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As filed with the Securities and Exchange Commission on July 29, 1996
File No. 811-7518
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 5 [x]
CONNECTICUT LIMITED MATURITY
MUNICIPALS PORTFOLIO
(formerly called Connecticut Limited Maturity Tax Free Portfolio)
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(Exact Name of Registrant as Specified in Charter)
24 Federal Street
Boston, Massachusetts 02110
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 482-8260
H. Day Brigham, Jr.
24 Federal Street, Boston, Massachusetts 02110
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(Name and Address of Agent for Service)
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EXPLANATORY NOTE
This Registration Statement, as amended, has been filed by the
Registrant pursuant to Section 8(b) of the Investment Company Act of 1940,
as amended. However, interests in the Registrant have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), because
such interests will be issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section
4(2) of the 1933 Act. Investments in the Registrant may be made only by
investment companies, common or commingled trust funds, or similar
organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement,
as amended, does not constitute an offer to sell, or the solicitation of
an offer to buy, any interest in the Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant
to Paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant
Connecticut Limited Maturity Municipals Portfolio (the
"Portfolio") is a non-diversified, open-end management investment company
which was organized as a trust under the laws of the State of New York on
May 1, 1992. Interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within
the meaning of Section 4(2) of the Securities Act of 1933, as amended (the
"1933 Act"). Investments in the Portfolio may be made only by U.S. and
foreign investment companies, common or commingled trust funds, or similar
organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement,
as amended, does not constitute an offer to sell, or the solicitation of
an offer to buy, any "security" within the meaning of the 1933 Act.
The Portfolio's investment objective is to provide (1) a high
level of current income exempt from regular federal income tax and
Connecticut State personal income taxes and (2) limited principal
fluctuation. The Portfolio seeks to achieve its objective by investing
primarily in municipal obligations (as described below) having a dollar
weighted average duration of between three and nine years and which are
rated at least investment grade by a major rating agency or, if unrated,
are determined to be of at least investment grade quality by the
Portfolio's investment adviser, Boston Management and Research (the
"Investment Adviser" or "BMR").
Additional information about the investment policies of the
Portfolio appears in Part B. The Portfolio is not intended to be a
complete investment program, and a prospective investor should take into
account its objectives and other investments when considering the purchase
of interests in the Portfolio. The Portfolio cannot assure achievement of
its investment objective.
Investment Policies and Risks
The Portfolio seeks to achieve its investment objective by
investing 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 Connecticut State personal income
taxes.
At least 80% of the Portfolio's net assets will normally be
invested in obligations rated at least investment grade at the time of
investment (which are those rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by either Standard & Poor's
("S&P") or Fitch Investors Service, Inc. ("Fitch")) or, if unrated,
determined by the Investment Adviser to be of at least investment grade
quality. The balance of the Portfolio's net assets may be invested in
municipal obligations rated below investment grade (but not lower than B
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by Moody's, S&P or Fitch) and unrated municipal obligations considered to
be of comparable quality by the Investment Adviser. Municipal obligations
rated Baa or BBB may have speculative characteristics. Also, changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case
of higher rated obligations. Securities rated below Baa or BBB are
commonly known as "junk bonds". The Portfolio may retain an obligation
whose rating drops below B after its acquisition if such retention is
considered desirable by the Investment Adviser. See "Additional Risk
Considerations." For a description of municipal obligation ratings, see
the Appendix to Part B.
In pursuing its investment objective, the Portfolio seeks to
invest in a portfolio having a dollar weighted average duration of between
three and nine years. Duration represents the dollar weighted average
maturity of expected cash flows (i.e., interest and principal payments) on
one or more debt obligations, discounted to their present values. The
duration of an obligation is usually not more than its stated maturity and
is related to the degree of volatility in the market value of the
obligation. Maturity measures only the time until a bond or other debt
security provides its final payment; it does not take into account the
pattern of a security's payments over time. Duration takes both interest
and principal payments into account and, thus, in the Investment Adviser's
opinion, is a more accurate measure of a debt security's sensitivity to
changes in interest rates. In computing the duration of its portfolio,
the Portfolio will have to estimate the duration of debt obligations that
are subject to prepayment or redemption by the issuer, based on projected
cash flows from such obligations.
The Portfolio may use various techniques to shorten or lengthen
the dollar weighted average duration of its portfolio, including the
acquisition of debt obligations at a premium or discount, and transactions
in futures contracts and options on futures. Subject to the requirement
that the dollar weighted average portfolio duration will not exceed nine
years, the Portfolio may invest in individual debt obligations of any
maturity.
Municipal Obligations. Municipal obligations include bonds,
notes and commercial paper issued by a municipality for a wide variety of
both public and private purposes, the interest on which is, in the opinion
of bond counsel, exempt from regular federal income tax. Public purpose
municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or
facility. Municipal notes include bond anticipation notes, tax
anticipation notes and revenue anticipation notes. Bond, tax and revenue
anticipation notes are short-term obligations that will be retired with
the proceeds of an anticipated bond issue, tax revenue or facility
revenue, respectively. Under normal market conditions, the Portfolio will
invest at least 65% of its total assets in obligations issued by the State
of Connecticut or its political subdivisions.
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Distributions to corporate investors of interest income from
certain types of municipal obligations may be subject to the federal
alternative minimum tax (the "AMT"). As at March 31, 1996, the Portfolio
had invested 18.8% of its net assets in such obligations. The Portfolio
may not be suitable for investors subject to the AMT.
Concentration in Connecticut Issuers Risks. Because the
Portfolio will normally invest at least 65% of its total assets in
obligations of Connecticut issuers, it is more susceptible to factors
adversely affecting such issuers than mutual funds that do not concentrate
in the obligations of issuers located in a single State. Municipal
obligations of issuers located in a single State may be adversely effected
by economic developments and by legislation and other governmental
activities in that State. To the extent that the Portfolio's assets are
concentrated in municipal obligations of Connecticut issuers, the
Portfolio may be subject to an increased risk of loss.
Historically, Connecticut's economic structure has been
concentrated in manufacturing, including a heavy component of defense-
related industries, which increases the State's vulnerability to economic
cycles and to declines in federal government defense spending. More
recently, Connecticut's level of manufacturing activity has declined, but
this has been partially offset by extensive urban development, a large
insurance sector, relocations of corporate headquarters to Connecticut
(specifically to Fairfield County), and the extension of other service
sectors. For 1995, the unemployment rate in Connecticut on a seasonally
adjusted basis was 5.2%, as compared to a rate of 5.6% nationwide.
General obligation bonds issued by Connecticut municipalities are
payable primarily only from ad valorem taxes on property subject to
taxation by the municipality. The State has about $6 billion of general
obligation bonds outstanding, of which more than half have been issued for
general state purposes. The remaining general obligation bonds were
issued for highway construction, mass transit, and rental housing. Debt
indicators have been rising and are high at $1,850 of net direct debt per
capita. Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in
recent years. The most notable of these is the City of Bridgeport, which
filed a bankruptcy petition on June 7, 1991, but its petition should be
dismissed on the grounds that Bridgeport was not insolvent when the
petition was filed. Regional economic difficulties, reductions in
revenues, and increased expenses could lead to further fiscal problems for
the State and its political subdivisions, authorities, and agencies. This
could result in declines in the value of their outstanding obligations,
reductions in their ability to pay interest and principal thereon, and
increases in their future borrowing costs.
General obligations of the State of Connecticut are rated AA-, Aa
and AA by S&P, Moody's and Fitch, respectively. The bond ratings provided
are current as of the date hereof and are based on economic conditions
that may not continue; moreover, there can be no assurance that particular
bond issues may not be adversely affected by changes in economic,
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political or other conditions. The State's political subdivisions may
have different ratings that are unrelated to the ratings assigned to State
obligations.
Subject to the investment policies set forth above, the Portfolio
may invest in obligations of the governments of Puerto Rico, the U.S.
Virgin Islands and Guam the interest on which cannot be taxed by and State
under federal law. The Portfolio may invest up to 5% of its net assets in
obligations issued by the governments of each of the U.S. Virgin Islands
and Guam, and may invest up to 35% of its net assets in obligations issued
by the government of Puerto Rico. The economy of Puerto Rico is dominated
by the manufacturing and service sectors. Although the economy of Puerto
Rico expanded significantly from fiscal 1984 through fiscal 1990, the rate
of this expansion slowed during fiscal years 1991, 1992 and 1993. Growth
in the future will depend on several factors, including the state of the
U.S. economy and the relative stability in the price of oil, the exchange
rate of the U.S. dollar and the cost of borrowing. In addition, proposed
changes to Section 936, a tax incentive that has encouraged significant
industry growth, could have a dampening effect on the growth or even lead
to declines in gross domestic product. Although the Puerto Rico
unemployment rate has declined substantially since 1985, the seasonally
adjusted unemployment rate for March 1996 was approximately 12.8%. The
North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or
labor intensive jobs to Mexico.
S&P rates Puerto Rico general obligation debt A, while Moody's
rates it Baa1; these ratings have been in place since 1956 and 1976,
respectively. S&P assigned a negative outlook on Puerto Rico in 1994.
In addition, the Portfolio may invest 25% or more of its total
assets in municipal obligations of the same type, including, without
limitation, the following: lease rental obligations of State and local
authorities; obligations of State and local housing finance authorities,
municipal utilities systems or public housing authorities; obligations of
hospitals or life care facilities; or industrial development or pollution
control bonds issued for electric utility systems, steel companies, paper
companies or other purposes. This may make the Portfolio more susceptible
to adverse economic, political, or regulatory occurrences affecting a
particular category of issuer. For example, health care-related issuers
are susceptible to medicaid reimbursement policies, and national and State
health care legislation. As the Portfolio's concentration increases, so
does the potential for fluctuation in the value of its interests.
Non-Diversified Status. As a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act"), the
Portfolio may invest, with respect to 50% of its total assets, more than
5% (but not more than 25%) of its total assets in the securities of any
issuer. The Portfolio is likely to invest a greater percentage of its
assets in the securities of a single issuer than would a diversified fund.
Therefore, the Portfolio is more susceptible to any single adverse
economic or political occurrence or development affecting issuers of
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municipal obligations.
Other Investment Practices
The Portfolio may engage in the following investment practices,
some of which may be considered to involve "derivative" instruments
because they derive their value from another instrument, security or
index. In addition, the Portfolio may temporarily borrow up to 5% of the
value of its total assets to satisfy redemption requests or settle
securities transactions.
When-Issued Securities. The Portfolio may purchase securities on
a "when-issued" basis, which means that payment and delivery occur on a
future settlement date. The price and yield of such securities are
generally fixed on the date of commitment to purchase. However, the
market value of the securities may fluctuate prior to delivery and upon
delivery the securities may be worth more or less than the Portfolio
agreed to pay for them. The Portfolio may also purchase instruments that
give the Portfolio the option to purchase a Connecticut obligation when
and if issued.
Futures Transactions. The Portfolio may purchase and sell
various kinds of financial futures contracts and options thereon to hedge
against changes in interest rates. Futures contracts may be based on
various debt securities (such as U.S. Government securities and municipal
obligations) and securities indices (such as the Municipal Bond Index
traded on the Chicago Board of Trade). Such transactions involve a risk
of loss or depreciation due to unanticipated adverse changes in securities
prices, which may exceed the Portfolio's initial investment in these
contracts. The Portfolio may not purchase or sell futures contracts or
related options, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of margin deposits and
premiums paid on the Portfolio's outstanding positions would exceed 5% of
the market value of the Portfolio's net assets. These transactions
involve transaction costs. There can be no assurance that the Investment
Adviser's use of futures will be advantageous to the Portfolio.
Insured Obligations. The Portfolio may purchase municipal bonds
that are additionally secured by insurance, bank credit agreements, or
escrow accounts. The credit quality of companies which provide such
credit enhancements will affect the value of those securities. Although
the insurance feature reduces certain financial risks, the premiums for
insurance and the higher market price paid for insured obligations may
reduce current yield. Insurance generally will be obtained from insurers
with a claims-paying ability rated Aaa by Moody's or AAA by S&P or Fitch.
The insurance does not guarantee the market value of the insured
obligations or the net asset value of the Portfolio's interests.
Additional Risk Considerations
Many municipal obligations offering high current income are in
the lowest investment grade category (Baa or BBB), lower categories or may
be unrated. As indicated above, the Portfolio may invest in municipal
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obligations rated below investment grade (but not lower than B by Moody's,
S&P or Fitch) and comparable unrated obligations. The lowest investment
grade, lower rated and comparable unrated municipal obligations in which
the Portfolio may invest will have speculative characteristics in varying
degrees. While such obligations may have some quality and protective
characteristics, these characteristics can be expected to be offset or
outweighed by uncertainties or major risk exposures to adverse conditions.
