT (as custodian and agent for the
Portfolio), based on market or fair value in the manner authorized by the
Trustees of the Portfolio. Net asset value is computed by subtracting the
liabilities of the Portfolio from the value of its total assets. Municipal
obligations will normally be valued on the basis of valuations furnished by a
pricing service. For further information regarding the valuation of the
Portfolio's assets, see "Determination of Net Asset Value" in the Statement of
Additional Information. Eaton Vance Corp. owns 77.3% of the outstanding stock of
IBT, the Fund's and the Portfolio's custodian.
SHAREHOLDERS MAY DETERMINE THE VALUE OF THEIR INVESTMENT BY MULTIPLYING THE
NUMBER OF FUND SHARES OWNED BY THE CURRENT NET ASSET VALUE PER SHARE.
HOW TO BUY FUND SHARES
--------------------------------------------------------------------------------
SHARES OF THE FUND MAY BE PURCHASED FOR CASH OR MAY BE ACQUIRED IN EXCHANGE FOR
SECURITIES. Investors may purchase shares of the Fund through Authorized Firms
at the effective public offering price, which price is based on the effective
net asset value per share plus the applicable sales charge. The Fund receives
the net asset value, while the sales charge is divided between the Authorized
Firm and the Principal Underwriter. The Principal Underwriter will furnish the
names of Authorized Firms to an investor upon request. The Fund may suspend the
offering of shares at any time and may refuse an order for the purchase of
shares.
The sales charge may vary depending on the size of the purchase and the
number of shares of Eaton Vance funds the investor may already own, any
arrangement to purchase additional shares during a 13-month period or special
purchase programs. Complete details of how investors may purchase shares at
reduced sales charges under a Statement of Intention, Right of Accumulation, or
various Employee Benefit Plans are available from Authorized Firms or the
Principal Underwriter.
13
<PAGE>
The current sales charges and dealer commissions are:
<TABLE>
<CAPTION>
CHARGE CHARGE COMMISSION
AS AS AS
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF
OFFERING AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $50,000.............................. 2.50% 2.56% 2.75%
$50,000 but less than $100,000................. 2.25 2.30 2.50
$100,000 but less than $250,000................ 1.75 1.78 2.00
$250,000 but less than $500,,000............... 1.25 1.27 1.50
$500,000 but less than $1,000,000.............. 0.75 0.76 1.00
$1,000,000 or more............................. 0.0* 0.0* 0.25**
</TABLE>
*Fund shares purchased before March 27, 1995, at net asset value with no
initial sales charge by virtue of the purchase having been in the amount of $1
million or more may be subject to a contingent deferred sales charge upon
redemption.
**The Principal Underwriter may pay Authorized Firms that initiate and are
responsible for purchases of $1 million or more a commission at an annual rate
of 0.25% of average daily net assets paid quarterly for one year.
The Principal Underwriter may at times allow discounts up to the full sales
charge. During periods when the discount includes the full sales charge,
Authorized Firms may be deemed to be underwriters as that term is defined in the
Securities Act of 1933. The Principal Underwriter may, from time to time, at its
own expense, provide additional incentives to Authorized Firms which employ
registered representatives who sell a minimum dollar amount of the Fund's shares
and/or shares of other funds distributed by the Principal Underwriter. In some
instances, such additional incentives may be offered only to certain Authorized
Firms whose representatives are expected to sell significant amounts of shares.
An initial investment in the Fund must be at least $1,000. Once an account
has been established the investor may send investments of $50 or more at any
time directly to the Fund's transfer agent (the "Transfer Agent"), as follows:
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104.
The $1,000 minimum initial investment is waived for Bank Automated Investing
accounts, which may be established with an investment of $50 or more. See "Eaton
Vance Shareholder Services".
Shares of the Fund may be sold at net asset value to current and retired
Directors and Trustees of Eaton Vance funds, including the Portfolio; to
officers and employees and clients of Eaton Vance and its affiliates; to
registered representatives and employees of Authorized Firms and to bank
employees who refer customers to registered representatives of Authorized Firms;
and to such persons' spouses and children under the age of 21 and their
beneficial accounts. Shares may also be issued at net asset value (1) in
connection with the merger of an investment company with the Fund, (2) to
investors making an investment as part of a fixed fee program whereby an entity
unaffiliated with the Investment Adviser provides multiple investment services,
such as management, brokerage and custody, and (3) where the amount invested
represents redemption proceeds from a mutual fund unaffiliated with Eaton Vance,
if the redemption occurred no more than 60 days prior to the purchase of Fund
shares and the redeemed shares were subject to a sales charge.
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 at the applicable public offering price as shown
14
<PAGE>
above. The minimum value of securities (or securities and cash) accepted for
deposit is $5,000. Securities accepted will be sold by IBT as agent for the
account of their owner on the day of their receipt by IBT 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 net asset value per Fund share 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 the
securities.
Securities determined to be acceptable should be transferred via book entry
or physically delivered, in proper form for transfer, through an Authorized
Firm, together with a completed and signed Letter of Transmittal in approved
form (available from Authorized Firms), as follows:
IN THE CASE OF BOOK ENTRY:
Deliver through Depository Trust Co.
Broker #2212
Investors Bank & Trust Company
For A/C EV Traditional National Limited Maturity Tax Free Fund
IN THE CASE OF PHYSICAL DELIVERY:
Investors Bank & Trust Company
Attention: EV Traditional National Limited Maturity Tax Free Fund
Physical Securities Processing Settlement Area
89 South Street
Boston, MA 02111
Investors who are contemplating an exchange of securities for shares of the
Fund, or their representatives, are advised to contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities to IBT.
Eaton Vance reserves the right to reject any securities. Exchanging securities
for Fund 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 for Fund shares.
IF YOU DON'T HAVE AN AUTHORIZED FIRM, EATON VANCE CAN RECOMMEND ONE.
HOW TO REDEEM FUND SHARES
--------------------------------------------------------------------------------
A SHAREHOLDER MAY REDEEM FUND SHARES BY DELIVERING TO THE SHAREHOLDER SERVICES
GROUP, INC., BOS725, P.O. BOX 1559, BOSTON, MASSACHUSETTS 02104, during its
business hours a written request for redemption in good order, plus any share
certificates with executed stock powers. The redemption price will be based on
the net asset value per Fund share next computed after such delivery. Good order
means that all relevant documents must be endorsed by the record owner(s)
exactly as the shares are registered and the signature(s) must be guaranteed by
a member of either the Securities Transfer Association's STAMP program or the
New York Stock Exchange's Medallion Signature Program, or certain banks, savings
and loan institutions, credit
15
<PAGE>
unions, securities dealers, securities exchanges, clearing agencies and
registered securities associations as required by a regulation of the Securities
and Exchange Commission and acceptable to The Shareholder Services Group, Inc.
In addition, in some cases, good order may require the furnishing of additional
documents such as where shares are registered in the name of a corporation,
partnership or fiduciary.
Within seven days after receipt of a redemption request in good order by
The Shareholder Services Group, Inc., the Fund will make payment in cash for the
net asset value of the shares as of the date determined above, reduced by the
amount of any Federal income tax required to be withheld. Although the Fund
normally expects to make payment 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 the Fund, either totally or partially, by a
distribution in kind of readily marketable securities withdrawn by the Fund from
the 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.
To sell shares at their net asset value through an Authorized Firm (a
repurchase), a shareholder can place a repurchase order with the Authorized
Firm, which may charge a fee. The value of such shares is based upon the net
asset value calculated after EVD, as the Fund's agent, receives the order. It is
the Authorized Firm's responsibility to transmit promptly repurchase orders to
EVD. Throughout this Prospectus, the word "redemption" is generally meant to
include a repurchase.
If shares were recently purchased, the proceeds of a redemption (or
repurchase) will not be sent until the check (including a certified or cashier's
check) received for the shares purchased has cleared. Payment for shares
tendered for redemption may be delayed up to 15 days from the purchase date when
the purchase check has not yet cleared. Redemptions or repurchases may result in
a taxable gain or loss.
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem accounts with balances of less than $1,000. Prior to such a
redemption, shareholders will be given 60 days' written notice to make
additional purchases. Thus, an investor making an initial investment of $1,000
would not be able to redeem shares without being subject to this policy.
However, no such redemption would be required if the cause of the low account
balance was a reduction in the net asset value of Fund shares.
REPORTS TO SHAREHOLDERS
--------------------------------------------------------------------------------
THE FUND WILL ISSUE TO ITS SHAREHOLDERS SEMI-ANNUAL AND ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS. Financial statements included in annual reports
are audited by the Fund's independent certified public accountants. Shortly
after the end of each calendar year, the Fund will furnish all shareholders with
information necessary for preparing Federal and state tax returns.
THE LIFETIME INVESTING ACCOUNT/DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
AFTER AN INVESTOR MAKES AN INITIAL PURCHASE OF FUND SHARES, THE FUND'S TRANSFER
AGENT, THE SHAREHOLDER SERVICES GROUP, INC., WILL SET UP A LIFETIME INVESTING
ACCOUNT FOR THE INVESTOR ON THE FUND'S RECORDS. This account is a
16
<PAGE>
complete record of all transactions between the investor and the Fund which at
all times shows the balance of shares owned. The Fund will not issue share
certificates except upon request.
At least quarterly, shareholders will receive a statement showing complete
details of any transaction and the current share balance in the account. THE
LIFETIME INVESTING ACCOUNT ALSO PERMITS A SHAREHOLDER TO MAKE ADDITIONAL
INVESTMENTS BY SENDING A CHECK FOR $50 OR MORE to The Shareholder Services
Group, Inc.
Any questions concerning a shareholder's account or services available may
be directed by telephone to EATON VANCE SHAREHOLDER SERVICES at 800-225-6265,
extension 2, or in writing to The Shareholder Services Group, Inc., BOS725, P.O.
Box 1559, Boston, MA 02104 (please provide the name of the shareholder, the Fund
and the account number).
THE FOLLOWING DISTRIBUTION OPTIONS WILL BE AVAILABLE TO ALL LIFETIME
INVESTING ACCOUNTS and may be changed as often as desired by written notice to
the Fund's dividend disbursing agent, The Shareholder Services Group, Inc.,
BOS725, P.O. Box 1559, Boston, MA 02104. The currently effective option will
appear on each account statement.
Share Option -- Dividends and capital gains will be reinvested in
additional shares.
Income Option -- Dividends will be paid in cash, and capital gains will be
reinvested in additional shares.
Cash Option -- Dividends and capital gains will be paid in cash.
The Share Option will be assigned if no other option is specified.
Distributions, including those reinvested, will be reduced by any withholding
required under Federal income tax laws.
If the Income Option or Cash Option has been selected, dividend and/or
capital gains distribution checks which are returned by the United States Postal
Service as not deliverable or which remain uncashed for six months or more will
be reinvested in the account in shares at the then current net asset value.
Furthermore, the distribution option on the account will be automatically
changed to the Share Option until such time as the shareholder selects a
different option.
DISTRIBUTION INVESTMENT OPTION. In addition to the distribution options
set forth above, dividends and/or capital gains may be invested in additional
shares of another Eaton Vance fund. Before selecting this option, a shareholder
should obtain a prospectus of the other Eaton Vance fund and consider its
objectives and policies carefully.
"STREET NAME" ACCOUNTS. If shares of the Fund are held in a "street name"
account with an Authorized Firm, all recordkeeping, transaction processing and
payments of distributions relating to the beneficial owner's account will be
performed by the Authorized Firm, and not by the Fund and its Transfer Agent.
Since the Fund will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Firm to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account,
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Firm. Before establishing a "street name" account with an investment
firm, or transferring the account to another investment firm, an investor
wishing to reinvest
17
<PAGE>
distributions should determine whether the firm which will hold the shares
allows reinvestment of distributions in "street name" accounts.
UNDER A LIFETIME INVESTING ACCOUNT A SHAREHOLDER CAN MAKE ADDITIONAL
INVESTMENTS IN SHARES OF THE FUND BY SENDING A CHECK FOR $50 OR MORE.
