<PAGE>
As filed with the Securities and Exchange Commission on July 22, 1999
1933 Act File No. 33-1121
1940 Act File No. 811-4443
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 42 [X]
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 45 [X]
EATON VANCE INVESTMENT TRUST
----------------------------
(Exact Name of Registrant as Specified in Charter)
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
-----------------------------------------------------------------------
(Address of Principal Executive Offices)
(617) 482-8260
--------------
(Registrant's Telephone Number)
ALAN R. DYNNER
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective pursuant to Rule 485
(check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on August 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] this post effective amendment designates a new effective date for a
previously filed post-effective amendment.
California Limited Maturity Municipals Portfolio, Connecticut Limited Maturity
Municipals Portfolio, Florida Limited Maturity Municipals Portfolio,
Massachusetts Limited Maturity Municipals Portfolio, Michigan Limited Maturity
Municipals Portfolio, National Limited Maturity Municipals Portfolio, New Jersey
Limited Maturity Municipals Portfolio, New York Limited Maturity Municipals
Portfolio, Ohio Limited Maturity Municipals Portfolio and Pennsylvania Limited
Maturity Municipals Portfolio have also executed this Registration Statement.
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<PAGE>
LOGO
Mutual Funds
for People
Who Pay
Taxes
EATON VANCE CALIFORNIA LIMITED MATURITY MUNICIPALS FUND
EATON VANCE CONNECTICUT LIMITED MATURITY MUNICIPALS FUND
EATON VANCE FLORIDA LIMITED MATURITY MUNICIPALS FUND
EATON VANCE MASSACHUSETTS LIMITED MATURITY MUNICIPALS FUND
EATON VANCE MICHIGAN LIMITED MATURITY MUNICIPALS FUND
EATON VANCE NEW JERSEY LIMITED MATURITY MUNICIPALS FUND
EATON VANCE NEW YORK LIMITED MATURITY MUNICIPALS FUND
EATON VANCE OHIO LIMITED MATURITY MUNICIPALS FUND
EATON VANCE PENNSYLVANIA LIMITED MATURITY MUNICIPALS FUND
Mutual funds seeking tax-exempt income and limited principal fluctuation
Prospectus Dated
August 1, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
Information in this prospectus
Page Page
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Fund Summaries 2 Sales Charges 17
Investment Objectives & Principal Redeeming Shares 18
Policies and Risks 14 Shareholder Account
Management and Organization 15 Features 19
Valuing Shares 16 Tax Information 20
Purchasing Shares 16 Financial Highlights 23
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This prospectus contains important information about the Funds and the services
available to shareholders. Please save it for reference.
<PAGE>
FUND SUMMARIES
This section summarizes the investment objectives, and principal strategies and
risks of investing in an Eaton Vance Limited Maturity Municipals Fund. You will
find more specific information about each Fund in the pages that follow.
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The investment objective of each Fund is to provide a high level of current
income exempt from regular federal income tax and from particular state or local
income or other taxes, and limited principal fluctuation. Each Fund primarily
invests in investment grade municipal obligations (those rated BBB or Baa or
higher), but may also invest in lower quality obligations. Each Fund invests in
obligations having a dollar weighted average duration of between three and nine
years.
Each Fund may concentrate in certain types of municipal obligations (such as
industrial development bonds, housing bonds, hospital bonds or utility bonds),
so Fund shares could be affected by events that adversely affect a particular
sector. Each Fund may purchase derivative instruments (such as futures contracts
and options thereon), bonds that do not require the periodic payment of
interest, bonds issued on a "when issued" basis and municipal leases. A portion
of each Fund's distributions generally will be subject to alternative minimum
tax.
Each portfolio manager purchases and sells securities to maintain a competitive
yield and to enhance return based upon the relative value of the securities in
the marketplace. The portfolio managers may also trade securities to minimize
taxable capital gains to shareholders. The managers attempt to limit principal
fluctuation by investing in a portfolio of obligations having a dollar weighted
average duration of between three and nine years.
Each Fund currently invests its assets in a separate registered investment
company with the same investment objective and policies as that Fund.
PRINCIPAL RISK FACTORS
Because a significant portion of assets is invested in obligations of issuers
located in a single state, each Fund is sensitive to factors affecting that
state, such as changes in the economy, decreases in tax collection or the tax
base, legislation which limits taxes and changes in issuer credit ratings. Each
Fund is non-diversified, which means that it may invest a larger portion of its
assets in the obligations of a limited number of issuers than a diversified
fund, and may be adversely affected by developments affecting a particular
issuer.
Because obligations rated BBB or Baa and below are more sensitive to the
financial soundness of their issuers than higher quality obligations, Fund
shares may fluctuate more in value than shares of a fund investing solely in
higher quality obligations. Obligations rated BBB or Baa have speculative
characteristics, while lower rated obligations (so-called "junk bonds") are
predominantly speculative. The credit ratings assigned a state's general
obligations (if any) by Standard & Poor's Ratings Group ("S&P"), Moody's
Investors Service, Inc. ("Moody's") and Fitch IBCA ("Fitch") are contained in
the Fund-specific summaries that follow this page.
The value of Fund shares may change when interest rates change. When interest
rates rise, the value of Fund shares typically will decline. Fund yields will
also fluctuate over time. A Fund's use of derivatives is subject to certain
limitations and may expose the Funds to increased risk of principal loss due to
imperfect correlation, failure of the counterparty and unexpected price or
interest rate movements.
When-issued securities are subject to the risk that when delivered to the Fund
they will be worth less than the price the Fund agreed to pay for them.
Municipal leases often require a legislative appropriation of funds for payment.
If the necessary appropriation is not made, the issuer of the lease may not be
able to meet its obligations.
No Fund is a complete investment program and you may lose money by investing in
a Fund. An investment in a Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
<PAGE>
EATON VANCE CALIFORNIA LIMITED MATURITY MUNICIPALS FUND
The California Fund's investment objective is to provide a high level of current
income exempt from regular federal income taxes and California state personal
income taxes, and limited principal fluctuation. The Fund currently invests its
assets in California Limited Maturity Municipals Portfolio (the "California
Portfolio"). California general obligations currently are rated AA3, A+ and AA-
by Moody's, S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the California Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of intermediate-maturity
municipal obligations. Although past performance is no guarantee of future
results, this performance information demonstrates the risk that the value of
your investment will change. The following returns are for Class B shares for
each calendar year through December 31, 1998 and do not reflect a sales charge.
If the sales charge was reflected, the returns would be lower.
9.30% -4.90% 10.86% 2.57% 6.35% 4.55%
1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 4.55% for the quarter ended March
31, 1995, and its lowest quarterly return was -3.96% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to June 30, 1999) was -2.14%. For the 30
days ended March 31, 1999, the SEC yield and SEC tax- equivalent yield (assuming
a combined state and federal tax rate of 37.42%) for Class A shares were 3.26%
and 5.21%, respectively, and for Class B shares were 2.59% and 4.14%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 2.92% 3.64% 5.19%
Class B Shares 1.55% 3.75% 4.93%
Lehman Brothers 7-Year Municipal Bond Index 6.22% 5.78% 6.90%
</TABLE>
These returns reflect the maximum sales charge for Class A (2.25%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to June 27, 1996 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on May 29, 1992. Life of Fund returns are calculated from May 31,
1992. The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index of
intermediate-maturity municipal obligations. Investors cannot invest directly in
an Index. (Source for Lehman Brothers 7-Year Municipal Bond Index: Lipper Inc.)
3
<PAGE>
EATON VANCE CONNECTICUT LIMITED MATURITY MUNICIPALS FUND
The Connecticut Fund's investment objective is to provide a high level of
current income exempt from regular federal income taxes and Connecticut state
personal income taxes, and limited principal fluctuation. The Fund currently
invests its assets in Connecticut Limited Maturity Municipals Portfolio (the
"Connecticut Portfolio"). Connecticut general obligations currently are rated
AA3, AA and AA by Moody's, S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Connecticut Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of intermediate-maturity
municipal obligations. Although past performance is no guarantee of future
results, this performance information demonstrates the risk that the value of
your investment will change. The following returns are for Class B shares for
each calendar year through December 31, 1998 and do not reflect a sales charge.
If the sales charge was reflected, the returns would be lower.
-3.70% 10.96% 2.49% 6.18% 4.02%
1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 4.14% for the quarter ended March
31, 1995, and its lowest quarterly return was -3.82% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to June 30, 1999) was -1.16%. For the 30
days ended March 31, 1999, the SEC yield and SEC tax-equivalent yield (assuming
a combined state and federal tax rate of 34.11%) for Class A shares were 2.15%
and 3.26%, respectively, and for Class B shares were 1.47% and 2.23%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 2.43% 3.69% 4.52%
Class B Shares 1.02% 3.88% 4.28%
Lehman Brothers 7-Year Municipal Bond Index 6.22% 5.78% 6.24%
</TABLE>
These returns reflect the maximum sales charge for Class A (2.25%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to January 21, 1997 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on April 16, 1993. Life of Fund returns are calculated from April 30,
1993. The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index of
intermediate-maturity municipal obligations. Investors cannot invest directly in
an Index. (Source for Lehman Brothers 7-Year Municipal Bond Index: Lipper Inc.)
4
<PAGE>
EATON VANCE FLORIDA LIMITED MATURITY MUNICIPALS FUND
The Florida Fund's investment objective is to provide a high level of current
income exempt from regular federal income taxes in the form of an investment
exempt from Florida intangibles tax, and limited principal fluctuation. The Fund
currently invests its assets in Florida Limited Maturity Municipals Portfolio
(the "Florida Portfolio"). Florida general obligations currently are rated AA2,
AA+ and AA by Moody's, S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Florida Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of intermediate-maturity
municipal obligations. Although past performance is no guarantee of future
results, this performance information demonstrates the risk that the value of
your investment will change. The following returns are for Class B shares for
each calendar year through December 31, 1998 and do not reflect a sales charge.
If the sales charge was reflected, the returns would be lower.
9.94% -4.03% 10.69% 1.56% 5.12% 4.59%
1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 4.27% for the quarter ended March
31, 1995, and its lowest quarterly return was -4.50% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to June 30, 1999) was -1.79%. For the 30
days ended March 31, 1999, the SEC yield and SEC tax-equivalent yield for Class
A shares (assuming a combined state and federal tax rate of 35.05%) were 3.40%
and 5.23%, respectively, for Class B shares (assuming a combined state and
federal tax rate of 36.05%) were 2.74% and 4.28%, respectively, and for Class C
shares (assuming a combined state and federal tax rate of 36.05%) were 2.73% and
4.27%, respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 2.94% 3.34% 5.08%
Class B Shares 1.58% 3.47% 4.81%
Class C Shares 3.56% 3.50% 4.73%
Lehman Brothers 7-Year Municipal Bond Index 6.22% 5.78% 6.90%
</TABLE>
These returns reflect the maximum sales charge for Class A (2.25%) and any
applicable CDSC for Class B and Class C. The Class A and Class C performance
shown above for the period prior to June 27, 1996 and December 8, 1993,
respectively, is the performance of Class B shares, adjusted for the sales
charge that applies to Class A and Class C shares (but not adjusted for any
other differences in the expenses of the classes). Class B shares commenced
operations on May 29, 1992. Life of Fund returns are calculated from May 31,
1992. The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index of
intermediate-maturity municipal obligations. Investors cannot invest directly in
an Index. (Source for Lehman Brothers 7-Year Municipal Bond Index: Lipper Inc.)
5
<PAGE>
EATON VANCE MASSACHUSETTS LIMITED MATURITY MUNICIPALS FUND
The Massachusetts Fund's investment objective is to provide a high level of
current income exempt from regular federal income taxes and Massachusetts state
personal income taxes, and limited principal fluctuation. The Fund currently
invests its assets in Massachusetts Limited Maturity Municipals Portfolio (the
"Massachusetts Portfolio"). Massachusetts general obligations currently are
rated AA3, AA- and AA- by Moody's, S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Massachusetts Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of intermediate-maturity
municipal obligations. Although past performance is no guarantee of future
results, this performance information demonstrates the risk that the value of
your investment will change. The following returns are for Class B shares for
each calendar year through December 31, 1998 and do not reflect a sales charge.
If the sales charge was reflected, the returns would be lower.
9.13% -3.51% 10.46% 2.12% 6.18% 4.43%
1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 4.22% for the quarter ended March
31, 1995, and its lowest quarterly return was -4.08% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to June 30, 1999) was -1.89%. For the 30
days ended March 31, 1999, the SEC yield and SEC tax-equivalent yield (assuming
a combined state and federal tax rate of 39.28%) for Class A shares were 3.33%
and 5.48%, respectively, for Class B shares were 2.66% and 4.38%, respectively,
and for Class C shares were 2.67% and 4.40%, respectively. For current yield
information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 2.81% 3.71% 5.15%
Class B Shares 1.42% 3.83% 4.88%
Class C Shares 3.32% 3.88% 4.83%
Lehman Brothers 7-Year Municipal Bond Index 6.22% 5.78% 6.74%
</TABLE>
These returns reflect the maximum sales charge for Class A (2.25%) and any
applicable CDSC for Class B and Class C. The Class A and Class C performance
shown above for the period prior to June 27, 1996 and December 8, 1993,
respectively, is the performance of Class B shares, adjusted for the sales
charge that applies to Class A and Class C shares (but not adjusted for any
other differences in the expenses of the classes). Class B shares commenced
operations on June 1, 1992. Life of Fund returns are calculated from June 30,
1992. The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index of
intermediate-maturity municipal obligations. Investors cannot invest directly in
an Index. (Source for Lehman Brothers 7-Year Municipal Bond Index: Lipper Inc.)
6
<PAGE>
EATON VANCE MICHIGAN LIMITED MATURITY MUNICIPALS FUND
The Michigan Fund's investment objective is to provide a high level of current
income exempt from regular federal income taxes and Michigan state and city
income and single business taxes, and limited principal fluctuation. The Fund
currently invests its assets in Michigan Limited Maturity Municipals Portfolio
(the "Michigan Portfolio"). Michigan general obligations currently are rated
AA1, AA+ and AA+ by Moody's, S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Michigan Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of intermediate-maturity
municipal obligations. Although past performance is no guarantee of future
results, this performance information demonstrates the risk that the value of
your investment will change. The following returns are for Class B shares for
each calendar year through December 31, 1998 and do not reflect a sales charge.
If the sales charge was reflected, the returns would be lower.
-4.36% 10.91% 2.96% 6.18% 3.63%
1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 4.43% for the quarter ended March
31, 1995, and its lowest quarterly return was -4.18% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to June 30, 1999) was -2.03%. For the 30
days ended March 31, 1999, the SEC yield and SEC tax-equivalent yield (assuming
a combined state and federal tax rate of 35.33%) for Class A shares were 2.33%
and 3.60%, respectively, and for Class B shares were 1.63% and 2.52%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 1.99% 3.58% 4.45%
Class B Shares 0.63% 3.74% 4.18%
Lehman Brothers 7-Year Municipal Bond Index 6.22% 5.78% 6.24%
</TABLE>
These returns reflect the maximum sales charge for Class A (2.25%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to October 22, 1996 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on April 16, 1993. Life of Funds returns are calculated from April
30, 1993. The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index
of intermediate-maturity municipal obligations. Investors cannot invest directly
in an Index. (Source for Lehman Brothers 7-Year Municipal Bond Index: Lipper
Inc.)
7
<PAGE>
EATON VANCE NEW JERSEY LIMITED MATURITY MUNICIPALS FUND
The New Jersey Fund's investment objective is to provide a high level of current
income exempt from regular federal income taxes and New Jersey state personal
income taxes, and limited principal fluctuation. The Fund currently invests its
assets in New Jersey Limited Maturity Municipals Portfolio (the "New Jersey
Portfolio"). New Jersey general obligations currently are rated AA1, AA- and AA+
by Moody's, S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the New Jersey Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of intermediate-maturity
municipal obligations. Although past performance is no guarantee of future
results, this performance information demonstrates the risk that the value of
your investment will change. The following returns are for Class B shares for
each calendar year through December 31, 1998 and do not reflect a sales charge.
If the sales charge was reflected, the returns would be lower.
8.85% -3.56% 10.40% 2.31% 5.91% 3.88%
1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 4.08% for the quarter ended March
31, 1995, and its lowest quarterly return was -3.98% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to June 30, 1999) was -1.36%. For the 30
days ended March 31, 1999, the SEC yield and SEC tax-equivalent yield (assuming
a combined state and federal tax rate of 35.40%) for Class A shares were 3.33%
and 5.15%, respectively, and for Class B shares were 2.65% and 4.10%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 2.28% 3.57% 5.10%
Class B Shares 0.88% 3.69% 4.83%
Lehman Brothers 7-Year Municipal Bond Index 6.22% 5.78% 6.74%
</TABLE>
These returns reflect the maximum sales charge for Class A (2.25%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to June 27, 1996 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on June 1, 1992. Life of Fund returns are calculated from June 30,
1992. The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index of
intermediate-maturity municipal obligations. Investors cannot invest directly in
an Index. (Source of Lehman Brothers 7-Year Municipal Bond Index: Lipper Inc.)
8
<PAGE>
EATON VANCE NEW YORK LIMITED MATURITY MUNICIPALS FUND
The New York Fund's investment objective is to provide a high level of current
income exempt from regular federal income taxes and New York state and New York
City personal income taxes, and limited principal fluctuation. The Fund
currently invests its assets in New York Limited Maturity Municipals Portfolio
(the "New York Portfolio"). New York's general obligation bonds currently are
rated A2, A and A+ by Moody's, S&P and Fitch, respectively. New York City's
general obligation bonds currently are rated A3, A- and A by Moody's, S&P and
Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the New York Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of intermediate-maturity
municipal obligations. Although past performance is no guarantee of future
results, this performance information demonstrates the risk that the value of
your investment will change. The following returns are for Class B shares for
each calendar year through December 31, 1998 and do not reflect a sales charge.
If the sales charge was reflected, the returns would be lower.
9.31% -4.24% 10.97% 2.10% 7.30% 4.70%
1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 4.40% for the quarter ended March
31, 1995, and its lowest quarterly return was -4.24% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to June 30, 1999) was -1.30%. For the 30
days ended March 31, 1999, the SEC yield and SEC tax-equivalent yield (assuming
a combined state and federal tax rate of 38.80%) for Class A shares were 3.70%
and 6.05%, respectively, for Class B shares were 3.03% and 4.95%, respectively,
and for Class C shares were 3.04% and 6.05%, respectively. For current yield
information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 3.11% 3.92% 5.44%
Class B Shares 1.70% 4.04% 5.17%
Class C Shares 3.70% 4.04% 5.08%
Lehman Brothers 7-Year Municipal Bond Index 6.22% 5.78% 6.90%
</TABLE>
These returns reflect the maximum sales charge for Class A (2.25%) and any
applicable CDSC for Class B and Class C. The Class A and Class C performance
shown above for the period prior to June 27, 1996 and December 8, 1993,
respectively, is the performance of Class B shares, adjusted for the sales
charge that applies to Class A and Class C shares (but not adjusted for any
other differences in the expenses of the classes). Class B shares commenced
operations on May 29, 1992. Life of Fund returns are calculated from May 31,
1992. The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index of
intermediate-maturity municipal obligations. Investors cannot invest directly in
an Index. (Source for Lehman Brothers 7-Year Municipal Bond Index: Lipper Inc.)
9
<PAGE>
EATON VANCE OHIO LIMITED MATURITY MUNICIPALS FUND
The Ohio Fund's investment objective is to provide a high level of current
income exempt from regular federal income taxes and Ohio state personal income
taxes, and limited principal fluctuation. The Fund currently invests its assets
in Ohio Limited Maturity Municipals Portfolio (the "Ohio Portfolio"). Ohio
general obligations currently are rated AA1, AA+ and A+ by Moody's, S&P and
Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Ohio Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of intermediate-maturity
municipal obligations. Although past performance is no guarantee of future
results, this performance information demonstrates the risk that the value of
your investment will change. The following returns are for Class B shares for
each calendar year through December 31, 1998 and do not reflect a sales charge.
If the sales charge was reflected, the returns would be lower.
-4.02% 10.73% 3.01% 6.16% 4.27%
1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 4.16% for the quarter ended March
31, 1995, and its lowest quarterly return was -4.24% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to June 30, 1999) was -1.66%. For the 30
days ended March 31, 1999, the SEC yield and SEC tax-equivalent yield (assuming
a combined state and federal tax rate of 35.76%) for Class A shares were 3.13%
and 4.87%, respectively, and for Class B shares were 2.47% and 3.84%,
respectively. For current yield information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 2.71% 3.75% 4.72%
Class B Shares 1.27% 3.92% 4.45%
Lehman Brothers 7-Year Municipal Bond Index 6.22% 5.78% 6.24%
</TABLE>
These returns reflect the maximum sales charge for Class A (2.25%) and any
applicable CDSC for Class B. The Class A performance shown above for the period
prior to October 22, 1996 is the performance of Class B shares, adjusted for the
sales charge that applies to Class A shares (but not adjusted for any other
differences in the expenses of the two classes). Class B shares commenced
operations on April 16, 1993. Life of Fund returns are calculated from April 30,
1993. The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index of
intermediate-maturity municipal obligations. Investors cannot invest directly in
an Index. (Source for Lehman Brothers 7-Year Municipal Bond Index: Lipper Inc.)
10
<PAGE>
EATON VANCE PENNSYLVANIA LIMITED MATURITY MUNICIPALS FUND
The Pennsylvania Fund's investment objective is to provide a high level of
current income exempt from regular federal income taxes and Pennsylvania state
and local taxes in the form of an investment exempt from Pennsylvania personal
property taxes, and limited principal fluctuation. The Fund currently invests
its assets in Pennsylvania Limited Maturity Municipals Portfolio (the
"Pennsylvania Portfolio"). Pennsylvania general obligations currently are rated
AA3, AA and AA by Moody's, S&P and Fitch, respectively.
PERFORMANCE INFORMATION. The following bar chart and table provide information
about the Pennsylvania Fund's performance, including a comparison of the Fund's
performance to the performance of a national index of intermediate-maturity
municipal obligations. Although past performance is no guarantee of future
results, this performance information demonstrates the risk that the value of
your investment will change. The following returns are for Class B shares for
each calendar year through December 31, 1998 and do not reflect a sales charge.
If the sales charge was reflected, the returns would be lower.
9.27% -3.80% 10.34% 2.31% 7.12% 4.03%
1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 4.08% for the quarter ended March
31, 1995, and its lowest quarterly return was -4.20% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to June 301, 1999) was -1.12%. For the 30
days ended March 31, 1999, the SEC yield and SEC tax-equivalent yield (assuming
a combined state and federal tax rate of 33.80%) for Class A shares were 3.46%
and 5.23%, respectively, for Class B shares were 2.79% and 4.21%, respectively,
and for Class C shares were 2.80% and 4.23%, respectively. For current yield
information call 1-800-225-6265.
<TABLE>
<CAPTION>
One Five Life of
Average Annual Total Return as of December 31, 1998 Year Years Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 2.46% 3.76% 5.34%
Class B Shares 1.03% 3.89% 5.07%
Class C Shares 2.88% 3.97% 5.04%
Lehman Brothers 7-Year Municipal Bond Index 6.22% 5.78% 6.74%
</TABLE>
These returns reflect the maximum sales charge for Class A (2.25%) and any
applicable CDSC for Class B and Class C. The Class A and Class C performance
shown above for the period prior to June 27, 1996 and December 8, 1993,
respectively, is the performance of Class B shares, adjusted for the sales
charge that applies to Class A and Class C shares (but not adjusted for any
other differences in the expenses of the classes). Class B shares commenced
operations on June 1, 1992. Life of Fund returns are calculated from June 30,
1992. The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index of
intermediate-maturity municipal obligations. Investors cannot invest directly in
an Index. (Source for Lehman Brothers 7-Year Municipal Bond Index: Lipper Inc.)
11
<PAGE>
FUND FEES AND EXPENSES. These tables describe the fees and expenses that you may
pay if you buy and hold shares.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
Class A Class B Class C
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) (as a percentage of offering price) 2.25% None None
Maximum Deferred Sales Charge (Load) (as a percentage of the lower of net
asset value at time of purchase or time of redemption) None 3.00% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None None None
Exchange Fee None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
Management Distribution and Other Total Annual Fund
Fees Service (12b-1) Fees** Expenses*** Operating Expenses
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Fund Class A shares 0.46% 0.00% 0.49% 0.95%
Class B shares 0.46% 0.82% 0.34% 1.62%
- ------------------------------------------------------------------------------------------------------------------
Connecticut Fund* Class A shares 0.46% 0.00% 0.93% 1.39%
Class B shares 0.46% 0.84% 0.74% 2.04%
- ------------------------------------------------------------------------------------------------------------------
Florida Fund Class A shares 0.46% 0.00% 0.44% 0.90%
Class B shares 0.46% 0.87% 0.30% 1.63%
Class C shares 0.46% 0.90% 0.30% 1.66%
- ------------------------------------------------------------------------------------------------------------------
Massachusetts Fund Class A shares 0.46% 0.00% 0.48% 0.94%
Class B shares 0.46% 0.90% 0.34% 1.70%
Class C shares 0.46% 0.90% 0.34% 1.70%
- ------------------------------------------------------------------------------------------------------------------
Michigan Fund Class A shares 0.47% 0.00% 0.85% 1.32%
Class B shares 0.47% 0.85% 0.70% 2.02%
- ------------------------------------------------------------------------------------------------------------------
New Jersey Fund Class A shares 0.46% 0.00% 0.49% 0.95%
Class B shares 0.46% 0.91% 0.35% 1.72%
- ------------------------------------------------------------------------------------------------------------------
New York Fund Class A shares 0.46% 0.00% 0.45% 0.91%
Class B shares 0.46% 0.91% 0.31% 1.68%
Class C shares 0.46% 0.90% 0.31% 1.67%
- ------------------------------------------------------------------------------------------------------------------
Ohio Fund Class A shares 0.47% 0.00% 0.56% 1.03%
Class B shares 0.47% 0.87% 0.41% 1.75%
- ------------------------------------------------------------------------------------------------------------------
Pennsylvania Fund Class A shares 0.46% 0.00% 0.48% 0.94%
Class B shares 0.46% 0.88% 0.35% 1.69%
Class C shares 0.46% 0.90% 0.35% 1.71%
</TABLE>
* Management Fees payable by the Connecticut Fund were reduced to 0.23% by
the investment adviser.
** Long-term holders of Class B shares and Class C shares may pay more than
the economic equivalent of the front-end sales charge permitted by the
National Association of Securities Dealers, Inc.
*** Other Expenses for Class A includes a service fee of 0.15% for the
California Fund, 0.19% for the Connecticut Fund, 0.14% for the Florida
Fund, 0.14% for the Massachusetts Fund, 0.15% for the Michigan Fund, 0.14%
for the New Jersey Fund, 0.14% for the New York Fund, 0.15% for the Ohio
Fund and 0.13% for the Pennsylvania Fund.
12
<PAGE>
EXAMPLE. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
California Fund Class A shares $320 $521 $ 739 $1,365
Class B shares* $465 $711 $ 881 $1,922
- -------------------------------------------------------------------------------------------------------
Connecticut Fund Class A shares $363 $655 $ 968 $1,856
Class B shares* $507 $840 $1,098 $2,369
- -------------------------------------------------------------------------------------------------------
Florida Fund Class A shares $315 $506 $ 712 $1,308
Class B shares* $466 $714 $ 887 $1,933
Class C shares $269 $523 $ 902 $1,965
- -------------------------------------------------------------------------------------------------------
Massachusetts Fund Class A shares $319 $518 $ 733 $1,354
Class B shares* $473 $736 $ 923 $2,009
Class C shares $273 $536 $ 923 $2,009
- -------------------------------------------------------------------------------------------------------
Michigan Fund Class A shares $356 $634 $ 932 $1,779
Class B shares* $505 $834 $1,088 $2,348
- -------------------------------------------------------------------------------------------------------
New Jersey Fund Class A shares $320 $521 $ 739 $1,365
Class B shares* $475 $742 $ 933 $2,030
- -------------------------------------------------------------------------------------------------------
New York Fund Class A shares $316 $509 $ 718 $1,319
Class B shares* $471 $730 $ 913 $1,987
Class C shares $270 $526 $ 907 $1,976
- -------------------------------------------------------------------------------------------------------
Ohio Fund Class A shares $328 $545 $ 781 $1,456
Class B shares* $478 $751 $ 949 $2,062
- -------------------------------------------------------------------------------------------------------
Pennsylvania Fund Class A shares $319 $518 $ 733 $1,354
Class B shares* $472 $733 $ 918 $1,998
Class C shares $274 $539 $ 928 $2,019
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
California Fund Class A shares $320 $521 $ 739 $1,365
Class B shares* $165 $511 $ 881 $1,922
- --------------------------------------------------------------------------------------------------------
Connecticut Fund Class A shares $363 $655 $ 968 $1,856
Class B shares* $207 $640 $1,098 $2,369
- --------------------------------------------------------------------------------------------------------
Florida Fund Class A shares $315 $506 $ 712 $1,308
Class B shares* $166 $514 $ 887 $1,933
Class C shares $169 $523 $ 902 $1,965
- --------------------------------------------------------------------------------------------------------
Massachusetts Fund Class A shares $319 $518 $ 733 $1,354
Class B shares* $173 $536 $ 923 $2,009
Class C shares $173 $536 $ 923 $2,009
- --------------------------------------------------------------------------------------------------------
Michigan Fund Class A shares $356 $634 $ 932 $1,779
Class B shares* $205 $634 $1,088 $2,348
- --------------------------------------------------------------------------------------------------------
New Jersey Fund Class A shares $320 $521 $ 739 $1,365
Class B shares* $175 $542 $ 933 $2,030
- --------------------------------------------------------------------------------------------------------
New York Fund Class A shares $316 $509 $ 718 $1,319
Class B shares* $171 $530 $ 913 $1,987
Class C shares $170 $526 $ 907 $1,976
- --------------------------------------------------------------------------------------------------------
Ohio Fund Class A shares $328 $545 $ 781 $1,456
Class B shares* $178 $551 $ 949 $2,062
- --------------------------------------------------------------------------------------------------------
Pennsylvania Fund Class A shares $319 $518 $ 733 $1,354
Class B shares* $172 $533 $ 918 $1,998
Class C shares $174 $539 $ 928 $2,019
</TABLE>
*Costs for 5 Years and 10 Years reflect the expenses of Class A because Class B
shares generally convert to Class A after four years.
13
<PAGE>
INVESTMENT OBJECTIVES & PRINCIPAL POLICIES AND RISKS
The investment objective of each Fund is to provide a high level of current
income exempt from regular federal income tax and particular state or local
income or other taxes, and limited principal fluctuation. Each Fund seeks to
achieve its objective by investing primarily (i.e., at least 80% of its net
assets during periods of normal market conditions) in municipal obligations, the
interest on which is exempt from regular federal income tax and from the state
taxes which, in accordance with the Fund's investment objective, the Fund seeks
to avoid. This is a fundamental policy of each Fund which only may be changed
with shareholder approval. Each Fund's investment objective and certain other
policies may be changed by the Trustees without shareholder approval. Each Fund
currently seeks to meet its investment objective by investing in a separate
open-end management company (a "Portfolio") that has the same objective and
policies as the Fund.
At least 75% of net assets will normally be invested in municipal obligations
rated at least investment grade at the time of investment (which are those rated
Baa or higher by Moody's, or BBB or higher by either S&P or Fitch) or, if
unrated, are determined by the investment adviser to be of at least investment
grade quality. The balance of net assets may be invested in municipal
obligations rated below investment grade and in unrated municipal obligations
considered to be of comparable quality by the investment adviser. Municipal
obligations rated Baa or BBB have speculative characteristics, while lower
quality obligations are predominantly speculative. Also, changes in economic
conditions or other circumstances are more likely to reduce the capacity of
issuers of lower-rated obligations to make principal and interest payments.
Lower rated obligations also may be subject to greater price volatility than
higher rated obligations. No Portfolio will invest more than 10% of its net
assets in obligations rated below B by Moody's, S&P or Fitch.
Municipal obligations include bonds, notes and commercial paper issued by a
municipality for a wide variety of both public and private purposes. Municipal
obligations also include municipal leases and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Certain
municipal obligations may be purchased on a "when-issued" basis, which means
that payment and delivery occur on a future settlement date. The price and yield
of such securities are generally fixed on the date of commitment to purchase.
Many obligations permit the issuer at its option to "call", or redeem, its
securities. If an issuer calls securities during a time of declining interest
rates, it may not be possible to reinvest the proceeds in securities providing
the same investment return as the securities redeemed.
The interest on municipal obligations is (in the opinion of the issuer's
counsel) exempt from regular federal income tax. Interest income from certain
types of municipal obligations generally will be subject to the federal
alternative minimum tax (the "AMT") for individuals. Distributions to corporate
investors may also be subject to the AMT. The Funds may not be suitable for
investors subject to the AMT.
Although each Portfolio invests in obligations having a dollar weighted average
duration of between three and nine years, a Portfolio may invest in individual
municipal obligations of any maturity. Duration represents the dollar weighted
average maturity of expected cash flows (i.e., interest and principal payments)
on one or more municipal obligations, discounted to their present values. Each
Portfolio may use various techniques to shorten or lengthen its dollar weighted
average duration, including the acquisition of municipal obligations at a
premium or discount, and transactions in futures contracts and options on
futures.
Under normal conditions, each Portfolio invests at least 65% of its total assets
in obligations issued by its respective state or its political subdivisions,
agencies, authorities and instrumentalities. Municipal obligations of issuers in
a single state may be adversely affected by economic developments (including
insolvency of an issuer) and by legislation and other governmental activities in
that state. Each Portfolio may also invest in municipal obligations issued by
the governments of Puerto Rico, the U.S. Virgin Islands and Guam. Moody's
currently rates Puerto Rico general obligations Baa1, while S&P rates them A.
Each Portfolio may invest 25% or more of its total assets in municipal
obligations of the same type (such as leases, housing finance, public housing,
municipal utilities, hospital and health facilities or industrial development).
This may make a Portfolio more susceptible to adverse economic, political or
regulatory occurrences affecting a particular category of issuer.
The net asset value will change in response to changes in prevailing interest
rates and changes in the value of securities held. The value of securities held
will be affected by the credit quality of the issuer of the obligation, and
general economic and business conditions that affect the specific economic
sector of the issuer. Changes by rating agencies in the rating assigned to an
obligation may also affect the value of an obligation.
Each Portfolio may purchase derivative instruments, which derive their value
from another instrument, security or index. For example, each Portfolio may
purchase and sell various kinds of financial futures contracts and options
thereon to hedge
14
<PAGE>
against changes in interest rates or as a substitute for the purchase of
portfolio securities. The use of derivative instruments for both hedging and
investment purposes involves a risk of loss or depreciation due to a variety of
factors including counterparty risk, unexpected market, interest rate or
securities price movements, and tax and regulatory constraints. Derivative
hedging transactions may not be effective because of imperfect correlations and
other factors.
Each Portfolio may invest in zero coupon bonds, which do not require the issuer
to make periodic interest payments. The values of these bonds are subject to
greater fluctuation in response to changes in market interest rates than bonds
which pay interest currently. Each Portfolio accrues income on these investments
and each Fund is required to distribute its share of Portfolio income each year.
The Portfolio may be required to sell securities to obtain cash needed for
income distributions.
The limited liquidity of certain securities in which the Portfolio may invest
could affect their market prices, thereby adversely affecting net asset value
and the ability to pay income. The amount of publicly available information
about certain municipal obligations may be limited and the investment
performance of the Portfolio more dependent on the portfolio manager's analysis
than if this were not the case.
Each Portfolio may borrow amounts up to one-third of the value of its total
assets (including borrowings), but it will not borrow more than 5% of the value
of its total assets except to satisfy redemption requests or for other temporary
purposes. Such borrowings would result in increased expense to a Fund and, while
they are outstanding, would magnify increases or decreases in the value of Fund
shares. No Portfolio will purchase additional investment securities while
outstanding borrowings exceed 5% of the value of its total assets. During
unusual market conditions, each Portfolio may temporarily invest up to 50% of
its total assets in cash or cash equivalents. While temporarily invested, a Fund
may not achieve its objective and interest income from temporary investments may
be taxable.
The investment adviser's process for selecting securities for purchase and sale
is research intensive and emphasizes the creditworthiness of the issuer or other
person obligated to repay the obligation. The investment adviser seeks to invest
in obligations that it believes will retain their value in varying interest rate
climates.
Like most mutual funds, the Funds and Portfolios rely on computers in conducting
daily business and processing information. There is a concern that on January 1,
2000 some computer programs will be unable to recognize the new year and as a
consequence computer malfunctions will occur. Eaton Vance is taking steps that
it believes are reasonably designed to address this potential problem and to
obtain satisfactory assurance from other service providers to the Funds and the
Portfolios that they are also taking steps to address the issue. There can,
however, be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds and the Portfolios or shareholders. The Year 2000
concern may also adversely impact issuers of obligations held by a Portfolio and
the markets in which these securities trade. The foregoing statement is subject
to the Year 2000 Information and Readiness Disclosure Act, which may protect
Eaton Vance and the Funds and the Portfolios from liability arising from the
statement.
MANAGEMENT AND ORGANIZATION
MANAGEMENT. Each Portfolio's investment adviser is Boston Management and
Research ("BMR"), a subsidiary of Eaton Vance Management ("Eaton Vance"), with
offices at The Eaton Vance Building, 255 State Street, Boston, Massachusetts
02109. Eaton Vance has been managing assets since 1924 and managing mutual funds
since 1931. Eaton Vance and its subsidiaries currently manage over $38 billion
on behalf of mutual funds, institutional clients and individuals.
The investment adviser manages the investments of each Portfolio and provides
related office facilities and personnel. Under its investment advisory agreement
with each Portfolio, BMR receives a monthly advisory fee equal to the aggregate
of a daily asset based fee and a daily income based fee. The fees are applied on
the basis of the following categories.
<TABLE>
<CAPTION>
Annual Daily
Category Daily Net Assets Asset Rate Income Rate
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 up to $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>
15
<PAGE>
For the fiscal year ended March 31, 1999, each Portfolio paid advisory fees
equivalent to the percentage of average daily net assets stated below.
Net Assets on
Portfolio March 31, 1999 Advisory Fee
- ----------------------------------------------------------------------
California $28,678,105 0.46%
Connecticut(1) $ 9,097,913 0.23%
Florida $59,948,210 0.46%
Massachusetts $51,543,445 0.46%
Michigan $10,615,730 0.47%
New Jersey $39,780,691 0.46%
New York $65,872,753 0.46%
Ohio $22,800,853 0.47%
Pennsylvania $50,770,692 0.46%
(1) Absent a fee reduction, the Connecticut Portfolio would have paid advisory
fees equivalent to 0.46% of average daily net assets.
William H. Ahern is the portfolio manager of the Connecticut Portfolio, Michigan
Portfolio, New Jersey Portfolio and Ohio Portfolio (since October 1994), the
Massachusetts Portfolio (since May 1, 1997), and the New York Portfolio (since
November 24, 1997). Timothy T. Browse is the portfolio manager of the
Pennsylvania Portfolio (since May 1, 1997). Cynthia J. Clemson is the portfolio
manager of the Florida Portfolio (since November 2, 1998) and the California
Portfolio (since May 1, 1997). Each portfolio manager also manages other Eaton
Vance portfolios, has been an Eaton Vance portfolio manager for more than 5
years, and is a Vice President of Eaton Vance and BMR.
The investment adviser and each Fund and Portfolio have adopted Codes of Ethics
governing personal securities transactions. Under the Codes, Eaton Vance
employees may purchase and sell securities (including securities held by a
Portfolio) subject to certain pre-clearance and reporting requirements and other
procedures.
Eaton Vance serves as administrator of each Fund, providing the Fund with
administrative services and related office facilities. Eaton Vance does not
currently receive a fee for serving as administrator.
ORGANIZATION. Each Fund is a series of Eaton Vance Investment Trust, a
Massachusetts business trust. Each Fund offers multiple classes of shares. Each
class represents a pro rata interest in the Fund, but is subject to different
expenses and rights. The Funds do not hold annual shareholder meetings, but may
hold special meetings for matters that require shareholder approval (like
electing or removing trustees, approving management contracts or changing
investment policies that may only be changed with shareholder approval). Because
a Fund invests in a Portfolio, it may be asked to vote on certain Portfolio
matters (like changes in certain Portfolio investment restrictions). When
necessary, a Fund will hold a meeting of its shareholders to consider the
Portfolio matter and then vote its interest in the Portfolio in proportion to
the votes cast by its shareholders. A Fund can withdraw from a Portfolio at any
time.
Because the Funds use this combined prospectus, a Fund could be held liable for
a misstatement or omission made about another Fund. The Trust's Trustees
considered this in approving the use of a combined prospectus.
VALUING SHARES
Each Fund values its shares once each day only when the New York Stock Exchange
is open for trading (typically Monday through Friday), as of the close of
regular trading on the Exchange (normally 4:00 p.m. eastern time). The price of
Fund shares is their net asset value (plus a sales charge for Class A), which is
derived from Portfolio holdings. Municipal obligations will normally be valued
on the basis of valuations furnished by a pricing service.
When purchasing or redeeming Fund shares, your investment dealer must
communicate your order to the principal underwriter by a specific time each day
in order for the purchase price or the redemption price to be based on that
day's net asset value per share. It is the investment dealer's responsibility to
transmit orders promptly. Each Fund may accept purchase and redemption orders as
of the time of their receipt by certain investment dealers (or their designated
intermediaries).
PURCHASING SHARES
You may purchase shares through your investment dealer or by mailing the account
application form included in this prospectus to the transfer agent (see back
cover for address). Your initial investment must be at least $1,000. The price
of
16
<PAGE>
Class A shares is the net asset value plus a sales charge. The price of Class B
and Class C shares is the net asset value; however, you may be subject to a
sales charge (called a "contingent deferred sales charge" or "CDSC") if you
redeem Class B shares within four years of purchase or Class C shares within one
year of purchase. The sales charges are described below. Your investment dealer
can help you decide which class of shares suits your investment needs.
After your initial investment, additional investments of $50 or more may be made
at any time by sending a check payable to the order of the Fund or the transfer
agent directly to the transfer agent (see back cover for address). Please
include your name and account number and the name of the Fund and Class with
each investment.
You may also make automatic investments of $50 or more each month or each
quarter from your bank account. You can establish bank automated investing on
the account application or by calling 1-800-262-1122. The minimum initial
investment amount and Fund policy of redeeming accounts with low account
balances are waived for bank automated investing accounts and certain group
purchase plans.
You may purchase Fund shares in exchange for securities. Please call
1-800-225-6265 for information about exchanging securities for Fund shares. If
you purchase shares through an investment dealer (which includes brokers,
dealers and other financial institutions), that dealer may charge you a fee for
executing the purchase for you. A Fund may suspend the sale of its shares at any
time and any purchase order may be refused.
SALES CHARGES
FRONT-END SALES CHARGE. Class A shares are offered at net asset value per share
plus a sales charge that is determined by the amount of your investment. The
current sales charge schedule is:
<TABLE>
<CAPTION>
Sales Charge Sales Charge Dealer Commission
as Percentage of as Percentage of Net as a Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 2.25% 2.30% 2.00%
$100,000 but less than $250,000 1.75% 1.78% 1.50%
$250,000 but less than $500,000 1.50% 1.52% 1.25%
$500,000 but less than $1,000,000 1.00% 1.01% 1.00%
$1,000,000 or more 0.00* 0.00* 1.00%
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more. A CDSC of 1.00% will be imposed on such investments (as
described below) in the event of redemptions within 24 months of purchase.
CONTINGENT DEFERRED SALES CHARGE. Each class of shares is subject to a CDSC on
certain redemptions. If Class A shares are purchased at net asset value because
the purchase amount is $1 million or more, they are subject to a 1.00% CDSC if
redeemed within 24 months of purchase. Class C shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. Class B shares are subject to the
following CDSC schedule:
Year of Redemption After Purchase CDSC
- ------------------------------------------------
First 3.0%
Second 2.5%
Third 2.0%
Fourth 1.0%
Fifth or following 0%
The CDSC is based on the lower of the net asset value at the time of purchase or
the time of redemption. Shares acquired through the reinvestment of
distributions are exempt from the CDSC. Redemptions are made first from shares
that are not subject to a CDSC.
The principal underwriter pays commissions to investment dealers on sales of
Class B and Class C shares (except exchange transactions and reinvestments). The
sales commission on Class B shares equals 2.5% of the purchase price of the
shares. The sales commission on Class C shares equals 0.85% of the purchase
price of the shares. After the first year, investment dealers also receive 0.75%
of the value of Class C shares in distribution fees.
CLASS B CONVERSION FEATURE. After the longer of four years or the time when the
CDSC applicable to your Class B shares expires, Class B shares will
automatically convert to Class A shares. Class B shares acquired through the
reinvestment of distributions will convert in proportion to shares not so
acquired.
17
<PAGE>
REDUCING OR ELIMINATING SALES CHARGES. Front-end sales charges may be reduced
under the right of accumulation or under a statement of intention. Under the
right of accumulation, sales charges are reduced if the current market value of
your current holdings (shares at current offering price), plus your new
purchases, reach $100,000 or more. Class A shares of other Eaton Vance funds
owned by you can be included as part of your current holdings for this purpose.
Under a statement of intention, purchases of $100,000 or more made over a
13-month period are eligible for reduced sales charges. The principal
underwriter may hold 5% of the dollar amount to be purchased in escrow in the
form of shares registered in your name until the statement is satisfied or the
13-month period expires. See the account application for details.
Class A shares are offered at net asset value to clients of financial
intermediaries who charge a fee for their services; accounts affiliated with
those financial intermediaries; investment and institutional clients of Eaton
Vance; certain persons affiliated with Eaton Vance; and certain Eaton Vance and
fund service providers. Ask your investment dealer for details.
CDSCs are waived for redemptions pursuant to a Withdrawal Plan (see "Shareholder
Account Features"). The Class B CDSC is also waived following the death of all
beneficial owners of shares, but only if the redemption is requested within one
year after death (a death certificate and other applicable documents may be
required).
If you redeem shares, you may reinvest at net asset value any portion or all of
the redemption proceeds in the same class of shares of the Fund (or, for Class A
shares, in Class A shares of any other Eaton Vance fund), provided that the
reinvestment occurs within 60 days of the redemption, and the privilege has not
been used more than once in the prior 12 months. Your account will be credited
with any CDSC paid in connection with the redemption. Reinvestment requests must
be in writing. If you reinvest, you will be sold shares at the next determined
net asset value following receipt of your request.
DISTRIBUTION AND SERVICE FEES. Class B and Class C shares have adopted a plan
under Rule 12b-1 that allows the Fund to pay distribution fees for the sale and
distribution of shares (so-called "12b-1 fees"). Class B and Class C shares pay
distribution fees of 0.75% of average daily net assets annually. Because these
fees are paid from Fund assets on an ongoing basis, they will increase your cost
over time and may cost you more than paying other types of sales charges. All
classes pay service fees for personal and/or account services equal to .15% of
average daily net assets annually. Class A and Class B only pay service fees on
shares that have been outstanding for 12 months. Although there is no present
intention to do so, the Funds could pay service fees of up to 0.25% annually
upon Trustee approval.
REDEEMING SHARES
You can redeem shares in any of the following ways:
By Mail Send your request to the transfer agent
along with any certificates and stock
powers. The request must be signed exactly
as your account is registered and
signature guaranteed. You can obtain a
signature guarantee at certain banks, savings
and loan institutions, credit unions,
securities dealers, securities exchanges,
clearing agencies and registered securities
associations. You may be asked to provide
additional documents if your shares are
registered in the name of a corporation,
partnership or fiduciary.
By Telephone You can redeem up to $50,000 by calling the
transfer agent at 1-800-262-1122 on Monday
through Friday, 9:00 a.m. to 4:00 p.m.
(eastern time). Proceeds of a telephone
redemption can be mailed only to the account
address. Shares held by corporations, trusts
or certain other entities, or subject to
fiduciary arrangements, cannot be redeemed by
telephone.
Through an Investment Dealer Your investment dealer is responsible for
transmitting the order promptly. A dealer
may charge a fee for this service.
If you redeem shares, your redemption price will be based on the net asset value
per share next computed after the redemption request is received. Your
redemption proceeds will be paid in cash within seven days, reduced by the
amount of any applicable CDSC and any federal income tax required to be
withheld. Payments will be sent by mail unless you complete the Bank Wire
Redemptions section of the account application.
If you recently purchased shares, the proceeds of a redemption will not be sent
until the purchase check (including a certified or cashier's check) has cleared.