Lower rated and comparable unrated municipal obligations are subject to
the risk of an issuer's inability to meet principal and interest payments
on the obligations (credit risk) and may also be subject to greater price
volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated municipal obligations are
also more likely to react to real or perceived developments affecting
market and credit risk than are more highly rated obligations, which react
primarily to movements in the general level of interest rates. The
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 and 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.
The Portfolio may retain defaulted obligations in its portfolio
when such retention is considered desirable by the Investment Adviser. In
the case of a defaulted obligation, the Portfolio may incur additional
expense seeking recovery of its investment. Municipal obligations held by
the Portfolio that are rated below investment grade, but that, subsequent
to the assignment of such rating, are backed by escrow accounts containing
U.S. Government obligations, may be determined by the Investment Adviser
to be of investment grade quality for purposes of the Portfolio's
investment policies. The Portfolio may retain in its portfolio an
obligation whose rating drops below B after its acquisition, if such
retention is considered desirable by the Investment Adviser; provided,
however, that holdings of obligations rated below Baa or BBB will 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.
The net asset value of the Portfolio's interests will change in
response to fluctuations in prevailing interest rates and changes in the
value of the securities held by the Portfolio. When interest rates
decline, the value of securities held by the Portfolio can be expected to
rise. Conversely, when interest rates rise, the value of most portfolio
security holdings can be expected to decline. Because the Portfolio
intends to limit its average portfolio duration to no more than nine
years, its net asset value can be expected to be less sensitive to changes
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in interest rates than that of a fund with a longer average portfolio
duration. Changes in the credit quality of the issuers of municipal
obligations held by the Portfolio will affect the principal value of (and
possibly the income earned on) such obligations. In addition, the values
of such securities are affected by changes in general economic conditions
and business conditions affecting the specific industries of their
issuers. Changes by recognized rating services in their ratings of a
security and in the ability of the issuer to make payments of principal
and interest may also affect the value of the Portfolio's investments.
The amount of information about the financial condition of an issuer of
municipal obligations may not be as extensive as that made available by
corporations whose securities are publicly traded. An investment in the
Portfolio will not constitute a complete investment program.
At times, a substantial portion of the Portfolio's assets may be
invested in securities as to which the Portfolio, by itself or together
with other accounts managed by the Investment Adviser and its affiliates,
holds a major portion or all of such securities. Under adverse market or
economic conditions or in the event of adverse changes in the financial
condition of the issuer, the Portfolio could find it more difficult to
sell such securities when the Investment Adviser believes it advisable to
do so or may be able to sell such securities only at prices lower than if
such securities were more widely held. Under such circumstances, it may
also be more difficult to determine the fair value of such securities for
purposes of computing the Portfolio's net asset value.
The secondary market for some municipal obligations (including
issues that 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.
Some of the securities in which the Portfolio invests may include
so-called "zero-coupon" bonds, whose values are subject to greater
fluctuation in response to changes in market interest rates than bonds
that pay interest currently. Zero-coupon bonds are issued at a
significant discount from face value and pay interest only at maturity
rather than at intervals during the life of the security. The Portfolio
is required to accrue income from zero-coupon bonds on a current basis,
even though it does not receive that income currently in cash. Thus, the
Portfolio may have to sell other investments to obtain cash needed to make
income distributions.
The Portfolio may invest in municipal leases, and participations
in municipal leases. The obligation of the issuer to meet its obligations
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under such leases is often subject to the appropriation by the appropriate
legislative body, on an annual or other basis, of funds for the payment of
the obligations. Investments in municipal leases are thus subject to the
risk that the legislative body will not make the necessary appropriation
and the issuer will not otherwise be willing or able to meet its
obligation.
The Portfolio has adopted certain fundamental investment
restrictions that are enumerated in detail in Part B and that may
not be changed unless authorized by an investor vote. Except for
such enumerated restrictions and as otherwise indicated in this
Part A, the investment objective and policies of the Portfolio
are not fundamental policies and accordingly may be changed by
the Trustees of the Portfolio without obtaining the approval of
the investors in the Portfolio. If any changes were made in the
Portfolio's investment objective, the Portfolio might have an
investment objective different from the objective that an
investor considered appropriate at the time the investor became
an interest holder in the Portfolio.
Item 5. Management of the Portfolio
The Portfolio is organized as a trust under the laws of the State
of New York. The Portfolio intends to comply with all applicable federal
and state securities laws.
Investment Adviser. The Portfolio engages BMR, a wholly-owned
subsidiary of Eaton Vance Management ("Eaton Vance"), as its investment
adviser. Eaton Vance, its affiliates and its predecessor companies have
been managing assets of individuals and institutions since 1924 and
managing investment companies since 1931.
Acting under the general supervision of the Board of Trustees of
the Portfolio, BMR manages the Portfolio's investments and affairs. BMR
also furnishes for the use of the Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the investments
of the Portfolio. Under its investment advisory agreement with the
Portfolio, BMR receives a monthly advisory fee equal to the aggregate of:
(a) a daily asset-based fee computed by applying the annual
asset rate applicable to that portion of the total daily net
assets in each Category as indicated below, plus
(b) a daily income-based fee computed by applying the daily
income rate applicable to that portion of the total daily
gross income (which portion shall bear the same relationship
to the total daily gross income on such day as that portion
of the total daily net assets in the same Category bears to
the total daily net assets on such day) in each Category as
indicated below:
Annual Daily
Asset Income
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Category Daily Net Assets Rate 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%
As at March 31, 1996, the Portfolio had net assets of
$14,861,526. For the fiscal year ended March 31, 1996, the Portfolio paid
BMR advisory fees equivalent to 0.13% of the Portfolio's average daily net
assets for such year. Absent a fee reduction, the Portfolio would have
paid BMR advisory fees equivalent to 0.46% of the Portfolio's average
daily net assets for such year.
BMR or Eaton Vance acts as investment adviser to investment
companies and various individual and institutional clients with assets
under management of over $16 billion. Eaton Vance is a wholly-owned
subsidiary of Eaton Vance Corp., a publicly-held holding company that,
through its subsidiaries and affiliates, engages primarily in investment
management, administration and marketing activities.
William H. Ahern has acted as the portfolio manager of the
Portfolio since October 1994. He is a Vice President of Eaton Vance and
has been an employee of Eaton Vance since 1989.
Municipal obligations are normally traded on a net basis (without
commission) through broker-dealers and banks acting for their own account.
Such firms attempt to profit from such transactions by buying at the bid
price and selling at the higher asked price of the market, and the
difference is customarily referred to as the spread. In selecting firms
which will execute portfolio transactions, BMR judges their professional
ability and quality of service and uses its best efforts to obtain
execution at prices which are advantageous to the Portfolio and at
reasonably competitive spreads. Subject to the foregoing, BMR may
consider sales of shares of other investment companies sponsored by BMR or
Eaton Vance as a factor in the selection of firms to execute portfolio
transactions.
The Portfolio and BMR have adopted Codes of Ethics relating to
personal securities transactions. The Codes permit Eaton Vance personnel
to invest in securities (including securities that may be purchased or
held by the Portfolio) for their own accounts, subject to certain pre-
clearance, reporting and other restrictions and procedures contained in
such Codes.
The Portfolio is responsible for the payment of all of its costs
and expenses not expressly stated to be payable by BMR under the
investment advisory agreement.
Item 6. Capital Stock and Other Securities
The Portfolio is organized as a trust under the laws of the State
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of New York and intends to be treated as a partnership for federal tax
purposes. Under the Declaration of Trust, the Trustees are authorized to
issue interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments
in the Portfolio may not be transferred, but an investor may withdraw all
or any portion of its investment at any time at net asset value.
Investors in the Portfolio will each be liable for all obligations of the
Portfolio. However, the risk of an investor in the Portfolio 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.
The Declaration of Trust provides that the Portfolio will
terminate 120 days after the complete withdrawal of any investor in the
Portfolio unless either the remaining investors, by unanimous vote at a
meeting of such investors, or a majority of the Trustees of the Portfolio,
by written instrument consented to by all investors, agree to continue the
business of the Portfolio. This provision is consistent with the
treatment of the Portfolio as a partnership for federal income tax
purposes.
Investments in the Portfolio have no preemptive or conversion
rights and are fully paid and nonassessable by the Portfolio, except as
set forth above. The Portfolio is not required and has no current
intention to hold annual meetings of investors, but the Portfolio may hold
special meetings of investors when in the judgment of the Trustees it is
necessary or desirable to submit matters for an investor vote. Changes in
fundamental policies or restrictions will be submitted to investors for
approval. The investment objective and all nonfundamental investment
policies of the Portfolio may be changed by the Trustees of the Portfolio
without obtaining the approval of the investors in the Portfolio.
Investors have under certain circumstances (e.g., upon application and
submission of certain specified documents to the Trustees by a specified
number of investors) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of
removing one or more Trustees. Any Trustee may be removed by the
affirmative vote of holders of two-thirds of the interests in the
Portfolio.
Information regarding pooled investment entities or funds that
invest in the Portfolio may be obtained by contacting Eaton Vance
Distributors, Inc., 24 Federal Street, Boston, MA 02110, (617) 482-8260.
Smaller investors in the Portfolio may be adversely affected by the
actions of a larger investor in the Portfolio. For example, if a large
investor withdraws from the Portfolio, the remaining investors may
experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may hold fewer securities, resulting
in increased portfolio risk, and experience decreasing economies of scale.
However, this possibility exists as well for historically structured funds
that have large or institutional investors.
As of July 1, 1996, EV Marathon Connecticut Limited Maturity
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Municipals Fund, a series of Eaton Vance Investment Trust, controlled the
Portfolio by virtue of owning approximately 87.9% of the outstanding
voting interests in the Portfolio.
The net asset value of the Portfolio is determined each day on
which the New York Stock Exchange (the "Exchange") is open for trading
("Portfolio Business Day"). This determination is made each Portfolio
Business Day as of the close of regular trading on the Exchange (currently
4:00 p.m., New York time) (the "Portfolio Valuation Time").
Each investor in the Portfolio may add to or reduce its
investment in the Portfolio on each Portfolio Business Day as of 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 represents that investor's share of the aggregate interest 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.
The Portfolio will allocate at least annually among its investors
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. The Portfolio's
net investment income consists of all income accrued on the Portfolio's
assets, less all actual and accrued expenses of the Portfolio, determined
in accordance with generally accepted accounting principles.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any federal income tax. (See Part B,
Item 20.) However, each investor in the Portfolio will take into account
its allocable share of the Portfolio's ordinary income and capital gain in
determining its federal income tax liability. The determination of each
such share will be made in accordance with the governing instruments of
the Portfolio, which instruments are intended to comply with the
requirements of the Code and the regulations promulgated thereunder.
It is intended that the Portfolio's assets and income will be
managed in such a way that an investor in the Portfolio that seeks to
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qualify as a regulated investment company under the Code will be able to
satisfy the requirements for such qualification.
Item 7. Purchase of Interests in the Portfolio
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the 1933 Act. See "General Description of Registrant"
above.
An investment in the Portfolio will be made without a sales load.
All investments received by the Portfolio will be effected as of the next
Portfolio Valuation Time. The net asset value of the Portfolio is
determined at the Portfolio Valuation Time on each Portfolio Business Day.
The Portfolio will be closed for business and will not price interests in
the Portfolio on the following business holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Portfolio's net asset value is
computed in accordance with procedures established by the Portfolio's
Trustees.
The Portfolio's net asset value is determined by Investors Bank &
Trust Company (as custodian and agent for the Portfolio) based on market
or fair value in the manner authorized by the Trustees of the Portfolio.
The net asset value is computed by subtracting the liabilities of the
Portfolio from the value of its total assets. Municipal obligations will
normally be valued on the basis of valuations furnished by a pricing
service. For further information regarding the valuation of the
Portfolio's assets, see Part B, Item 19.
There is no minimum initial or subsequent investment in the
Portfolio. The Portfolio reserves the right to cease accepting
investments at any time or to reject any investment order.
The placement agent for the Portfolio is Eaton Vance
Distributors, Inc. ("EVD"). The principal business address of EVD is 24
Federal Street, Boston, Massachusetts 02110. EVD receives no compensation
for serving as the placement agent for the Portfolio.