THE EATON VANCE EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------
Shares of the Fund currently may be exchanged for shares of any of the following
funds: Eaton Vance Cash Management Fund, Eaton Vance Income Fund of Boston,
Eaton Vance Municipal Bond Fund L.P., Eaton Vance Tax Free Reserves and any fund
in the Eaton Vance Traditional Group of Funds on the basis of the net asset
value per share of each fund at the time of the exchange (plus, in the case of
an exchange made within six months of the date of purchase, an amount equal to
the difference, if any, between the sales charge previously paid on the shares
being exchanged and the sales charge payable on the shares being acquired). Such
exchange offers are available only in states where shares of the fund being
acquired may be legally sold.
Each exchange must involve shares which have a net asset value of at least
$1,000. The exchange privilege may be changed or discontinued without penalty.
Shareholders will be given sixty (60) days' notice prior to any termination or
material amendment of the exchange privilege. The Fund does not permit the
exchange privilege to be used for "Market Timing" and may terminate the exchange
privilege for any shareholder account engaged in Market Timing activity. Any
shareholder account for which more than two round-trip exchanges are made within
any twelve month period will be deemed to be engaged in Market Timing.
Furthermore, a group of unrelated accounts for which exchanges are entered
contemporaneously by a financial intermediary will be considered to be engaged
in Market Timing.
The Shareholder Services Group, Inc. makes exchanges at the next determined
net asset value after receiving an exchange request in good order (see "How to
Redeem Fund Shares"). Consult The Shareholder Services Group, Inc. for
additional information concerning the exchange privilege. Applications and
prospectuses of the other funds are available from Authorized Firms or the
Principal Underwriter. The prospectus for each fund describes its investment
objectives and policies, and shareholders should obtain a prospectus and
consider these objectives and policies carefully before requesting an exchange.
Shares of certain other funds for which Eaton Vance acts as investment
adviser or administrator may be exchanged for Fund shares on the basis of the
net asset value per share of each fund at the time of the exchange, but subject
to any restrictions or qualifications set forth in the current prospectus of any
such fund.
Telephone exchanges are accepted by the Shareholder Services Group, Inc.
provided that the investor has not disclaimed in writing the use of the
privilege. To effect such exchanges, call The Shareholder Services Group, Inc.
at 800-262-1122 or, within Massachusetts, 617-573-9403, Monday through Friday,
9:00 a.m. to 4:00 p.m. (Eastern Standard Time). Shares acquired by telephone
exchange must be registered in the same name(s) and with the same address as the
shares being exchanged. Neither the Fund, the
18
<PAGE>
Principal Underwriter nor The Shareholder Services Group, Inc. will be
responsible for the authenticity of exchange instructions received by telephone,
provided that reasonable procedures to confirm that instructions communicated
are genuine have been followed. Telephone instructions will be tape recorded. In
times of drastic economic or market changes, a telephone exchange may be
difficult to implement. An exchange may result in a taxable gain or loss.
EATON VANCE SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
THE FUND OFFERS THE FOLLOWING SERVICES, WHICH ARE VOLUNTARY, INVOLVE NO EXTRA
CHARGE, AND MAY BE CHANGED OR DISCONTINUED WITHOUT PENALTY AT ANY TIME. Full
information on each of the services described below and an application, where
required, are available from Authorized Firms or the Principal Underwriter. The
cost of administering such services for the benefit of shareholders who
participate in them is borne by the Fund as an expense to all shareholders.
INVEST-BY-MAIL -- FOR PERIODIC SHARE ACCUMULATION: Once the $1,000 minimum
investment has been made, checks of $50 or more payable to the order of EV
Traditional National Limited Maturity Tax Free Fund may be mailed directly to
The Shareholder Services Group, Inc., BOS725, P.O. Box 1559, Boston, MA 02104 at
any time -- whether or not distributions are reinvested. The name of the
shareholder, the Fund, and the account number should accompany each investment.
BANK AUTOMATED INVESTING -- FOR REGULAR SHARE ACCUMULATION: Cash investments of
$50 or more may be made automatically each month or quarter from a shareholder's
bank account. The $1,000 minimum initial investment and small account redemption
policy are waived for these accounts.
STATEMENT OF INTENTION: Purchases of $50,000 or more made over a 13-month
period are eligible for reduced sales charges. See "Statement of Intention and
Escrow Agreement."
RIGHT OF ACCUMULATION: Purchases may qualify for reduced sales charges when the
current market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Shares of the Eaton Vance funds mentioned
under "The Eaton Vance Exchange Privilege" may be combined under the Statement
of Intention and Right of Accumulation.
WITHDRAWAL PLAN: A shareholder may draw on shareholdings systematically with
monthly or quarterly checks in an amount specified by the shareholder. A minimum
deposit of $5,000 in shares is required.
REINVESTMENT PRIVILEGE: A SHAREHOLDER WHO HAS REPURCHASED OR REDEEMED SHARES
MAY REINVEST AT NET ASSET VALUE ANY PORTION OR ALL OF THE REPURCHASE OR
REDEMPTION PROCEEDS (PLUS THAT AMOUNT NECESSARY TO ACQUIRE A FRACTIONAL SHARE TO
ROUND OFF THE PURCHASE TO THE NEAREST FULL SHARE) IN SHARES OF THE FUND, or,
provided that the shares repurchased or redeemed have been held for at least 60
days, in shares of any of the other funds offered by the Principal Underwriter
subject to an initial sales charge, provided that the reinvestment is effected
within 60 days after such repurchase or redemption and the privilege has not
been used more than once in the prior 12 months. Shares are sold to a
reinvesting shareholder at the next determined net asset value following timely
receipt of a written purchase order by the Principal Underwriter or by the fund
whose shares are to be purchased (or by such fund's transfer agent). The
privilege is also available to holders of shares of the other funds offered by
the Principal Underwriter subject to an initial sales charge who wish to
reinvest such redemption or repurchase proceeds in shares of the Fund. To the
extent that any shares of
19
<PAGE>
the Fund are sold at a loss and the proceeds are reinvested in shares of the
Fund (or other shares of the Fund are acquired within the period beginning 30
days before and ending 30 days after the date of the redemption) some or all of
the loss generally will not be allowed as a tax deduction. Special rules may
apply to the computation of gain or loss and to the deduction of loss on a
repurchase or redemption followed by a reinvestment. See "Distributions and
Taxes". Shareholders should consult their tax advisers concerning the tax
consequences of reinvestments.
DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
SUBSTANTIALLY ALL OF THE INVESTMENT INCOME ALLOCATED TO THE FUND BY THE
PORTFOLIO, LESS THE FUND'S DIRECT AND ALLOCATED EXPENSES, WILL BE DECLARED DAILY
AS A DISTRIBUTION TO FUND SHAREHOLDERS OF RECORD AT THE TIME OF DECLARATION.
Such distributions, whether taken in cash or reinvested in additional shares,
will ordinarily be paid on the last day of each month or the next business day
thereafter. The Fund anticipates that for tax purposes the entire distribution,
whether taken in cash or reinvested in additional shares, will constitute
tax-exempt income to shareholders, except for the proportionate part of the
distribution that may be considered taxable income if the Fund has taxable
income during the calendar year. Shareholders reinvesting the monthly
distribution should treat the amount of the entire distribution as the tax cost
basis of the additional shares acquired by reason of such reinvestment. Daily
distribution crediting will commence on the day that collected funds for the
purchase of Fund shares are available at the Transfer Agent. Shareholders will
receive timely Federal income tax information as to the tax-exempt or taxable
status of all distributions made by the Fund during the calendar year. The
Fund's net realized capital gains, if any, consist of the net realized capital
gains allocated to the Fund by the Portfolio for tax purposes, after taking into
account any available capital loss carryovers; the Fund's net realized capital
gains, if any, will be distributed at least once a year, usually in December.
Sales charges paid upon a purchase of shares of the 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
shares of the Fund or of another fund are subsequently acquired pursuant to the
Fund's 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.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to satisfy all
requirements necessary to be relieved of Federal taxes on income and gains it
distributes to shareholders. In satisfying these requirements, the Fund will
treat itself as owning its proportionate share of each of the Portfolio's assets
and as entitled to the income of the Portfolio properly attributable to such
share.
AS A REGULATED INVESTMENT COMPANY UNDER THE CODE, THE FUND DOES NOT PAY
FEDERAL INCOME OR EXCISE TAXES TO THE EXTENT THAT IT DISTRIBUTES TO SHAREHOLDERS
ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS IN ACCORDANCE WITH THE
TIMING REQUIREMENTS IMPOSED BY THE CODE. AS A PARTNERSHIP UNDER THE CODE, THE
PORTFOLIO DOES NOT PAY FEDERAL INCOME OR EXCISE TAXES.
20
<PAGE>
Distributions of interest on certain municipal obligations constitute a tax
preference item under the alternative minimum tax provisions applicable to
individuals and corporations (see page 5). Distributions of taxable income
(including a portion of any original issue discount with respect to certain
stripped municipal obligations and stripped coupons and accretion of certain
market discount) and net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions of long-term capital gains are
taxable to shareholders as such for Federal income tax purposes, regardless of
the length of time Fund shares have been owned by the shareholder. Distributions
are taxed in the manner described above whether paid in cash or reinvested in
additional shares of the Fund.
Tax-exempt distributions received from the Fund are includable in the tax
base for determining the taxability of social security and railroad retirement
benefits.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Fund is not deductible to the extent it is deemed related
to the Fund's distribution 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 the 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 would likely be
interpreted to include private activity bonds issued to finance similar
facilities.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
FROM TIME TO TIME, THE FUND MAY ADVERTISE ITS YIELD AND/OR AVERAGE ANNUAL TOTAL
RETURN. The Fund's current yield is calculated by dividing the net investment
income per share during a recent 30-day period by the maximum offering price per
share of the Fund on the last day of the period and annualizing the resulting
figure. A taxable-equivalent yield is computed by using the tax-exempt yield
figure and dividing by 1 minus the tax rate. The Fund's average annual total
return is determined by multiplying a hypothetical initial purchase order of
$1,000 by the average annual compounded rate of return (including capital
appreciation/depreciation, and dividends and distributions paid and reinvested)
for the stated period and annualizing the result. The average annual total
return calculation assumes that the maximum sales charge is deducted from the
initial $1,000 purchase order and that all distributions are reinvested at the
net asset value on the reinvestment dates during the period. The Fund may
publish annual and cumulative total return figures from time to time. The Fund
may quote total return for the period prior to commencement of operations which
would reflect the Portfolio's total return (and that of its predecessor)
adjusted to reflect any applicable Fund sales charge.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current maximum
offering price per share (including the maximum sales charge). The Fund's
effective
21
<PAGE>
distribution rate is computed by dividing the distribution rate by the ratio
used to annualize the most recent monthly distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. Investors should note that the
Fund's yield is calculated using a standardized formula the income component of
which is computed from the yields to maturity of all debt obligations held by
the Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month.
The Fund may also furnish total return calculations based on investments at
various sales charge levels or at net asset value. Any performance data which is
based on the Fund's net asset value per share would be reduced if a sales charge
were taken into account.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's yield, total return,
distribution rate or effective distribution rate for any prior period should not
be considered a representation of what an investment may earn or what the Fund's
yield, total return, distribution rate or effective distribution rate may be in
any future period. If the expenses related to the operation of the Fund or the
Portfolio are allocated to Eaton Vance, the Fund's performance will be higher.
STATEMENT OF INTENTION AND ESCROW AGREEMENT
--------------------------------------------------------------------------------
TERMS OF ESCROW. If the investor, on an application, makes a Statement of
Intention to invest a specified amount over a thirteen-month period, then out of
the initial purchase (or subsequent purchases if necessary) 5% of the dollar
amount specified on the application shall be held in escrow by the escrow agent
in the form of shares (computed to the nearest full share at the public offering
price applicable to the initial purchase hereunder) registered in the investor's
name. All income dividends and capital gains distributions on escrowed shares
will be paid to the investor or to the investor's order.
When the minimum investment so specified is completed, the escrowed shares
will be delivered to the investor. If the investor has an accumulation account
the shares will remain on deposit under the investor's account.
If total purchases under this Statement of Intention are less than the
amount specified, the investor will promptly remit to EVD any differences
between the sales charge on the amount specified and on the amount actually
purchased. If the investor does not within 20 days after written request by EVD
or the Authorized Firm pay such difference in sales charge, the escrow agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Full shares remaining after any such redemption together with
any excess cash proceeds of the shares so redeemed will be delivered to the
investor or to the investor's order by the escrow agent.