If the purchase check has not cleared, redemption proceeds may be delayed up to
15 days from the purchase date. If your account value falls below $750 (other
than due to market decline), you may be
18
<PAGE>
asked to either add to your account or redeem it within 60 days. If you take no
action, your account will be redeemed and the proceeds sent to you.
While redemption proceeds are normally paid in cash, redemptions may be paid by
distributing marketable securities. If you receive securities, you could incur
brokerage or other charges in converting the securities to cash.
SHAREHOLDER ACCOUNT FEATURES
Once you purchase shares, the transfer agent establishes a Lifetime Investing
Account(R) for you. Share certificates are issued only on request.
DISTRIBUTIONS. You may have your Fund distributions paid in one of the following
ways:
.Full Reinvest Option Dividends and capital gains are reinvested in
additional shares. This option will be assigned if
you do not specify an option.
.Partial Reinvest Option Dividends are paid in cash and capital gains
are reinvested in additional shares.
.Cash Option Dividends and capital gains are paid in cash.
.Exchange Option Dividends and/or capital gains are reinvested in
additional shares of another Eaton Vance fund
chosen by you. Before selecting this option,
you must obtain a prospectus of the other fund
and consider its objectives and policies carefully.
INFORMATION FROM THE FUND. From time to time, you may be mailed the following:
.Annual and Semi-Annual Reports, containing performance information and
financial statements.
.Periodic account statements, showing recent activity and total share balance.
.Form 1099 and tax information needed to prepare your income tax returns.
.Proxy materials, in the event a shareholder vote is required.
.Special notices about significant events affecting your Fund.
WITHDRAWAL PLAN. You may redeem shares on a regular monthly or quarterly basis
by establishing a systematic withdrawal plan. Withdrawals will not be subject to
any applicable CDSC if they do not in the aggregate exceed 12% annually of the
account balance at the time the plan is established. A minimum account size of
$5,000 is required to establish a systematic withdrawal plan. Because purchases
of Class A shares are subject to an initial sales charge, you should not make
withdrawals from your account while you are making purchases.
EXCHANGE PRIVILEGE. You may exchange your Fund shares for shares of the same
class of another Eaton Vance fund. Exchanges are generally made at net asset
value. If you hold Class A shares for less than six months and exchange them for
shares subject to a higher sales charge, you will be charged the difference
between the two sales charges. If your shares are subject to a CDSC, the CDSC
will continue to apply to your new shares at the same CDSC rate. For purposes of
the CDSC, your shares will continue to age from the date of your original
purchase.
Before exchanging, you should read the prospectus of the new fund carefully. If
you wish to exchange shares, you may write to the transfer agent (address on
back cover) or call 1-800-262-1122. Periodic automatic exchanges are also
available. The exchange privilege may be changed or discontinued at any time.
You will receive 60 days' notice of any material change to the privilege. This
privilege may not be used for "market timing". If an account (or group of
accounts) makes more than two round-trip exchanges within 12 months, it will be
deemed to be market timing. The exchange privilege may be terminated for market
timing accounts.
TELEPHONE TRANSACTIONS. You can redeem or exchange shares by telephone as
described in this prospectus. The transfer agent and the principal underwriter
have procedures in place to authenticate telephone instructions (such as
verifying personal account information). As long as the transfer agent and
principal underwriter follow these procedures, they will not be responsible for
unauthorized telephone transactions and you bear the risk of possible loss
resulting from telephone transactions. You may decline the telephone redemption
option on the account application. Telephone instructions are tape recorded.
"STREET NAME" ACCOUNTS. If your shares are held in a "street name" account at an
investment dealer, that dealer (and not the Fund or its transfer agent) will
perform all recordkeeping, transaction processing and distribution payments.
Because the Fund will have no record of your transactions, you should contact
your investment dealer to purchase, redeem or exchange shares, to make changes
in your account, or to obtain account information. The transfer of shares in a
"street
19
<PAGE>
name" account to an account with another investment dealer or to an account
directly with the Fund involves special procedures and you will be required to
obtain historical information about your shares prior to the transfer. Before
establishing a "street name" account with an investment dealer, you should
determine whether that dealer allows reinvestment of distributions in "street
name" accounts.
ACCOUNT QUESTIONS. If you have any questions about your account or the services
available, please call Eaton Vance Shareholder Services at 1-800-225-6265, or
write to the transfer agent (see back cover for address).
TAX INFORMATION
Each Fund declares dividends daily and ordinarily pays distributions monthly.
Different classes will distribute different dividend amounts. Your account will
be credited with dividends beginning on the business day after the day when the
funds used to purchase your Fund shares are collected by the transfer agent.
Distributions of any net realized gains will be distributed once each year
(usually in December). For tax purposes the entire distribution, whether paid in
cash or reinvested in additional shares, ordinarily will constitute tax-exempt
income to you.
Distributions of any taxable income and net short-term capital gains will be
taxable as ordinary income. Distributions of any long-term capital gains are
taxable as such. Distributions of interest on certain municipal obligations are
a tax preference item under the AMT provisions applicable to individuals and
corporations. A redemption of Fund shares, including an exchange for shares of
another fund, is a taxable transaction.
Shareholders, particularly corporations and those subject to state alternative
minimum tax, should consult with their advisers concerning the applicability of
state, local and other taxes to an investment. Additional information about
state taxes is provided below.
CALIFORNIA TAXES. Under California law, dividends paid by the California Fund
and designated by it 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 California
state personal income taxes and 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 taxable at
ordinary income rates under the California personal income tax.
CONNECTICUT TAXES. In the opinion of Connecticut tax counsel to the Connecticut
Fund, shareholders of the Connecticut Fund will not be subject to the
Connecticut personal income tax on the Connecticut taxable income of
individuals, trusts, and, estates, in the case of distributions received from
the Connecticut Fund to the extent that such distributions qualify as
exempt-interest dividends for federal income tax purposes and are derived from
interest on obligations issued by or on behalf of the State of Connecticut, any
political subdivision thereof, or public instrumentality, state or local
authority, district or similar public entity created under Connecticut law
("Connecticut Obligations"), or on obligations the interest on which Connecticut
is prohibited from taxing by federal law, e.g., tax-exempt obligations that are
issued by the governments of Puerto Rico, the U.S. Virgin Islands or Guam.
Other distributions from the Connecticut Fund, including dividends attributable
to obligations of issuers in other states and all long-term and short-term
capital gains, will not be exempt from the Connecticut personal income tax,
except that, in the case of shareholders holding shares of the Connecticut Fund
as capital assets, distributions qualifying as capital gain dividends for
federal income tax purposes will not be subject to such tax to the extent they
are derived from Connecticut Obligations. Distributions from the Connecticut
Fund that constitute items of tax preference for purposes of the federal
alternative minimum tax will not be subject to the net Connecticut minimum tax
applicable to taxpayers subject to the Connecticut personal income tax and
required to pay the federal alternative minimum tax, to the extent qualifying as
exempt-interest dividends derived from Connecticut Obligations or from
obligations the interest on which Connecticut is prohibited from taxing by
federal law, but other such distributions from the Connecticut Fund could cause
or increase liability for the net Connecticut minimum tax. The Connecticut Fund
will report annually to its shareholders the percentage and source, on a
state-by-state basis, of interest income received by the Connecticut Fund on
municipal bonds and distributed by it as exempt-interest dividends during the
preceding year.
Distributions from investment income and capital gains, including
exempt-interest dividends derived from interest that is exempt from federal
income tax, will be subject to the Connecticut Corporation Business Tax if
received by a corporation subject to such tax, except for any portion thereof
other than amounts qualifying as exempt-interest dividends or capital gain
dividends for federal income tax purposes that might qualify for the
dividends-received deduction provided under that Connecticut tax, and all such
distributions may be subject to state and local taxes in states other than
Connecticut.
20
<PAGE>
FLORIDA TAXES. The Florida Department of Revenue has ruled that shares of a
Florida series fund owned by a Florida resident will be exempt from the Florida
intangible personal property tax so long as the fund's portfolio includes on
January 1 of each year only assets, such as Florida tax-exempt securities and
United States Government securities, that are exempt from the Florida intangible
personal property tax. The Florida Portfolio will normally invest in tax-exempt
obligations of Florida, the United States, the U.S. Territories or political
subdivisions of the United States or Florida so Florida Fund shares should,
under normal circumstances, be exempt from the Florida intangibles tax.
MASSACHUSETTS TAXES. Based on a letter ruling from the Department of Revenue of
The Commonwealth of Massachusetts received by the Massachusetts Portfolio, the
Massachusetts Fund's interest distributions attributable to Massachusetts
obligations (debt obligations issued by The Commonwealth of Massachusetts or its
political subdivisions, including agencies or instrumentalities thereof),
Possessions obligations (the Governments of Puerto Rico, Guam, or the United
States Virgin Islands) or United States obligations can be excluded from
Massachusetts gross income for individuals, estates and trusts that are subject
to Massachusetts taxation. Distributions properly designated as capital gain
dividends and attributable to gains realized 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.
For purposes of determining the Massachusetts excise tax on corporations subject
to Massachusetts taxation, 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.
MICHIGAN TAXES. The Michigan Fund has received an opinion from Michigan tax
counsel to the Michigan Fund, to the effect that shareholders of the Michigan
Fund who are subject to the Michigan state income tax, municipal income tax or
single business tax will not be subject to such taxes on their Michigan Fund
dividends to the extent that such distributions are exempt-interest dividends
for federal income tax purposes and are attributable to interest on obligations
held by the Michigan Portfolio and allocated to the Michigan Fund which is
exempt from regular federal income tax and is exempt from Michigan State and
city income taxes and Michigan single business tax ("Michigan tax-exempt
obligations"). Other distributions with respect to shares of the Michigan Fund
including, but not limited to, long or short-term capital gains, will be subject
to the Michigan income tax or single business tax and may be subject to the city
income taxes imposed by certain Michigan cities.
NEW JERSEY TAXES. The New Jersey Fund intends to satisfy New Jersey's statutory
requirements for treatment as a "Qualified Investment Fund". The New Jersey Fund
has obtained an opinion of New Jersey tax counsel that, provided the New Jersey
Fund limits its investments to those described in this Prospectus and otherwise
satisfies such statutory requirements, shareholders of the New Jersey Fund which
are individuals, estates or trusts will not be required to include in their New
Jersey gross income distributions from the New Jersey Fund that are attributable
to interest or gain realized by the New Jersey Fund from obligations the
interest on which is exempt from regular federal income tax and is exempt from
New Jersey State personal income tax or other obligations statutorily free from
New Jersey taxation. However, with regard to corporate shareholders, such
counsel is also of the opinion that distributions from the New Jersey Fund will
not be excluded from net income and shares of the New Jersey Fund will not be
excluded from investment capital in determining New Jersey corporation business
(franchise) and corporation income taxes for corporate shareholders.
NEW YORK TAXES. In the opinion of New York tax counsel to the New York Fund,
under New York law dividends paid by the New York Fund are exempt from New York
State and New York City personal income tax applicable to 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 of 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 TAXES. In the opinion of Ohio tax counsel to the Ohio Fund, 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
21
<PAGE>
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 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.
22
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights are intended to help you understand a Fund's financial
performance for the past five years. Certain information in the tables reflect
the financial results for a single Fund share. The total returns in the tables
represent the rate an investor would have earned (or lost) on an investment in
the Fund (assuming reinvestment of all distributions and not taking into account
a sales charge). This information has been audited by Deloitte & Touche LLP,
independent accountants. The report of Deloitte & Touche LLP and each Fund's
financial statements are incorporated herein by reference and included in the
annual report, which is available on request. Each Fund began offering Class A
and Class B shares in 1996 (1997 for the Connecticut Fund). The Florida Fund,
Massachusetts Fund, New York Fund and Pennsylvania Fund began offering three
classes of shares on April 1, 1998. Prior to that date, each Fund offered only
Class A and Class B shares and Class C existed as a separate fund.
<TABLE>
<CAPTION>
CALIFORNIA FUND
--------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A(2) CLASS B CLASS B CLASS B
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of year $ 10.330 $10.330 $ 9.980 $ 9.980 $ 9.940 $10.080 $ 9.950 $10.050
--------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations
Net investment $ 0.453 $ 0.382 $ 0.459 $0.386(1) $ 0.363 $ 0.393 $ 0.385 $ 0.367
income
Net realized and
unrealized gain 0.030 0.025 0.362 0.362 0.037(3) (0.097) 0.134 (0.027)
(loss) --------- ------- ------- ------- ------- ------- ------- -------
Total income from
operations $ 0.483 $ 0.407 $ 0.821 $ 0.748 $ 0.400 $ 0.296 $ 0.519 $ 0.340
--------- ------- ------- ------- ------- ------- ------- -------
Less distributions
From net investment $ (0.463) $(0.382) $(0.459) $(0.386) $(0.360) $(0.393) $(0.385) $(0.367)
income
In excess of net --(4) (0.005) (0.012) (0.012) -- (0.003) (0.004) (0.066)
investment income
From net realized
gain -- -- -- -- -- -- -- (0.007)
--------- ------- ------- ------- ------- ------- ------- -------
Total distributions $ (0.463) $(0.387) $(0.471) $(0.398) $(0.360) $(0.396) $(0.389) $(0.440)
--------- ------- ------- ------- ------- ------- ------- -------
Net asset value -
End of year $ 10.350 $10.350 $10.330 $10.330 $ 9.980 $ 9.980 $10.080 $ 9.950
========= ======= ======= ======= ======= ======= ======= =======
Total return(5) 4.56% 3.99% 8.56% 7.60% 3.84% 2.99% 5.27% 3.53%
Ratios/Supplemental Data
Net assets, end of $ 26,170 $ 2,399 $25,780 $ 5,316 $14,718 $25,386 $54,241 $73,857
year (000's omitted)
Ratios (as a
percentage of
average daily net
assets):
Expenses(6)(7) 0.95% 1.62% 0.96% 1.76% 0.90%(8) 1.71% 1.63% 1.55%
Expenses after
custodian fee
reduction(6) 0.94% 1.61% 0.94% 1.74% 0.89%(8) 1.70% 1.59% --
Net investment 4.37% 3.71% 4.51% 3.76% 4.76%(8) 3.91% 3.81% 3.72%
income
Portfolio turnover
of the Portfolio(9) 29% 29% 40% 40% 57% 57% 36% 56%
</TABLE>
(See footnotes on last page.)
23
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CONNECTICUT FUND
------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A(2) CLASS B CLASS B CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of year $10.110 $10.110 $ 9.790 $ 9.790 $ 9.870 $ 9.850 $9.690 $9.690
---------- ---------- ------- ------- ------- ------- ------ ------
Income (loss) from
operations
Net investment
income $ 0.431 $ 0.365 $ 0.429 $0.357(1) $ 0.087 $ 0.398 $0.379 $0.373
Net realized and
unrealized gain
(loss) 0.031 0.025 0.333 0.333 (0.082) (0.089) 0.150 0.026
---------- ---------- ------- ------- ------- ------- ----- -----
Total income (loss)
from operations $ 0.462 $ 0.390 $ 0.762 $ 0.690 $ 0.005 $ 0.309 $0.529 $0.399
---------- ---------- ------- ------- ------- ------- ------- -------
Less distributions
From net investment
income $(0.431) $(0.370) $(0.429) $(0.370) $(0.085) $(0.369) $(0.369) $(0.373)
In excess of net
investment income (0.011) -- (0.013) -- -- -- -- (0.026)
------- ------- ------- ------- ------- ------- ------- --------
Total distributions $(0.442) $(0.370) $(0.442) $(0.370) $(0.085) $(0.369) $(0.369) $(0.399)
---------- ---------- ------- ------- ------- ------- ------- -------
Net asset value -
End of year $10.130 $10.130 $10.110 $10.110 $ 9.790 $ 9.790 $ 9.850 $ 9.690
========== ========== ======= ======= ======= ======= ======= =======
Total return(5) 4.45% 3.90% 7.99% 7.02% (0.13)% 3.21% 5.50% 4.27%
Ratios/Supplemental Data+
Net assets, end of
year (000's omitted) $ 7,514 $ 1,410 $ 6,034 $ 2,531 $ 586 $10,227 $13,014 $15,613
Ratios (as a percentage of average daily net assets):
Expenses(6)(7) 1.16% 1.81% 1.20% 1.92% 0.70%(8) 1.72% 1.53% 1.23%
Expenses after custodian fee
reduction(6) 1.13% 1.78% 1.18% 1.90% 0.66%(8) 1.68% 1.49% --
Net investment
income 4.25% 3.60% 4.26% 3.62% 5.06%(8) 3.93% 3.78% 3.89%
Portfolio turnover
of the Portfolio(9) 5% 5% 23% 23% 46% 46% 52% 73%
* The operating expenses of the Fund reflect a reduction of the investment
adviser fee, an allocation of expenses to the adviser or administrator, or
both. Had such action not been taken, the ratios and investment income per
share would have been as follows:
Ratios (as a percentage of average daily net assets):
Expenses(6)(7) 1.39% 2.04% 1.43% 2.15% 0.94%(8) 1.96% 1.86% 1.81%
Expenses after custodian fee
reduction(6) 1.36% 2.01% 1.41% 2.13% 0.90%(8) 1.92% -- --
Net investment 4.02% 3.37% 4.03% 3.39% 4.82%(8) 3.69% 3.45% 3.31%
income $ 0.408 $ 0.342 $ 0.406 $ 0.334 $ 0.083 $ 0.374 $0.346 $0.317
Net investment
income per share 1.39% 2.04% 1.43% 2.15% 0.94%(8) 1.96% 1.86% 1.81%
</TABLE>
(See footnotes on last page.)
24
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
FLORIDA FUND
-----------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A(2) CLASS B CLASS B CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of year $10.290 $10.290 $ 9.730 $ 9.980 $ 9.980 $10.030 $10.170 $ 10.080 $ 10.060
------- ------- ------- ------- ------- ------- ------- -------- --------
Income (loss) from
operations
Net investment
income $ 0.453 $ 0.378 $ 0.356 $ 0.465 $0.391(1) $ 0.357 $ 0.388 $ 0.383 $ 0.375
Net realized and
unrealized gain
(loss) (0.018) (0.018) (0.012) 0.307 0.307 (0.049) (0.185) 0.096 0.090
------- ------- ------- ------- ------- ------- ------- -------- --------
Total income (loss)
from operations $ 0.435 $ 0.360 $ 0.344 $ 0.772 $ 0.698 $ 0.308 $ 0.203 $ 0.479 $ 0.465
------- ------- ------- ------- ------- ------- ------- -------- --------
Less distributions
From net investment
income $(0.455) $(0.378) $(0.364) $(0.462) $(0.388) $(0.357) $(0.388) $ (0.383) $ (0.375)
In excess of net
investment income -- (0.002) -- -- -- (0.001) (0.005) (0.006) (0.058)
From net realized
gain -- -- -- -- -- -- -- -- (0.012)
------- ------- ------- ------- ------- ------- ------- -------- --------
Total distributions $(0.455) $(0.380) $(0.364) $(0.462) $(0.388) $(0.358) $(0.393) $ (0.389) $ (0.445)
------- ------- ------- ------- ------- ------- ------- -------- --------
Net asset value -
End of year $10.270 $10.270 $ 9.710 $10.290 $10.290 $ 9.980 $ 9.980 $ 10.170 $ 10.080
======= ======= ======= ======= ======= ======= ======= ======== ========
Total return(5) 4.10% 3.54% 3.57% 8.06% 7.08% 2.88% 2.05% 4.78% 4.79%
Ratios/Supplemental
Data
Net assets, end of
year (000's omitted) $49,355 $ 6,326 $ 3,950 $50,116 $10,612 $34,321 $48,418 $116,781 $149,581
Ratios (as a percentage of average daily net assets):
Expenses(6)(7) 0.90% 1.63% 1.66% 0.90% 1.66% 0.89%(8) 1.65% 1.57% 1.50%
Expenses after custodian fee
reduction(6) 0.88% 1.61% 1.64% 0.88% 1.64% 0.87%(8) 1.63% 1.56% --
Net investment
income 4.38% 3.67% 3.65% 4.61% 3.84% 4.65%(8) 3.86% 3.74% 3.77%
Portfolio turnover
of the Portfolio(9) 16% 16% 16% 38% 38% 66% 66% 20% 44%
</TABLE>
(See footnotes on last page.)
25
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
MASSACHUSETTS FUND
----------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A(2) CLASS B CLASS B CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning
of year $10.330 $10.330 $ 9.880 $ 9.990 $ 9.990 $ 9.940 $10.100 $ 9.980 $ 9.960
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations
Net investment income $ 0.450 $ 0.373 $ 0.354 $ 0.457 $0.384(1) $ 0.359 $ 0.378 $ 0.383 $ 0.383
Net realized and unrealized
gain (loss) (0.004) (0.005) (0.006) 0.339 0.339 0.040(3) (0.106) 0.126 0.082
------- ------- ------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.446 $ 0.368 $ 0.348 $ 0.796 $ 0.723 $ 0.399 $ 0.272 $ 0.509 $ 0.465
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions
From net investment income $(0.456) $(0.373) $(0.360) $(0.456) $(0.383) $(0.349) $(0.382) $(0.383)$ (0.383)
In excess of net investment
income -- (0.005) (0.008) -- -- -- -- (0.006) (0.055)
From net realized gain -- -- -- -- -- -- -- -- (0.007)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions $(0.456) $(0.378) $(0.368) $(0.456) $(0.383) $(0.349) $(0.382) $(0.389)$ (0.445)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value - End of
year $10.320 $10.320 $ 9.860 $10.330 $10.330 $ 9.990 $ 9.990 $10.100 $ 9.980
======= ======= ======= ======= ======= ======= ======= ======= ========
Total return(5) 4.19% 3.60% 3.56% 8.29% 7.33% 3.83% 2.74% 5.08% 4.84%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted) $43,436 $ 2,747 $ 5,217 $43,575 $ 8,451 $23,995 $41,090 $91,809 $113,338
Ratios (as a percentage of average daily net assets):
Expenses(6)(7) 0.94% 1.70% 1.70% 0.96% 1.70% 0.91%(8) 1.68% 1.60% 1.57%
Expenses after custodian
fee reduction(6) 0.91% 1.67% 1.67% 0.92% 1.66% 0.89%(8) 1.66% 1.58% --
Net investment income 4.35% 3.61% 3.57% 4.53% 3.85% 4.76%(8) 3.90% 3.71% 3.89%
Portfolio turnover of the
Portfolio(9) 19% 19% 19% 46% 46% 60% 60% 27% 46%
</TABLE>
(See footnotes on last page.)
26
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
MICHIGAN FUND
---------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A(2) CLASS B CLASS B CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning
of year $10.040 $10.040 $ 9.740 $ 9.740 $ 9.740 $ 9.730 $ 9.630 $ 9.650
-------- -------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations
Net investment income $ 0.424 $ 0.356 $ 0.430 $0.357(1) $ 0.201 $ 0.382 $ 0.383 $ 0.364
Net realized and unrealized
gain (loss) (0.056) (0.053) 0.329 0.329 0.001 0.012 0.090 0.030
-------- -------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.368 $ 0.303 $ 0.759 $ 0.686 $ 0.202 $ 0.394 $ 0.473 $ 0.394
-------- -------- ------- ------- ------- ------- ------- -------
Less distributions
From net investment income $(0.424) $(0.368) $(0.430) $(0.386) $(0.201) $(0.384) $(0.373) $(0.364)
In excess of net investment
income (0.014) (0.005) (0.029) -- (0.001) -- -- (0.050)
-------- -------- ------- ------- ------- ------- ------- -------
Total distributions $(0.438) $(0.373) $(0.459) $(0.386) $(0.202) $(0.384) $(0.373) $(0.414)
-------- -------- ------- ------- ------- ------- ------- -------
Net asset value - End of
year $ 9.970 $ 9.970 $10.040 $10.040 $ 9.740 $ 9.740 $ 9.730 $ 9.630
======== ======== ======= ======= ======= ======= ======= =======
Total return(5) 3.53% 3.06% 8.23% 7.24% 1.89% 4.14% 4.95% 4.24%
Ratios/Supplemental
Data+
Net assets, end of year
(000's omitted) $ 9,786 $ 654 $ 9,177 $ 1,839 $ 406 $13,431 $18,705 $26,048
Ratios (as a percentage of average daily net assets):
Expenses(6)(7) 1.32% 2.02% 1.36% 2.04% 1.18%(8) 1.99% 1.78% 1.55%
Expenses after custodian
fee reduction(6) 1.29% 1.99% 1.32% 2.00% 1.15%(8) 1.96% 1.75% --
Net investment income 4.23% 3.56% 4.32% 3.72% 4.56%(8) 3.91% 3.92% 3.82%
Portfolio turnover of the
Portfolio(9) 16% 16% 21% 21% 28% 28% 40% 111%
+ The operating expenses of the Fund reflect a reduction of the investment
adviser fee, an allocation of expenses to the adviser or administrator, or
both. Had such action not been taken, the ratios and investment income per
share would have been as follows:
Ratios (as a percentage of average daily net assets):
Expenses(6) 1.66%
Net investment income 3.71%
Net investment income per share $0.354
</TABLE>
(See footnotes on last page.)
27
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
NEW JERSEY FUND
---------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A(2) CLASS B CLASS B CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning
of year $10.350 $10.350 $10.070 $10.070 $ 9.960 $10.110 $10.020 $10.030
-------- -------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations
Net investment income $ 0.463 $ 0.383 $ 0.464 $0.391(1) $ 0.362 $ 0.375 $ 0.383 $ 0.370
Net realized and unrealized
gain (loss) (0.030) (0.028) 0.279 0.279 0.102(3) (0.026) 0.093 0.068
-------- -------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.433 $ 0.355 $ 0.743 $ 0.670 $ 0.464 $ 0.349 $ 0.476 $ 0.438
-------- -------- ------- ------- ------- ------- ------- -------
Less distributions
From net investment income $(0.463) $(0.383) $(0.463) $(0.390) $(0.354) $(0.389) $(0.383) $(0.370)
In excess of net investment
income -- (0.002) -- -- -- -- (0.003) (0.060)
From net realized gain -- -- -- -- -- -- -- (0.018)
-------- -------- ------- ------- ------- ------- ------- -------
Total distributions $(0.463) $(0.385) $(0.463) $(0.390) $(0.354) $(0.389) $(0.386) $(0.448)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value - End of
year $10.320 $10.320 $10.350 $10.350 $10.070 $10.070 $10.110 $10.020
======== ======== ======= ======= ======= ======= ======= =======
Total return(5) 4.04% 3.46% 7.69% 6.73% 4.48% 3.53% 4.79% 4.53%
Ratios/Supplemental
Data
Net assets, end of year
(000's omitted) $36,591 $ 3,056 $35,879 $ 8,620 $22,230 $34,691 $78,039 $93,361
Ratios (as a percentage of average daily net assets):
Expenses(6)(7) 0.95% 1.72% 0.99% 1.72% 0.88%(8) 1.69% 1.60% 1.56%
Expenses after custodian
fee reduction(6) 0.95% 1.72% 0.98% 1.71% 0.85%(8) 1.66% 1.58% --
Net investment income 4.47% 3.70% 4.56% 3.85% 4.75%(8) 3.90% 3.77% 3.73%
Portfolio turnover of the
Portfolio(9) 13% 13% 21% 21% 37% 37% 42% 44%
</TABLE>
(See footnotes on last page.)
28
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
NEW YORK FUND
------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A(2) CLASS B CLASS B CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -
Beginning of year $10.510 $10.510 $ 9.950 $10.040 $10.040 $10.000 $10.150 $ 10.030 $ 10.040
------- --------- ------- ------- ------- ------- ------- -------- --------
Income (loss) from
operations
Net investment
income $ 0.468 $ 0.386 $ 0.368 $ 0.461 $0.388(1) $ 0.357 $ 0.387 $ 0.374 $ 0.378
Net realized and
unrealized gain
(loss) 0.047 0.050 0.053 0.470 0.470 0.035(3) (0.109) 0.135 0.049
------- --------- ------- ------- ------- ------- ------- -------- --------
Total income (loss)
from operations $ 0.515 $ 0.436 $ 0.421 $ 0.931 $ 0.858 $ 0.392 $ 0.278 $ 0.509 $ 0.427
------- --------- ------- ------- ------- ------- ------- -------- --------
Less distributions
From net investment
income $(0.465) $(0.386) $(0.368) $(0.461) $(0.388) $(0.352) $(0.387) $ (0.374) $ (0.378)
In excess of net
investment income -- -- (0.003) -- -- -- (0.001) (0.015) (0.055)
From net realized
gain -- -- -- -- -- -- -- -- (0.004)
------- --------- ------- ------- ------- ------- ------- -------- --------
Total distributions $(0.465) $(0.386) $(0.371) $(0.461) $(0.388) $(0.352) $(0.388) $ (0.389) $ (0.437)
------- --------- ------- ------- ------- ------- ------- -------- --------
Net asset value -
End of year $10.560 $10.560 $10.000 $10.510 $10.510 $10.040 $10.040 $ 10.150 $ 10.030
======= ========= ======= ======= ======= ======= ======= ======== ========
Total return(5) 4.78% 4.20% 4.28% 9.61% 8.65% 3.74% 2.79% 5.12% 4.41%
Ratios/Supplemental
Data
Net assets, end of
year (000's omitted) $57,864 $ 5,078 $ 2,737 $59,442 $12,220 $35,932 $60,097 $133,846 $166,691
Ratios (as a
percentage of
average daily net
assets):
Expenses(6)(7) 0.91% 1.68% 1.67% 0.93% 1.70% 0.88%(8) 1.63% 1.57% 1.51%
Expenses after custodian fee
reduction(6) 0.91% 1.68% 1.67% 0.91% 1.68% 0.86%(8) 1.61% 1.55% --
Net investment
income 4.42% 3.67% 3.65% 4.50% 3.77% 4.67%(8) 3.84% 3.66% 3.81%
Portfolio turnover
of the Portfolio(9) 17% 17% 17% 53% 53% 58% 58% 32% 31%
</TABLE>
(See footnotes on last page.)
29
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
OHIO FUND
---------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A(2) CLASS B CLASS B CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning
of year $10.140 $10.140 $ 9.820 $ 9.820 $ 9.860 $ 9.840 $ 9.730 $ 9.730
-------- -------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations
Net investment income $ 0.458 $ 0.386 $ 0.461 $0.389(1) $ 0.205 $ 0.408 $ 0.398 $ 0.382
Net realized and unrealized
gain (loss) (0.019) (0.023) 0.331 0.331 (0.037) (0.033) 0.085 0.032
-------- -------- ------- ------- ------- ------- ------- -------
Total income (loss) from
operations $ 0.439 $ 0.363 $ 0.792 $ 0.720 $ 0.168 $ 0.375 $ 0.483 $ 0.414
-------- -------- ------- ------- ------- ------- ------- -------
Less distributions
From net investment income $(0.453) $(0.393) $(0.461) $(0.400) $(0.205) $(0.395) $(0.373) $(0.382)
In excess of net investment
income (0.016) -- (0.011) -- (0.003) -- -- (0.032)
-------- -------- ------- ------- ------- ------- ------- -------
Total distributions $(0.469) $(0.393) $(0.472) $(0.400) $(0.208) $(0.395) $(0.373) $(0.414)
-------- -------- ------- ------- ------- ------- ------- -------
Net asset value - End of
year $10.110 $10.110 $10.140 $10.140 $ 9.820 $ 9.820 $ 9.840 $ 9.730
======== ======== ======= ======= ======= ======= ======= =======
Total return(5) 4.19% 3.62% 8.40% 7.43% 1.51% 3.89% 5.07% 4.41%
Ratios/Supplemental Data+
Net assets, end of year
(000's omitted) $20,375 $ 2,205 $18,114 $ 4,249 $ 952 $24,587 $29,759 $34,279
Ratios (as a percentage of average daily net assets):
Expenses(6)(7) 1.03% 1.75% 1.11% 1.80% 1.08%(8) 1.84% 1.67% 1.49%
Expenses after custodian
fee reduction(6) 1.00% 1.72% -- -- 1.05%(8) 1.81% 1.65% --
Net investment income 4.51% 3.79% 4.57% 3.92% 4.75%(8) 4.06% 4.04% 3.95%
Portfolio turnover of the
Portfolio(9) 19% 19% 29% 29% 34% 34% 47% 120%
+ The operating expenses of the Fund reflect a reduction of the investment
adviser fee, an allocation of expenses to the adviser or administrator, or
both. Had such action not been taken, the ratios and investment income per
share would have been as follows:
Ratios (as a percentage of average daily net assets):
Expenses(6) 1.60%
Net investment income 3.84%
Net investment income per share $0.371
</TABLE>
(See footnotes on last page.)
30
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
PENNSYLVANIA FUND
----------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------------------
1999(1) 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS A(2) CLASS B CLASS B CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning
of year $10.550 $10.550 $ 9.980 $10.100 $10.100 $10.030 $10.190 $10.090 $ 10.100
------- ------- ------- ------- ------- ------- ------- ------- --------
Income (loss) from
operations
Net investment income $ 0.477 $ 0.400 $ 0.374 $ 0.481 $0.407(1) $ 0.371 $ 0.392 $ 0.388 $ 0.374
Net realized and unrealized
gain (loss) (0.051) (0.053) (0.042) 0.445 0.445 0.063(3) (0.081) 0.110 0.065
------- ------- ------- ------- ------- ------- ------- ------- --------
Total income (loss) from
operations $ 0.426 $ 0.347 $ 0.332 $ 0.926 $ 0.852 $ 0.434 $ 0.311 $ 0.498 $ 0.439
------- ------- ------- ------- ------- ------- ------- ------- --------
Less distributions
From net investment income $(0.476) $(0.397) $(0.382) $(0.476) $(0.402) $(0.364) $(0.401) $(0.388) $ (0.374)
In excess of net investment
income -- -- -- -- -- -- -- (0.010) (0.069)
From net realized gain -- -- -- -- -- -- -- -- (0.006)
------- ------- ------- ------- ------- ------- ------- ------- ---------
Total distributions $(0.476) $(0.397) $(0.382) $(0.476) $(0.402) $(0.364) $(0.401) $(0.398) $ (0.449)
------- ------- ------- ------- ------- ------- ------- ------- ---------
Net asset value - End of
year $10.500 $10.500 $ 9.930 $10.550 $10.550 $10.100 $10.100 $10.190 $ 10.090
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return(5) 3.90% 3.33% 3.36% 9.52% 8.55% 4.15% 3.12% 4.98% 4.50%
Ratios/Supplemental
Data
Net assets, end of year
(000's omitted) $41,048 $ 3,787 $ 5,803 $43,961 $ 8,277 $27,907 $33,971 $84,407 $103,553
Ratios (as a percentage of average daily net assets):
Expenses(6)(7) 0.94% 1.69% 1.71% 0.97% 1.71% 0.90%(8) 1.69% 1.62% 1.57%
Expenses after custodian
fee reduction(6) 0.92% 1.67% 1.69% 0.95% 1.69% 0.88%(8) 1.67% 1.60% --
Net investment income 4.52% 3.79% 3.74% 4.67% 3.95% 4.83%(8) 4.05% 3.79% 3.75%
Portfolio turnover of the
Portfolio(9) 16% 16% 16% 36% 36% 51% 51% 24% 39%
</TABLE>
(1) Net investment income per share was computed using average shares
outstanding.
(2) For the period from the start of business of Class A shares to the fiscal
year end March 31, 1997. The start of business of Class A shares for each
Fund is as follows: June 27, 1996 for the California, Florida,
Massachusetts, New Jersey, New York and Pennsylvania Funds; and October 22,
1996 for the Michigan and Ohio Funds; and January 21, 1997 for the
Connecticut Fund.
(3) The per share amount is not in accord with the net realized and unrealized
gain (loss) on investments for the period because of the timing of sales of
Fund shares and the amount of the per share realized and unrealized gains
and losses at such time.
(4) Distributions in excess of net investment income are less than $0.001 per
share.
(5) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Distributions, if any, are assumed to be reinvested at the
net asset value on the reinvestment date. Total return is not computed on
an annualized basis.
(6) Includes the Fund's share of its corresponding Portfolio's allocated
expenses.
(7) The expense ratios for the year ended March 31, 1996 and periods thereafter
have been adjusted to reflect a change in reporting requirements. The new
reporting guidelines require the Fund, as well as its corresponding
Portfolio, to increase its expense ratio by the effect of any expense
offset arrangements with its service providers. The expense ratios for each
of the prior periods have not been adjusted to reflect this change.
(8) Annualized.
(9) Portfolio Turnover represents the rate of portfolio activity for the period
while the Funds were making investments directly in securities.
31
<PAGE>
LOGO
Mutual Funds
for People
Who Pay
Taxes
More Information
- --------------------------------------------------------------------------------
About the Funds: More information is available in the statement of
additional information. The statement of additional information is
incorporated by reference into this prospectus. Additional information
about each Portfolio's investments is available in the annual and
semi-annual reports to shareholders. In the annual report, you will
find a discussion of the market conditions and investment strategies
that significantly affected each Fund's performance during the past
year. You may obtain free copies of the statement of additional
information and the shareholder reports by contacting:
Eaton Vance Distributors, Inc.
The Eaton Vance Building
255 State Street
Boston, MA 02109
1-800-225-6265
website: www.eatonvance.com
You will find and may copy information about each Fund at the
Securities and Exchange Commission's public reference room in
Washington, DC (call 1-800-SEC-0330 for information); on the SEC's
Internet site (http://www.sec.gov); or upon payment of copying fees by
writing to the SEC's public reference room in Washington, DC
20549-6009.
About Shareholder Accounts: You can obtain more information from Eaton
Vance Shareholder Services (1-800-225-6265). If you own shares and
would like to add to, redeem or change your account, please write or
call the transfer agent:
----------------------------------------------------------------------
First Data Investor Services Group
P.O. Box 512
Westborough, MA 01581-5123
1-800-262-1122
SEC File No. 811-4443 LTDP8/1
<PAGE>
{LOGO} Mutual Funds
EATON VANCE for People
Mutual Funds Who Pay
Taxes
Eaton Vance
National Limited Maturity
Municipals
Fund
A mutual fund seeking tax-exempt income and limited principal fluctuation
Prospectus Dated
August 1, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Information in this prospectus
Page Page
- --------------------------------------------------------------------------------
Fund Summary 2 Sales Charges 7
Investment Objective & Principal Redeeming Shares 8
Policies and Risks 4 Shareholder Account
Management and Organization 5 Features 9
Valuing Shares 6 Tax Information 10
Purchasing Shares 6 Financial Highlights 11
- --------------------------------------------------------------------------------
This prospectus contains important information about the Fund and the services
available to shareholders. Please save it for reference.
<PAGE>
FUND SUMMARY
Investment Objective and Principal Strategies. Eaton Vance National Limited
Maturity Municipals Fund's investment objective is to provide a high level of
current income exempt from regular federal income tax and limited principal
fluctuation. The Fund primarily invests in investment grade municipal
obligations (those rated BBB or Baa or higher), but may also invest in lower
quality obligations. The Fund invests in obligations having a dollar weighted
average duration of between three and nine years.
The Fund may concentrate in certain types of municipal obligations (such as
industrial development bonds, housing bonds, hospital bonds or utility bonds),
so Fund shares could be affected by events that adversely affect a particular
sector. The Fund may purchase derivative instruments (such as futures
contracts), bonds that do not require the periodic payment of interest, bonds
issued on a "when issued" basis and municipal leases. A portion of the Fund's
distributions generally will be subject to alternative minimum tax.
The portfolio manager purchases and sells securities to maintain a competitive
yield and to enhance return based upon the relative value of the securities in
the marketplace. The portfolio manager may also trade securities to minimize
taxable capital gains to shareholders. The manager attempts to limit principal
fluctuation by investing in a portfolio of obligations having a dollar weighted
average duration of between three and nine years.
The Fund currently invests its assets in National Limited Maturity Municipals
Portfolio, a separate registered investment company with the same investment
objective and policies as the Fund.
Principal Risk Factors. Because obligations rated BBB or Baa and below are more
sensitive to the financial soundness of their issuers than higher quality
obligations, Fund shares may fluctuate more in value than shares of a fund
investing solely in higher quality obligations. Obligations rated BBB or Baa
have speculative characteristics, while lower rated obligations (so-called "junk
bonds") are predominantly speculative.
The value of Fund shares may change when interest rates change. When interest
rates rise, the value of Fund shares typically will decline. Fund yields will
also fluctuate over time. The Fund's use of derivatives is subject to certain
limitations and may expose the Fund to increased risk of principal loss due to
imperfect correlation, failure of the counterparty and unexpected price or
interest rate movements.
When-issued securities are subject to the risk that when delivered to the Fund
they will be worth less than the price the Fund agreed to pay for them.
Municipal leases often require a legislative appropriation of funds for payment.
If the necessary appropriation is not made, the issuer of the lease may not be
able to meet its obligations.
The Fund is not a complete investment program and you may lose money by
investing in the Fund. An investment in the Fund is not a deposit in a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
2
<PAGE>
Performance Information. The following bar chart and table provide information
about the Fund's performance, including a comparison of the Fund's performance
to the performance of a national index of intermediate-maturity municipal
obligations. Although past performance is no guarantee of future results, this
performance information demonstrates the risk that the value of your investment
will change. The following returns are for Class B shares for each calendar year
through December 31, 1998 and do not reflect a sales charge. If the sales charge
was reflected, the returns would be lower.
8.82% -3.20% 9.83% 2.36% 7.35% 4.94%
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
The Fund's highest quarterly total return was 3.99% for the quarter ended March
31, 1995, and its lowest quarterly return was -3.60% for the quarter ended March
31, 1994. The year-to-date total return through the end of the most recent
calendar quarter (December 31, 1998 to June 30, 1999) was -0.17%. For the 30
days ended March 31, 1999, the SEC yield and SEC tax-equivalent yield (assuming
a federal tax rate of 31%) for Class A shares were 4.28% and 6.20%,
respectively, for Class B shares were 3.62% and 5.25%, respectively, and for
Class C shares were 3.52% and 5.10%, respectively. For current yield information
call 1-800-225-6265.
Life
Average Annual Total Return One Five of
as of December 31, 1998 Year Years Fund
- --------------------------------------------------------------------------------
Class A shares 3.36% 4.03% 5.69%
Class B shares 1.94% 4.16% 5.42%
Class C shares 3.71% 3.93% 5.19%
Lehman Brothers 7-Year Municipal Bond Index 6.22% 5.78% 6.90%
These returns reflect the maximum sales charge for Class A (2.25%) and any
applicable CDSC for Class B and Class C. The Class A and Class C performance
shown above for the period prior to June 27, 1996 and December 8, 1993,
respectively, is the performance of Class B shares, adjusted for the sales
charge that applies to Class A or Class C shares (but not adjusted for any other
differences in the expenses of the classes). Life of Fund returns are calculated
from May 31, 1992. The Lehman Brothers 7-Year Municipal Bond Index is a
broad-based, unmanaged market index of intermediate-maturity municipal bonds.
Investors cannot invest directly in an Index. (Source for Lehman Brothers 7-Year
Municipal Bond Index: Lipper Inc.)
Fund Fees and Expenses. These tables describe the fees and expenses that you may
pay if you buy and hold shares.
Shareholder Fees
(fees paid directly
from your investment) Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
(as a percentage of
offering price) 2.25% None None
Maximum Deferred Sales Charge
(Load) (as a percentage of
the lower of net asset value
at time of purchase or time
of redemption) None 3.00% 1.00%
Maximum Sales Charge (Load)
Imposed on Reinvested
Distributions None None None
Exchange Fee None None None
Annual Fund Operating Expenses
(expenses that are deducted
from Fund assets) Class A Class B Class C
- --------------------------------------------------------------------------------
Management Fees 0.48% 0.48% 0.48%
Distribution and Service
(12b-1) Fees* 0.00% 0.89% 0.97%
Other Expenses** 0.50% 0.36% 0.36%
----- ----- -----
Total Annual Fund
Operating Expenses 0.98% 1.73% 1.81%
* Long-term shareholders of Class B and Class C shares may pay more than the
economic equivalent of the front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
** Other Expenses for Class A includes a service fee of 0.14%.
<PAGE>
Example. This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that the operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A shares $323 $530 $754 $1,399
Class B shares* $476 $745 $939 $2,041
Class C shares $284 $569 $980 $2,127
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A shares $323 $530 $754 $1,399
Class B shares* $176 $545 $939 $2,041
Class C shares $184 $569 $980 $2,127
* Costs for 5 Years and 10 Years reflect the expenses of Class A because
Class B shares generally convert to Class A after four years.
3
<PAGE>
INVESTMENT OBJECTIVE & PRINCIPAL POLICIES AND RISKS
The investment objective of the Fund is to provide a high level of current
income exempt from regular federal income tax and limited principal fluctuation.
The Fund seeks to achieve its objective by investing primarily (i.e., at least
80% of its net assets during periods of normal market conditions) in municipal
obligations, the interest on which is exempt from regular federal income tax.
This is a fundamental policy of the Fund which only may be changed with
shareholder approval. The Fund's investment objective and certain other policies
may be changed by the Trustees without shareholder approval. The Fund currently
seeks to meet its investment objective by investing in National Limited Maturity
Municipals Portfolio (the "Portfolio"), a separate open-end management company
that has the same objective and policies as the Fund.
At least 65% of net assets will normally be invested in municipal obligations
rated at least investment grade at the time of investment (which are those rated
Baa or higher by Moody's Investors Service, Inc. ("Moody's"), or BBB or higher
by either Standard & Poor's Ratings Group ("S&P") or Fitch IBCA ("Fitch")) or,
if unrated, are determined by the investment adviser to be of at least
investment grade quality. The balance of net assets may be invested in municipal
obligations rated below investment grade and in unrated municipal obligations
considered to be of comparable quality by the investment adviser. As of March
31, 1999, 28.1% of the Portfolio's net assets were invested in obligations rated
below investment grade and comparable unrated obligations. Municipal obligations
rated Baa or BBB or below have speculative characteristics, while lower quality
obligations are predominately speculative. Also, changes in economic conditions
or other circumstances are more likely to reduce the capacity of issuers of
lower-rated obligations to make principal and interest payments. Lower rated
obligations also may be subject to greater price volatility than higher rated
obligations. It may also be more difficult to value certain lower rated
obligations because of the inability (or perceived inability) of the issuer to
make interest and principal payments. The Portfolio will not invest more than
10% of its net assets in obligations rated below B by Moody's, S&P or Fitch.
Although the Portfolio invests in obligations having a dollar weighted average
duration of between three and nine years, the Portfolio may invest in individual
municipal obligations of any maturity. Duration represents the dollar weighted
average maturity of expected cash flows (i.e., interest and principal payments)
on one or more municipal obligations, discounted to their present values. The
Portfolio may use various techniques to shorten or lengthen its dollar weighted
average duration, including the acquisition of municipal obligations at a
premium or discount, and transactions in futures contracts and options on
futures.
Municipal obligations include bonds, notes and commercial paper issued by a
municipality for a wide variety of both public and private purposes. Municipal
obligations also include municipal leases and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Certain
municipal obligations may be purchased on a "when-issued" basis, which means
that payment and delivery occur on a future settlement date. The price and yield
of such securities are generally fixed on the date of commitment to purchase.
Many obligations permit the issuer at its option to "call", or redeem, its
securities. If an issuer calls securities during a time of declining interest
rates, it may not be possible to reinvest the proceeds in securities providing
the same investment return as the securities redeemed.
The interest on municipal obligations is (in the opinion of the issuer's
counsel) exempt from regular federal income tax. Interest income from certain
types of municipal obligations generally will be subject to the federal
alternative minimum tax (the "AMT") for individuals. Distributions to corporate
investors may also be subject to the AMT. The Fund may not be suitable for
investors subject to the AMT.
The Portfolio may invest 25% or more of its total assets in municipal
obligations of the same type (such as leases, housing finance, public housing,
municipal utilities, hospital and health facilities or industrial development).
This may make the Portfolio more susceptible to adverse economic, political or
regulatory occurrences affecting a particular category of issuer.
The net asset value will change in response to changes in prevailing interest
rates and changes in the value of securities held. The value of securities held
will be affected by the credit quality of the issuer of the obligation, and
general economic and business conditions that affect the specific economic
sector of the issuer. Changes by rating agencies in the rating assigned to an
obligation may also affect the value of an obligation.
The Portfolio may purchase derivative instruments, which derive their value from
another instrument, security or index. For example, the Portfolio may purchase
and sell various kinds of financial futures contracts and options thereon to
hedge against changes in interest rates or as a substitute for the purchase of
portfolio securities. The use of derivative instruments for both hedging and
investment purposes involves a risk of loss or depreciation due to a variety of
factors including counterparty risk, unexpected market, interest rate or
securities price movements, and tax and regulatory constraints. Derivative
hedging transactions may not be effective because of imperfect correlations and
other factors.