Item 8. Redemption or Decrease of Interest
An investor in the Portfolio may withdraw all of (redeem) or any
portion of (decrease) its interest in the Portfolio if a withdrawal
request in proper form is furnished by the investor to the Portfolio. All
withdrawals will be effected as of the next Portfolio Valuation Time. The
proceeds of a withdrawal will be paid by the Portfolio normally on the
Portfolio Business Day the withdrawal is effected, but in any event within
seven days. The Portfolio reserves the right to pay the proceeds of a
withdrawal (whether a redemption or decrease) by a distribution in kind of
portfolio securities (instead of cash). The securities so distributed
would be valued at the same amount as that assigned to them in calculating
the net asset value for the interest (whether complete or partial) being
withdrawn. If an investor received a distribution in kind upon such
withdrawal, the investor could incur brokerage and other charges in
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converting the securities to cash. The Portfolio has filed with the
Securities and Exchange Commission a notification of election on Form N-
18F-1 committing to pay in cash all requests for withdrawals by any
investor, limited in amount with respect to such investor during any 90
day period to the lesser of (a) $250,000 or (b) 1% of the net asset value
of the Portfolio at the beginning of such period.
Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds
postponed during any period in which the Exchange is closed (other than
weekends or holidays) or trading on the Exchange is restricted or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists, or
during any other period permitted by order of the Commission for the
protection of investors.
Item 9. Pending Legal Proceedings
Not applicable.
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PART B
Item 10. Cover Page.
Not applicable.
Item 11. Table of Contents.
Page
General Information and History . . . . . . . . . . . . . . B-1
Investment Objectives and Policies . . . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . . . . B-15
Control Persons and Principal Holder of Securities . . . . B-18
Investment Advisory and Other Services . . . . . . . . . . B-18
Brokerage Allocation and Other Practices . . . . . . . . . B-21
Capital Stock and Other Securities . . . . . . . . . . . . B-24
Purchase, Redemption and Pricing of Securities . . . . . . B-26
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . B-26
Underwriters . . . . . . . . . . . . . . . . . . . . . . . B-30
Calculation of Performance Data . . . . . . . . . . . . . . B-30
Financial Statements . . . . . . . . . . . . . . . . . . . B-30
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . a-1
Item 12. General Information and History.
Effective December 15, 1995, the Portfolio's name was changed
from "Connecticut Limited Maturity Tax Free Portfolio" to "Connecticut
Limited Maturity Municipals Portfolio."
Item 13. Investment Objectives and Policies.
Part A contains additional information about the investment
objective and policies of Connecticut Limited Maturity Municipals
Portfolio (the "Portfolio"). This Part B should be read in conjunction
with Part A. Capitalized terms used in this Part B and not otherwise
defined have the meanings given them in Part A.
Municipal Obligations
Municipal obligations are issued to obtain funds for various
public and private purposes. Such obligations include bonds as well as
tax-exempt commercial paper, project notes and municipal notes such as
tax, revenue and bond anticipation notes of short maturity, generally less
than three years. In general, there are three categories of municipal
obligations the interest on which is exempt from federal income tax and is
not a tax preference item for purposes of the federal alternative minimum
tax: (i) certain "public purpose" obligations (whenever issued), which
include obligations issued directly by state and local governments or
their agencies to fulfill essential governmental functions; (ii) certain
obligations issued before August 8, 1986 for the benefit of non-
governmental persons or entities; and (iii) certain "private activity
bonds" issued after August 7, 1986 which include "qualified Section
501(c)(3) bonds" or refundings of certain obligations included in the
second category. In assessing the federal income tax treatment of
interest on any such 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
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principal classifications of municipal bonds are "general obligation"
bonds and "revenue" bonds.
Interest on certain "private activity bonds" issued after August
7, 1986 is exempt from regular federal income tax, but such interest is
treated as a tax preference item that could subject the recipient to or
increase the recipient's liability for the federal alternative minimum
tax. It should be noted that, for a corporate holder (other than a
regulated investment company) of an interest in the Portfolio, interest on
all municipal obligations (whenever issued) is included in "adjusted
current earnings" for purposes of the federal alternative minimum tax as
applied to corporations (to the extent not already included in alternative
minimum taxable income as income attributable to private activity bonds).
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.
Issuers of general obligation bonds include states, counties,
cities, towns and regional districts. The proceeds of these obligations
are used to fund a wide range of public projects including the
construction or improvement of schools, highways and roads, water and
sewer systems and a variety of other public purposes. The basic security
of general obligation bonds is the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. The taxes
that can be levied for the payment of debt service may be limited or
unlimited as to rate and amount.
The principal security for a revenue bond is generally the net
revenues derived from a particular facility or group of facilities or, in
some cases, from the proceeds of a special excise or other specific
revenue source. Revenue bonds have been issued to fund a wide variety of
capital projects including: electric, gas, water, sewer and solid waste
disposal systems; highways, bridges and tunnels; port, airport and parking
facilities; transportation systems; housing facilities, colleges and
universities and hospitals. Although the principal security behind these
bonds varies widely, many provide additional security in the form of a
debt service reserve fund whose monies may be used to make principal and
interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security including partially or fully
insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt
service reserve fund, some authorities provide further security in the
form of a state's ability (without legal obligation) to make up
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deficiencies in the debt service reserve fund. Lease rental revenue bonds
issued by a state or local authority for capital projects are normally
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Such payments are usually subject to annual appropriations by the state or
locality.
Industrial development and pollution control bonds are in most
cases revenue bonds and are generally not secured by the taxing power of
the municipality, but are usually secured by the revenues derived by the
authority from payments of the industrial user or users.
The Portfolio may on occasion acquire revenue bonds which carry
warrants or similar rights covering equity securities. Such warrants or
rights may be held indefinitely, but if exercised, the Portfolio
anticipates that it would, under normal circumstances, dispose of any
equity securities so acquired within a reasonable period of time.
While most municipal bonds pay a fixed rate of interest semi-
annually in cash, there are exceptions. Some bonds pay no periodic cash
interest, but rather make a single payment at maturity representing both
principal and interest. Bonds may be issued or subsequently offered with
interest coupons materially greater or less than those then prevailing,
with price adjustments reflecting such deviation.
The obligations of any person or entity to pay the principal of
and interest on a municipal obligation are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, and laws, if any, that 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 that 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.
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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
that they undertake to rate. It should be emphasized, however, that
ratings are based on judgment and are not absolute standards of quality.
Consequently, municipal obligations with the same maturity, coupon and
rating may have different yields while obligations of the same maturity
and coupon with different ratings may have the same yield. In addition,
the market price of such obligations will normally fluctuate with changes
in interest rates, and therefore the net asset value of the Portfolio will
be affected by such changes.
Risks of Concentration
Connecticut Obligations. The following information as to certain
Connecticut considerations is given to investors in view of the
Portfolio's policy of concentrating its investments in Connecticut
issuers. Such information supplements the information in Part A. 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
Connecticut issuers. The Portfolio has not independently verified this
information.
Although the manufacturing sector (primarily aircraft engines,
helicopters and submarines) has traditionally been of prime economic
importance to Connecticut, the non-manufacturing sector of employment now
dominates the State's economy. Approximately 82% of the State's non-
agricultural employment is in the non-manufacturing sector, with 29% of
the total in the service sector, 22% in the wholesale and retail trade
sector, and 14% in the government sector. Defense-related business plays
an important role in the Connecticut economy, and defense awards to
Connecticut have traditionally been among the highest in the nation on a
per capita basis. However, in recent years the federal government has
reduced defense-related spending, which has had an adverse impact on the
Connecticut economy.
For 1995, the unemployment rate in Connecticut on a seasonally
adjusted basis was 5.2%, compared to 5.8% for the nation. Throughout
1995, the State experienced little in the way of substantial job growth.
Despite this, Connecticut continues to have the highest per capita income
of any state, reaching 133.8% of the U.S. average in 1994.
The State derives over 65% of its revenues from taxes imposed by
the State. For the fiscal year 1995, the two taxes that generated the
greatest amount of revenue were the personal income tax and the sales and
use tax representing 41.4% and 37.8%, respectively, of total net tax
revenues. The tax revenues remained fairly stagnant, with the exception
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of the sales and use tax which increased 8.6%. In order to promote
economic stability and provide a positive business climate, several tax
changes were adopted during the 1993 legislative session. Among the most
significant changes were gradual reductions to the corporation business
tax rate of 11.5%, which reductions have since been accelerated and
increased so that for tax years commencing on or after January 1, 2000
such rate will be 7.5%.
For the fiscal year 1995, the State experienced a general fund
operating surplus of $80.5 million and had accumulated a GAAP-basis
deficit of $577 million. As of April 1, 1996, the Comptroller had
projected an operating deficit of $22.3 million for the fiscal year 1996.
The State, its officers and employees are defendants in numerous
lawsuits. According to the State Attorney General's Office, an adverse
decision in any of the cases summarized herein could materially affect the
State's financial position: (i) an action to enforce the spending cap
provision of the State's constitution by seeking to require that the
General Assembly define certain terms used therein and to enjoin certain
increases in "general budget expenditures" until this is done; (ii)
litigation on behalf of black and hispanic school children in the City of
Hartford seeking "integrated education" within the greater Hartford
metropolitan area; (iii) litigation involving claims by Indian tribes to
less than 1/10 of 1% of the State's land area; (iv) litigation challenging
the State's method of financing elementary and secondary public schools on
the grounds that it denies equal access to education; (v) an action on
behalf of all persons with retardation or traumatic brain injury, claiming
that their constitutional rights are violated by placement in State
hospitals alleged not to provide adequate treatment and training, and
seeking placement in community residential settings with appropriate
support services; (vi) an action by the Connecticut Hospital Association
and 33 hospitals seeking to require the State to reimburse hospitals for
in-patient medical services on a more favorable basis; (vii) a class
action by the Connecticut Criminal Defense Lawyers Association claiming a
campaign of illegal surveillance activity and seeking damages and
injunctive relief; and (viii) an action by inmates of the Department of
Correction seeking damages and injunctive relief with respect to alleged
violations of statutory and constitutional rights as a result of the
monitoring and recording of their telephone calls from the State's
correctional institutions.
Obligations of Puerto Rico, the U.S. Virgin Islands and Guam.
Subject to the Portfolio's investment policies as set forth in Part A, the
Portfolio may invest in the obligations of the governments of Puerto Rico,
the U.S. Virgin Islands and Guam (the "Territories"). Accordingly, the
Portfolio may be adversely affected by local political and economic
conditions and developments within the Territories affecting the issuers
of such obligations.
Puerto Rico has a diversified economy dominated by the
manufacturing and service sectors. Manufacturing is the largest sector in
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terms of gross domestic product and is more diversified than during
earlier phases of Puerto Rico's industrial development. The three largest
sectors of the economy (as a percentage of employment) are services (47%),
government (22%) and manufacturing (16.4%). These three sectors represent
39%, 11% and 39%, respectively, of the gross domestic product. The
service sector is the fastest growing, while the government and
manufacturing sectors have been stagnant for the past five years. The
North American Free Trade Agreement (NAFTA), which became effective
January 1, 1994, could lead to the loss of Puerto Rico's lower salaried or
labor intensive jobs to Mexico. The November 1995 unemployment rate was
13.4%, down from 16% for 1994.
The Commonwealth of Puerto Rico exercises virtually the same
control over its internal affairs as do the fifty states; however, it
differs from the states in its relationship with the federal government.
Most federal taxes, except those such as social security taxes that are
imposed by mutual consent, are not levied in Puerto Rico. However, in
conjunction with the 1993 U.S. budget plan, Section 936 of the Code was
amended and provided for two alternative limitations to the Section 936
credit. The first option will limit the credit against such income to 40%
of the credit allowable under current law, with a five year phase-in
period starting at 60% of the allowable credit. The second option is a
wage and depreciation based credit. The reduction of the tax benefits to
those U.S. companies with operations in Puerto Rico may lead to slower
growth in the future. Furthermore, federal policymakers have proposed the
total elimination of Section 936, phased out over ten years, as a budget-
balancing measure. There can be no assurance that these modifications
will not lead to a weakened economy, a lower rating on Puerto Rico's debt
or lower prices for Puerto Rican bonds that may be held by the Portfolio.
Puerto Rico's financial reporting was first conformed to
generally accepted accounting principles in fiscal 1990. Nonrecurring
revenues have been used frequently to balance recent years' budgets. In
November, 1993 Puerto Ricans voted on whether they wished to retain their
Commonwealth status, become a state or establish an independent nation.