In signing the application, the investor irrevocably constitutes and
appoints the escrow agent as the investor's attorney to surrender for redemption
any or all escrowed shares with full power of substitution in the premises.
22
<PAGE>
PROVISION FOR RETROACTIVE PRICE ADJUSTMENT. If total purchases made under this
Statement are large enough to qualify for a lower sales charge than that
applicable to the amount specified, all transactions will be computed at the
expiration date of this Statement to give effect to the lower charge. Any
difference in sales charge will be refunded to the investor in cash, or applied
to the purchase of additional shares at the lower charge if specified by the
investor. This refund will be made by the Authorized Firm and by EVD. If at the
time of the recomputation a firm other than the original firm is placing the
orders, the adjustment will be made only on those shares purchased through the
firm then handling the investor's account.
23
<PAGE>
INVESTMENT ADVISER OF
NATIONAL LIMITED MATURITY
TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV TRADITIONAL
NATIONAL LIMITED MATURITY
TAX FREE FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV TRADITIONAL
NATIONAL LIMITED MATURITY
TAX FREE FUND
24 FEDERAL STREET
BOSTON, MA 02110
T-LNAP
[LOGO]
EV TRADITIONAL
NATIONAL
LIMITED MATURITY
TAX FREE
FUND
PROSPECTUS
AUGUST 1, 1995
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1995
EV TRADITIONAL NATIONAL LIMITED
MATURITY TAX FREE FUND
24 Federal Street
Boston, Massachusetts 02110
(800) 225-6265
This Statement of Additional Information consists of two parts. Part I
provides general information about EV Traditional National Limited Maturity Tax
Free Fund (the "Fund") and certain other series of Eaton Vance Investment Trust
(the "Trust"). As described in the Prospectus, the Fund invests its assets in
National Limited Maturity Tax Free Portfolio (the "Portfolio"), a separate
registered investment company with the same investment objective and policies as
the Fund. Part II provides information solely about the Fund and the Portfolio.
Where appropriate, Part I includes cross-references to the relevant sections of
Part II.
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
PART I
<S> <C>
Additional Information about Investment Policies.............................................. 2
Investment Restrictions....................................................................... 8
Trustees and Officers......................................................................... 9
Investment Adviser and Administrator.......................................................... 11
Custodian..................................................................................... 13
Service for Withdrawal........................................................................ 13
Determination of Net Asset Value.............................................................. 13
Investment Performance........................................................................ 14
Taxes......................................................................................... 17
Portfolio Security Transactions............................................................... 19
Other Information............................................................................. 21
Independent Certified Public Accountants...................................................... 22
Financial Statements.......................................................................... 22
Appendix...................................................................................... 23
PART II
Fees and Expenses............................................................................. a-1
Services for Accumulation..................................................................... a-2
Principal Underwriter......................................................................... a-2
Service Plan.................................................................................. a-4
Performance Information....................................................................... a-4
Control Persons and Principal Holders of Securities........................................... a-6
Tax Equivalent Yield Table.................................................................... a-7
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE FUND'S PROSPECTUS DATED AUGUST 1, 1995, AS SUPPLEMENTED FROM
TIME TO TIME. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED WITHOUT CHARGE
BY CONTACTING EATON VANCE DISTRIBUTORS, INC. (THE "PRINCIPAL UNDERWRITER") (SEE
BACK COVER FOR ADDRESS AND PHONE NUMBER).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
This Part I provides information about the Fund, certain other series of the
Trust and the Portfolio. Capitalized terms used in this Statement of Additional
Information and not otherwise defined have the meanings given them in the Fund's
Prospectus. The Fund is subject to the same investment policies as those of the
Portfolio. The Fund currently seeks to achieve its objective by investing in the
Portfolio.
ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to obtain funds for various public and
private purposes. Such 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. 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 Federal alternative minimum tax: (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. In
assessing the Federal income tax treatment of interest on any municipal
obligation, the Portfolio 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.
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 the 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 Federal alternative minimum tax. For corporate shareholders,
the Fund's distributions derived from interest on all municipal obligations
(whenever issued) is included in "adjusted current earnings" for purposes of the
Federal alternative minimum tax as applied to corporations (to the extent not
already included in alternative minimum taxable income attributable to private
activity bonds).
Market discount on long-term tax-exempt municipal obligations (i.e.,
obligations with a term of more than one year) purchased in the secondary market
after April 30, 1993 is taxable as ordinary income. A long-term debt obligation
is generally treated as acquired at a market discount if the secondary market
purchase price is 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 minimus amount.
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.
The principal security for a revenue bond is generally 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
2
<PAGE>
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 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.
The 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.
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.
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. The 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 Boston Management and Research (the"Investment
Adviser")) to evaluate or protect any real estate, facilities or other assets
securing any such obligation or acquired by the Portfolio as a result of any
such event, and the 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 are 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 Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P") and Fitch Investors Service, Inc. ("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 municipal obligations will
normally fluctuate with changes in interest rates, and therefore the net asset
value of the Portfolio will be affected by such changes.
RISKS OF CONCENTRATION
Obligations of Particular Types of Issuers. The Portfolio may invest 25% or
more of its total assets in municipal obligations whose issuers are located in
the same state or in municipal obligations of the same type. There could be
economic, business or political developments which might affect all municipal
obligations of a similar type. In particular, investments in the industrial
revenue bonds listed above 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.
3
<PAGE>
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.
Pollution control and other industrial development bonds are issued by state
and local agencies to finance various projects, including those of domestic
steel producers, and may be backed solely by agreements with such companies.
Domestic steel companies are expected to suffer the consequences of such adverse
trends as high labor costs, high foreign imports encouraged by foreign
productivity increases and a strong U.S. dollar, and other cost pressures such
as those imposed by anti-pollution legislation. Domestic steel capacity is being
reduced currently by large-scale plant closings and this period of
rationalization may not end until further legislative protection is provided
through tariff price supports or mandatory import quotas, such as those recently
enacted for certain specialty steel products.
Life care facilities are an alternative form of long-term housing for the
elderly which offer residents the independence of a condominium life style and,
if needed, the comprehensive care of nursing home services. Bonds to finance
these facilities have been issued by various state industrial development
authorities. Since the bonds are normally secured only by the revenues of each
facility and not by state or local government tax payments, they are subject to
a wide variety of risks. Primarily, the projects must maintain adequate
occupancy levels to be able to provide revenues sufficient to meet debt service
payments. Moreover, since a portion of housing, medical care and other services
may be financed by an initial deposit, it is important that the facility
maintain adequate financial reserves to secure estimated actuarial liabilities.
The ability of management to accurately forecast inflationary cost pressures is
an important factor in this process. The facilities may also be affected
adversely by regulatory cost restrictions applied to health care delivery in
general, particularly state regulations or changes in Medicare and Medicaid
payments or qualifications, or restrictions imposed by medical insurance
companies. They may also face competition from alternative health care or
conventional housing facilities in the private or public sector.
MUNICIPAL LEASES
The 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. A trustee
is usually responsible for administering the terms of the participation and
enforcing the participants' rights in the underlying lease. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased equipment without meeting the constitutional and statutory
requirements for the issuance of debt. State debt-issuance limitations are
deemed to be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. Such arrangements are,
therefore, subject to the risk that the governmental issuer will not appropriate
funds for lease payments.
Certain municipal lease obligations owned by the 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 the 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 the Portfolio. In
the event the 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.
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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. Zero coupon bonds benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash.
INSURANCE
Insured municipal obligations held by the Portfolio (if any) will be insured
as to their scheduled payment of principal and interest under either (i) an
insurance policy obtained by the issuer or underwriter of the obligation at the
time of its original issuance or (ii) an insurance policy obtained by the
Portfolio or a third party subsequent to the obligation's original issuance
(which may not be reflected in the obligation's market value). In either event,
such insurance may provide that in the event of non-payment of interest or
principal when due with respect to an insured obligation, the insurer is not
required to make such payment until a specified time has lapsed (which may be 30
days or more after notice).
CREDIT QUALITY
The Portfolio is dependent on the Investment Adviser's judgment, analysis
and experience in evaluating the quality of municipal obligations. 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.
See "Portfolio of Investments" in the "Financial Statements" incorporated by
reference into this Statement of Additional Information with respect to any
defaulted obligations held by the Portfolio.
SECURITIES LENDING
The Portfolio may seek to increase its income by lending portfolio
securities to broker-dealers or other institutional borrowers. Under present
regulatory policies of the Securities and Exchange Commission (the
"Commission"), such loans are required to be secured continuously by collateral
in cash, cash equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to the
market value of the securities loaned, which will be marked to market daily.
Cash equivalents include short-term municipal obligations as well as taxable
certificates of deposit, commercial paper and other short-term money market
instruments. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on up to five business days' notice. During the
existence of a loan, the Portfolio will continue to receive the equivalent of
the interest paid by the issuer on the securities loaned and will also receive a
fee, or all or a portion of the interest on investment of the collateral, if
any. However, the Portfolio may pay lending fees to such borrowers. The
Portfolio would not have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Portfolio's management to be of good standing and when, in the judgment of the
Portfolio's management, the consideration which can be earned from securities
loans of this type justifies the attendant risk. Distributions by the Fund of
any income realized by the Portfolio from securities loans will be taxable. If
the management of the Portfolio decides to make securities loans, it is intended
that the value of the securities loaned would not exceed 30% of the Portfolio's
total assets. The Portfolio has no present intention of engaging in securities
lending.
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 taking place
within a specified number of days after the date of the Portfolio's commitment
and are subject to certain conditions such as the issuance of satisfactory legal
opinions. The Portfolio may also purchase securities on a when-issued basis
pursuant to refunding contracts in connection with the
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refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Portfolio to buy such securities on
a settlement date that could be several months or several years in the future.
The 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 the Portfolio enters into the
purchase commitment. The Portfolio's custodian will segregate cash or high grade
liquid debt securities in a separate account of the Portfolio in an amount at
least equal to the when-issued commitments. If the value of the securities
placed in the separate account declines, additional cash or high grade liquid
debt securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of the Portfolio's when-issued
commitments. When the 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 the 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 the 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.
FLOATING OR VARIABLE RATE OBLIGATIONS
The Portfolio may purchase floating or variable rate obligations. Floating
or variable rate instruments provide for adjustments in the interest rate at
specified intervals (weekly, monthly, semi-annually, etc.). The revised rates
are usually set at the issuer's discretion, in which case the investor normally
enjoys the right to "put" the security back to the issuer or his agent. Rate
revisions may alternatively be determined by formula or in some other
contractual fashion. Floating or variable rate obligations normally provide that
the holder can demand payment of the obligation on short notice at par with
accrued interest and which are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such letters
of credit or other arrangements constitute an unconditional guarantee of the
issuer's obligations, the banks may be treated as the issuer of a security for
the purpose of complying with the diversification requirements set forth in
Section 5(b) of the Investment Company Act of 1940 and Rule 5b-2 thereunder. The
Portfolio would anticipate using these obligations as cash equivalents pending
longer term investment of its funds.
REDEMPTION, DEMAND AND PUT FEATURES
Most municipal bonds have a fixed final maturity date. However, it is
commonplace for the issuer to reserve the right to call the bond earlier. Also,
some bonds may have "put" or "demand" features that allow early redemption by
the bondholder. Interest income generated by certain bonds having demand
features may not qualify as tax-exempt interest. 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. By acquiring these kinds of obligations the Portfolio obtains the
contractual right to require the issuer of the security or some other person
(other than a broker or dealer) to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person. Because this right is
assignable with the security, which is readily marketable and valued in the
customary manner, the Portfolio will not assign any separate value to such
right.
LIQUIDITY AND PROTECTIVE PUT OPTIONS
The Portfolio may also 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. The
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 the Portfolio or that selling institutions will be willing to
permit the Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and sale of
the security to a third party or lapse of time with the put unexercised may
terminate the right to exercise the put. The 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
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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
features may not qualify as tax-exempt interest.