4
<PAGE>
The Portfolio may invest in zero coupon bonds, which do not require the issuer
to make periodic interest payments. The values of these bonds are subject to
greater fluctuation in response to changes in market interest rates than bonds
which pay interest currently. The Portfolio accrues income on these investments
and the Fund is required to distribute its share of Portfolio income each year.
The Portfolio may be required to sell securities to obtain cash needed for
income distributions.
The limited liquidity of certain securities in which the Portfolio may invest
could affect their market prices, thereby adversely affecting net asset value
and the ability to pay income. The amount of publicly available information
about certain municipal obligations may be limited and the investment
performance of the Portfolio more dependent on the portfolio manager's analysis
than if this were not the case.
The Portfolio may borrow amounts up to one-third of the value of its total
assets (including borrowings), but it will not borrow more than 5% of the value
of its total assets except to satisfy redemption requests or for other temporary
purposes. Such borrowings would result in increased expense to the Fund and,
while they are outstanding, would magnify increases or decreases in the value of
Fund shares. The Portfolio will not purchase additional investment securities
while outstanding borrowings exceed 5% of the value of its total assets. During
unusual market conditions, the Portfolio may temporarily invest up to 50% of its
total assets in cash or cash equivalents. While temporarily invested, the Fund
may not achieve its objective and interest income from temporary investments may
be taxable.
The investment adviser's process for selecting securities for purchase and sale
is research intensive and emphasizes the creditworthiness of the issuer or other
person obligated to repay the obligation. The investment adviser seeks to invest
in obligations that it believes will retain their value in varying interest rate
climates.
Like most mutual funds, the Fund and Portfolio rely on computers in conducting
daily business and processing information. There is a concern that on January 1,
2000 some computer programs will be unable to recognize the new year and as a
consequence computer malfunctions will occur. Eaton Vance is taking steps that
it believes are reasonably designed to address this potential problem and to
obtain satisfactory assurance from other service providers to the Fund and the
Portfolio that they are also taking steps to address the issue. There can,
however, be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund and the Portfolio or shareholders. The Year 2000
concern may also adversely impact issuers of obligations held by the Portfolio
and the markets in which these securities trade. The foregoing statement is
subject to the Year 2000 Information and Readiness Disclosure Act, which may
protect Eaton Vance and the Fund and the Portfolio from liability arising from
the statement.
MANAGEMENT AND ORGANIZATION
Management. The Portfolio's investment adviser is Boston Management and Research
("BMR"), a subsidiary of Eaton Vance Management ("Eaton Vance"), with offices at
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109. Eaton
Vance has been managing assets since 1924 and managing mutual funds since 1931.
Eaton Vance and its subsidiaries currently manage over $38 billion on behalf of
mutual funds, institutional clients and individuals.
The investment adviser manages the investments of the Portfolio and provides
related office facilities and personnel. Under its investment advisory agreement
with the Portfolio, BMR receives a monthly advisory fee equal to the aggregate
of a daily asset based fee and a daily income based fee. The fees are applied on
the basis of the following categories.
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%
On March 31, 1999, the Portfolio had net assets of $89,966,394. For the fiscal
year ended March 31, 1999, the Portfolio paid BMR advisory fees equivalent to
0.48% of the Portfolio's average net assets for such year.
William H. Ahern, Jr. is the portfolio manager of the Portfolio (since May,
1997). He also manages other Eaton Vance portfolios, has been an Eaton Vance
portfolio manager for more than 5 years, and is a Vice President of Eaton Vance
and BMR.
5
<PAGE>
The investment adviser and the Fund and Portfolio have adopted Codes of Ethics
governing personal securities transactions. Under the Codes, Eaton Vance
employees may purchase and sell securities (including securities held by the
Portfolio) subject to certain pre-clearance and reporting requirements and other
procedures.
Eaton Vance serves as administrator of the Fund, providing the Fund with
administrative services and related office facilities. Eaton Vance does not
currently receive a fee for serving as administrator.
Organization. The Fund is a series of Eaton Vance Investment Trust, a
Massachusetts business trust. The Fund offers multiple classes of shares. Each
class represents a pro rata interest in the Fund, but is subject to different
expenses and rights. The Fund does not hold annual shareholder meetings, but may
hold special meetings for matters that require shareholder approval (like
electing or removing trustees, approving management contracts or changing
investment policies that may only be changed with shareholder approval). Because
the Fund invests in the Portfolio, it may be asked to vote on certain Portfolio
matters (like changes in certain Portfolio investment restrictions). When
necessary, the Fund will hold a meeting of its shareholders to consider the
Portfolio matter and then vote its interest in the Portfolio in proportion to
the votes cast by its shareholders. The Fund can withdraw from the Portfolio at
any time.
VALUING SHARES
The Fund values its shares once each day only when the New York Stock Exchange
is open for trading (typically Monday through Friday), as of the close of
regular trading on the Exchange (normally 4:00 p.m. eastern time). The price of
Fund shares is their net asset value which is derived from Portfolio holdings.
Municipal obligations will normally be valued on the basis of valuations
furnished by a pricing service.
When purchasing or redeeming Fund shares, your investment dealer must
communicate your order to the principal underwriter by a specific time each day
in order for the purchase price or the redemption price to be based on that
day's net asset value per share. It is the investment dealer's responsibility to
transmit orders promptly. The Fund may accept purchase and redemption orders as
of the time of their receipt by certain investment dealers (or their designated
intermediaries).
PURCHASING SHARES
You may purchase shares through your investment dealer or by mailing the account
application form included in this prospectus to the transfer agent (see back
cover for address). Your initial investment must be at least $1,000. The price
of Class A shares is the net asset value plus a sales charge. The price of Class
B and Class C shares is the net asset value; however, you may be subject to a
sales charge (called a "contingent deferred sales charge" or "CDSC") if you
redeem Class B shares within four years of purchase or Class C shares within one
year of purchase. The sales charges are described below. Your investment dealer
can help you decide which class of shares suits your investment needs.
After your initial investment, additional investments of $50 or more may be made
at any time by sending a check payable to the order of the Fund or the transfer
agent directly to the transfer agent (see back cover for address). Please
include your name and account number and the name of the Fund and Class with
each investment.
You may also make automatic investments of $50 or more each month or each
quarter from your bank account. You can establish bank automated investing on
the account application or by calling 1-800-262-1122. The minimum initial
investment amount and Fund policy of redeeming accounts with low account
balances are waived for bank automated investing accounts and certain group
purchase plans.
You may purchase Fund shares in exchange for securities. Please call
1-800-225-6265 for information about exchanging securities for Fund shares. If
you purchase shares through an investment dealer (which includes brokers,
dealers and other financial institutions), that dealer may charge you a fee for
executing the purchase for you. The Fund may suspend the sale of its shares at
any time and any purchase order may be refused.
6
<PAGE>
SALES CHARGES
Front-End Sales Charge. Class A shares are offered at net asset value per share
plus a sales charge that is determined by the amount of your investment. The
current sales charge schedule is:
<TABLE>
Sales Charge Sales Charge Dealer Commission
as Percentage of as Percentage of as a Percentage of
Amount of Purchase Offering Price Invested Offering Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 2.25% 2.30% 2.00%
$100,000 but less than $250,000 1.75% 1.78% 1.50%
$250,000 but less than $500,000 1.50% 1.52% 1.25%
$500,000 but less than $1,000,000 1.00% 1.01% 1.00%
$1,000,000 or more 0.00* 0.00* 1.00%
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more. A CDSC of 1.00% will be imposed on such investments (as
described below) in the event of redemptions within 24 months of purchase.
Contingent Deferred Sales Charge. Each class of shares is subject to a CDSC on
certain redemptions. If Class A shares are purchased at net asset value because
the purchase amount is $1 million or more, they are subject to a 1.00% CDSC if
redeemed within 24 months of purchase. Class C shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. Class B shares are subject to the
following CDSC schedule:
Year of Redemption After Purchase CDSC
- --------------------------------------------------------------------------------
First 3.0%
Second 2.5%
Third 2.0%
Fourth 1.0%
Fifth or following 0%
The CDSC is based on the lower of the net asset value at the time of purchase or
the time of redemption. Shares acquired through the reinvestment of
distributions are exempt from the CDSC. Redemptions are made first from shares
that are not subject to a CDSC.
The principal underwriter pays commissions to investment dealers on sales of
Class B and Class C shares (except exchange transactions and reinvestments). The
sales commission on Class B shares equals 2.5% of the purchase price of the
shares. The sales commission on Class C shares equals 0.85% of the purchase
price of the shares. After the first year, investment dealers also receive 0.75%
of the value of Class C shares in distribution fees.
Class B Conversion Feature. After the longer of four years or the time when the
CDSC applicable to your Class B shares expires, Class B shares will
automatically convert to Class A shares. Class B shares acquired through the
reinvestment of distributions will convert in proportion to shares not so
acquired.
Reducing or Eliminating Sales Charges. Front-end sales charges may be reduced
under the right of accumulation or under a statement of intention. Under the
right of accumulation, sales charges are reduced if the current market value of
your current holdings (shares at current offering price), plus your new
purchases, reach $100,000 or more. Class A shares of other Eaton Vance funds
owned by you can be included as part of your current holdings for this purpose.
Under a statement of intention, purchases of $100,000 or more made over a
13-month period are eligible for reduced sales charges. The principal
underwriter may hold 5% of the dollar amount to be purchased in escrow in the
form of shares registered in your name until the statement is satisfied or the
13-month period expires. See the account application for details.
Class A shares are offered at net asset value to clients of financial
intermediaries who charge a fee for their services; accounts affiliated with
those financial intermediaries; investment and institutional clients of Eaton
Vance; certain persons affiliated with Eaton Vance; and certain Eaton Vance and
fund service providers. Ask your investment dealer for details.
CDSCs are waived for redemptions pursuant to a Withdrawal Plan (see "Shareholder
Account Features"). The Class B CDSC is also waived following the death of all
beneficial owners of shares, but only if the redemption is requested within one
year after death (a death certificate and other applicable documents may be
required).
If you redeem shares, you may reinvest at net asset value any portion or all of
the redemption proceeds in the same class of shares of the Fund (or, for Class A
shares, in Class A shares of any other Eaton Vance fund), provided that the
reinvestment occurs within 60 days of the redemption, and the privilege has not
been used more than once in the prior 12 months. Your account will be credited
with any CDSC paid in connection with the redemption. Reinvestment requests
7
<PAGE>
must be in writing. If you reinvest, you will be sold shares at the next
determined net asset value following receipt of your request.
Distribution and Service Fees. Class B and Class C shares have adopted a plan
under Rule 12b-1 that allows the Fund to pay distribution fees for the sale and
distribution of shares (so-called "12b-1 fees"). Class B and Class C shares pay
distribution fees of 0.75% of average daily net assets annually. Because these
fees are paid from Fund assets on an ongoing basis, they will increase your cost
over time and may cost you more than paying other types of sales charges. All
classes pay service fees for personal and/or account services not exceeding .15%
of average daily net assets annually. Class A and Class B only pay service fees
on shares that have been outstanding for 12 months. Although there is no present
intention to do so, the Fund could pay service fees of up to 0.25% annually upon
Trustee approval.
REDEEMING SHARES
You can redeem shares in any of the following ways:
By Mail Send your request to the transfer agent along with any
certificates and stock powers. The request must be
signed exactly as your account is registered and
signature guaranteed. You can obtain a signature
guarantee at certain banks, savings and loan
institutions, credit unions, securities dealers,
securities exchanges, clearing agencies and registered
securities associations. You may be asked to provide
additional documents if your shares are registered in
the name of a corporation, partnership or fiduciary.
By Telephone You can redeem up to $50,000 by calling the transfer
agent at 1-800-262-1122 on Monday through Friday, 9:00
a.m. to 4:00 p.m. (eastern time). Proceeds of a
telephone redemption can be mailed only to the account
address. Shares held by corporations, trusts or certain
other entities, or subject to fiduciary arrangements,
cannot be redeemed by telephone.
Through an
Investment
Dealer Your investment dealer is responsible for transmitting
the order promptly. A dealer may charge a fee for this
service.
If you redeem shares, your redemption price will be based on the net asset value
per share next computed after the redemption request is received. Your
redemption proceeds will be paid in cash within seven days, reduced by the
amount of any applicable CDSC and any federal income tax required to be
withheld. Payments will be sent by mail unless you complete the Bank Wire
Redemptions section of the account application.
If you recently purchased shares, the proceeds of a redemption will not be sent
until the purchase check (including a certified or cashier's check) has cleared.
If the purchase check has not cleared, redemption proceeds may be delayed up to
15 days from the purchase date. If your account value falls below $750 (other
than due to market decline), you may be asked to either add to your account or
redeem it within 60 days. If you take no action, your account will be redeemed
and the proceeds sent to you.
While redemption proceeds are normally paid in cash, redemptions may be paid by
distributing marketable securities. If you receive securities, you could incur
brokerage or other charges in converting the securities to cash.
8
<PAGE>
SHAREHOLDER ACCOUNT FEATURES
Once you purchase shares, the transfer agent establishes a Lifetime Investing
Account(R) for you. Share certificates are issued only on request.
Distributions. You may have your Fund distributions paid in one of the following
ways:
*Full
Reinvest
Option Dividends and capital gains are reinvested in additional
shares. This option will be assigned if you do not specify
an option.
*Partial
Reinvest
Option Dividends are paid in cash and capital gains are reinvested
in additional shares.
*Cash
Option Dividends and capital gains are paid in cash.
*Exchange
Option Dividends and/or capital gains are reinvested in additional
shares of another Eaton Vance fund chosen by you. Before
selecting this option, you must obtain a prospectus of the
other fund and consider its objectives and policies
carefully.
Information from the Fund. From time to time, you may be mailed the following:
* Annual and Semi-Annual Reports, containing performance information and
financial statements.
* Periodic account statements, showing recent activity and total share
balance.
* Form 1099 and tax information needed to prepare your income tax returns.
* Proxy materials, in the event a shareholder vote is required.
* Special notices about significant events affecting your Fund.
Withdrawal Plan. You may redeem shares on a regular monthly or quarterly basis
by establishing a systematic withdrawal plan. Withdrawals will not be subject to
any applicable CDSC if they do not in the aggregate exceed 12% annually of the
account balance at the time the plan is established. A minimum account size of
$5,000 is required to establish a systematic withdrawal plan. Because purchases
of Class A shares are subject to an initial sales charge, you should not make
withdrawals from your account while you are making purchases.
Exchange Privilege. You may exchange your Fund shares for shares of the same
class of another Eaton Vance fund. Exchanges are generally made at net asset
value. If you hold Class A shares for less than six months and exchange them for
shares subject to a higher sales charge, you will be charged the difference
between the two sales charges. If your shares are subject to a CDSC, the CDSC
will continue to apply to your new shares at the same CDSC rate. For purposes of
the CDSC, your shares will continue to age from the date of your original
purchase.
Before exchanging, you should read the prospectus of the new fund carefully. If
you wish to exchange shares, you may write to the transfer agent (address on
back cover) or call 1-800-262-1122. Periodic automatic exchanges are also
available. The exchange privilege may be changed or discontinued at any time.
You will receive 60 days' notice of any material change to the privilege. This
privilege may not be used for "market timing". If an account (or group of
accounts) makes more than two round-trip exchanges within 12 months, it will be
deemed to be market timing. The exchange privilege may be terminated for market
timing accounts.
Telephone Transactions. You can redeem or exchange shares by telephone as
described in this prospectus. The transfer agent and the principal underwriter
have procedures in place to authenticate telephone instructions (such as
verifying personal account information). As long as the transfer agent and
principal underwriter follow these procedures, they will not be responsible for
unauthorized telephone transactions and you bear the risk of possible loss
resulting from telephone transactions. You may decline the telephone redemption
option on the account application. Telephone instructions are tape recorded.
"Street Name" Accounts. If your shares are held in a "street name" account at an
investment dealer, that dealer (and not the Fund or its transfer agent) will
perform all recordkeeping, transaction processing and distribution payments.
Because the Fund will have no record of your transactions, you should contact
your investment dealer to purchase, redeem or exchange shares, to make changes
in your account, or to obtain account information. The transfer of shares in a
"street name" account to an account with another investment dealer or to an
account directly with the Fund involves special procedures and you will be
required to obtain historical information about your shares prior to the
transfer. Before establishing a "street name" account with an investment dealer,
you should determine whether that dealer allows reinvestment of distributions in
"street name" accounts.
9
<PAGE>
Account Questions. If you have any questions about your account or the services
available, please call Eaton Vance Shareholder Services at 1-800-225-6265, or
write to the transfer agent (see back cover for address).
TAX INFORMATION
The Fund declares dividends daily and ordinarily pays distributions monthly.
Different classes will distribute different dividend amounts. Your account will
be credited with dividends beginning on the business day after the day when the
funds used to purchase your Fund shares are collected by the transfer agent. The
Fund expects that its distributions will consist primarily of federally
tax-exempt income. Distribution of any net realized gains will be distributed
once each year (usually in December). For tax purposes the entire distribution,
whether paid in cash or reinvested in additional shares, ordinarily will
constitute tax-exempt income to you.
Distributions of any taxable income and net short-term capital gains will be
taxable as ordinary income. Distributions of any long-term capital gains are
taxable as such. Distributions of interest on certain municipal obligations are
a tax preference item under the AMT provisions applicable to individuals and
corporations. A redemption of Fund shares, including an exchange for shares of
another fund, is a taxable transaction.
Shareholders, particularly corporations and those subject to state alternative
minimum tax, should consult with their advisers concerning the applicability of
state, local and other taxes to an investment.
10
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights are intended to help you understand the Fund's
financial performance for the past five years. Certain information in the table
reflects the financial results for a single Fund share. The total returns in the
table represent the rate an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all distributions and not
taking into account a sales charge). This information has been audited by
Deloitte & Touche LLP, independent accountants. The report of Deloitte & Touche
LLP and the Fund's financial statements are incorporated herein by reference and
included in the annual report, which is available on request. The Fund began
offering three class of shares on April 1, 1998. Prior to that date, the Fund
offered only Class A and Class B shares and Class C existed as a separate fund.
<TABLE>
Year Ended March 31,
--------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------
Class A Class B Class C Class A Class B Class A(1) Class B Class B Class B
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value -
Beginning of Year $10.580 $10.580 $ 9.920 $10.070 $10.070 $10.030 $10.170 $10.130 $10.160
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
operations
Net Investment Income $ 0.519 $ 0.412 $ 0.407 $ 0.527 $ 0.454(2) $ 0.393 $ 0.428 $ 0.413 $ 0.400
Net realized and
unrealized gain
(loss) $(0.090) $(0.066) $(0.089) $ 0.488 $ 0.488 $0.033(3) $(0.098) $ 0.040 $ 0.033
-------- -------- -------- ------- ------- ------ ------- ------- -------
Total income from
operations $ 0.429 $ 0.346 $ 0.318 $ 1.015 $ 0.942 $ 0.426 $ 0.330 $ 0.453 $ 0.433
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions
From net investment
income $(0.519) $(0.436) $(0.411) $(0.505) $(0.432) $(0.386) $(0.430) $(0.413) $(0.400)
In excess of net
investment income --- --- (0.007) --- --- --- --- --- $(0.058)
From net realized
gain on investments --- --- --- --- --- --- --- --- $(0.005)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions $(0.519) $(0.436) $(0.418) $(0.505) $(0.432) $(0.386) $(0.430) $(0.413) $(0.463)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value-
End of year $10.490 $10.490 $ 9.820 $10.580 $10.580 $10.070 $10.070 $10.170 $10.130
======== ======== ======== ======== ======== ======== ======== ======== ========
Total return(4) 3.89% 3.29% 3.24% 10.50% 9.52% 4.06% 3.30% 4.51% 4.43%
Ratios/Supplemental
Data
Net assets, end of
year (000's omitted) $73,048 $ 5,450 $11,193 $59,992 $11,538 $37,072 $48,692 $112,027 $141,289
Ratios (as a percentage
of average daily net
assets):
Expenses(5)(6) 0.98% 1.73% 1.81% 0.99% 1.73% 0.99%(7) 1.69% 1.64% 1.57%
Expenses after
custodian fee
reduction(5) 0.97% 1.72% 1.80% 0.98% 1.72% 0.97%(7) 1.67% 1.63% ---
Net investment
income 4.96% 4.23% 4.10% 5.16% 4.42% 5.14%(7) 4.37% 4.04% 3.99%
Portfolio Turnover
of the Portfolio 26% 26% 26% 41% 41% 68% 68% 68% 56%
</TABLE>
(1) For the period from the start of business, June 27, 1996, to March 31,
1997.
(2) Net investment income per share was computed using average shares
outstanding.
(3) The per share amount is not in accord with the net realized and unrealized
gain (loss) on investments for the period because of the timing of sales of
Fund shares and the amount of the per share realized and unrealized gains
and losses at such time.
(4) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Distributions, if any, are assumed to be reinvested at the
net asset value on the reinvestment date. Total return is not computed on
an annualized basis.
(5) Includes the Fund's share of the Portfolio's allocated expenses.
(6) The expense ratios for the year ended March 31, 1996 and periods thereafter
have been adjusted to reflect a change in reporting requirements. The new
reporting guidelines require the Fund, as well as the Portfolio, to
increase its expense ratio by the effect of any expense offset arrangements
with its service providers. The expense ratio for the year ended March 31,
1995 has not been adjusted to reflect this change.
(7) Annualized
11
<PAGE>
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MORE INFORMATION
- --------------------------------------------------------------------------------
About the Fund: More information is available in the statement of
additional information. The statement of additional information is
incorporated by reference into this prospectus. Additional information
about the Portfolio's investments is available in the annual and
semi-annual reports to shareholders. In the annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the past year. You may
obtain free copies of the statement of additional information and the
shareholder reports by contacting:
EATON VANCE DISTRIBUTORS, INC.
The Eaton Vance Building
255 State Street
Boston, MA 02109
1-800-225-6265
website: www.eatonvance.com
You will find and may copy information about the Fund at the Securities and
Exchange Commission's public reference room in Washington, DC (call
1-800-SEC-0330 for information); on the SEC's Internet site
(http://www.sec.gov); or upon payment of copying fees by writing to the
SEC's public reference room in Washington, DC 20549-6009.
About Shareholder Accounts: You can obtain more information from Eaton
Vance Share- holder Services (1-800-225-6265). If you own shares and would
like to add to, redeem or change your account, please write or call the
transfer agent:
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FIRST DATA INVESTOR SERVICES GROUP
P.O. BOX 5123
WESTBOROUGH, MA 01581-5123
1-800-262-1122
SEC File No. 811-4443 LNAP
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1999
EATON VANCE CALIFORNIA LIMITED MATURITY MUNICIPALS FUND
EATON VANCE CONNECTICUT LIMITED MATURITY MUNICIPALS FUND
EATON VANCE FLORIDA LIMITED MATURITY MUNICIPALS FUND
EATON VANCE MASSACHUSETTS LIMITED MATURITY MUNICIPALS FUND
EATON VANCE MICHIGAN LIMITED MATURITY MUNICIPALS FUND
EATON VANCE NEW JERSEY LIMITED MATURITY MUNICIPALS FUND
EATON VANCE NEW YORK LIMITED MATURITY MUNICIPALS FUND
EATON VANCE OHIO LIMITED MATURITY MUNICIPALS FUND
EATON VANCE PENNSYLVANIA LIMITED MATURITY MUNICIPALS FUND
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
(800) 225-6265
This Statement of Additional Information ("SAI") provides general
information about the Funds listed above and their corresponding Portfolios.
Each Fund is a series of Eaton Vance Investment Trust. Capitalized terms used
in this SAI and not otherwise defined have the meanings given to them in the
prospectus. This SAI contains additional information about:
Page
Strategies and Risks ............................................. 1
Investment Restrictions .......................................... 6
Management and Organization ...................................... 7
Investment Advisory and Administrative Services .................. 12
Other Service Providers .......................................... 13
Purchasing and Redeeming Shares .................................. 13
Sales Charges .................................................... 15
Performance ...................................................... 18
Taxes ............................................................ 20
Portfolio Security Transactions .................................. 22
Financial Statements ............................................. 24
Appendices:
A: Class A Fees, Performance and Ownership ....................... a-1
B: Class B Fees, Performance and Ownership ....................... b-1
C: Class C Fees, Performance and Ownership ....................... c-1
D: State Specific Information .................................... d-1
E: Tax Equivalent Yield Tables ................................... e-1
F: Ratings ....................................................... f-1
Although each Fund offers only its shares of beneficial interest, it is
possible that a Fund (or Class) might become liable for a misstatement or
omission in this SAI regarding another Fund (or Class) because the Funds use
this combined SAI. The Trustees of the Trust have considered this factor in
approving the use of a combined SAI.
THIS IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY THE FUNDS' PROSPECTUS DATED
AUGUST 1, 1999, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED
HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS, WHICH MAY BE OBTAINED BY CALLING 1-800-225-6265.
<PAGE>
STRATEGIES AND RISKS
MUNICIPAL OBLIGATIONS. Municipal obligations are issued to obtain funds for
various public and private purposes. Municipal obligations include bonds as
well as tax-exempt commercial paper, project notes and municipal notes such as
tax, revenue and bond anticipation notes of short maturity, generally less
than three years. While most municipal bonds pay a fixed rate of interest
semi-annually in cash, there are exceptions. Some bonds pay no periodic cash
interest, but rather make a single payment at maturity representing both
principal and interest. Bonds may be issued or subsequently offered with
interest coupons materially greater or less than those then prevailing, with
price adjustments reflecting such deviation.
In general, there are three categories of municipal obligations, the
interest on which is exempt from federal income tax and is not a tax
preference item for purposes of the AMT: (i) certain "public purpose"
obligations (whenever issued), which include obligations issued directly by
state and local governments or their agencies to fulfill essential
governmental functions; (ii) certain obligations issued before August 8, 1986
for the benefit of non-governmental persons or entities; and (iii) certain
"private activity bonds" issued after August 7, 1986 which include "qualified
Section 501(c)(3) bonds" or refundings of certain obligations included in the
second category. Interest on certain "private activity bonds" issued after
August 7, 1986 is exempt from regular federal income tax but such interest
(including a distribution by a Fund derived from such interest) is treated as
a tax preference item which could subject the recipient to or increase the
recipient's liability for the AMT. For corporate shareholders, a Fund's
distributions derived from interest on all municipal obligations (whenever
issued) is included in "adjusted current earnings" for purposes of the AMT as
applied to corporations (to the extent not already included in alternative
minimum taxable income as income attributable to private activity bonds). In
assessing the federal income tax treatment of interest on any municipal
obligation, the Portfolios will generally rely on an opinion of the issuer's
counsel (when available) and will not undertake any independent verification
of the basis for the opinion.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects including the
construction or improvement of schools, highways and roads, water and sewer
systems and a variety of other public purposes. The basic security of general
obligation bonds is the issuer's pledge of its faith, credit, and taxing power
for the payment of principal and interest. The taxes that can be levied for
the payment of debt service may be limited or unlimited as to rate and amount.
Revenue bonds are generally secured by the net revenues derived from a
particular facility or group of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Revenue bonds
have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways,
bridges and tunnels; port, airport and parking facilities; transportation
systems; housing facilities, colleges and universities and hospitals. Although
the principal security behind these bonds varies widely, many provide
additional security in the form of a debt service reserve fund whose monies
may be used to make principal and interest payments on the issuer's
obligations. Housing finance authorities have a wide range of security
including partially or fully insured, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public projects. In
addition to a debt service reserve fund, some authorities provide further
security in the form of a state's ability (without legal obligation) to make
up deficiencies in the debt service reserve fund. Lease rental revenue bonds
issued by a state or local authority for capital projects are normally secured
by annual lease rental payments from the state or locality to the authority
sufficient to cover debt service on the authority's obligations. Such payments
are usually subject to annual appropriations by the state or locality.
Industrial development and pollution control bonds, although nominally issued
by municipal authorities, are in most cases revenue bonds and are generally
not secured by the taxing power of the municipality, but are usually secured
by the revenues derived by the authority from payments of the industrial user
or users. Each Portfolio may on occasion acquire revenue bonds which carry
warrants or similar rights covering equity securities. Such warrants or rights
may be held indefinitely, but if exercised, the Portfolio anticipates that it
would, under normal circumstances, dispose of any equity securities so
acquired within a reasonable period of time.
The obligations of any person or entity to pay the principal of and
interest on a municipal obligation are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. There is also the possibility that as a result of
litigation or other conditions the power or ability of any person or entity to
pay when due principal of and interest on a municipal obligation may be
materially affected. There have been recent instances of defaults and
bankruptcies involving municipal obligations which were not foreseen by the
financial and investment communities. Each Portfolio will take whatever action
it considers appropriate in the event of anticipated financial difficulties,
default or bankruptcy of either the issuer of any municipal obligation or of
the underlying source of funds for debt service. Such action may include
retaining the services of various persons or firms (including affiliates of
the investment adviser) to evaluate or protect any real estate, facilities or
other assets securing any such obligation or acquired by a Portfolio as a
result of any such event, and a Portfolio may also manage (or engage other
persons to manage) or otherwise deal with any real estate, facilities or other
assets so acquired. The Portfolio anticipates that real estate consulting and
management services may be required with respect to properties securing
various municipal obligations in its portfolio or subsequently acquired by the
Portfolio. The Portfolio will incur additional expenditures in taking
protective action with respect to portfolio obligations in default and assets
securing such obligations.
The yields on municipal obligations will be dependent on a variety of
factors, including purposes of issue and source of funds for repayment,
general money market conditions, general conditions of the municipal bond
market, size of a particular offering, maturity of the obligation and rating
of the issue. The ratings of Moody's, S&P and Fitch represent their opinions
as to the quality of the municipal obligations which they undertake to rate.
It should be emphasized, however, that ratings are based on judgment and are
not absolute standards of quality. Consequently, municipal obligations with
the same maturity, coupon and rating may have different yields while
obligations of the same maturity and coupon with different ratings may have
the same yield. In addition, the market price of 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.
STATE-SPECIFIC CONCENTRATION. For a discussion of the risks associated with
investing in municipal obligations of a particular state's issuers, see "Risks
of Concentration" in Appendix D. Each Portfolio may also invest a total of up
to 35% of its net assets in the obligations of Puerto Rico, the U.S. Virgin
Islands and Guam. Accordingly, the Portfolio may be adversely affected by
local political and economic conditions and developments within Puerto Rico,
the U.S. Virgin Islands and Guam affecting the issuers of such obligations.
Information about some of these conditions and developments is included in
Appendix D.
ISSUER CONCENTRATION. Each Portfolio may invest 25% or more of its total
assets in municipal obligations of the same type. There could be economic,
business or political developments which might affect all municipal
obligations of the same type. In particular, investments in revenue bonds
might involve (without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of
increase of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices, and in
achieving timely and adequate rate relief from regulatory commissions, effects
of energy conservation and limitations on the capacity of the capital market
to absorb utility debt.
Industrial development bonds are normally secured only by the revenues
from the project and not by state or local government tax payments, they are
subject to a wide variety of risks, many of which relate to the nature of the
specific project. Generally, IDBs are sensitive to the risk of a slowdown in
the economy.
DURATION. 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 municipal
obligation'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.
MUNICIPAL LEASES. Each Portfolio may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment
purchase arrangement which is issued by state or local governments to acquire
equipment and facilities. Interest income from such obligations is generally
exempt from local and state taxes in the state of issuance. "Participations"
in such leases are undivided interests in a portion of the total obligation.
Participations entitle their holders to receive a pro rata share of all
payments under the lease. The obligation of the issuer to meet its obligations
under such leases is often subject to the appropriation by the appropriate
legislative body, on an annual or other basis, of funds for the payment of the
obligations. Investments in municipal leases are thus subject to the risk that
the legislative body will not make the necessary appropriation and the issuer
will not otherwise be willing or able to meet its obligation.
Certain municipal lease obligations owned by each Portfolio may be deemed
illiquid for the purpose of the Portfolio's 15% limitation on investments in
illiquid securities, unless determined by the investment adviser, pursuant to
guidelines adopted by the Trustees of a Portfolio, to be liquid securities for
the purpose of such limitation. In determining the liquidity of municipal
lease obligations, the investment adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the obligation and the number of
other potential buyers; (3) the frequency of trades and quotes for the
obligation; and (4) the nature of the marketplace trades. In addition, the
investment adviser will consider factors unique to particular lease
obligations affecting the marketability thereof. These include the general
creditworthiness of the municipality, the importance of the property covered
by the lease to the municipality, and the likelihood that the marketability of
the obligation will be maintained throughout the time the obligation is held
by a Portfolio. In the event a Portfolio acquires an unrated municipal lease
obligation, the investment adviser will be responsible for determining the
credit quality of such obligation on an on-going basis, including an
assessment of the likelihood that the lease may or may not be cancelled.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations which do not require
the periodic payment of interest and are issued at a significant discount from
face value. The discount approximates the total amount of interest the bonds
will accrue and compound over the period until maturity at a rate of interest
reflecting the market rate of the security at the time of issuance. Each
Portfolio is required to accrue income from zero-coupon bonds on a current
basis, even though it does not receive that income currently in cash and each
Fund is required to distribute its share of the Portfolio's income for each
taxable year. Thus, a Portfolio may have to sell other investments to obtain
cash needed to make income distributions.
CREDIT QUALITY. While municipal obligations rated investment grade or below
and comparable unrated municipal obligations may have some quality and
protective characteristics, these characteristics can be expected to be offset
or outweighed by uncertainties or major risk exposures to adverse conditions.
Lower rated and comparable unrated municipal obligations are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to greater price volatility
due to such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Lower rated or unrated municipal obligations are also more likely to react to
real or perceived developments affecting market and credit risk than are more
highly rated obligations, which react primarily to movements in the general
level of interest rates.
Municipal obligations held by a Portfolio which are rated below investment
grade but which, subsequent to the assignment of such rating, are backed by
escrow accounts containing U.S. Government obligations may be determined by
the investment adviser to be of investment grade quality for purposes of the
Portfolio's investment policies. A Portfolio may retain in its portfolio an
obligation whose rating drops after its acquisition, including defaulted
obligations, if such retention is considered desirable by the investment
adviser; provided, however, that holdings of obligations rated below Baa or
BBB will be less than 35% of net assets. In the event the rating of an
obligation held by a Portfolio is downgraded, causing the Portfolio to exceed
this limitation, the investment adviser will (in an orderly fashion within a
reasonable period of time) dispose of such obligations as it deems necessary
in order to comply with the Portfolio's credit quality limitations. In the
case of a defaulted obligation, a Portfolio may incur additional expense
seeking recovery of its investment. See "Portfolio of Investments" in the
"Financial Statements" incorporated by reference into this SAI with respect to
any defaulted obligations held by a Portfolio.
The investment adviser seeks to minimize the risks of investing in below
investment grade securities through professional investment analysis and
attention to current developments in interest rates and economic conditions.
When a Portfolio invests in lower rated or unrated municipal obligations, the
achievement of the Portfolio's goals is more dependent on the investment
adviser's ability than would be the case if the Portfolio were investing in
municipal obligations in the higher rating categories. In evaluating the
credit quality of a particular issue, whether rated or unrated, the investment
adviser will normally take into consideration, among other things, the
financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The investment adviser will attempt to reduce the risks of investing
in the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
WHEN-ISSUED SECURITIES. New issues of municipal obligations are sometimes
offered on a "when-issued" basis, that is, delivery and payment for the
securities normally take place within a specified number of days after the
date of a Portfolio's commitment and are subject to certain conditions such as
the issuance of satisfactory legal opinions. Each Portfolio may also purchase
securities on a when-issued basis pursuant to refunding contracts in
connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts generally require the issuer to sell and a Portfolio to
buy such securities on a settlement date that could be several months or
several years in the future. Each Portfolio may also purchase instruments that
give the Portfolio the option to purchase a municipal obligation when and if
issued.
Each Portfolio will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but may sell
such securities before the settlement date if it is deemed advisable as a
matter of investment strategy. The payment obligation and the interest rate
that will be received on the securities are fixed at the time a Portfolio
enters into the purchase commitment. When a Portfolio commits to purchase a
security on a when-issued basis it records the transaction and reflects the
value of the security in determining its net asset value. Securities purchased
on a when-issued basis and the securities held by a Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the
issuer and changes in the level of interest rates (i.e., appreciation when
interest rates decline and depreciation when interest rates rise). Therefore,
to the extent that a Portfolio remains substantially fully invested at the
same time that it has purchased securities on a when-issued basis, there will
be greater fluctuations in the Portfolio's net asset value than if it solely
set aside cash to pay for when-issued securities.
REDEMPTION, DEMAND AND PUT FEATURES AND PUT OPTIONS. Issuers of municipal
obligations reserve the right to call (redeem) the bond. If an issuer redeems
securities held by the Portfolio during a time of declining interest rates,
the Portfolio may not be able to reinvest the proceeds in securities providing
the same investment return as the securities redeemed. Also, some bonds may
have "put" or "demand" features that allow early redemption by the bondholder.
Longer term fixed-rate bonds may give the holder a right to request redemption
at certain times (often annually after the lapse of an intermediate term).
These bonds are more defensive than conventional long-term bonds (protecting
to some degree against a rise in interest rates) while providing greater
opportunity than comparable intermediate term bonds, because a Portfolio may
retain the bond if interest rates decline.
LIQUIDITY AND PROTECTIVE PUT OPTIONS. Each Portfolio may enter into a separate
agreement with the seller of the security or some other person granting the
Portfolio the right to put the security to the seller thereof or the other
person at an agreed upon price. Each Portfolio intends to limit this type of
transaction to institutions (such as banks or securities dealers) which the
investment adviser believes present minimal credit risks and would engage in
this type of transaction to facilitate portfolio liquidity or (if the seller
so agrees) to hedge against rising interest rates. There is no assurance that
this kind of put option will be available to a Portfolio or that selling
institutions will be willing to permit a Portfolio to exercise a put to hedge
against rising interest rates. A Portfolio does not expect to assign any
value to any separate put option which may be acquired to facilitate portfolio
liquidity, inasmuch as the value (if any) of the put will be reflected in the
value assigned to the associated security; any put acquired for hedging
purposes would be valued in good faith under methods or procedures established
by the Trustees of the Portfolio after consideration of all relevant factors,
including its expiration date, the price volatility of the associated
security, the difference between the market price of the associated security
and the exercise price of the put, the creditworthiness of the issuer of the
put and the market prices of comparable put options. Interest income
generated by certain bonds having put or demand features may be taxable.
INVERSE FLOATERS. Each Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in
inverse floaters may involve greater risk than an investment in a fixed rate
bond. Because changes in the interest rate on the other security or index
inversely affect the residual interest paid on the inverse floater, the value
of an inverse floater is generally more volatile than that of a fixed rate
bond. Inverse floaters have interest rate adjustment formulas which generally
reduce or, in the extreme, eliminate the interest paid to a portfolio when
short-term interest rates rise, and increase the interest paid to the
Portfolio when short-term interest rates fall. Inverse floaters have varying
degrees of liquidity, and the market for these securities is new and
relatively volatile. These securities tend to underperform the market for
fixed rate bonds in a rising interest rate environment, but tend to outperform
the market for fixed rate bonds when interest rates decline. Shifts in long-
term interest rates may, however, alter this tendency. Although volatile,
inverse floaters typically offer the potential for yields exceeding the yields
available on fixed rate bonds with comparable credit quality and maturity.
These securities usually permit the investor to convert the floating rate to a
fixed rate (normally adjusted downward), and this optional conversion feature
may provide a partial hedge against rising rates if exercised at an opportune
time. Inverse floaters are leveraged because they provide two or more dollars
of bond market exposure for every dollar invested.
ILLIQUID OBLIGATIONS. At times, a substantial portion of a Portfolio's assets
may be invested in securities as to which the Portfolio, by itself or together
with other accounts managed by the investment adviser and its affiliates,
holds a major portion or all of such securities. Under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, the Portfolio could find it more difficult to sell
such securities when the investment adviser believes it advisable to do so or
may be able to sell such securities only at prices lower than if such
securities were more widely held. Under such circumstances, it may also be
more difficult to determine the fair value of such securities for purposes of
computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a state
(including issues which are privately placed with a Portfolio) is less liquid
than that for taxable debt obligations or other more widely traded municipal
obligations. No Portfolio will invest in illiquid securities if more than 15%
of its net assets would be invested in securities that are not readily
marketable. No established resale market exists for certain of the municipal
obligations in which a Portfolio may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, a Portfolio may be unable to dispose of
these municipal obligations at times when it would otherwise wish to do so at
the prices at which they are valued.
SECURITIES LENDING. Each Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers.
Distributions by a Fund of any income realized by a Portfolio from securities
loans will be taxable. If the management of a Portfolio decides to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of a Portfolio's total assets. Securities lending involves
risks of delay in recovery or even loss of rights on the securities loaned if
the borrower fails financially. Each Portfolio has no present intention of
engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A change in the level of
interest rates may affect the value of the securities held by a Portfolio (or
of securities that a Portfolio expects to purchase). To hedge against changes
in rates or as a substitute for the purchase of securities, a Portfolio may
enter into (i) futures contracts for the purchase or sale of debt securities,
and (ii) futures contracts on securities indices. All futures contracts
entered into by a Portfolio are traded on exchanges or boards of trade that
are licensed and regulated by the Commodity Futures Trading Commission
("CFTC") and must be executed through a futures commission merchant or
brokerage firm which is a member of the relevant exchange. The Portfolio may
purchase and write call and put options on futures contracts which are traded
on a United States exchange or board of trade. The Portfolio will be required,
in connection with transactions in futures contracts and the writing of
options on futures, to make margin deposits, which will be held by the
Portfolio's custodian for the benefit of the futures commission merchant
through whom the Portfolio engages in such futures and options transactions.
Some futures contracts and options thereon may become illiquid under
adverse market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit transactions in an exchange-traded
instrument, which may make the instrument temporarily illiquid and difficult
to price. Commodity exchanges may also establish daily limits on the amount
that the price of a futures contract or futures option can vary from the
previous day's settlement price. Once the daily limit is reached, no trades
may be made that day at a price beyond the limit. This may prevent the
Portfolio from closing out positions and limiting its losses.
Each Portfolio will engage in futures and related options transactions for
bona fide hedging purposes or non-hedging purposes as defined in or permitted
by CFTC regulations. The Portfolio will determine that the price fluctuations
in the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the
Portfolio or which it expects to purchase. Each Portfolio will engage in
transactions in futures and related options contracts only to the extent such
transactions are consistent with the requirements of the Code for maintaining
qualification of a Fund as a regulated investment company for federal income
tax purposes.
ASSET COVERAGE REQUIREMENTS. Transactions involving when-issued securities or
futures contracts and options (other than options that a Portfolio has
purchased) expose a Portfolio to an obligation to another party. A Portfolio
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options or futures
contracts, or (2) cash or liquid securities (such as readily marketable
obligations and money market instruments) with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. Each
Portfolio will comply with Securities and Exchange Commission ("SEC")
guidelines regarding cover for these instruments and, if the guidelines so
require, set aside cash or liquid securities in a segregated account with its
custodian in the prescribed amount. The securities in the segregated account
will be marked to market daily.
Assets used as cover or held in a segregated account maintained by the
custodian cannot be sold while the position requiring coverage or segregation
is outstanding unless they are replaced with other appropriate assets. As a
result, the commitment of a large portion of a Portfolio's assets to
segregated accounts or to cover could impede portfolio management or a
Portfolio's ability to meet redemption requests or other current obligations.
TEMPORARY INVESTMENTS. Under unusual market conditions, each Portfolio may
invest temporarily in cash or cash equivalents. Cash equivalents are highly
liquid, short-term securities such as commercial paper, certificates of
deposit, short-term notes and short-term U.S. Government obligations.
PORTFOLIO TURNOVER. Each Portfolio may sell (and later purchase) securities in
anticipation of a market decline (a rise in interest rates) or purchase (and
later sell) securities in anticipation of a market rise (a decline in interest
rates). In addition, a security may be sold and another purchased at
approximately the same time to take advantage of what a Portfolio believes to
be a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to
the investment quality of particular issues or the general movement of
interest rates, such as changes in the overall demand for or supply of various
types of municipal obligations or changes in the investment objectives of
investors. Such trading may be expected to increase the portfolio turnover
rate, which may increase capital gains and the expenses incurred in connection
with such trading. A Portfolio cannot accurately predict its portfolio
turnover rate, but it is anticipated that the annual portfolio turnover rate
will generally not exceed 100% (excluding turnover of securities having a
maturity of one year or less). A 100% annual turnover rate could occur, for
example, if all the securities held by a Portfolio were replaced once in a
period of one year. A high turnover rate (100% or more) necessarily involves
greater expenses to the Portfolio.
INVESTMENT RESTRICTIONS
The following investment restrictions of each Fund are designated as
fundamental policies and as such cannot be changed without the approval of the
holders of a majority of a Fund's outstanding voting securities, which as used
in this SAI means the lesser of (a) 67% of the shares of a Fund present or
represented by proxy at a meeting if the holders of more than 50% of the
outstanding shares are present or represented at the meeting or (b) more than
50% of the outstanding shares of a Fund. Accordingly, each Fund may not:
(1) Borrow money or issue senior securities except as permitted by the
1940 Act;
(2) Purchase securities on margin (but the Fund may obtain such short-
term credits as may be necessary for the clearance of purchases and sales
of securities). The deposit or payment by the Fund of initial or
maintenance margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of
others, except insofar as it may technically be deemed to be an
underwriter in selling a portfolio security under circumstances which may
require the registration of the same under the Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership
interests in real estate, but excluding readily marketable interests in
real estate investment trusts or readily marketable securities of
companies which invest or deal in real estate or securities which are
secured by real estate);
(5) Purchase or sell physical commodities or contracts for the
purchase or sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of debt
instruments and making portfolio investments, (b) entering into repurchase
agreements, or (c) lending portfolio securities.
Notwithstanding the investment policies and restrictions of each Fund, the
Fund may invest all of its investable assets in an open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund.
Each Portfolio has adopted substantially the same fundamental investment
restrictions as the foregoing investment restrictions adopted by each Fund;
such restrictions cannot be changed without the approval of a "majority of the
outstanding voting securities" of a Portfolio.
The Funds and the Portfolios have adopted the following investment
policies which may be changed by the Trustees with respect to a Fund without
approval by that Fund's shareholders or with respect to the Portfolio without
approval of a Fund or its other investors. Each Fund and each Portfolio will
not:
(a) engage in options, futures or forward transactions if more than 5%
of its net assets, as measured by the aggregate of the premiums paid by
the Fund or the Portfolio, would be so invested;
(b) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount
of such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue as,
and equal in amount to, the securities sold short, and unless not more
than 25% of the Fund's net assets (taken at current value) is held as
collateral for such sales at any one time; or
(c) invest more than 15% of its net assets in investments which are
not readily marketable, including restricted securities and repurchase
agreements maturing in more than seven days. Restricted securities for the
purposes of this limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and commercial
paper issued pursuant to Section 4(2) of said Act that the Board of
Trustees of the Trust or the Portfolio, or its delegate, determines to be
liquid. Any such determination by a delegate will be made pursuant to
procedures adopted by the Board. If the Fund or Portfolio invests in Rule
144A securities, the level of portfolio illiquidity may be increased to
the extent that eligible buyers become uninterested in purchasing such
securities.
No Fund or Portfolio will invest 25% or more of its total assets in the
securities of issuers in any one industry. For purposes of the foregoing
policy, securities of the U.S. Government, its agencies, or instrumentalities
are not considered to represent industries. Municipal obligations backed by
the credit of a governmental entity are also not considered to represent
industries. However, municipal obligations backed only by the assets and
revenues of non-governmental users may for this purpose be deemed to be issued
by such non-governmental users. The foregoing 25% limitation would apply to
these issuers. As discussed in the prospectus and this SAI, a Fund or
Portfolio may invest more than 25% of its total assets in certain economic
sectors, such as revenue bonds, housing, hospitals and other health care
facilities, and industrial development bonds. Each Fund and each Portfolio
reserve the right to invest more than 25% of total assets in each of these
sectors.
For purposes of a Portfolio's investment restrictions, the determination
of the "issuer" of a municipal obligation which is not a general obligation
bond will be made by the Portfolio's investment adviser on the basis of the
characteristics of the obligation and other relevant factors, the most
significant of which is the source of funds committed to meeting interest and
principal payments of such obligations.
Whenever an investment policy or investment restriction set forth in the
prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding
quality standards, such percentage limitation or standard shall be determined
immediately after and as a result of a Fund's or a Portfolio's acquisition of
such security or asset. Accordingly, any later increase or decrease resulting
from a change in values, assets or other circumstances, or any subsequent
rating change made by a rating service, will not compel a Fund or a Portfolio,
as the case may be, to dispose of such security or other asset. Where
applicable and notwithstanding the foregoing, under normal market conditions a
Fund and a Portfolio must take actions necessary to comply with the policy of
investing at least 65% of total assets in a particular state. Moreover, each
Fund and each Portfolio must always be in compliance with the limitation on
investing in illiquid investments and the borrowing policies set forth above.