The measure was defeated, with 48.5% voting to remain a Commonwealth, 46%
voting for statehood and 4% voting for independence. Retaining
Commonwealth status will leave intact the current relationship with the
federal government. There can be no assurance that the statehood issue
will not be brought to a vote in the future. A successful statehood vote
in Puerto Rico would then require ratification by the U.S. Congress to
ratify the election.
The United States Virgin Islands (USVI) are located approximately
1,100 miles east-southeast of Miami and are made up of St. Croix, St.
Thomas and St. John. Population, after reaching a peak of 110,800 in
1985, declined to 101,809 in 1990. The economy is heavily reliant on the
tourism industry, with roughly 43% of non-agricultural employment in
tourist-related trade and services. As of December, 1994, unemployment
stood at 4.8%. The tourism industry is economically sensitive and would
likely be adversely affected by a recession in either the United States or
Europe.
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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.
Because 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 incurred extensive damage from Hurricane Marilyn in
September, 1995. Widespread damage to the airport and hotels led to a
drop in tourism, which has had a negative impact on revenue collections.
There is currently no rated, unenhanced U.S. Virgin Islands debt
outstanding.
Guam, an unincorporated U.S. territory, is located 1,500 miles
southeast of Tokyo. Population, 133,000 in 1990, up 26% from the 1980
census level. The U.S. military is a key component of Guam's economy.
The federal government directly comprises more than 10% of the employment
base, with a substantial component of the service sector to support these
personnel. Guam is expected to benefit from the closure of the Subic Bay
Naval Base and the Clark Air Force Base in the Philippines. The Naval Air
Station, one of several U.S. military facilities on the island, has been
slated for closure by the Defense Base Closure and Realignment Committee;
however, the administration plans to use these facilities to expand the
Island's commercial airport. Guam is also heavily reliant on tourists,
particularly the Japanese. For 1994, the financial position of Guam was
weakened as it incurred an unaudited General Fund operating deficit. The
administration has taken steps to improve its financial position; however,
there are no guarantees that an improvement will be realized. Guam's
general obligation debt is rated Baa by Moody's.
Obligations of Particular Types of Issuers. The 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 a similar 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.
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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.
Life care facilities are an alternative form of long-term housing
for the elderly which offer residents the independence of a condominium
life style and, if needed, the comprehensive care of nursing home
services. Bonds to finance these facilities have been issued by various
state and local authorities. Because the bonds are normally secured only
by the revenues of each facility and not by state or local government tax
payments, they are subject to a wide variety of risks. Primarily, the
projects must maintain adequate occupancy levels to be able to provide
revenues sufficient to meet debt service payments. Moreover, because a
portion of housing, medical care and other services may be financed by an
initial deposit, it is important that the facility maintain adequate
financial reserves to secure estimated actuarial liabilities. The ability
of management to accurately forecast inflationary cost pressures is an
important factor in this process. The facilities may also be affected
adversely by regulatory cost restrictions applied to health care delivery
in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative
health care or conventional housing facilities in the private or public
sector.
Municipal Leases
The Portfolio may invest in municipal leases and participations
therein, which arrangements frequently involve special risks. Municipal
leases are obligations in the form of a lease or installment purchase
arrangement which are issued by a state or local government to acquire
equipment and facilities. Interest income from such obligations is
generally exempt from local and state taxes in the state of issuance.
"Participations" in such leases are undivided interests in a portion of
the total obligation. Participations entitle their holders to receive a
pro rata share of all payments under the lease. A trustee is usually
responsible for administering the terms of the participation and enforcing
the participants' rights in the underlying lease. Leases and installment
purchase or conditional sale contracts (which normally provide for title
to the leased assets to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements
for the issuance of debt. State debt-issuance limitations are deemed to
be inapplicable to these arrangements because of the inclusion in many
leases or contracts of "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Such
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arrangements are, therefore, subject to the risk that the governmental
issuer will not appropriate funds for lease payments.
Certain municipal lease obligations owned by the Portfolio may be
deemed illiquid for purposes of the Portfolio's 15% limitation on
investments in illiquid securities, unless determined by the Investment
Adviser, pursuant to guidelines adopted by the Trustees, to be liquid
securities for purposes 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 ongoing basis, including an assessment of
the likelihood that the lease may or may not be canceled.
Zero Coupon Bonds
Zero coupon bonds are debt obligations which do not require the
periodic payment of interest and are issued at a significant discount from
face value. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity at a rate of
interest reflecting the market rate of the security at the time of
issuance. Zero coupon bonds benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to
attract investors who are willing to defer receipt of such cash.
Insurance
Insured municipal obligations held by the Portfolio (if any) will
be insured as to their scheduled payment of principal and interest under
either (i) an insurance policy obtained by the issuer or underwriter of
the obligation at the time of its original issuance or (ii) an insurance
policy obtained by the Portfolio or a third party subsequent to the
obligation's original issuance (which may not be reflected in the
obligation's market value). In either event such insurance may provide
that in the event of nonpayment of interest or principal when due with
respect to an insured obligation, the insurer is not required to make such
payment until a specified time has lapsed (which may be 30 days or more
after notice).
Credit Quality
The Portfolio is dependent on the Investment Adviser's judgment,
analysis and experience in evaluating the quality of municipal
obligations. In evaluating the credit quality of a particular issue, when
rated or unrated, the Investment Adviser will normally take into
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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 issuer, the
ability of the issuer's management and regulatory matters. The Investment
Adviser will attempt to reduce the risks of investing in the lowest
investment grade, below investment grade and comparable unrated
obligations through active portfolio management, credit analysis and
attention to current developments and trends in the economy and the
financial markets.
See "Portfolio of Investments" in the "Financial Statements"
incorporated by reference into this Part B with respect to any defaulted
obligations held by the Portfolio.
Short-Term Trading
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 anticipates that its annual portfolio turnover rate will
generally not exceed 100% (excluding turnover of securities having
maturity of one year or less). A 100% annual turnover rate would occur,
for example, if all the securities held by the Portfolio were replaced
once in a period of one year. A high turnover rate (100% or more)
necessarily involves greater expenses to the Portfolio. The Portfolio
engages in portfolio trading (including short-term trading) if it believes
that a transaction including all costs will help in achieving its
investment objective. The Portfolio's portfolio turnover rates for the
fiscal years ended March 31, 1996 and 1995, were 52% and 73%,
respectively.
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.
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The Portfolio will make commitments to purchase when-issued
securities only with the intention of actually acquiring the securities,
but may sell such securities before the settlement date if it is deemed
advisable as a matter of investment strategy. The payment obligation and
the interest rate that will be received on the securities are fixed at the
time the Portfolio enters into the purchase commitment. The Portfolio's
custodian will segregate cash or high grade liquid debt securities in a
separate account of the Portfolio in an amount at least equal to the when-
issued commitments. If the value of the securities placed in the separate
account declines, additional cash or high grade liquid debt securities
will be placed in the account on a daily basis so that the value of the
account will at least equal the amount of the Portfolio's when-issued
commitments. When the Portfolio commits to purchase a security on a when-
issued basis, it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by the Portfolio are subject to
changes in value based upon the perception of the creditworthiness of the
issuer and changes in the level of interest rates (i.e., appreciation when
interest rates decline and depreciation when interest rates rise).
Therefore, to the extent that the Portfolio remains substantially fully
invested at the same time that it has purchased securities on a when-
issued basis, there will be greater fluctuations in the Portfolio's net
asset value than if it solely set aside cash to pay for when-issued
securities.
Floating or Variable Rate Obligations
The Portfolio may purchase floating or variable rate obligations.
Floating or variable rate instruments provide for adjustments in the
interest rate at specified intervals (weekly, monthly, semi-annually,
etc.). The revised rates are usually set at the issuer's discretion, in
which case the investor normally enjoys the right to "put" the security
back to the issuer or the issuer's agent. Rate revisions may
alternatively be determined by formula or in some other contractual
fashion. Floating or variable rate obligations normally provide that the
holder can demand payment of the obligation on short notice at par with
accrued interest and are frequently secured by letters of credit or other
credit support arrangements provided by banks. To the extent that such
letters of credit or other arrangements constitute an unconditional
guarantee of the issuer's obligations, a bank may be treated as the issuer
of a security for the purpose of complying with the diversification
requirements set forth in Section 5(b) of the Investment Company Act of
1940 (the "1940 Act") and Rule 5b-2 thereunder. The Portfolio would
anticipate using these obligations as cash equivalents pending longer term
investment of its funds.
Redemption, Demand and Put Features
Most municipal bonds have a fixed final maturity date. However,
it is commonplace for the issuer to reserve the right to call the bond
earlier. Also, some bonds may have "put" or "demand" features that allow
early redemption by the bondholder. 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
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than conventional long term bonds (protecting to some degree against a
rise in interest rates) while providing greater opportunity than
comparable intermediate term bonds, because the Portfolio may retain the
bond if interest rates decline. By acquiring these kinds of obligations
the Portfolio obtains the contractual right to require the issuer of the
security or some other person (other than a broker or dealer) to purchase
the security at an agreed upon price, which right is contained in the
obligation itself rather than in a separate agreement with the seller or
some other person. Because this right is assignable with the security,
which is readily marketable and valued in the customary manner, the
Portfolio will not assign any separate value to such right.
Liquidity and Protective Put Options
The Portfolio may also enter into a separate agreement with the
seller of the security or some other person granting the Portfolio the
right to put the security to the seller thereof or the other person at an
agreed upon price. The Portfolio intends to limit this type of
transaction to institutions (such as banks or securities dealers) which
the Investment Adviser believes present minimal credit risks and would
engage in this type of transaction to facilitate portfolio liquidity or
(if the seller so agrees) to hedge against rising interest rates. There
is no assurance that this kind of put option will be available to the
Portfolio or that selling institutions will be willing to permit the
Portfolio to exercise a put to hedge against rising interest rates. A
separate put option may not be marketable or otherwise assignable, and
sale of the security to a third party or lapse of time with the put
unexercised may terminate the right to exercise the put. The Portfolio
does not expect to assign any value to any separate put option which may
be acquired to facilitate portfolio liquidity, inasmuch as the value (if
any) of the put will be reflected in the value assigned to the associated
security; any put acquired for hedging purposes would be valued in good
faith under methods or procedures established by the Trustees 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 not qualify as tax-exempt interest.
Securities Lending
The Portfolio may seek to increase its income by lending
portfolio securities to broker-dealers or other institutional borrowers.
Under present regulatory policies of the Commission, such loans are
required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities held by the Portfolio's
custodian and maintained on a current basis at an amount at least equal to
the market value of the securities loaned, which will be marked to market
daily. Cash equivalents include short-term municipal obligations as well
as taxable certificates of deposit, commercial paper and other short-term
money market instruments. The Portfolio would have the right to call a
loan and obtain the securities loaned at any time on up to five business
days' notice. During the existence of a loan, the Portfolio will continue
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to receive the equivalent of the interest paid by the issuer on the
securities loaned and will also receive a fee, or all or a portion of the
interest on investment of the collateral, if any. However, the Portfolio
may pay lending fees to such borrowers. The Portfolio would not have the
right to vote any securities having voting rights during the existence of
the loan, but would call the loan in anticipation of an important vote to
be taken among holders of the securities or the giving or withholding of
their consent on a material matter affecting the investment. As with
other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities
fails financially. However, the loans will be made only to organizations
deemed by the Portfolio's management to be of good standing and when, in
the judgment of the Portfolio's management, the consideration that can be
earned from securities loans justifies the attendant risk. Securities
lending involves administration expenses, including finders' fees.
Distributions of any income realized by the Portfolio from securities
loans will be taxable. If the management of the Portfolio decides to make
securities loans, it is intended that the value of the securities loaned
would not exceed 30% of the Portfolio's total assets. The Portfolio has
no present intention of engaging in securities lending.
Futures Contracts 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, 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 ("CFTC") and must be executed through a futures commission
merchant or brokerage firm that is a member of the relevant exchange. The
Portfolio may purchase and write call and put options on futures contracts
that are traded on a United States or foreign exchange or board of trade.
The Portfolio will be required, in connection with transactions in futures
contracts and the writing of options on futures, to make margin deposits,
which will be held by the Portfolio's custodian for the benefit of the
futures commission merchant through whom the Portfolio engages in such
futures and options transactions.
Some futures contracts and options thereon may become illiquid
under adverse market conditions. In addition, during periods of market
volatility, a commodity exchange may suspend or limit transactions in an
exchange-traded instrument, which may make the instrument temporarily
illiquid and difficult to price. Commodity exchanges may also establish
daily limits on the amount that the price of a futures contract or futures
option can vary from the previous day's settlement price. Once the daily
limit is reached, no trades may be made that day at a price beyond the
limit. This may prevent the Portfolio from closing out positions and
limiting its losses.