FUTURES CONTRACTS
A change in the level of interest rates may affect the value of the
securities held by the Portfolio (or of securities that the Portfolio expects to
purchase). To hedge against changes in rates, the Portfolio may enter into (i)
futures contracts for the purchase or sale of debt securities, (ii) futures
contracts on securities indices and (iii) futures contracts on other financial
instruments and indices. All futures contracts entered into by the Portfolio are
traded on exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CTFC") and must be executed through a
futures commission merchant or brokerage firm which is a member of the relevant
exchange. The Portfolio may purchase and write call and put options on futures
contracts which are traded on a United States or foreign exchange or board of
trade.
The Portfolio will engage in futures and related options transactions for
bona fide 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. The Portfolio's futures transactions will be entered into for
traditional hedging purposes -- that is, futures contracts will be sold to
protect against a decline in the price of securities that the Portfolio owns, or
futures contracts will be purchased to protect the Portfolio against an increase
in the price of securities it intends to purchase. As evidence of this hedging
intent, the Portfolio expects that on 75% or more of the occasions on which it
takes a long futures (or option) position (involving the purchase of futures
contracts), the Portfolio will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities in the cash market at the
time when the futures (or option) position is closed out. However, in particular
cases, when it is economically advantageous for the Portfolio to do so, a long
futures position may be terminated (or an option may expire) without the
corresponding purchase of securities. The Portfolio will engage in transactions
in futures contracts and related options only to the extent such transactions
are consistent with the requirements of the Internal Revenue Code for
maintaining the qualification of the Fund as a regulated investment company for
Federal income tax purposes (see "Taxes").
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. Cash or liquid high grade debt securities required to be
segregated in connection with a "long" futures position taken by the Portfolio
will also be held by the custodian in a segregated account and will be marked to
market daily.
SHORT-TERM OBLIGATIONS
Although the Portfolio will normally attempt to invest substantially all of
its assets in municipal obligations, the Portfolio may, under normal market
conditions, invest up to 20% of its net assets in short-term obligations the
interest on which is subject to Federal income tax, and/or Federal alternative
minimum tax. Such short-term taxable obligations may include, but are not
limited to, certificates of deposit, commercial paper, short-term notes and
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities. During periods of adverse market conditions, the Portfolio
may temporarily invest more than 20% of its assets in such short-term taxable
obligations, all of which will be high quality obligations.
SHORT-TERM TRADING
The Portfolio may sell 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
the 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. The Portfolio anticipates that its annual
portfolio turnover rate will generally not exceed 100% (excluding turnover of
securities having a maturity of one year or less).
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PORTFOLIO TURNOVER
The Portfolio cannot accurately predict its portfolio turnover rate, but it
is anticipated that the annual turnover rate will generally not exceed 100%
(excluding turnover of securities having a maturity of one year or less). A 100%
annual turnover rate would occur, for example, if all the securities held by the
Portfolio were replaced once in a period of one year. A high turnover rate (100%
or more) necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes that
a transaction including all costs will help in achieving its investment
objective.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which as used
in this Statement of Additional Information means the lesser of (a) 67% of the
shares of the Fund present or represented by proxy at a meeting if the holders
of more than 50% of the shares are present or represented at the meeting or (b)
more than 50% of the shares of the Fund. Accordingly, the Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of its
total assets, in the securities of a single issuer or purchase more than 10% of
the outstanding voting securities of a single issuer, except obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
except securities of other investment companies;
(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) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940;
(4) 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;
(5) 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);
(6) Purchase or sell physical commodities or contracts for the purchase or
sale of physical commodities; or
(7) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements or (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of the Fund, the
Fund may invest all or part of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
The Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by the Fund; such
restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Portfolio, which as used in this Statement
of Additional Information means the lesser of (a) 67% of the outstanding voting
securities of the Portfolio present or represented by proxy at a meeting if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented at the meeting or (b) more than 50% of the
outstanding voting securities of the Portfolio. The term "voting securities" as
used in this paragraph has the same meaning as in the Investment Company Act of
1940 (the "1940 Act"). Whenever the Trust is requested to vote on a change in
the investment restrictions of the Portfolio (or the Portfolio's 80% investment
policy with respect to municipal obligations described in the Fund's current
Prospectus), the Trust will hold a meeting of Fund shareholders and will cast
its vote as instructed by the shareholders.
The Fund and the Portfolio have adopted the following investment policies
which may be changed by the Trust with respect to the Fund without approval by
the Fund's shareholders or by the Portfolio with respect to the Portfolio
without approval by the Fund or its other investors. As a matter of
nonfundamental policy, the Fund and the Portfolio will not: (a) 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
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securities sold short, and unless not more than 25% of its net assets (taken at
current value) is held as collateral for such sales at any one time. (The Fund
and the Portfolio will make such sales only for the purpose of deferring
realization of gain or loss for Federal income tax purposes); (b) purchase or
retain in its portfolio securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust or
the Portfolio, or is a member, officer, director or trustee of any investment
adviser of the Trust or the Portfolio, if after the purchase of the securities
of such issuer by the Fund or the Portfolio one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities or both (all taken
at market value) of such issuer and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities or both (all taken at market value); (c) purchase oil, gas or
other mineral leases or purchase partnership interests in oil, gas or other
mineral exploration or development programs; (d) invest more than 5% of its
total assets (taken at current value) in obligations where the payment of
principal and interest thereon is the responsibility of a company (including
predecessors) with less than three years operating history unless such
obligations are rated at the time of purchase by a nationally recognized rating
service except for debt obligations issued by or on behalf of states,
territories and possessions of the United States, and the District of Columbia
and their political subdivisions, agencies or instrumentalities; (e) invest more
than 15% of 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 that the Board of Trustees of the Trust or the Portfolio,
or its delegate, determine to be liquid, based upon the trading markets for the
specific security; (f) 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; or (g) invest in
warrants, valued at the lower of cost or market, exceeding 5% of the value of
its net assets. Included within that amount, but not to exceed 2% of the value
of its net assets, may be warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the Fund or the Portfolio in units
or attached to securities may be deemed to be without value. The Fund and the
Portfolio may purchase put options on municipal obligations only if, after such
purchase, not more than 5% of its net assets, as measured by the aggregate of
the premiums paid for such options held by it, would be so invested. Neither the
Fund nor the Portfolio intends to invest in reverse repurchase agreements during
the current fiscal year.
For purposes of the 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 obligation.
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the policies described above.
Should the Fund determine that any such commitment is no longer in the best
interest of the Fund and its shareholders, it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other offices
in the same company for the last five years. Unless otherwise noted, the
business address of each Trustee and officer is 24 Federal Street, Boston,
Massachusetts 02110, which is also the address of the Portfolio's investment
adviser, Boston Management and Research ("BMR" or the "Investment Adviser"), a
wholly-owned subsidiary of Eaton Vance Management ("Eaton Vance"); of Eaton
Vance's parent, Eaton Vance Corp. ("EVC"); and of BMR's and Eaton Vance's
trustee, Eaton Vance, Inc. ("EV"). Eaton Vance and EV are both wholly-owned
subsidiaries of EVC. Those Trustees who are "interested persons" of the Trust,
the Portfolio, BMR, Eaton Vance, EVC or EV, as defined in the 1940 Act, by
virtue of their affiliation with any one or more of the Trust, the Portfolio,
BMR, Eaton Vance, EVC or EV, are indicated by an asterisk(*).
TRUSTEES OF THE TRUST AND THE PORTFOLIO
DONALD R. DWIGHT (64), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company) founded in 1988; Chairman of the Board of Newspapers of New England,
Inc., since 1983. Director or Trustee of various investment companies managed
by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (53), Trustee and Vice President*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director of EVC
and EV. Director, Trustee and officer of various investment companies managed
by Eaton Vance or BMR.
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SAMUEL L. HAYES (60), III, Trustee
Jacob H. Schiff, Professor of Investment Banking, Harvard University Graduate
School of Business Administration. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration, Soldiers
Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (59), Trustee
President and Director, United Asset Management Corporation, a holding company
owning institutional investment management firms. Chairman, President and
Director, The Regis Fund, Inc. (mutual fund). Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (68), Trustee
Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (65), Trustee
Investment Adviser and Consultant. Director or Trustee of various investment
companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE TRUST AND THE PORTFOLIO
THOMAS J. FETTER (51), President
Vice President of BMR, Eaton Vance and EV. Mr. Fetter was elected a Vice
President of the Trust on December 17, 1990 and President of the Trust and the
Portfolio on December 13, 1993. Officer of various investment companies
managed by Eaton Vance or BMR.
RAYMOND E. HENDER (51), Vice President of the Portfolio
Vice President of BMR, Eaton Vance and EV and an employee of Eaton Vance since
September 8, 1992. Senior Vice President, Bank of New England (1989-1992).
Fidelity Management & Research Company -- Portfolio Manager (1977-1988).
Officer of various investment companies managed by Eaton Vance or BMR. Mr.
Hender was elected Vice President of the Portfolio on June 19, 1995.
ROBERT B. MACINTOSH (38), Vice President
Vice President of BMR since August 11, 1992 and of Eaton Vance and EV, and an
employee of Eaton Vance since March 8, 1991. Fidelity Investments -- Portfolio
Manager (1986-1991). Officer of various investment companies managed by Eaton
Vance or BMR. Mr. MacIntosh was elected Vice President of the Trust and the
Portfolio on March 22, 1993.
JAMES L. O'CONNOR (50), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various other investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (63), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (59), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (32), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor, The
Boston Company (1991-1993) and Registration Specialist, Fidelity Management &
Research Co. (1986-1991). Officer of various investment companies managed by
Eaton Vance or BMR. Mr. Murphy was elected Assistant Secretary on March 27,
1995.
ERIC G. WOODBURY (38), Assistant Secretary
Vice President of Eaton Vance since February 1993; formerly, associate at
Dechert, Price & Rhoads and Gaston & Snow. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Woodbury was elected Assistant
Secretary on June 19, 1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the Special
Committee of the Board of Trustees of the Trust and of the Portfolio. The
Special Committee's functions include a continuous review of the Trust's
contractual relationship with the Administrator on behalf of the Fund and the
Portfolio's contractual relationship with the Investment Adviser, making
recommendations to the Trustees regarding the compensation of those Trustees who
are not members of the Eaton Vance organization, and making recommendations to
the Trustees regarding candidates to fill vacancies, as and when they occur, in
the ranks of those Trustees who are not "interested persons" of the Trust, the
Portfolio or the Eaton Vance organization.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee of
the Board of Trustees of the Trust and of the Portfolio. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing with such
accountants and
10
<PAGE>
the Treasurer of the Trust and of the Portfolio matters relative to accounting
and auditing practices and procedures, accounting records, internal accounting
controls, and the functions performed by the custodian and transfer agent of the
Fund and of the Portfolio.
Trustees of the Portfolio 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 "Plan").
Under the Plan, an eligible Trustee may elect to have his deferred fees invested
by the 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 Plan will be determined
based upon the performance of such investments. Deferral of Trustees' fees in
accordance with the Plan will have a negligible effect on the Portfolio's
assets, liabilities, and net income per share, and will not obligate the
Portfolio to retain the services of any Trustee or obligate the Portfolio to pay
any particular level of compensation to the Trustee.
For the compensation earned by the noninterested Trustees of the Trust and
the Portfolio, see "Fees and Expenses" in the Fund's Part II of this Statement
of Additional Information.
INVESTMENT ADVISER AND ADMINISTRATOR
The Portfolio engages BMR as investment adviser pursuant to an Investment
Advisory Agreement dated October 13, 1992. BMR or Eaton Vance acts as investment
adviser to investment companies and various individual and institutional clients
with combined assets under management of approximately $15 billion.
Eaton Vance, its affiliates and its predecessor companies have been managing
assets of individuals and institutions since 1924 and managing investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies.