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees of the Trust are responsible for the overall
management and supervision of the Trust's affairs. The Trustees and officers
of the Trust and the Portfolios are listed below. Except as indicated, each
individual has held the office shown or other offices in the same company for
the last five years. Unless otherwise noted, the business address of each
Trustee and officer is The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109. Those Trustees who are "interested persons" of the Trust
or a Portfolio, as defined in the 1940 Act, are indicated by an asterisk(*).
JESSICA M. BIBLIOWICZ (39), Trustee*
President and Chief Executive Officer of National Financial Partners (a
financial services company) (since April 1999). President and Chief
Operating Officer of John A. Levin & Co. (a registered investment advisor)
(July 1997 to April 1999) and a Director of Baker, Fentress & Company which
owns John A. Levin & Co. (July 1997 to April 1999). Formerly Executive Vice
President of Smith Barney Mutual Funds (from July, 1994 to June, 1997).
Elected Trustee October 30, 1998. Trustee of various investment companies
managed by Eaton Vance or BMR since October 30, 1998.
Address: 1301 Avenue of the Americas, New York, New York 10019
DONALD R. DWIGHT (68), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee/Director of the Royce Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (57), Vice President and Trustee*
Chairman, President and Chief Executive Officer of BMR, Eaton Vance and their
corporate parent and trustee (EVC and EV); Director of EVC and EV. Trustee
and officer of various investment companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (64), Trustee
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of the Kobrick-Cendant
Investment Trust (mutual funds). Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 345 Nahatan Street, Westwood, Massachusetts 02090
NORTON H. REAMER (63), Trustee
Chairman of the Board and Chief Executive Officer, United Asset Management
Corporation (a holding company owning institutional investment management
firms); Chairman, President and Director, UAM Funds (mutual funds). Trustee
of various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
LYNN A. STOUT (41), Trustee
Professor of Law, Georgetown University Law Center. Elected Trustee October
30, 1998. Trustee of various investment companies managed by Eaton Vance or
BMR since October 30, 1998.
Address: 600 New Jersey Avenue, NW, Washington, DC 20001
JACK L. TREYNOR (69), Trustee
Investment Adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
THOMAS J. FETTER (55), President
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (42), Vice President
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (54), Treasurer
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ALAN R. DYNNER (58), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance and EVC a since
November 1, 1996. Previously, he was a Partner of the law firm of
Kirkpatrick & Lockhart LLP, New York and Washington, D.C., and was Executive
Vice President of Neuberger & Berman Management, Inc., a mutual fund
management company. Officer of various investment companies managed by Eaton
Vance or BMR.
JANET E. SANDERS (63), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (36), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ERIC G. WOODBURY (42), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment
companies managed by Eaton Vance or BMR.
In addition, William H. Ahern, Jr. (40), Vice President of Eaton Vance and
BMR, is a Vice President of the Connecticut, Massachusetts, Michigan, New
Jersey, New York and Ohio Portfolios. Mr. Ahern has served as Vice President
of the Connecticut, Michigan, New Jersey and Ohio Portfolios since October
1994, the Massachusetts Portfolio since May 1, 1997 and the New York Portfolio
since November 24, 1997. Timothy T. Browse (40), Vice President of Eaton Vance
and BMR, is a Vice President of the Pennsylvania Portfolio. Mr. Browse has
served as a Vice President of the Pennsylvania Portfolio since May 1, 1997.
Cynthia J. Clemson (36), Vice President of Eaton Vance and BMR, is a Vice
President of the California and Florida Portfolios. Ms. Clemson has served as
Vice President of the California Portfolio since May 1, 1997 and the Florida
Portfolio since November 1, 1998. Mr. Ahern, Mr. Browse and Ms. Clemson are
officers of various investment companies managed by Eaton Vance and BMR.
The Nominating Committee of the Board of Trustees of the Trust and the
Portfolios is comprised of the Trustees who are not "interested persons" as
that term is defined under the 1940 Act ("noninterested Trustees"). The
purpose of the Committee is to recommend to the Board nominees for the
position of noninterested Trustee and to assure that at least a majority of
the Board of Trustees is independent of Eaton Vance and its affiliates.
Messrs. Hayes (Chairman), Dwight and Reamer and Ms. Stout are members of
the Special Committee of the Board of Trustees of the Trust and of the
Portfolios. The purpose of the Special Committee is to consider, evaluate and
make recommendations to the full Board of Trustees concerning (i) all
contractual arrangements with service providers to the Funds and the
Portfolios, including investment advisory (Portfolio only), administrative,
transfer agency, custodial and fund accounting and distribution services, and
(ii) all other matters in which Eaton Vance or its affiliates has any actual
or potential conflict of interest with the Funds, the Portfolios or investors
therein.
Messrs. Treynor (Chairman) and Dwight are members of the Audit Committee
of the Board of Trustees of the Trust and of the Portfolios. The Audit
Committee's functions include making recommendations to the Trustees regarding
the selection of the independent certified public accountants, and reviewing
matters relative to trading and brokerage policies and practices, accounting
and auditing practices and procedures, accounting records, internal accounting
controls, and the functions performed by the custodian, transfer agent and
dividend disbursing agent of the Trust and of the Portfolios.
Trustees of the Portfolios who are not affiliated with the Investment
Adviser may elect to defer receipt of all or a percentage of their annual fees
in accordance with the terms of a Trustees Deferred Compensation Plan (the
"Trustees" Plan"). Under the Trustees' Plan, an eligible Trustee may elect to
have his deferred fees invested by a Portfolio in the shares of one or more
funds in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the Portfolios' assets, liabilities, and net
income per share, and will not obligate a Portfolio to retain the services of
any Trustee or obligate a Portfolio to pay any particular level of
compensation to the Trustee. Neither the Portfolios nor the Trust has a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and the
Portfolios are paid by the Funds (and the other series of the Trust) and the
Portfolios, respectively. (The Trustees of the Trust and the Portfolios who
are members of the Eaton Vance organization receive no compensation from the
Trust or the Portfolios.) During the fiscal year ended March 31, 1999, the
noninterested Trustees of the Trust and the Portfolios earned the following
compensation in their capacities as Trustees from the Trust and the
Portfolios, and for the year ended December 31, 1998, earned the following
compensation in their capacities as Trustees of the funds in the Eaton Vance
fund complex(1):
<TABLE>
<CAPTION>
JESSICA M. DONALD R. SAMUEL L. NORTON H. LYNN A. JACK L.
SOURCE OF COMPENSATION BIBLIOWICZ(5) DWIGHT(3) HAYES, III(4) REAMER STOUT(5) TREYNOR
- ---------------------- ------------- --------- ------------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Trust(2) $ 644 $ 669 $ 675 $ 623 $ 680 $ 704
California Portfolio 92 96 96 89 97 101
Connecticut Portfolio 9 10 10 9 10 10
Florida Portfolio 239 335 386 374 272 392
Massachusetts Portfolio 239 335 386 374 272 392
Michigan Portfolio 9 10 10 9 10 10
New Jersey Portfolio 92 96 96 89 97 101
New York Portfolio 239 335 386 374 272 392
Ohio Portfolio 9 10 10 9 10 10
Pennsylvania Portfolio 239 335 386 374 272 392
Trust and Fund Complex 33,334 160,000(6) 170,000(7) 160,000 32,842 170,000
- ----------
(1) As of August 1, 1999, the Eaton Vance fund complex consists of 155 registered investment companies or series thereof.
(2) The Trust consisted of 10 Funds as of March 31, 1999.
(3) Mr. Dwight received deferred compensation from each Portfolio as follows: California - $50; Connecticut - $5; Florida - $173;
Massachusetts - $173; Michigan - $5; New Jersey - $50; New York - $173; Ohio - $5; Pennsylvania - $173.
(4) Mr. Hayes received deferred compensation from each Portfolio as follows: California - $92; Connecticut - $9; Florida - $387;
Massachusetts - $387; Michigan -$9; New Jersey - $92; New York - $387; Ohio - $9; Pennsylvania - $387.
(5) Ms. Bibliowicz and Ms. Stout were elected as Trustees on October 30, 1998.
(6) Includes $60,000 of deferred compensation.
(7) Includes $41,563 of deferred compensation.
</TABLE>
ORGANIZATION. Each Fund is a series of the Trust, which is organized under
Massachusetts law as a business trust and is operated as an open-end
management investment company. Each Fund changed its name from Eaton Vance
[state name] Limited Maturity Tax Free Fund to EV Marathon [state name]
Limited Maturity Tax Free Fund on January 7, 1994 for the California, Florida,
Massachusetts, National, New Jersey, New York and Pennsylvania Funds and on
August 1, 1994 for the Connecticut, Michigan and Ohio Funds, and then to EV
Marathon [state name] Limited Maturity Municipals Fund on October 23, 1995.
Each Fund was reorganized into multiple classes and changed its name to Eaton
Vance [state name] Limited Maturity Municipals Fund on April 1, 1998. The
operations of the Class B reflect the operations of a Fund prior to April 1,
1998. Class A and Class C are successors to the operations of separate series
of the Trust.
The Trust may issue an unlimited number of shares of beneficial interest
(no par value per share) in one or more series (such as the Funds). The
Trustees of the Trust have divided the shares of each Fund into multiple
classes. Each class represents an interest in a Fund, but is subject to
different expenses, rights and privileges. The Trustees have the authority
under the Declaration of Trust to create additional classes of shares with
differing rights and privileges. When issued and outstanding, shares are fully
paid and nonassessable by the Trust. Shareholders are entitled to one vote for
each full share held. Fractional shares may be voted proportionately. Shares
of a Fund will be voted together except that only shareholders of a particular
class may vote on matters affecting only that class. Shares have no preemptive
or conversion rights and are freely transferable. In the event of the
liquidation of a Fund, shareholders of each class are entitled to share pro
rata in the net assets attributable to that class available for distribution
to shareholders.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of each Fund in its corresponding Portfolio, as well
as the advantages and disadvantages of the two-tier format. The Trustees
believe that the structure offers opportunities for growth in the assets of
the Portfolios, may afford the potential for economies of scale for each Fund
and may over time result in lower expenses for a Fund.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time
as less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event the Trustees then in office will
call a shareholders' meeting for the election of Trustees. Except for the
foregoing circumstances and unless removed by action of the shareholders in
accordance with the Trust's By-laws, the Trustees shall continue to hold
office and may appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The By-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes (such as reclassifying series of classes of shares or
restructuring the Trust) as do not have a materially adverse effect on the
financial interests of shareholders or if they deem it necessary to conform it
to applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such
liability has been imposed. The Trust's Declaration of Trust contains an
express disclaimer of liability on the part of the Fund shareholders and the
Trust's By-laws provide that the Trust shall assume the defense on behalf of
any Fund shareholders. The Declaration of Trust also contains provisions
limiting the liability of a series or class to that series or class. Moreover,
the Trust's By-laws also provide for indemnification out of the property of
the Fund of any shareholder held personally liable solely by reason of being
or having been a shareholder for all loss or expense arising from such
liability. The assets of the Fund are readily marketable and will ordinarily
substantially exceed its liabilities. In light of the nature of the Fund's
business and the nature of its assets, management believes that the
possibility of the Fund's liability exceeding its assets, and therefore the
shareholder's risk of personal liability, is remote.
Each Portfolio is organized as a trust under the laws of the state of New
York and intends to be treated as a partnership for federal tax purposes. In
accordance with the Declaration of Trust of each Portfolio, there will
normally be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees of the
Portfolio holding office have been elected by investors. In such an event the
Trustees of the Portfolio then in office will call an investors' meeting for
the election of Trustees. Except for the foregoing circumstances and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust of each Portfolio provides that no person shall
serve as a Trustee if investors holding two-thirds of the outstanding interest
have removed him from that office either by a written declaration filed with
the Portfolio's custodian or by votes cast at a meeting called for that
purpose. The Declaration of Trust further provides that under certain
circumstances the investors may call a meeting to remove a Trustee and that
the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
Each Portfolio's Declaration of Trust provides that a Fund and other
entities permitted to invest in the Portfolio (e.g., other U.S. and foreign
investment companies, and common and commingled trust funds) will each be
liable for all obligations of the Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Portfolio
itself is unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund investing in the Portfolio.
Whenever a Fund as an investor in a Portfolio is requested to vote on
matters pertaining to the Portfolio (other than the termination of the
Portfolio's business, which may be determined by the Trustees of the Portfolio
without investor approval), the Fund will hold a meeting of Fund shareholders
and will vote its interest in the Portfolio for or against such matters
proportionately to the instructions to vote for or against such matters
received from Fund shareholders. A Fund shall vote shares for which it
receives no voting instructions in the same proportion as the shares for which
it receives voting instructions. Other investors in a Portfolio may alone or
collectively acquire sufficient voting interests in the Portfolio to control
matters relating to the operation of the Portfolio, which may require the Fund
to withdraw its investment in the Portfolio or take other appropriate action.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If
securities are distributed, a Fund could incur brokerage, tax or other charges
in converting the securities to cash. In addition, the distribution in kind
may result in a less diversified portfolio of investments or adversely affect
the liquidity of a Fund. Notwithstanding the above, there are other means for
meeting shareholder redemption requests, such as borrowing.
A Fund may withdraw (completely redeem) all its assets from its
corresponding Portfolio at any time if the Board of Trustees of the Trust
determines that it is in the best interest of that Fund to do so. In the event
a Fund withdraws all of its assets from its corresponding Portfolio, or the
Board of Trustees of the Trust determines that the investment objective of
such Portfolio is no longer consistent with the investment objective of the
Fund, the Trustees would consider what action might be taken, including
investing the assets of such Fund in another pooled investment entity or
retaining an investment adviser to manage the Fund's assets in accordance with
its investment objective. A Fund's investment performance may be affected by a
withdrawal of all its assets (or the assets of another investor in the
Portfolio) from its corresponding Portfolio.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISORY SERVICES. BMR manages the investments and affairs of each
Portfolio subject to the supervision of the Portfolio's Board of Trustees. BMR
furnishes to the Portfolios investment research, advice and supervision,
furnishes an investment program and determines what securities will be
purchased, held or sold by the Portfolio and what portion, if any, of the
Portfolio's assets will be held uninvested. Each Investment Advisory Agreement
requires BMR to pay the salaries and fees of all officers and Trustees of the
Portfolio who are members of the BMR organization and all personnel of BMR
performing services relating to research and investment activities.
For a description of the compensation that each Portfolio pays BMR, see
the prospectus. The following table sets forth the net assets of each
Portfolio and the advisory fees earned during the three fiscal years ended
March 31, 1999.
<TABLE>
<CAPTION>
ADVISORY FEE FOR FISCAL YEARS ENDED
NET ASSETS ----------------------------------------------------------
PORTFOLIO AT 3/31/99 MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1997
- --------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
California $28,678,105 $145,652 $178,448 $239,320
Connecticut(1) 9,097,913 43,610 50,322 64,492
Florida 59,948,210 301,844 381,588 508,203
Massachusetts 51,543,445 244,974 290,512 385,610
Michigan 10,615,730 51,653 62,245 83,756
New Jersey 39,780,691 196,075 239,715 324,454
New York 65,872,753 319,237 402,164 557,305
Ohio 22,800,853 109,528 127,254 146,515
Pennsylvania 50,770,692 248,326 289,154 375,224
- ----------
(1) To enhance the net income of the Portfolio for the fiscal years ended March 31, 1999, 1998 and 1997, BMR made a
reduction of its advisory fee in the amount of $21,626, $25,094 and $32,497, respectively.
</TABLE>
Each Investment Advisory Agreement with BMR continues in effect from year
to year so long as such continuance is approved at least annually (i) by the
vote of a majority of the noninterested Trustees of the Portfolio cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Portfolio or by vote of a
majority of the outstanding voting securities of the Portfolio. Each Agreement
may be terminated at any time without penalty on sixty (60) days' written
notice by the Board of Trustees of either party, or by vote of the majority of
the outstanding voting securities of the Portfolio, and the Agreement will
terminate automatically in the event of its assignment. Each Agreement
provides that BMR may render services to others. Each Agreement also provides
that BMR shall not be liable for any loss incurred in connection with the
performance of its duties, or action taken or omitted under that Agreement, in
the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties thereunder, or for any losses sustained in the
acquisition, holding or disposition of any security or other investment.
ADMINISTRATIVE SERVICES. As indicated in the prospectus, Eaton Vance serves as
administrator of each Fund, but currently receives no compensation for
providing administrative services to the Fund. Under its Administrative
Services Agreement with the Trust, Eaton Vance has been engaged to administer
the Funds' affairs, subject to the supervision of the Trustees of the Trust,
and shall furnish for the use of the Funds office space and all necessary
office facilities, equipment and personnel for administering the affairs of
the Funds.
INFORMATION ABOUT BMR AND EATON VANCE. BMR and Eaton Vance are business trusts
organized under Massachusetts law. Eaton Vance, Inc. ("EV") serves as trustee
of BMR and Eaton Vance. BMR, Eaton Vance and EV are wholly-owned subsidiaries
of Eaton Vance Corporation ("EVC"), a Maryland corporation and publicly-held
holding company. EVC through its subsidiaries and affiliates engages primarily
in investment management, administration and marketing activities. The
Directors of EVC are James B. Hawkes, Benjamin A. Rowland, Jr., John G.L.
Cabot, John M. Nelson, Vincent M. O'Reilly and Ralph Z. Sorenson. All of the
issued and outstanding shares of Eaton Vance are owned by EVC. All of the
issued and outstanding shares of BMR are owned by Eaton Vance. All shares of
the outstanding Voting Common Stock of EVC are deposited in a Voting Trust,
the Voting Trustees of which are Messrs. Hawkes and Rowland, Alan R. Dynner,
Thomas E. Faust, Jr., Thomas J. Fetter, Duncan W. Richardson, William M. Steul
and Wharton P. Whitaker (all of whom are officers of Eaton Vance). The Voting
Trustees have unrestricted voting rights for the election of Directors of EVC.
All of the outstanding voting trust receipts issued under said Voting Trust
are owned by certain of the officers of BMR and Eaton Vance who are also
officers, or officers and Directors of EVC and EV. As indicated under
"Management and Organization," all of the officers of the Trust (as well as
Mr. Hawkes who is also a Trustee) hold positions in the Eaton Vance
organization.
EXPENSES. Each Fund and Portfolio is responsible for all expenses not
expressly stated to be payable by another party (such as the investment
adviser under the Investment Advisory Agreement, Eaton Vance under the
Administrative Services Agreement or the principal underwriter under the
Distribution Agreement). In the case of expenses incurred by the Trust, each
Fund is responsible for its pro rata share of those expenses. The only
expenses of a Fund allocated to a particular class are those incurred under
the Distribution or Service Plan applicable to that class and the fee paid to
the principal underwriter for handling share repurchases.
OTHER SERVICE PROVIDERS
PRINCIPAL UNDERWRITER. Eaton Vance Distributors, Inc. ("EVD"), The Eaton Vance
Building, 255 State Street, Boston, MA 02109, is the Funds' principal
underwriter. The principal underwriter acts as principal in selling shares
under a Distribution Agreement with the Trust. The expenses of printing copies
of prospectuses used to offer shares and other selling literature and of
advertising are borne by the principal underwriter. The fees and expenses of
qualifying and registering and maintaining qualifications and registrations of
a Fund and its shares under federal and state securities laws are borne by
that Fund. The Distribution Agreement as it applies to Class A shares is
renewable annually by the Board of Trustees of the Trust (including a majority
of the noninterested Trustees) may be terminated on six months' notice by
either party and is automatically terminated upon assignment. The Distribution
Agreement as it applies to Class B and Class C shares is renewable annually by
the Trust's Board of Trustees (including a majority of the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Distribution Plan or the Distribution Agreement), may be terminated on
sixty days' notice either by such Trustees or by vote of a majority of the
outstanding shares of the relevant class or on six months' notice by the
principal underwriter and is automatically terminated upon assignment. The
principal underwriter distributes shares on a "best efforts" basis under which
it is required to take and pay for only such shares as may be sold. The
principal underwriter allows investment dealers discounts from the applicable
public offering price which are alike for all investment dealers. See "Sales
Charges." EVD is a wholly-owned subsidiary of EVC. M. Hawkes is a Vice
President and Director and Messrs. Dynner and O'Connor are Vice Presidents of
EVD.
CUSTODIAN. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street,
Boston, MA 02116, serves as custodian to the Funds and Portfolios. IBT has the
custody of all cash and securities representing a Fund's interest in a
Portfolio, has custody of each Portfolio's assets, maintains the general
ledger of each Portfolio and each Fund and computes the daily net asset value
of interests in each Portfolio and the net asset value of shares of the Fund.
In such capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the Portfolios' investments,
receives and disburses all funds and performs various other ministerial duties
upon receipt of proper instructions from the Trust and the Portfolios. IBT
also provides services in connection with the preparation of shareholder
reports and the electronic filing of such reports with the SEC. EVC and its
affiliates and their officers and employees from time to time have
transactions with various banks, including IBT. It is Eaton Vance's opinion
that the terms and conditions of such transactions were not and will not be
influenced by existing or potential custodial or other relationships between
the Fund or the Portfolio and such banks.
INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 200 Berkeley Street, Boston,
Massachusetts, are the independent accountants of the Funds and the
Portfolios, providing audit services, tax return preparation, and assistance
and consultation with respect to the preparation of filings with the SEC.
TRANSFER AGENT. First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123, serves as transfer and dividend disbursing agent
for the Funds.
PURCHASING AND REDEEMING SHARES
CALCULATION OF NET ASSET VALUE. The net asset value of each Portfolio is
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as
the market for municipal obligations is a dealer market with no central
trading location or continuous quotation system, it is not feasible to obtain
last transation prices for most municipal obligations held by the Portfolio,
and such obligations, including those purchased on a when-issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing service uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most
recent settlement prices, unless such price does not reflect the fair value of
the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by or at the direction of the
Trustees of the Portfolio. The Funds and the Portfolios will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in a Portfolio, including a Fund, may add to or reduce its
investment in the Portfolio on each day the New York Stock Exchange (the
"Exchange") is open for trading ("Portfolio Business Day") as of the close of
regular trading on the Exchange (the "Portfolio Valuation Time"). The value of
each investor's interest in the Portfolio will be determined by multiplying
the net asset value of the Portfolio by the percentage, determined on the
prior Portfolio Business Day, which represented that investor's share of the
aggregate interests in the Portfolio on such prior day. Any additions or
withdrawals for the current Portfolio Business Day will then be recorded. Each
investor's percentage of the aggregate interest in the Portfolio will then be
recomputed as a percentage equal to a fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of any additions to or withdrawals from the investor's
investment in the Portfolio on the current Portfolio Business Day and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
the Portfolio Valuation Time on the prior Portfolio Business Day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investment in the Portfolio on the current Portfolio
Business Day by all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor's interest in the
Portfolio for the current Portfolio Business Day.
ADDITIONAL INFORMATION ABOUT PURCHASES. Fund shares are continuously offered
through investment dealers which have entered agreements with the principal
underwriter. The public offering price is the net asset value next computed
after receipt of the order, plus, in the case of Class A shares, a variable
percentage (sales charge) depending upon the amount of purchase as indicated
by the sales charge table set forth in the prospectus. The sales charge is
divided between the principal underwriter and the investment dealer. The
sales charge table is applicable to purchases of a Fund alone or in
combination with purchases of certain other funds offered by the principal
underwriter, made at a single time by (i) an individual, or an individual, his
spouse and their children under the age of twenty-one, purchasing shares for
his or their own account, and (ii) a trustee or other fiduciary purchasing
shares for a single trust estate or a single fiduciary account. The table is
also presently applicable to (1) purchases of Class A shares pursuant to a
written Statement of Intention; or (2) purchases of Class A shares pursuant to
the Right of Accumulation and declared as such at the time of purchase. See
"Sales Charges".
SUSPENSION OF SALES. The Trust may, in its absolute discretion, suspend,
discontinue or limit the offering of one or more of its classes of shares at
any time. In determining whether any such action should be taken, the Trust's
management intends to consider all relevant factors, including (without
limitation) the size of a Fund or class, the investment climate and market
conditions, the volume of sales and redemptions of shares, and in the case of
Class B and Class C shares, the amount of uncovered distribution charges of
the principal underwriter. The Class B and Class C Distribution Plans may
continue in effect and payments may be made under the Plans following any such
suspension, discontinuance or limitation of the offering of shares; however,
there is no contractual obligation to continue any Plan for any particular
period of time. Suspension of the offering of shares would not, of course,
affect a shareholder's ability to redeem shares.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as administrator, in exchange
for Fund shares. The minimum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold on the day of
their receipt or as soon thereafter as possible. The number of Fund shares to
be issued in exchange for securities will be the aggregate proceeds from the
sale of such securities, divided by the applicable public offering price of
Class A shares or net asset value of Class B and Class C shares on the day
such proceeds are received. Eaton Vance will use reasonable efforts to obtain
the then current market price for such securities but does not guarantee the
best available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities. Securities determined to be
acceptable should be transferred via book entry or physically delivered, in
proper form for transfer, through an investment dealer, together with a
completed and signed Letter of Transmittal in approved form (available from
investment dealers). Investors who are contemplating an exchange of securities
for shares, or their representatives, must contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, state and local tax
consequences of exchanging securities.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. The right to redeem shares of a Fund
can be suspended and the payment of the redemption price deferred when the
Exchange is closed (other than for customary weekend and holiday closings),
during periods when trading on the Exchange is restricted as determined by the
SEC, or during any emergency as determined by the SEC which makes it
impracticable for a Portfolio to dispose of its securities or value its
assets, or during any other period permitted by order of the SEC for the
protection of investors.
While normally payments will be made in cash for redeemed shares, the
Trust, subject to compliance with applicable regulations, has reserved the
right to pay the redemption price of shares of a Fund, either totally or
partially, by a distribution in kind of readily marketable securities
withdrawn from its corresponding Portfolio. The securities so distributed
would be valued pursuant to the Portfolio's valuation procedures. If a
shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash.
Due to the high cost of maintaining small accounts, the Trust reserves the
right to redeem accounts with balances of less than $750. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. However, no such redemption would be required by the
Trust if the cause of the low account balance was a reduction in the net asset
value of shares. No CDSC will be imposed with respect to such involuntary
redemptions.
SYSTEMATIC WITHDRAWAL PLAN. The transfer agent will send to the shareholder
regular monthly or quarterly payments of any permitted amount designated by
the shareholder based upon the value of the shares held. The checks will be
drawn from share redemptions and hence, may require the recognition of taxable
gain or loss. Income dividends and capital gains distributions in connection
with withdrawal plan accounts will be credited at net asset value as of the
record date for each distribution. Continued withdrawals in excess of current
income will eventually use up principal, particularly in a period of declining
market prices. A shareholder may not have a withdrawal plan in effect at the
same time he or she has authorized Bank Automated Investing or is otherwise
making regular purchases of Fund shares. The shareholder, the transfer agent
or the principal underwriter will be able to terminate the withdrawal plan at
any time without penalty.
SALES CHARGES
DEALER COMMISSIONS. The principal underwriter may, from time to time, at its
own expense, provide additional incentives to investment dealers which employ
registered representatives who sell Fund shares and/or shares of other funds
distributed by the principal underwriter. In some instances, such additional
incentives may be offered only to certain investment dealers whose
representatives sell or are expected to sell significant amounts of shares. In
addition, the principal underwriter may from time to time increase or decrease
the sales commissions payable to investment dealers. The principal underwriter
may allow, upon notice to all investment dealers with whom it has agreements,
discounts up to the full sales charge during the periods specified in the
notice. During periods when the discount includes the full sales charge, such
investment dealers may be deemed to be underwriters as that term is defined in
the Securities Act of 1933.
SALES CHARGE WAIVERS. Class A shares may be sold at net asset value to current
and retired Directors and Trustees of Eaton Vance funds, including the
Portfolios; to clients and current and retired officers and employees of Eaton
Vance, its affiliates and other investment advisers of Eaton Vance sponsored
funds; to officers and employees of IBT and the transfer agent; to persons
associated with law firms, accounting firms and consulting firms providing
services to Eaton Vance and the Eaton Vance funds; and to such persons'
spouses, parents, siblings and children and their beneficial accounts. Such
shares may also be issued at net asset value (1) in connection with the merger
of an investment company (or series or class thereof) with a Fund (or class
thereof), (2) to investors making an investment as part of a fixed fee program
whereby an entity unaffiliated with the investment adviser provides multiple
investment services, such as management, brokerage and custody, and (3) to
investment advisors, financial planners or other intermediaries who place
trades for their own accounts or the accounts of their clients and who charge
a management, consulting or other fee for their services; clients of such
investment advisors, financial planners or other intermediaries who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisor, financial planner or other intermediary on the
books and records of the broker or agent. Class A shares may also be sold at
net asset value to registered representatives and employees of investment
dealers and bank employees who refer customers to registered representatives
of investment dealers. Class A shares may be sold at net asset value to any
investment advisory, agency, custodial or trust account managed or
administered by Eaton Vance or by any parent, subsidiary or other affiliate of
Eaton Vance. Class A shares are offered at net asset value to the foregoing
persons and in the foregoing situations because either (i) there is no sales
effort involved in the sale of shares or (ii) the investor is paying a fee
(other than the sales charge) to the investment dealer involved in the sale.
The CDSC applicable to Class B shares will be waived in connection with
minimum required distributions from tax-sheltered retirement plans by applying
the rate required to be withdrawn under the applicable rules and regulations
of the Internal Revenue Service to the balance of Class B shares in your
account.
STATEMENT OF INTENTION. If it is anticipated that $100,000 or more of Class A
shares and shares of other funds exchangeable for Class A shares of another
Eaton Vance fund will be purchased within a 13-month period, a Statement of
Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum.
Shares held under Right of Accumulation (see below) as of the date of the
Statement will be included toward the completion of the Statement. The
Statement authorizes the transfer agent to hold in escrow sufficient shares
(5% of the dollar amount specified in the Statement) which can be redeemed to
make up any difference in sales charge on the amount intended to be invested
and the amount actually invested. Execution of a Statement does not obligate
the shareholder to purchase or the Fund to sell the full amount indicated in
the Statement, and should the amount actually purchased during the 13-month
period be more or less than that indicated on the Statement, price adjustments
will be made. Any investor considering signing a Statement of Intention should
read it carefully.
RIGHT OF ACCUMULATION. The applicable sales charge level for the purchase of
Class A shares is calculated by taking the dollar amount of the current
purchase and adding it to the value (calculated at the maximum current
offering price) of the Class A shares the shareholder owns in his or her
account(s) in the Fund, and shares of other funds exchangeable for Class A
shares. The sales charge on the shares being purchased will then be at the
rate applicable to the aggregate. Shares purchased (i) by an individual, his
or her spouse and their children under the age of twenty-one, and (ii) by a
trustee, guardian or other fiduciary of a single trust estate or a single
fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for the Right of Accumulation and if qualifying, the
applicable sales charge level. For any such discount to be made available, at
the time of purchase a purchaser or his or her investment dealer must provide
the principal underwriter (in the case of a purchase made through an
investment dealer) or the transfer agent (in the case of an investment made by
mail) with sufficient information to permit verification that the purchase
order qualifies for the accumulation privilege. Confirmation of the order is
subject to such verification. The Right of Accumulation privilege may be
amended or terminated at any time as to purchases occurring thereafter.
CLASS B CONVERSION. Class B shares held for the longer of (i) four years or
(ii) the time at which the CDSC applicable to such shares expires (the
"holding period") will automatically convert to Class A shares. Such
conversion will occur on or about the eighteenth day of the month in which the
holding period expires. For purposes of this conversion, all distributions
paid on Class B shares which the shareholder elects to reinvest in Class B
shares will be considered to be held in a separate sub-account. Upon the
conversion of Class B shares not acquired through the reinvestment of
distributions, a pro rata portion of the Class B shares held in the sub-
account will also convert to Class A shares. This portion will be determined
by the ratio that the Class B shares being converted bear to the total of
Class B shares (excluding shares acquired through reinvestment) in the
account. This conversion feature is subject to the continuing availability of
a ruling from the Internal Revenue Service or an opinion of counsel that the
conversion is not taxable for federal income tax purposes.
DISTRIBUTION AND SERVICE PLANS. The Trust has adopted a Service Plan (the
"Class A Plan") for each Fund's Class A shares that is designed to meet the
service fee requirements of the sales charge rule of the National Association
of Securities Dealers, Inc. (the "NASD"). (Management believes service fee
payments are not distribution expenses governed by Rule 12b-1 under the 1940
Act, but has chosen to have the Plan approved as if that Rule were
applicable.) The Class A Plan provides that each Class A may make service fee
payments for personal services and/or the maintenance of shareholder accounts
to the principal underwriter, investment dealers and other persons in amounts
not exceeding .25% of its average daily net assets for any fiscal year. The
Trustees of the Trust have initially implemented the Class A Plan by
authorizing Class A to make quarterly service fee payments to the principal
underwriter and investment dealers in amounts not expected to exceed .15% of
its average daily net assets for any fiscal year which is based on the value
of Class A shares sold by such persons and remaining outstanding for at least
twelve months. However, the Class A Plan authorizes the Trustees of the Trust
to increase payments without action by Class A shareholders of any Fund,
provided that the aggregate amount of payments made in any fiscal year does
not exceed .25% of average daily net assets. For the service fees paid by
Class A shares, see Appendix A.
The Trust has also adopted compensation-type Distribution Plans ("Class B
and Class C Plans") pursuant to Rule 12b-1 under the 1940 Act for each Fund's
Class B and Class C shares. The Class B and Class C Plans are designed to
permit an investor to purchase shares through an investment dealer without
incurring an initial sales charge and at the same time permit the principal
underwriter to compensate investment dealers in connection therewith. The
Class B and Class C Plans provide that each Fund will pay sales commissions
and distribution fees to the principal underwriter only after and as a result
of the sale of shares. On each sale of shares (excluding reinvestment of
distributions), each Fund will pay the principal underwriter amounts
representing (i) sales commissions equal to 3% in the case of California,
Florida, Massachusetts, New Jersey, New York and Pennsylvania Funds and 3.5%
in the case of Connecticut, Michigan and Ohio Funds of Class B sales and 6.25%
of Class C sales 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. To pay these amounts, each Class pays the principal underwriter a
fee, accrued daily and paid monthly, at an annual rate not exceeding .75% of
its average daily net assets to finance the distribution of its shares. Such
fees compensate the principal underwriter for sales commissions paid by it to
investment dealers on the sale of shares and for interest expenses. For sales
of Class B shares, the principal underwriter uses its own funds to pay sales
commissions (except on exchange transactions and reinvestments) to investment
dealers at the time of sale equal to 2.5% of the purchase price of the Class B
shares sold by such dealers. For Class C shares, the principal underwriter
currently expects to pay to an investment dealer (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 dealer, and (b) monthly sales
commissions approximately equivalent to 1/12 of .75% of the value of shares
sold by such dealer and remaining outstanding for at least one year. During
the first year after a purchase of Class C shares, the principal underwriter
will retain the sales commission as reimbursement for the sales commissions
paid to investment dealers at the time of sale. CDSCs paid to the principal
underwriter will be used to reduce amounts owed to it. The Class B and Class C
Plans provide that the Fund will make no payments to the principal underwriter
in respect of any day on which there are no outstanding uncovered distribution
charges of the principal underwriter. CDSCs and accrued amounts will be paid
by the Trust to the principal underwriter whenever there exist uncovered
distribution charges. Because payments to the principal underwriter under the
Class B and Class C Plans are limited, uncovered distribution charges (sales
commissions paid by the principal underwriter plus interest, less the above
fees and CDSCs received by it) may exist indefinitely. For the sales
commissions and CDSCs paid on (and uncovered distribution charges of) Class B
and Class C shares, see Appendix B and Appendix C, respectively.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions
and distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the principal underwriter is entitled
to be paid under the Plan since its inception. Payments theretofore paid or
payable under the Class B and Class C Plans by the Trust to the principal
underwriter and CDSCs theretofore paid or payable to the principal underwriter
will be subtracted from such distribution charges; if the result of such
subtraction is positive, a distribution fee (computed at 1% over the prime
rate then reported in The Wall Street Journal) will be computed on such amount
and added thereto, with the resulting sum constituting the amount of
outstanding uncovered distribution charges with respect to such day. The
amount of outstanding uncovered distribution charges of the principal
underwriter calculated on any day does not constitute a liability recorded on
the financial statements of the Fund.
The amount of uncovered distribution charges of the principal underwriter
at any particular time depends upon various changing factors, including the
level and timing of sales of shares, the nature of such sales (i.e., whether
they result from exchange transactions, reinvestments or from cash sales
through investment dealers), the level and timing of redemptions of shares
upon which a CDSC will be imposed, the level and timing of redemptions of
shares upon which no CDSC will be imposed (including redemptions of shares
pursuant to the exchange privilege which result in a reduction of uncovered
distribution charges), changes in the level of the net assets of the Class,
and changes in the interest rate used in the calculation of the distribution
fee under the Class B and Class C Plans.
The Class B and Class C Plans also authorize each Class to make payments
of service fees to the principal underwriter, investment dealers and other
persons in amounts not exceeding .25% of its average daily net assets for
personal services, and/or the maintenance of shareholder accounts. This fee
is paid quarterly in arrears based on the value of Class B shares sold by such
persons and remaining outstanding for at least twelve months. For Class C,
investment dealers currently receive (a) a service fee (except on exchange
transactions and reinvestments) at the time of sale equal to .15% of the
purchase price of the Class C shares sold by such dealer, and (b) monthly
service fees approximately equivalent to 1/12 of .15% of the value of Class C
shares sold by such dealer and remaining outstanding for at least one year.
During the first year after a purchase of Class C shares, the principal
underwriter will retain the service fee as reimbursement for the service fee
payment made to investment dealers at the time of sale. For the service fees
paid by Class B and Class C shares, see Appendix B and Appendix C,
respectively.
Currently, payments of sales commissions and distribution fees and of
service fees may equal 1% of a Class's average daily net assets per annum. The
Trust believes that the combined rate of all these payments may be higher than
the rate of payments made under distribution plans adopted by other investment
companies pursuant to Rule 12b-1. Although the principal underwriter will use
its own funds (which may be borrowed from banks) to pay sales commissions at
the time of sale, it is anticipated that the Eaton Vance organization will
profit by reason of the operation of the Class B and Class C Plans through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from sale of shares and through the amounts
paid to the principal underwriter, including CDSCs, pursuant to the Plans. The
Eaton Vance organization may be considered to have realized a profit under the
Class B and Class C Plans if at any point in time the aggregate amounts
theretofore received by the principal underwriter pursuant to the Class B or
Class C Plans and from CDSCs have exceeded the total expenses theretofore
incurred by such organization in distributing shares. Total expenses for this
purpose will include an allocable portion of the overhead costs of such
organization and its branch offices, which costs will include without
limitation leasing expense, depreciation of building and equipment, utilities,
communication and postage expense, compensation and benefits of personnel,
travel and promotional expense, stationery and supplies, literature and sales
aids, interest expense, data processing fees, consulting and temporary help
costs, insurance, taxes other than income taxes, legal and auditing expense
and other miscellaneous overhead items. Overhead is calculated and allocated
for such purpose by the Eaton Vance organization in a manner deemed equitable
to the Trust.
The Class A, Class B and Class C Plans continue in effect from year to
year so long as such continuance is approved at least annually by the vote of
both a majority of (i) the noninterested Trustees of the Trust who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan (the "Plan Trustees") and (ii) all of the
Trustees then in office. Each Plan may be terminated at any time by vote of a
majority of the Plan Trustees or by a vote of a majority of the outstanding
voting securities of the applicable Class. Each Plan requires quarterly
Trustee review of a written report of the amount expended under the Plan and
the purposes for which such expenditures were made. The Plans may not be
amended to increase materially the payments described therein without approval
of the shareholders of the affected Class and the Trustees. So long as a Plan
is in effect, the selection and nomination of the noninterested Trustees shall
be committed to the discretion of such Trustees. The Class A, Class B and
Class C Plans were approved by the Trustees, including the Plan Trustees, on
June 23, 1997.
The Trustees of the Trust believe that each Plan will be a significant
factor in the expected growth of each Fund's assets, and will result in
increased investment flexibility and advantages which have benefitted and will
continue to benefit the Fund and its shareholders. Payments for sales
commissions and distribution fees made to the principal underwriter under the
Class B and Class C Plans will compensate the principal underwriter for its
services and expenses in distributing those classes of shares. Service fee
payments made to the principal underwriter and investment dealers provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the principal
underwriter and investment dealers, each Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based
on the foregoing and other relevant factors, the Trustees of the Trust have
determined that in their judgment there is a reasonable likelihood that each
Plan will benefit the Fund and its shareholders.
PERFORMANCE
Average annual total return is determined separately for each Class of a
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the results. The calculation assumes (i) that all distributions
are reinvested at net asset value on the reinvestment dates during the period,
(ii) the deduction of the maximum sales charge from the initial $1,000
purchase order for Class A shares, (iii) a complete redemption of the
investment, and (iv) the deduction of any CDSC at the end of the period. Each
Fund may also publish total return figures for each class based on reduced
sales charges or at net asset value. These returns would be lower if the full
sales charge was imposed. For further information concerning the total return
of the Classes of a Fund, see Appendix A, Appendix B and Appendix C.
Yield is computed separately for each Class of a Fund pursuant to a
standardized formula by dividing the net investment income per share earned
during a recent thirty-day period by the maximum offering price (including the
maximum initial sales charge for Class A shares) per share on the last day of
the period and annualizing the resulting figure. Net investment income per
share is calculated from the yields to maturity of all debt obligations held
by the Portfolio based on prescribed methods, reduced by accrued Fund and
Class expenses for the period with the resulting number being divided by the
average daily number of Class shares outstanding and entitled to receive
distributions during the period. This yield figure does not reflect the
deduction of any CDSCs which (if applicable) are imposed upon certain
redemptions at the rates set forth under "Sales Charges" in the prospectus.
Yield calculations assume the current maximum initial sales charge for Class A
shares set forth under "Sales Charges" in the prospectus. (Actual yield may be
affected by variations in sales charges on investments.) A taxable-equivalent
yield is computed by dividing the tax-exempt yield by one minus a stated rate.
Each Fund's performance may be compared in publications to the performance
of various indices and investments for which reliable data is available, and
to averages, performance rankings or ratings, or other information prepared by
recognized mutual fund statistical services. A Fund's performance may differ
from that of other investors in its corresponding Portfolio, including other
investment companies.
The Trust (or principal underwriter) may provide investors with
information on municipal bond investing, which may include comparative
performance information, evaluations of Fund performance, charts and/or
illustrations prepared by independent sources (such as Lipper, Inc.,
Wiesenberger, Morningstar, Inc., The Bond Buyer, the Federal Reserve Board or
The Wall Street Journal). The Trust may also refer in investor publications to
Tax Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to
help illustrate the value of tax free investing, as well as other tax-related
information. Information, charts and illustrations showing the effects of
inflation and taxes (including their effect on the dollar and the return on
various investments) and compounding earnings may also be included in
advertisements and materials furnished to present and prospective investors.
Information about portfolio allocation and holdings of a Portfolio at a
particular date (including ratings assigned by independent ratings services
such as Moody's, S&P and Fitch) may be included in advertisements and other
material furnished to present and prospective shareholders. Such information
may be stated as a percentage of the Portfolio's bond holdings on such date.
Comparative information about the yield of a Fund and about average rates
of return on certificates of deposit, bank money market deposit accounts,
money market mutual funds and other short-term investments may also be
included in advertisements, supplemental sales literature or communications of
the Fund. Such information may also compare the taxable equivalent yield (or
value) of a Fund to the after-tax yield (or value) of such other investment
vehicles. Such information may be in the form of hypothetical illustrations. A
bank certificate of deposit, unlike mutual fund shares, pays a fixed rate of
interest and entitles the depositor to receive the face amount of the
certificate of deposit at maturity. A bank money market deposit account is a
form of savings account which pays a variable rate of interest. Unlike a
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 a 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 a Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and in materials provided to present
and prospective shareholders may include descriptions of Eaton Vance and other
Fund and Portfolio service providers, their investment styles, other
investment products, personnel and Fund distribution channels.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
- cost associated with aging parents;
- funding a college education (including its actual and estimated
cost);
- health care expenses (including actual and projected expenses);
- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and
the results of such methods, as well as the benefits of investing in municipal
bond funds. Such information may describe the following advantages of
investing in a municipal bond mutual fund versus individual municipal bonds:
regular monthly income; free reinvestment of distributions; potential for
increased income; bond diversification; liquidity; low-cost easy access; and
active management and in depth credit analysis by investment professionals. In
addition, by investing in a municipal bond fund instead of individual bonds,
an investor can avoid dealing with the complexities of the municipal bond
market, while benefitting from the market access and lower transactions costs
enjoyed by municipal bond funds.
The Trust (or principal underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to
investors or prospective investors. Such material or advertisements may also
provide information on the use of investment professionals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal
income tax purposes. Each Fund has elected to be treated and intends to
qualify each year, as a regulated investment company ("RIC") under the Code.
Accordingly, each Fund intends to satisfy certain requirements relating to
sources of its income and diversification of its assets and to distribute
substantially all of its ordinary income (including tax-exempt income) and net
income (after reduction by any available capital loss carryforwards) in
accordance with the timing requirements imposed by the Code, so as to maintain
its RIC status and to avoid paying any federal income or excise tax. Each Fund
so qualified for its fiscal year ended March 31, 1999. Because each Fund
invests its assets in a Portfolio, the Portfolio normally must satisfy the
applicable source of income and diversification requirements in order for the
Fund to also satisfy these requirements. Each Portfolio will allocate at least
annually among its investors, including a Fund, each investor's distributive
share of the Portfolio's net taxable (if any) and tax-exempt investment
income, net realized capital gains, and any other items of income, gain, loss,
deduction or credit. For purposes of applying the requirements of the Code
regarding qualification as a RIC, each Fund (i) will be deemed to own its
proportionate share of each of the assets of the corresponding Portfolio and
(ii) will be entitled to the gross income of that Portfolio attributable to
such share.
In order to avoid incurring a federal excise tax obligation, the Code
requires that each Fund distribute (or be deemed to have distributed) by
December 31 of each calendar year at least 98% of its ordinary income (not
including tax-exempt income) for such year, at least 98% of its capital gain
net income (which is the excess of its realized capital gains over its
realized capital losses), generally computed on the basis of the one-year
period ending on October 31 of such year, after reduction by (i) any available
capital loss carryforwards and 100% of any income from the prior year (as
previously computed) that was not paid out during such year and on which the
Fund paid no federal income tax. Under current law, provided that a Fund
qualifies as a RIC and a Portfolio is treated as a partnership for
Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
should be liable for any income, corporate excise or franchise tax in the
Commonwealth of Massachusetts.
A Portfolio's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect
to these securities. Such income will be allocated daily to interests in the
Portfolio and, in order to enable the relevant Fund to distribute its
proportionate share of this income and avoid a tax payable by the Fund, the
Portfolio may be required to liquidate securities that it might otherwise have
continued to hold in order to generate cash that the Fund may withdraw from
the Portfolio to make distributions to Fund shareholders.
Investments in lower-rated or unrated securities may present special tax
issues for a Portfolio (and, hence, for the relevant Fund) to the extent that
the issuers of these securities default on their obligations pertaining
thereto. The Code is not entirely clear regarding the federal income tax
consequences of a Portfolio taking certain positions in connection with
ownership of such distressed securities. For example, the Code is unclear
regarding: (i) when a Portfolio may cease to accrue interest, original issue
discount, or market discount; (ii) when and to what extent deductions may be
taken for bad debts or worthless securities; (iii) how payments received on
obligations in default should be allocated between principal and income; and
(iv) whether exchanges of debt obligations in a workout context are taxable.
Distributions by a Fund of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. In order for a Fund to be entitled to pay the tax-exempt interest
income allocated to it by its corresponding Portfolio as exempt-interest
dividends to its shareholders, the Fund must and intends to satisfy certain
requirements, including the requirement that, at the close of each quarter of
its taxable year, at least 50% of the value of its total assets consists of
obligations the interest on which is exempt from regular federal income tax
under Code Section 103(a). For purposes of applying this 50% requirement, the
Fund will be deemed to own its proportionate share of each of the assets of
the Portfolio, and the Portfolio currently intends to invest its assets in a
manner such that the Fund can meet this 50% requirement. Interest on certain
municipal obligations is treated as a tax preference item for purposes of the
AMT. Shareholders of the Fund are required to report tax-exempt interest on
their federal income tax returns.