The Portfolio will engage in futures and related options
transactions only for bona fide hedging purposes as defined in or
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<PAGE>
permitted by CFTC regulations. The Portfolio will determine that the
price fluctuations in the futures contracts and options on futures are
substantially related to price fluctuations in securities held by the
Portfolio or that it expects to purchase. The Portfolio's futures
transactions will be entered into for traditional hedging purposes - that
is, futures contracts will be sold to protect against a decline in the
price of securities that the Portfolio owns, or futures contracts will be
purchased to protect the Portfolio against an increase in the price of
securities it intends to purchase. As evidence of this hedging intent,
the Portfolio expects that on 75% or more of the occasions on which it
takes a "long" futures (or option) position (involving the purchase of
futures contracts), the Portfolio will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities in the
cash market at the time when the futures (or option) position is closed
out. However, in particular cases, when it is economically advantageous
for the Portfolio to do so, a long futures position may be terminated (or
an option may expire) without the corresponding purchase of securities.
The Portfolio will engage in transactions in futures and related options
contracts only to the extent such transactions are consistent with the
requirements of the Code for maintaining the qualification of each of the
Portfolio's investment company investors as a regulated investment company
for federal income tax purposes (see "Tax Status").
Transactions using 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,
receivables and short-term debt securities with a value sufficient at all
times to cover its potential obligations not covered as provided in (1)
above. The Portfolio will comply with Commission guidelines regarding
cover for these instruments and, if the guidelines so require, set aside
cash, U.S. Government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed
amount.
Assets used as cover or held in a segregated account cannot be
sold while the position in the corresponding futures contract or option is
open, unless they are replaced with other appropriate assets. As a
result, the commitment of a large portion of the Portfolio's assets to
cover or segregated accounts could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current
obligations.
Short-Term Obligations
Although the Portfolio will normally attempt to invest
substantially all of its assets in municipal obligations, the Portfolio
may, under normal circumstances, invest up to 20% of its net assets in
short-term obligations the interest on which is subject to regular federal
income tax, is a tax preference item for purposes of the federal
alternative minimum tax, and/or is subject to Connecticut State personal
income taxes. Such short-term taxable obligations may include, but are
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not limited to, certificates of deposit, commercial paper, short-term
notes and obligations issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities. During periods of adverse market
conditions, the Portfolio may temporarily invest more than 20% of its
assets in such short-term taxable obligations, all of which will be high
quality.
Investment Restrictions
The Portfolio has adopted the following investment restrictions
which may not be changed without the approval of the holders of a
"majority of the outstanding voting securities" of the Portfolio, which as
used in this Part B means the lesser of (a) 67% or more of the outstanding
voting securities of the Portfolio present or represented by proxy at a
meeting if the holders of more than 50% of the outstanding voting
securities of the Portfolio are present or represented at the meeting or
(b) more than 50% of the outstanding voting securities of the Portfolio.
The term "voting securities" as used in this paragraph has the same
meaning as in the 1940 Act. As a matter of fundamental policy, the
Portfolio may not:
(1) Borrow money or issue senior securities except as permitted
by the Investment Company Act of 1940;
(2) Purchase securities on margin (but the Portfolio 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 Portfolio of initial or maintenance margin in connection with
futures contracts or related options transactions is not
considered the purchase of a security on margin;
(3) Underwrite or participate in the marketing of securities of
others, except insofar as it may technically be deemed to be an
underwriter in selling a portfolio security under circumstances
which may require the registration of the same under the
Securities Act of 1933;
(4) Purchase or sell real estate (including limited partnership
interests in real estate, but excluding readily marketable
interests in real estate investment trusts or readily marketable
securities of companies which invest or deal in real estate or
securities which are secured by real estate);
(5) Purchase or sell physical commodities or contracts for the
purchase or sale of physical commodities; or
(6) Make loans to any person except by (a) the acquisition of
debt instruments and making portfolio investments, (b) entering
into repurchase agreements and (c) lending portfolio securities.
The Portfolio has adopted the following investment policies which may
be changed by the Portfolio without approval of its investors. As a
matter of nonfundamental policy, the Portfolio will not: (a) engage in
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options, futures or forward transactions if more than 5% of its net
assets, as measured by the aggregate of the premiums paid by 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 Portfolio's net assets
(taken at current value) is held as collateral for such sales at any one
time (The Portfolio will make such sales only for the purpose of deferring
realization of gain or loss for federal income tax purposes); (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
Portfolio, or its delegate, determines to be liquid; (d) purchase or
retain in its portfolio any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee
of the Portfolio or is a member, officer, director or trustee of any
investment adviser of the Portfolio, if after the purchase of the
securities of such issuer by the Portfolio one or more of such persons
owns beneficially more than 1/2 of 1% of the shares or securities or both
(all taken at market value) of such issuer and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities or both (all taken at market value);
or (e) purchase oil, gas or other mineral leases or purchase partnership
interests in oil, gas or other mineral exploration or development
programs.
For purposes of the investment restrictions listed above, 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 Part A or this Part B 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 Portfolio's
acquisition of such security or other asset. Accordingly, any later
increase or decrease resulting from a change in values, assets or other
circumstances, other than a subsequent rating change below investment
grade made by a rating service, will not compel the Portfolio to dispose
of such security or other asset. Notwithstanding the foregoing, under
normal market conditions the Portfolio must take actions necessary to
comply with the policy of investing at least 65% of its total assets in
obligations of Connecticut issuers. Moreover, the Portfolio must always
be in compliance with the borrowing policy set forth above.
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In order to permit the sale in certain states of shares of
certain open-end investment companies that are investors in the Portfolio,
the Portfolio may make commitments more restrictive than the policies
described above. Should the Portfolio determine that any such commitment
is no longer in the best interests of the Portfolio and its investors, it
will revoke such commitment.
Item 14. Management of the Portfolio
The Trustees and officers of the Portfolio are listed below.
Except as indicated, each individual has held the office shown or other
offices in the same company for the last five years. Unless otherwise
noted, the business address of each Trustee and officer is 24 Federal
Street, Boston, Massachusetts 02110, which is also the address of the
Portfolio's investment adviser, Boston Management and Research ("BMR" or
the "Investment Adviser"), a wholly-owned subsidiary of Eaton Vance
Management ("Eaton Vance"); of Eaton Vance's parent, Eaton Vance Corp.
("EVC"); and of BMR's and Eaton Vance's trustee, Eaton Vance, Inc. ("EV").
Eaton Vance and EV are both wholly-owned subsidiaries of EVC. Those
Trustees who are "interested persons" of the Portfolio, BMR, Eaton Vance,
EVC or EV, as defined in the 1940 Act by virtue of their affiliation with
any one or more of the Portfolio, BMR, Eaton Vance, EVC or EV, are
indicated by an asterisk(*).
TRUSTEES OF THE PORTFOLIO
DONALD R. DWIGHT (65), Trustee
President of Dwight Partners, Inc. (a corporate relations and
communications company) founded in 1988; Chairman of the Board of
Newspapers of New England, Inc. since 1983. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (54), Vice President and Trustee*
Executive Vice President of BMR, Eaton Vance, EVC and EV, and a Director
of EVC and EV. Director or Trustee and officer of various investment
companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (61), Trustee
Jacob H. Schiff Professor of Investment Banking at Harvard University
Graduate School of Business Administration. Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: Harvard University Graduate School of Business Administration,
Soldiers Field Road, Boston, Massachusetts 02134
NORTON H. REAMER (60), Trustee
President and Director, United Asset Management Corporation, a holding
company owning institutional investment management firms. Chairman,
President and Director, UAM Funds (mutual funds). Director or Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
JOHN L. THORNDIKE (69), Trustee
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Director, Fiduciary Company Incorporated. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 175 Federal Street, Boston, Massachusetts 02110
JACK L. TREYNOR (66), Trustee
Investment Adviser and Consultant. Director or Trustee of various
investment companies managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
OFFICERS OF THE PORTFOLIO
THOMAS J. FETTER (52), President
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Fetter was elected President
of the Portfolio on December 13, 1993.
WILLIAM H. AHERN (37), Vice President
Assistant Vice President of BMR, Eaton Vance and EV and an employee of
Eaton Vance since July 17, 1989. Officer of various investment companies
managed by Eaton Vance or BMR. Mr. Ahern was elected Vice President of
the Portfolio on June 19, 1995.
ROBERT B. MACINTOSH (39), Vice President
Vice President of BMR since August 11, 1992, and of Eaton Vance and EV and
an employee of Eaton Vance since March 8, 1991. Fidelity Investments -
Portfolio Manager (1986-1991). Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (51), Treasurer
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
THOMAS OTIS (64), Secretary
Vice President and Secretary of BMR, Eaton Vance, EVC and EV. Officer of
various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (60), Assistant Secretary
Vice President of BMR, Eaton Vance and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
A. JOHN MURPHY (33), Assistant Secretary
Assistant Vice President of BMR, Eaton Vance and EV since March 1, 1994;
employee of Eaton Vance since March 1993. State Regulations Supervisor,
The Boston Company (1991-1993) and Registration Specialist, Fidelity
Management & Research Co. (1986-1991). Officer of various investment
companies managed by Eaton Vance or BMR. Mr. Murphy was elected Assistant
Secretary of the Portfolio on March 27, 1995.
ERIC G. WOODBURY (39), Assistant Secretary
Vice President of BMR, Eaton Vance and EV since February 1993; formerly,
associate attorney at Dechert Price & Rhoads and Gaston & Snow. Officer
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of various investment companies managed by Eaton Vance or BMR. Mr.
Woodbury was elected Assistant Secretary of the Portfolio on June 19,
1995.
Messrs. Thorndike (Chairman), Hayes and Reamer are members of the
Special Committee of the Board of Trustees 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 Portfolio, including investment advisory,
custodial and fund accounting services, and (ii) all other matters in
which Eaton Vance or its affiliates has any actual or potential conflict
of interest with the Portfolio or its interestholders.
The Nominating Committee is comprised of four Trustees who are
not "interested persons" as that term is defined under the 1940 Act
("noninterested Trustees"). The Committee has four-year staggered terms,
with one member rotating off the Committee to be replaced by another
noninterested Trustee of the Portfolio. Messrs. Hayes (Chairman), Reamer,
Thorndike and Treynor are currently serving on the Committee. The purpose
of the Committee is to recommend to the Board nominees for the position of
noninterested Trustee and to assure that at least a majority of the Board
of Trustees is independent of Eaton Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight are members of the Audit
Committee of the Board of Trustees. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection of
the independent certified public accountants, and reviewing with such
accountants and the Treasurer of the Portfolio 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 and transfer agent of the Portfolio.
The fees and expenses of those Trustees of the Portfolio who are
not members of the Eaton Vance organization (the noninterested Trustees)
are paid by the Portfolio. (The Trustees of the Portfolio who are members
of the Eaton Vance organization receive no compensation from the
Portfolio). During the fiscal year ended March 31, 1996, the
noninterested Trustees of the Portfolio earned the following compensation
in their capacities as Trustees of the Portfolio and in their capacities
as trustees of the funds in the Eaton Vance fund complex(1):
Aggregate Total Compensation
Compensation from Portfolio
Name from Portfolio and Fund Complex
---- -------------- ------------------
Donald R.
Dwight $34(2) $137,500(4)
Samuel L.
Hayes, III 32(3) 153,750(5)
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Norton H.
Reamer 32 137,500
John L.
Thorndike 32 142,500
Jack L.
Treynor 34 142,500
(1) The Eaton Vance fund complex consists of 217 registered
investment companies or series thereof.
(2) Includes $11 of deferred compensation.
(3) Includes $10 of deferred compensation.
(4) Includes $35,312 of deferred compensation.
(5) Includes $37,500 of deferred compensation.
Trustees of the Portfolio who are not affiliated with BMR may
elect to defer receipt of all or a percentage of their annual fees in
accordance with the terms of a Trustees Deferred Compensation Plan (the
"Plan"). Under the Plan, an eligible Trustee may elect to have his
deferred fees invested by the Portfolio in the shares of one or more funds
in the Eaton Vance Family of Funds, and the amount paid to the Trustees
under the Plan will be determined based upon the performance of such
investments. Deferral of Trustees' fees in accordance with the Plan will
have a negligible effect on the Portfolio's assets, liabilities, and net
income per share, and will not obligate the Portfolio to retain the
services of any Trustee or obligate the Portfolio to pay any particular
level of compensation to the Trustee. The Portfolio does not have a
retirement plan for its Trustees.