BMR manages the investments and affairs of the Portfolio subject to the
supervision of the Portfolio's Board of Trustees. BMR furnishes to the Portfolio
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. The
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. The Portfolio is responsible for all expenses not expressly stated
to be payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and continuing its
existence, (ii) registration of the Portfolio under the 1940 Act, (iii)
commissions, fees and other expenses connected with the acquisition, holding and
disposition of securities and other investments, (iv) auditing, accounting and
legal expenses, (v) taxes and interest, (vi) governmental fees, (vii) expenses
of issue, sale and redemption of interests in the Portfolio, (viii) expenses of
registering and qualifying the Portfolio and interests in the Portfolio under
Federal and state securities laws and of preparing and printing registration
statements or other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering and
maintaining registrations of the Portfolio and of the Portfolio's placement
agent as broker-dealer or agent under state securities laws, (ix) expenses of
reports and notices to investors and of meetings of investors and proxy
solicitations therefor, (x) expenses of reports to governmental officers and
commissions, (xi) insurance expenses, (xii) association membership dues, (xiii)
fees, expenses and disbursements of custodians and subcustodians for all
services to the Portfolio (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for all
services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees of the
Portfolio, (xvii) compensation and expenses of Trustees of the Portfolio who are
not members of BMR's organization, and (xviii) such non-recurring items as may
arise, including expenses incurred in connection with litigation, proceedings
and claims and the obligation of the Portfolio to indemnify its Trustees,
officers and investors with respect thereto.
For a description of the compensation that the Portfolio pays BMR under the
Investment Advisory Agreement, see the Fund's current Prospectus. As at March
31, 1995, the Portfolio had net assets of $169,620,804. For the fiscal year
ended March 31, 1995, the Portfolio paid BMR advisory fees of $817,082
(equivalent to 0.46% of the Portfolio's average daily net assets for such year).
For the period from the Portfolio's
11
<PAGE>
start of business, May 3, 1993, to the fiscal year ended March 31, 1994, the
Portfolio paid BMR advisory fees of $562,094 (equivalent to 0.46% (annualized)
of the Portfolio's average daily net assets for such period).
The Investment Advisory Agreement with BMR remains in effect until February
28, 1996. It may be continued indefinitely thereafter so long as such
continuance after February 28, 1996 is approved at least annually (i) by the
vote of a majority of the Trustees of the Portfolio who are not interested
persons of the Portfolio or of BMR 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. The 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. The Agreement provides that BMR may render services to others and
engage in other business activities and may permit other fund clients and other
corporations and organizations to use the words "Eaton Vance" or "Boston
Management and Research" in their names. The 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.
As indicated in the Prospectus, Eaton Vance serves as Administrator of the
Fund, but currently receives no compensation for providing administrative
services to the Fund. Under its agreement with the Fund, Eaton Vance has been
engaged to administer the Fund's affairs, subject to the supervision of the
Trustees of the Trust, and shall furnish for the use of the Fund office space
and all necessary office facilities, equipment and personnel for administering
the affairs of the Fund. For additional information about the Administrator, see
"Fees and Expenses" in the Fund's Part II of this Statement of Additional
Information.
The Fund pays all of its own expenses including, without limitation, (i)
expenses of maintaining the Fund and continuing its existence, (ii) its pro rata
share of the registration of the Trust under the 1940 Act, (iii) commissions,
fees and other expenses connected with the purchase or sale of securities and
other investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale, repurchase and
redemption of shares, (viii) expenses of registering and qualifying the Fund and
its shares under federal and state securities laws and of preparing and printing
prospectuses for such purposes and for distributing the same to shareholders and
investors, and fees and expenses of registering and maintaining registrations of
the Fund and of the Fund's principal underwriter, if any, as broker-dealer or
agent under state securities laws, (ix) expenses of reports and notices to
shareholders and of meetings of shareholders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Fund
(including without limitation safekeeping of funds, securities and other
investments, keeping of books and accounts and determination of net asset
values), (xiv) fees, expenses and disbursements of transfer agents, dividend
disbursing agents, shareholder servicing agents and registrars for all services
to the Fund, (xv) expenses for servicing shareholder accounts, (xvi) any direct
charges to shareholders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of the
Eaton Vance organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees and officers
with respect thereto.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and EV are both
wholly-owned subsidiaries of EVC. BMR and Eaton Vance are both Massachusetts
business trusts, and EV is the trustee of BMR and Eaton Vance. The Directors of
EV are Landon T. Clay, H. Day Brigham, Jr., M. Dozier Gardner, James B. Hawkes
and Benjamin A. Rowland, Jr. The Directors of EVC consist of the same persons
and John G. L. Cabot and Ralph Z. Sorenson. Mr. Clay is chairman and Mr. Gardner
is president and chief executive officer of EVC, BMR, Eaton Vance and EV. All of
the issued and outstanding shares of Eaton Vance and EV 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 which
expires on December 31, 1996, the Voting Trustees of which are Messrs. Clay,
Brigham, Gardner, Hawkes and Rowland. 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 and Directors of EVC and
EV. As of June 30, 1995, Messrs. Clay, Gardner and Hawkes each owned 24% of such
voting trust receipts, and Messrs. Rowland and Brigham owned 15% and 13%,
respectively, of such voting trust receipts. Messrs. Hawkes and Otis are
officers or Trustees of the Trust and the Portfolio and are members of the EVC,
BMR, Eaton Vance and EV
12
<PAGE>
organizations. Messrs. Fetter, Hender, MacIntosh, Murphy, O'Connor and Woodbury
and Ms. Sanders, are officers of the Trust and/or the Portfolio and are also
members of the BMR, Eaton Vance and EV organizations. BMR will receive the fees
paid under the Investment Advisory Agreement.
Eaton Vance owns all of the stock of Energex Corporation, which is engaged
in oil and gas operations. EVC owns all of the stock of Marblehead Energy Corp.
(which is engaged in oil and gas operations) and 77.3% of the stock of Investors
Bank & Trust Company, custodian of the Fund and the Portfolio, which provides
custodial, trustee and other fiduciary services to investors, including
individuals, employee benefit plans, corporations, investment companies, savings
banks and other institutions. In addition, Eaton Vance owns all of the stock of
Northeast Properties, Inc., which is engaged in real estate investment,
consulting and management. EVC owns all of the stock of Fulcrum Management, Inc.
and MinVen, Inc., which are engaged in the development of precious metal
properties. EVC, BMR, Eaton Vance and EV may also enter into other businesses.
EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Fund and
the Portfolio, Investors Bank & Trust Company. 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.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 24 Federal Street, Boston,
Massachusetts (a 77.3% owned subsidiary of EVC) acts as custodian for the Fund
and the Portfolio. IBT has the custody of all cash and securities representing
the Fund's interest in the Portfolio, has custody of all the Portfolio's assets,
maintains the general ledger of the Portfolio and the Fund, and computes the
daily net asset value of interests in the 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
Portfolio's investments, receives and disburses all funds and performs various
other ministerial duties upon receipt of proper instructions from the Fund and
the Portfolio. IBT charges fees which are competitive within the industry. A
portion of the fee relates to custody, bookkeeping and valuation services and is
based upon a percentage of Fund and Portfolio net assets and a portion of the
fee relates to activity charges, primarily the number of portfolio transactions.
These fees are then reduced by a credit for cash balances of the particular
investment company at the custodian equal to 75% of the 91-day. U.S. Treasury
Bill auction rate applied to the particular investment company's average daily
collected balances for the week. In view of the ownership of EVC in IBT, the
Portfolio is treated as a self-custodian pursuant to Rule 17f-2 under the 1940
Act, and the Portfolio's investments held by IBT as custodian are thus subject
to the additional examinations by the Portfolio's independent certified public
accountants as called for by such Rule. For the fiscal year ended March 31,
1995, the Portfolio paid IBT $33,898. For the custody fees that the Fund paid to
IBT, see "Fees and Expenses" in the Fund's Part II of this Statement of
Additional Information.
SERVICE FOR WITHDRAWAL
By a standard agreement, the Trust's Transfer Agent will send to the
shareholder regular monthly or quarterly payments of any permitted amount
designated by the shareholder (see "Eaton Vance Shareholder Services --
Withdrawal Plan" in the Fund's current Prospectus) based upon the value of the
shares held. The checks will be drawn from share redemptions and hence are a
return of principal. Income dividends and capital gains distributions in
connection with withdrawal 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.
To use this service, at least $5,000 in cash or shares at the public
offering price will have to be deposited with the Transfer Agent. The
maintenance of a withdrawal plan concurrently with purchases of Fund shares
would be disadvantageous if a sales charge is included in such purchases. 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. Either the shareholder, the Transfer Agent or the Principal
Underwriter will be able to terminate the withdrawal plan at any time without
penalty.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined by IBT (as agent
and custodian for the Fund) in the manner described under "Valuing Fund Shares"
in the Fund's current prospectus. The net asset value of the
13
<PAGE>
Portfolio is also 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 transaction prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchased on a when-issued
basis, will normally be valued on the basis of valuations furnished by a pricing
service. The pricing service uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities, various relationships between securities, and yield to maturity in
determining value. Taxable obligations for which price quotations are readily
available normally will be valued at the mean between the latest available bid
and asked prices. Open futures positions on debt securities are valued at the
most recent settlement prices, unless such price does not reflect the fair value
of the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by or at the direction of the
Trustees of the Portfolio. The Fund and the Portfolio will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, President's Day, Good Friday (a New
York Stock Exchange holiday), Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the 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 interests in the Portfolio will then be recomputed
as a percentage equal to the 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.
INVESTMENT PERFORMANCE
The average annual total return is determined by multiplying a hypothetical
initial purchase order of $1,000 by the average annual compound rate of return
(including capital appreciation/depreciation, and dividends and distributions
paid and reinvested) for the stated period and annualizing the results. The
calculation assumes that all dividends and distributions paid are reinvested at
the net asset value on the reinvestment dates during the period, and either (i)
the deduction of the maximum sales charge from the initial $1,000 purchase order
or (ii) a complete redemption of the investment and, if applicable, the
deduction of the contingent deferred sales charge at the end of the period. For
information concerning the total return of the Fund, see "Performance
Information" in the Fund's Part II of this Statement of Additional Information.
The Fund's yield is computed 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, if applicable, the maximum sales charge)
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 expenses for the period with the resulting number being divided by
the average daily number of Fund shares outstanding and entitled to receive
dividends during the period. The yield figure does not reflect the deduction of
any contingent deferred sales charges (if applicable) which are imposed on
certain redemptions at the rate set forth under "How to Redeem Fund Shares" in
the Fund's current Prospectus. Yield calculations assume the current maximum
sales charge (if applicable) set forth under "How to Buy Fund Shares" in the
Fund's current Prospectus. (Actual yield may be affected by variations in sales
charges or investments.) A taxable-equivalent yield is computed by using the
tax-exempt yield figure and dividing by 1 minus a stated rate. For the yield and
taxable-equivalent yield of the Fund, see "Performance Information" in the
Fund's Part II of this Statement of Additional Information.
The Fund may also publish its distribution rate and/or its effective
distribution rate. The Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized, by the current net asset value
per share. The Fund's effective distribution rate is computed by dividing the
distribution rate by the ratio (the
14
<PAGE>
days in a year divided by the accrual days of the monthly period) used to
annualize the most recent monthly distribution and reinvesting the resulting
amount for a full year on the basis of such ratio. The effective distribution
rate will be higher than the distribution rate because of the compounding effect
of the assumed reinvestment. Investors should note that the yield of the Fund is
calculated using a standardized formula the income component of which is
computed from the yields to maturity of all debt obligations held by the
Portfolio based on prescribed methods (with all purchases and sales of
securities during such period included in the income calculation on a settlement
date basis), whereas the distribution rate is based on the Fund's last monthly
distribution which tends to be relatively stable and may be more or less than
the amount of net investment income and short-term capital gain actually earned
by the Fund during the month. See "Distributions and Taxes" in the Fund's
current Prospectus. For the Fund's distribution rate and effective distribution
rate, see "Performance Information" in the Fund's Part II of this Statement of
Additional Information.
The Fund's total return may be compared to the Consumer Price Index and to
the domestic securities indices of the Bond Buyer 25 Revenue Bond Index and the
Lehman Brothers Municipal Bond Index. The Fund's total return and comparisons
with these indices may be used in advertisements and in information furnished to
present or prospective shareholders. The Fund's performance may differ from that
of other investors in the Portfolio, including the other investment companies.