Any recognized gain or income attributable to market discount on long-term
tax-exempt municipal obligations (i.e., obligations with a term of more than
one year) purchased after April 30, 1993 other than, in general, at their
original issue, is taxable as ordinary income. A long-term debt obligation is
generally treated as acquired at a market discount if purchased after its
original issue at a price less than (i) the stated principal amount payable at
maturity, in the case of an obligation that does not have original issue
discount or (ii) in the case of an obligation that does have original issue
discount, the sum of the issue price and any original issue discount that
accrued before the obligation was purchased, subject to a de minimis
exclusion.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of municipal obligations, and it can be expected
that similar proposals may be introduced in the future. Under federal tax
legislation enacted in 1986, the federal income tax exemption for interest on
certain municipal obligations was eliminated or restricted. As a result of
such legislation, the availability of municipal obligations for investment by
a Portfolio and the value of the securities held by it may be affected.
In the course of managing its investments, a Portfolio may realize some
short-term and long-term capital gains (and/or losses) as a result of market
transactions, including sales of portfolio securities and rights to when-
issued securities and options and futures transactions. A Portfolio may also
realize taxable income from certain short-term taxable obligations, securities
loans, a portion of discount with respect to certain stripped municipal
obligations or their stripped coupons and certain realized gains or income
attributable to accrued market discount. Any distributions by a Fund of its
share of such capital gains (after reduction by any capital loss
carryforwards) or taxable income would be taxable to shareholders of that
Fund. However, it is expected that such amounts, if any, would normally be
insubstantial in relation to the tax exempt interest earned by the
corresponding Portfolio and allocated to the Fund. Certain distributions of a
Fund, if declared in October, November or December and paid the following
January, may be taxed to shareholders as if received on December 31 of the
year in which they are declared.
A Portfolio's transactions in options and futures contracts will be
subject to special tax rules that may affect the amount, timing and character
of Fund distributions to shareholders. For example, certain positions held by
a Portfolio on the last business day of each taxable year will be "marked to
market" (i.e., treated as if closed out on such day), and any resulting gain
or loss will generally be treated as 60% long-term and 40% short-term capital
gain or loss. Certain positions held by a Portfolio that substantially
diminish a Portfolio's risk of loss with respect to other positions in its
portfolio may constitute "straddles," which are subject to tax rules that may
cause deferral of Portfolio losses, adjustments in the holding periods of
Portfolio securities, and conversion of short-term capital losses into long-
term capital losses. A Portfolio may have to limit its activities in options
and futures contracts in order to enable the relevant Fund to maintain its RIC
status.
Any loss realized upon the sale or exchange of shares of a Fund with a tax
holding period of 6 months or less will be disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and,
to the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net long-
term capital gains with respect to such shares. In addition, a loss realized
on a redemption or other disposition of Fund shares may be disallowed to the
extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30
days before the redemption of the loss shares and ending 30 days after such
date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service
(the "IRS"), as well as shareholders with respect to whom the Fund has
received certain information from the IRS or a broker, may be subject to
"backup" withholding of federal income tax arising from the Fund's taxable
dividends and other distributions as well as the proceeds of redemption
transactions (including repurchases and exchanges), at a rate of 31%. An
individual's TIN is generally his or her social security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on a Fund's distributions from its ordinary income and the excess of
its net short-term capital gain over its net long-term capital loss, unless
the tax is reduced or eliminated by an applicable tax convention.
Distributions from the excess of a Fund's net long-term capital gain over its
net short-term capital loss received by such shareholders and any gain from
the sale or other disposition of shares of the Fund generally will not be
subject to U.S. federal income taxation, provided that non-resident alien
status has been certified by the shareholder. Different U.S. tax consequences
may result if: (i) the shareholder is engaged in a trade or business in the
United States; (ii) the shareholder is present in the United States for a
sufficient period of time during a taxable year to be treated as a U.S.
resident; or (iii) the shareholder fails to provide, or renew after
expiration, any required certifications regarding its status as a non-resident
alien investor. Foreign shareholders should consult their tax advisers
regarding the U.S. and foreign tax consequences of an investment in a Fund.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Shareholders should consult their own
tax advisers with respect to special tax rules that may apply in their
particular situations, as well as the state, local and, where applicable,
foreign tax consequences of investing in a Fund.
PORTFOLIO SECURITY TRANSACTIONS
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by BMR.
BMR is also responsible for the execution of transactions for all other
accounts managed by it. BMR places the portfolio security transactions of each
Portfolio and of all other accounts managed by it for execution with many
firms. BMR uses its best efforts to obtain execution of portfolio security
transactions at prices which are advantageous to each Portfolio and at
reasonably competitive spreads or (when a disclosed commission is being
charged) at reasonably competitive commission rates. In seeking such
execution, BMR will use its best judgment in evaluating the terms of a
transaction, and will give consideration to various relevant factors,
including without limitation the full range and quality of the executing
firm's services, the value of the brokerage and research services provided,
the responsiveness of the firm to BMR, the size and type of the transaction,
the nature and character of the market for the security, the confidentiality,
speed and certainty of effective execution required for the transaction, the
general execution and operational capabilities of the 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 commission or spread, if any. Municipal
obligations, including state obligations, purchased and sold by the Portfolios
are generally traded in the over-the-counter market on a net basis (i.e.,
without commission) through broker-dealers and banks acting for their own
account rather than as brokers, or otherwise involve transactions directly
with the issuer of such obligations. Such firms attempt to profit from such
transactions by buying at the bid price and selling at the higher asked price
of the market for such obligations, and the difference between the bid and
asked price is customarily referred to as the spread. The Portfolios may also
purchase municipal obligations from underwriters and dealers in fixed-price
offerings, the cost of which may include undisclosed fees and concessions to
the underwriters. On occasion it may be necessary or appropriate to purchase
or sell a security through a broker on an agency basis, in which case the
Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the Portfolios and BMR's other
clients for providing brokerage and research services to BMR.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of a Portfolio
may receive a commission which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
BMR determines in good faith that such compensation was reasonable in relation
to the value of the brokerage and research services provided. This
determination may be made 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, analytical, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealer firms which execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, BMR receives Research Services
from many broker-dealer firms with which BMR places the Portfolios'
transactions and from third parties with which these broker-dealers have
arrangements. These Research Services include such matters as general
economic, political, business and market information, industry and company
reviews, evaluations of securities and portfolio strategies and transactions,
proxy voting data and analysis services, technical analysis of various aspects
of the securities markets, recommendations as to the purchase and sale of
securities and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation equipment
and services, and research oriented computer hardware, software, data bases
and services. Any particular Research Service obtained through a broker-dealer
may be used by BMR in connection with client accounts other than those
accounts which pay commissions to such broker-dealer. Any such Research
Service may be broadly useful and of value to BMR in rendering investment
advisory services to all or a significant portion of its clients, or may be
relevant and useful for the management of only one client's account or of a
few clients' accounts, or may be useful for the management of merely a segment
of certain clients' accounts, regardless of whether any such account or
accounts paid commissions to the broker-dealer through which such Research
Service was obtained. The advisory fee paid by each Portfolio is not reduced
because BMR receives such Research Services. BMR evaluates the nature and
quality of the various Research Services obtained through broker-dealer firms
and attempts to allocate sufficient portfolio security transactions to such
firms to ensure the continued receipt of Research Services which BMR believes
are useful or of value to it in rendering investment advisory services to its
clients.
The Portfolios and BMR may also receive Research Services from underwriters
and dealers in fixed-price offerings, which Research Services are reviewed and
evaluated by BMR in connection with its investment responsibilities. The
investment companies sponsored by BMR or Eaton Vance may allocate trades in such
offerings to acquire information relating to the performance, fees and expenses
of such companies and other mutual funds, which information is used by the
Trustees of such companies to fulfill their responsibility to oversee the
quality of the services provided by various entities, including BMR, to such
companies. Such companies may also pay cash for such information.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Funds or of other investment companies sponsored by BMR or Eaton
Vance. This policy is not inconsistent with a rule of the NASD, which rule
provides that no firm which is a member of the NASD shall favor or disfavor
the distribution of shares of any particular investment company or group of
investment companies on the basis of brokerage commissions received or
expected by such firm from any source.
Municipal obligations considered as investments for the Portfolios may
also be appropriate for other investment accounts managed by BMR or its
affiliates. Whenever decisions are made to buy or sell securities by a
Portfolio and one or more of such other accounts simultaneously, BMR will
allocate the security transactions (including "hot" issues) in a manner which
it believes to be equitable under the circumstances. As a result of such
allocations, there may be instances where a Portfolio will not participate in
a transaction that is allocated among other accounts. If an aggregated order
cannot be filled completely, allocations will generally be made on a pro rata
basis. An order may not be allocated on a pro rata basis where, for example:
(i) consideration is given to portfolio managers who have been instrumental in
developing or negotiating a particular investment; (ii) consideration is given
to an account with specialized investment policies that coincide with the
particulars of a specific investment; (iii) pro rata allocation would result
in odd-lot or de minimis amounts being allocated to a portfolio or other
client; or (iv) where BMR reasonably determines that departure from a pro rata
allocation is advisable. While these aggregation and allocation policies could
have a detrimental effect on the price or amount of the securities available
to the Portfolios from time to time, it is the opinion of the Trustees of the
Trust and the Portfolios that the benefits available from the BMR organization
outweigh any disadvantage that may arise from exposure to simultaneous
transactions.
The following table shows brokerage commissions paid by each Portfolio for
each of the three fiscal years ended March 31, 1999:
PORTFOLIO MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1997
--------- -------------- -------------- --------------
California .......... $ 817 $ 4,174 $26,519
Connecticut ......... 506 1,484 11,480
Florida ............. 5,002 13,986 --
Massachusetts ....... 6,945 10,872 27,291
Michigan ............ 1,526 2,768 19,514
New Jersey .......... 4,143 8,067 61,275
New York ............ 7,092 10,088 40,494
Ohio ................ 1,774 2,179 14,023
Pennsylvania ........ 3,563 6,465 34,923
All of such portfolio security transactions were directed to firms which
provided some research services to BMR or its affiliates (although many of
such firms may have been selected in any particular transaction primarily
because of their execution capabilities), and the amounts of such transactions
for the fiscal year ended March 31, 1999, were as follows: California --
$16,711,061; Connecticut -- $10,482,231; Florida -- $103,320,381;
Massachusetts -- $145,026,154; Michigan -- $31,729,647; New Jersey --
$85,661,467; New York -- $147,333,011; Ohio -- $36,862,617; and Pennsylvania
- -- $72,479,510.
FINANCIAL STATEMENTS
The audited financial statements of, and the independent auditors' report
for, the Funds and the Portfolios appear in the Funds' most recent annual
report to shareholders and are incorporated by reference into this SAI. A copy
of the Funds' annual report accompanies this SAI. Consistent with applicable
law, duplicate mailings of shareholder reports and certain other Fund
information to shareholders residing at the same address may be eliminated.
Registrant incorporates by reference the audited financial information for
the fiscal year ended March 31, 1999 for the Funds and the Portfolios listed
below, all as previously filed electronically with the SEC:
Eaton Vance California Limited Maturity Municipals Fund
Eaton Vance Connecticut Limited Maturity Municipals Fund
Eaton Vance Florida Limited Maturity Municipals Fund
Eaton Vance Massachusetts Limited Maturity Municipals Fund
Eaton Vance Michigan Limited Maturity Municipals Fund
Eaton Vance New Jersey Limited Maturity Municipals Fund
Eaton Vance New York Limited Maturity Municipals Fund
Eaton Vance Ohio Limited Maturity Municipals Fund
Eaton Vance Pennsylvania Limited Maturity Municipals Fund
California Limited Maturity Municipals Portfolio
Connecticut Limited Maturity Municipals Portfolio
Florida Limited Maturity Municipals Portfolio
Massachusetts Limited Maturity Municipals Portfolio
Michigan Limited Maturity Municipals Portfolio
New Jersey Limited Maturity Municipals Portfolio
New York Limited Maturity Municipals Portfolio
Ohio Limited Maturity Municipals Portfolio
Pennsylvania Limited Maturity Municipals Portfolio
(Accession No. 0001047469-99-022235)
<PAGE>
APPENDIX A
CLASS A FEES, PERFORMANCE AND OWNERSHIP
SERVICE PLAN
For the fiscal year ended March 31, 1999, the following table shows, (1)
the amount of service fees on Class A shares paid under the Service Plan, and
(2) the amount of such service fees paid to investment dealers. The service
fees paid by the Funds that were not paid to investment dealers were retained
by the principal underwriter.
SERVICE FEES TO
CLASS A SERVICE FEES INVESTMENT DEALERS
- ------- ------------ ------------------
California ......................... $37,973 $37,661
Connecticut ........................ 9,123 9,002
Florida ............................ 71,552 70,803
Massachusetts ...................... 59,940 58,337
Michigan ........................... 12,868 12,698
New Jersey ......................... 49,872 49,620
New York ........................... 79,579 79,042
Ohio ............................... 26,654 26,617
Pennsylvania ....................... 58,541 58,180
PRINCIPAL UNDERWRITER
For the fiscal year ended March 31, 1999, the following sales charges were
paid in connection with sales of Class A shares:
SALES CHARGES SALES CHARGES
TOTAL INVESTMENT TO TO PRINCIPAL
FUND SALES CHARGES DEALERS UNDERWRITER
- ---- ------------- ------- -----------
California ........ $ 4,431 $ 4,002 $429
Connecticut ....... 5,113 4,565 548
Florida ........... 6,199 5,346 853
Massachusetts ..... 16,042 16,042 0
Michigan .......... 3,981 3,981 0
New Jersey ........ 7,490 6,697 793
New York .......... 4,615 4,169 446
Ohio .............. 3,314 2,992 322
Pennsylvania ...... 8,702 7,827 875
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the principal underwriter. For the fiscal year ended March 31,
1999, Class A paid the principal underwriter for repurchase handled by it
$2.50 for each such transaction which aggregated as follows: California --
$297.50; Connecticut -- $92.50; Florida -- $750; Massachusetts -- $742.50;
Michigan -- $232.50; New Jersey -- $645; New York -- $932.50; Ohio -- $267.50;
and Pennsylvania -- $727.50.
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return
on a hypothetical investment in shares of $1,000. Total return for the period
prior to the date Class A was established reflects the total return of Class
B, adjusted to reflect the Class A sales charge. The Class B total return has
not been adjusted to reflect certain other expenses (such as distribution and/
or service fees). If such adjustments were made, the Class A total return
would be different. The "Value of Initial Investment" reflects the deduction
of the maximum sales charge of 2.25%. Past performance is no guarantee of
future results. Investment return and principal value will fluctuate; shares,
when redeemed, may be worth more or less than their original cost. Information
presented with two asterisks (**) includes the effect of subsidizing expenses.
Returns would have been lower without subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- CALIFORNIA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ----------------------------- -----------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------- -------------- --------------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 5/29/92 $977.52 $1,371.70 40.32% 5.08% 37.17% 4.73%
5 Years Ended 3/31/99 3/31/94 $977.62 $1,250.89 27.96% 5.05% 25.09% 4.58%
1 Year Ended 3/31/99 3/31/98 $977.29 $1,021.80 4.56% 4.56% 2.18% 2.18%
- ------------
* Class A shares were established June 27, 1996.
VALUE OF A $1,000 INVESTMENT -- CONNECTICUT
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ----------------------------- -----------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------- -------------- --------------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/16/93 $977.52 $1,262.90 29.20% 4.39% 26.29% 3.99%
5 Years Ended 3/31/99 3/31/94 $977.80 $1,254.16 28.26% 5.10% 25.42% 4.63%
1 Year Ended 3/31/99 3/31/98 $977.76 $1,021.27 4.45% 4.45% 2.13% 2.13%
- ------------
* Class A shares were established January 21, 1997.
VALUE OF A $1,000 INVESTMENT -- FLORIDA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ----------------------------- -----------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------- -------------- --------------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 5/29/92 $977.52 $1,357.88 38.91% 4.92% 35.79% 4.57%
5 Years Ended 3/31/99 3/31/94 $977.65 $1,237.41 26.57% 4.83% 23.74% 4.35%
1 Year Ended 3/31/99 3/31/98 $977.21 $1,017.29 4.10% 4.10% 1.73% 1.73%
- ------------
*Class A shares were established June 27, 1996.
VALUE OF A $1,000 INVESTMENT -- MASSACHUSETTS
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ----------------------------- -----------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------- -------------- --------------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 6/1/92 $977.52 $1,364.14 39.55% 5.00% 36.41% 4.65%
5 Years Ended 3/31/99 3/31/94 $977.42 $1,253.50 28.24% 5.10% 25.35% 4.62%
1 Year Ended 3/31/99 3/31/98 $977.29 $1,018.21 4.19% 4.19% 1.82% 1.82%
- ------------
* Class A shares were established June 27, 1996.
VALUE OF A $1,000 INVESTMENT -- MICHIGAN
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ----------------------------- -----------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------- -------------- --------------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/16/93 $977.52 $1,254.05 28.29% 4.27% 25.40% 3.87%
5 Years Ended 3/31/99 3/31/94 $977.71 $1,249.78 27.83% 5.03% 24.98% 4.56%
1 Year Ended 3/31/99 3/31/98 $977.60 $1,012.10 3.53% 3.53% 1.21% 1.21%
- ------------
* Class A shares were established October 22, 1996.
VALUE OF A $1,000 INVESTMENT -- NEW JERSEY
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ----------------------------- -----------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------- -------------- --------------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/1/92 $977.52 $1,362.71 39.41% 4.98% 36.27% 4.64%
5 Years Ended 3/31/99 3/31/94 $977.58 $1,247.32 27.60% 4.99% 24.73% 4.52%
1 Year Ended 3/31/99 3/31/98 $977.34 $1,016.89 4.04% 4.04% 1.69% 1.69%
- ------------
* Class A shares were established June 27, 1996.
VALUE OF A $1,000 INVESTMENT -- NEW YORK
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ----------------------------- -----------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------- -------------- --------------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 5/29/92 $977.52 $1,393.01 42.51% 5.32% 39.30% 4.97%
5 Years Ended 3/31/99 3/31/94 $977.60 $1,272.09 30.13% 5.41% 27.21% 4.93%
1 Year Ended 3/31/99 3/31/98 $977.67 $1,024.40 4.78% 4.78% 2.44% 2.44%
- ------------
* Class A shares were established May 29, 1992.
VALUE OF A $1,000 INVESTMENT -- OHIO
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ----------------------------- -----------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------- -------------- --------------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/16/93 $977.52 $1,276.62 30.59% 4.58% 27.66% 4.18%
5 Years Ended 3/31/99 3/31/94 $977.89 $1,261.63 29.01% 5.23% 26.16% 4.76%
1 Year Ended 3/31/99 3/31/98 $977.82 $1,018.82 4.19% 4.19% 1.88% 1.88%
- ------------
* Class A shares were established October 22, 1996.
VALUE OF A $1,000 INVESTMENT -- PENNSYLVANIA
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ----------------------------- -----------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------- -------------- --------------- -------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/1/92 $977.52 $1,393.01 42.51% 5.32% 39.30% 4.97%
5 Years Ended 3/31/99 3/31/94 $977.73 $1,264.12 29.29% 5.27% 26.41% 4.80%
1 Year Ended 3/31/99 3/31/98 $977.75 $1,015.93 3.90% 3.90% 1.59% 1.59%
- ------------
* Class A shares were established June 27, 1996.
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1999, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of each Class A
and of each Fund. In addition, as of the same date, the following record
owners held the amounts of Class A shares indicated below, which were held
either (i) individually or (ii) on behalf of their customers who are the
beneficial owners of such shares and as to which they have voting power under
certain limited circumstances:
<TABLE>
<S> <C> <C>
CALIFORNIA FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 24.7%
CONNECTICUT FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 17.4%
PaineWebber FBO Catharine W. Reid RMA Bloomfield, CT 7.6%
FLORIDA FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 15.3%
MASSACHUSETTS FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 11.2%
MICHIGAN FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 17.4%
NEW JERSEY FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 10.0%
NEW YORK FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 13.4%
OHIO FUND -- Key Clearing Corp. Cleveland, OH 9.3%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 8.5%
PENNSYLVANIA FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 19.7%
</TABLE>
To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of any Fund's outstanding Class A shares on such date.
<PAGE>
APPENDIX B
CLASS B FEES, PERFORMANCE AND OWNERSHIP
DISTRIBUTION AND SERVICE FEES
For the fiscal year ended March 31, 1999, the following table shows, (1)
sales commissions paid by the principal underwriter to investment dealers on
sales of Class B shares, (2) distribution payments to the principal
underwriter under the Distribution Plan, (3) CDSC payments to the principal
underwriter, (4) uncovered distribution charges under the Plan (dollar amount
and as a percentage of net assets attributable to Class B), (5) service fees
on Class B shares, and (6) amount of service fees on Class B shares paid to
investment dealers. The service fees paid by the Funds that were not paid to
investment dealers were retained by the principal underwriter. Distribution
payments and CDSC payments reduce uncovered distribution charges under the
Plan.
<TABLE>
<CAPTION>
AMOUNT OF
UNCOVERED
DISTRIBUTION CDSC DISTRIBUTION SERVICE
PAYMENTS TO PAYMENTS TO CHARGES FEES TO
SALES THE PRINCIPAL THE PRINCIPAL (AS A % OF SERVICE INVESTMENT
CLASS B COMMISSIONS UNDERWRITER UNDERWRITER CLASS NET ASSETS) FEES DEALERS
- ------- ----------- ----------- ----------- ----------------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
California ......... $11,068 $25,938 $ 5,000 $261,000 (10.9%) $ 5,874 $ 5,818
Connecticut ........ 5,476 14,111 800 216,000 (15.3%) 2,761 2,753
Florida ............ 15,024 56,326 5,000 555,000 (8.8%) 12,331 12,299
Massachusetts ...... 12,013 38,098 10,000 308,000 (11.2%) 9,379 9,376
Michigan ........... 3,848 7,243 700 362,000 (55.4%) 2,004 2,004
New Jersey ......... 14,371 37,184 14,000 292,000 (9.6%) 9,047 8,972
New York ........... 21,802 53,537 13,000 398,000 (7.8%) 13,355 13,339
Ohio ............... 11,888 23,647 2,000 466,000 (21.1%) 5,384 4,872
Pennsylvania ....... 4,923 40,712 12,000 178,000 (4.7%) 9,452 9,371
</TABLE>
PRINCIPAL UNDERWRITER
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the principal underwriter. For the fiscal year ended March 31,
1999, Class B paid the principal underwriter for repurchase transactions
handled by it $2.50 for each such transaction which aggregated as follows:
California - $72.50; Connecticut - $40; Florida - $102.50; Massachusetts -
$127.50; Michigan - $25; New Jersey - $120; New York - $242.50; Ohio - $27.50;
and Pennsylvania - $180.
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return
on a hypothetical investment of $1,000 in Class B shares for the periods shown
in each table. Past performance is no guarantee of future results. Investment
return and principal value will fluctuate; shares, when redeemed, may be worth
more or less than their original cost. Information presented with two
asterisks (**) includes the effect of subsidizing expenses. Return would have
been lower without subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- CALIFORNIA
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/99 CDSC ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 5/29/92 $1,377.28 $1,377.28 37.73% 4.79% 37.73% 4.79%
5 Years Ended 3/31/99 3/31/94 $1,255.88 $1,255.88 25.59% 4.66% 25.59% 4.66%
1 Year Ended 3/31/99 3/31/98 $1,039.94 $1,009.94 3.99% 3.99% 0.99% 0.99%
- ------------
* Investment operations began on May 29, 1992.
VALUE OF A $1,000 INVESTMENT -- CONNECTICUT
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/99 CDSC ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/16/93 $1,273.01 $1,273.01 27.30% 4.13% 27.30% 4.13%
5 Years Ended 3/31/99 3/31/94 $1,263.80 $1,263.80 26.38% 4.79% 26.38% 4.79%
1 Year Ended 3/31/99** 3/31/98 $1,039.02 $1,009.02 3.90% 3.90% 0.90% 0.90%
- ------------
* Investment operations began on April 16, 1993.
VALUE OF A $1,000 INVESTMENT -- FLORIDA
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/99 CDSC ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 5/29/92 $1,363.40 $1,363.40 36.34% 4.64% 36.34% 4.64%
5 Years Ended 3/31/99 3/31/94 $1,242.24 $1,242.24 24.22% 4.43% 24.22% 4.43%
1 Year Ended 3/31/99 3/31/98 $1,035.39 $1,005.45 3.54% 3.54% 0.54% 0.54%
- ------------
* Investment operations began on May 29, 1992.
VALUE OF A $1,000 INVESTMENT -- MASSACHUSETTS
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/99 CDSC ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 6/1/92 $1,369.41 $1,369.41 36.94% 4.71% 36.94% 4.71%
5 Years Ended 3/31/99 3/31/94 $1,258.51 $1,258.51 25.85% 4.71% 25.85% 4.71%
1 Year Ended 3/31/99 3/31/98 $1,036.02 $1,006.05 3.60% 3.60% 0.60% 0.60%
- ------------
* Investment operations began on June 1, 1992.
VALUE OF A $1,000 INVESTMENT -- MICHIGAN
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/99 CDSC ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund** 4/16/93 $1,262.43 $1,262.43 26.24% 3.99% 26.24% 3.99%
5 Years Ended 3/31/99 3/31/94 $1,257.90 $1,257.90 25.79% 4.70% 25.79% 4.70%
1 Year Ended 3/31/99** 3/31/98 $1,030.57 $1,000.78 3.06% 3.06% 0.08% 0.08%
- ----------
* Investment operations began on April 16, 1993.
VALUE OF A $1,000 INVESTMENT -- NEW JERSEY
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/99 CDSC ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 6/1/92 $1,368.29 $1,368.29 36.83% 4.70% 36.83% 4.70%
5 Years Ended 3/31/99 3/31/94 $1,252.31 $1,252.31 25.23% 4.60% 25.23% 4.60%
1 Year Ended 3/31/99 3/31/98 $1,034.64 $1,004.73 3.46% 3.46% 0.47% 0.47%
- ----------
* Investment operations began on June 1, 1992.
VALUE OF A $1,000 INVESTMENT -- NEW YORK
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/99 CDSC ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 5/29/92 $1,398.79 $1,398.79 39.88% 5.03% 39.88% 5.03%
5 Years Ended 3/31/99 3/31/94 $1,277.33 $1,277.33 27.73% 5.02% 27.73% 5.02%
1 Year Ended 3/31/99 3/31/98 $1,041.96 $1,011.96 4.20% 4.20% 1.20% 1.20%
- ----------
* Investment operations began on May 29, 1992.
VALUE OF A $1,000 INVESTMENT -- OHIO
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/99 CDSC ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 4/16/93 $1,284.25 $1,284.25 28.42% 4.29% 28.42% 4.29%
5 Years Ended 3/31/99 3/31/94 $1,268.73 $1,268.73 26.87% 4.88% 26.87% 4.88%
1 Year Ended 3/31/99 3/31/98 $1,036.24 $1,006.33 3.62% 3.62% 0.63% 0.63%
- ----------
* Investment operations began on April 16, 1993.
VALUE OF A $1,000 INVESTMENT -- PENNSYLVANIA
<CAPTION>
VALUE OF VALUE OF TOTAL RETURN BEFORE TOTAL RETURN AFTER
INVESTMENT INVESTMENT DEDUCTING DEDUCTING
BEFORE DEDUCTING AFTER DEDUCTING THE MAXIMUM CDSC THE MAXIMUM CDSC
INVESTMENT INVESTMENT THE MAXIMUM THE MAXIMUM -------------------------- --------------------------
PERIOD* DATE CDSC ON 3/31/99 CDSC ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- ---------------------- -------------- ----------------- ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of the Fund 6/1/92 $1,398.61 $1,398.61 39.86% 5.03% 39.86% 5.03%
5 Years Ended 3/31/99 3/31/94 $1,268.89 $1,268.89 26.89% 4.88% 26.89% 4.88%
1 Year Ended 3/31/99 3/31/98 $1,033.27 $1,003.41 3.33% 3.33% 0.34% 0.34%
- ------------
* Investment operations began on June 1, 1992.
</TABLE>
See the Taxable Equivalent Yield Tables in Appendix E to this SAI for
information concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1999, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of each Class B
and of each Fund. In addition, as of the same date, the following record
owners held the amounts of Class B shares indicated below, which were held
either (i) individually or (ii) on behalf of their customers who are the
beneficial owners of such shares and as to which they have voting power under
certain limited circumstances:
<TABLE>
<S> <C> <C> <C>
CALIFORNIA FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 32.3%
Marjorie P. Shafer TTEE F/T Marjorie P. Shafer Rev. Trust Oakland, CA 11.1%
Jessie A. Lawton TTEE F/T Jessie A. Lawton Rev. Trust Apache Junction, AZ 9.0%
PaineWebber FBO E. Christine Feldman TTEE, FBO Feldman Family "A" Trust Laguna Hills, CA 5.9%
Bear Stearns Securities Corp., FBO 975-77987-16 Brooklyn, NY 5.2%
CONNECTICUT FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 33.7%
NFSC FEBO Herbert Cohen Woodbury, NY 13.4%
Prudential Securities FBO Mrs. Catherine Calia New Haven, CT 8.3%
Andrew L. MacWhinney & Dorothy P. MacWhinney Essex, CT 6.5%
Prudential Securities FBO Anthony Calia New Haven, CT 6.4%
FLORIDA FUND -- PaineWebber FBO Albert Cohen Family Limited Partnership Miami, FL 57.1%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 10.3%
MASSACHUSETTS FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 19.5%
Salomon Smith Barney Inc. New York, NY 5.5%
MICHIGAN FUND -- Donaldson Lufkin Jenrette Securities Corporation, Inc. Jersey City, NJ 16.6%
Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 15.2%
Donaldson Lufkin Jenrette Securities Corporation, Inc. Jersey City, NJ 14.4%
Donaldson Lufkin Jenrette Securities Corporation, Inc. Jersey City, NJ 13.5%
Harley M. Robinette and Margaret C. Robinette JTWROS Adrian, MI 13.5%
Pat Marrocca & Ruby Marrocca JTWROS Taylor, MI 7.9%
Mark D. Schultz Petersburg, MI 7.0%
NEW JERSEY FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 30.0%
Donaldson Lufkin Jenrette Securities Corporation, Inc. Jersey City, NJ 8.2%
Lucille P. Lupton, Exec. for Estate of Anthony A. Previti Somers Point, NJ 5.4%
NEW YORK FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 12.3%
Robert S. Woolman Pittsford, NY 5.2%
Milton Jacoby New York, NY 5.2%
OHIO FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 25.4%
Kevin Ritz & Sally Ritz JTWROS Byesville, OH 11.3%
Key Clearing Corp. Brooklyn, OH 8.7%
Evern Securities Inc. Rose M. Collins Milwaukee, WI 8.1%
National City Bank of Columbus Agent U/A Live Oak Properties Cleveland, OH 6.0%
Georgiana J. Muskat Pittsburgh, PA 5.7%
PENNSYLVANIA FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 21.4%
</TABLE>
To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of any Fund's outstanding Class B shares on such date.
<PAGE>
APPENDIX C
CLASS C FEES, PERFORMANCE AND OWNERSHIP
DISTRIBUTION AND SERVICE FEES
For the fiscal year ended March 31, 1999, the following table shows, (1)
sales commissions paid by the principal underwriter to investment dealers on
sales of Class C shares, (2) distribution payments to the principal
underwriter under the Distribution Plan, (3) CDSC payments to the principal
underwriter, (4) uncovered distribution charges under the Plan (dollar amount
and as a percentage of net assets attributable to Class C), (5) service fees
on Class C shares, and (6) the amount of service fees on Class C shares paid
to investment dealers. The service fees paid by the Funds that were not paid
to investment dealers were retained by the principal underwriter. Distribution
payments and CDSC payments reduce uncovered distribution charges under the
Plan.
<TABLE>
<CAPTION>
DISTRIBUTION CDSC AMOUNT OF UNCOVERED SERVICE
PAYMENTS TO PAYMENTS TO DISTRIBUTION CHARGES FEES TO
SALES THE PRINCIPAL THE PRINCIPAL (AS A % OF SERVICE INVESTMENT
CLASS C COMMISSIONS UNDERWRITER UNDERWRITER CLASS NET ASSETS) FEES DEALERS
- ------- ----------- ----------- ----------- ----------------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Florida .......... $32,043 $41,846 $ 100 $4,105,000 (103.9%) $ 8,154 $ 6,405
Massachusetts .... $25,749 $31,905 $ 100 $ 898,000 (17.2%) $ 6,301 $ 5,137
New York ......... $13,451 $19,467 $ 500 $1,080,000 (39.5%) $ 3,893 $ 2,672
Pennsylvania ..... $35,612 $40,651 $ 500 $1,949,000 (33.6%) $ 8,130 $ 7,122
</TABLE>
PRINCIPAL UNDERWRITER
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the principal underwriter. For the fiscal year ended March 31,
1999, Class C paid the principal underwriter for repurchase transactions
handled by it $2.50 for each such transaction which aggregated as follows:
Florida -- $77.50; Massachusetts -- $80; New York -- $47.50; and Pennsylvania
- -- $107.50.
PERFORMANCE INFORMATION
The tables below indicate the cumulative and average annual total return
on a hypothetical investment in shares of $1,000. Total return for the period
prior to April 1, 1998 reflects the total return of the predecessor to Class
C. Total return prior to the Predecessor Fund's commencement of operations
reflects the total return of Class B, adjusted to reflect the Class C sales
charge. The Class B total return has not been adjusted to reflect certain
other expenses (such as distribution and/or service fees). If such adjustments
were made, the Class C total return would be different. Past performance is no
guarantee of future results. Investment return and principal value will
fluctuate; shares, when redeemed, may be worth more or less than their
original cost. Information presented with two asterisks (**) includes the
effect of subsidizing expenses. Returns would have been lower without
subsidies.
<TABLE>
VALUE OF A $1,000 INVESTMENT -- FLORIDA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE DEDUCTING AFTER DEDUCTING DEDUCTING THE DEDUCTING THE
THE MAXIMUM THE MAXIMUM MAXIMUM CDSC MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF CDSC CDSC ---------------------- ------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------------- ---------------- ---------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund** 5/29/92 $1,000 $1,356.95 $1,356.95 35.70% 4.56% 35.70% 4.56%
5 Years Ended
3/31/99 3/31/94 $1,000 $1,240.03 $1,240.03 24.00% 4.40% 24.00% 4.40%
1 Year Ended
3/31/99 3/31/98 $1,000 $1,035.71 $1,025.73 3.57% 3.57% 2.57% 2.57%
- ------------
*Predecessor Fund commenced operations December 8, 1993.
VALUE OF A $1,000 INVESTMENT -- MASSACHUSETTS
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE DEDUCTING AFTER DEDUCTING DEDUCTING THE DEDUCTING THE
THE MAXIMUM THE MAXIMUM MAXIMUM CDSC MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF CDSC CDSC ---------------------- ------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------------- ---------------- ---------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund** 6/1/92 $1,000 $1,364.55 $1,364.55 36.46% 4.66% 36.46% 4.66%
5 Years Ended
3/31/99 3/31/94 $1,000 $1,257.10 $1,257.10 25.71% 4.68% 25.71% 4.68%
1 Year Ended
3/31/99 3/31/98 $1,000 $1,035.57 $1,025.59 3.56% 3.56% 2.56% 2.56%
- ------------
* Predecessor Fund commenced operations December 9, 1993.
VALUE OF A $1,000 INVESTMENT -- NEW YORK
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE DEDUCTING AFTER DEDUCTING DEDUCTING THE DEDUCTING THE
THE MAXIMUM THE MAXIMUM MAXIMUM CDSC MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF CDSC CDSC ---------------------- ------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------------- ---------------- ---------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund** 5/29/92 $1,000 $1,391.92 $1,391.92 39.19% 4.95% 39.19% 4.95%
5 Years Ended
3/31/99 3/31/94 $1,000 $1,273.31 $1,273.31 27.33% 4.95% 27.33% 4.95%
1 Year Ended
3/31/99 3/31/98 $1,000 $1,042.82 $1,032.82 4.28% 4.28% 3.28% 3.28%
- ------------
* Predecessor Fund commenced operations December 8, 1993.
VALUE OF A $1,000 INVESTMENT -- PENNSYLVANIA
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE DEDUCTING AFTER DEDUCTING DEDUCTING THE DEDUCTING THE
THE MAXIMUM THE MAXIMUM MAXIMUM CDSC MAXIMUM CDSC
INVESTMENT INVESTMENT AMOUNT OF CDSC CDSC ---------------------- ------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ----------- ---------------- ---------------- ---------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund** 6/1/92 $1,000 $1,395.50 $1,395.50 39.55% 5.00% 39.55% 5.00%
5 Years Ended
3/31/99 3/31/94 $1,000 $1,267.38 $1,267.38 26.74% 4.85% 26.74% 4.85%
1 Year Ended
3/31/99 3/31/98 $1,000 $1,033.59 $1,023.64 3.36% 3.36% 2.36% 2.36%
- ------------
* Predecessor Fund commenced operations December 8, 1993.
</TABLE>
See the Taxable Equivalent Yield Tables in Appendix E to this SAI for
information concerning applicable tax rates and income brackets.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 30, 1999, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of each Class C
and of each Fund. In addition, as of the same date, the following record
owners held the amounts of Class C shares indicated below, which were held
either (i) individually or (ii) on behalf of their customers who are the
beneficial owners of such shares and as to which they have voting power under
certain limited circumstances:
<TABLE>
<S> <C> <C> <C>
FLORIDA FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 38.6%
MASSACHUSETTS FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 36.2%
Everen Securities, Inc. Robert F. Johnston Milwaukee, WI 12.0%
Ronnie Z. Siegel Hyannis, MA 7.4%
Salomon Smith Barney, Inc. New York, NY 5.4%
Elizabeth L. King & Peter King TTEES, Elizabeth L. King Rev. Trust Amherst, MA 5.2%
NFSC FEBO Ruth G. Kelly TTEE Ruth G. Kelly Rev. Trust E. Sandwich, MA 5.1%
NEW YORK FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 19.7%
NFSC FEBO Fung Ming Chan Fresh Meadows, NY 9.0%
Donaldson Lufkin Jenrette Securities Corporation Inc. Jersey City, NJ 5.4%
PENNSYLVANIA FUND -- Merrill Lynch, Pierce, Fenner & Smith, Inc. Jacksonville, FL 27.0%
J.J.B. Hilliard, W.L. Lyons, Inc. Tasso Katselas & Jane Katselas JTWROS Louisville, KY 20.3%
Keystone Financial Bank Genevieve T. Hommer Estate Altoona, PA 7.6%
PaineWebber FBO Stephen Berman Newtown Square, PA 5.2%
</TABLE>
To the knowledge of the Trust, no other person owned of record or
beneficially 5% or more of any Fund's outstanding Class C shares on such date.
<PAGE>
APPENDIX D: STATE SPECIFIC INFORMATION
RISKS OF CONCENTRATION
The following information as to certain State specific considerations is
given to investors in view of a Portfolio's policy of concentrating its
investments in particular State issuers. Such information supplements the
information in the Prospectus. It is derived from sources that are generally
available to investors and is believed to be accurate. Such information
constitutes only a brief summary, does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of issuers of each particular State. Neither the Trust
nor the Portfolios have independently verified this information.
The bond ratings provided in the prospectus are current as of the date of
the prospectus and are based on economic conditions which may not continue;
moreover, there can be no assurance that particular bond issues may not be
adversely affected by changes in economic, political or other conditions.
Unless stated otherwise, the ratings indicated are for obligations of the
state. A state's political subdivisions may have different ratings which are
unrelated to the ratings assigned to state obligations.
CALIFORNIA
The state's budgetary fortunes are subject to unforeseeable events. In
December, 1994, for example, Orange County, California and its Investment Pool
filed for bankruptcy. A plan of adjustment has been approved by the court and
became effective under which all non-municipal creditors are to be paid in
full. However, the ultimate financial impact on the County and the state
cannot be predicted with any certainty. In addition, constant fluctuations in
other factors affecting the state -- including health and welfare caseloads,
property tax receipts, federal funding and extraordinary expenditures related
to natural disasters -- will undoubtedly create new budget challenges.
Furthermore, certain California constitutional amendments, legislative
measures, executive orders, administrative regulations and voter initiatives
could produce the adverse effects on the California economy. Among these are
measures that have established tax, spending or appropriations limits and
prohibited the imposition of certain new taxes, authorized the transfers of
tax liabilities and reallocations of tax receipts among governmental entities
and provided for minimum levels of funding.
Finally, certain bonds in the California Portfolio may be subject to
provisions of California law that could adversely affect payments on those
bonds or limit the remedies available to bondholders. Among these are bonds of
health care institutions which are subject to the strict rules and limits
regarding reimbursement payments of California's Medi-Cal Program for health
care services to welfare beneficiaries, and bonds secured by liens on real
property.
Proposition 13. Certain of the Debt Obligations may be obligations of
issuers who rely in whole or in part on ad valorem real property taxes as a
source of revenue. On June 6, 1978, California voters approved an amendment to
the California Constitution known as Proposition 13, which added Article XIIIA
to the California Constitution. The effect of Article XIIIA was to limit ad
valorem taxes on real property and to restrict the ability of taxing entities
to increase real property tax revenues.
Section 1 of Article XIIIA, as amended, limits the maximum ad valorem tax
on real property to 1% of full cash value to be collected by the counties and
apportioned according to law. The 1% limitation does not apply to ad valorem
taxes or special assessments to pay the interest and redemption charges on any
bonded indebtedness for the acquisition or improvement of real property
approved by two-thirds of the votes cast by the voters voting on the
proposition. Section 2 of Article XIIIA defines "full cash value" to mean "the
County Assessor's valuation of real property as shown on the 1975/76 tax bill
under "full cash value" or, thereafter, the appraised value of real property
when purchased, newly constructed, or a change in ownership has occurred after
the 1975 assessment." The full cash value may be adjusted annually to reflect
inflation at a rate not to exceed 2% per year, or reduction in the consumer
price index or comparable local data, or reduced in the event of declining
property value caused by damage, destruction or other factors.
Legislation enacted by the California Legislature to implement Article
XIIIA provides that notwithstanding any other law, local agencies may not levy
any ad valorem property tax except to pay debt service on indebtedness
approved by the voters prior to July 1, 1978, and that each county will levy
the maximum tax permitted by Article XIIIA.
Proposition 9. On November 6, 1979, an initiative known as "Proposition 9"
or the "Gann Initiative" was approved by the California voters, which added
Article XIIIB to the California Constitution. Under Article XIIIB, state and
local governmental entities have an annual "appropriations limit" and are not
allowed to spend certain moneys called "appropriations subject to limitation"
in an amount higher than the "appropriations limit." Article XIIIB does not
affect the appropriation of moneys which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is required to be based on certain 1978/79 expenditures, and is to be
adjusted annually to reflect changes in consumer prices, population, and
certain services provided by these entities. Article XIIIB also provides that
if these entities' revenues in any year exceed the amounts permitted to be
spent, the excess is to be returned by revising tax rates or fee schedules
over the subsequent two years.
Proposition 98. On November 8, 1988, voters of the state approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed state funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed below), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of General Fund
revenues ("Test 1"), (b) the amount appropriated to K-14 schools in the prior
year, adjusted for changes in the cost of living (measured as in Article XIII
B by reference to state per capita personal income) and enrollment ("Test 2"),
or (c) a third test, which would replace Test 2 in any year when the
percentage growth in per capita General Fund revenues from the prior year plus
one half of one percent is less than the percentage growth in state per capita
personal income ("Test 3"). Under Test 3, schools would receive the amount
appropriated in the prior year adjusted for changes in enrollment and per
capita General Fund revenues, plus an additional small adjustment factor. If
Test 3 is used in any year, the difference between Test 3 and Test 2 would
become a "credit" to schools which would be the basis of payments in future
years when per capita General Fund revenue growth exceeds per capita personal
income growth.
Proposition 98 permits the Legislature -- by two-thirds vote of both
houses, with the Governor's concurrence -- to suspend the K-14 schools'
minimum funding formula for a one-year period. Proposition 98 also contains
provisions transferring certain State tax revenues in excess of the Article
XIII B limit to K-14 schools.
Proposition 111. On June 30, 1989, the California Legislature enacted
Senate Constitutional Amendment 1, a proposed modification of the California
Constitution to alter the spending limit and the education funding provisions
of Proposition 98. Senate Constitutional Amendment 1 -- on the June 5, 1990
ballot as Proposition 111 -- was approved by the voters and took effect on
July 1, 1990. Among a number of important provisions, Proposition 111
recalculated spending limits for the state and for local governments, allowed
greater annual increases in the limits, allowed the averaging of two years'
tax revenues before requiring action regarding excess tax revenues, reduced
the amount of the funding guarantee in recession years for school districts
and community college districts (but with a floor of 40.9 percent of state
general fund tax revenues), removed the provision of Proposition 98 which
included excess moneys transferred to school districts and community college
districts in the base calculation for the next year, limited the amount of
state tax revenue over the limit which would be transferred to school
districts and community college districts, and exempted increased gasoline
taxes and truck weight fees from the state appropriations limit. Additionally,
Proposition 111 exempted from the state appropriations limit funding for
capital outlays.
Proposition 62. On November 4, 1986, California voters approved an
initiative statute known as Proposition 62. This initiative provided the
following:
1. Requires that any tax for general governmental purposes imposed by
local governments be approved by resolution or ordinance adopted by a two-
thirds vote of the governmental entity's legislative body and by a majority
vote of the electorate of the governmental entity;
2. Requires that any special tax (defined as taxes levied for other than
general governmental purposes) imposed by a local governmental entity be
approved by a two-thirds vote of the voters within that jurisdiction;
3. Restricts the use of revenues from a special tax to the purposes or for
the service for which the special tax was imposed;
4. Prohibits the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by Article XIIIA;
5. Prohibits the imposition of transaction taxes and sales taxes on the
sale of real property by local governments;
6. Requires that any tax imposed by a local government on or after August
1, 1985 be ratified by a majority vote of the electorate within two years of
the adoption of the initiative;
7. Requires that, in the event a local government fails to comply with the
provisions of this measure, a reduction in the amount of property tax revenue
allocated to such local government occurs in an amount equal to the revenues
received by such entity attributable to the tax levied in violation of the
initiative; and
8. Permits these provisions to be amended exclusively by the voters of the
state of California.
In September 1988, the California Court of Appeal in City of Westminster
v. County of Orange, 204 Cal.App. 3d 623, 215 Cal.Rptr. 511 (Cal.Ct.App.
1988), held that Proposition 62 is unconstitutional to the extent that it
requires a general tax by a general law city, enacted on or after August 1,
1985 and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is
impossible to predict the impact of this decision on charter cities, on
special taxes or on new taxes imposed after the effective date of Proposition
62. The California Court of Appeal in City of Woodlake v. Logan, (1991) 230
Cal.App.3d 1058, subsequently held that Proposition 62's popular vote
requirements for future local taxes also provided for an unconstitutional
referenda. The California Supreme Court declined to review both the City of
Westminster and the City of Woodlake decisions.
In Santa Clara Local Transportation Authority v. Guardino, (Sept. 28,
1995) 11 Cal.4th 220, reh'g denied, modified (Dec. 14, 1995) 12 Cal.4th 344e,
the California Supreme Court upheld the constitutionality of Proposition 62's
popular vote requirements for future taxes, and specifically disapproved of
the City of Woodlake decision as erroneous. The Court did not determine the
correctness of the City of Westminster decision, because that case appeared
distinguishable, was not relied on by the parties in Guardino, and involved
taxes not likely to still be at issue. It is impossible to predict the impact
of the Supreme Court's decision on charter cities or on taxes imposed in
reliance on the City of Woodlake case.
In McBrearty v. City of Brawley, 59 Cal. App. 4(S)/ 1441, 69 Cal. Rptr. 2d
862 (Cal. Ct. App. 1997), the Court of Appeal held that the city of Brawley
must either hold an election or cease collection of utility taxes that were
not submitted to a vote. In 1991, the city of Brawley adopted an ordinance
imposing a utility tax on its residents and began collecting the tax without
first seeking voter approval. In 1996, the taxpayer petitioned for writ of
mandate contending that Proposition 62 required the city to submit its utility
tax on residents to vote of local electorate. The trial court issued a writ of
mandamus and the city appealed.
First, the Court of Appeal held that the taxpayer's cause of action
accrued for statute of limitation purposes at the time of the Guardino
decision rather than at the time when the city adopted the tax ordinance which
was July 1991. Second, the Court held that the voter approval requirement in
Proposition 62 was not an invalid mechanism under the state constitution for
the involvement of the electorate in the legislative process. Third, the Court
rejected the city's argument that Guardino should only be applied on a
prospective basis. Finally, the Court held Proposition 218 (see discussion
below) did not impliedly protect any local general taxes imposed prior to
January 1, 1995 against challenge.