The Portfolio's Declaration of Trust provides that it will
indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved
because of their offices with the Portfolio, unless, as to liability to
the Portfolio or its investors, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect
to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Portfolio. In the case of settlement, such
indemnification will not be provided unless it has been determined by a
court or other body approving the settlement or other disposition, or by a
reasonable determination, based upon a review of readily available facts,
by vote of a majority of noninterested Trustees or in a written opinion of
independent counsel, that such officers or Trustees have not engaged in
wilful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
Item 15. Control Persons and Principal Holder of Securities
As of July 1, 1996, EV Marathon Connecticut Limited Maturity
Municipals Fund (the "Marathon Fund") and EV Classic Connecticut Limited
Maturity Municipals Fund (the "Classic Fund"), both series of Eaton Vance
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Investment Trust, owned approximately 87.7% and 11.5%, respectively, of
the value of the outstanding interests in the Portfolio. Because the
Marathon Fund controls the Portfolio, it may take actions without the
approval of any other investor. The Marathon Fund and the Classic Fund
have each informed the Portfolio that whenever it is requested to vote on
matters pertaining to the fundamental policies of the Portfolio, it will
each hold a meeting of shareholders and will cast its votes as instructed
by its shareholders. It is anticipated that any other investor in the
Portfolio which is an investment company registered under the 1940 Act
would follow the same or a similar practice. Eaton Vance Investment Trust
is an open-end management investment company organized as a business trust
under the laws of the Commonwealth of Massachusetts.
Item 16. Investment Advisory and Other Services
Investment Adviser. The Portfolio engages BMR as its investment
adviser pursuant to an Investment Advisory Agreement dated April 9, 1993.
BMR or Eaton Vance acts as investment adviser to investment companies and
various individual and institutional clients with combined assets under
management of over $16 billion.
BMR manages the investments and affairs of the Portfolio subject
to the supervision of the Portfolio's Board of Trustees. BMR furnishes to
the Portfolio investment research, advice and supervision, furnishes an
investment program, and determines what securities will be purchased, held
or sold by the Portfolio and what portion, if any, of the Portfolio's
assets will be held uninvested. The Investment Advisory Agreement
requires BMR to pay the salaries and fees of all officers and Trustees of
the Portfolio who are members of the BMR organization and all personnel of
BMR performing services relating to research and investment activities.
The Portfolio is responsible for all expenses not expressly stated to be
payable by BMR under the Investment Advisory Agreement, including, without
implied limitation, (i) expenses of maintaining the Portfolio and
continuing its existence, (ii) registration of the Portfolio under the
1940 Act, (iii) commissions, fees and other expenses connected with the
acquisition, holding and disposition of securities and other investments,
(iv) auditing, accounting and legal expenses, (v) taxes and interest, (vi)
governmental fees, (vii) expenses of issue, sale and redemption of
interests in the Portfolio, (viii) expenses of registering and qualifying
the Portfolio and interests in the Portfolio under federal and state
securities laws and of preparing and printing registration statements or
other offering statements or memoranda for such purposes and for
distributing the same to investors, and fees and expenses of registering
and maintaining registrations of the Portfolio and of the Portfolio's
placement agent as broker-dealer or agent under state securities laws,
(ix) expenses of reports and notices to investors and of meetings of
investors and proxy solicitations therefor, (x) expenses of reports to
governmental officers and commissions, (xi) insurance expenses, (xii)
association membership dues, (xiii) fees, expenses and disbursements of
custodians and subcustodians for all services to the Portfolio (including
without limitation safekeeping for funds, securities and other
investments, keeping of books, accounts and records, and determination of
net asset values, book capital account balances and tax capital account
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balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, investor servicing agents and registrars for
all services to the Portfolio, (xv) expenses for servicing the accounts of
investors, (xvi) any direct charges to investors approved by the Trustees
of the Portfolio, (xvii) compensation and expenses of Trustees of the
Portfolio who are not members of the BMR organization, and (xviii) such
nonrecurring items as may arise, including expenses incurred in connection
with litigation, proceedings and claims and the obligation of the
Portfolio to indemnify its Trustees, officers and investors with respect
thereto.
For a description of the compensation that the Portfolio pays BMR
under the Investment Advisory Agreement, see "Management of the Portfolio"
in Part A. As of March 31, 1996, the Portfolio had net assets of
$14,861,526. For the fiscal year ended March 31, 1996, absent a fee
reduction, the Portfolio would have paid BMR advisory fees of $74,308
(equivalent to 0.46% of the Portfolio's average daily net assets for such
year). To enhance the net income of the Portfolio, BMR made a reduction
of its advisory fee in the amount of $53,054. For the fiscal year ended
March 31, 1995, absent a fee reduction, the Portfolio would have paid BMR
advisory fees of $80,031 (equivalent to 0.45% of the Portfolio's average
daily net assets for such year). To enhance the net income of the
Portfolio, BMR made a reduction of its advisory fee in the full amount of
such fee, and BMR was allocated expenses related to the operation of the
Portfolio in the amount of $8,932. For the period from the start of
business, April 16, 1993, to the fiscal year ended March 31, 1994, absent
a fee reduction, the Portfolio would have paid BMR advisory fees of
$34,054 (equivalent to 0.44% (annualized) of the Portfolio's average daily
net assets for such period). To enhance the net income of the Portfolio,
BMR made a reduction of its advisory fee in the full amount of such fee,
and BMR was allocated expenses related to the operation of the Portfolio
in the amount of $14,314.
The Investment Advisory Agreement with BMR remains in effect
until February 28, 1997. It may be continued indefinitely thereafter so
long as such continuance is approved at least annually (i) by the vote of
a majority of the Trustees of the Portfolio who are not interested persons
of the Portfolio or of BMR cast in person at a meeting specifically called
for the purpose of voting on such approval and (ii) by the Board of
Trustees of the Portfolio or by vote of a majority of the outstanding
voting securities of the Portfolio. The Agreement may be terminated at
any time without penalty on sixty (60) days' written notice by the Board
of Trustees of either party, or by vote of the majority of the outstanding
voting securities of the Portfolio, and the Agreement will terminate
automatically in the event of its assignment. The Agreement provides that
BMR may render services to others. 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
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other investment.
BMR is a wholly-owned subsidiary of Eaton Vance. Eaton Vance and
EV are both wholly-owned subsidiaries of EVC. BMR and Eaton Vance are
both Massachusetts business trusts, and EV is the trustee of BMR and Eaton
Vance. The Directors of EV are Landon T. Clay, H. Day Brigham, Jr., M.
Dozier Gardner, James B. Hawkes, and Benjamin A. Rowland, Jr. The
Directors of EVC consist of the same persons and John G.L. Cabot and Ralph
Z. Sorenson. Mr. Clay is chairman and Mr. Gardner is president and chief
executive officer of EVC, BMR, Eaton Vance and EV. All of the issued and
outstanding shares of Eaton Vance and EV are owned by EVC. All of the
issued and outstanding shares of BMR are owned by Eaton Vance. All shares
of the outstanding Voting Common Stock of EVC are deposited in a Voting
Trust, which expires on December 31, 1996, the Voting Trustees of which
are Messrs. Clay, Brigham, Gardner, Hawkes and Rowland. The Voting
Trustees have unrestricted voting rights for the election of Directors of
EVC. All of the outstanding voting trust receipts issued under said
Voting Trust are owned by certain of the officers of BMR and Eaton Vance
who are also officers and Directors of EVC and EV. As of June 30, 1996,
Messrs. Clay, Gardner and Hawkes each owned 24% of such voting trust
receipts, and Messrs. Rowland and Brigham owned 15% and 13%, respectively,
of such voting trust receipts. Messrs. Hawkes and Otis are officers or
Trustees of the Portfolio and are members of the EVC, BMR, Eaton Vance and
EV organizations. Messrs. Ahern, Fetter, MacIntosh, Murphy, O'Connor and
Woodbury and Ms. Sanders are officers of the Portfolio and are also
members of the BMR, Eaton Vance and EV organizations. BMR will receive
the fees paid under the Investment Advisory Agreement.
EVC owns all of the stock of Energex Energy Corporation, which is
engaged in oil and gas exploration and development. In addition, Eaton
Vance owns all of the stock of Northeast Properties, Inc., which is
engaged in real estate investment. EVC also owns 24% of the Class A
shares of Lloyd George Management (B.V.I.) Limited, a registered
investment adviser. EVC owns all of the stock of Fulcrum Management, Inc.
and MinVen Inc., which are engaged in precious metal mining venture
investment and management. EVC, BMR, Eaton Vance and EV may also enter
into other businesses.
EVC and its affiliates and their officers and employees from time
to time have transactions with various banks, including the custodian of
the Portfolio, Investors Bank & Trust Company. It is Eaton Vance's
opinion that the terms and conditions of such transactions were not and
will not be influenced by existing or potential custodial or other
relationships between the Portfolio and such banks.
Custodian. Investors Bank & Trust Company ("IBT"), 89 South
Street, Boston, Massachusetts, acts as custodian for the Portfolio. IBT
has the custody of all of the Portfolio's assets, maintains the general
ledger of the Portfolio, and computes the daily net asset value of
interests in the Portfolio. In such capacity it attends to details in
connection with the sale, exchange, substitution or transfer of, or other
dealings with, the Portfolio's investments, receives and disburses all
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funds, and performs various other ministerial duties upon receipt of
proper instructions from the Portfolio. IBT charges fees which are
competitive within the industry. A portion of the fee relates to custody,
bookkeeping and valuation services and is based upon a percentage of
Portfolio net assets and a portion of the fee relates to activity charges,
primarily the number of portfolio transactions. These fees are then
reduced by a credit for cash balances of the Portfolio at the custodian
equal to 75% of the 91-day, U.S. Treasury Bill auction rate applied to the
Portfolio's average daily collected balances for the week. Landon T.
Clay, a Director of EVC and an officer, Trustee or Director of other
entities in the Eaton Vance organization, owns approximately 13% of the
voting stock of Investors Financial Services Corp., the holding company
parent of IBT. Management believes that such ownership does not create an
affiliated person relationship between the Portfolio and IBT under the
1940 Act.
Independent Certified Public Accountants. Deloitte & Touche LLP,
125 Summer Street, Boston, Massachusetts, are the independent certified
public accountants of the Portfolio, providing audit services, tax return
preparation, and assistance and consultation with respect to the
preparation of filings with the Commission.
Item 17. Brokerage Allocation and Other Practices
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 that are advantageous to the Portfolio and at
reasonably competitive spreads or (when a disclosed commission is being
charged) at reasonably competitive commission rates. In seeking such
execution, BMR will use its best judgment in evaluating the terms of a
transaction and will give consideration to various relevant factors
including, without limitation, the size and type of the transaction, the
nature and character of the market for the security, the confidentiality,
speed and certainty of effective execution required for the transaction,
the general execution and operational capabilities of the executing firm,
the reputation, reliability, experience and financial condition of the
firm, the value and quality of the services rendered by the firm in this
and other transactions, and the reasonableness of the spread or
commission, if any. Municipal obligations purchased and sold by the
Portfolio are generally traded in the over-the-counter market on a net
basis (i.e., without commission) through broker-dealers and banks acting
for their own account rather than as brokers, or otherwise involve
transactions directly with the issuer of such obligations. Such firms
attempt to profit from such transactions by buying at the bid price and
selling at the higher asked price of the market for such obligations, and
the difference between the bid and asked prices is customarily referred to
as the spread. The Portfolio may also purchase municipal obligations from
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underwriters, the cost of which may include undisclosed fees and
concessions to the underwriters. While it is anticipated that the
Portfolio will not pay significant brokerage commissions in connection
with such portfolio security transactions, on occasion it may be necessary
or appropriate to purchase or sell a security through a broker on an
agency basis, in which case the Portfolio will incur a brokerage
commission. Although spreads or commissions on portfolio security
transactions will, in the judgment of BMR, be reasonable in relation to
the value of the services provided, spreads or commissions exceeding those
that 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 that is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if BMR determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made either on the basis of that
particular transaction or on the basis of overall responsibilities that
BMR and its affiliates have for accounts over which they exercise
investment discretion. In making any such determination, BMR will not
attempt to place a specific dollar value on the brokerage and research
services provided or to determine what portion of the commission should be
related to such services. Brokerage and research services may include
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts; effecting securities
transactions and performing functions incidental thereto (such as
clearance and settlement); and the "Research Services" referred to in the
next paragraph.