From time to time, evaluations of the Fund's performance made by independent
sources, e.g., Lipper Analytical Services, Inc., CDA/Wiesenberger and
Morningstar, Inc., may be used in advertisements and in information furnished to
present or prospective shareholders.
From time to time, information, charts and illustrations relating to the
relative effects of changes in interest rates on values of securities of varying
durations may be included in advertisements and other material supplied to
present and prospective shareholders. For example, the following chart
illustrates that bond prices move inversely with interest rates -- values
decrease if interest rates rise, and values increase when rates fall. The
shorter a bond's duration, the less its price fluctuates for a given
interest-rate change. For example, if interest rates change by 1%, a limited
maturity bond with a 6-year duration will change by 6%, compared to a 12% change
for a 12-year duration bond. Source: Eaton Vance Management.
The Limited Maturity Volatility Advantage
If interest rates change 1%, a 6-yr. duration bond will change in value by 6% --
half the change of a 12-yr. duration bond.
Approximate % change in value Bond duration
if interest rates change by 1% (in years)
0 0
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
From time to time, information, charts and illustrations relating to
inflation and the effects of inflation on the dollar may be included in
advertisements and other material furnished to present and prospective
shareholders. For example, after 10 years, the purchasing power of $25,000 would
shrink to $16,621, $14,968, $13,465 and $12,100 if the annual rates of inflation
during such period were 4%, 5%, 6% and 7%, respectively. (To calculate the
purchasing power, the value at the end of each year is reduced by the above
inflation rates for 10 consecutive years.)
From time to time, information about the portfolio allocation and holdings
of the Portfolio at a particular date (including ratings assigned by independent
ratings services such as Moody's Investors Service, Inc., Standard &
15
<PAGE>
Poor's Ratings Group and Fitch Investors Service, Inc.) 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.
The Portfolio's diversification by quality ratings as of June 30, 1995 was:
<TABLE>
<CAPTION>
RATING ASSIGNED BY PERCENT
MOODY'S, S&P OR FITCH OF BOND HOLDINGS
--------------------- ------------------
<S> <C>
Aaa or AAA 44.6%
Aa or AA 32.5
A 12.9
Baa or BBB 4.0
Ba or BB --
B --
Not rated 6.0
-----
Total 100.0%
</TABLE>
The Fund is designed for investors seeking
- a higher level of after tax income than normally provided by taxable and
tax-free money market funds, certificates of deposit or other short-term
investments, and
- more price stability than investments in long-term municipal bonds or
bond funds.
Comparative information about the yield or distribution rate of the 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. A bank certificate of deposit, unlike the Fund's
shares, pays a fixed rate of interest and entitles the depositor to receive the
face amount of the certificate of deposit at maturity. A bank money market
deposit account is a form of savings account which pays a variable rate of
interest. Unlike the Fund's shares, bank certificates of deposit and bank money
market deposit accounts are insured by the Federal Deposit Insurance
Corporation. A money market mutual fund is designed to maintain a constant value
of $1.00 per share and, thus, a money market fund's shares are subject to less
price fluctuation than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Advertisements and other material furnished to present and prospective
shareholders may also compare the taxable equivalent yield of the Fund to
after-tax yields of certificates of deposits, bank money market deposit accounts
and money market mutual funds over various Federal income tax brackets.
Such materials may also compare taxable certificate of deposit rates of
return with rates of return in intermediate municipal bond indices and taxable
equivalents of such rates of return. An example of such an index is the Lehman
Brothers, Inc. 7-Year General Obligation Municipal Bond Index.
From time to time, information, charts and illustrations relating to the
relative total return performance of Intermediate-Term Tax Free Funds and Tax
Free Money Market Funds, based on information supplied by Lipper Analytical
Services, Inc., may be included in advertisements and other material furnished
to present and prospective shareholders. For example, for the 10 years ended
December 31, 1994, cumulative total returns were: Intermediate-Term Tax Free
Funds, 107.40%; Tax Free Money Market Funds, 48.83%.
16
<PAGE>
A comparison of the Total Return Advantage of intermediate-term tax free
funds over 3-month certificates of deposit (after taxes, assuming a 36% Federal
bracket) and tax free money market mutual funds may also be provided. In such an
illustration, sources of such information are Lipper Analytical Services, Inc.,
The Federal Reserve Bulletin, and The Wall Street Journal. For example:
The Total Return Advantage
Lipper Tax Free
Money Market Funds 48.83%
3-Month Certificates
of Deposit 47.90% (after taxes, assuming 36% bracket)
Lipper Intermediate-Term
Tax Free Funds 107.40%
Total returns (cumulative change in value with all distributions reinvested)
for 10 years ended December 31, 1994. Sources: Lipper Analytical Services, Inc.,
Federal Reserve Bulletin, The Wall Street Journal.
Total return is a common way to evaluate the results of any mutual fund
investment, because it includes any change in principal value and assumes the
reinvestment of all dividends and capital gains in additional shares. Most
tax-free money market funds are designed to maintain a $1 share price by
investing in short-term municipal instruments, while certificates of deposit are
insured by the FDIC. This illustration is not meant to imply or predict any
future rate of return for the Fund.
Information used in advertisements and in materials furnished to present and
prospective shareholders may include statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds which may be employed
to meet specific financial goals, such as (1) funding retirement, (2) paying for
children's education, and (3) financially supporting aging parents. These three
financial goals may be referred to in such advertisements or materials as the
"Triple Squeeze." Such information may also suggest the appropriateness of the
Fund as an investment for certain types of investors such as: conservative
investors who want higher after-tax income, but are concerned about the
potential volatility of long-term bonds or bond funds; dual-income couples in a
high tax bracket; and investors with long-term municipal bonds or fund
portfolios who are seeking diversification.
For additional information, charts and illustrations relating to the Fund's
investment performance, see "Performance Information" in the Fund's Part II of
this Statement of Additional Information.
TAXES
See "Distributions and Taxes" in the Fund's current Prospectus.
Each series of the Trust is treated as a separate entity for Federal income
tax purposes. The Fund has elected to be treated, has qualified, and intends to
continue to qualify each year as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the
Fund intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute its net investment income
(including tax-exempt income) and net realized capital gains (after reduction by
any available capital loss carryforwards) in accordance with the timing
requirements imposed by the Code, so as to avoid any Federal income or excise
tax on the Fund. Because the Fund invests its assets in the Portfolio, the
Portfolio normally must satisfy the applicable source of income and
diversification requirements in order for the Fund to satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fund, each investor's distributive share of the Portfolio's net taxable (if any)
and tax-exempt investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. For purposes of applying the
requirements of the Code regarding qualification as a RIC, the Fund will be
deemed (i) to own its proportionate share of each of the assets of the Portfolio
and (ii) to be entitled to the gross income of the Portfolio attributable to
such share.
In order to avoid Federal excise tax, the Code requires that the 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 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 any available capital loss
carryforwards, and 100% of any income from the prior year (as previously
computed) that
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was not paid out during such year and on which the Fund paid no Federal income
tax. Under current law, provided that the Fund qualifies as a RIC for Federal
income tax purposes and the Portfolio is treated as a partnership for
Massachusetts and Federal tax purposes, neither the Fund nor the Portfolio is
liable for any income, corporate excise or franchise tax in the Commonwealth of
Massachusetts.
The 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 Fund to distribute its proportionate share
of this income and avoid a tax payable by the Fund, the Portfolio may be
required to liquidate portfolio securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from the
Portfolio for subsequent distribution to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for the Portfolio and hence for the Fund to the extent actual or
anticipated defaults may be more likely with respect to such securities. Tax
rules are not entirely clear about issues such as when the Portfolio may cease
to accrue interest, original issue discount, or market discount; when and to
what extent deductions may be taken for bad debts or worthless securities; how
payments received on obligations in default should be allocated between
principal and income; and whether exchanges of debt obligations in a workout
context are taxable.
Distributions by the 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 the Fund to be entitled to pay the tax-exempt interest
income allocated to it by the 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. 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 Federal alternative minimum tax.
Shareholders of the Fund are required to report tax-exempt interest on their
Federal income tax returns.
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 the
Portfolio and the value of the securities held by the Portfolio may be affected.
In the course of managing its investments, the 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. The Portfolio may also realize
taxable income from certain short-term taxable obligations, securities loans, a
portion of original issue discount with respect to certain stripped municipal
obligations or their stripped coupons, and certain realized accrued market
discount. Any distributions by the Fund of its share of such capital gains
(after reduction by any capital loss carryforwards) 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 Portfolio and allocated to the Fund. Certain distributions of the Fund that
are declared in October, November or December and paid the following January
will be taxed to shareholders as if received on December 31 of the year in which
they are declared.
The 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 the
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 the 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 period of Portfolio securities
and conversion of short-term into long-term capital losses. The Portfolio may
have to limit its activities in options and futures contracts in order to enable
the Fund to maintain its qualification as a RIC for federal income tax purposes.
Any loss realized upon the sale or exchange of shares of the Fund with a tax
holding period of 6 months or less will be treated as a long-term capital loss
to the extent of any distribution of net long-term capital gains with respect to
such shares. Any loss realized on the sale or exchange of shares which have been
held for tax
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purposes for 6 months or less (or such shorter period as may be prescribed by
Treasury regulations) will be disallowed to the extent the shareholder has
received tax-exempt interest with respect to such shares. In addition, a loss
realized on a redemption of Fund shares will be disallowed to the extent the
shareholder acquired other Fund shares within the period beginning 30 days
before the redemption of the loss shares and ending 30 days after such date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number and
certain required certifications, as well as shareholders with respect to whom
the Fund has received notification from the Internal Revenue Service or a
broker, may be subject to "backup" withholding of Federal income tax from the
Fund's dividends and distributions and the proceeds of redemptions (including
repurchases and exchanges), at a rate of 31%. An individual's taxpayer
identification number is generally his or her social security number.
Non-resident alien individuals and certain foreign corporations and other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on the Fund's distributions from its ordinary income 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 treaty. Distributions from the
excess of the 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 result if the shareholder
is engaged in a trade or business in the United States, 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 fails to provide any required certifications regarding 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 the
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.
STATE, LOCAL AND FOREIGN TAXES
The exemption of interest income for Federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. Shareholders of the Fund may be exempt from state and
local taxes on distributions of tax-exempt interest income derived from
obligations of the state and/or municipalities of the state in which they are
resident, but taxable generally on income derived from obligations of other
jurisdictions. The Fund will report annually to shareholders, with respect to
net tax exempt income earned, the percentage representing the proportionate
ratio of such income earned in each state.
Shareholders should consult their own tax advisers with respect to the
state, local and foreign tax consequences of investing in the Fund.
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 the 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 the 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 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,
purchased and sold by the Portfolio 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
Portfolio may also purchase municipal obligations
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from underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the Portfolio will
not pay significant brokerage commissions in connection with such portfolio
security transactions, 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 Portfolio and BMR's other
clients for providing brokerage and research services to BMR.
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 the 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 commission was reasonable in relation to the
value of the brokerage and research services provided. This determination may be
made on the basis of either 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, 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 Portfolio transactions and from third parties with
which these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and transactions and
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 the
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 commissions 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.
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 firm with whom portfolio orders may be placed the
fact that such firm has sold or is selling shares of the Fund or of other
investment companies sponsored by BMR or Eaton Vance. This policy is not
inconsistent with a rule of the National Association of Securities Dealers,
Inc., which rule provides that no firm which is a member of the Association
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 Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
BMR will attempt to allocate equitably portfolio security transactions among the
Portfolio and the portfolios of its other investment accounts purchasing
municipal obligations whenever decisions are made to purchase or sell securities
by the Portfolio and one or more of such other accounts simultaneously. In
making such allocations, the main factors to be considered are the respective
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investment objectives of the Portfolio and such other accounts, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Portfolio and such accounts, the size
of investment commitments generally held by the Portfolio and such accounts and
the opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure 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 Portfolio
that the benefits available from the BMR organization outweigh any disadvantage
that may arise from exposure to simultaneous transactions.
For the fiscal year ended March 31, 1995 and for the period from the start
of business, May 3, 1993, to the fiscal year ended March 31, 1994 the Portfolio
paid no brokerage commissions on portfolio transactions.