Assembly Bill 1362 (Mazzoni), introduced February 28, 1997, which would
have made the Guardino decision inapplicable to any tax first imposed or
increased by an ordinance or resolution adopted before December 14, 1995 was
vetoed by the Governor on October 11, 1997. The California State Senate had
passed the Bill on September 8, 1997 and the California State Assembly had
passed the Bill on September 11, 1997. It is not clear whether the Bill, if
enacted, would have been constitutional as a non-voted amendment to
Proposition 62 or as a non-voted change to Proposition 62's operative date.
Proposition 218. On November 5, 1996, the voters of the state approved
Proposition 218, a constitutional initiative, entitled the "Right to Vote on
Taxes Act" ("Proposition 218"). Proposition 218 adds Articles XIII C and XIII
D to the California Constitution and contains a number of interrelated
provisions affecting the ability of local governments to levy and collect both
existing and future taxes, assessments, fees and charges. Proposition 218
became effective on November 6, 1996. The Sponsors are unable to predict
whether and to what extent Proposition 218 may be held to be constitutional or
how its terms will be interpreted and applied by the courts. However, if
upheld, Proposition 218 could substantially restrict certain local
governments' ability to raise future revenues and could subject certain
existing sources of revenue to reduction or repeal, and increase local
government costs to hold elections, calculate fees and assessments, notify the
public and defend local government fees and assessments in court.
Article XIII C of Proposition 218 requires majority voter approval for the
imposition, extension or increase of general taxes and two-thirds voter
approval for the imposition, extension or increase of special taxes, including
special taxes deposited into a local government's general fund. Proposition
218 also provides that any general tax imposed, extended or increased without
voter approval by any local government on or after January 1, 1995 and prior
to November 6, 1996 shall continue to be imposed only if approved by a
majority vote in an election held within two years of November 6, 1996.
Article XIII C of Proposition 218 also expressly extends the initiative
power to give voters the power to reduce or repeal local taxes, assessments,
fees and charges, regardless of the date such taxes, assessments, fees or
charges were imposed. This extension of the initiative power to some extent
constitutionalizes the March 6, 1995 state Supreme Court decision in Rossi v.
Brown, which upheld an initiative that repealed a local tax and held that the
state constitution does not preclude the repeal, including the prospective
repeal, of a tax ordinance by an initiative, as contrasted with the state
constitutional prohibition on referendum powers regarding statutes and
ordinances which impose a tax. Generally, the initiative process enables
California voters to enact legislation upon obtaining requisite voter approval
at a general election. Proposition 218 extends the authority stated in Rossi
v. Brown by expanding the initiative power to include reducing or repealing
assessments, fees and charges, which had previously been considered
administrative rather than legislative matters and therefore beyond the
initiative power.
The initiative power granted under Article XIII C of Proposition 218, by
its terms, applies to all local taxes, assessments, fees and charges and is
not limited to local taxes, assessments, fees and charges that are property
related.
Article XIII D of Proposition 218 adds several new requirements making it
generally more difficult for local agencies to levy and maintain "assessments"
for municipal services and programs. "Assessment" is defined to mean any levy
or charge upon real property for a special benefit conferred upon the real
property.
Article XIII D of Proposition 218 also adds several provisions affecting
"fees" and "charges" which are defined as "any levy other than an ad valorem
tax, a special tax, or an assessment, imposed by a local government upon a
parcel or upon a person as an incident of property ownership, including a user
fee or charge for a property related service." All new and, after June 30,
1997, existing property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which (i) generate revenues
exceeding the funds required to provide the property related service, (ii) are
used for any purpose other than those for which the fees and charges are
imposed, (iii) are for a service not actually used by, or immediately
available to, the owner of the property in question, or (iv) are used for
general governmental services, including police, fire or library services,
where the service is available to the public at large in substantially the
same manner as it is to property owners. Further, before any property related
fee or charge may be imposed or increased, written notice must be given to the
record owner of each parcel of land affected by such fee or charges. The local
government must then hold a hearing upon the proposed imposition or increase
of such property based fee, and if written protests against the proposal are
presented by a majority of the owners of the identified parcels, the local
government may not impose or increase the fee or charge. Moreover, except for
fees or charges for sewer, water and refuse collection services, no property
related fee or charge may be imposed or increased without majority approval by
the property owners subject to the fee or charge or, at the option of the
local agency, two-thirds voter approval by the electorate residing in the
affected area.
Proposition 87. On November 8, 1988, California voters approved
Proposition 87. Proposition 87 amended Article XVI, Section 16, of the
California Constitution by authorizing the California Legislature to prohibit
redevelopment agencies from receiving any of the property tax revenue raised
by increased property tax rates levied to repay bonded indebtedness of local
governments which is approved by voters on or after January 1, 1989.
Local Govemments. The fiscal condition of local governments had been
constrained since the enactment of "Proposition 13" in 1978, which reduced and
limited the future growth of property taxes, and limited the ability of local
government to impose "special taxes" (those devoted to a specific purpose)
without two-thirds voter approval.
Counties, in particular, have had fewer options to raise revenues than
many other local government entities, and have been required to maintain many
services. The entire statewide welfare system was changed in response to the
change in federal welfare law enacted in 1996. California's response to the
federal welfare reforms is embodied in Chapter 270, Statutes of 1997. This new
basic state welfare program is called California Work Opportunity and
Responsibility to Kids Act ("CalWORKs"), which replaced the former Aid to
Families with Dependent Children (AFDC) and Greater Avenues to Independence
(GAIN) programs effective January 1, 1998. Consistent with the federal law,
CalWORKs contain new time limits on receipt of welfare aid, both lifetime as
well as for any current period on aid. The centerpiece of CalWORKs is the
linkage of eligibility to work participation requirements. Administration of
the new CalWORKs program is largely at the county level and counties are given
financial incentives for success in this program.
Although the longer-term impact of new federal law and CalWORKs cannot be
determined until there has been more experience, the state does not presently
anticipate that these new programs will have an adverse financial impact on
the state's General Fund. Overall Temporary Assistance for Needy Families
(TANF) grants from the federal government are expected to equal or exceed the
amounts the state would have received under the old AFDC program.
Under current law, counties are required to provide "general assistance"
aid to certain persons who cannot obtain welfare from other programs, but this
mandate may be eliminated as part of the overhaul.
In the aftermath of Proposition 13, the state provided aid from the
General Fund to make up some of the loss of property tax moneys, including
taking over the principal responsibility for funding local K-12 schools and
community colleges. Under the pressure of the recent recession, the
Legislature has eliminated the remnants of this post-Proposition 13 aid to
entities other than K-14 education districts, although it has also provided
additional funding sources (such as sales taxes) and reduces mandates for
local services. Many counties continue to be under severe fiscal stress. While
such stress in recent years most often been experienced by smaller, rural
counties, larger urban counties, such as Los Angeles, have also been affected.
In November of 1994, S&P downgraded the credit rating of several
California counties, including San Francisco, San Diego, Marin, Los Angeles
and San Bernardino. In December of 1994 and January of 1995, S&P and Moody's,
respectively, downgraded Orange County to below investment grade as a result
of its bankruptcy filing (see discussion below). In August of 1995, S&P again
downgraded the credit rating of Los Angeles County and replaced it on
CreditWatch. Moody's also downgraded Los Angeles County. In October of 1995,
S&P placed San Diego County's $449.3 million in general fund-supported debt
issue on CreditWatch. During the two month period following the passage of
Proposition 218 in November 1996, five of the seven California cities reviewed
by the major rating agencies during such two month period had been downgraded
(Los Angeles, Sacramento, San Diego, Fresno and Anaheim). In June 1998, S&P
downgraded Fresno's municipal bonds, citing the County's reduced financial
flexibility due to several years of budget deficit. In April 1998, each of the
three major rating agencies upgraded San Diego county's credit rating, citing
the County's successful sale of its troubled trash plant as a key factor in
improving the County's fiscal outlook. However, in August 1998, S&P announced
that San Diego County's rising debt, absent new sources of revenue, was
becoming a concern, signaling a greater likelihood in the next three years of
a downgrade in the County's strong credit rating.
On December 6, 1994, Orange County, California (the "County"), together
with its pooled investment funds (the "Funds") filed for protection under
Chapter 9 of the federal Bankruptcy Code, after reports that the Funds had
suffered significant market losses in their investments, causing a liquidity
crisis for the Funds and the County. More than 200 other public entities, most
of which, but not all, are located in the County, were also depositors in the
Funds. As of mid-January 1995, following a restructuring of most of the Funds'
assets to increase their liquidity and reduce their exposure to interest rate
increases, the County estimated the Funds' loss at about $1.69 billion, or 23%
of their initial deposits of approximately $7.5 billion. Many of the entities
which deposited money in the Funds, including the County, are facing cash flow
difficulties because of the bankruptcy filing and may be required to reduce
programs of capital projects. This may also affect their ability to meet their
outstanding obligations. In June 1996, Orange County emerged from bankruptcy
protection as part of a fiscal recovery plan that included the issuance of new
recovery bonds and sharp reductions in services and personnel. Moody's gave
the insured recovery bonds an underlying rating of Baa and the County's
general obligation bonds a Ba rating. S&P gave the recovery bonds a B
underlying rating and in February 1998, Fitch assigned the bonds an underlying
rating or BBB.
State Finances. From 1990 until 1994, the state experienced the worst
economic fiscal, ad budget conditions since the 1930's. Construction,
manufacturing (especially aerospace), and financial services, among others,
have all been severely affected. Job losses were the worst of any post-war
recession.
The state's financial condition improved markedly during the 1995-1996-97
and 1997-98 fiscal years, with a combination of better than expected revenues,
slowdown in growth of social welfare programs, and continued spending
restraint based on the actions taken in earlier years. The state's cash
position also improved and no external deficit borrowing has occurred over the
end of these three fiscal years.
The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion
in 1995-96, $1.6 billion in 1996-97 and $2.2 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school aid. The accumulated budget deficit from the
recession years were finally eliminated. The Department of Finance estimates
that the state's budget reserve (the SFEU) totaled $639.8 million as of June
30, 1997 and $1.782 billion at June 30, 1998.
As a result of the deterioration in the state's budget and cash situation
during the early 1990, rating agencies reduced the state's credit rating.
Between October 1991 and October 1992, the ratings on the general obligation
bonds was reduced by S&P from "AAA" to "A", by Moody's from "Aaa" to "Aa" and
by Fitch from "AAA" to "AA". On July 15, 1994, all three of the rating
agencies rating the state's long-term debt again 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 "A1", and Fitch lowered its rating
from "AA" to "A". In July 1996, S&P raised its rating to A from A+. In 1997,
Fitch raised its rating to "AA-" from "A". In October 1998, Moody's raised its
rating to Aa3 from A1. There can be no assurance that such ratings will
continue for any given period of time or that they will not in the future be
further revised or withdrawn. It should be noted that the creditworthiness of
obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the state of California, and there
is no obligation on the part of the state of California, and there is no
obligation on the part of the state to make payment on such obligations in the
event of default.
CONNECTICUT
Connecticut's General Fund has recorded operating surpluses for each
fiscal year since the year ended June 30, 1991. For the fiscal year ended June
30, 1998, the state's General Fund ran an operating surplus, based on the
state's budgetary method of accounting, of approximately $312,900,000. The
state's primary method for financing capital projects is through the sale of
general obligation bonds. These bonds are backed by the full faith and credit
of the state. As of December 1, 1998, the state had authorized direct general
obligation bond indebtedness totaling $12,398,200,000, of which
$11,057,311,000 had been approved for issuance by the State Bond Commission
and $9,814,857,000 had been issued. As of December 1, 1998, state direct
general obligation bond indebtedness outstanding was $6,837,131,000.
In 1995, the state established the University of Connecticut as a separate
corporate entity to issue bonds and construct certain infrastructure
improvements. The University is authorized to issue bonds secured by a state
debt service commitment totaling $962,000,000 to finance the improvements.
In addition, the state has limited or contingent liability on a
significant amount of other bonds issued by the following quasi-public
agencies: the Connecticut Housing Finance Authority, the Connecticut
Development Authority, the Connecticut Higher Education Supplemental Loan
Authority, the Connecticut Resources Recovery Authority and the Connecticut
Health and Educational Facilities Authority. Such bonds have also been issued
by the cities of Bridgeport and West Haven and the Southeastern Connecticut
Water Authority.
In 1984, the state established a program to plan, construct and improve
the state's transportation system (other than Bradley International Airport).
The total cost of the program through June 30, 2002, is currently estimated to
be $12.6 billion, to be met from federal, state, and local funds. The state
expects to finance most of its $5.1 billion share of such cost by issuing $4.6
billion of special tax obligation ("STO") bonds. The STO bonds are payable
solely from specified motor fuel taxes, motor vehicle receipts, and license,
permit and fee revenues pledged therefor and credited to the Special
Transportation Fund, which was established to budget and account for such
revenues.
The state's Department of Information Technology is reviewing the state's
Year 2000 exposure and developing plans for modification or replacement of
existing software that it believes will prevent significant operations
problems. There is a risk that the plan will not be completed on time, that
planned testing will not reveal all problems, or that systems of others on
whom the state relies will not be timely remediated. If necessary remediation
is not completed in a timely fashion, the Year 2000 problem may have a
material impact on the operations of the state.
The state, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of
the following cases might have a significant impact on the state's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury who have been placed in certain state hospitals and
other persons with acquired brain injury who are in the custody of the
Department of Mental Health and Addiction Services, claiming that their
constitutional rights are violated by placement in state hospitals alleged not
to provide adequate treatment and training, and seeking placement in community
residential settings with appropriate support services; (iii) litigation
involving claims by Indian tribes to portions of the state's land area; (iv)
an action by certain students and municipalities claiming that the state's
formula for financing public education violates the state's Constitution and
seeking a declaratory judgment and injunctive relief; and (v) an action on
behalf of black and Hispanic school children in the City of Hartford seeking
"integrated education" in the Greater Hartford metropolitan area.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. Certain Connecticut municipalities have experienced severe
fiscal difficulties and have reported operating and accumulated deficits in
recent years. Regional economic difficulties, reductions in revenues and
increases in 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.
FLORIDA
Florida's constitution prohibits the levy, under the authority of the
state, of an individual income tax upon the income of natural persons who are
residents or citizens of Florida in excess of amounts which may be credited
against or deducted from any similar tax levied by the United States or any
other state. Accordingly, a constitutional amendment would be necessary to
impose a state individual income tax in excess of the foregoing constitutional
limitations. The lack of an individual 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 Florida Constitution and Statutes mandate that the state budget as a
whole, and each separate fund within the state budget, be kept in balance from
currently available revenues each State fiscal year (July 1 - June 30).
Pursuant to a constitutional amendment which was ratified by the voters on
November 8, 1994, the rate of growth in state revenues in a given fiscal year
is limited to no more than the average annual growth rate in Florida personal
income over the previous five years (revenues collected in excess of the
limitation are generally deposited into the Budget Stabilization Fund).
The following data is provided by the Florida Consensus Estimating
Conference, which adjusted and updated actual revenue and forecasts on March
8, 1999 in order to support the state's budgeting and planning process. For
fiscal year 1998-99, the estimated General Revenue Fund and Working Capital
Fund is $18.80 billion. The projected year end balance of the combined General
Revenue Fund and Working Capital Fund is $573.8 million. Including the $789.6
million balance currently in the Budget Stabilization Fund, total reserves are
projected to stand at $1.36 billion, or 7.5% of current year appropriations.
For fiscal year 1999-2000, the estimated General Revenue Fund and Working
Capital Fund is $19.35 billion, a 2.9% increase over fiscal year 1998-99. The
fiscal year 1999-2000 budget includes a 4.3% increase in Net General Revenue
over fiscal year 1998-99. For fiscal year 1998-99, the estimated Florida and
United States unemployment rates are 5.0% and 5.1%, respectively. For fiscal
year 1999-2000, the estimated Florida and United States unemployment rates are
both 5.5%.
In 1993, the state constitution was amended to limit the annual growth in
the assessed valuation of residential property. This amendment may, over time,
constrain the growth in property taxes, a major revenue source for local
governments.
South Florida is particularly susceptible to international trade and
currency imbalances and to economic dislocations in Central and South America,
due to its geographical location and its involvement with foreign trade,
tourism and investment capital. North and Central Florida are impacted by
problems in the agricultural sector, particularly with regard to the citrus
and sugar industries. Short-term adverse economic conditions may be created in
these areas, and in the state as a whole, due to crop failures, severe weather
conditions or other agriculture-related problems. The state economy also has
historically been dependent on the tourism and construction industries and is,
therefore, sensitive to trends in those sectors. Hurricanes are a significant
threat to continuing economic activity.
MASSACHUSETTS
Effective July 1, 1990, limitations were placed on the amount of direct
bonds the state 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 state (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 by "Proposition 2 1/2". Property taxes are
virtually the only source of tax revenues available to cities and towns to
meet local costs.
Major infrastructure projects will continue over the next decade. A
reduction in the federal contributions could increase pressure on the state
and result in increased indebtedness.
The fiscal viability of the state's authorities and municipalities is
inextricably linked to that of the state. The state 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 state and
their debt ratings may be adversely affected by a negative change in those of
the state. Economic slowdown or increased capital spending pressures could
result in local aid reductions.
MICHIGAN
Under the state Constitution, the raising of taxes by the Legislature is
limited if doing so would cause the ratio of Total State Revenues (except
federal aid) to Personal Income of Michigan (as such terms are defined in the
state Constitution) to exceed certain limits. The only exceptions to this
revenue limit are a majority approval of a referendum question or a specific
emergency declared by a two-thirds vote of the Legislature. However, this
limit does not apply to taxes imposed for the payment of principal and
interest on bonds of the state, if the bonds are approved by voters and
authorized by a vote of two-thirds of the members of each House of the
Legislature and certain school district loans. Local units of government and
local authorities are authorized to issue bonds and other evidences of
indebtedness in a variety of situations without the approval of electors, but
the ability of the obligor to levy taxes for the payment of such obligations
is subject to the foregoing limitations unless the obligations were authorized
before December 23, 1978 or approved by the electors. The Constitution
prohibits the state from reducing the proportion of total state spending paid
to all local units of government, taken as a group, below that proportion in
effect in the 1978-79 fiscal year. The state may not mandate new or increased
levels of services to be provided by local units without making appropriations
to cover any increased costs.
Under the state Constitution, the total amount of general ad valorem taxes
imposed on taxable property in any year cannot exceed certain millage
limitations specified by the Constitution, statute or charter. The
Constitution prohibits local units of government from levying any tax not
authorized by law or charter, or from increasing the rate of an existing tax
above the rate authorized by law or charter. The Constitution also contains
millage reduction provisions. Under such provisions, should the value of
taxable property (exclusive of new construction and improvements) increase at
a percentage greater than the percentage increase in the Consumer Price Index
("CPI"), the maximum authorized tax rate would be reduced by a factor which
would result in the same maximum potential tax revenues to the local taxing
unit as if the valuation of taxable property (less new construction and
improvements) had grown only at the CPI rate instead of at the higher actual
growth rate. The Constitution and state law also, generally, restrict the
increase in the taxable value of real property, subject to ad valorem property
taxes, adjusted for additions and losses, to a percentage which reflects the
percentage increase in the general price level from the previous year unless
ownership of the property is transferred.
NEW JERSEY
New Jersey ended Fiscal Year 1998 with a balance of $1.6 billion in its
General State Funds and is projected to end Fiscal 1999 with a balance of $1.9
billion. The state's economic indicators for the two year period, 1997 through
1998, showed employment growth of 2.1%; personal income growth of 5.5%;
construction job growth of 4.6%; sales of existing homes rising by 14%; and an
unemployment rate dropping to 4.9%.
On February 18, 1999, New Jersey issued $360 million of its tax-exempt
general obligation bonds. Projects supported by general obligation bonds are
of economic, social and environmental importance, including the construction
of correctional and human service facilities, transportation projects, higher
education improvements and environmental abatement projects. On December 30,
1998, the New Jersey Sports and Exposition Authority issued $100 million of
its State Contract Bonds, a portion of which was used to refund its
outstanding State Contract Bonds. On December 16, 1998, the New Jersey
Transportation Trust Fund Authority issued $700 million State Transportation
System Bonds.
In June 1997, the New Jersey Economic Development Authority issued $2.75
billion of State Pension Funding Bonds. Proceeds of this issue were used to
fully fund the state's unfunded accrued pension liability and will result in a
reduction of the General Fund costs for fiscal years 1997 and 1998 of $590
million.
Other State-related obligations include those created pursuant to the New
Jersey Building Authority Act, which has the power to construct facilities for
leasing to the State. On September 1, 1997, the New Jersey Building Authority
issued $224 million in refunding and new state revenue bonds. The funds were
applied for various projects including restoration of the State House Complex,
construction of South Woods State Prison, and several renovations of municipal
buildings.
The authorizing legislation for various state entities provides for
specific budgetary procedures with respect to certain obligations issued by
such entities. Bonds issued pursuant to authorizing legislation of this type
are sometimes referred to as "moral obligation" bonds. There is no statutory
limitation on the amount of moral obligation bonds which may be issued by
eligible state entities. Currently, there are two such entities available for
state appropriations to meet moral obligations. The New Jersey Housing and
Mortgage Finance Agency has not had a deficiency in a debt service reserve
which required New Jersey to appropriate funds. It is anticipated that the
agency's revenue will continue to be sufficient to cover debt service on its
bonds. The state provides the South Jersey Port Corporation with funds to
cover all debt service and property tax requirements when earned revenues are
anticipated to be insufficient to cover these obligations. In the past,
anticipated revenues have, in some cases, been insufficient to cover debt
service and/or all property tax requirements. There are numerous other state-
created entities with outstanding debt. This debt is supported by revenues
derived from or assets of the various projects financed by such entities.
The Local Budget Law imposes specific budgetary procedures upon counties
and municipalities, subject to review by the Director of the Division of Local
Government Services. State law also regulates the issuance of debt by counties
and municipalities by limiting the amount of tax anticipation notes that may
be issued and requiring their repayment within 120 days of the end of the
fiscal year in which they are issued. The Local Bond Law governs the issuance
of bonds and notes and bars the issuance of bonds for the payment of current
expenses or to pay outstanding obligations, except where permitted by the
Local Finance Board. State law also authorizes state officials to supervise
fiscal administration in any municipality facing financial difficulties.
NEW YORK
The state ended its 1998-1999 fiscal year balanced on a cash basis. The
reported General Fund cash balance was $892 million. This does not include
$2.31 billion that the state has deposited into its tax refund reserve to pay
for tax refunds in the 1999-2000 fiscal year. The state projects a General
Fund balanced on a cash basis for the 1999-2000 fiscal year with total General
Fund receipts projected in excess of $38 billion. The state as of May 10,
1999, projected potential budget gaps for the 2000-2001 and 2001-2002 fiscal
years of $1.14 billion and $2.07 billion, respectively. The state in recent
years has shown a consistent pattern of closing previously projected budget
gaps.
The fiscal stability of New York state relates, 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. The extent to which state agencies and
local governments require state assistance to meet their financial
obligations, may adversely affect the ability of the state to meet its own
obligations as they become due or to obtain additional financing
New York City currently projects revenues and expenditures for the 1999
fiscal year balanced in accordance with GAAP with total revenues projected in
excess of $36 billion. The City's financial plan projects a balanced budget
for the 2000 fiscal year and budget gaps of $1.8 billion, $1.9 billion and
$1.8 billion for the 2001, 2002 and 2003 fiscal years, respectively. Like the
state of New York, New York City has shown a pattern of consistently
projecting and closing budget gaps. The City has outlined a gap-closing
program which anticipates additional City agency programs to reduce
expenditures or increase revenues and additional federal and state actions
such as intergovernmental aid to the City. There can be no assurance that
additional gap-closing measures, such as tax increases or reductions in City
services, 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 2000 through 2003 fiscal years.
Implementation of the City's four-year annual financial plan is also
dependent upon the City's ability to market its securities successfully in the
public credit markets including its ability to issue short term notes to
finance its seasonal working capital needs. 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, the New York
City Transitional 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.
The financial condition of the state, City and other New York issuers may
be affected by many economic, social, political and international factors
which cannot be predicted with certainty. These factors include, but may not
be limited to, litigation, collective bargaining with governmental
employees,the ability of issuers to handle the "Year 2000" computer problem,
changes resulting from entitlement program reforms, the receipt of
intergovernmental aid, and the performance of the securities and financial
sector which is disproportionately more significant to the New York economy
than to the national economy. Factors particularly affecting New York City
also include its ability to meet its increasing infrastructure and other
capital needs in the face of rising debt service costs and limited volume
capacity under state law for incurring indebtedness; and costs it may incur to
achieve compliance with laws pertaining to protecting its water supply and the
disposal of its solid waste.
OHIO
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.
Generally, the creditworthiness of obligations of local Ohio issuers is
unrelated to that of obligations of the state of Ohio itself. The state has no
responsibility to make payments on those obligations.
Local school districts in Ohio receive a major portion (state-wide
aggregate approximately 46% in recent years) of their operating moneys from
state subsidiaries, but are dependent on local property taxes, and in 123
districts from voter-authorized income taxes, for significant portions of
their budgets. Litigation, similar to that in other states, has been pending
questioning the constitutionality of Ohio's system of school funding. The
Ohio Supreme Court in 1997 concluded that aspects of the system are
unconstitutional, and ordered the state to provide for and fund a system
complying with the Ohio Constitution. After a further hearing, the trial court
has decided that steps taken to date by the state to enhance school funding
have not met the requirements of the Supreme Court decision; the state has
filed a notice of appeal with the Supreme Court, and the trial court has
issued a stay, pending appeal, of the implementation of the trial court's
order. A small number of the state's 612 local school districts have in any
year required special assistance to avoid year-end deficits.
For those few municipalities and school districts that on occasion have
faced significant financial problems, there are statutory procedures for a
joint state/local commission to monitor the fiscal affairs and for development
of a financial plan to eliminate deficits and cure any defaults. (Similar
procedures have recently been extended to counties and townships.) Since
inception for municipalities in 1979, these "fiscal emergency" procedures have
been applied to 26 cities and villages; for 20 of them the fiscal situation
was resolved and the procedures terminated (one city is in preliminary "fiscal
watch" status). As of July 9, 1999, the school district "fiscal emergency"
provision has been applied to nine districts, and ten were on preliminary
"fiscal watch" status.
PENNSYLVANIA
The General Fund, the state's largest fund, receives all tax receipts,
revenues, federal grants and reimbursements that are not specified by law to
be deposited elsewhere. Debt service on all obligations, except those issued
for highway purposes or for the benefit of other special revenue funds, is
payable from the General Fund. The General Fund closed fiscal year 1998 with a
balance of $1,958.9 million. For 1999, the Commonwealth expects an improvement
in the state's financial position.
Certain state-created agencies have statutory authorization to incur debt
for which no legislation providing for state appropriations to pay debt
service thereon is required. The debt of these agencies is supported by assets
of or revenues derived from the various projects financed; it is not an
obligation of the state. Some of these agencies, however, are indirectly
dependent on state appropriations. state-related agencies and their
outstanding debt as of June 30, 1998 include the Delaware River Joint Toll
Bridge Commission ($51.4 million), the Delaware River Port Authority ($504.1
million), the Pennsylvania Economic Development Financing Authority ($1,106.4
million), the Pennsylvania Energy Development Authority ($43.1 million), the
Pennsylvania Higher Education Assistance Agency ($1,633.8 million), the
Pennsylvania Higher Education Facilities Authority ($3,057.6 million), the
Pennsylvania Industrial Development Authority ($394.5 million), the
Pennsylvania Infrastructure Investment Authority ($196.4 million), the
Pennsylvania Turnpike Commission ($1,127.9 million), the Philadelphia Regional
Port Authority ($59.5 milliion) and the state Public School Building Authority
($343.4 million).
The only obligations of state-created agencies in Pennsylvania which bear
a moral obligation of the state are those issued by the Pennsylvania Housing
Finance Agency, a state-created agency which provides housing for lower and
moderate income families in the state, which had $2,716.4 million in bonds
outstanding at June 30, 1998, and the Hospitals and Higher Education
Facilities Authority of Philadelphia which issued $21.1 million in bonds in
1993.
Pennsylvania is currently involved in certain litigation where adverse
decisions could have an adverse impact on its ability to pay debt service. For
instance, County of Allegheny v. Commonwealth of Pennsylvania involves
litigation regarding the state constitutionality of the statutory scheme for
county funding of the judicial system.
PUERTO RICO, THE U.S. VIRGIN ISLANDS AND GUAM
PUERTO RICO. Puerto Rico has a diversified economy dominated by the
manufacturing and service sectors. The North American Free Trade Agreement
("NAFTA"), which became effective January 1, 1994, has led to loss of lower
wage jobs such as textiles, but economic growth in other areas, particularly
the high technology area has compensated for that loss.
The Commonwealth of Puerto Rico differs from the states in its
relationship with the federal government. Most federal taxes, except those
such as social security taxes that are imposed by mutual consent, are not
levied in Puerto Rico. However, in conjunction with the 1993 U.S. budget plan,
Section 936 of the Code was amended and provided for two alternative
limitations to the Section 936 credit. The first option limited the credit
against such income to 40% of the credit allowable under then current law,
with a five year phase-in period starting at 60% of the allowable credit. The
second option was a wage and depreciation based credit. Additional amendments
to Section 936 in 1996 imposed caps on these credits, beginning in 1998 for
the first option and beginning in 2002 for the second option. More
importantly, the 1996 amendments eliminated both options for taxable years
beginning in 2006.
Also in 1996, a new Section 30A was added to the Internal Revenue Code.
Section 30A permits a "qualifying domestic corporation" that meets certain
gross income tests to claim a credit against the federal income tax imposed on
taxable income derived from sources outside the United States from the active
conduct of a trade or business in Puerto Rico or from the sale of
substantially all the assets used in such a business. Section 30A will be
phased out by January 1, 2006. The Governor of Puerto Rico has proposed that
Congress permanently extend Section 30A until the Puerto Rican economy
achieves certain economic improvements. Similarly, President Clinton proposed
permanent extension of the Section 30A in both his 1998 and 1999 budgets. To
date, however, no action has been taken.
The eventual elimination of tax benefits to those U.S. companies with
operations in Puerto Rico may lead to slower growth in the future. There can
be no assurance that this will not lead to a weakened economy, a lower rating
on Puerto Rico's debt or lower prices for Puerto Rican bonds that may be held
by the Portfolio in the long-term. The government of Puerto Rico has enacted
its own tax incentive programs for both industrial and tourist activities.
Puerto Ricans have periodically considered conversion to statehood and
such a vote is likely again in the future. The statehood proposal was again
defeated in December, 1998.
THE U.S. VIRGIN ISLANDS. The United States Virgin Islands (USVI) is heavily
reliant on the tourism industry, with roughly 43% of non-agricultural
employment in tourist-related trade and services. The tourism industry is
economically sensitive and would likely be adversely affected by a recession
in either the United States or Europe.
An important component of the USVI revenue base is the federal excise tax
on rum exports. Tax revenues rebated by the federal government to the USVI
provide the primary security of many outstanding USVI bonds. Since more than
90% of the rum distilled in the USVI is distilled at one plant, any
interruption in its operations (as occurred after Hurricane Hugo in 1989)
would adversely affect these revenues. Consequently, there can be no assurance
that rum exports to the United States and the rebate of tax revenues to the
USVI will continue at their present levels. The preferential tariff treatment
the USVI rum industry currently enjoys could be reduced under NAFTA. Increased
competition from Mexican rum producers could reduce USVI rum imported to the
U.S., decreasing excise tax revenues generated. The USVI is periodically hit
by hurricanes. Several hurricanes have caused extensive damage, which has had
a negative impact on revenue collections. There is currently no rated,
unenhanced Virgin Islands debt outstanding (although there is unrated debt
outstanding).
GUAM. The U.S. territory of Guam derives a substantial portion of its economic
base from Japanese tourism. With a reduced U.S. military presence on the
island, Guam has relied more heavily on tourism in the past few years. During
its 1997 fiscal year, the government was able to make noticeable progress on
its traditional budgetary problems operating with a balanced budget for that
fiscal year. However, during 1998, the Japanese recession combined with the
impact of typhoon Paka resulting in a budget deficit of $21 million. With
hotels alone accounting for 8.5% of Guam's employment and Japanese tourists
comprising 86% of total visitor arrivals, the Japanese recession and
depreciation of the yen versus the dollar have had a negative impact on the
island's economy. Based on these factors, S&P downgraded Guam's rating to BBB-
from BBB with a negative outlook. There does, however, seem to be some recent
improvement in the Japanese economy and the U.S. government spent an
additional $225 million during 1998 to help rebuild after the typhoon.
<PAGE>
APPENDIX E: TAX EQUIVALENT YIELD TABLES
The tables below give the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields equivalent to those of
tax-exempt bonds yielding from 4% to 7% (6% for Pennsylvania) utilizing the
regular 1999 federal income tax, and state and local tax rates (unless
otherwise noted).
Note: The federal income tax portion of the indicated combined income tax
brackets in the tables does not take into account the effect of a reduction in
the deductibility of itemized deductions (including applicable state and local
taxes) for taxpayers with adjusted gross income in excess of $126,600. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $126,600 and joint
filers with adjusted gross income in excess of $189,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated in the tables.
Yields shown are for illustration purposes only and are not meant to represent
a Fund's actual yield. No assurance can be given that any specific tax exempt
yield will be achieved. While it is expected that each Portfolio will invest
principally in obligations, the interest from which is exempt from the regular
federal income tax and applicable state and local taxes described in the
Prospectus, other income received by a Portfolio and allocated to a Fund may
be taxable. The tables do not take into account state or local taxes, if any,
payable on Fund distributions except for those described in the footnote to
the tables. Also, the interest earned on certain "private activity bonds"
issued after August 7, 1986, while exempt from the regular federal income tax,
is treated as a tax preference item which could subject the recipient to the
AMT. The illustrations assume that the AMT is not applicable and do not take
into account any tax credits that may be available.
The information set forth herein is as of the date of this SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<TABLE>
CALIFORNIA
<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 $ 25,750 Up to $ 43,050 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72
$ 62,451 - $130,250 $104,051 - $158,550 37.42 6.39 7.19 7.99 8.79 9.59 10.39 11.19
$130,251 - $283,150 $158,551 - $283,150 41.95 6.89 7.75 8.61 9.47 10.34 11.20 12.06
Over $283,150 Over $283,150 45.22 7.30 8.21 9.13 10.04 10.95 11.87 12.78
* Net amount subject to federal and California personal income tax after deductions and exemptions.
+ The combined tax brackets are calculated using the highest California state rate within the bracket. Taxpayers with taxable
income within each bracket may have a lower combined tax bracket and taxable equivalent yield than indicated above. The combined
tax brackets assume that California 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 tax bracket and taxable equivalent yield than those
indicated above. The applicable federal tax rates within the brackets set forth above are 15%, 28%, 31%, 36% and 39.6% over the
same ranges of income.
CONNECTICUT
<CAPTION>
COMBINED A FEDERAL AND CONNECTICUT STATE
FEDERAL AND TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN CT STATE 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------ ---------------------- ---------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------ ---------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,750 Up to $ 43,050 18.83% 4.93% 5.54% 6.16% 6.78% 7.39% 8.01% 8.62%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18
$ 62,451 - $130,250 $104,051 - $158,550 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62
$130,251 - $283,150 $158,551 - $283,150 38.88 6.54 7.36 8.18 9.00 9.82 10.63 11.45
Over $283,150 Over $283,150 42.32 6.93 7.80 8.67 9.54 10.40 11.27 12.14
* Net amount subject to federal and Connecticut personal income tax after deductions and exemptions.
+ The combined federal and Connecticut tax brackets are calculated using the highest Connecticut tax rate within each bracket,
reduced by available tax credits. Taxpayers with taxable income within these brackets may have a lower combined tax bracket and
taxable equivalent yield than indicated above. Tax credits reduce the effective Connecticut tax rate for single filers with
taxable income up to $52,500 and joint filers up to $100,500. The combined tax brackets assume that Connecticut taxes are
itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their federal income tax return
will have a higher combined bracket and higher taxable equivalent yield than those indicated above. The applicable federal tax
rates within the brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of income.
FLORIDA
<CAPTION>
YOU ARE IN
THIS
IF THE TAXABLE INCOME ON OR THE TAXABLE INCOME ON FEDERAL IN YOUR BRACKET, A TAX-FREE YIELD OF
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
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,750 Up to $ 43,050 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 62,451 - $130,250 $104,051 - $158,550 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$130,251 - $283,150 $158,551 - $283,150 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $283,150 Over $283,150 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
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:**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,750 Up to $ 43,050 4.89% 5.48% 6.06% 6.65% 7.24% 7.83% 8.42%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 5.77 6.47 7.16 7.85 8.55 9.24 9.94
$ 62,451 - $130,250 $104,051 - $158,550 6.02 6.75 7.47 8.19 8.92 9.64 10.37
$130,251 - $283,150 $158,551 - $283,150 6.49 7.27 8.05 8.83 9.62 10.40 11.18
Over $283,150 Over $283,150 6.88 7.71 8.53 9.36 10.19 11.02 11.84
* Net amount subject to federal personal income tax after deductions and exemptions.
** A Florida intangibles tax on personal property of $1.50 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 $15
annually in intangibles taxes. If the investment yielded 5.5% annually or $550, the intangibles tax as a percentage of income
would be $15/$550 or 2.73%. 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 on a combined federal and Florida state tax
bracket of 37.73% [36% + (1 - .36) X 2.73%] 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.
MASSACHUSETTS
<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 $ 25,750 Up to $ 43,050 20.06% 5.00% 5.63% 6.25% 6.88% 7.51% 8.13% 8.76%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 32.28 5.91 6.65 7.38 8.12 8.86 9.60 10.34
$ 62,451 - $130,250 $104,051 - $158,550 35.11 6.16 6.93 7.70 8.48 9.25 10.02 10.79
$130,251 - $283,150 $158,551 - $283,150 39.81 6.65 7.48 8.31 9.14 9.97 10.80 11.63
Over $283,150 Over $283,150 43.19 7.04 7.92 8.80 9.68 10.56 11.44 12.32
* Net amount subject to federal and Massachusetts personal income tax after deductions and exemptions.
+ The combined tax rates include a Massachusetts tax rate of 5.95% (effective January 1, 1999) 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. The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36%, and 39.6%, over the
same ranges of income.
MICHIGAN
<CAPTION>
A FEDERAL AND MICHIGAN STATE
COMBINED TAX EXEMPT YIELD OF:
SINGLE RETURN JOINT RETURN FEDERAL AND 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ----------------------- ----------------------- MI STATE -------------------------------------------------------------
(TAXABLE INCOME*) TAX BRACKET+ IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
- ------------------------------------------------ ---------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,750 Up to $ 43,050 19.59% 4.97% 5.60% 6.22% 6.84% 7.46% 8.08% 8.71%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 31.89 5.87 6.61 7.34 8.07 8.81 9.54 10.28
$ 62,451 - $130,250 $104,051 - $158,550 34.73 6.13 6.89 7.66 8.43 9.19 9.96 10.72
$130,251 - $283,150 $158,551 - $283,150 39.46 6.61 7.43 8.26 9.08 9.91 10.74 11.56
Over $283,150 Over $283,150 42.86 7.00 7.88 8.75 9.63 10.50 11.38 12.25
* Net amount subject to federal and Michigan personal income tax after deductions and exemptions.
+ The combined tax brackets include a Michigan tax rate of 4.4%, Michigan City income tax rate of 1% (which may vary by city) and
assume that Michigan state and local taxes are itemized deductions for federal income tax purposes. Investors who do not itemize
deductions on their federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those
indicated above. The applicable federal tax rates within the brackets are 15%, 28%, 31%, 36% and 39.6%, over the same ranges of
income.
NEW JERSEY
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:
- ----------------------------------------------- ------------- -------------------------------------------------------------------
Up to $ 25,750 Up to $ 43,050 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78% 8.38%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 31.98 5.88 6.62 7.35 8.09 8.82 9.56 10.29
$ 62,451 - $130,250 $104,051 - $158,550 35.40 6.19 6.97 7.74 8.51 9.29 10.06 10.84
$130,251 - $283,150 $158,551 - $283,150 40.08 6.68 7.51 8.34 9.18 10.01 10.85 11.68
Over $283,150 Over $283,150 43.45 7.07 7.96 8.84 9.73 10.61 11.49 12.38
* Net amount subject to federal and New Jersey personal income tax after deductions and exemptions.
+ The combined federal and New Jersey tax brackets are calculated using the highest New Jersey tax rate applicable within each
bracket. Taxpayers with taxable income within such brackets may have lower combined tax brackets and taxable equivalent yields
than indicated above. The combined tax brackets assume that New Jersey taxes are itemized deductions for federal income tax
purposes. Investors who do not itemize deductions on their federal income tax return will have a higher combined bracket and
higher taxable equivalent yield then those indicated above. The applicable federal tax rates within the brackets are 15%, 28%,
31%, 36% and 39.6%, over the same ranges of income.
NEW YORK
<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 $ 25,750 Up to $ 43,050 23.63% 5.24% 5.89% 6.55% 7.20% 7.86% 8.51% 9.17%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 35.35 6.19 6.96 7.73 8.51 9.28 10.05 10.83
$ 62,451 - $130,250 $104,051 - $158,550 38.04 6.46 7.26 8.07 8.88 9.68 10.49 11.30
$130,251 - $283,150 $158,551 - $283,150 42.53 6.96 7.83 8.70 9.57 10.44 11.31 12.18
Over $283,150 Over $283,150 45.77 7.38 8.30 9.22 10.14 11.06 11.98 12.91
* 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. New York City tax rate is effective with year beginning in 1999.
+ The first combined tax bracket is calculated using the highest state rate (6.85%) and the highest city rate (including
surcharges) within the bracket. Taxpayers with taxable income below the highest dollar amount in the first bracket may have a
lower combined tax bracket and taxable equivalent yield than indicated above. The applicable state and city rates are at their
maximum (6.85% and 4.457%, respectively) throughout all other brackets. 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 table below 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% under the regular 1999 federal income tax and 1998 New York state
income tax laws.
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND NEW YORK STATE 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 $ 25,750 Up to $ 43,050 20.82% 5.05% 5.68% 6.31% 6.95% 7.58% 8.21% 8.84%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 32.93 5.96 6.71 7.46 8.20 8.95 9.69 10.44
$ 62,451 - $130,250 $104,051 - $158,550 35.73 6.22 7.00 7.78 8.56 9.34 10.11 10.89
$130,251 - $283,150 $158,551 - $283,150 40.38 6.71 7.55 8.39 9.23 10.06 10.90 11.74
Over $283,150 Over $283,150 43.74 7.11 8.00 8.89 9.78 10.66 11.55 12.44
* Net amount subject to federal and New York state and personal income tax after deductions and exemptions.
+ The first combined tax bracket is calculated using the highest New York state rate (6.85%) within the bracket. Taxpayers with
taxable income below the highest dollar amount in the first bracket may have a lower combined tax bracket and taxable equivalent
yield than indicated above. The applicable state rate is the maximum rate, 6.85%, throughout all other brackets. 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.
OHIO
<CAPTION>
COMBINED
SINGLE RETURN JOINT RETURN FEDERAL AND A FEDERAL AND OHIO STATE TAX EXEMPT YIELD OF:
- ----------------------- --------------------- OHIO 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 $ 25,750 Up to $ 43,050 19.42% 4.96% 5.58% 6.21% 6.83% 7.45% 8.07% 8.69%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 32.97 5.97 6.71 7.46 8.21 8.95 9.70 10.44
$ 62,451 - $130,250 $104,051 - $158,550 35.76 6.23 7.01 7.78 8.56 9.34 10.12 10.90
$130,251 - $283,150 $158,551 - $283,150 40.80 6.76 7.60 8.45 9.29 10.14 10.98 11.82
Over $283,150 Over $283,150 44.13 7.16 8.05 8.95 9.84 10.74 11.63 12.53
* Net amount subject to federal and Ohio personal income tax after deductions and exemptions.
+ The combined tax brackets are calculated using the highest Ohio state rate within the bracket. The combined tax brackets assume
that Ohio taxes are itemized deductions for federal income tax purposes. Investors who do not itemize deductions on their
federal income tax return will have a higher combined bracket and higher taxable equivalent yield than those indicated above.
The applicable federal tax rates within each of these combined brackets are 15%, 28%, 31%, 36% and 39.6% over the same ranges of
income. These rates are before annual tax roll-backs.
PENNSYLVANIA
<CAPTION>
TAXABLE YIELD NEEDED TO MATCH 6% FREE OF
------------------------------------------------
FEDERAL, STATE,
TAXABLE INCOME FEDERAL FEDERAL, STATE COUNTY AND
- --------------------------------------------------- FEDERAL STATE AND STATE AND COUNTY PHILADELPHIA
SINGLE RETURN JOINT RETURN INCOME TAX INCOME TAX TAXES TAXES (1) TAXES (2)
- -------------------------- ----------------------- ------------- ------------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Up to $ 25,750 Up to $ 43,050 15.00% 2.80% 7.26% 7.80% 8.23%
$ 25,751 - $ 62,450 $ 43,051 - $104,050 28.00 2.80 8.57 9.20 9.72
$ 62,451 - $130,250 $104,051 - $158,550 31.00 2.80 8.95 9.60 10.15
$130,251 - $283,150 $158,551 - $283,150 36.00 2.80 9.65 10.36 10.93
Over $283,150 Over $283,150 39.60 2.80 10.22 10.97 11.59
Equivalent yields are based on a fixed $1,000 investment with all taxes deducted from income. Included in all areas are the
effects of: federal income tax and a 2.8% Pennsylvania income tax. (1) Includes a 4 mil county personal property tax imposed by
most counties; and (2) Includes a 4 mil county personal property tax and a 4.79% Philadelphia school income tax. The equivalent
yields assume that the Pennsylvania state and local taxes referred to above are itemized deductions for federal income tax
purposes. Investors who do not itemize deductions on their federal income tax return will have a higher equivalent yield than
indicated.
</TABLE>
<PAGE>
APPENDIX F: RATINGS
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- ----------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of a Portfolio's
fiscal year end.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short-term credit risk and long-term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short-term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short-term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk 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
that 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: Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus(+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH IBCA
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a credit
within the rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse change could cause these securities to be rated
below investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. Each Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the
issuer's ability to make interest and principal payments.
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF
ADDITIONAL INFORMATION
August 1, 1999
EATON VANCE
NATIONAL LIMITED MATURITY MUNICIPALS FUND
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
(800) 225-6265
This Statement of Additional Information ("SAI") provides general
information about the Fund and the Portfolio. The Fund is a series of Eaton
Vance Investment Trust. Capitalized terms used in this SAI and not otherwise
defined have the meanings given to them in the prospectus. This SAI contains
additional information about:
Page
Strategies and Risks ............................................... 2
Investment Restrictions ............................................ 7
Management and Organization ........................................ 8
Investment Advisory and Administrative Services .................... 12
Other Service Providers ............................................ 13
Purchasing and Redeeming Shares .................................... 14
Sales Charges ...................................................... 15
Performance ........................................................ 19
Taxes .............................................................. 20
Portfolio Security Transactions .................................... 22
Financial Statements ............................................... 24
Appendices:
A: Class A Fees, Performance and Ownership ......................... a-1
B: Class B Fees, Performance and Ownership ......................... b-1
C: Class C Fees, Performance and Ownership ......................... c-1
D: Tax Equivalent Yield Table ...................................... d-1
E: Ratings ......................................................... e-1
THIS 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, 1999, AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS INCORPORATED
HEREIN BY REFERENCE. THIS SAI SHOULD BE READ IN CONJUNCTION WITH SUCH
PROSPECTUS, WHICH MAY BE OBTAINED BY CALLING 1-800-225-6265.
<PAGE>
STRATEGIES AND RISKS
MUNICIPAL OBLIGATIONS. Municipal obligations are issued to obtain funds for
various public and private purposes. Municipal obligations include bonds as
well as tax-exempt commercial paper, project notes and municipal notes such as
tax, revenue and bond anticipation notes of short maturity, generally less
than three years. While most municipal bonds pay a fixed rate of interest
semi-annually in cash, there are exceptions. Some bonds pay no periodic cash
interest, but rather make a single payment at maturity representing both
principal and interest. Bonds may be issued or subsequently offered with
interest coupons materially greater or less than those then prevailing, with
price adjustments reflecting such deviation.