It is a common practice of the investment advisory industry and
of the advisers of investment companies, institutions and other investors
to receive research, statistical and quotation services, data, information
and other services, products and materials that assist such advisers in
the performance of their investment responsibilities ("Research Services")
from broker-dealer firms that 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's transactions and from third parties with which
these broker-dealers have arrangements. These Research Services include
such matters as general economic and market reviews, industry and company
reviews, evaluations of securities and portfolio strategies and
transactions and recommendations as to the purchase and sale of securities
and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation
equipment and services, and research oriented computer hardware, software,
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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 that 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 only a few clients' accounts, or may be useful for
the management of merely a segment of certain clients' accounts,
regardless of whether any such account or accounts paid commissions to the
broker-dealer through which such Research Service was obtained. The
advisory fee paid by the Portfolio is not reduced because BMR receives
such Research Services. BMR evaluates the nature and quality of the
various Research Services obtained through broker-dealer firms and
attempts to allocate sufficient commissions to such firms to ensure the
continued receipt of Research Services that BMR believes are useful or of
value to it in rendering investment advisory services to its clients.
Subject to the requirement that BMR shall use its best efforts to
seek and execute portfolio security transactions at advantageous prices
and at reasonably competitive spreads or commission rates, BMR is
authorized to consider as a factor in the selection of any broker-dealer
firm with whom portfolio orders may be placed the fact that such firm has
sold or is selling shares of any investment company sponsored by BMR or
Eaton Vance. This policy is not inconsistent with a rule of the National
Association of Securities Dealers, Inc. ("NASD"), which rule provides that
no firm that 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. BMR will attempt to allocate equitably portfolio security
transactions among the Portfolio and the portfolios of its other
investment accounts purchasing municipal obligations whenever decisions
are made to purchase or sell securities by the Portfolio and one or more
of such other accounts simultaneously. In making such allocations, the
main factors to be considered are the respective investment objectives of
the Portfolio and such other accounts, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash
for investment by the Portfolio and such accounts, the size of investment
commitments generally held by the Portfolio and such accounts and the
opinions of the persons responsible for recommending investments to the
Portfolio and such accounts. While this procedure could have a
detrimental effect on the price or amount of the securities available to
the Portfolio from time to time, it is the opinion of the Trustees of the
Portfolio that the benefits available from the BMR organization outweigh
any disadvantage that may arise from exposure to simultaneous
transactions. For the fiscal year ended March 31, 1996, the Portfolio
paid brokerage commissions of $1,257 on portfolio security transactions
aggregating $11,264,026 to firms which provided some research services to
BMR or its affiliates (although many of such firms may have been selected
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in any particular transaction primarily because of their execution
capabilities). For the fiscal year ended March 31, 1995, and for the
period from the start of business, April 16, 1993, to the fiscal year
ended March 31, 1994, the Portfolio paid no brokerage commissions on
portfolio transactions.
Item 18. Capital Stock and Other Securities
Under the Portfolio's Declaration of Trust, the Trustees are
authorized to issue interests in the Portfolio. Investors are entitled to
participate pro rata in distributions of taxable income, loss, gain and
credit of the Portfolio. Upon dissolution of the Portfolio, the Trustees
shall liquidate the assets of the Portfolio and apply and distribute the
proceeds thereof as follows: (a) first, to the payment of all debts and
obligations of the Portfolio to third parties including, without
limitation, the retirement of outstanding debt, including any debt owed to
holders of record of interests in the Portfolio ("Holders") or their
affiliates, and the expenses of liquidation, and to the setting up of any
reserves for contingencies which may be necessary; and (b) second, in
accordance with the Holders' positive Book Capital Account balances after
adjusting Book Capital Accounts for certain allocations provided in the
Declaration of Trust and in accordance with the requirements described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2). Notwithstanding the
foregoing, if the Trustees shall determine that an immediate sale of part
or all of the assets of the Portfolio would cause undue loss to the
Holders, the Trustees, in order to avoid such loss, may, after having
given notification to all the Holders, to the extent not then prohibited
by the law of any jurisdiction in which the Portfolio is then formed or
qualified and applicable in the circumstances, either defer liquidation of
and withhold from distribution for a reasonable time any assets of the
Portfolio except those necessary to satisfy the Portfolio's debts and
obligations or distribute the Portfolio's assets to the Holders in
liquidation. Interests in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except
as set forth below. Interests in the Portfolio may not be transferred.
Certificates representing an investor's interest in the Portfolio are
issued only upon the written request of a Holder.
Each Holder is entitled to vote in proportion to the amount of
its interest in the Portfolio. Holders do not have cumulative voting
rights. The Portfolio is not required and has no current intention to
hold annual meetings of Holders, but the Portfolio will hold meetings of
Holders when in the judgment of the Portfolio's Trustees it is necessary
or desirable to submit matters to a vote of Holders at a meeting. Any
action which may be taken by Holders may be taken without a meeting if
Holders holding more than 50% of all interests entitled to vote (or such
larger proportion thereof as shall be required by any express provision of
the Declaration of Trust of the Portfolio) consent to the action in
writing and the consents are filed with the records of meetings of
Holders.
The Portfolio's Declaration of Trust may be amended by vote of
Holders of more than 50% of all interests in the Portfolio at any meeting
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of Holders or by an instrument in writing without a meeting, executed by a
majority of the Trustees and consented to by the Holders of more than 50%
of all interests. The Trustees may also amend the Declaration of Trust
(without the vote or consent of Holders) to change the Portfolio's name or
the state or other jurisdiction whose law shall be the governing law, to
supply any omission or cure, correct or supplement any ambiguous,
defective or inconsistent provision, to conform the Declaration of Trust
to applicable federal law or regulations or to the requirements of the
Code, or to change, modify or rescind any provision, provided that such
change, modification or rescission is determined by the Trustees to be
necessary or appropriate and not to have a materially adverse effect on
the financial interests of the Holders. No amendment of the Declaration
of Trust which would change any rights with respect to any Holder's
interest in the Portfolio by reducing the amount payable thereon upon
liquidation of the Portfolio may be made, except with the vote or consent
of the Holders of two-thirds of all interests. References in the
Declaration of Trust and in Part A or this Part B to a specified
percentage of, or fraction of, interests in the Portfolio, means Holders
whose combined Book Capital Account balances represent such specified
percentage or fraction of the combined Book Capital Account balance of
all, or a specified group of, Holders.
The Portfolio may merge or consolidate with any other
corporation, association, trust or other organization or may sell or
exchange all or substantially all of its assets upon such terms and
conditions and for such consideration when and as authorized by the
Holders of (a) 67% or more of the interests in the Portfolio present or
represented at the meeting of Holders, if Holders of more than 50% of all
interests are present or represented by proxy, or (b) more than 50% of all
interests, whichever is less. The Portfolio may be terminated (i) by the
affirmative vote of Holders of not less than two-thirds of all interests
at any meeting of Holders or by an instrument in writing without a
meeting, executed by a majority of the Trustees and consented to by
Holders of not less than two-thirds of all interests, or (ii) by the
Trustees by written notice to the Holders.
In accordance with the Declaration of Trust, there normally will
be no meetings of the investors for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by investors. In such an event, the Trustees of
the Portfolio then in office will call an investors' meeting for the
election of Trustees. Except for the foregoing circumstances, and unless
removed by action of the investors in accordance with the Portfolio's
Declaration of Trust, the Trustees shall continue to hold office and may
appoint successor Trustees.
The Declaration of Trust 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
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that the Portfolio is required to provide assistance in communicating with
investors about such a meeting.
The Portfolio is organized as a trust under the laws of the State
of New York. Investors in the Portfolio will be held personally liable
for its obligations and liabilities, subject, however, to indemnification
by the Portfolio in the event that there is imposed upon an investor a
greater portion of the liabilities and obligations of the Portfolio than
its proportionate interest in the Portfolio. The Portfolio intends to
maintain fidelity and errors and omissions insurance deemed adequate by
the Trustees. Therefore, the risk of an investor incurring financial loss
on account of investor liability is limited to circumstances in which both
inadequate insurance exists and the Portfolio itself is unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, 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.
Item 19. Purchase, Redemption and Pricing of Securities
Interests in the Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the meaning
of Section 4(2) of the Securities Act of 1933. See "Purchase of Interests
in the Portfolio" and "Redemption or Decrease of Interest" in Part A.
The Portfolio's net asset value is determined by Investors Bank &
Trust Company (as custodian and agent for the Portfolio) in the manner
described in Part A. The net asset value is computed by subtracting the
liabilities of the Portfolio from the value of its total assets. Inasmuch
as the market for municipal obligations is a dealer market with no central
trading location or continuous quotation system, it is not feasible to
obtain last transaction prices for most municipal obligations held by the
Portfolio, and such obligations, including those purchased on a
when-issued basis, will normally be valued on the basis of valuations
furnished by a pricing service. The pricing service uses information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities, various relationships between
securities, and yield to maturity in determining value. Taxable
obligations for which price quotations are readily available normally will
be valued at the mean between the latest available bid and asked prices.
Open futures positions on debt securities are valued at the most recent
settlement prices unless such price does not reflect the fair value of the
contract, in which case the positions will be valued by or at the
direction of the Trustees of the Portfolio. Other assets are valued at
fair value using methods determined in good faith by or at the direction
of the Trustees.
Item 20. Tax Status
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The Portfolio has been advised by tax counsel that, provided the
Portfolio is operated at all times during its existence in accordance with
certain organizational and operational documents, the Portfolio should be
classified as a partnership under the Internal Revenue Code of 1986, as
amended (the "Code"), and it should not be a "publicly traded partnership"
within the meaning of Section 7704 of the Code. Consequently, the
Portfolio does not expect that it will be required to pay any federal
income tax, and a Holder will be required to take into account in
determining its federal income tax liability its share of the Portfolio's
income, gains, losses, deductions and tax preference items.
Under Subchapter K of the Code, a partnership is considered to be
either an aggregate of its members or a separate entity depending upon the
factual and legal context in which the question arises. Under the
aggregate approach, each partner is treated as an owner of an undivided
interest in partnership assets and operations. Under the entity approach,
the partnership is treated as a separate entity in which partners have no
direct interest in partnership assets and operations. The Portfolio has
been advised by tax counsel that, in the case of a Holder that seeks to
qualify as a regulated investment company (a "RIC"), the aggregate
approach should apply, and each such Holder should accordingly be deemed
to own a proportionate share of each of the assets of the Portfolio and to
be entitled to the gross income of the Portfolio attributable to that
share for purposes of all requirements of Sections 851(b) and 852(b)(5) of
the Code. Further, the Portfolio has been advised by tax counsel that
each Holder that seeks to qualify as a RIC should be deemed to hold its
proportionate share of the Portfolio's assets for the period the Portfolio
has held the assets or for the period the Holder has been an investor in
the Portfolio, whichever is shorter. Investors should consult their tax
advisers regarding whether the entity or the aggregate approach applies to
their investment in the Portfolio in light of their particular tax status
and any special tax rules applicable to them.
In order to enable a Holder in the Portfolio that is otherwise
eligible to qualify as a RIC, the Portfolio intends to satisfy the
requirements of Subchapter M of the Code relating to sources of income and
diversification of assets as if they were applicable to the Portfolio and
to allocate and permit withdrawals in a manner that will enable a Holder
which is a RIC to comply with those requirements. The Portfolio will
allocate at least annually to each Holder its 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 in a manner intended to comply with the Code and
applicable Treasury regulations. Tax counsel has advised the Portfolio
that the Portfolio's allocations of taxable income and loss should have
"economic effect" under applicable Treasury regulations.
To the extent the cash proceeds of any withdrawal (or, under
certain circumstances, such proceeds plus the value of any marketable
securities distributed to an investor) ("liquid proceeds") exceed a
Holder's adjusted basis of his interest in the Portfolio, the Holder will
generally realize a gain for federal income tax purposes. If, upon a
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complete withdrawal (redemption of the entire interest), the Holder's
adjusted basis of his interest exceeds the liquid proceeds of such
withdrawal, the Holder will generally realize a loss for federal income
tax purposes. The tax consequences of a withdrawal of property (instead
of or in addition to liquid proceeds) will be different and will depend on
the specific factual circumstances. A Holder's adjusted basis of an
interest in the Portfolio will generally be the aggregate prices paid
therefor (including the adjusted basis of contributed property and any
gain recognized on such contribution), increased by the amounts of the
Holder's distributive share of items of income (including interest income
exempt from federal income tax) and realized net gain of the Portfolio,
and reduced, but not below zero, by (i) the amounts of the Holder's
distributive share of items of Portfolio loss, and (ii) the amount of any
cash distributions (including distributions of interest income exempt from
federal income tax and cash distributions on withdrawals from the
Portfolio) and the basis to the Holder of any property received by such
Holder other than in liquidation, and (iii) the Holder's distributive
share of the Portfolio's nondeductible expenditures not properly
chargeable to capital account. Increases or decreases in a Holder's share
of the Portfolio's liabilities may also result in corresponding increases
or decreases in such adjusted basis. Distributions of liquid proceeds in
excess of a Holder's adjusted basis in its interest in the Portfolio
immediately prior thereto generally will result in the recognition of gain
to the Holder in the amount of such excess.