OTHER INFORMATION
Eaton Vance, pursuant to its agreement with the Trust, controls the use of
the words "Eaton Vance" in the Fund's name and may use the words "Eaton Vance"
in other connections and for other purposes. The Trust which is a Massachusetts
business trust established in 1985, was originally called Eaton Vance California
Municipals Trust. The Trust changed its name to Eaton Vance Investment Trust on
April 28, 1992.
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 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 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. In addition, the By-Laws of the Trust provide that no natural person
shall serve as a Trustee of the Trust after the holders of record of not less
than two-thirds of the outstanding shares have declared that he be removed from
office either by declaration in writing filed with the custodian of the assets
of the Trust or by votes cast in person or by proxy at a meeting called for the
purpose. The By-Laws also provide that the Trustees shall promptly call a
meeting of shareholders for the purpose of voting upon a question of removal of
a Trustee when requested so to do by the recordholders of not less than 10 per
centum of the outstanding shares.
In accordance with the Declaration of Trust of the 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 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
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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 the Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interests
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
meeting.
The right to redeem shares of the Fund can be suspended and the payment of
the redemption price deferred when the Exchange is closed (other than for
customary weekend and holiday closings), during periods when trading on the
Exchange is restricted as determined by the Commission, or during any emergency
as determined by the Commission which makes it impracticable for the Portfolio
to dispose of its securities or value its assets, or during any other period
permitted by order of the Commission for the protection of investors.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, are the
independent certified public accountants of the Fund and the Portfolio,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the Securities and
Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio, which are included
in the Fund's Annual Report to Shareholders, are incorporated by reference into
this Statement of Additional Information and have been so incorporated in
reliance on the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual Report
accompanies this Statement of Additional Information.
Registrant incorporates by reference the audited financial information for
the Fund's and Portfolio's listed below for the fiscal year ended March 31, 1995
as previously filed electronically with the Securities and Exchange Commission:
EV Classic National Limited Maturity Tax Free Fund
National Limited Maturity Tax Free Portfolio
(Accession No. 0000950146-95-000244)
EV Marathon National Limited Maturity Tax Free Fund
National Limited Maturity Tax Free Portfolio
(Accession No. 0000950146-95-000249)
EV Traditional National Limited Maturity Tax Free Fund
National Limited Maturity Tax Free Portfolio
(Accession No. 0000950146-95-000241)
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APPENDIX
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
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.
---------------
[FN]
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information 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 the Portfolio's fiscal year end.
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NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short term credit risk and long term risk. Factors effecting
the liquidity of the borrower and short term cyclical elements are critical in
short term ratings, while other factors of major importance in bond risk, long
term secular trends for example, may be less important over the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
COMMERCIAL PAPER
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
365 days.
Issuers (or supporting institutions) rated PRIME-1 or P-1 have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
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.
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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.
25
<PAGE>
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: Very strong or 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.
COMMERCIAL PAPER
Standard & Poor's commercial paper ratings are a current assessments of the
likelihood of timely payment of debts considering short-term in the relevant
market.
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short term debt obligations with doubtful
capacity for payment.
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 had not expired, unless S&P believes
that such payments will be made during such grace period.
FITCH INVESTORS SERVICE, INC.
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
obligor's 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
26
<PAGE>
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. The 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.
27
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART II
This Part II provides information about EV TRADITIONAL NATIONAL LIMITED
MATURITY TAX FREE FUND. The investment objective of the Fund is to provide (1) a
high level of current income exempt from regular Federal income tax, and (2)
limited principal fluctuation. The Fund currently seeks to meet its investment
objective by investing its assets in the National Limited Maturity Tax Free
Portfolio (the "Portfolio").
FEES AND EXPENSES
ADMINISTRATOR
As stated under "Investment Adviser and Administrator" in Part I of this
Statement of Additional Information, the Administrator currently receives no
compensation for providing administrative services to the Fund. For the period
from the start of business, June 3, 1994, to March 31, 1995, $33,570 of the
Fund's operating expenses were allocated to the Administrator.
SERVICE PLAN
For the period from the start of business, June 3, 1994, to March 31, 1995,
the Fund did not accrue or pay any service fees under the Plan. The Fund began
accruing for its service fee payments during the quarter ended June 30, 1995.
PRINCIPAL UNDERWRITER
For the period from the start of business, June 3, 1994, to March 31, 1995,
the Fund paid the Principal Underwriter $2.50 for repurchase transactions
handled by the Principal Underwriter (being $2.50 for each such transaction).
For the period from the start of business, June 3, 1994, to March 31, 1995,
total sales charges of $8,585 were paid on sales of Fund shares. All of such
amount was paid to Authorized Firms.
CUSTODIAN
For the period from the start of business, June 3, 1994, to March 31, 1995,
the Fund paid IBT $749.
TRUSTEES
The fees and expenses of those Trustees of the Trust and of the Portfolio
who are not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Fund (and the other series of the Trust) and the Portfolio,
respectively. (The Trustees of the Trust and the Portfolio who are members of
the Eaton Vance organization receive no compensation from the Trust or the
Portfolio.) During the fiscal year ended March 31, 1995, the noninterested
Trustees of the Trust and the Portfolio earned the following compensation in
their capacities as Trustees from the Fund, the Portfolio and the other funds in
the Eaton Vance fund complex(1).
<TABLE>
<CAPTION>
AGGREGATE
AGGREGATE COMPENSATION RETIREMENT
COMPENSATION FROM BENEFIT ACCRUED
NAME FROM FUND PORTFOLIO FROM FUND COMPLEX
-------------------------------------------------- ------------ ------------ ------------------
<S> <C> <C> <C>
Donald R. Dwight.................................. $--0-- $2,114(2) $135,000(4)
Samuel L. Hayes, III.............................. --0-- 2,133(3) 147,500(5)
Norton H. Reamer.................................. --0-- 2,140 135,000
John L. Thorndike................................. --0-- 2,228 140,000
Jack L. Treynor................................... --0-- 2,205 140,000
</TABLE>
[FN]
(1) The Eaton Vance fund complex consists of 205 registered investment companies
or series thereof.
(2) Includes $351 of deferred compensation.
(3) Includes $682 of deferred compensation.
(4) Includes $17,500 of deferred compensation.
(5) Includes $33,750 of deferred compensation.
a-1
<PAGE>
SERVICES FOR ACCUMULATION
The following services are voluntary, involve no extra charge other than the
sales charge included in the offering price, and may be changed or discontinued
without penalty at any time.
INTENDED QUANTITY INVESTMENT -- STATEMENT OF INTENTION. If it is
anticipated that $100,000 or more of Fund shares and shares of the other
continuously offered open-end funds listed under "The Eaton Vance Exchange
Privilege" in the current Prospectus of the 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. For sales charges and other information on quantity
purchases, see "How to Buy Fund Shares" in the Fund's current Prospectus. Any
investor considering signing a Statement of Intention should read it carefully.
RIGHT OF ACCUMULATION -- CUMULATIVE QUANTITY DISCOUNT. The applicable sales
charge level for the purchase of Fund 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 shares the shareholder owns in his
account(s) in the Fund and in the other continuously offered open-end funds
listed under "The Eaton Vance Exchange Privilege" in the current Prospectus of
the Fund for which Eaton Vance acts as investment adviser or administrator at
the time of purchase. The sales charge on the shares being purchased will then
be at the rate applicable to the aggregate. For example, if the shareholder
owned shares valued at $30,000 in EV Traditional California Municipals Fund, and
purchased an additional $70,000 of Fund shares, the sales charge for the $70,000
purchase would be at the rate of 2.00% of the offering price (2.04% of the net
amount invested) which is the rate applicable to single transactions of
$100,000. For sales charges on quantity purchases, see "How to Buy Fund Shares"
in the Fund's current Prospectus. 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 financial service firm ("Authorized Firm") must provide
Eaton Vance Distributors, Inc. (the "Principal Underwriter") (in the case of a
purchase made through an Authorized Firm) 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.
PRINCIPAL UNDERWRITER
Shares of the Fund may be continuously purchased at the public offering
price through certain Authorized Firms which have agreements with the Principal
Underwriter. The Principal Underwriter is a wholly-owned subsidiary of Eaton
Vance. The public offering price is the net asset value next computed after
receipt of the order, plus, where applicable, a variable percentage (sales
charge) depending upon the amount of purchase as indicated by the sales charge
table set forth in the Fund's current Prospectus (see "How to Buy Fund Shares").
Such table is applicable to purchases of the Fund alone or in combination with
purchases of the other funds offered by the Principal Underwriter, made at a
single time by (i) an individual, or an individual, his or her 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 Fund shares,
alone or in combination with purchases of any of the other funds offered by the
Principal Underwriter through one dealer aggregating $100,000 or more made by
any of the persons enumerated above within a thirteen-month period starting with
the first purchase pursuant to a written Statement of Intention, in the form
provided by the Principal Underwriter, which includes provisions for a price
adjustment depending upon the amount actually purchased within such period (a
purchase not made pursuant to such Statement may be included thereunder if the
Statement is filed within 90 days of such purchase); or (2) purchases of the
Fund pursuant to the Right of Accumulation and declared as such at the time of
purchase.
a-2
<PAGE>
Subject to the applicable provisions of the 1940 Act, the Fund may issue
shares at net asset value in the event that an investment company (whether a
regulated or private investment company or a personal holding company) is merged
or consolidated with or acquired by the Fund. Normally no sales charges will be
paid in connection with an exchange of Fund shares for the assets of such
investment company. Shares may also be sold at net asset value to any officer,
director, trustee, general partner or employee of the Fund, the Portfolio or any
investment company for which Eaton Vance or BMR acts as investment adviser, 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,
or any officer, director or employee of any parent, subsidiary or other
affiliate of Eaton Vance. The terms "officer," "director," "trustee," "general
partner" or "employee" as used in this paragraph include any such person's
spouse and minor children, and also retired officers, directors, trustees,
general partners and employees and their spouses and minor children. Shares of
the Fund may also be sold at net asset value to registered representatives and
employees of certain Authorized Firms and to such persons' spouses and children
under the age of 21 and their beneficial accounts.
The Trust reserves the right to suspend or limit the offering of shares of
the Fund to the public at any time.
The Principal Underwriter acts as principal in selling shares of the Fund
under the Distribution Agreement with the Trust on behalf of the Fund. The
expenses of printing copies of prospectuses used to offer shares to Authorized
Firms or investors 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 the Fund and its shares
under Federal and state securities laws are borne by the Fund. The Distribution
Agreement is renewable annually by the Trust's Board of Trustees (including a
majority of its Trustees who are not interested persons of the Principal
Underwriter or the Trust), may be terminated on six months' notice by either
party, and is automatically terminated upon assignment. The Principal
Underwriter distributes Fund shares on a "best efforts" basis under which it is
required to take and pay for only such shares as may be sold. The Fund 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. The Principal Underwriter estimates that the expenses incurred by
it in acting as repurchase agent for the Fund will exceed the amounts paid
therefor by the Fund. For the amount paid by the Fund to the Principal
Underwriter for acting as repurchase agent, see "Fees and Expenses" in this Part
II. The Principal Underwriter allows Authorized Firms discounts from the
applicable public offering price which are alike for all Firms. However, the
Principal Underwriter may allow, upon notice to all Authorized Firms 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 Firms may be deemed to be underwriters as that term is
defined in the Securities Act of 1933. For the amount of sales charges for sales
of Fund shares see "Fees and Expenses" in this Part II.
See the Statement of Assets and Liabilities in the Fund's Financial
Statements in this Part II for a specimen price make-up sheet showing the
computation of maximum offering price per share as at March 31, 1995.
SERVICE PLAN
The Trust on behalf of the Fund has adopted a Service Plan (the "Plan")
designed to meet the requirements of Rule 12b-1 (the "Rule") under the 1940 Act
and the service fee requirements of the revised sales charge rule of the
National Association of Securities Dealers, Inc. (Management believes service
fee payments are not distribution expenses governed by the Rule, but has chosen
to have the Plan approved as if the Rule were applicable.) The following
supplements the discussion of the Plan contained in the Fund's Prospectus.