In general, there are three categories of municipal obligations, the
interest on which is exempt from federal income tax and is not a tax
preference item for purposes of the AMT: (i) certain "public purpose"
obligations (whenever issued), which include obligations issued directly by
state and local governments or their agencies to fulfill essential
governmental functions; (ii) certain obligations issued before August 8, 1986
for the benefit of non-governmental persons or entities; and (iii) certain
"private activity bonds" issued after August 7, 1986, which include "qualified
Section 501(c)(3) bonds" or refundings of certain obligations included in the
second category. Interest on certain "private activity bonds" issued after
August 7, 1986 is exempt from regular federal income tax but such interest
(including a distribution by 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 AMT. 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 AMT as
applied to corporations (to the extent not already included in alternative
minimum taxable income as income attributable to private activity bonds). In
assessing the federal income tax treatment of interest on any municipal
obligation, the 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. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects including the
construction or improvement of schools, highways and roads, water and sewer
systems and a variety of other public purposes. The basic security of general
obligation bonds is the issuer's pledge of its faith, credit, and taxing power
for the payment of principal and interest. The taxes that can be levied for
the payment of debt service may be limited or unlimited as to rate and amount.
Revenue bonds are generally secured by the net revenues derived from a
particular facility or group of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Revenue bonds
have been issued to fund a wide variety of capital projects including:
electric, gas, water, sewer and solid waste disposal systems; highways,
bridges and tunnels; port, airport and parking facilities; transportation
systems; housing facilities, colleges and universities and hospitals. Although
the principal security behind these bonds varies widely, many provide
additional security in the form of a debt service reserve fund whose monies
may be used to make principal and interest payments on the issuer's
obligations. Housing finance authorities have a wide range of security
including partially or fully insured, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public projects. In
addition to a debt service reserve fund, some authorities provide further
security in the form of a state's ability (without legal obligation) to make
up deficiencies in the debt service reserve fund. Lease rental revenue bonds
issued by a state or local authority for capital projects are normally secured
by annual lease rental payments from the state or locality to the authority
sufficient to cover debt service on the authority's obligations. Such payments
are usually subject to annual appropriations by the state or locality.
Industrial development and pollution control bonds, although nominally issued
by municipal authorities, are in most cases revenue bonds and are generally
not secured by the taxing power of the municipality, but are usually secured
by the revenues derived by the authority from payments of the industrial user
or users. 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.
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
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, S&P and Fitch represent their opinions as to the quality
of the municipal obligations which they undertake to rate. It should be
emphasized, however, that ratings are based on judgment and are not absolute
standards of quality. Consequently, municipal obligations with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield. In
addition, the market price of 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.
ISSUER CONCENTRATION. 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 industrial revenue bonds might
involve (without limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income available to service its
debt are demand for hospital services, the ability of the hospital to provide
the services required, management capabilities, economic developments in the
service area, efforts by insurers and government agencies to limit rates and
expenses, confidence in the hospital, service area economic developments,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding and possible federal legislation limiting the rates of
increase of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining fuel at reasonable prices and in
achieving timely and adequate rate relief from regulatory commissions, effects
of energy conservation and limitations on the capacity of the capital market
to absorb utility debt.
Industrial development bonds are normally secured only by the revenues
from the project and not by state or local government tax payments, they are
subject to a wide variety of risks, many of which relate to the nature of the
specific project. Generally, IDBs are sensitive to the risk of a slowdown in
the economy.
DURATON. 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 municipal
obligation'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.
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. The obligation of the issuer to meet its obligations
under such leases is often subject to the appropriation by the appropriate
legislative body, on an annual or other basis, of funds for the payment of the
obligations. Investments in municipal leases are thus subject to the risk that
the legislative body will not make the necessary appropriation and the issuer
will not otherwise be willing or able to meet its obligation.
Certain municipal lease obligations owned by 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. The
Portfolio is required to accrue income from zero-coupon bonds on a current
basis, even though it does not receive that income currently in cash and the
Fund is required to distribute its share of the Portfolio's income for each
taxable year. Thus, the Portfolio may have to sell other investments to obtain
cash needed to make income distributions.
CREDIT QUALITY. While municipal obligations rated investment grade or below
and comparable unrated municipal obligations may have some quality and
protective characteristics, these characteristics can be expected to be offset
or outweighed by uncertainties or major risk exposures to adverse conditions.
Lower rated and comparable unrated municipal obligations are subject to the
risk of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to greater price volatility
due to such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Lower rated or unrated municipal obligations are also more likely to react to
real or perceived developments affecting market and credit risk than are more
highly rated obligations, which react primarily to movements in the general
level of interest rates.
Municipal obligations held by 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 after its acquisition,
including defaulted obligations, if such retention is considered desirable by
the investment adviser; provided, however, that holdings of obligations rated
below Baa or BBB will be less than 35% of net assets. In the event the rating
of an obligation held by 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 the Portfolio's credit quality limitations.
In the case of a defaulted obligation, the Portfolio may incur additional
expense seeking recovery of its investment. See "Portfolio of Investments" in
the "Financial Statements" incorporated by reference into this SAI with
respect to any defaulted obligations held by the Portfolio.
The investment adviser seeks to minimize the risks of investing in below
investment grade securities through professional investment analysis and
attention to current developments in interest rates and economic conditions.
When the Portfolio invests in lower rated or unrated municipal obligations,
the achievement of the Portfolio's goals is more dependent on the investment
adviser's ability than would be the case if the Portfolio were investing in
municipal obligations in the higher rating categories. In evaluating the
credit quality of a particular issue, whether rated or unrated, the investment
adviser will normally take into consideration, among other things, the
financial resources of the issuer (or, as appropriate, of the underlying
source of funds for debt service), its sensitivity to economic conditions and
trends, any operating history of and the community support for the facility
financed by the issue, the ability of the issuer's management and regulatory
matters. The investment adviser will attempt to reduce the risks of investing
in the lowest investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and attention
to current developments and trends in the economy and the financial markets.
WHEN-ISSUED SECURITIES. New issues of municipal obligations are sometimes
offered on a "when-issued" basis, that is, delivery and payment for the
securities normally take place within a specified number of days after the
date of 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 may also purchase instruments that
give the Portfolio the option to purchase a municipal obligation when and if
issued.
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. 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.
REDEMPTION, DEMAND AND PUT FEATURES AND PUT OPTIONS. Issuers of municipal
obligations reserve the right to call (redeem) the bond. If an issuer redeems
securities held by the Portfolio during a time of declining interest rates,
the Portfolio may not be able to reinvest the proceeds in securities providing
the same investment return as the securities redeemed. Also, some bonds may
have "put" or "demand" features that allow early redemption by the bondholder.
Longer term fixed-rate bonds may give the holder a right to request redemption
at certain times (often annually after the lapse of an intermediate term).
These bonds are more defensive than conventional long term bonds (protecting
to some degree against a rise in interest rates) while providing greater
opportunity than comparable intermediate term bonds, because the Portfolio may
retain the bond if interest rates decline.
LIQUIDITY AND PROTECTIVE PUT OPTIONS. The Portfolio may enter into a separate
agreement with the seller of the security or some other person granting the
Portfolio the right to put the security to the seller thereof or the other
person at an agreed upon price. 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. 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 or demand features may be taxable.
INVERSE FLOATERS. The Portfolio may invest in municipal securities whose
interest rates bear an inverse relationship to the interest rate on another
security or the value of an index ("inverse floaters"). An investment in
inverse floaters may involve greater risk than an investment in a fixed rate
bond. Because changes in the interest rate on the other security or index
inversely affect the residual interest paid on the inverse floater, the value
of an inverse floater is generally more volatile than that of a fixed rate
bond. Inverse floaters have interest rate adjustment formulas which generally
reduce or, in the extreme, eliminate the interest paid to the portfolio when
short-term interest rates rise, and increase the interest paid to the
Portfolio when short-term interest rates fall. Inverse floaters have varying
degrees of liquidity, and the market for these securities is new and
relatively volatile. These securities tend to underperform the market for
fixed rate bonds in a rising interest rate environment, but tend to outperform
the market for fixed rate bonds when interest rates decline. Shifts in long-
term interest rates may, however, alter this tendency. Although volatile,
inverse floaters typically offer the potential for yields exceeding the yields
available on fixed rate bonds with comparable credit quality and maturity.
These securities usually permit the investor to convert the floating rate to a
fixed rate (normally adjusted downward), and this optional conversion feature
may provide a partial hedge against rising rates if exercised at an opportune
time. Inverse floaters are leveraged because they provide two or more dollars
of bond market exposure for every dollar invested.
ILLIQUID OBLIGATIONS. At times, a substantial portion of the Portfolio's
assets may be invested in securities as to which the Portfolio, by itself or
together with other accounts managed by the investment adviser and its
affiliates, holds a major portion or all of such securities. Under adverse
market or economic conditions or in the event of adverse changes in the
financial condition of the issuer, the Portfolio could find it more difficult
to sell such securities when the investment adviser believes it advisable to
do so or may be able to sell such securities only at prices lower than if such
securities were more widely held. Under such circumstances, it may also be
more difficult to determine the fair value of such securities for purposes of
computing the Portfolio's net asset value.
The secondary market for some municipal obligations issued within a state
(including issues which are privately placed with 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 net assets would be invested in securities that are not
readily marketable. No established resale market exists for certain of the
municipal obligations in which 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.
SECURITIES LENDING. The Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers.
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. Securities
lending involves risks of delay in recovery or even loss of rights on the
securities loaned if the borrower fails financially. The Portfolio has no
present intention of engaging in securities lending.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A change in the level of
interest rates may affect the value of the securities held by the Portfolio
(or of securities that the Portfolio expects to purchase). To hedge against
changes in rates or as a substitute for the purchase of securities, the
Portfolio may enter into (i) futures contracts for the purchase or sale of
debt securities and (ii) futures contracts on securities indices. All futures
contracts entered into by 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 exchange or board of trade. The Portfolio will be
required, in connection with transactions in futures contracts and the writing
of options on futures, to make margin deposits, which will be held by the
Portfolio's custodian for the benefit of the futures commission merchant
through whom the Portfolio engages in such futures and options transactions.
Some futures contracts and options thereon may become illiquid under
adverse market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit transactions in an exchange-traded
instrument, which may make the instrument temporarily illiquid and difficult
to price. Commodity exchanges may also establish daily limits on the amount
that the price of a futures contract or futures option can vary from the
previous day's settlement price. Once the daily limit is reached, no trades
may be made that day at a price beyond the limit. This may prevent the
Portfolio from closing out positions and limiting its losses.
The Portfolio will engage in futures and related options transactions for
bona fide hedging purposes or non-hedging purposes as defined in or permitted
by CFTC regulations. The Portfolio will determine that the price fluctuations
in the futures contracts and options on futures used for hedging purposes are
substantially related to price fluctuations in securities held by the
Portfolio or which it expects to purchase. 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 Code for maintaining
the qualification of the Fund as a regulated investment company for federal
income tax purposes.
ASSET COVERAGE REQUIREMENTS. Transactions involving when-issued securities or
futures contracts and options (other than options that the Portfolio has
purchased) expose the Portfolio to an obligation to another party. The
Portfolio will not enter into any such transactions unless it owns either (1)
an offsetting ("covered") position in securities or other options or futures
contracts, or (2) cash or liquid securities (such as readily marketable
obligations and money market instruments) with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. The
Portfolio will comply with Securities and Exchange Commission ("SEC")
guidelines regarding cover for these instruments and, if the guidelines so
require, set aside cash or liquid securities in a segregated account with its
custodian in the prescribed amount. The securities in the segregated account
will be marked to market daily.
Assets used as cover or held in a segregated account maintained by the
custodian cannot be sold while the position requiring coverage or segregation
is outstanding unless they are replaced with other appropriate assets. As a
result, the commitment of a large portion of the Portfolio's assets to
segregated accounts or to cover could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
DIVERSIFIED STATUS. The Portfolio is a "diversified" investment company under
the 1940 Act. This 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
(which generally is inapplicable because municipal debt obligations are not
voting securities).
TEMPORARY INVESTMENTS. Under unusual market conditions, the Portfolio may
invest temporarily in cash or cash equivalents. Cash equivalents are highly
liquid, short-term securities such as commercial paper, certificates of
deposit, short-term notes and short-term U.S. Government obligations.
PORTFOLIO TURNOVER. The Portfolio may sell (and later purchase) securities in
anticipation of a market decline (a rise in interest rates) or purchase (and
later sell) securities in anticipation of a market rise (a decline in interest
rates). In addition, a security may be sold and another purchased at
approximately the same time to take advantage of what 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 cannot accurately predict its portfolio
turnover rate, but it is anticipated that the annual portfolio turnover rate
will generally not exceed 100% (excluding turnover of securities having a
maturity of one year or less). A 100% annual turnover rate could occur, for
example, if all the securities held by 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.
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 SAI 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
outstanding shares are present or represented at the meeting or (b) more than
50% of the outstanding shares of the Fund. Accordingly, 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 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.
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 with respect to the Portfolio without approval by
the Fund or its other investors. 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 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; or
(b) 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 and commercial paper
issued pursuant to Section 4(2) of said Act that the Board of Trustees of
the Trust or the Portfolio, or its delegate, determines to be liquid. Any
such determination by a delegate will be made pursuant to procedures adopted
by the Board. If the Fund or Portfolio invests in Rule 144A securities, the
level of portfolio illiquidity may be increased to the extent the eligible
buyers became uninterested in purchasing such securities.
Neither the Fund nor the Portfolio will invest 25% or more of its total
assets in any one industry. For purposes of the foregoing policy, securities
of the U.S. Government, its agencies, or instrumentalities are not considered
to represent industries. Municipal obligations backed by the credit of a
governmental entity are also not considered to represent industries. However,
municipal obligations backed only by the assets and revenues of non-
governmental users may for this purpose be deemed to be issued by such non-
governmental users. The foregoing 25% limitation would apply to these issuers.
As discussed in the prospectus and this SAI, the Fund or the Portfolio may
invest more than 25% of its total assets in certain economic sectors, such as
revenue bonds, housing, hospitals and other health care facilities, and
industrial development bonds. The Fund and the Portfolio reserve the right to
invest more than 25% of total assets in each of these sectors.
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 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.
Whenever an investment policy or investment restriction set forth in the
prospectus or in this SAI states a maximum percentage of assets that may be
invested in any security or other asset, or describes a policy regarding
quality standards, such percentage limitation or standard shall be determined
immediately after and as a result of the Fund's or the Portfolio's acquisition
of such security or asset. Accordingly, any later increase or decrease
resulting from a change in values, assets or other circumstances, or any
subsequent rating change made by a rating service, will not compel the Fund or
the Portfolio, as the case may be, to dispose of such security or other asset.
Moreover, the Fund and the Portfolio must always be in compliance with the
limitation on investing in illiquid securities and the borrowing policies set
forth above.
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees and officers of the Trust are responsible for
the overall management and supervision of the Trust's affairs. The Trustees 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 The Eaton Vance Building, 255 State Street, Boston,
Massachusetts 02109. Those Trustees who are "interested persons" of the Trust,
or the Portfolio, as defined in the 1940 Act, are indicated by an asterisk(*).
JESSICA M. BIBLIOWICZ (38), Trustee*
President and Chief Executive Officer of National Financial Partners (a
financial services company) (since April 1999). President and Chief
Operating Officer of John A. Levin & Co. (a registered investment advisor)
(July 1997 to April 1999) and a Director of Baker, Fentress & Company which
owns John A. Levin & Co. (July 1997 to April 1999). Executive Vice President
of Smith Barney Mutual Funds (from July 1994 to June 1997). Elected Trustee
October 30, 1998. Trustee of various investment companies managed by Eaton
Vance or BMR since October 30, 1998.
Address: 1301 Avenue of the Americas, New York, New York 10019
DONALD R. DWIGHT (67), Trustee
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee/Director of the Royce Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (57), Vice President and Trustee*
Chairman, President and Chief Executive Officer of BMR, Eaton Vance, EVC and
EV, and a Director of EVC and EV. Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (63), Trustee
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of the Kobrick-Cendant
Investment Trust (mutual funds). Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 345 Nahatan Street, Westwood, Massachusetts 02090
NORTON H. REAMER (63), Trustee
Chairman of the Board and Chief Executive Officer, United Asset Management
Corporation (a holding company owning institutional investment management
firms). Chairman, President and Director, UAM Funds (mutual funds). Trustee
of various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
LYNN A. STOUT (41), Trustee
Professor of Law, Georgetown University Law Center. Elected Trustee October
30, 1998. Trustee of various investment companies managed by Eaton Vance or
BMR since October 30, 1998.
Address: 600 New Jersey Avenue, NW, Washington, DC 20001
JACK L. TREYNOR (68), Trustee
Investment Adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
THOMAS J. FETTER (55), President
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
WILLIAM H. AHERN, JR. (39), Vice President of the Portfolio
Vice President of BMR and Eaton Vance since January, 1996. Officer of various
investment companies managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (42), Vice President
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (54), Treasurer
Vice President of BMR and Eaton Vance. Officer of various other investment
companies managed by Eaton Vance or BMR.
ALAN R. DYNNER (58), Secretary
Vice President and Chief Legal Officer of BMR, Eaton Vance and EVC since
November 1, 1996. Previously, he was a Partner of the law firm of
Kirkpatrick & Lockhart LLP, New York and Washington, D.C., and was Executive
Vice President of Neuberger & Berman Management, Inc., a mutual fund
management company. Officer of various investment companies managed by Eaton
Vance or BMR.
JANET E. SANDERS (63), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (36), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment companies
managed by Eaton Vance or BMR.
ERIC G. WOODBURY (42), Assistant Secretary
Vice President of BMR and Eaton Vance. Officer of various investment
companies managed by Eaton Vance or BMR.
The Nominating Committee of the Board of Trustees of the Trust and the
Portfolio is comprised of the Trustees who are not "interested persons" as
that term is defined under the 1940 Act ("noninterested Trustees"). The
purpose of the Committee is to recommend to the Board nominees for the
position of noninterested Trustee and to assure that at least a majority of
the Board of Trustees is independent of Eaton Vance and its affiliates.
Messrs. Hayes (Chairman), Dwight and Reamer and Ms. Stout are members of
the Special Committee of the Board of Trustees of the Trust and of the
Portfolio. The purpose of the Special Committee is to consider, evaluate and
make recommendations to the full Board of Trustees concerning (i) all
contractual arrangements with service providers to the Fund and the Portfolio,
including investment advisory (Portfolio only), administrative, transfer
agency, custodial and fund accounting and distribution services, and (ii) all
other matters in which Eaton Vance or its affiliates has any actual or
potential conflict of interest with the Fund, the Portfolio or investors
therein.
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 accountants, and reviewing matters relative
to trading and brokerage policies and practices, accounting and auditing
practices and procedures, accounting records, internal accounting controls,
and the functions performed by the custodian, transfer agent and dividend
disbursing agent of the Trust and of the 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
"Trustees" Plan"). Under the Trustees' 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 Trustees' Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Trustees' Plan
will have a negligible effect on the 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. Neither the Portfolio nor the Trust has a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust and the
Portfolio 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, 1999, the
noninterested Trustees of the Trust and the Portfolio earned the following
compensation in their capacities as Trustees from the Trust and the Portfolio,
and for the year ended December 31, 1998, earned the following compensation in
their capacities as Trustees of the funds in the Eaton Vance fund complex(1):
<TABLE>
<CAPTION>
SOURCE OF JESSICA M. DONALD R. SAMUEL L. NORTON H. LYNN A. JACK L.
COMPENSATION BIBLIOWICZ(6) DWIGHT HAYES, III REAMER STOUT(6) TREYNOR
--------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Trust(2) ........................... $ 644 $ 669 $ 675 $ 623 $ 689 $ 704
Portfolio........................... 239 335(3) 386 374 272 392
Trust and Fund Complex ............. 33,334 160,000(4) 170,000(5) 160,000 32,842 170,000
- ----------
(1) As of August 1, 1999, the Eaton Vance fund complex consists of 154 registered investment companies or series thereof.
(2) The Trust consisted of 10 Funds as of March 31, 1999.
(3) Includes $173 of deferred compensation.
(4) Includes $60,000 of deferred compensation.
(5) Includes $41,563 of deferred compensation.
(6) Ms. Bibliowicz and Ms. Stout were elected Trustees on October 30, 1998.
</TABLE>
ORGANIZATION. The Fund is a series of the Trust, which is organized under
Massachusetts law as a business trust and is operated as an open-end
management investment company. The Fund established multiple classes of shares
on June 27, 1996. The Fund established Class C on April 1, 1998. Class A and
Class B were known as Class II and Class I of the Fund prior to such date.
Class C is the successor to the operations of a separate series of the Trust.
The Trust may issue an unlimited number of shares of beneficial interest
(no par value per share) in one or more series (such as the Fund). The
Trustees of the Trust have divided the shares of the Fund into multiple
classes. Each class represents an interest in the Fund, but is subject to
different expenses, rights and privileges. The Trustees have the authority
under the Declaration of Trust to create additional classes of shares with
differing rights and privileges. When issued and outstanding, shares are fully
paid and nonassessable by the Trust. Shareholders are entitled to one vote for
each full share held. Fractional shares may be voted proportionately. Shares
of the Fund will be voted together except that only shareholders of a
particular class may vote on matters affecting only that class. Shares have no
preemptive or conversion rights and are freely transferable. In the event of
the liquidation of the Fund, shareholders of each class are entitled to share
pro rata in the net assets attributable to that class available for
distribution to shareholders.
The Trustees of the Trust have considered the advantages and disadvantages
of investing the assets of 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 growth in the assets of the Portfolio,
may afford the potential for economies of scale for the Fund and may over time
result in lower expenses for the Fund.
As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time
as less than a majority of the Trustees of the Trust holding office have been
elected by shareholders. In such an event, Trustees then in office will call a
shareholders' meeting for the election of Trustees. Except for the foregoing
circumstances and unless removed by action of the shareholders in accordance
with the Trust's By-laws, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Trust's By-laws provide that no person shall serve as a Trustee if
shareholders holding two-thirds of the outstanding shares have removed him
from that office either by a written declaration filed with the Trust's
custodian or by votes cast at a meeting called for that purpose. The By-laws
further provide that under certain circumstances the shareholders may call a
meeting to remove a Trustee and that the Trust is required to provide
assistance in communication with shareholders about such a meeting.
The Trust's Declaration of Trust may be amended by the Trustees when
authorized by vote of a majority of the outstanding voting securities of the
Trust, the financial interests of which are affected by the amendment. The
Trustees may also amend the Declaration of Trust without the vote or consent
of shareholders to change the name of the Trust or any series or to make such
other changes (such as reclassifying series or classes of shares or
restructuring the Trust) as do not have a materially adverse effect on the
financial interests of shareholders or if they deem it necessary to conform it
to applicable federal or state laws or regulations. The Trust or any series or
class thereof may be terminated by: (1) the affirmative vote of the holders of
not less than two-thirds of the shares outstanding and entitled to vote at any
meeting of shareholders of the Trust or the appropriate series or class
thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the shares of the Trust or a
series or class thereof, provided, however, that, if such termination is
recommended by the Trustees, the vote of a majority of the outstanding voting
securities of the Trust or a series or class thereof entitled to vote thereon
shall be sufficient authorization; or (2) by means of an instrument in writing
signed by a majority of the Trustees, to be followed by a written notice to
shareholders stating that a majority of the Trustees has determined that the
continuation of the Trust or a series or a class thereof is not in the best
interest of the Trust, such series or class or of their respective
shareholders.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Under Massachusetts law, if certain conditions prevail, shareholders of a
Massachusetts business trust (such as the Trust) could be deemed to have
personal liability for the obligations of the Trust. Numerous investment
companies registered under the 1940 Act have been formed as Massachusetts
business trusts, and management is not aware of an instance where such
liability has been imposed. The Trust's Declaration of Trust contains an
express disclaimer of liability on the part of the Fund shareholders and the
Trust's By-laws provide that the Trust shall assume the defense on behalf of
any Fund shareholders. (The Declaration of Trust also contains provisions
limiting the liability of a series or class to that series or class.)
Moreover, the Trust's By-laws also provide for indemnification out of the
property of the Fund of any shareholder held personally liable solely by
reason of being or having been a shareholder for all loss or expense arising
from such liability. The assets of the Fund are readily marketable and will
ordinarily substantially exceed its liabilities. In light of the nature of the
Fund's business and the nature of its assets, management believes that the
possibility of the Fund's liability exceeding its assets, and therefore the
shareholder's risk of personal liability, is remote.
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. 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 of the Portfolio
holding office have been elected by investors. In such an event the Trustees
of the Portfolio then in office will call an investors' meeting for the
election of Trustees. Except for the foregoing circumstances and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust of 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 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.
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 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. 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 such Portfolio is no longer
consistent with the investment objective of the Fund, the Trustees would
consider what action might be taken, including investing the assets of 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 (or the assets of another investor in the Portfolio) from the
Portfolio.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISORY SERVICES. 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.
For a description of the compensation that the Portfolio pays BMR, see the
prospectus. On March 31, 1999, the Portfolio had net assets of $89,966,394.
For the fiscal years ended March 31, 1999, 1998 and 1997, the Portfolio paid
BMR advisory fees of $433,524, $466,594 and $575,268, respectively (equivalent
to 0.48% of the Portfolio's average net assets for each such year).
The Investment Advisory Agreement with BMR continues in effect from year
to year so long as such continuance is approved at least annually (i) by the
vote of a majority of the noninterested Trustees of the Portfolio cast in
person at a meeting specifically called for the purpose of voting on such
approval and (ii) by the Board of Trustees of the Portfolio or by vote of a
majority of the outstanding voting securities of the Portfolio. 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. 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.
ADMINISTRATIVE SERVICES. 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 Administrative
Services 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.
INFORMATION ABOUT BMR AND EATON VANCE. BMR and Eaton Vance are business trusts
organized under Massachusetts law. Eaton Vance, Inc. ("EV") serves as trustee
of BMR and Eaton Vance. BMR, Eaton Vance and EV are wholly-owned subsidiaries
of Eaton Vance Corporation ("EVC"), a Maryland corporation and publicly-held
holding company. EVC through its subsidiaries and affiliates engages primarily
in investment management, administration and marketing activities. The
Directors of EVC are James B. Hawkes, Benjamin A. Rowland, Jr., John G.L.
Cabot, John M. Nelson, Vincent M. O'Reilly and Ralph Z. Sorenson. All of the
issued and outstanding shares of Eaton Vance are owned by EVC. All of the
issued and outstanding shares of BMR are owned by Eaton Vance. All shares of
the outstanding Voting Common Stock of EVC are deposited in a Voting Trust,
the Voting Trustees of which are Messrs. Hawkes and Rowland, Alan R. Dynner,
Thomas E. Faust, Jr., Thomas J. Fetter, Duncan W. Richardson, William M.
Steul, and Wharton P. Whitaker (all of whom are officers of Eaton Vance). The
Voting Trustees have unrestricted voting rights for the election of Directors
of EVC. All of the outstanding voting trust receipts issued under said Voting
Trust are owned by certain of the officers of BMR and Eaton Vance who are also
officers, or officers and Directors of EVC and EV. As indicated under
"Management and Organization", all of the officers of the Trust (as well as
Mr. Hawkes who is also a Trustee) hold positions in the Eaton Vance
organization.
EXPENSES. The Fund and Portfolio are responsible for all expenses not
expressly stated to be payable by another party (such as the investment
adviser under the Investment Advisory Agreement, Eaton Vance under the
Administrative Services Agreement or the principal underwriter under the
Distribution Agreement). In the case of expenses incurred by the Trust, the
Fund is responsible for its pro rata share of those expenses. The only
expenses of the Fund allocated to a particular class are those incurred under
the Distribution or Service Plan applicable to that class and those resulting
from the fee paid to the principal underwriter for repurchase transactions.
OTHER SERVICE PROVIDERS
PRINCIPAL UNDERWRITER. Eaton Vance Distributors, Inc. ("EVD"), The Eaton Vance
Building, 255 State Street, Boston, MA 02109, is the Fund's principal
underwriter. The principal underwriter acts as principal in selling shares
under a Distribution Agreement with the Trust. The expenses of printing copies
of prospectuses used to offer shares and other selling literature and of
advertising are borne by the principal underwriter. The fees and expenses of
qualifying and registering and maintaining qualifications and registrations of
the Fund and its shares under federal and state securities laws are borne by
the Fund. The Distribution Agreement as it applies to Class A shares is
renewable annually by the Board of Trustees of the Trust (including a majority
of the noninterested Trustees), may be terminated on six months' notice by
either party and is automatically terminated upon assignment. The Distribution
Agreement as it applies to Class B and Class C shares is renewable annually by
the Trust's Board of Trustees (including a majority of the noninterested
Trustees who have no direct or indirect financial interest in the operation of
the Distribution Plan or the Distribution Agreement), may be terminated on
sixty days' notice either by such Trustees or by vote of a majority of the
outstanding shares of the relevant class or on six months' notice by the
principal underwriter, and is automatically terminated upon assignment. The
principal underwriter distributes shares on a "best efforts" basis under which
it is required to take and pay for only such shares as may be sold. The
principal underwriter allows investment dealers discounts from the applicable
public offering price which are alike for all investment dealers. See "Sales
Charges." EVD is a wholly-owned subsidiary of EVC. Mr. Hawkes is a Vice
President and Director and Messrs. Dynner and O'Connor are Vice Presidents of
EVD.
CUSTODIAN. Investors Bank & Trust Company ("IBT"), 200 Clarendon Street,
Boston, MA 02116, serves as custodian to the 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 Portoflio 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 Trust and the Portfolio. IBT also
provides services in connection with the preparation of shareholder reports
and the electronic filing of such reports with the SEC. EVC and its affiliates
and their officers and employees from time to time have transactions with
various banks, including IBT. It is Eaton Vance's opinion that the terms and
conditions of such transactions were not and will not be influenced by
existing or potential custodial or other relationships between the Fund or the
Portfolio and such banks.
INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 200 Berkeley Street, Boston,
MA 02116, are independent 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 SEC.
TRANSFER AGENT. First Data Investor Services Group, P.O. Box 5123,
Westborough, MA 01581-5123, serves as transfer and dividend disbursing agent
for the Fund.
PURCHASING AND REDEEMING SHARES
CALCULATION OF NET ASSET VALUE. The net asset value of the Portfolio is
computed by IBT (as agent and custodian for the Portfolio) by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch as
the market for municipal obligations is a dealer market with no central
trading location or continuous quotation system, it is not feasible to obtain
last transation prices for most municipal obligations held by the Portfolio,
and such obligations, including those purchased on a when-issued basis, will
normally be valued on the basis of valuations furnished by a pricing service.
The pricing service uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities,
various relationships between securities, and yield to maturity in determining
value. Taxable obligations for which price quotations are readily available
normally will be valued at the mean between the latest available bid and asked
prices. Open futures positions on debt securities are valued at the most
recent settlement prices, unless such price does not reflect the fair value of
the contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at fair
value using methods determined in good faith by or at the direction of the
Trustees of the Portfolio. The Fund and the Portfolio will be closed for
business and will not price their respective shares or interests on the
following business holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the Exchange is open for trading
("Portfolio Business Day") as of the close of regular trading on the Exchange
(the "Portfolio Valuation Time"). The value of each investor's interest in the
Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage, determined on the prior Portfolio Business Day,
which represented that investor's share of the aggregate interests in the
Portfolio on such prior day. Any additions or withdrawals for the current
Portfolio Business Day will then be recorded. Each investor's percentage of
the aggregate interest in the Portfolio will then be recomputed as a
percentage equal to a fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of the Portfolio Valuation Time on
the prior Portfolio Business Day plus or minus, as the case may be, the amount
of any additions to or withdrawals from the investor's investment in the
Portfolio on the current Portfolio Business Day and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of the Portfolio
Valuation Time on the prior Portfolio Business Day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investment in the Portfolio on the current Portfolio Business Day by all
investors in the Portfolio. The percentage so determined will then be applied
to determine the value of the investor's interest in the Portfolio for the
current Portfolio Business Day.
ADDITIONAL INFORMATION ABOUT PURCHASES. Fund shares are continuously offered
through investment dealers which have entered agreements with the principal
underwriter. The public offering price is the net asset value next computed
after receipt of the order, plus, in the case of Class A shares, a variable
percentage (sales charge) depending upon the amount of purchase as indicated
by the sales charge table set forth in the prospectus. The sales charge is
divided between the principal underwriter and the investment dealer. The
sales charge table is applicable to purchases of a Fund alone or in
combination with purchases of certain other funds offered by the principal
underwriter, made at a single time by (i) an individual, or an individual, his
spouse and their children under the age of twenty-one, purchasing shares for
his or their own account, and (ii) a trustee or other fiduciary purchasing
shares for a single trust estate or a single fiduciary account. The table is
also presently applicable to (1) purchases of Class A shares pursuant to a
written Statement of Intention; or (2) purchases of Class A shares pursuant to
the Right of Accumulation and declared as such at the time of purchase. See
"Sales Charges".
SUSPENSION OF SALES. The Trust may, in its absolute discretion, suspend,
discontinue or limit the offering of one or more of its classes of shares at
any time. In determining whether any such action should be taken, the Trust's
management intends to consider all relevant factors, including (without
limitation) the size of the Fund or class, the investment climate and market
conditions, the volume of sales and redemptions of shares, and in the case of
Class B and Class C shares, the amount of uncovered distribution charges of
the principal underwriter. The Class B and Class C Distribution Plans may
continue in effect and payments may be made under the Plans following any such
suspension, discontinuance or limitation of the offering of shares; however,
there is no contractual obligation to continue any Plans for any particular
period of time. Suspension of the offering of shares would not, of course,
affect a shareholder's ability to redeem shares.
ACQUIRING FUND SHARES IN EXCHANGE FOR SECURITIES. IBT, as escrow agent, will
receive securities acceptable to Eaton Vance, as administrator, in exchange
for Fund shares. The minumum value of securities (or securities and cash)
accepted for deposit is $5,000. Securities accepted will be sold on the day of
their receipt or as soon thereafter as possible. The number of Fund shares to
be issued in exchange for securities will be the aggregate proceeds from the
sale of such securities, divided by the applicable public offering price of
Class A shares or net asset value of Class B and Class C shares on the day
such proceeds are received. Eaton Vance will use reasonable efforts to obtain
the then current market price for such securities but does not guarantee the
best available price. Eaton Vance will absorb any transaction costs, such as
commissions, on the sale of the securities. Securities determined to be
acceptable should be transferred via book entry or physically delivered, in
proper form for transfer, through an investment dealer, together with a
completed and signed Letter of Transmittal in approved form (available from
investment dealers). Investors who are contemplating an exchange of securities
for shares, or their representatives, must contact Eaton Vance to determine
whether the securities are acceptable before forwarding such securities. Eaton
Vance reserves the right to reject any securities. Exchanging securities for
shares may create a taxable gain or loss. Each investor should consult his or
her tax adviser with respect to the particular federal, state and local tax
consequences of exchanging securities.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. The right to redeem shares of the
Fund can be suspended and the payment of the redemption price deferred when
the Exchange is closed (other than for customary weekend and holiday
closings), during periods when trading on the Exchange is restricted as
determined by the SEC, or during any emergency as determined by the SEC which
makes it impracticable for the Portfolio to dispose of its securities or value
its assets, or during any other period permitted by order of the SEC for the
protection of investors.
While normally payments will be made in cash for redeemed shares, the
Trust, subject to compliance with applicable regulations, has reserved the
right to pay the redemption price of shares of the Fund, either totally or
partially, by a distribution in kind of readily marketable securities
withdrawn 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.
Due to the high cost of maintaining small accounts, the Trust reserves the
right to redeem accounts with balances of less than $750. Prior to such a
redemption, shareholders will be given 60 days' written notice to make an
additional purchase. However, no such redemption would be required by the
Trust if the cause of the low account balance was a reduction in the net asset
value of shares. No CDSC will be imposed with respect to such involuntary
redemptions.
SYSTEMATIC WITHDRAWAL PLAN. The transfer agent will send to the shareholder
regular monthly or quarterly payments of any permitted amount designated by
the shareholder based upon the value of the shares held. The checks will be
drawn from share redemptions and hence, may require the recognition of taxable
gain or loss. Income dividends and capital gains distributions in connection
with withdrawal plan accounts will be credited at net asset value as of the
record date for each distribution. Continued withdrawals in excess of current
income will eventually use up principal, particularly in a period of declining
market prices. A shareholder may not have a withdrawal plan in effect at the
same time he or she has authorized Bank Automated Investing or is otherwise
making regular purchases of Fund shares. The shareholder, the transfer agent
or the principal underwriter will be able to terminate the withdrawal plan at
any time without penalty.
SALES CHARGES
DEALER COMMISSIONS. The principal underwriter may, from time to time, at its
own expense, provide additional incentives to investment dealers which employ
registered representatives who sell Fund shares and/or shares of other funds
distributed by the principal underwriter. In some instances, such additional
incentives may be offered only to certain investment dealers whose
representatives sell or are expected to sell significant amounts of shares. In
addition, the principal underwriter may from time to time increase or decrease
the sales commissions payable to investment dealers. The principal underwriter
may allow, upon notice to all investment dealers with whom it has agreements,
discounts up to the full sales charge during the periods specified in the
notice. During periods when the discount includes the full sales charge, such
investment dealers may be deemed to be underwriters as that term is defined in
the Securities Act of 1933.
SALES CHARGE WAIVERS. Class A shares may be sold at net asset value to current
and retired Directors and Trustees of Eaton Vance funds, including the
Portfolio; to clients and current and retired officers and employees of Eaton
Vance, its affiliates and other investment advisers of Eaton Vance sponsored
funds; to officers and employees of IBT and the transfer agent; to persons
associated with law firms, accounting firms and consulting firms providing
services to Eaton Vance and the Eaton Vance Funds; and to such persons'
spouses, parents, siblings and children and their beneficial accounts. Such
shares may also be issued at net asset value (1) in connection with the merger
of an investment company (or series or class thereof) with the Fund (or class
thereof), (2) to investors making an investment as part of a fixed fee program
whereby an entity unaffiliated with the investment adviser provides multiple
investment services, such as management, brokerage and custody, and (3) to
investment advisors, financial planners or other intermediaries who place
trades for their own accounts or the accounts of their clients and who charge
a management, consulting or other fee for their services; clients of such
investment advisors, financial planners or other intermediaries who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisor, financial planner or other intermediary on the
books and records of the broker or agent. Class A shares may also be sold at
net asset value to registered representatives and employees of investment
dealers and bank employees who refer customers to registered representatives
of investment dealers. Class A shares may be sold at net asset value to any
investment advisory, agency, custodial or trust account managed or
administered by Eaton Vance or by any parent, subsidiary or other affiliate of
Eaton Vance. Class A shares are offered at net asset value to the foregoing
persons and in the foregoing situations because either (i) there is no sales
effort involved in the sale of shares or (ii) the investor is paying a fee
(other than the sales charge) to the investment dealer involved in the sale.
STATEMENT OF INTENTION. If it is anticipated that $100,000 or more of Class A
shares and shares of other funds exchangeable for Class A shares of another
Eaton Vance fund will be purchased within a 13-month period, a Statement of
Intention should be signed so that shares may be obtained at the same reduced
sales charge as though the total quantity were invested in one lump sum.
Shares held under Right of Accumulation (see below) as of the date of the
Statement will be included toward the completion of the Statement. The
Statement authorizes the transfer agent to hold in escrow sufficient shares
(5% of the dollar amount specified in the Statement) which can be redeemed to
make up any difference in sales charge on the amount intended to be invested
and the amount actually invested. Execution of a Statement does not obligate
the shareholder to purchase or the Fund to sell the full amount indicated in
the Statement, and should the amount actually purchased during the 13-month
period be more or less than that indicated on the Statement, price adjustments
will be made. Any investor considering signing a Statement of Intention should
read it carefully.
RIGHT OF ACCUMULATION. The applicable sales charge level for the purchase of
Class A shares is calculated by taking the dollar amount of the current
purchase and adding it to the value (calculated at the maximum current
offering price) of the Class A shares the shareholder owns in his or her
account(s) in the Fund, and shares of other funds exchangeable for Class A
shares. The sales charge on the shares being purchased will then be at the
rate applicable to the aggregate. Shares purchased (i) by an individual, his
or her spouse and their children under the age of twenty-one, and (ii) by a
trustee, guardian or other fiduciary of a single trust estate or a single
fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for the Right of Accumulation and if qualifying, the
applicable sales charge level. For any such discount to be made available, at
the time of purchase a purchaser or his or her investment dealer must provide
the principal underwriter (in the case of a purchase made through an
investment dealer) or the transfer agent (in the case of an investment made by
mail) with sufficient information to permit verification that the purchase
order qualifies for the accumulation privilege. Confirmation of the order is
subject to such verification. The Right of Accumulation privilege may be
amended or terminated at any time as to purchases occurring thereafter.
CONVERSION FEATURE. Class B shares held for the longer of (i) four years or
(ii) the time at which the CDSC applicable to such shares expires (the
"holding period") will automatically convert to Class A shares. Such
conversion will occur on or about the eighteenth day of the month in which the
holding period expires. For purposes of this conversion, all distributions
paid on Class B shares which the shareholder elects to reinvest in Class B
shares will be considered to be held in a separate sub-account. Upon the
conversion of Class B shares not acquired through the reinvestment of
distributions, a pro rata portion of the Class B shares held in the sub-
account will also convert to Class A shares. This portion will be determined
by the ratio that the Class B shares being converted bear to the total of
Class B shares (excluding shares acquired through reinvestment) in the
account. This conversion feature is subject to the continuing availability of
a ruling from the Internal Revenue Service or an opinion of counsel that the
conversion is not taxable for federal income tax purposes.
DISTRIBUTION AND SERVICE PLANS. The Trust has adopted a Service Plan (the
"Class A Plan") for the Fund's Class A shares that is designed to meet the
service fee requirements of the sales charge rule of the National Association
of Securities Dealers, Inc. (the "NASD"). (Management believes service fee
payments are not distribution expenses governed by Rule 12b-1 under the 1940
Act, but has chosen to have the Plan approved as if that Rule were
applicable.) The Class A Plan provides that the Class A may make service fee
payments for personal services and/or the maintenance of shareholder accounts
to the principal underwriter, investment dealers and other persons in amounts
not exceeding .25% of its average daily net assets for any fiscal year. The
Trustees of the Trust have initially implemented the Class A Plan by
authorizing Class A to make quarterly service fee payments to the principal
underwriter and investment dealers in amounts not expected to exceed .15% of
its average daily net assets for any fiscal year which is based on the value
of Class A shares sold by such persons and remaining outstanding for at least
twelve months. However, the Class A Plan authorizes the Trustees of the Trust
to increase payments without action by Class A shareholders, provided that the
aggregate amount of payments made in any fiscal year does not exceed .25% of
average daily net assets. For the service fees paid by Class A shares, see
Appendix A.
The Trust has also adopted compensation-type Distribution Plans ("Class B
and Class C Plans") pursuant to Rule 12b-1 under the 1940 Act for the Fund's
Class B and Class C shares. The Class B and Class C Plans are designed to
permit an investor to purchase shares through an investment dealer without
incurring an initial sales charge and at the same time permit the principal
underwriter to compensate investment dealers in connection therewith. The
Class B and Class C Plans provide that the Fund will pay sales commissions and
distribution fees to the principal underwriter only after and as a result of
the sale of Class B shares of the Fund. On each sale of Fund shares (excluding
reinvestment of distributions), the Fund will pay the principal underwriter
amounts representing (i) sales commissions equal to 5% for Class B shares and
6.25% for Class C shares 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. To pay these amounts, each Class pays the principal underwriter a
fee, accrued daily and paid monthly, at an annual rate not exceeding .75% of
its average daily net assets to finance the distribution of its shares. Such
fees compensate the principal underwriter for sales commissions paid by it to
investment dealers on the sale of shares and for interest expenses. For sales
of Class B shares, the principal underwriter uses its own funds to pay sales
commissions (except on exchange transactions and reinvestments) to investment
dealers at the time of sale equal to 4% of the purchase price of the Class B
shares sold by such dealers. For Class C shares, the principal underwriter
currently expects to pay to an investment dealer (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 dealer, and (b) monthly sales
commissions approximately equivalent to 1/12 of .75% of the value of shares
sold by such dealer and remaining outstanding for at least one year. During
the first year after a purchase of Class C shares, the principal underwriter
will retain the sales commission as reimbursement for the sales commissions
paid to investment dealers at the time of sale. CDSCs paid to the principal
underwriter will be used to reduce amounts owed to it. The Class B and Class C
Plans provide that the Fund will make no payments to the principal underwriter
in respect of any day on which there are no outstanding uncovered distribution
charges of the principal underwriter. CDSCs and accrued amounts will be paid
by the Trust to the principal underwriter whenever there exist uncovered
distribution charges. Because payments to the principal underwriter under the
Class B and Class C Plans are limited, uncovered distribution charges (sales
commissions paid by the principal underwriter plus interest, less the above
fees and CDSCs received by it) may exist indefinitely. For the sales
commissions and CDSCs paid on (and uncovered distribution charges of) Class B
and Class C shares, see Appendix B and Appendix C, respectively.
In calculating daily the amount of uncovered distribution charges,
distribution charges will include the aggregate amount of sales commissions
and distribution fees theretofore paid plus the aggregate amount of sales
commissions and distribution fees which the principal underwriter is entitled
to be paid under the Plan since its inception. Payments theretofore paid or
payable under the Class B and Class C Plans by the Trust to the principal
underwriter and CDSCs theretofore paid or payable to the principal underwriter
will be subtracted from such distribution charges; if the result of such
subtraction is positive, a distribution fee (computed at 1% over the prime
rate then reported in The Wall Street Journal) will be computed on such amount
and added thereto, with the resulting sum constituting the amount of
outstanding uncovered distribution charges with respect to such day. The
amount of outstanding uncovered distribution charges of the principal
underwriter calculated on any day does not constitute a liability recorded on
the financial statements of the Fund.
The amount of uncovered distribution charges of the principal underwriter
at any particular time depends upon various changing factors, including the
level and timing of sales of shares, the nature of such sales (i.e., whether
they result from exchange transactions, reinvestments or from cash sales
through investment dealers), the level and timing of redemptions of shares
upon which a CDSC will be imposed, the level and timing of redemptions of
shares upon which no CDSC will be imposed (including redemptions of shares
pursuant to the exchange privilege which result in a reduction of uncovered
distribution charges), changes in the level of the net assets of the Class,
and changes in the interest rate used in the calculation of the distribution
fee under the Class B and Class C Plans.
The Class B and Class C Plans also authorizes each Class to make payments
of service fees to the principal underwriter, investment dealers and other
persons in amounts not exceeding .25% of its average daily net assets for
personal services, and/or the maintenance of shareholder accounts. The
Trustees of the Trust have initially implemented this provision of the Class B
and Class C Plans by authorizing each Class B and Class C to make quarterly
service fee payments to the principal underwriter and investment dealers in
amounts not expected to exceed .15% of the average daily net assets for any
fiscal year which is based on the value of Class B and Class C shares sold by
such persons and remaining outstanding for at least 12 months. This fee is
paid quarterly in arrears based on the value of Class B shares sold by such
persons and remaining outstanding for at least twelve months. For Class C,
investment dealers currently receive (a) a service fee (except on exchange
transactions and reinvestments) at the time of sale equal to .15% of the
purchase price of the Class C shares sold by such dealer, and (b) monthly
service fees approximately equivalent to 1/12 of .15% of the value of Class C
shares sold by such dealer and remaining outstanding for at least one year.
During the first year after a purchase of Class C shares, the principal
underwriter will retain the service fee as reimbursement for the service fee
payment made to investment dealers at the time of sale. For the service fees
paid by Class B and Class C shares, see Appendix B and Appendix C,
respectively.
Currently, payments of sales commissions and distribution fees and of
service fees may equal 1% of a Class's average daily net assets per annum. The
Trust believes that the combined rate of all these payments may be higher than
the rate of payments made under distribution plans adopted by other investment
companies pursuant to Rule 12b-1. Although the principal underwriter will use
its own funds (which may be borrowed from banks) to pay sales commissions at
the time of sale, it is anticipated that the Eaton Vance organization will
profit by reason of the operation of the Class B and Class C Plans through an
increase in the Fund's assets (thereby increasing the advisory fee payable to
BMR by the Portfolio) resulting from sale of shares and through the amounts
paid to the principal underwriter, including CDSCs, pursuant to the Plans. The
Eaton Vance organization may be considered to have realized a profit under the
Class B and Class C Plans if at any point in time the aggregate amounts
theretofore received by the principal underwriter pursuant to the Class B and
Class C Plans and from CDSCs have exceeded the total expenses theretofore
incurred by such organization in distributing shares. Total expenses for this
purpose will include an allocable portion of the overhead costs of such
organization and its branch offices, which costs will include without
limitation leasing expense, depreciation of building and equipment, utilities,
communication and postage expense, compensation and benefits of personnel,
travel and promotional expense, stationery and supplies, literature and sales
aids, interest expense, data processing fees, consulting and temporary help
costs, insurance, taxes other than income taxes, legal and auditing expense
and other miscellaneous overhead items. Overhead is calculated and allocated
for such purpose by the Eaton Vance organization in a manner deemed equitable
to the Trust.