The Portfolio may acquire zero coupon or other securities issued
with original issue discount. As the holder of those securities, the
Portfolio must account for the original issue discount (even on municipal
securities) that accrues on the securities during the taxable year, even
if it receives no corresponding payment on the securities during the year.
Because each Holder that is a RIC annually must distribute substantially
all of its investment company taxable income and net tax-exempt income,
including any original issue discount, to qualify for treatment as a RIC,
any such Holder may be required in a particular year to distribute as an
"exempt-interest dividend" an amount that is greater than its pro-
portionate share of the total amount of cash the Portfolio actually
receives. Those distributions will be made from the Holder's cash assets,
if any, or from its proportionate share of the Portfolio's cash assets or
the proceeds of sales of the Portfolio's securities, if necessary. The
Portfolio may realize capital gains or losses from those sales, which
would increase or decrease the investment company taxable income and/or
net capital gain (the excess of net long-term capital gain over net short-
term capital loss) of a Holder that is a RIC. In addition, any such gains
may be realized on the disposition of securities held for less than three
months. Because of the Short-Short Limitation (defined below), any such
gains would reduce the Portfolio's ability to sell other securities, or
options or futures contracts, held for less than three months that it
might wish to sell in the ordinary course of its portfolio management.
Investments in lower rated or unrated securities may present
special tax issues for the Portfolio and hence to an investor in the
Portfolio to the extent actual or anticipated defaults may be more likely
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with respect to such securities. Tax rules are not entirely clear about
issues such as when the Portfolio may cease to accrue interest, original
issue discount, or market discount; when and to what extent deductions may
be taken for bad debts or worthless securities; how payments received on
obligations in default should be allocated between principal and income;
and whether exchanges of debt obligations in a workout context are
taxable.
In order for a Holder that is a RIC to be entitled to pay the
tax-exempt interest income the Portfolio allocates to it as
exempt-interest dividends to its shareholders, the Holder must 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 excludable from gross
income under Section 103(a) of the Code. The Portfolio intends to
concentrate its investments in such tax-exempt obligations to an extent
that will enable a RIC that invests its investable assets in the Portfolio
to satisfy this 50% requirement.
Interest on certain municipal obligations is treated as a tax
preference item for purposes of the federal alternative minimum tax.
Holders that are required to file federal income tax returns are required
to report tax-exempt interest allocated to them by the Portfolio on such
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
Portfolio may be affected.
In the course of managing its investments, the Portfolio may
realize some short-term and long-term capital gains (and/or losses) as a
result of market transactions, including sales of portfolio securities and
rights to when-issued securities and options and futures transactions.
The Portfolio may also realize taxable income from certain short-term
taxable obligations, securities loans, a portion of original issue
discount with respect to certain stripped municipal obligations or their
stripped coupons and certain realized accrued market discount. Any
allocations of such capital gains or other taxable income to Holders would
be taxable to Holders that are subject to tax. However, it is expected
that such amounts, if any, would normally be insubstantial in relation to
the tax-exempt interest earned by the Portfolio.
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 its items of income, gain or loss and hence the
allocations of such items to investors. For example, certain positions
B - 32
<PAGE>
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 periods of Portfolio securities and conversion
of short-term into long-term capital losses.
Income from transactions in options and futures contracts derived
by the Portfolio with respect to its business of investing in securities
will qualify as permissible income for its Holders that are RICs under the
requirement that at least 90% of a RIC's gross income each taxable year
consist of specified types of income. However, income from the dispo-
sition by the Portfolio of options and futures contracts held for less
than three months will be subject to the requirement applicable to those
Holders that less than 30% of a RIC's gross income each taxable year
consist of certain short-term gains ("Short-Short Limitation").
If the Portfolio satisfies certain requirements, any increase in
value of a position that is part of a "designated hedge" will be offset by
any decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining
whether the Holders that are RICs satisfy the Short-Short Limitation.
Thus, only the net gain (if any) from the designated hedge will be
included in gross income for purposes of that limitation. The Portfolio
will consider whether it should seek to qualify for this treatment for its
hedging transactions. To the extent the Portfolio does not so qualify, it
may be forced to defer the closing out of options and futures contracts
beyond the time when it otherwise would be advantageous to do so, in order
for Holders that are RICs to continue to qualify as such.
Interest on indebtedness incurred or continued by an investor to
purchase or carry an investment in the Portfolio is not deductible to the
extent it is deemed attributable to the investor's investment, through the
Portfolio, in tax-exempt obligations. Further, persons who are
"substantial users" (or persons related to "substantial users") of
facilities financed by industrial development or private activity bonds
should consult their tax advisers before investing in the Portfolio.
"Substantial user" is defined in applicable Treasury regulations to
include a "non-exempt person" who regularly uses in trade or business a
part of a facility financed from the proceeds of industrial development
bonds and would likely be interpreted to include private activity bonds
issued to finance similar facilities.
An entity that is treated as a partnership under the Code, such
as the Portfolio, is generally treated as a partnership under state and
local tax laws, but certain states may have different entity
classification criteria and may therefore reach a different conclusion.
Entities that are classified as partnerships are not treated as separate
taxable entities under most state and local tax laws, and the income of a
B - 33
<PAGE>
partnership is considered to be income of partners both in timing and in
character. The exemption of interest income for federal income tax
purposes does not necessarily result in exemption under the income or tax
laws of any state or local taxing authority. The laws of the various
states and local taxing authorities vary with respect to the taxation of
such interest income, as well as to the status of a partnership interest
under state and local tax laws, and each holder of an interest in the
Portfolio is advised to consult his own tax adviser.
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. Investors should consult
their own tax advisers with respect to special tax rules that may apply in
their particular situations, as well as the state, local or foreign tax
consequences of investing in the Portfolio.
Item 21. Underwriters
The placement agent for the Portfolio is Eaton Vance
Distributors, Inc., which receives no compensation for serving in this
capacity. Investment companies, common and commingled trust funds and
similar organizations and entities may continuously invest in the
Portfolio.
Item 22. Calculation of Performance Data
Not applicable.
Item 23. Financial Statements
The following audited financial statements of the Portfolio are
incorporated by reference into this Part B and have been so incorporated
in reliance upon the report of Deloitte and Touche LLP, independent
certified public accountants, as experts in accounting and auditing.
Portfolio of Investments as of March 31, 1996
Statement of Assets and Liabilities as of March 31, 1996
Statement of Operations for the fiscal year ended March 31, 1996
Statement of Changes in Net Assets for the fiscal years ended
March 31, 1996 and 1995
Supplementary Data for the fiscal years ended March 31, 1996 and
1995, and for the period from the start of business, April 16,
1993, to March 31, 1994
Notes to Financial Statements
Independent Auditors' Report
For purposes of the EDGAR filing of this amendment to the
Portfolio's registration statement, the Portfolio incorporates by
reference the above audited financial statements, as previously filed
electronically with the Commission (Accession Number 0000928816-96-
000147).
B - 34
<PAGE>
APPENDIX
Description of Securities Ratings+
Moody's Investors Service, Inc.
Municipal Bonds
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long term risk appear
somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
---------------
+ The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for
the securities listed. Ratings are generally given to securities at
the time of issuance. While the rating agencies may from time to time
revise such ratings, they undertake no obligation to do so, and the
a - 1
<PAGE>
ratings indicated do not necessarily represent ratings which would be
given to these securities on the date of the Portfolio's fiscal year
end.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Absence of Rating: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or
companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is
not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be
formed; if a bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Municipal Short-Term Obligations
a - 2
<PAGE>
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
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
a - 3
<PAGE>
BB: Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest
is being paid.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The D
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
p: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes
no comment on the likelihood of, or the risk of default upon failure of
such completion. The investor should exercise his own judgment with
a - 4
<PAGE>
respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Deposit Insurance Corp. and interest
is adequately collateralized. In the case of certificates of deposit, the
letter "L" indicates that the deposit, combined with other deposits being
held in the same right and capacity, will be honored for principal and
accrued pre-default interest up to the federal insurance limits within 30
days after closing of the insured institution or, in the event that the
deposit is assumed by a successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Municipal Notes
S&P note ratings reflect the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-
term debt rating. The following criteria will be used in making that
assessment:
-- Amortization schedule (the larger the final maturity relative
to other maturities the more likely it will be treated as a
note).
-- Sources of payment (the more dependent the issue is on the
market for its refinancing, the more likely it will be
treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus(+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3: Speculative capacity to pay principal and interest.
Fitch Investors Service, Inc.
Investment Grade Bond Ratings
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
a - 5
<PAGE>
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.
a - 6
<PAGE>
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 Strong 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.
a - 7
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
The financial statements called for by this Item are incorporated
by reference in Part B and listed in Item 23 hereof.
(b) Exhibits
1. (a) Declaration of Trust dated May 1, 1992 filed as
Exhibit No. 1(a) to Amendment No. 3 (filed electronically
with the Commission on July 26, 1995) (Accession No.
0000898432-95-000274) and incorporated herein by
reference.
(b) Amendment to Declaration of Trust dated February 22,
1993 filed as Exhibit No. 1(b) to Amendment No. 3 and
incorporated herein by reference.
(c) Amendment to Declaration of Trust dated December 8,
1995 filed as Exhibit No. 1(c) to Amendment No. 4 (filed
electronically with the Commission on July 25, 1996)
(Accession No. 0001003291-96-000052) and incorporated
herein by reference.
2. By-Laws of the Registrant adopted May 1, 1992 filed as
Exhibit No. 2 to Amendment No. 3 and incorporated herein
by reference.
5. Investment Advisory Agreement between the Registrant and
Boston Management and Research dated April 9, 1993 filed
as Exhibit No. 5 to Amendment No. 3 and incorporated
herein by reference.
6. Placement Agent Agreement with Eaton Vance Distributors,
Inc. dated April 9, 1993 filed as Exhibit No. 6 to
Amendment No. 3 and incorporated herein by reference.
7. 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).
8. (a) Custodian Agreement with Investors Bank & Trust
Company dated April 9, 1993 filed as Exhibit No. 8 to
Amendment No. 3 and incorporated herein by reference.
(b) Amendment to Custodian Agreement dated October 23,
C - 1
<PAGE>
1995 filed as Exhibit No. 8(b) to Amendment No. 4 and
incorporated herein by reference.
13. Investment representation letter of Eaton Vance
Management dated November 1, 1993 filed as Exhibit No. 13
to Amendment No. 3 and incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
(1) (2)
Title of Class Number of
Record Holders
as of July 1, 1996
Interests 4
Item 27. Indemnification.
Reference is hereby made to Article V of the Registrant's
Declaration of Trust, filed as Exhibit 1(a) to Amendment No. 3 and
incorporated herein by reference.
The Trustees and officers of the Registrant and the personnel of
the Registrant's investment adviser are insured under an errors and
omissions liability insurance policy. The Registrant and its officers are
also insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940.
Item 28. Business and Other Connections.
To the knowledge of the Portfolio, none of the trustees or
officers of the Portfolio's investment adviser, except as set forth on its
Form ADV as filed with the Securities and Exchange Commission, is engaged
in any other business, profession, vocation or employment of a substantial
nature, except that certain trustees and officers also hold various
positions with and engage in business for affiliates of the investment
adviser.
Item 29. Principal Underwriters.
Not applicable.
Item 30. 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, 89
South Street, Boston, MA 02111, with the exception of certain corporate
documents and portfolio trading documents which are in the possession and
custody of the Registrant's investment adviser at 24 Federal Street,
Boston, MA 02110. The 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 the Registrant's
C - 2
<PAGE>
investment adviser.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Not applicable.
C - 3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of
1940, the Registrant has duly caused this Amendment No. 5 to the
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and
Commonwealth of Massachusetts, on this 26th day of July, 1996.
CONNECTICUT LIMITED MATURITY
MUNICIPALS PORTFOLIO
By /s/Thomas J. Fetter
---------------------------
Thomas J. Fetter
President
<PAGE>
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