The Plan remains in effect through April 28, 1996, and from year to year
thereafter, provided such continuance is approved by a vote of both a majority
of (i) those Trustees who are not interested persons of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "Rule 12b-1 Trustees") and (ii) all of the
Trustees then in office, cast in person at a meeting (or meetings) called for
the purpose of voting on this Plan. The Plan may be terminated any time by vote
of the Rule 12b-1 Trustees or by a vote of a majority of the outstanding voting
securities of the Fund. Pursuant to the Rule, the Plan has been approved by the
Fund's initial sole shareholder (Eaton Vance) and by the Board of Trustees of
the Trust, including the Rule 12b-1 Trustees.
Under the Plan, the President or a Vice President of the Trust shall provide
to the Trustees for their review, and the Trustees shall review at least
quarterly, a written report of the amount expended under the Plan and the
purposes for which such expenditures were made. The Plan may not be amended to
increase materially the payments described herein without approval of the
shareholders of the Fund, and all material amendments of the Plan must also be
approved by the Trustees of the Trust as prescribed by the Rule. So long as the
Plan is in effect,
a-3
<PAGE>
the selection and nomination of Trustees who are not interested persons of the
Trust shall be committed to the discretion of the Trustees who are not such
interested persons. The Trustees have determined that in their judgment there is
a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. For the service fees paid by the Fund under the Plan, see "Fees
and Expenses" in this Part II.
PERFORMANCE INFORMATION
the tables below indicate the total return (capital changes plus
reinvestment of all distributions) and percentage changes on a hypothetical
investment of $1,000 in the Fund covering the life of the Fund through March 31,
1995. The total return and percentage changes for the period prior to the Fund's
commencement of operations on June 3, 1994 reflect the Portfolio's total return
and percentage changes (or that of its predecessor) adjusted to reflect any
applicable Fund sales charge. Such performance has not been adjusted to reflect
the Fund's distribution fees and certain other expenses.
VALUE OF A $1,000 INVESTMENT*
<TABLE>
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING SALES CHARGE INCLUDING SALES CHARGE
INVESTMENT INVESTMENT AMOUNT OF VALUE OF INVESTMENT -------------------------- --------------------------
PERIOD DATE INVESTMENT** ON 3/31/95 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
----------------- ----------- ---------- ------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund
(2.86 Years) 5/22/92 $975.00 $1,139.19 16.84% 5.51% 13.92% 4.60%
1 Year Ended
03/31/95 3/31/95 $975.00 $1,023.17 4.94% 4.94% 2.32% 2.32%
</TABLE>
PERCENTAGE CHANGES* 5/22/92 -- 3/31/95
<TABLE>
<CAPTION>
NET ASSET VALUE TO NET ASSET VALUE MAXIMUM OFFERING PRICE TO NET ASSET VALUE
WITH ALL DISTRIBUTIONS REINVESTED WITH ALL DISTRIBUTIONS REINVESTED
------------------------------------------ ------------------------------------------
PERIOD ENDED ANNUAL CUMULATIVE AVERAGE ANNUAL ANNUAL CUMULATIVE AVERAGE ANNUAL
------------ ------- ---------- ---------------- ------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
3/31/93 -- 9.05% -- -- 6.32% --
3/31/94 2.10% 11.34% 5.82% -0.45% 8.56% 4.42%
3/31/95 4.94% 16.84% 5.51% 2.32% 13.92% 4.60%
</TABLE>
Past performance is not indicative of future results. Investment return and
principal value will fluctuate; shares, when redeemed, may be worth more or less
than their original cost.
---------------
[FN]
* If a portion of the Fund's expenses had not been subsidized, the Fund would
have had lower returns.
** Initial investment less the applicable maximum sales charge of 2.50%.
For the thirty-day period ended March 31, 1995, the yield of the Fund was
4.81%. The yield required of a taxable security that would produce an after-tax
yield equivalent to that earned by the Fund of 4.81% would be 6.97%, assuming a
Federal tax rate of 31%. If a portion of the Fund's expenses had not been
allocated to the Administrator, the Fund would have had a lower yield.
The Fund's distribution rate (calculated on March 31, 1995 and based on the
Fund's monthly distribution paid March 31, 1995) was 4.81%, and the Fund's
effective distribution rate (calculated on the same date and based on the same
monthly distribution) was 4.92%. If a portion of the Fund's expenses had not
been allocated to the Administrator, the Fund would have had a lower
distribution rate and effective distribution rate.
a-4
<PAGE>
The following table compares the taxable equivalent yield of an investment
in the Fund yielding a hypothetical 5% with the after-tax yield of a certificate
of deposit yielding 3.25%. The tax brackets used are the Federal income tax
brackets applicable for 1995: 15% for single filers with taxable income up to
$23,350 and joint filers up to $39,000; 28% for single filers with taxable
income from $23,351 to $56,550 and joint filers from $39,001 to $94,250; 31% for
single filers with taxable income from $56,551 to $117,950 and joint filers from
$94,251 to $143,600; 36% for single filers with taxable income from $117,951 to
$256,500 and joint filers from $143,601 to $256,500; and 39.6% for single and
joint filers with taxable income over $256,500. These brackets do not take into
account the phaseout of personal exemptions and limitation on deductibility of
itemized deductions over certain ranges of income, which increase the effective
top Federal tax rate for certain taxpayers. Investors should consult with their
tax advisers for more information.
<TABLE>
<CAPTION>
TAX BRACKET
15% 28% 31% 36% 39.6%
----------------------------------------
<S> <C> <C> <C> <C> <C>
Tax free yield.............................................. 5.00% 5.00% 5.00% 5.00% 5.00%
Taxable equivalent.......................................... 5.88 6.94 7.25 7.81 8.28
Certificates of deposit:
Yield..................................................... 3.25 3.25 3.25 3.25 3.25
After-tax yield........................................... 2.76 2.34 2.24 2.08 1.96
</TABLE>
The following is an illustration of the Tax Free Yield Advantage, comparing
after-tax yields of a certificate of deposit yielding 3.25% and a hypothetical
tax free investment yielding 5.0%. This illustration also quantifies the Federal
income tax payable on hypothetical investments of $100,000 in a certificate of
deposit yielding 3.25% and a tax free investment yielding 5.0%, and compares the
after-tax return of such investments. The chart is based on 3-month bank CDs
(Source: The Wall Street Journal) and current limited maturity municipal bond
yields, compiled by Eaton Vance Management. Tax free yields are for illustration
purposes only and are not meant to imply or predict any future rate of return
for the Fund. See your financial adviser for the Fund's current yield and actual
CD rates.
[Bar graph depicting The Tax Free Yield Advantage
(36% Federal tax bracket)]
Example:
Two $100,000 investments...
<TABLE>
<CAPTION>
5.00%
3.25% Tax
CD free
----- -----
<S> <C> <C>
Pretax income: $3,250.00 $5,000.00
Tax: (1,170.00) NONE
--------- ---------
After-tax income: $2,080.00 $5,000.00
</TABLE>
a-5
<PAGE>
From time to time, information, charts and illustrations similar to the
following, showing changes in certificate of deposit yields, and yields and
taxable equivalent yields of limited maturity municipal bonds may be included in
advertisements and other material supplied to present and prospective
shareholders.
[Bar Chart depicting how far CD yields have fallen
from 1985 to 1994.]
Here's How Far CD Yields Have Fallen...
Average annual yields
Taxable 3-month bank certificates of deposit
Limited maturity municipal bonds:
Tax free yield
Taxable equivalent (36% bracket)
(plot points for vertical bar chart follow)
NATIONAL
Average Ltd Mat Taxable Equivalent Yield
Year CD Rate Muni Yields (36% bracket)
1985 7.34 7.86 12.28
1986 5.74 6.23 9.73
1987 7.25 6.43 10.05
1988 8.10 6.61 10.33
1989 7.82 6.73 10.52
1990 7.38 6.69 10.45
1991 5.36 6.00 9.38
1992 3.08 5.38 8.41
1993 2.69 4.65 7.27
1994 3.22 5.40 8.44
Sources: CDs -- The Wall Street Journal, Rategram;
Limited maturity municipal bonds -- Lehman Brothers, Inc.,
7-year General Obligation Municipal Bond Index.
This chart is for illustration purposes only; the performance of the bond index
is not indicative of the Fund's performance.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at June 30, 1995, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Fund. As of
June 30, 1995, Merrill Lynch, Pierce, Fenner & Smith, Jacksonville, FL and Mars
& Co., Boston, MA were the record owners of approximately 49.8% and 39.2%,
respectively, of the outstanding shares, which they held on behalf of their
customers who are the beneficial owners of such shares, and as to which they had
voting power under certain limited circumstances. In addition, as of such date,
the following shareholder owned beneficially and of record the percentage of
outstanding shares of the Fund indicated: Charles C. Cunningham Jr., c/o Eaton &
Howard VS Inc., Boston, MA (5.9%). To the Trust's knowledge, no other person
owned of record or beneficially 5% or more of the Fund's outstanding shares as
of such date.
a-6
<PAGE>
TAX EQUIVALENT YIELD TABLE
The table below shows the approximate taxable bond yields which are
equivalent to tax-exempt bond yields from 5% to 8% under the regular Federal
income tax laws and tax rates applicable for 1995.
<TABLE>
<CAPTION>
MARGINAL
SINGLE RETURN JOINT RETURN INCOME TAX-EXEMPT YIELD
----------------- ----------------- TAX ------------------------------------------------------------------
(TAXABLE INCOME)* BRACKET 5% 5.5% 6% 6.5% 7% 7.5% 8%
--------------------------------------- --------- ------------------------------------------------------------------
EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 23,350 Up to $ 39,000 15.00% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 28.00 6.94 7.64 8.33 9.03 9.72 10.42 11.11
$ 56,551-$117,950 $ 94,251-$143,600 31.00 7.25 7.97 8.70 9.42 10.14 10.87 11.59
$117,951-$256,500 $143,601-$256,500 36.00 7.81 8.59 9.38 10.16 10.94 11.72 12.50
Over $256,500 Over $256,500 39.60 8.28 9.11 9.93 10.76 11.59 12.42 13.25
--------------------------------------- ------- ------------------------------------------------------------------
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield.
<FN>
* Net amount subject to Federal personal income tax after deductions and
exemptions.
</TABLE>
Note: The above-indicated Federal Income Tax Brackets do not take into account
the effect of a reduction in the deductibility of Itemized Deductions for
taxpayers with Adjusted Gross Income in excess of $114,700, nor the effects of
phaseout of personal exemptions for single and joint filers with Adjusted Gross
Incomes in excess of $114,700 and $172,050, respectively. The effective top
marginal Federal income tax brackets of taxpayers over ranges of income subject
to these reductions or phaseouts will be higher than indicated above.
Of course, no assurance can be given that EV Traditional National Limited
Maturity Tax Free Fund will achieve any specific tax exempt yield. While it is
expected that a substantial portion of the interest income distributed to the
Fund's shareholders will be exempt from the regular Federal income tax, other
income received by the Portfolio and allocated to the Fund may be taxable. This
table does not take into account state or local taxes, if any, payable on Fund
distributions. It should also be noted that 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 or increase the recipient's liability for the Federal
alternative minimum tax. The illustrations assume that the Federal alternative
minimum tax is not applicable and do not take into account any tax credits that
may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax equivalent yields
set forth above.
a-7
<PAGE>
INVESTMENT ADVISER OF
NATIONAL LIMITED MATURITY
TAX FREE PORTFOLIO
Boston Management and Research
24 Federal Street
Boston, MA 02110
ADMINISTRATOR OF EV TRADITIONAL
NATIONAL LIMITED MATURITY TAX FREE FUND
Eaton Vance Management
24 Federal Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
Eaton Vance Distributors, Inc.
24 Federal Street
Boston, MA 02110
(800) 225-6265
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, MA 02110
TRANSFER AGENT
The Shareholder Services Group, Inc.
BOS725
P.O. Box 1559
Boston, MA 02104
(800) 262-1122
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
EV TRADITIONAL
NATIONAL LIMITED MATURITY TAX FREE FUND
24 FEDERAL STREET
BOSTON, MA 02110
T-LNASAI
[LOGO]
EV TRADITIONAL
NATIONAL
LIMITED MATURITY
TAX FREE FUND
STATEMENT OF
ADDITIONAL
INFORMATION
AUGUST 1, 1995