The Class A, Class B and Class C Plans continue in effect from year to
year so long as such continuance is approved at least annually by the vote of
both a majority of (i) the noninterested Trustees of the Trust who have no
direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan (the "Plan Trustees") and (ii) all of the
Trustees then in office. Each Plan may be terminated at any time by vote of a
majority of the Plan Trustees or by a vote of a majority of the outstanding
voting securities of the applicable Class. Each Plan requires quarterly
Trustee review of a written report of the amount expended under the Plan and
the purposes for which such expenditures were made. The Plans may not be
amended to increase materially the payments described therein without approval
of the shareholders of the affected Class and the Trustees. So long as a Plan
is in effect, the selection and nomination of the noninterested Trustees shall
be committed to the discretion of such Trustees. The Class A, Class B and
Class C Plans were approved by the Trustees, including the Plan Trustees, on
June 23, 1997.
The Trustees of the Trust believe that each Plan will be a significant
factor in the expected growth of each Fund's assets, and will result in
increased investment flexibility and advantages which have benefitted and will
continue to benefit the Fund and its shareholders. Payments for sales
commissions and distribution fees made to the principal underwriter under the
Class B and Class C Plans will compensate the principal underwriter for its
services and expenses in distributing those classes of shares. Service fee
payments made to the principal underwriter and investment dealers provide
incentives to provide continuing personal services to investors and the
maintenance of shareholder accounts. By providing incentives to the principal
underwriter and investment dealers, each Plan is expected to result in the
maintenance of, and possible future growth in, the assets of the Fund. Based
on the foregoing and other relevant factors, the Trustees of the Trust have
determined that in their judgment there is a reasonable likelihood that each
Plan will benefit the Fund and its shareholders.
PERFORMANCE
Average annual total return is determined separately for each Class of the
Fund by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation, and distributions paid and reinvested) for the stated period and
annualizing the result. The calculation assumes, (i) that all distributions
are reinvested at net asset value on the reinvestment dates during the period,
(ii) the deduction of the maximum initial sales charge from the initial $1,000
purchase order for Class A shares, (iii) a complete redemption of the
investment and, (iv) the deduction of any CDSC at the end of the period. The
Fund may also publish total return figures for each Class based on reduced
sales charges or at net asset value. These returns would be lower if the full
sales charge was imposed. For information concerning the total return of the
Classes of the Fund, see Appendix A, Appendix B and Appendix C.
Yield is computed separately for each Class of the Fund pursuant to a
standardized formula by dividing net investment income per share earned during
a recent thirty-day period by the maximum offering price (including the
maximum initial sales charge for Class A shares) per share on the last day of
the period and annualizing the resulting figure. Net investment income per
share is calculated from the yields to maturity of all debt obligations held
by the Portfolio based on prescribed methods, reduced by accrued Fund and
Class expenses for the period with the resulting number being divided by the
average daily number of Class shares outstanding and entitled to receive
distributions during the period. The yield figure does not reflect the
deduction of any CDSCs which (if applicable) are imposed on certain
redemptions at the rates set forth under "Sales Charges" in the prospectus.
Yield calculations assume the current maximum sales charge for Class A shares
set forth under "Sales Charges" in the prospectus. (Actual yield may be
affected by variations in sales charges on investments.) A taxable-equivalent
yield is computed by dividing the tax-exempt yield by one minus a stated rate.
The Fund's performance may be compared in publications to the performance
of various indices and investments for which reliable data is available, and
to averages, performance rankings, or other information prepared by recognized
mutual fund statistical services. The Fund's performance may differ from that
of other investors in the Portfolio, including other investment companies.
The Trust (or Principal Underwriter) may provide investors with
information on municipal bond investing, which may include comparative
performance information, evaluations of Fund performance, ratings, charts and/
or illustrations prepared by independent sources, (such as Lipper Inc.,
Wiesenberger, Morningstar, Inc., The Bond Buyer, the Federal Reserve Board or
The Wall Street Journal). The Trust may also refer in investor publications to
Tax Freedom Day, as computed by the Tax Foundation, Washington, DC 20005, to
help illustrate the value of tax free investing, as well as other tax-related
information. Information, charts and illustrations showing the effects of
inflation and taxes (including their effect on the dollar and the return on
various investments) and compounding earnings may also be included in
advertisements and materials furnished to present and prospective investors.
Information about portfolio allocation and holdings of 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.
Comparative information about the yield 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. Such information may also compare the taxable equivalent yield
(or value) of the Fund to the after-tax yield (or value) of such other
investment vehicles. Such information may be in the form of hypothetical
illustrations. A bank certificate of deposit, unlike the Fund's shares, pays a
fixed rate of interest and entitles the depositor to receive the face amount
of the certificate of deposit at maturity. A bank money market deposit account
is a form of savings account which pays a variable rate of interest. Unlike
the Fund's shares, bank certificates of deposit and bank money market deposit
accounts are insured by the Federal Deposit Insurance Corporation. A money
market mutual fund is designed to maintain a constant value of $1.00 per share
and, thus, a money market fund's shares are subject to less price fluctuation
than the Fund's shares.
The average rates of return of money market mutual funds, certificates of
deposit and bank money market deposit accounts referred to in advertisements,
supplemental sales literature or communications of the Fund will be based on
rates published by the Federal Reserve Bank, Donoghues Money Fund Averages,
RateGram or The Wall Street Journal.
Information used in advertisements and in materials provided to present
and prospective shareholders may include descriptions of Eaton Vance and other
Fund and Portfolio service providers, their investment styles, other
investment products, personnel and Fund distribution channels.
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
-- cost associated with aging parents;
-- funding a college education (including its actual and estimated
cost);
-- health care expenses (including actual and projected expenses);
-- long-term disabilities (including the availability of, and coverage
provided by, disability insurance); and
-- retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets).
Such information may also address different methods for saving money and
the results of such methods, as well as the benefits of investing in municipal
bond funds. Such information may describe the following advantages of
investing in a municipal bond mutual fund versus individual municipal bonds:
regular monthly income; free reinvestment of distributions; potential for
increased income; bond diversification; liquidity; low-cost easy access; and
active management and in depth credit analysis by investment professionals. In
addition, by investing in a municipal bond fund instead of individual bonds,
an investor can avoid dealing with the complexities of the municipal bond
market, while benefitting from the market access and lower transactions costs
enjoyed by municipal bond funds.
The Trust (or Principal Underwriter) may provide information about Eaton
Vance, its affiliates and other investment advisers to the funds in the Eaton
Vance Family of Funds in sales material or advertisements provided to
investors or prospective investors. Such material or advertisements may also
provide information on the use of investment professionals by such investors.
TAXES
Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund has elected to be treated and intends to qualify
each year as a regulated investment company ("RIC") under the Code.
Accordingly, the Fund intends to satisfy certain requirements relating to
sources of its income and diversification of its assets and to distribute
substantially all of its ordinary income (including tax-exempt income) and net
income (after reduction by any available capital loss carryforwards) in
accordance with the timing requirements imposed by the Code, so as to maintain
its RIC status and to avoid paying any federal income or excise tax. The Fund
so qualified for its fiscal year ended March 31, 1999. 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 also satisfy these requirements. 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 (i) will be deemed to own its
proportionate share of each of the assets of the Portfolio and (ii) will be
entitled to the gross income of the Portfolio attributable to such share.
In order to avoid incurring a federal excise tax obligation, 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 its capital gain
net income (which is the excess of its realized capital gains over its
realized capital losses), generally computed on the basis of the one-year
period ending on October 31 of such year, after reduction by (i) any available
capital loss carryforwards and (ii) 100% of any income from the prior year (as
previously computed) that was not paid out during such year and on which the
Fund paid no federal income tax. Under current law, provided that the Fund
qualifies as a RIC and the Portfolio is treated as a partnership for
Massachusetts and federal tax purposes, neither the Fund nor the Portfolio
should be liable for any income, corporate excise or franchise tax in the
Commonwealth of Massachusetts.
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 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 that the
issuers of these securities default on their obligations pertaining thereto.
The Code is not entirely clear regarding the federal income tax consequences
of the Portfolio's taking certain positions in connection with ownership of
such distressed securities. For example, the Code is unclear regarding: (i)
when the Portfolio may cease to accrue interest, original issue discount, or
market discount; (ii) when and to what extent deductions may be taken for bad
debts or worthless securities; (iii) how payments received on obligations in
default should be allocated between principal and income; and (iv) whether
exchanges of debt obligations in a workout context are taxable.
Distributions by 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 under Code
Section 103(a). For purposes of applying this 50% requirement, the Fund will
be deemed to own its proportionate share of each of the assets of the
Portfolio, and the Portfolio currently intends to invest its assets in a
manner such that the Fund can meet this 50% requirement. Interest on certain
municipal obligations is treated as a tax preference item for purposes of the
AMT. Shareholders of 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 discount with respect to certain stripped
municipal obligations or their stripped coupons, and certain realized gains or
income attributable to accrued market discount. Any distributions by the Fund
of its share of such capital gains (after reduction by any capital loss
carryforwards) or taxable income would be taxable to shareholders of the Fund.
However, it is expected that such amounts, if any, would normally be
insubstantial in relation to the tax exempt interest earned by the Portfolio
and allocated to the Fund. Certain distributions, if declared in October,
November or December and paid the following January, may be taxed to
shareholders as if received on December 31 of the year in which they are
declared.
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 capital losses 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 RIC status.
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 disallowed to the extent the
shareholder has received tax-exempt interest with respect to such shares and,
to the extent the loss exceeds the disallowed amount, will be treated as a
long-term capital loss to the extent of any distribution treated as net long-
term capital gains with respect to such shares. In addition, a loss realized
on a redemption or other disposition of Fund shares may be disallowed to the
extent the shareholder acquired other Fund shares (whether through the
reinvestment of distributions or otherwise) within the period beginning 30
days before the redemption of the loss shares and ending 30 days after such
date.
Amounts paid by the Fund to individuals and certain other shareholders who
have not provided the Fund with their correct taxpayer identification number
("TIN") and certain certifications required by the Internal Revenue Service
(the "IRS"), as well as shareholders with respect to whom the Fund has
received notification from the IRS or a broker, may be subject to "backup"
withholding of federal income tax arising from the Fund's taxable dividends
and distributions as well as the proceeds of redemption transactions
(including repurchases and exchanges), at a rate of 31%. An individual's TIN
is generally his or her social security number.
Non-resident alien individuals, foreign corporations and certain other
foreign entities generally will be subject to a U.S. withholding tax at a rate
of 30% on 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 convention.
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 arise if (i) the shareholder is engaged in a trade or business in the
United States, (ii) the shareholder is present in the United States for a
sufficient period of time during a taxable year to be treated as a U.S.
resident (generally 180 days or more); or (iii) the shareholder fails to
provide any required certifications regarding its status as a non-resident
alien investor. Foreign shareholders should consult their tax advisers
regarding the U.S. and foreign tax consequences of an investment in 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, and, where applicable,
foreign tax consequences of investing in the Fund.
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.
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 full range and quality of the executing
firm's services, the value of the brokerage and research services provided,
the responsiveness of the firm to BMR, the size and type of the transaction,
the nature and character of the market for the security, the confidentiality,
speed and certainty of effective execution required for the transaction, the
general execution and operational capabilities of the executing firm, the
reputation, reliability, experience and financial condition of the firm, the
value and quality of the services rendered by the firm in this and other
transactions, and the reasonableness of the spread or commission, if any.
Municipal obligations, including state obligations, purchased and sold by the
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, and dealers in fixed-price
offerings, the cost of which may include undisclosed fees and concessions to
the underwriters. On occasion it may be necessary or appropriate to purchase
or sell a security through a broker on an agency basis, in which case the
Portfolio will incur a brokerage commission. Although spreads or commissions
on portfolio security transactions will, in the judgment of BMR, be reasonable
in relation to the value of the services provided, spreads or commissions
exceeding those which another firm might charge may be paid to firms who were
selected to execute transactions on behalf of the 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 compensation was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made either on the basis of that
particular transaction or on the basis of overall responsibilities which BMR
and its affiliates have for accounts over which they exercise investment
discretion. In making any such determination, BMR will not attempt to place a
specific dollar value on the brokerage and research services provided or to
determine what portion of the commission should be related to such services.
Brokerage and research services may include advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement); and the
"Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
advisers of investment companies, institutions and other investors to receive
research, analytical, statistical and quotation services, data, information
and other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealer firms which execute portfolio transactions for the clients of
such advisers and from third parties with which such broker-dealers have
arrangements. Consistent with this practice, BMR receives Research Services
from many broker-dealer firms with which BMR places the Portfolio transactions
and from third parties with which these broker-dealers have arrangements.
These Research Services include such matters as general economic, political,
business and market information, industry and company reviews, evaluations of
securities and portfolio strategies and transactions, proxy voting data and
analysis services, technical analysis of various aspects of the securities
market, 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 portfolio security transactions to such firms to ensure the
continued receipt of Research Services which BMR believes are useful or of
value to it in rendering investment advisory services to its clients.
The Portfolio and BMR may also receive Research Services from underwriters
and dealers in fixed-price offerings, which Research Services are reviewed and
evaluated by BMR in connection with its investment responsibilities. The
investment companies sponsored by BMR or Eaton Vance may allocate trades in
such offerings to acquire information relating to the performance, fees and
expenses of such companies and other mutual funds, which information is used
by the Trustees of such companies to fulfill their responsibility to oversee
the quality of the services provided by various entities, including BMR, to
such companies. Such companies may also pay cash for such information.
Subject to the requirement that BMR shall use its best efforts to seek and
execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, BMR is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Fund or of other investment companies sponsored by BMR or Eaton
Vance. This policy is not inconsistent with a rule of the NASD, which rule
provides that no firm which is a member of the NASD shall favor or disfavor
the distribution of shares of any particular investment company or group of
investment companies on the basis of brokerage commissions received or
expected by such firm from any source.
Municipal obligations considered as investments for the Portfolio may also
be appropriate for other investment accounts managed by BMR or its affiliates.
Whenever decisions are made to buy or sell securities by the Portfolio and one
or more of such other accounts simultaneously, BMR will allocate the security
transactions (including "hot" issues) in a manner which it believes to be
equitable under the circumstances. As a result of such allocations, there may
be instances where the Portfolio will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order
may not be allocated on a pro rata basis where, for example: (i) consideration
is given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized invesment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
BMR reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Portfolio from time to time, it is the opinion of the Trustees of the Trust
and the Portfolio that the benefits from the BMR organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
For the fiscal years ended March 31, 1999, 1998 and 1997, the Portfolio
paid brokerage commissions of $8,942, $14,673 and $61,353, respectively, on
portfolio security transactions aggregating approximately $184,846,877,
$242,021,306 and $477,279,677, respectively, to firms which provided some
research services to BMR or its affiliates (although many of such firms may
have been selected in any particular transaction primarily because of their
execution capabilities).
FINANCIAL STATEMENTS
The audited financial statements of and independent auditors' reports for,
the Fund and the Portfolio, appear in the Fund's most recent annual report to
shareholders, which is incorporated by reference into this SAI. A copy of the
Fund's annual report accompanies this SAI. Consistent with applicable law,
duplicate mailings of shareholder reports and certain other Fund information
to shareholders residing at the same address may be eliminated.
Registrant incorporates by reference the audited financial information for
the Fund and the Portfolio for the fiscal year ended March 31, 1999, as
previously filed electronically with the Commission (Accession No.
00001047469-99-022825).
<PAGE>
APPENDIX A
CLASS A FEES, PERFORMANCE AND OWNERSHIP
SERVICE FEES
During the fiscal year ended March 31, 1999, Class A made service fee
payments under the Plan aggregating $97,308, of which $86,436 was paid to
investment dealers and the balance of which was retained by the principal
underwriter.
PRINCIPAL UNDERWRITER
The total sales charges paid in connection with the sales of Class A
shares during the fiscal year ended March 31, 1999 was $60,134, of which
$2,943 was received by the principal underwriter. For the fiscal year ended
March 31, 1999, investment dealers received $57,191 from the total sales
charges.
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the principal underwriter. For the fiscal year ended March 31,
1999, Class A paid the principal underwriter $897.50 for repurchase
transactions handled by it.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average total return on a
hypothetical investment in shares of $1,000. Total return for the period prior
to June 27, 1996 reflects the total return of Class B adjusted to reflect the
Class A sales charge. The Class B total return has not been adjusted to
reflect certain other expenses (such as distribution and/or service fees). If
such adjustments were made, the Class A total return would be different. The
"Value of Initial Investment" reflects the deduction of the maximum sales
charge of 2.25%. Past performance is no guarantee of future results.
Investment return and principal value will fluctuate; shares, when redeemed,
may be worth more or less than their original cost.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
TOTAL RETURN TOTAL RETURN
EXCLUDING MAXIMUM INCLUDING MAXIMUM
VALUE OF VALUE OF SALES CHARGE SALES CHARGE
INVESTMENT INVESTMENT INITIAL INVESTMENT ---------------------------- ---------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life of Fund 5/22/92 $977.52 $1,414.50 44.70% 5.53% 41.45% 5.18%
5 Years Ended 3/31/99 3/31/94 $977.86 $1,270.91 29.97% 5.38% 27.09% 4.91%
1 Year Ended 3/31/99 3/31/98 $977.81 $1,015.88 3.89% 3.89% 1.59% 1.59%
- ----------
* Class A shares were established June 27, 1996.
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at July 1, 1999, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding Class A shares of the
Fund. As of July 1, 1999, Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL and Mars & Co., Boston, MA were the record owners of approximately 19% and
9.3%, respectively, of the outstanding Class A shares which are held on behalf
of their customers who are the beneficial owners of such shares, and as to
which they have voting power under certain limited circumstances. To the
knowledge of the Trust, no other person owned of record or beneficially 5% or
more the Fund's outstanding Class A shares as of such date.
<PAGE>
APPENDIX B
CLASS B FEES, PERFORMANCE AND OWNERSHIP
DISTRIBUTION PLAN
During the fiscal year ended March 31, 1999, the principal underwriter
paid to investment dealers sales commissions of $28,055 on sales of Class B
shares. During the same period, the Fund made distribution payments to the
principal underwriter under the Distribution Plan aggregating $54,772 and the
principal underwriter received approximately $20,000 in CDSCs imposed on early
redeeming shareholders. These distribution payments and CDSC payments reduced
uncovered distribution charges under the Plan. As at March 31 1999, the
outstanding uncovered distribution charges of the principal underwriter
calculated under the Plan amounted to approximately $352,000 (which amount was
equivalent to 6.4% of the net assets attributable to Class B on such day).
During the fiscal year ended March 31, 1999, Class B made service fee payments
to the principal underwriter and investment dealers aggregating $12,171 of
which $12,156 was paid to investment dealers and the balance of which was
retained by the principal underwriter.
PRINCIPAL UNDERWRITER
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the principal underwriter. For the fiscal year ended March 31,
1999, the Fund paid the principal underwriter $190.00 for repurchase
transactions handled by the principal underwriter.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment of $1,000 in Class B shares for the periods shown
in the table. Past performance is no guarantee of future results. Investment
return and principal value will fluctuate and shares, when redeemed, may be
worth more or less than their original cost.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVEST- INVEST-
MENT BEFORE MENT AFTER TOTAL RETURN BEFORE TOTAL RETURN AFTER
DEDUCTING THE DEDUCTING THE DEDUCTING THE CDSC DEDUCTING THE CDSC
INVESTMENT INVESTMENT AMOUNT OF CDSC ON CDSC ON -------------------------- --------------------------
PERIOD DATE INVESTMENT 3/31/99 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ----------- --------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of the
Fund 5/22/92 $1,000 $1,419.96 $1,419.96 42.00% 5.24% 42.00% 5.24%
5 Years Ended
3/31/99 3/31/94 $1,000 $1,275.38 $1,275.38 27.54% 4.99% 27.54% 4.99%
1 Year Ended
3/31/99 3/31/98 $1,000 $1,032.94 $1,003.20 3.29% 3.29% 0.32% 0.32%
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at July 1, 1999, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding Class B shares of the
Fund. As of July 1, 1999, Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL, and CIBC World Markets Corp., New York, NY were the record owners of
approximately 1.7% and 8.7%, respectively, of the outstanding Class B shares
which are held on behalf of their customers who are the beneficial owners of
such shares, and as to which they have voting power under certain limited
circumstances. To the knowledge of the Trust, no other person owned of record
or beneficially 5% or more the Fund's outstanding Class B shares as of such
date.
<PAGE>
APPENDIX C
CLASS C FEES, PERFORMANCE AND OWNERSHIP
DISTRIBUTION AND SERVICE FEES
During the fiscal year ended March 31, 1999, the principal underwriter
paid to investment dealers sales commissions of $68,717 on sales of Class C
shares. During the same period, the Fund made distribution payments to the
principal underwriter under the Distribution Plan aggregating $72,138 and the
principal underwriter received approximately $1,000 in CDSCs imposed on early
redeeming shareholders. These distribution payments and CDSC payments reduced
uncovered distribution charges under the Plan. As at March 31, 1999, the
outstanding uncovered distribution charges of the principal underwriter
calculated under the Plan amounted to approximately $4,502,000 (which amount
was equivalent to 40% of the net assets attributable to Class C on such day).
During the fiscal year ended March 31, 1999, Class C made service fee payments
to the principal underwriter and investment dealers aggregating $20,422 of
which $11,366 was paid to investment dealers and the balance of which was
retained by the principal underwriter.
PRINCIPAL UNDERWRITER
The Trust has authorized the principal underwriter to act as its agent in
repurchasing shares at the rate of $2.50 for each repurchase transaction
handled by the principal underwriter. For the fiscal year ended March 31,
1999, Class C paid the principal underwriter $150.00 for repurchase
transactions handled by it.
PERFORMANCE INFORMATION
The table below indicates the cumulative and average annual total return
on a hypothetical investment in shares of $1,000. Total return for the period
prior to April 1, 1998 reflects the total return of the predecessor to Class
C. Total return prior to December 8, 1993 reflects the total return of Class
B, adjusted to reflect the Class C sales charge. The Class B total return has
not been adjusted to reflect certain other expenses (such as distribution and/
or service fees). If such adjustments were made, the Class C total return
would be different. Past performance is no guarantee of future results.
Investment return and principal value will fluctuate; shares, when redeemed,
may be worth more or less than their original cost.
<TABLE>
VALUE OF A $1,000 INVESTMENT
<CAPTION>
VALUE OF VALUE OF
INVESTMENT INVESTMENT TOTAL RETURN BEFORE TOTAL RETURN AFTER
BEFORE AFTER DEDUCTING DEDUCTING
DEDUCTING DEDUCTING THE CDSC THE CDSC
INVESTMENT INVESTMENT AMOUNT OF THE CDSC THE CDSC -------------------------- --------------------------
PERIOD* DATE INVESTMENT ON 3/31/99 ON 3/31/99 CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
- -------------- ------------ ------------ --------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Life of Fund 5/22/92 $1,000 $1,400.34 $1,400.34 40.03% 5.03% 40.03% 5.03%
5 Years Ended
3/31/99 3/31/94 $1,000 $1,260.85 $1,260.85 26.08% 4.74% 26.08% 4.74%
1 Year Ended
3/31/99 3/31/98 $1,000 $1,032.36 $1,022.46 3.24% 3.24% 2.25% 2.25%
- ------------
* Predecessor Fund commenced operations on December 8, 1993.
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As at July 1, 1999, the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding Class C shares of the
Fund. As of July 1, 1999, Merrill Lynch Pierce Fenner & Smith, Jacksonville,
FL and Donaldson Lufkin Jenrette Securities Corporation, Jersey City, NJ were
the record owners of approximately 40.0% and 8.1%, respectively, of the
outstanding Class C shares which are held on behalf of their customers who are
the beneficial owners of such shares, and as to which they have voting power
under certain limited circumstances. To the knowledge of the Trust, no other
person owned of record or beneficially 5% or more the Fund's outstanding Class
C shares as of such date.
<PAGE>
APPENDIX D: TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields to those of tax-exempt
bonds yielding from 4% to 7% under the regular federal income tax laws and tax
rates applicable to 1999.
<TABLE>
<CAPTION>
MARGINAL
SINGLE RETURN JOINT RETURN INCOME TAX-EXEMPT YIELD
- --------------------- ------------------- TAX --------------------------------------------------------------------------
(TAXABLE INCOME)* BRACKET 4% 4.5% 5% 5.5% 6% 6.5% 7%
- ------------------------------------------ ----------- --------------------------------------------------------------------------
Equivalent Taxable Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Up to $ 25,750 Up to $ 43,050 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 25,751-$ 62,450 $ 43,051-$104,050 28.00 5.56 6.25 6.94 7.64 8.33 9.03 9.72
$ 62,451-$130,250 $104,051-$158,550 31.00 5.80 6.52 7.25 7.97 8.70 9.42 10.14
$130,251-$283,150 $158,551-$283,150 36.00 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over $283,150 Over $283,150 39.60 6.62 7.45 8.28 9.11 9.93 10.76 11.59
- ------------------------------------------ ----------- --------------------------------------------------------------------------
* 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 $126,600. The tax
brackets also do not show the effects of phase out of personal exemptions for
single filers with adjusted gross incomes in excess of $126,600 and joint
filers with adjusted gross income in excess of $189,950. The effective tax
brackets and equivalent taxable yields of such taxpayers will be higher than
those indicated above.
Yields shown are for illustration purposes only and are not meant to represent
the Fund's actual yield. No assurance can be given that the 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, 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. 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 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 SAI. Subsequent tax
law changes could result in prospective or retroactive changes in the tax
brackets, tax rates, and tax equivalent yields set forth above. Investors
should consult their tax adviser for additional information.
<PAGE>
APPENDIX E: RATINGS
DESCRIPTION OF SECURITIES RATINGS+
MOODY'S INVESTORS SERVICE, INC.
MUNICIPAL BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- ----------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating
agencies may from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily represent
ratings which would be given to these securities on the date of the
Portfolio's fiscal year end.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
MUNICIPAL SHORT-TERM OBLIGATIONS
RATINGS: Moody's ratings for state and municipal short-term obligations will
be designated Moody's Investment Grade or (MIG). Such rating recognizes the
differences between short-term credit risk and long-term risk. Factors
effecting the liquidity of the borrower and short term cyclical elements are
critical in short-term ratings, while other factors of major importance in
bond risk, long term secular trends for example, may be less important over
the short run.
A short term rating may also be assigned on an issue having a demand feature,
variable rate demand obligation (VRDO). Such ratings will be designated as
VMIG1, SG or if the demand feature is not rated, NR. A short-term rating on
issues with demand features are differentiated by the use of the VMIG1 symbol
to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be
limited to the external liquidity with no or limited legal recourse to the
issuer in the event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk 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
that 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: Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MUNICIPAL NOTES
S&P note ratings reflect the liquidity concerns and market access risks unique
to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Sources of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus(+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH IBCA
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified that could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
"DDD" represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the
addition of a plus or minus sign to indicate the relative position of a credit
within the rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Stong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1" categories.
F-3: Fair Credit Quality. Issues carrying this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse change could cause these securities to be rated
below investment grade.
* * * * * * * *
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. 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>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Amended and Restated Declaration of Trust of Eaton Vance Investment
Trust dated January 11, 1993, filed as Exhibit (1)(a) to
Post-Effective Amendment No. 34 and incorporated herein by
reference.
(2) Amendment dated June 23, 1997 to the Declaration of Trust filed as
Exhibit (1)(b) to Post-Effective Amendment No. 39 and incorporated
herein by reference.
(3) Establishment and Designation of Classes of Shares of Beneficial
Interest, without Par Value, dated June 26, 1996 filed as Exhibit
(a)(3) to Post-Effective Amendment No. 41 and incorporated herein by
reference.
(b)(1) By-Laws as amended March 30, 1992 filed as Exhibit (2)(a) to
Post-Effective Amendment No. 34 and incorporated herein by
reference.
(2) Amendment to By-Laws of Eaton Vance Investment Trust dated December
13, 1993 filed as Exhibit (2)(b) to Post-Effective Amendment No. 34
and incorporated herein by reference.
(c) Reference is made to Item 23(a) and 23(b) above.
(d) Not applicable
(e)(1) Distribution Agreement between Eaton Vance Investment Trust and
Eaton Vance Distributors, Inc. effective June 23, 1997 with attached
Schedule A effective June 23, 1997 filed as Exhibit (6)(a) to
Post-Effective Amendment No. 39 and incorporated herein by
reference.
(2) Selling Group Agreement between Eaton Vance Distributors, Inc. and
Authorized Dealers filed as Exhibit (6)(b) to the Post-Effective
Amendment No. 61 to the Registration Statement of Eaton Vance Growth
Trust (File Nos. 2-22019, 811-1241) and incorporated herein by
reference.
(f) The Securities and Exchange Commission has granted the Registrant an
exemptive order that permits the Registrant to enter into deferred
compensation arrangements with its independent Trustees. See in the
Matter of Capital Exchange Fund, Inc., Release No. IC-20671
(November 1, 1994).
(g)(1) Custodian Agreement with Investors Bank & Trust Company dated April
15, 1994 filed as Exhibit (8) to Post-Effective Amendment No. 34 and
incorporated herein by reference.
(2) Amendment to Custodian Agreement with Investors Bank & Trust Company
dated October 23, 1995 filed as Exhibit (8)(b) to Post-Effective
Amendment No. 35 and incorporated herein by reference.
(3) Amendment to Master Custodian Agreement with Investors Bank & Trust
Company dated December 21, 1998 filed as Exhibit (g)(3) to the
Registration Statement of Eaton Vance Municipals Trust (File Nos.
33-572, 811-4409) (Accession No. 0000950156-99-000050) and
incorporated herein by reference.
(h)(1)(a) Amended Administrative Services Agreement between Eaton Vance
Investment Trust (on
C-1
<PAGE>
behalf of each of its series) and Eaton Vance Management dated June
19, 1995 with attached schedules (including Amended Schedule A)
filed as Exhibit (9) to Post-Effective Amendment No. 34 and
incorporated herein by reference.
(b) Amendment to Schedule A dated June 23, 1997 to the Amended
Administrative Services Agreement dated June 19, 1995 filed as
Exhibit (9)(a)(1) to Post-Effective Amendment No. 39 and
incorporated herein by reference.
(2) Transfer Agency Agreement dated January 1, 1998 filed as Exhibit
(k)(b) to the Registration Statement on Form N-2 of Eaton Vance
Advisers Senior Floating-Rate Fund (File Nos. 333-46853, 811-08671)
(Accession No. 0000950156-98-000172) and incorporated herein by
reference.
(i)(1) Opinion of Internal Counsel filed as Exhibit (10) to Post-Effective
Amendment No. 39 and incorporated herein by reference.
(2) Consent of Counsel filed herewith.
(j)(1) Consent of Independent Auditors for Eaton Vance California Limited
Maturity Municipals Fund, Eaton Vance Connecticut Limited Maturity
Municipals Fund, Eaton Vance Florida Limited Maturity Municipals
Fund, Eaton Vance Massachusetts Limited Maturity Municipals Fund,
Eaton Vance Michigan Limited Maturity Municipals Fund, Eaton Vance
New Jersey Limited Maturity Municipals Fund, Eaton Vance New York
Limited Maturity Municipals Fund, Eaton Vance Ohio Limited Maturity
Municipals Fund and Eaton Vance Pennsylvania Limited Maturity
Municipals Fund filed herewith.
(2) Consent of Independent Auditors for Eaton Vance National Limited
Maturity Municipals Fund filed herewith.
(k) Not applicable
(l) Not applicable
(m)(1) Eaton Vance Investment Trust Class A Service Plan adopted June 23,
1997 with attached Schedule A effective June 23, 1997 filed as
Exhibit (15)(a) to Post-Effective Amendment No. 39 and incorporated
herein by reference.
(2) Eaton Vance Investment Trust Class B Distribution Plan adopted June
23, 1997 with attached Schedule A effective June 23, 1997 filed as
Exhibit (15)(b) to Post-Effective Amendment No. 39 and incorporated
herein by reference.
(3) Eaton Vance Investment Trust Class C Distribution Plan adopted June
23, 1997 with attached Schedule A effective June 23, 1997 filed as
Exhibit (15)(c) to Post-Effective Amendment No. 39 and incorporated
herein by reference.
(n) Not applicable
(o) Multiple Class Plan for Eaton Vance Funds dated June 23, 1997 filed
as Exhibit (18) to Post-Effective Amendment No. 39 and incorporated
herein by reference.
(p)(1) Power of Attorney for Eaton Vance Investment Trust dated April 22,
1997 filed as Exhibit (17)(a) to Post-Effective Amendment No. 38 and
incorporated herein by reference.
C-2
<PAGE>
(a) Power of Attorney for Eaton Vance Investment Trust dated November
16, 1998 filed as Exhibit (p)(1)(a) to Post-Effective Amendment No.
41 and incorporated herein by reference.
(2) Power of Attorney for California Limited Maturity Municipals
Portfolio, Connecticut Limited Maturity Municipals Portfolio,
Florida Limited Maturity Municipals Portfolio, Massachusetts Limited
Maturity Municipals Portfolio, Michigan Limited Maturity Municipals
Portfolio, National Limited Maturity Municipals Portfolio, New
Jersey Limited Maturity Municipals Portfolio, New York Limited
Maturity Municipals Portfolio, Ohio Limited Maturity Municipals
Portfolio and Pennsylvania Limited Maturity Municipals Portfolio,
dated April 22, 1997 filed as Exhibit (17)(b) to Post-Effective
Amendment No. 38 and incorporated herein by reference.
(a) Power of Attorney for California Limited Maturity Municipals
Portfolio, Connecticut Limited Maturity Municipals Portfolio,
Florida Limited Maturity Municipals Portfolio, Massachusetts Limited
Maturity Municipals Portfolio, Michigan Limited Maturity Municipals
Portfolio, National Limited Maturity Municipals Portfolio, New
Jersey Limited Maturity Municipals Portfolio, New York Limited
Maturity Municipals Portfolio, Ohio Limited Maturity Municipals
Portfolio and Pennsylvania Limited Maturity Municipals Portfolio
dated November 16, 1998 filed as Exhibit (p)(2)(a) to Post-Effective
Amendment No. 41 and incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not applicable
ITEM 25. INDEMNIFICATION
Article IV of the Registrant's Amended and Restated Declaration of Trust
permits Trustee and officer indemnification by By-law, contract and vote.
Article XI of the By-Laws contains indemnification provisions. Registrant's
Trustees and officers are insured under a standard mutual fund errors and
omissions insurance policy covering loss incurred by reason of negligent errors
and omissions committed in their capacities as such.
The distribution agreements of the Registrant also provide for reciprocal
indemnity of the principal underwriter, on the one hand, and the Trustees and
officers, on the other.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to: (i) the information set forth under the caption
"Management and Organization" in the Statement of Additional Information; (ii)
the Eaton Vance Corp. 10-K filed under the Securities Exchange Act of 1934 (File
No. 1-8100); and (iii) the Form ADV of Eaton Vance (File No. 801-15930) and BMR
(File No. 801-43127) filed with the Commission, all of which are incorporated
herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Eaton Vance Distributors, Inc., a
wholly-owned subsidiary of Eaton Vance Management, is the principal
underwriter for each of the investment companies named below:
<TABLE>
<CAPTION>
<S> <C>
Eaton Vance Advisers Senior Floating-Rate Fund Eaton Vance Municipals Trust II
Eaton Vance Growth Trust Eaton Vance Mutual Funds Trust
Eaton Vance Income Fund of Boston Eaton Vance Prime Rate Reserves
Eaton Vance Institutional Senior Floating-Rate Fund Eaton Vance Special Investment Trust
C-3
<PAGE>
Eaton Vance Investment Trust EV Classic Senior Floating-Rate Fund
Eaton Vance Municipals Trust
</TABLE>
(b)
<TABLE>
<CAPTION>
<S> <C> <C>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
----------------- -------------------------- ---------------
Albert F. Barbaro Vice President None
Chris Berg Vice President None
Kate B. Bradshaw Vice President None
Mark Carlson Vice President None
Daniel C. Cataldo Vice President None
Raymond Cox Vice President None
Peter Crowley Vice President None
Anthony DeVille Vice President None
Mark P. Doman Vice President None
Alan R. Dynner Vice President Secretary
Richard A. Finelli Vice President None
Kelly Flynn Vice President None
James Foley Vice President None
Michael A. Foster Vice President None
William M. Gillen Senior Vice President None
Hugh S. Gilmartin Vice President None
James B. Hawkes Vice President and Director Vice President and Trustee
Perry D. Hooker Vice President None
Brian Jacobs Senior Vice President None
Thomas P. Luka Vice President None
John Macejka Vice President None
Stephen Marks Vice President None
Joseph T. McMenamin Vice President None
Morgan C. Mohrman Senior Vice President None
James A. Naughton Vice President None
Joseph Nelson Vice President None
Mark D. Nelson Vice President None
Linda D. Newkirk Vice President None
James L. O'Connor Vice President Treasurer
Andrew Ogren Vice President None
Thomas Otis Secretary and Clerk None
George D. Owen, II Vice President None
Margaret Pier Vice President None
Enrique M. Pineda Vice President None
F. Anthony Robinson Vice President None
Frances Rogell Vice President None
Jay S. Rosoff Vice President None
Benjamin A. Rowland, Jr. Vice President, Treasurer and Director None
Stephen M. Rudman Vice President None
Kevin Schrader Vice President None
Teresa A. Sheehan Vice President None
William M. Steul Vice President and Director None
Cornelius J. Sullivan Senior Vice President None
Peter Sykes Vice President None
David M. Thill Vice President None
John M. Trotsky Vice President None
Jerry Vainisi Vice President None
Chris Volf Vice President None
Wharton P. Whitaker President and Director None
Sue Wilder Vice President None
</TABLE>
- ------------------------------------------
* Address is The Eaton Vance Building, 255 State Street, Boston, MA 02109
(c) Not applicable
C-4
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 200 Clarendon Street,
16th Floor, Mail Code ADM27, Boston, MA 02116, and its transfer agent, First
Data Investor Services Group, 4400 Computer Drive, Westborough, MA 01581-5120,
with the exception of certain corporate documents and portfolio trading
documents which are in the possession and custody of the administrator and
investment adviser. Registrant is informed that all applicable accounts, books
and documents required to be maintained by registered investment advisers are in
the custody and possession of Eaton Vance Management and Boston Management and
Research.
ITEM 29. MANAGEMENT SERVICES
Not applicable
ITEM 30. UNDERTAKINGS
Not applicable
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, and the
Commonwealth of Massachusetts on July 21, 1999.
EATON VANCE INVESTMENT TRUST
By: THOMAS J. FETTER*
------------------------------------
Thomas J. Fetter, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-6
<PAGE>
SIGNATURES
California Limited Maturity Municipals Portfolio has duly caused this
Amendment to the Registration Statement on Form N-1A of Eaton Vance Investment
Trust (File No. 33-1121) to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and the Commonwealth of
Massachusetts on July 21, 1999.
CALIFORNIA LIMITED MATURITY
MUNICIPALS PORTFOLIO
By: THOMAS J. FETTER*
-------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Investment Trust (File No. 33-1121) has been signed below by the following
persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-7
<PAGE>
SIGNATURES
Connecticut Limited Maturity Municipals Portfolio has duly caused this
Amendment to the Registration Statement on Form N-1A of Eaton Vance Investment
Trust (File No. 33-1121) to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and the Commonwealth of
Massachusetts on July 21, 1999.
CONNECTICUT LIMITED MATURITY
MUNICIPALS PORTFOLIO
By: THOMAS J. FETTER*
-------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Investment Trust (File No. 33-1121) has been signed below by the following
persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-8
<PAGE>
SIGNATURES
Florida Limited Maturity Municipals Portfolio has duly caused this
Amendment to the Registration Statement on Form N-1A of Eaton Vance Investment
Trust (File No. 33-1121) to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and the Commonwealth of
Massachusetts on July 21, 1999.
FLORIDA LIMITED MATURITY
MUNICIPALS PORTFOLIO
By: THOMAS J. FETTER*
-------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Investment Trust (File No. 33-1121) has been signed below by the following
persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-9
<PAGE>
SIGNATURES
Massachusetts Limited Maturity Municipals Portfolio has duly caused this
Amendment to the Registration Statement on Form N-1A of Eaton Vance Investment
Trust (File No. 33-1121) to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and the Commonwealth of
Massachusetts on July 21, 1999.
MASSACHUSETTS LIMITED MATURITY
MUNICIPALS PORTFOLIO
By: THOMAS J. FETTER*
-------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Investment Trust (File No. 33-1121) has been signed below by the following
persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-10
<PAGE>
SIGNATURES
Michigan Limited Maturity Municipals Portfolio has duly caused this
Amendment to the Registration Statement on Form N-1A of Eaton Vance Investment
Trust (File No. 33-1121) to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and the Commonwealth of
Massachusetts on July 21, 1999.
MICHIGAN LIMITED MATURITY
MUNICIPALS PORTFOLIO
By: THOMAS J. FETTER*
-------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Investment Trust (File No. 33-1121) has been signed below by the following
persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-11
<PAGE>
SIGNATURES
National Limited Maturity Municipals Portfolio has duly caused this
Amendment to the Registration Statement on Form N-1A of Eaton Vance Investment
Trust (File No. 33-1121) to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and the Commonwealth of
Massachusetts on July 21, 1999.
NATIONAL LIMITED MATURITY
MUNICIPALS PORTFOLIO
By: THOMAS J. FETTER*
-------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Investment Trust (File No. 33-1121) has been signed below by the following
persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-12
<PAGE>
SIGNATURES
New Jersey Limited Maturity Municipals Portfolio has duly caused this
Amendment to the Registration Statement on Form N-1A of Eaton Vance Investment
Trust (File No. 33-1121) to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and the Commonwealth of
Massachusetts on July 21, 1999.
NEW JERSEY LIMITED MATURITY
MUNICIPALS PORTFOLIO
By: THOMAS J. FETTER*
-------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Investment Trust (File No. 33-1121) has been signed below by the following
persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-13
<PAGE>
SIGNATURES
New York Limited Maturity Municipals Portfolio has duly caused this
Amendment to the Registration Statement on Form N-1A of Eaton Vance Investment
Trust (File No. 33-1121) to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and the Commonwealth of
Massachusetts on July 21, 1999.
NEW YORK LIMITED MATURITY
MUNICIPALS PORTFOLIO
By: THOMAS J. FETTER*
-------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Investment Trust (File No. 33-1121) has been signed below by the following
persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-14
<PAGE>
SIGNATURES
Ohio Limited Maturity Municipals Portfolio has duly caused this Amendment
to the Registration Statement on Form N-1A of Eaton Vance Investment Trust (File
No. 33-1121) to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Boston and the Commonwealth of Massachusetts on July
21, 1999.
OHIO LIMITED MATURITY
MUNICIPALS PORTFOLIO
By: THOMAS J. FETTER*
-------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Investment Trust (File No. 33-1121) has been signed below by the following
persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-15
<PAGE>
SIGNATURES
Pennsylvania Limited Maturity Municipals Portfolio has duly caused this
Amendment to the Registration Statement on Form N-1A of Eaton Vance Investment
Trust (File No. 33-1121) to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston and the Commonwealth of
Massachusetts on July 21, 1999.
PENNSYLVANIA LIMITED MATURITY
MUNICIPALS PORTFOLIO
By: THOMAS J. FETTER*
-------------------------
Thomas J. Fetter, President
This Amendment to the Registration Statement on Form N-1A of Eaton Vance
Investment Trust (File No. 33-1121) has been signed below by the following
persons in their capacities on July 21, 1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
--------- -----
Thomas J. Fetter* President (Chief Executive Officer)
- ---------------------
Thomas J. Fetter
/s/ James L. O'Connor Treasurer (Principal Financial and Accounting Officer)
- ---------------------
James L. O'Connor
Jessica M. Bibliowicz*
- ---------------------- Trustee
Jessica M. Bibliowicz
Donald R. Dwight*
- ----------------- Trustee
Donald R. Dwight
James B. Hawkes*
- ---------------- Trustee
James B. Hawkes
Samuel L. Hayes, III*
- --------------------- Trustee
Samuel L. Hayes
Norton H. Reamer*
- ----------------- Trustee
Norton H. Reamer
Lynn A. Stout*
- ---------------- Trustee
Lynn A. Stout
Jack L. Treynor*
- ----------------- Trustee
Jack L. Treynor
*By: /s/ Alan R. Dynner
-----------------------------------
Alan R. Dynner (As attorney-in-fact)
</TABLE>
C-16
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this amendment to the
Registration Statement pursuant to Rule 483 of Regulation C.
Exhibit No. Description
- ----------- -----------
(i)(2) Consent of Counsel to Opinion dated March 23, 1998.
(j)(1) Consent of Independent Auditors for Eaton Vance California
Limited Maturity Municipals Fund, Eaton Vance Connecticut Limited
Maturity Municipals Fund, Eaton Vance Florida Limited Maturity
Municipals Fund, Eaton Vance Massachusetts Limited Maturity
Municipals Fund, Eaton Vance Michigan Limited Maturity Municipals
Fund, Eaton Vance New Jersey Limited Maturity Municipals Fund,
Eaton Vance New York Limited Maturity Municipals Fund, Eaton
Vance Ohio Limited Maturity Municipals Fund and Eaton Vance
Pennsylvania Limited Maturity Municipals Fund.
(2) Consent of Independent Auditors for Eaton Vance National Limited
Maturity Municipals Fund.
C-17
<PAGE>
EXHIBIT (i)(2)
CONSENT OF COUNSEL
I consent to the incorporation by reference in this Post-Effective
Amendment No. 42 to the Registration Statement of Eaton Vance Investment Trust
(1933 Act File No. 33-1121) of my opinion dated March 23, 1998, which was filed
as Exhibit (10) to Post-Effective Amendment No. 39.
/s/ Maureen A. Gemma
Maureen A. Gemma, Esq.
July 21, 1999
Boston, Massachusetts
<PAGE>
EXHIBIT (j)(1)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference into the Prospectus and
Statement of Additional Information in this Post-Effective Amendment No. 42 to
the Registration Statement of Eaton Vance Investment Trust (1933 Act File No.
33-1121) of our reports each dated April 30, 1999 on the financial statements,
supplementary data and financial highlights of Eaton Vance California Limited
Maturity Municipals Fund, Eaton Vance Connecticut Limited Maturity Municipals
Fund, Eaton Vance Florida Limited Maturity Municipals Fund, Eaton Vance
Massachusetts Limited Maturity Municipals Fund, Eaton Vance Michigan Limited
Maturity Municipals Fund, Eaton Vance New Jersey Limited Maturity Municipals
Fund, Eaton Vance New York Limited Maturity Municipals Fund, Eaton Vance Ohio
Limited Maturity Municipals Fund and Eaton Vance Pennsylvania Limited Maturity
Municipals Fund (the "Funds") and California Limited Maturity Municipals
Portfolio, Connecticut Limited Maturity Municipals Portfolio, Florida Limited
Maturity Municipals Portfolio, Massachusetts Limited Maturity Municipals
Portfolio, Michigan Limited Maturity Municipals Portfolio, New Jersey Limited
Maturity Municipals Portfolio, New York Limited Maturity Municipals Portfolio,
Ohio Limited Maturity Municipals Portfolio and Pennsylvania Limited Maturity
Municipals Portfolio included in the March 31, 1999 Annual Report to
Shareholders of the Funds.
We also consent to the reference to our Firm under the heading "Financial
Highlights" in the Prospectus and under the heading "Other Service Providers" in
the Statement of Additional Information.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
July 21, 1999
Boston, Massachusetts
<PAGE>
EXHIBIT (j)(2)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference into the Prospectus and
Statement of Additional Information in this Post-Effective Amendment No. 42 to
the Registration Statement of Eaton Vance Investment Trust (1933 Act File No.
33-1121) of our reports each dated April 30, 1999 on the financial statements,
supplementary data and financial highlights of Eaton Vance National Limited
Maturity Municipals Fund and National Limited Maturity Municipals Portfolio
included in the March 31, 1999 Annual Report to Shareholders of Eaton Vance
National Limited Maturity Municipals Fund.
We also consent to the reference to our Firm under the heading "Financial
Highlights" in the Prospectus and under the heading "Other Service Providers" in
the Statement of Additional Information.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
July 21, 1999
Boston, Massachusetts
